In today’s episode, we're headed for the first time to the Grand Canyon State. Last year in 2022, Arizona saw over 140 companies raise upwards of $1.1 billion, putting Arizona on the National Venture map as a strong emerging venture ecosystem. Here to tell us all about the Arizona venture scene is my friend David Paul, who is the CEO and founding member of DWP Capital.
Here’s a closer look at the episode:
DWP Capital Website: https://dwpcapital.com/
David LinkedIn: https://www.linkedin.com/in/davidpaulvc/
DWP Capital LinkedIn: https://www.linkedin.com/company/dwp-capital/
The Capital Stack Podcast: https://www.capitalstackpodcast.com/
This business used to be a lot easier, you know, used to be able to plant your flag somewhere say you led deals and the growth would find you. And I don't feel like that's the case anymore. I need to be less of a salesperson and more of an analyst and look at market trends and come up with like conviction around market thesis and like stuff that I'm really not smart enough to do. But you know, like I need to push myself.
This is Found in the Rockies, a podcast about the startup ecosystem in the Rocky Mountain region, featuring the founders, funders and contributors, and most importantly, the stories of what they're building. I'm Les Craig from Next Frontier Capital. And on today's show, we're headed for the first time to the Grand Canyon State. Last year in 2022, Arizona saw over 140 companies raise upwards of $1.1 billion, putting Arizona on the National Venture map as a strong emerging venture ecosystem. Here to tell us all about the Arizona venture scene is my friend David Paul, who is the CEO and founding member of DWP Capital. Welcome, David.
Thanks, man. Happy to be here.
Yeah, and I gotta say, you know, for the for our listeners who can't see us today. I mean, we, we are twinsies.
We look exactly like we're both wearing puffy jackets. Which
The same exact jacket not just puffy jackets. Yeah, same exact jacket, blue t shirt and grey pants. Exactly. How did this happen?
We're just, we're just two tech finance, bro.
We're brothers from another mother. I guess.
It’s really, it’s just disgusting is what it is.
What's the only thing more disgusting though is perhaps the funny. Do you mind if I tell the story of how I met you. Okay, so So David and I so I was at Venture Madness in Arizona a few months ago, or knows, like over, like eight months ago, maybe. And I'm at the cocktail hour, the happy hour, the first night, and the networking event, if you will. And somebody tells me I'm like, Who do I need to meet? Well, I'm in town. It's my first trip here, checking out the ecosystem. And I think it was actually a founder, probably one of your founders says, You gotta meet this guy, Chris Paul. Like, oh, okay, that didn't I filed it away. You know, I go home. And I'm like Chris Paul, venture capital, Arizona. And what do you think popped?
Chris Paul and Phoenix Suns. I did everything I could. I'm like, Oh, my gosh, I had no idea. Chris Paul invests VC. Wow. Oh, like, if he invests, he must know some of my VC friends are like maybe I can network to maybe I'll see him at the conference tomorrow. I probably spent way too much time trying to navigate that. And I'm like, Yeah, forget it. I
Was Chris Paul on LinkedIn.
He wasn't on LinkedIn. But I was I thought maybe he would be if he’s a VC or whatever. Anyway, wow. Next day, you're on a panel. And they introduce David Paul. It's David Paul.
Exactly, exactly. Amazing. Yeah, that's a great story.
But I'm glad I'm glad Chris Paul led me to David Paul. And since then we've become we've become friends. Tell me about you like who who you are where you came from. I mean, just give give us a little bit about your background.
Yeah, so moved out to Arizona back in 2015. Before that, I was in South Florida, which is the sunniest place with the shadiest people. And, you know, I was trying to be an operator. You know,
You started a company there too, right?
I started a company there. Yeah, it was, it was terrible. I'm not, you know, what do you mean, it was terrible. It got acquired. I didn't set the world on fire. Definitely. I should not be managing people at any type of scale. You know, that enduring empathy is just not in my bloodstream. However, that being said, it led me into venture capital, where I moved to Arizona, worked at an early stage fund here called Tall Wave Capital. It since then imploded, it was kind of a startup studio and they had this venture fund on the side and you know, it just didn't work out
and oh, wait, was that was that was based in was it Phoenix or Scottsdale?
Yeah, I was in Scottsdale, Scottsdale. Okay. Yep. And then from there, I got recruited by Canal Partners, which was a kind of a multifamily office that invested bigger checks, but, you know, we're more early stage growth equity. You know, got on boards kind of, you know, was in play a little tighter, right, I guess, than traditional venture. And I worked with them for about four or five years did a lot of portfolio governance stuff, we did a couple new deals. And, you know, about two years ago, I broke away and started my own firm.
Good for you. What was? What's that? Like? Like? Like? What's the feeling like when you first of all get the inclination to do it? I'm not suggesting that I, I'm wonder I'm questioning my firm because I love my firm. I know. I don't want this to come off wrong, but like, what is it? What does that feeling for like an emerging VC that wants to go out and do their own thing? Like, how did you feel and what gave you the confidence to jump?
So, you know, essentially, I looked at my partners, one of them retired, right. And, you know, basically wanted to be a limited and he funds me right now, which is fantastic that I have his support. He's one of my anchor investors. And the other one started another firm, and he wanted me to come with them and to start another firm, and I sat back and, you know, I made a decision. Despite, you know, I learned a lot from my old partner and Todd Belfer, you know, I need to now start at Brookstone, and he was a great mentor to me, but, you know, I basically saw that show, right? I was in that show, and, you know, there wasn't anything that, like I needed, right. And that might sound bad, right? You know, but like, honestly, I felt like I could source, I could, I can get the deals done, I can interact with founders. And what you know, and if I was to partner with him, he's, you know, mid 50s, and I'm, you know, pushing 40, I was always going to be the junior guy, you know, in in that and I wanted to create my own destiny. And so I decided that I wanted to break away now what I wasn't expecting, right was I took a little break, by the way too, save my marriage, but a good thing, that's a good thing. And I took a break, and I went and, you know, I came back and the deal flow went to zero, I quickly became irrelevant. The Marketplace completely changed by the way,
I was gonna say what happened, like what changed that the deal flow went to zero.
I just think that like, once you're at a play, you know, like, people just forget about you. And then when you try to start up something yourself, they don't take you seriously.
So saved your marriage ruined your career.
Whatever. Yeah, it's been, it's been an uphill battle, you know, definitely trying to get that, you know, deal flow going. I finally after two years feel like it's happening. And also, it didn't help that like a gazillion investors came into the market and 2020, 2021. So that didn't help my cause. But what I think was the core differentiator that really made it difficult, which I was not anticipating, was making the investment decision at the end of the day, because I raised money on a deal by deal basis. So I have to have a lot of conviction over each deal. And at my old firm, like the lightning rods, were all my partners and things didn't go well. Right. You know, they raised the capital. And, you know, for me, you know, I really have to think hard and I didn't expect the audit that I feel when making the investment decision.
Interesting. So yeah, so So you, that was unexpected, that was an unexpected sort of pressure that you you started to feel. How did you? How did you overcome that? Or how did you navigate that with like, the first few deals? I assume you're…
No, it's still hurts, right? It still hurts. Yeah, no, it's still very difficult. You know, I, you know, I think on this SPV structure, you have to think about risk and downside, much more than a traditional fund where you're optimizing for upside. But you know, I think it's really it, you really just have to see a lot to understand that like picking matters, you know, especially in early stage, people say, Oh, you just index early stage. I think that's completely a fallacy. I think there's no way to index early stage. Yeah. Yeah.
And what does that index actually look like at scale? Like probably not the best performing asset around? Yeah. What What about from a, from a on doing using this sort of SPV structure? super fascinating. I've heard a lot of kind of new managers adopting this and it implies different fee structures, different, you know, carry structures, it's, it's really, it's really cool to see this evolving more and more but on it, so I do want to talk about that. But before that, like I just want to understand what how does it work? Like, what's the mechanism? Is there a risk that like, you get a great deal, but then nobody wants in on the SPV? Because whatever for whatever reason, liquidity or whatnot like how does this can you take us through this, the structure and how it works?
Sure. Yeah, absolutely. Well, you know, it helps. I mean, I was really lucky in the fact that my last firm had done a ton of these SPV deals, right. And so when we were making a new investment, I often was the guy who was pitching the LPs, the LPs were brought in by the senior partners, but I was the one that was actually updating them explaining the value proposition and getting super intricate, because, you know, candidly, the junior guys do all the work always right. You know, that's not as that's not a secret. You know, and then senior guys, they bring in flow, and they bring in money, and there's, that's very valuable, too. But when it comes to the intricacies of what the company does, and how they do it, generally, you need somebody that's really in the weeds. And so I've built relationships with all of these individuals. And, you know, I write a big check myself, you know, I have an anchor that, you know, sees or, you know, doubles my stack into these deals. So that shows a lot of conviction towards people that are, you know, writing 50 to $100,000 checks, and we can close out 2 million pretty quickly. I'm in the process of fundraising right now, for a deal, we just locked up under LOI hooray. And thank you. And, you know, it's, I do wonder that I was like, I haven't raised money in 14 months. So like, what is the what is the what's the environment going to be, but I'm gonna raise it. I feel confident.
Awesome. So So and then I just realized we've been we've been spitting out some alphabet soup that maybe some of our listeners don't understand. So SPV is special purpose vehicle, it basically operates as an independent vehicle that you use to make direct investments, equity investments and companies. And then LOI, there's a letter of intent. So Is that Is that how it works? Like you issue an LOI? And then it's contingent upon your ability to fund this then contingent upon you raising is that
yeah, I mean, that founder, I don't even I've never had to, like, I tell them, I'm an independent sponsor, I tell them all of that. But, you know, the process of me fundraising for the deal, right? They don't ever see that. And that always happens really quickly. And I've got access to lines of credit and other stuff, if I feel like, if I have to fill it up, and then sell it after I close, I never want that to be an issue. So like, I've, you know, I've never had a founder ask me, but like, you know, I can escrow stuff, you know, to make them comfortable? And you can do
that. Yep. Cool. Cool. Cool. And specifically, the strategy, can you talk a little bit about DWP, kind of your, your thesis and your strategy?
Yes, so we want to be a capital provider to companies that, you know, we kind of look and smell a lot like a venture capitalist, in the fact that we take minority positions, you know, we really want the founders to, you know, lead the charge, we're not operators. But the only difference is, is we don't have the risk tolerance to have, you know, like a ton of zeros, right, because, you know, we believe that, you know, we want all of them to work, and we want all of the founders to have a nice exit, right. So we forego upside in the in the form of mitigating downside. So we kind of have like this, you know, companies that usually want to raise two to $3 million, and they've got signs of product market fit, and, you know, we our value proposition is, is we want to be their capital partner until they're able to receive a point of liquidity. So, you know, that means like, spoon feeding them a million $2 million over time, you know, and we just keep raising the valuation up. And you know, and you know, as a as a, as a gesture, we get usually a discount for that, because they don't have to spend 90 days going out fundraising, and they don't have to bring in a new character that they don't know, and they don't have a new watermark, they need to jump in, as long as we get our 40% internal rate of return, which what we talk about is what we're looking for, per deal. So that's three to 5x, in three to five years, we're satisfied, and we won't, you know, be stand in the way of receiving a liquidity.
Yeah, that's a great instrument and great for founders. You know, it's, I had a founder, expressed to me recently that he thought that in order to be a successful founder of fundraising, about 80%, of his time, needed to be spent on fundraising, like, wow, that doesn't leave much left for, for running the business, but with some of these more flexible structures, where you can take that, you know, those 90 day, you know, fundraise process, out of the routine of every 12 to 18 months, like that
And it's amazing, there really is I mean, there's there's different kinds of personas with founders, and you know, there's ones that are great at fundraising, and there's ones that are good, and they're marketable, and they can get funded, and there's ones that like fucking despise that and yeah, you know, I can imagine and, you know, they're willing to take a discount in order to get stuff done quick and you know, be able to, you know, get a partner that they really like, and that they're not gonna have to jump through a lot of hoops and, you know, we make bets pretty, you know, like, I tell people I’m quickest Yes, and the quickest No, in the book, right, so yeah, you're not gonna find a lot of resistance for me. It's usually existing investors or some other kind of bullshit thing that makes them you know, like, slow down.
The quick no, how refreshing is that to hear? I mean, right? It's like, especially now, I mean, I'm seeing it just some of the feedback we've been getting from founders in the current market conditions are like, it's the eternal slow, maybe it's that's the game these days. It's really unfortunate. What do you what are your thoughts on on that? And the current market conditions.
Well, as a VC, you're not really incented to say now, right? Like, it doesn't serve you because that company might take off? Right? So I think that that makes a ton of sense.
And then you're wrong. Oh, no! You can’t be wrong!
No, you can't be wrong. We, you know, I just don't want to have a bunch of conversations with somebody that I've got no interest in them or their business. Right. Like, like I, you know, like, I think this, I think that it used to this business used to be a lot easier, you know, used to be able to plant your flag somewhere, say you led deals, and the growth would find you and I don't feel like that's the case anymore. I need to be less of a salesperson and more of an analyst and look at market trends and come up with like, conviction around market thesis and like stuff that I'm really not smart enough to do. But you know, like, I need to push myself.
Yeah, for sure. What and I know, part of your strategy is it's about capital efficiency, kind of niche focused approach. As as that as that always been, you know, over the past two and a half years, the strategy, this capital efficiency piece,
Yeah, we've always had that kind of mindset. I've invested in a company, and, you know, they got a lot of coastal interest. And, you know, like, I'm not going to stop them. Right. I think the team is dynamite. Right? Like, you know, so they got, you know, a really great valuation and a lot of money. And I still think they have that mindset of like, we're not gonna let this fail, right. But you know, they're definitely operating at a burn that makes me want to throw up.
So, you’re open to it, if it comes after you, but prior to your really, that's Oh,
yeah, exactly. Exactly. You know, when you like, I came in, like a single digit. And then the next guy came in three months later at, like, you know, mid teens. I'm like, I don't, I don't even know, I'm just gonna put my head in the sand and good luck.
It's incredible. What, what advice are you kind of giving to founders in your portfolio right now? Speaking of put it put in your head in the sand…
You know, I mean, I feel like, you know, burn matters. You know, I think it's, I think it's kind of universal. I think everyone's saying the same thing. You know, unit economics matter. ACB matters. Pretend like you're not getting another dollar, blah, blah, what everyone else is saying on Twitter. I think, you know, you know, like, that's kind of like what I've always been saying, but, you know, it's, you know, it's in vogue now.
Yeah, that's what that's why I was wondering, because it seems like that's been a part of your strategy from the beginning. And now it's, it's what everybody's saying.
Yeah, let's queue up the Warren Buffett memes and reversion to the mean and all that stuff.
Exactly. Very cool. What was what was that switching? Switching gears a little bit. Now? What was your kind of impetus to get to Arizona? What was what was that
The job. You know, I, yeah, I sold my company. And, you know, there's not a lot of deals to be had in South Florida at the time. Right. Now, it blew up, like whoever thought Miami would be the next Tech Hub. It went from like Florida man to you know, like Keith Raboy like tweeting about how great Miami is.
What do you what are your thoughts on Miami as as the next Tech Hub? I mean, there's it seems like there's a there is a lot of buzz there. Is it? Is it a flash in the pan? Or is it do you think it's actually going to happen?
I don't know, what's gonna happen. I mean, California does a pretty good job at you know, self destructing itself. Right. So I think people are gonna get sick of hurricane season, you know, like that gets old. I mean, California, Cal Northern California is nice for a reason. Living in California does have a lot of benefits from a weather perspective, from a lifestyle perspective. But you know, they're really good at sabotaging themselves,
So Arizona, so now you're there to stay? I mean, you love it. Tell us about what's so great. You
know, I mean, Arizona is a great place to live. You know, I mean, you can, you know, buy a lot with your money. You know, the weather's perfect eight months a year. You know, we get best of both worlds. We get to go to Southern California and the summer in San Diego, northern County, San Diego. So our like quality of living is really high. Right. It's from a weather and kind of community perspective. I mean, the summers here are completely untenable. You know, like, like, I'm pretty sure people die in the summer like homeless people like it's bad.
Well, oh, yeah, dangerously bad. Well, so So what is what is the kind of the tech scene like there, then does it? Does it die in the summer as well? Or like what?
Yeah, you know, I think, I mean, generally speaking, I think Arizona like, it's, it's kind of like Southern California, there's a lot of lifestyle tech, right, which is, I work harder than, you know, the mom and pop, but I probably work less hard than somebody at a core market, like, you know, LA or New York or, you know, Atlanta, you know, I mean, no one's putting in like 10, 10, 6s. Right. You know, you know, in Arizona, I don't think you know. So, you know, I think that it's, it's coming up, right, there's definitely more capital in the ecosystem, like back when I started. Like, there was nothing happening here. You know, what I mean? And, you know, like, in 2017, the gig economy like fast, you know, like gig economy, restaurant worker, company, you know, raised, you know, 20 30 40 50 million bucks quick and like, I was shocked, right, because it was if it was anything, it was a B2B SaaS town. It wasn't a gig economy, restaurant tech town.
Yeah. And there's been, you know, Quiq’s a good example. There's been some others. Obviously, Carvana was founded in, in Phoenix, I think, right? There's been, there's definitely been some, some big wins. What do you think the future holds? In terms of, you know, the ecosystem? Will it continue to produce these, these these sorts of, or is there categories that you think…
I think it'll rise the way the economy rises and falls? Honestly, you know, what I mean, I think it kind of, I think, I don't think anything was like, particularly special in Arizona to catalyze the growth that it’s had I think that, you know, a lot of cheap money kind of like came in and, you know, you know, brought companies in and, you know, I don't think there's an accelerant, right, that basically will catapult one, one thing or another, I think it really takes a lot of time. Okay. I mean, I will say, with the exception of if a big company comes here, right, and I'm not talking like a semiconductor company, or a car battery company, which we see a lot of in Arizona, I'm talking like a sexy software company, like give me like a Palantir. Or like a Snowflake, if they planted roots here, I think with a talent spin off would be incredible. Hmm, interesting. Yeah. So I mean, I guess the hardware tech scene, you could get that too, but that's not a big, like the amount of investment dollars don't really go into those categories. So I think I think it's I think it's growing like I don't really see like a breakout unless, you know, something, and there's a couple of funds that are raised money here. So looking forward to seeing how they deploy their capital, but it's tough.
that's I wouldn't I wanted to kind of poke that a little bit. I know, there's recently what ABC, the new Arizona Venture Development Corporation is leveraging some SSPCI funding to try to catalyze more activity as well as I can't get all these AVS and z's in V. There's another one too was in Arizona…
Arizona VC and AVC. They did definitely did not coordinate their brand initiatives that are those are landed at the same time.
Those are two new basically new new funds, new vehicles. Right. So so there's there's definitely new funds getting raised. There's also what are some of the other like, Phoenix Ventures is one right?
Yeah. So there's a, you know, entrepreneur who made his bones in a software company, Greg Scorsby, but he's deployed a lot of company in SaaS companies, you know, but I mean, he's run out. Right. So, you know, he's doing a venture accelerator and trying to, you know, bubble up some early talent, which is what I see a lot happen. I think capital used to be, you know, there's a couple funds here. I think the only fun that's really stood his test of time here is Greyhawk. Oh, that's Sure. Sure. Yep. You know, and they've been around for, you know, over almost three decades. I mean, these guys have, are they on their Fourth? Fourth? Yeah, phone? Yeah. Yeah. So I mean, like, they've actually have, like, an audible track record, right. And then there's, like, you know, there's a bunch of entrepreneurs, I kind of see a lot of cycles, like, you know, entrepreneurs make their bones and they want to invest and they get bored, because, you know, investing isn't as cool as they think it is, right? Like, helping founders is like 15% of the job and the rest of its like fundraising and like looking at companies and you know, having to do a lot of repetition.
Yep. What about the what about the sense of community you know, and I was my last trip to Arizona, I went to one of the venture Cafe events I was really blown away by the turnout on a weeknight seems like a lot of great folks from the ecosystem showed up. I've heard a lot of good things about Startup AZ, you know, what, what, what other what other sort of like community stuff is going on that you've seen that's sort of successfully built, built that that community and in the
Yeah, I think they're Yeah, I think startup AZ’s super cool. I think that's different. You know, they kind of have like a peer to peer software and hardware kind of advisory kind of community with CEOs, and they put some programming around that. I think that that's super valuable to the internal, you know, community gives us kind of a place to people to, you know, do that. And they've got, like, you know, this weekend they spend up in Flagstaff, I call it founder camp, you know, where they kind of come and, you know, talk about, you know, problems thy’re having and stuff. And so, yeah, there's
Yeah, I was, I was surprised to learn, there's been, I think, almost 100 startups that have gone through those cohorts over the past.
Yeah, no, it's a real deal. And that, you know, and they all pledge, like, some piece of their company, and they pay it back, and they get donations and, and all that stuff. So that's, that's definitely something cool and unique venture cafe, I have not made my way down there yet. But, you know, I hear that that's cool. Right. You know, it's, it's funny too, like, I think, you know, and this is me, maybe being a little bit more cynical, you know, then, you know, I mean, you're like what your Will Rogers, you know what I mean? And I'm, you know, the opposite of that, right?
Trying to think of the most cynical cartoon character I know…
Like Eyeore, you know from Winnie the Pooh. I’m so sad. But like, you know, I think when you have an environment where like, the economy's just ripping, like, you get a lot of like innovation, you know, what I mean? And I, dude, like, and like, you get a lot of these programs and initiatives, and like, you know, development. I mean, there was something I think was in the information today that like, a lot of startups are pulling back their, like diversity, like equity, like grants and like initiatives that they're doing just because money's tight, you know, what I mean? It's just, it's just, it's funny, because, you know, and like, you know, like, it's just one of those things like,
oh, it's not funny, but it's
No, it's not funny. Well, no, but it's like, when people are doing great and money's flowing, like they innovate more, they take more risks, you know, that they get more philanthropic and developmental. And then when things get tight, you know, kind of goes back to the way of doing business that's not fair. And, you know, extremely difficult and more.
It's one of those challenges, like, you know, same thing that, you know, when a founder has to has to consider a RIF and it's like, I don't want to lay any of my people off, like I, like I, I love every member of my team. It's like, Yeah, but if the company isn't around in six months, you got to you got to RIF everybody. But you have to make hard decisions during times like this.
No, exactly. And it's like, if, like, what makes them think that if you know that they are, they're gonna make it when like, companies that have, like, incredible scale have laid off 14-15,000 employees, right. They're not alone. I mean, everything starts at the top and trickles down.
What about back to Arizona for one kind of last last point on the state? Because, you know, I think it's, it's definitely starting to pop on people's radars as as, as a place where there's exciting stuff happening. Where are the hubs? I mean, obviously, we've talked a lot about Phoenix and Scottsdale, is there activity elsewhere? Like, is Tucson have stuff going on? Or Tempe or like, Is there stuff near the universities? Or? Yeah, like, what’s the map?
Yeah. So like, I say, there is urban sprawl for sure. And Phoenix, and I think that's kind of one of the one of the issues in the fact that there's not like a centralized location where people can congregate, and, you know, talk. But, you know, I mean, it's all over, right. I mean, I don't hear a lot in Tucson. You know, I see, I hear a lot of like, college stuff, like, you know, grants coming out of colleges and people funding like, you know, university type, you know, innovations,
Like an app to get you home when you're drunk or something.
Exactly. But they're like a big buyout. But no, it's funny. I think their angel group is like, super active. The desert angels, but oh, yeah, yeah. Yeah. You know, it's, you know, I think Tempe there's a big move in Tempe, you know, because, you know, the university’s there and there's some, yeah, there's a younger organization called jam pad, and they're trying to shake things up on that earlier stage side, and they've got a lot of energy. But you know, at the end of the day,
ASU has a reputation of being like very, like a very entrepreneurial entrepreneur friendly university. Right. Isn't that kind of part…
I think so. I think that's what it says on the bus, like on the most innovative university. I mean, it's like you go to Baton Rouge, Louisiana, and they're gonna say their tech scenes exploding, right? I mean, it's just like, it's just, it's a function of, you know, promoting, you know, internally and like and that's great, right. That's fantastic. Right? But the best companies aren't at those events I've noticed. And they're not raising from capital inside of Arizona. They're leaving. Right. And, you know, they're voting with their feet. And I, you know, and I think that yes, there are, you know, groups of great founders that are getting funded. You know, I mean, I think Greg Scorsby, he's got a phenomenal portfolio that I think some ones are really going to do really well. But there's, you know, there's ones that you don't hear about, like that phrase, like, really smart money, and, you know, you're just like, oh, Whoa, where'd that one come from? And, you know, they're hidden somewhere. They're like, you know, verticalized. And, you know, they're, you know, are they moved, because they can find better talent in New York or San Francisco or something.
Speaking of the walking, I want to, I want to pick that apart and ask to two questions. First of all, are, you are seeing like Arizona does have a problem with the kind of brain drain that you see. And especially in places like Montana, I think, but like, you see that, like good people are going, I would, I would expect post COVID, the opposite. I would expect people from the Bay Area, they're just trying to get the heck out of San Francisco would be you know, would be moving in. But you're saying there's still people moving out? Because of what access to talent, capital and things?
Yeah. And I think, well, I've seen like, a CEO here, right, that has a company that's cool and interesting. And my stage and you know, he's probably from San Francisco. And I think that's kind of interesting. I see, I probably seen a little bit more people like saying, Okay, well, like, you know, this is this is a an Arizona valuation, I can get a California valuation. Like, for instance, there's, there's this one company in town here, and I talked to them got super interested on, you know, requested a data room, took them to a nice dinner. The guy never gave a data room, but you know, we talk and blah, blah, blah, blah, blah. And then like, and then he, like, you know, he gets, you know, he gets funded by Kraft Ventures, like David Sachs, his company, and and I was like, Yo, like, what happened? He's like, Yeah, you know, kind of, I was like, listen, dude, I'd take time to take his money, too, right? Like, you don't need to justify it to me.
know, that bottle of wine you got just wasn't quite as good as it wasn't good.
Ya know? And like, you know, I mean, they did a, they did a great valuation. And, you know, they gotta grow into it now. But I mean, it's, you know, now the guys like, yeah, I love working I love like being able to talk to a bunch of people and recruiting and getting the best people and like, there's not, there's not a place where I can walk and talk to like the best VP of product, or the best VP of sales that are at the same coffee shops. I mean, I could do that in New York. Right. So he's moving to New York.
I see. Yeah. What about and that was actually kind of you kind of already answered with an anecdote. My second question, which is like, how has, is the VC activity going the other way? Like, are you seeing coastal VCs starting to poke around? How, how is that received? Like, they come to town, and they do their try? So they're just trying to cherry pick the best? The best?
Yeah. I mean, I get I get pissed, because, you know, like, I didn't see him, right. Generally, I haven't seen them, but it's because they have some kind of connection. Right. I see. You know what I mean? Like, I don't think they were like outbound sourcing. And they found the opportunity. You know, I think like, there was some kind of connection to money elsewhere.
Yeah, I've seen I've seen that happen in Montana, to where it's like, you know, somebody, there's like a Bozeman founder that, you know, was a Harvard MBA that knew this VC,
Yeah. And they never thought to even look right, you know, in in their town. So yeah. Yeah.
But that's very serendipitous. I mean, that's like, it's not repeatable. It's sort of not that it's lucky. But it's like, yeah, it's very unique. I think when that sort of those that sort of thing happens.
you know, and I think if you're, I mean, your fund is it as a, you know, a regional fund. A regional Seed Fund, I literally had breakfast with two managers that are in a regional fund in the southeast. And I think that, that makes sense being like a state fund. I think you could run into problems. You know, I think if you're doing just Arizona, I think, but the problem is…
Like selection bias.
Well, yeah, well, it's that and it's like, okay, so you got to play. Like, there's not really a lot in the software side that's going on in New Mexico, you know, Southern California, they got their players, right, like, what's the incentive for them to share? And then Colorado and Utah right above, they've got their players as well. So it's kind of like this really weird kind of situation where, yeah, you can find stuff. This is actually like a brilliant blog post. It's kind of like prison you know, like, it's like, we're like, you know, it's like if you're you got to be regional but it's really hard to be regional because you're not an established player in the states that are in your region. Because they're well capitalized because they're well,
You know, it's interesting that you bring that up, because that is actually that's straight out of NFC’s playbook. I mean, when we started as a Montana fund…
This is, this is a, this is a totally David Paul kind of, you know, observation. Are we plugging your own are you plugging your own fund like in your podcast?
No, I’m just telling the story. You can use it in your you can use it in your, your blog post and plug us back. We started, we started as Montana only right? And then look at our neighboring states, Colorado, Utah, you know, it's like, well, there's, there's established players there, I think one of the ways to think about doing it is being additive, like figuring out where the holes there like, like, we knew we weren't gonna go into Utah, and be, you know, compete with those seed stage funds deal for deal. So, so be the seed 2, you know, provider in those ecosystems. And that's kind of that's kind of where we found a niche, but I don't know, maybe there's a similar playbook. Similar playbook for Arizona there.
Right, like you do the extension, right? Or like, you know, and like you're not leading be sure you don't have feet on the street, but you're a good kind of value added player, you know,
Or the early A right, like, like pre-empting, the A before the, you know, before the coastal firms get in and right and pick it. Yeah. Cool. What do you think? What's your what's your thoughts on kind of the future of venture in in the state? You know, kind of over the next 10 years? What do you think any predictions? Crystal Ball moments?
Yeah, I mean, within Arizona? Yeah. Yeah, I think it's gonna have, I think there's a, there's a group of companies that were, you know, I think, kind of legacy, and I wouldn't say legacy, they're kind of like, maybe the SaaS 2.0 products, right. So, like the train, you will like the virtual, like, there's some, like really great horizontal and vertical SaaS companies that I think have gotten to that 10 to 15 million, and they're going to have, you know, nice exits. And I think that that's going to be great for the community. You know, Full Bay was one of Revolution Parts was one of them, there was like a really great cohort of companies. And then I feel like a tide and the tide kind of comes out. And then it's kind of like slim pickins for a little bit, and then tide is gonna come back in. Right. So, you know, I think that, um, you know, there's some early, there's some earlier stuff bubbling up, but I think we're gonna get like a really nice, kind of like, harvesting couple years, you know, in the next, you know, probably three to five years, especially when, like, acquisition time happens, which is coming.
Are there any major themes or industries that you think are like, special to watch in Arizona?
In Arizona, I think auto tech is something that always did well here, just based on Carvana. And there's some other ones that, you know, Driveably got acquired, there's one that called Run Buggy, that that's doing pretty good. That's a very, like, elastic market, though. So you'd like you know, wonder kind of like how that's going to fare with like, you know, higher interest rates in the economy. So, you know, I think that that is kind of interesting. There was a company here called Move, which was a marketplace for semiconductors, which I thought was super interesting. They were one of the ones that got funded away, you know, so they exploded, but like, there's not that many semiconductor, like, that's a very consolidated industry, right. So it's like, I don't know how many like at bats you have there. You know, a company that I think is super cool that we both talked about missing, it was Sin Saber. Remember that we're like, we're both talking about our software tools and how awesome they are. And they're like, Yeah, we both missed this. This company, but you know, this verticalized cybersecurity company, you know, within utilities. I think that's super neat.
Yeah. Cool. What about any, anything you want to share in terms of, you know, announcements, anything exciting about you, or DWP in the coming year?
Do I have any announcements, I don't think I have anything. And hopefully I'll have a deal to share, you know, in January, February when we close, so don't want to give away the special sauce there. We're hunting. Right. So we're looking for companies, you know, in and outside of Arizona. You know, we really like verticalized, SaaS companies and tech enabled service companies. You know, we're looking at a couple of different themes. We're looking at, you know, verticalized data companies, verticalized cybersecurity companies, you know, healthcare service companies around value based care, you know, things that can bring some pretty demonstrable ROI to industries that are pretty inelastic. So think, you know, companies that aren't going to be like rocked hard by interest rates.
Yeah. Well, that's a good call out so for founders that are listening maybe hopefully this will drive some inbound in the the early part of the new year when this episode airs. We'll hopefully we'll have some founders to send your way.
I only have two more hours left by the way for this podcast. I only blocked out two and a half hours.
Two more hours. Good. That's that's a yeah, that's about what I have to so we’ll being part two.
it's like a Lex Friedman podcast for it's like a three hour podcast.
So, so the last question I actually have is in a, you know, to I always kind of like to take it back personal or do something fun. What if you weren't a VC what do you think you what what would you do? What would you do with your time? Either career wise or hobby wise, money wasn't an issue..
Money wasn't an issue I'd go back becoming a scuba diving instructor. Oh, I did that for Yeah, I did that for a long time. That was an easy life.
I think you're the first scuba certified VC I've, I've, I've had on the podcast,
Dude, scuba instructor I taught people how to dive. So I mean, there's just something really relaxing about just kind of like taking people out, you know, showing them some stuff, you know, getting a $20 tip and your, you know, plastic jar, that's kind of like bungee cord to the side of your boat.
Like, well, it also fascinates me. I mean, that's the kind of job where like, people are putting their lives in into your hands. I mean, as an instructor, right? I mean, yeah, I think it's gonna happen under the water at depth. That's true. That's true. That's amazing that you quickly develop that sort of rapport and trust must, must, must be part of the reason why you're a good VC, right?
Yeah, maybe? Maybe. Sure.
Awesome. Well, David, I just want to say as as a friend, and as somebody who I've really enjoyed getting to know, I want to thank you for being on Found in the Rockies and for sharing with us a little bit about you in Arizona, and lots of exciting stuff ahead for that ecosystem. To conclude, why don't you just tell us where listeners can find you and more about DWP online.
I'm pretty active on LinkedIn. You can find me at David Paul VC. I've got a sub stack called ramblings, I've got a podcast called capital stack. None of this content is I would call quality. Right? It's kind of me just mouthing off on a on a podcast and or typing something. They put they say it's important, so you know, whatever. You'd like it. I hope. I hope you like it. Yeah, I do like it. I do like it. It's a great way to learn.
Well, David, as always fun.
Are we gonna do Chris Paul joke?
No we're not going to do Chris Paul joke. I beat that horse dead.
Awesome. Thank you so much Les. Oh, it's a pleasure. You're awesome.
Thanks, man. All right. Bye. See you soon. Bye. Thank you for listening to this week's episode of Found in the Rockies. You can find links in the show notes or go to nextfrontiercapital.com to get transcripts, links, and contact information for today's guests. If you like what you heard and want more, please don't forget to rate review and subscribe to get notified as our new episodes drop every two weeks. We'll see you next time.