Craig Nolan: Trust Your Own Convictions

[00:00:00] Hello and welcome to My Biggest Lesson, the show that brings you the key learnings from

[00:00:06] the most influential founders, executives and investors in the Colorado Tech community.

[00:00:10] My name is Adam Burroughs and I'm Chris Erickson.

[00:00:14] Together we are the co-founders of Range Ventures, an early stage venture firm based

[00:00:18] in Denver.

[00:00:20] You can find out more about what we're up to at range.vc.

[00:00:26] Our guest this week is Craig Nolan.

[00:00:28] Craig is a partner at Acadian, which is a leading firm for venture secondaries.

[00:00:32] The fund was founded in 2010 and now has over 750 million of assets under management and

[00:00:38] is a co-producer of the Raze Conference, which is the premier launchpad for emerging

[00:00:42] VCs.

[00:00:43] Craig, thanks so much for joining us today.

[00:01:05] Craig Nolan, Co-Producer, Range Ventures

[00:01:06] Excited to be here.

[00:01:07] Thanks for having me.

[00:01:08] Craig Nolan, Co-Producer

[00:01:09] Tell us a little bit about your background and then Acadian Ventures.

[00:01:11] Craig Nolan, Co-Producer

[00:01:12] Yeah sure.

[00:01:13] So Colorado Native went to Denver University for undergrad and business school and

[00:01:18] after business school I ended up at a local valuation firm called Arcstone Partners,

[00:01:23] which is founded by Bo Brusker.

[00:01:25] Do you know Bo?

[00:01:26] Craig Nolan, Co-Producer, Range Ventures

[00:01:27] You know what?

[00:01:28] I've met him before but it's not been a while.

[00:01:29] Craig Nolan, Co-Producer

[00:01:30] Yeah, he's a great entrepreneur here in Denver.

[00:01:32] I think he would be like a great guest for this.

[00:01:35] Anyway, he started this firm Arcstone Partners, which focused on valuation,

[00:01:40] which for me mostly meant pricing the stock options for venture backed companies,

[00:01:46] for nine days.

[00:01:47] It was there for a few years and when you're there doing those kinds of analyses,

[00:01:52] you get really good at modeling out the capital structures for venture backed businesses.

[00:01:57] And so this was, I joined in 2009 and then in 2010, 2011, the direct secondary market

[00:02:06] for shares and venture backed companies kind of exploded.

[00:02:10] And it was because Facebook and Twitter were pre-IPO around then.

[00:02:14] And so secondary being trading shares between other shareholders rather than a primary growth

[00:02:21] equity round.

[00:02:22] And so that market was around before 2010, but it was pretty small and relatively unknown

[00:02:28] and Facebook and Twitter kind of put it on the map.

[00:02:30] And trading in these assets really exploded and it was chaos.

[00:02:36] People were unscrupulous, people were selling shares more than once.

[00:02:39] These companies had no control over their cap tables and it was kind of nuts.

[00:02:44] And in the midst of that, a couple entrepreneurial guys set up shop in facilitating exchanges for

[00:02:50] this.

[00:02:51] So around then it was second market and shares post where it was kind of a centralized place

[00:02:56] for buyers and sellers to come together and trade these assets.

[00:03:00] And we had the idea at Arcstone to help them out with maybe what would look like

[00:03:04] an equity research product but for the private equity markets using the skill set that

[00:03:10] we developed at doing valuations.

[00:03:13] We tried a few iterations with all of them.

[00:03:16] It was shares post, with second market and had some kind of trials with a few

[00:03:21] issuances and it just never quite got off the ground.

[00:03:24] There were problems with information sharing and business model issues.

[00:03:29] And it was a great idea that kind of ultimately failed.

[00:03:33] But through that effort, I got to know a bunch of players in the secondary world

[00:03:39] and that is including Acadian.

[00:03:41] I met Ben Black, who was the founder.

[00:03:44] And at the same time, many of our Arcstone clients were Bay Area clients

[00:03:49] and I had sort of a personal interest in living in the Bay Area.

[00:03:52] So I asked Bo, can I head out to San Francisco and do my job from there?

[00:03:57] He was like, absolutely.

[00:03:59] Ben Black offered a seat in their office in Soma in San Francisco at the time.

[00:04:04] So I worked for Arcstone in the Acadian office for a year or two.

[00:04:10] And then when the equity research thing didn't quite land,

[00:04:14] I decided to move on and Ben said, why don't you just stay here

[00:04:19] and start working for us?

[00:04:21] And so that was 2013.

[00:04:24] And so now I've been with Acadian for over 10 years.

[00:04:28] Wow. And how much of what you do today is still secondaries?

[00:04:32] It's still primarily what we do.

[00:04:34] So roughly 80, 20, so 80 percent of dollars out the door are secondary and 20 percent

[00:04:41] are primary slash kind of special situations.

[00:04:46] And so Acadian is now we're investing out of our sixth fund,

[00:04:49] which is 275 million pursuing that strategy,

[00:04:53] that over 750 million under management.

[00:04:55] You know, Acadian in that period going back to 2010,

[00:04:58] Ben had saw the chaos that was going on and he set out to do it in a better way.

[00:05:05] Like we can do secondaries in a professional,

[00:05:07] discrete manner working with companies, management teams

[00:05:11] and earn good returns while we're at it.

[00:05:13] So he and his co-founder Pete Smith had some really great successes

[00:05:18] before I joined in companies like Splunk and DocuSign.

[00:05:23] And then I joined in 2013 and have helped build the firm from there.

[00:05:28] And operate on the investment team.

[00:05:30] So mainly focus on deploying into interesting venture-backed businesses,

[00:05:36] broadly within tech, but with a focus on kind of B2B software.

[00:05:39] Yeah, what's a target kind of archetypical deal look like for Acadian

[00:05:44] right stage or who's selling it?

[00:05:45] How does that work?

[00:05:46] Yeah, so a good question.

[00:05:48] So growth stage is where we operate.

[00:05:52] But we we are very flexible in how we build exposure to these companies.

[00:05:58] And so with the guideline being that we like to build exposure over time.

[00:06:02] So what might that look like?

[00:06:04] It could be, you know, participating, you know,

[00:06:08] something to the tune of like five to 10 million in maybe a series B or a series C.

[00:06:14] A couple quarters later help the founders out with some secondary

[00:06:18] to the tune of another five to 10, maybe more.

[00:06:22] And then maybe a couple quarters later, do kind of a broad company wide tender.

[00:06:26] So maybe add lean into the tune of like maybe 10 or 20 million facilitating

[00:06:31] option exercise or liquidity for directors, VPs, executives, anyone who needs it.

[00:06:38] Working with management all the time, of course.

[00:06:40] And then potentially maybe later on buy from another institution,

[00:06:44] which could be one check but a lot of dollars.

[00:06:49] And so the idea is you get to watch the company perform over time

[00:06:53] and purchase that and be able to purchase at times when traditional VCs maybe can't

[00:06:58] at pricing that they can't.

[00:07:00] And so you can move the dials on how much exposure you gain

[00:07:04] and when and at what price. Does that make sense?

[00:07:07] Absolutely. And you've seen a bunch of cycles now, right?

[00:07:09] In 13 years already, we've seen a bunch of cycles in the last three years.

[00:07:11] It's a lot of them consolidated into a short period.

[00:07:15] So what I know it's super hard to generalize and depend on the companies.

[00:07:18] But I'm curious, what's the range of either discounts or premiums

[00:07:22] that you've seen in your time doing this?

[00:07:24] And is there kind of an average either overall or today?

[00:07:28] Yeah. Just like you said, in the last three years, we've seen the whole range.

[00:07:33] I think we've bought at anything from, I want to say 70% off

[00:07:38] the last round to last round.

[00:07:41] You know, and it's for us, it just does it underwrite to our required return.

[00:07:45] And where it sits today.

[00:07:47] And there's some great data providers for this.

[00:07:50] You know, Forge has a great quarterly update and the median is still,

[00:07:54] I think close to 50% off the last round.

[00:07:56] You know, I think for some of these companies, you know, they just haven't

[00:07:59] raised yet again since 2021.

[00:08:03] You know, to get to get a deal done, you sellers have to accept 50% off.

[00:08:06] And that's the median, you know, and they show you kind of 75th percentile,

[00:08:09] 25th percentile.

[00:08:10] I think, you know, for the upper percentiles, it's getting back

[00:08:13] to like close to last round.

[00:08:15] Yeah, that's that's kind of what the marketplace looks like right now.

[00:08:18] Super interesting.

[00:08:19] What have you seen happen over the last year just to double click on that?

[00:08:23] Last year or two, I guess, since this last correction, any new trends

[00:08:26] you've observed in the secondary market, just kind of more the same,

[00:08:30] you know, just with slightly different valuations.

[00:08:33] Yeah, I think activity is picking up and I'm not yet.

[00:08:39] I think maybe it's just barely showing signs that that means pricing

[00:08:42] is picking up.

[00:08:43] Maybe I think it's that's unclear, but I'm hearing

[00:08:47] from the intermediaries that we work with, there was a group

[00:08:50] that told us that we were the only buy side client they had in all of 2023.

[00:08:54] But now just, you know, a little over one quarter in this year is looking different.

[00:08:58] Like there's more, there's just more bidders out there.

[00:09:02] Bid ask whether narrowing and activities picking up.

[00:09:06] But I haven't I'm not sure that I've yet seen that show up in pricing.

[00:09:11] But maybe that's not too far off.

[00:09:13] I think it's a lot like the real estate market, right?

[00:09:15] Where people have an emotional attachment to a number they may have seen on Zillow

[00:09:19] in 2021 or a number they saw at their last round.

[00:09:22] And it's really hard to emotionally let that go, even though you know

[00:09:26] it's not accurate anymore and you don't really actually sell until you have to.

[00:09:30] That is exactly right.

[00:09:32] You know, I think it just takes time for that to sink in.

[00:09:36] I think early 2022 we had trouble getting deals done.

[00:09:39] And I think we we certainly went in and maybe kind of slightly burned

[00:09:44] the bridge with some executive teams where we said, Hey, look, 2021 was 2021.

[00:09:50] Here's where we are.

[00:09:51] We showed them the math and we said like, Hey, look, we're we're underwriting

[00:09:55] to a growth stage required return.

[00:09:58] And for us to get that, we got to buy here.

[00:10:01] And you know, for some of them that was like 65% off for a company

[00:10:04] that was great, lots of runway growing over 70% annually.

[00:10:09] You know, they didn't they didn't love hearing that.

[00:10:12] But I think we would say the same thing, maybe second half of 2022,

[00:10:16] early 2023, and it just the receptivity was there.

[00:10:20] You know,

[00:10:22] makes a lot of sense.

[00:10:23] So you're doing deals all over the country, maybe even globally as well.

[00:10:27] Yeah.

[00:10:27] North America, Europe and Israel.

[00:10:31] OK, cool.

[00:10:32] And but you live here in Denver, which is great.

[00:10:34] We love to we love to see that.

[00:10:35] Right.

[00:10:36] What do you think of your experience in seeing the ecosystem here

[00:10:40] versus the ecosystems elsewhere all over the world?

[00:10:43] You know, it's been great to see it grow so much.

[00:10:47] Yeah, I think back when I worked at Arcstone, you know, sort of called

[00:10:52] like toward 2009, 2010, I would go to venture conferences here in Denver.

[00:10:58] And and it was relatively kind of sleepy, you know, and moved away

[00:11:04] to San Francisco, came back in 2020, like so many people.

[00:11:08] And so went to the exact same conference and it was thriving.

[00:11:12] And, you know, it's it's absolutely like a valuable thing to go to.

[00:11:16] I would tell it be something I'd recommend my Bay Area colleagues.

[00:11:19] Like they ought to be here.

[00:11:21] I've root for that in Colorado, so I'm really happy to see it.

[00:11:25] Awesome. Glad glad to hear that.

[00:11:26] Is there a company here in particular that you're excited about right now?

[00:11:30] Well, very timely.

[00:11:31] It's, you know, I bought it.

[00:11:33] It's it's so cool to see them going out and and successfully.

[00:11:38] Executing, you know, in the public markets.

[00:11:41] And so I remember hearing about them early 2010s and and just being thrilled,

[00:11:46] even excited for them then and to see that they've that they made it happen

[00:11:50] in this market right now.

[00:11:52] Yeah, absolutely.

[00:11:52] So I mean, we're recording this in the day they they successfully went public.

[00:11:55] And I think the mark cap of the company is maybe north of three billion

[00:11:58] as we speak today.

[00:11:59] Hopefully that that holds up and continue to grow for Denver.

[00:12:02] But regardless, it's a huge win for the ecosystem.

[00:12:05] Read that, you know, well over 100 millionaires created.

[00:12:07] And this is exactly the type of stuff that we need to get that that

[00:12:11] wheel continuing to spin.

[00:12:12] Yeah, exactly.

[00:12:13] You know, speaking to your colleagues, you know, they told me like there's

[00:12:17] there's so much Colorado is like a coiled spring with all the

[00:12:22] the entrepreneurial activity that it should kind of happen as a result

[00:12:26] of companies like I bought and others in that generation succeeding and exiting.

[00:12:33] And so I'm just I'm really excited to see it.

[00:12:35] And I think you guys are really well positioned for it.

[00:12:38] Absolutely. We appreciate that.

[00:12:40] Well, let's jump into the main topic, which is the biggest lesson.

[00:12:43] Love to hear Craig.

[00:12:44] You've seen a million companies now from all sides, right?

[00:12:47] I'm sure you've had had some some ups and downs in the investments

[00:12:51] you guys have made, something all that up.

[00:12:52] What's the biggest lesson that you've learned?

[00:12:55] You know, for me, the biggest thing was honestly just learning

[00:12:59] to hold conviction of my own.

[00:13:01] And so, you know, that sounds pretty standard.

[00:13:05] But I came into VC in a pretty non-traditional path.

[00:13:08] Like valuation is it's kind of a service provider business.

[00:13:12] I would almost liken it to sort of like kind of accounting.

[00:13:15] You know, you come into VC and everyone has the pedigree like they went

[00:13:19] to Stanford and maybe did the investment banking route

[00:13:23] were at Goldman Sachs and went through that grinder.

[00:13:26] And, you know, I kind of came in a different way.

[00:13:28] And I had, I frankly came in with a little bit of imposter syndrome.

[00:13:32] Right? Like who am I?

[00:13:34] Like how can I have a different view than, you know, brand name firm

[00:13:38] who made this investment?

[00:13:40] There's many stories here that unfortunately I had to like go through

[00:13:43] to sort of learn this lesson over time.

[00:13:45] You know, it manifested in getting talked out of deals

[00:13:49] that we should have done, you know, like we our diligence involves

[00:13:53] talking to a lot of experts.

[00:13:54] And sometimes you get someone on the phone

[00:13:56] who for whom you have a ton of respect and you know to be more successful

[00:14:00] than you and they with great conviction, you know, trashed this company

[00:14:06] that we were looking at, you know, it didn't mince words.

[00:14:10] And we otherwise had kind of a pretty positive view on it.

[00:14:13] But that that swayed us and we put a little too much weight on it

[00:14:16] and passed on the investment, which would have been

[00:14:20] which would have been a triple for us in less than nine months.

[00:14:23] And that would have been it would have been like the first investment

[00:14:25] out of our, I think, 2017 vintage.

[00:14:28] You know, and that's that's just a bummer, right?

[00:14:30] Like we had it.

[00:14:32] We were in full position for this.

[00:14:34] And then it happens on deals that you end up doing, you know,

[00:14:38] you've got unfortunately, you know, in past ventures,

[00:14:40] a few examples where so-and-so partner at one of the giants,

[00:14:45] you know, the name that we all know has been around for decades.

[00:14:48] You know, they're on fund 18 and they're multi-billion.

[00:14:52] And this guy says, this is the company we are most excited about.

[00:14:56] And so, you know, that we put a ton of weight on that.

[00:15:00] And, you know, that that company went to zero, zero, which,

[00:15:05] you know, humble little Craig back then was like, I can't believe it.

[00:15:09] You know, like I with a little more work,

[00:15:12] I could have gotten to a different view there, but I let this guy

[00:15:15] sort of taught me into it, which, you know, like these are smart people.

[00:15:20] They know what they're doing and this business humbles you,

[00:15:24] you know, all the time and even the best of the best has this happened to them.

[00:15:27] So that's saying like they're wrong or stupid, but you got to

[00:15:32] you got to do your own work and form your own convictions.

[00:15:35] And that's been that's been the difference for me moving from kind

[00:15:39] of like a junior analyst into like a contributing

[00:15:42] to the investment decision making of the firm.

[00:15:44] This is such a good lesson.

[00:15:46] I absolutely love it.

[00:15:47] And it's one that we having started our own fund over four years ago,

[00:15:51] talk about all the time.

[00:15:53] Right. We've learned this hard lesson ourselves already with some anecdotes.

[00:15:57] I have a lot to double click on here.

[00:15:58] This is great.

[00:15:59] The first one where you talk about that example

[00:16:01] where you were doing diligence, you talked to an expert and the expert

[00:16:05] really crapped all over the deal, right?

[00:16:06] And convinced you not to do it.

[00:16:09] How do you balance that with what's the point of diligence

[00:16:11] in the first place if you're not going to listen to the experts?

[00:16:14] What's the point of calling the experts if you're not going to listen to them?

[00:16:16] But yet, yeah, it's everybody's not always right.

[00:16:18] The experts are always right.

[00:16:19] How do you strike that right balance and how do you know who to listen to

[00:16:22] and how much weight to put on?

[00:16:23] Yeah, that's a great question.

[00:16:25] You know, after doing this for a while, I've now done a lot of these

[00:16:28] channel check due diligence calls.

[00:16:30] And it's you have to do many of them to form a holistic view.

[00:16:35] And it's a little bit of it's kind of an EQ thing.

[00:16:39] You kind of have to be in the conversation and read it a little bit.

[00:16:42] Like what's there's at this point,

[00:16:44] I kind of feel like there's sort of tones of voice that I can pick up

[00:16:48] that tell me like I think that was sort of flippant.

[00:16:51] I'm not sure that was great insight.

[00:16:55] I think he just said that off the cuff or, you know,

[00:16:58] I think I think this guy might have a chip on his shoulder.

[00:17:00] Like people talk about something, even if they don't say so,

[00:17:03] like this person has it out for this company for some reason.

[00:17:06] And there's I think there's maybe a personal angle here

[00:17:09] that that he's not explicitly talking about.

[00:17:11] But there's a lack of objectivity coming through in the language

[00:17:13] that he's using to tell me about this company.

[00:17:16] After a while, you pick up patterns like that

[00:17:19] and you really have to pay attention and learn the lessons.

[00:17:22] You know, something that we have noticed too is a lot of times

[00:17:26] when you're calling experts is OK, is there do they have another

[00:17:29] not explicit made me but but a little bit of an implicit agenda?

[00:17:33] Right. Because they don't really want to see this thing

[00:17:35] succeed in the industry for some reason.

[00:17:37] Right. Or, you know, they had championed something

[00:17:40] before their own company that didn't work.

[00:17:42] And they really don't want to advocate for something else.

[00:17:45] I mean, there's those type of dynamics that we run into all the time.

[00:17:48] The flip side where you talk about the poor investment

[00:17:50] you all had made following another well respected VC.

[00:17:54] I wonder how you think about that too, because it's interesting

[00:17:56] on one hand, absolutely even the best VCs

[00:18:00] have companies go to zero all the time.

[00:18:02] Right. And a shoeing group think is really one of the hallmarks

[00:18:06] of this business, right, being contrarian and being right.

[00:18:08] On the flip side, it is important for your companies

[00:18:12] to be able to attract follow on capital, to be able to attract talent,

[00:18:15] having a name partner, name firm does help and maybe gives them

[00:18:18] a little bit of an advantage.

[00:18:20] How do you think about that balance?

[00:18:21] Yeah, I mean, it does for for many of those companies.

[00:18:26] I mean, from the standpoint of the founder, you know,

[00:18:29] like it's there's there's value in it for sure.

[00:18:32] From the standpoint of someone like us, like, do we

[00:18:36] do we follow them?

[00:18:37] Do we listen to their praise about the company?

[00:18:40] You know, a couple of things.

[00:18:42] There's a lot of reasons why you can maybe discount what they're telling you.

[00:18:46] I think for like a prominent VC partner, sort of what the most frequent stuff is

[00:18:51] these guys, like they are practiced at being champions for their founders.

[00:18:56] And so, you know, that there you probably kind of have to discount it,

[00:19:02] you know, no matter what, like they're going to love their baby

[00:19:05] and they're going to tell you how great they are.

[00:19:07] You know?

[00:19:08] And so, you know, in those conversations, sometimes you can parse through like,

[00:19:12] OK, well, there was a lot of praise, but you know, how much

[00:19:16] how much substance was in there?

[00:19:17] Like, sometimes they'll provide some examples where you're like, OK,

[00:19:20] well, that's really compelling, you know, like that's this is a hard

[00:19:23] number or just a hard kind of case study that shows this company

[00:19:27] is is going to be a winner.

[00:19:29] And if it's sometimes they're just kind of like a lot of fluff,

[00:19:31] like surely they love it.

[00:19:33] And because it's this name saying they love it, that's very compelling.

[00:19:36] But there actually wasn't, you know,

[00:19:39] it is something to anchor to in there that that should that gives them more credibility.

[00:19:45] Does that make sense?

[00:19:46] Absolutely. I mean, everybody's going to talk their book, right?

[00:19:49] And the key is figuring out how do you still gather useful information?

[00:19:52] I mean, that's certainly something that we've been trying to suss out as well.

[00:19:56] Because I do think it's important to talk to the VC, even though,

[00:19:59] you know, when you call them, they're going to be advocating hard.

[00:20:02] I think for us, what we found, Craig,

[00:20:05] and I don't know if this resonates with your experience, by then we've usually

[00:20:07] formed somewhat of a perspective of where we think the strengths of this

[00:20:09] business are or where the weaknesses and the risks potentially are.

[00:20:12] And just hearing somebody who's been closer to it opine on

[00:20:15] are the things that they're praising the same strengths that we have seen so far

[00:20:19] or are they something different?

[00:20:20] Right. And our the weaknesses or risks that they'll tell us

[00:20:23] because we'll ask that question and they'll give some sort of an answer.

[00:20:26] Right. Are they something that we hadn't identified yet

[00:20:28] or are we all, you know, thinking along the same lines?

[00:20:31] Like that's been useful to us so far.

[00:20:33] Yeah, that's really well put.

[00:20:35] Like as you go through the process, you start to see common themes or threads

[00:20:40] and different people will talk about it in different ways,

[00:20:43] but it'll it'll reinforce other data points.

[00:20:46] And, you know, when that starts to kind of build a consensus around

[00:20:50] a theme or a principle or kind of a characteristic of the company

[00:20:55] that you're looking at, that's that's a good sign.

[00:20:59] It's no different really than a candidate reference, right?

[00:21:01] For an interview.

[00:21:02] Yeah.

[00:21:02] And when you call up a reference and you want to make sure that

[00:21:06] sounds like they're talking about the same person.

[00:21:08] Right.

[00:21:09] Yeah. We've all had that experience.

[00:21:11] It's, you know, exactly.

[00:21:12] We've all had an experience where you do a reference call

[00:21:14] and you're like, wait, is this we're talking about the same person?

[00:21:17] OK, something's not feeling right here.

[00:21:18] Yeah. Well, Craig, this is awesome.

[00:21:20] I think it's super interesting, the lens that you all get

[00:21:22] to be the world from at at Acadian and super happy

[00:21:26] that you're doing it from here in Denver.

[00:21:28] Where can people follow along with what you and Acadian are up to

[00:21:32] and get in touch with you if they've got a relevant opportunity?

[00:21:34] Yeah. Feel free to just reach out to me over email.

[00:21:37] And this is Craig at Acadian dot B.C.

[00:21:39] Website is a Cadian dot B.C.

[00:21:42] You know, we also do we also do a conference called

[00:21:44] Rays Global, which is actually kind of like a YC for emerging

[00:21:48] venture capital firms.

[00:21:49] So that's RaysGlobal.co and on Twitter slash exits

[00:21:55] at Rays Conference.

[00:21:56] And so yeah, feel free to reach out or just hit me up on LinkedIn.

[00:22:01] Thanks, Craig. Appreciate the time. Yeah, this is fun.