The following interview is a conversation we had with Adam Nelson, Managing Director, FirstMark Capital, on our podcast Category Visionaries. You can view the full episode here: Funding the Future: Adam Nelson, Managing Director at FirstMark Capital

 

Adam Nelson
Thanks for having me on. Excited to be here. 

 

Brett
Not a problem. And I’m super excited for our conversation. So you’ve had an amazing career. You’ve worked at some incredible organizations, but there’s two that I want to ask you about and dive a bit deeper into. So first, let’s talk about your time at Dropbox. I see you were the head of channel partnerships there, and then you were the head of revenue partnerships. And this is all the way back in 2012. Take us back to Dropbox 2012. What was going on there, and what was that experience like?

 

Adam Nelson
I think it was a pretty incredible opportunity. I think looking back in 2012, there was so much promise for Dropbox, and I think in some ways the way the world worked out probably meant that we didn’t live up to the ultimate promise. But at the time, I think the view was that Dropbox was going to be almost the file system of the Internet, and ultimately files didn’t become a core building block of the Internet because of photos, consumer apps, et cetera. But I think at the time, there was this excitement around the company, and I think being a part of just kind of like a plus talent network and bringing the best from the technical side of the house as well as the business side of the house was a pretty incredible experience. 

Adam Nelson
And I look at that network of folks, whether you think about technologists or whether you think about really the go to market side, I think we’re so early on the kind of freemium prosumer to then B2B enterprise motion that the mafia coming out of that business, and you’re talking about folks who are running teams at Figma Notion at kind of all the big companies that practice at loom. And so I look at that as kind of the most important thing that I got out of the Dropbox experience was really being around incredible people, and that was my first opportunity to be on the operating side of the house. Prior to that, I had really been an investor and learned a ton and really exciting and also a function of joining a company like that. 

Adam Nelson
When it’s that early, I got to build a business from scratch and got the opportunity to go through the ups and downs. Had my first real failure as an operator. When things arent straight and linear like they are when youre going into investment banking and private equity in the early days and then ultimately some successes. And so it was a really incredible experience across the board. 

Brett
Trey, lets talk about where you moved to next. So you went to the venture side and you joined social capital. What was that like? Everyone listening in listens to all in. Everyone listening in. Yeah. Probably has strong opinions either for her against chamath. So we won’t make it personal there to ask too many details about your moth. But social capital, what was that entire experience like for you? What’d you learn? 

Adam Nelson
Yeah. You mean it’s not just like talking to chamath when you’re talking to me? Yeah, exactly. I think there’s so many parallels, actually. I actually wasn’t looking to go into venture when I left Dropbox. I was thinking I would join kind of an earlier stage, even company, and try to come in, have more ownership in the organization. But in the process of looking around at early stage companies, I got to meet the team at social capital, and the vision there was just huge. And I think it was just such a dynamic and exciting group of people. And ultimately that was what attracted me there. I kind of looked and said, all right, regardless of what I’ll be doing every day, this is an opportunity I can’t pass up. 

Adam Nelson
And I was interested in venture, and I thought it would kind of fit some of my personality quirks. And ultimately I fell in love with, and I learned from some of the best out there, whether it’s from Amoon or Ted, and just an incredible group of folks who were coming in and out of that organization. And so unfortunately, I think the ultimate view there really changed from being a traditional venture firm. And increasingly, that is exactly what I love doing, is just the core partnership with entrepreneurs at the early stage. And so I think kind of coming out with that nugget and also learning how to do it from folks who had been doing it for decades was a really fantastic experience. 

Brett
And then we’ll jump ahead to where you are now. And that’s, of course, first Mark Capital. What was it about first mark that attracted you to join the organization?

Adam Nelson
I think it was that focus. I think social capital wanted to be a lot of things, and first Mark just wanted to be excellent at one thing, which was that focus on the deep partnership with founders at the earliest stages, and then kind of taking that focus, that conviction, and kind of growing with it as the lead board member through IPO. And that’s the philosophy that was core when Amish and Rick founded the firm in 2008. And I think it still is just the core of what we do today. And it was also a really exciting opportunity for me to come back to New York. So I had been in the Bay Area for almost a decade, had some incredible experiences, incredible friends, fantastic network, but families here. I think despite my best efforts, I’m definitely a New Yorker at heart. 

Adam Nelson
And so the opportunity to come home and be at a firm that wasn’t, incidentally, in New York, I think a big part of our thesis is that this ecosystem is vibrant. It is bringing together the best of the best across industries. And in that kind of, in that intersection of different interests and different Personas, you’re actually creating opportunities that I think will be very transformational, especially as technology moved from a little insular, kind of self referential opportunity touching every conceivable industry that you could imagine.

Brett
I don’t want to ask hard questions, but I have to ask one here. Since you are a New Yorker, what’s the best pizza in New York? 

Adam Nelson
You know, I’m gonna be lame, but I will say I lived close to Luchali for a couple years. And I know it’s overhyped, but it is really fantastic. And I will also say, like, it’s Byo. So you bring a nice bottle of wine that is as good a night as you’re gonna have. 

Brett
I haven’t had it yet, but I do have strong opinions there about Prince Street. Prince Street’s my favorite. I lived in New York for a while, and I still get it shipped in every now from gold Belly. We get Prince street shipped in. So I’m a die hard for Prince street. 

Adam Nelson
Well, they are a favorite at first market events. We do, I think, 100 events per year. The vast majority of them are in person, and Prince street pizza is a core fixture of most of them.

Brett
Thats awesome. And if we look at these ecosystems in the Bay Area compared to New York city, how would you describe the differences between those two ecosystems?

Adam Nelson
Yeah, I think the big thing I mentioned, the diversity of industries and interests in New York. I think it really is a kind of, as a result, tech is one of many industries here, whereas I think in the Bay Area, it is the core industry. And I think there are benefits to that, because in the Bay Area, it’s so kind of integral to your social life and your work life, and they bleed together, and as a result, it is very kind of self referential on the bad side of things, but also very productive on the good side of things. I’d say in New York, there’s a little bit more of a balance. 

Adam Nelson
And I think the nice thing for me in the practice of venture and investing in New York versus the Bay Area is I think you can have a little bit of distance from everything and maybe come up with some of those non consensus, maybe slightly contrarian views, maybe meet founders who are not building in kind of a very clear this is who I talk to next and this is how I raise, et cetera, but have come at the entrepreneurial journey more from solving a core problem that they lived with, particularly in an industry where it’s kind of a tech enabled or a vertical software product where they’re coming at from their expertise in it, rather than all my friends are entrepreneurs and I need to be an entrepreneur.

 

Adam Nelson
And so I think it’s certainly not the only Persona founder that we invest in, but it is kind of, I think, a unique part of the ecosystem here, because you can have the journey be more incidental and serendipitous than just having it be what everybody does in town.

 

Brett
I want to dive into first mark here. So I think everyone listening has, of course, heard of first Mark, but maybe if you can just give us an overview of how many funds you’ve raised, the total capital raised, then some of those big investments that you’ve gone on to make that have become very successful.

 

Adam Nelson
Yeah, absolutely. So we just started investing out of our 6th fund on the early stage side, the way that the kind of fund model that we have now is an early stage fund that’s really focused on Series A, lead checks and kind of deep partnership with those founders. And then we have an opportunity fund that is really directed at that existing portfolio and taking advantage of the fact that we’ve built great relationships. We have asymmetric insight from being on the boards and watching the kind of longitudinal journey of the company, and also access to kind of create interesting rounds and deploy capital that we think is going to be very attractive into the companies that we know best. And so each of those funds, a little over 500 million right now. And historically, the firm has been a generalist firm, really focused on software. 

Adam Nelson
So we’ve had some great outcomes on the consumer side, like Pinterest, Riot Games, Airbnb, DraftKings, and as well as on the enterprise side. So Shopify frame, which sold to Adobe, did Eco, one of the current companies. And so it’s an even split. I spend a lot of my time kind of straddling a little bit of the middle in vertical software, which generally is going touch kind of SMB, some enterprise and even some consumer because a lot of times the software sits at the center of the network. 

Brett
Now I don’t want to make you do public math here so you can guess, but in the last five years, how many pitches do you think you’ve sat through or how many pitch decks have you seen? 

Adam Nelson
Oh man. Well, the pitch decks that we’ve seen is a ton, I think more than you could count. And for sure there are a lot of cold emails that probably don’t get their full attention. But of meetings that we’re taking, you know, we’re generally taking, call it there, probably a thousand meetings that will take a year. Like first meetings, something on that order probably a little bit more as were growing out the team and by team we generally work investment teams. So I would say were on that order of a couple per day, which the math flows out into that clay from those meetings. 

Brett
Is there something that you tend to see quite often that you just want to grab the founders like stop doing this isnt working? Is there a common thing that you see founders consistently just get wrong or you wish they would do different or better?

Adam Nelson
There are levels, I’d say, of the meetings we don’t take, which I think is just like a worthwhile place to start. A lot of it is just how do you go and do some of the work that shows us that you’re kind of even to qualify? There’s like a bar and I’d say part of that is, I think showing that you can go and surface in somebody’s inbox in a compelling way. So I think for that, the far preferred is to figure out some kind of connection or weigh in to go and kind of get somebody to weave you as having actual signal kind of surface something to us or if you’re not going to be in that category for whatever reason. 

Adam Nelson
But I think especially if you’re building a B2B company, being able to get in front of people and share your value prop with them is a core part of what you do. But if you’re not going to be able to do that, I actually think that a really well scoped cold email is important on why you think this fits into our thesis, etcetera, and then making sure that your pitch deck is kind of hitting all of the core points that it needs to hit. And there are plenty of online resources available and you’d be surprised how often those two core steps aren’t hit. 

Adam Nelson
So I think it’s worth just laying it out and saying it again because I recognize how important it is to make sure that you’re able to surface to the top and kind of get your shot in front of the kind of venture capital community more broadly. But there are just thousands and tens of thousands, maybe hundreds of thousands of companies that are flowing through. And so it is a little bit of a filtration exercise and a triage exercise of where youre going to spend your time. And ultimately the first step is trying to get somebodys mind share, which is not different than a customer, but I think kind of core and important. So id say those are the most important thing.

Adam Nelson
I think by the time were talking to founders, the thing im finding now is just, I think there have been so many companies created over the last five years in particular. And so I think we’re just seeing, I’d say the case that I feel like is most common of somebody who’s done all the right work, who’s super smart, well regarded, et cetera, is maybe they’re just not taking a big enough swing or they’re not thinking through the like, why now of this company? Or is it really differentiated enough from what else is out there to drive the kind of lock in with customers and product market fit that does stand out?

Adam Nelson
And I think as a community and an ecosystem, I actually think that there’s been a little bit of a dilution in the quality of that product market fit and seeing companies that are really resonating with customers and that explosive growth that’s driven a lot of the outcomes in venture, the really fantastic ones. And so I think that to me it’s are you taking a big enough swing and are you investing your time, which is ultimately the most important resource in something that’s going to be meaningful enough? And if it’s not, that’s fine. 

Adam Nelson
But I think maybe it shouldn’t be kind of going on the venture funded pathway, which is only for a very specific set of companies that are really trying to create that explosive growth to hundreds of millions of dollars of revenue over a kind of five to ten year timeframe, which is a very specific type of company.

Brett
This show is brought to you by Front Lines Media podcast production studio that helps b two b founders launch, manage, and grow their own podcast. Now, if you’re a founder, you may be thinking, I don’t have time to host a podcast. I’ve got a company to build. Well, that’s exactly what we built our service to do. You show up and host, and we handle literally everything else. To set up a call to discuss launching your own podcast, visit Frontlines.io podcast. Now back today’s episode. Let’s talk about advice for B2B founders. Let’s talk about. Or let’s just zoom in on Series A, B, two B founders. What would be your advice to them right now, given the state of the market, everything that’s going on, like, what’s your number one piece of advice for them?

Adam Nelson
Number one piece of advice is know where you’re going. I think kind of hearkening back to that last point about, are you taking a big enough swing? Is this a big enough vision? I think there’s something like 10,000 companies that have raised a series A over the last decade and maybe more, and they’re all effectively in like a production line to eventually become a public company or to have a large kind of venture scale m and a outcome. And even when the public markets open up, I think you’re going to have to be at a level, call it like 300 million of revenue growing, well, profitable. It’s a high bar, an absolute bar. And then also as a relative bar, there are 10,000 folks ahead of you in line, right? 

Adam Nelson
And that’s probably going to support maybe a dozen or two dozen companies per year going out of the IPO window. So you’re going to be in line behind data, brick stripe, and everybody all the way down. And so I think you have to look up and say, all right, well, am I doing the thing? Do I have the put 1ft in front of the other to go and get to that outcome and also start jumping people in line? Because ultimately, the series B, C, D, etcetera, investors are going to be looking up and saying, can you get to that point? And it’s especially important in a world where I think everybody’s a little more unsure about m and a given antitrust stuff that we’ve seen both in Europe and the US.

Adam Nelson
And so going back to a series A founder, if 2022 was, oh, shit, the party’s over, let’s raise more capital and cut, burn. 2023 is getting to more of having a pathway to break even. I think 2024 and beyond is going to be all right. Well, if you did everything right, you’re now surviving. You have a business that is default alive, but to what end? And what does that exit look like for you? And I think that’s actually going to be the big piece of the next couple of years, is how that 10,000 companies as well as that new cohort of venture backed companies that come up with all the excitement in AI, etcetera, how that all sorts out. 

Adam Nelson
And so I think having a very clear view of why the kind of story and metrics you’re putting together are compelling for everyone up that chain is going to be the big question.

Brett
What about seed companies who are working towards their series a? Obviously, a lot of companies die before they’re ever able to raise that series a. What typically happens there? What are they getting wrong? What are they struggling with? And what advice would you have to, like the seed stage startups that are trying to raise a series A or thinking about a series a, how can they, like, position themselves to have the best chance possible there? 

Adam Nelson
Yeah, I think that we kind of got away from the kind of serial de risking of different assumptions that used to characterize. I think that like seed to series A fundraising process. So it was, hey, we’re going to go, we’re going to test a lightweight product. We’re going to confirm that it works. If its on the B2B side, get lois that if we build something, theyll pay for it, theyll pay a certain amount, then we have it in peoples hands, and then do they like the product? Okay, can we sell the product effectively? Because ultimately at series A, what youre really trying to answer is the question, all right, well, if I put this capital in, is there a repeatable motion unit, economic motion that is accretive? 

Adam Nelson
And I think that going at seed, I would say what is the most that you can prove out with the least amount of resources? Because I think in a world where in 2021 you could raise a $5 million seed round, $6 million seed round without really doing anything, you could try a bunch of things at once. But I think where capital is going to become more scarce, and I think we’re just starting to see that scarcity start kind of resonating with the seed ecosystem. You’re going to be kind of trying to say, like, what are the three things that I’m trying to prove out on this capital, and where would that get me to?

Adam Nelson
I think that’s going to be an important piece because I think the seed ecosystem hasn’t really had the reality that the growth stage and even the a stage has started to deal with, because it’s been the place where I think particularly multistage firms have come in and been deploying capital in the midst of broader slowdown. And so the supply demand dynamics haven’t readjusted, but I think ultimately they will. And so I would say downscoping what you’re trying to accomplish, building leaner teams and kind of having a high bar for that marginal investment dollar are going to be the most important things to keep in mind.

Brett
Normally on this show we’re interviewing founders, and what we’re asking them a lot about is their approach to category creation or just category strategy in general. What are your views when it comes to category creation? If you have a founder that comes to you and says, hey, this is a category creation play, what do you tell them? What signals do you tell them to look at to even be sure that there is a category creation opportunity?

Adam Nelson
Im probably the wrong guy to ask about this because so much of my time is really focused on, is on large verticals. And so we dont even look at a business if its not addressing $100 billion kind of transaction volume vertical. Right. So id say a lot of what were doing is trying to think of how you go and bring some of the technology innovations that have been happening, whether it’s fintech, whether it’s AI, and kind of bring those in to really change the way business gets done in those verticals. 

Adam Nelson
So rarely are we thinking about category creation on my end, so maybe I’m the wrong person to talk about it, but I still think there’s a lot of juice in the kind of majority of the economy, which is still, I think, running on things that look like MS Dos more often than nothing for the old guys in the crowd.

Brett
So as you mentioned there’s just a lot of companies, and that obviously means there’s a lot of noise for the companies that you work with that are rising above all that noise. What are they getting right? What are they doing and how are they rising above all the noise that’s out there in the market?

Adam Nelson
I think it comes down to the credibility of the team. So see, that’s just your background at a b, et cetera. I think there’s so many growth firms, et cetera, at this point, and they’ve grown so large that they’re keeping kind of ongoing relationships with founders. And so the way you build credibility at that point, I believe, is by doing what you’re saying you’re going to do, because people are going to be watching that journey and kind of looking at you to hit your milestones and to deliver on time. And so I think that’s a big piece of it to his story. Is this a big enough potential outcome to get people excited? And then three is the metrics and are you growing efficiently? 

Adam Nelson
Are you growing kind of in that top decile, top quartile, because if not, you’re not even going to be in the consideration set. And so ultimately those three things need to come together. And I think, I mean, that’s in some ways obvious to say that effectively hot a market is going to determine how many of those things you need to have at once and to what extent you need to have them all at once. Is it top decile performance or is it top quartile? Or is it as long as you’re pretty good, we think you’re a really compelling founder, so we’ll go move forward. So it’s kind of like how you sit between those three core pieces.

Brett
Final question for you, since we’re over on time and I don’t want your team to kill me here, what type of opportunities are you most excited about? What are you looking for and what types of founders should get in touch if they’re listening in?

Adam Nelson
Yeah, I mean, for me personally, it’s the big 30,000 foot view is that we are in the very early days of having the financial services infrastructure of the US kind of delivered increasingly through software. And I think that refactoring will create a lot of really large companies at three different layers. And this is effectively where we invest. It’s either at the application layer, so increasingly like vertical SaaS applications, B2B software, the capital products layer, as well as like an infrastructure layer, like how do you have to recreate things like AML, Kyc, et cetera in order to enable this kind of multiplayer capital value chain that can let a customer open up a bank account instantly, but that bank is going to be shared amongst the software provider, banking as a service, ultimate bank partner, et cetera.

Adam Nelson
And how does that get passed through? And so those are kind of my broad thesis and then at the firm level, as I mentioned, generalist. But we’re very excited about the New York ecosystem. We’re all here in office five days a week, right in Flatiron, and we do a ton of in person events. We have a great founder guild that we just launched last year for seed founders in the ecosystem to have a community that exists both as a Google group as well as in person events. So that’s been really exciting. 

Adam Nelson
And we’re all in on New York and also kind of leveraging the best of those networks for companies that may be coming in from Europe, for instance, or Toronto or some of the other markets where we actively play in because we can bring them, I think the best of what New York has to offer in terms of talent, in terms of customer relationships, in terms of expertise.

Brett
The best of New York. The talent, the expertise, and the pizza. 

Adam Nelson
Exactly. Print street. 

Brett
All right, Adam, this has been a lot of fun. If founders are listening in and want to follow along with you, where should they go? 

Adam Nelson
Yeah, just shoot me an email. Adamirstmark.com dot awesome, Adam, thanks so much. 

Brett
For taking the time. 

Adam Nelson
All right, thanks, Brett. Appreciate it. 

Brett
This episode of Сategory Visionaries is brought to you by Front Lines Media, Silicon Valley’s leading podcast production studio. If you’re a B2B founder looking for help launching and growing your own podcast, visit frontline.io  podcast. And for the latest episode, search for category visioners on your podcast platform of choice. Thanks for listening, and we’ll catch you on the next episode.