The following interview is a conversation we had with Dan Rosen, Founder and GP at Commerce Ventures, on our podcast Category Visionaries. You can view the full episode here: Funding the Future: Dan Rosen, Founder and GP at Commerce Ventures

Dan Rosen
Hey, thanks for having me so much.

Brett
No problem. So, to kick things off, could we just start a quick summary of who you are and maybe just a bit more about your background? 

Dan Rosen
Sure. So I am the Founder of Commerce Ventures. We are an early stage venture firm focused on investing in tech for retail and financial services. But my background is pretty much all in venture capital. So I’ve been investing in startup companies of all stages for the last 23 years across three different firms, three different larger firms. And I started this firm about ten years ago. And today Commerce Ventures is 13 employees, mostly based in San Francisco. And we are kind of investing out of our fourth fund now. 

Dan Rosen
We have about $300 million of assets under management and invested in a little over 100 companies to date, and we’re fortunate that many of our companies have gone on to grow into category leaders and so excited to talk a little bit more about kind of how our investment process works and kind of any lessons that we can pass along to folks who might be interested.

Brett
How have you seen venture evolve over the past 23 years? If you can maybe take us back to 23 years ago and paint a picture of what it looked like then compared to now, I think that could be interesting to some of the early stage founders listening in who are early on in their startup journey.

Dan Rosen
Sure. Back in 2001st of all, were in the sort of sunset period of the.com era when I joined the industry, and what it meant to start up business back then was fairly different. Almost every business was relatively capital inefficient. There was no cloud computing at the time. Any software you wanted to build, you pretty much had to host yourself. Many companies that I was investing in back then were actually hardware businesses, which were extremely expensive to build and cost a lot of money to both build the technology but also bring it to market. So the building of businesses was much more concentrated in terms of the number of startups back then because it required a fair bit of capital. And the industry of venture capital was much more concentrated than it is today. 

Dan Rosen
So there was actually a fairly small number of allocators of capital to startups or venture firms, if you will, and they were primarily located in the Bay Area and the next closest market was Boston, where I was actually located. But there really weren’t many other venture capital kind of markets in the United States and even really around the world that were at very significant scale back when I was getting started. So completely different industry structure. Raising capital was really difficult. You had to have. Getting access to investors was very challenging. And the pedigree required to raise capital required you to have worked at some very successful startup or a large tech company, which it to some extent is similar today. 

Dan Rosen
But the companies that you would have had to have worked at would have been instead know Google, Facebook or Twitter or Instagram or something like. Like it actually would have know like intel or Cisco or another company of the era. So different companies, different pedigrees, much less capital efficient than kind of more modern venture capital and a much more concentrated ecosystem. 

Brett
And something else I want to ask about there as well. As you mentioned, you’re based in SF, as were talking about there in the pre interview. I’m here as well, so we’re neighbors. What are your views on the importance of being in San Francisco and Silicon Valley for founders? Do you tend to only look to back startups that are based here, or are you investing globally? What’s your view there? 

Dan Rosen
We’ve been investing in companies across the country since the start of our firm. Many of our portfolio companies started in the Bay Area, but many started in other areas, whether that’s right in the middle of the country. We have a number of midwestern based companies in our portfolio, whether that be New York, whether it be the Boston area, some in the southeast. But we’ve also made some investments outside of the US as well. Especially more recently as our expertise has built in specific themes that we’ve had success investing out in the US. We’ve invested in smaller ways in companies that are positioned maybe to be the category leaders in those themes in high growth emerging markets. Think about the african continent, think about Asia, think about Latin America. So we’re definitely not constrained to investing just in the Bay Area. 

Dan Rosen
With all of that said, I do think the Bay Area has the strongest network effect for the tech startup ecosystem broadly. And while we’re in a period of adjustment and probably still in a period of recovery from being honest, I do think eventually the primacy of the Bay Area will be as clear as it was in the past again to the tech ecosystem. Even for other kind of markets in the United States that have grown substantially with the expansion of the tech ecosystem, there really is no other city that is even close to the amount of funding and startup activity that the Bay Area produces. 

Brett
So are the media reports exaggerated? Then it sounds like Silicon Valley is not dead. 

Dan Rosen
I think the media reports that San Francisco is a challenging city to live in, and I think there’s a lot of truth to that. There are a lot of the sort of retail level experiences and dynamics in the city of San Francisco. This suggests the city is facing its worst challenges, maybe ever. Like many other cities, office space is an issue as well. Like a lot office buildings are sitting unoccupied. But what I’ve heard from experts in the area is actually that problem is bigger in other markets. Maybe the problem is biggest in Manhattan, but I’m not an office commercial real estate expert. What I would say know, I continue to see a ton of activity here in the Bay area, and we’re looking at a number of companies that are just getting started at inception phase, and they’re getting started here. 

Dan Rosen
They’re getting started here because the founders live here, the companies they used to work for are here, and the investors by and large are based here. So that network effect is really difficult to compete against. And so while in a concentrated part of the city, some of the retailer experience, the street level experience that you’d have as a visitor, even as a person going to work, is not ideal. I actually think over time, it’s really difficult to see this market not recovering in a really strong way. 

Brett
Promising to hear. Now, let’s switch gears a bit and dive a bit deeper into the fund. So I know you had mentioned 300 million there. Could you also share some of the bigger names that you’ve invested in that the audience may know?

Dan Rosen
Sure. So as I mentioned, we invest in technology companies serving the retail and financial services ecosystems. Our very first investment, fortunately, was a company called Marketta, which has gone on to be successful and has gone public in that same first fund. We also invested in a company called Bill, which also was fortunate enough to go public. Both companies have had tremendous success and are generating in the neighborhood of a billion dollars of revenue run rate these days. So really interesting, compelling platform businesses, marketa in the card issuance and payment space, and bill.com, really in the b, two b payments and accounts payable automation software area. So those are two names that people may know if they know the fintech ecosystem or just follow kind of tech more broadly. 

Dan Rosen
But over time, we’ve been fortunate to be able to invest in a number of companies that have proven their leadership in specific themes or categories. For instance, I’m on the board of a company in the digital identity verification space called socure. They actually just in the news recently because they just made their first acquisition of another startup since becoming a startup themselves. And so that’s a really exciting company that’s really grown into market leadership in that digital identity space. I’m also on the board of a company called Kin. Kin is a category leader in the homeowners insurance space, specifically for catastrophic weather affected markets like Florida and coastal regions. So again, those may be names that people know, but maybe not. But those are some of the companies that come to mind. 

Brett
And I’m sure over the last 23 years, you’ve interacted with and spent a lot of time with some incredible founders and some very successful founders. Are there any traits that you see are common in these very successful founders? Like, are there any patterns that you recognize from your interactions with them? 

Dan Rosen
Oh, totally. 

Brett
Yeah.

Dan Rosen
So first off, I’m generally looking for, we’re generally looking for, one is generally looking for folks who have relevance to the problem that they’re pursuing a solution for. So coming to the opportunity with some relevance is usually pretty helpful. But by and large, we want to see a Founder who has vision, right? I see an opportunity, or I see a problem that’s really big, and by solving it, I can build a big business. Being able to look at the world that way in terms of problems and solutions is pretty important. And being able to think ahead to a future state of a market is really important. So the first thing is vision. But then you have to add to that. I need to be able to persuade people of my vision, one, that it’s right and that it’s compelling. 

Dan Rosen
And then I need to persuade them to give me money or to join my cause and kind of get underpaid in exchange for some equity in their early days. So that sort of charisma and ability to be persuasive as it pertains to recruiting people in capital is another critical skill. I’d say the third one that comes to mind is just persistence. Every one of my really successful portfolio companies, and I define success as you’ve reached, call it, kind of nine figures of run rate or more for every one of those businesses. They either had to pivot at least once in the early days, or they struggled to raise money at some point in their journey, or both. 

Dan Rosen
So success is really for founders about not giving up in those moments where things are really challenging, where you just have no idea what you’re doing, you have to just sort of figure it out. You have to build through to the state of the market that you need to get to. You need to be resourceful and just knock on as many doors as it takes in order to find the money you need. But ultimately that all comes back to that one word of persistence. So that’s probably one of the most important unifying characteristics. So vision, charisma, persistence, I would say those are probably three. 

Brett
And on the vision point you mentioned there, dealing with the problem, are you always looking for someone who’s been, maybe a practitioner? They’ve experienced the problem firsthand and then they’ve built a solution from there? Or do you ever back people who are complete outsiders? They’ve just observed something in the market that they want to solve, and then they come to you and say, hey, here’s the problem that I want to solve. Do you ever have situations like that? Or is it always someone who’s dealt with that problem in their day to day lives? 

Dan Rosen
It’s very often the case that you’re investing in somebody who isn’t coming specifically from the space that they’re trying to build a company in, but they’re typically showing up with characteristics that suggest to you that they can scope a problem and the opportunity. And so it’d be more likely that they would have built something in the past, either as a Founder or as maybe they built a product from scratch inside of a larger company or even in a parallel in a different type of business. Maybe they started a new business line for a completely unrelated type of company, just somebody who’s able to start from zero. That’s pretty important. Is it ideal for them to have relevance in the segment or theme that you’re focused on? I think it often is, but it’s by no means completely exclusionary if they do not. 

Dan Rosen
What you’re really looking for is somebody who has that vision and then persuades you that they’re willing to do whatever is required and able to do whatever is required in order to achieve it. 

Brett
When they come in and talk to you about vision, how far out do you want them to be looking? Do you want them to come in and say, here’s my vision for what this is going to look like in 20 years? Or do you need them to scale it back into a three year vision, then a five year vision, a ten year vision? What’s that general view there? 

Dan Rosen
There’s a lot of different ways to think about vision, right? One is the sort of vision of the market. Like when this solution is in place, how will companies who use it or rely on it function differently? How will the industry function differently? How will consumers interact with those companies in a different way? So that’s sort of one piece, which is sort of a nebulous timescale. Sure, if you’re talking about self driving cars or personal area aerial vehicles, that’s a very futuristic vision of the world. But in most cases, we’re talking about automating some business process we’re investing in. We think of sometimes as sleepy areas of the financial services and retail ecosystems. So some of it’s hard to visualize, but a lot of it, you can sort of understand what that future state would look like if somebody explains the vision to you. 

Dan Rosen
The bigger question is the vision for what the product would need to look like in order to solve a problem that exists. And then how would you get it to market? Like, where would you start to land early customers? So that there’s a specificity of what you would do, both in terms of product, but then also taking that product and confirming that there is product market fit, right, getting those signals of demand. And so I bring that back to vision because actually you need to have somebody who has a plan that is multistage in nature and includes a lot of things that aren’t reality yet today. And that in a lot of ways that the sort of practical vision is really important in addition to the big vision of like, here’s the future state. 

Brett
Of the world makes a lot of sense. How many pitches do you see per month, would you say if you had to guess? 

Dan Rosen
Great question. I would guess 20 to 30. It used to be more probably, but once you build a portfolio and you’re working with a bunch of portfolio companies, you have a little bit less service area to spend all your time on new investment pitches. And actually that’s a part of building an organization and having colleagues. And so I may come into a first pitch, or I might come into a second meeting with that company after one of my colleagues has already met with them. But I’d guess 20 to 30 new. 

Brett
Pitches a month from those pitches. Are there any common red flags that you see that just make you say, no, this is not a deal that we’re going to pursue? 

Dan Rosen
Sure, it’s easy to exclude companies that are just not in our area of focus. So a company building a medical device, which surprisingly, I get a lot of emails about where just there isn’t any version of events where we would invest in that business. So one is like, does it fit with our sector focus or not? If it does not, it’s clear exclusion. If we believe that the people involved have a moral or ethical deficiency. It’s an easy exclusion that’s often difficult to discern from a first meeting. But sometimes you’re able to figure out quickly how you would get to that sort of information. And if you get a sense that is the case, then you engage as soon as you have that sense. 

Dan Rosen
I think folks who are not terribly collaborative are often the types of opportunities where you sort of disengage pretty quickly. And it’s not always because the things we would suggest or the ways in which we would try to help kind of are the right things. It’s more just because this is a long and windy journey that founders go on and that we try to go on with them as their teammates and partners. And if you just don’t feel like you have a very collaborative, constructive relationship, life’s kind of too short. And oftentimes, if people aren’t coachable, if they aren’t open to feedback, you’re not going to be able to impact the success. And so you’re kind of just writing a check. And if you’re just writing a check, what distinguishes you from any other person writing a check? 

Dan Rosen
So, generally speaking, we would sort of steer clear from those sorts of situations as well. 

Brett
This show is brought to you by Front Lines Media, a podcast production studio that helps B2B 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. And how do you differentiate yourself compared to other venture firms? Obviously, there’s a lot of venture funds out there today. If a Founder, if I were speaking to a Founder that you’ve invested in, what would they tell me? The reason why they want to work with you, and they’re excited to work with you. 

Dan Rosen
I’d like to think that they would tell you that we’re distinctly knowledgeable in the sector we’re focused on, so being participants in the financial services ecosystem rather than analysts of it or observers of it. I think it’s that distinction, right, that we understand how pieces fit together in a way that it would be difficult to do if you weren’t operating in the space, if you weren’t as scope focused as we are. We’ve structured the whole firm around this sector of focus, and it’s everything from where we source our capital, our investors’capital, which includes large strategic corporations, Fortune 500 companies that are in our sector, to very strategic individuals, people who have run some of those large companies, but also successful entrepreneurs, including some of the ones in our portfolio who’ve come back and said, hey, we really believe in this model. 

Dan Rosen
We’d love to invest some money into your next fund if you’d let us. And building that ecosystem ends up being super instrumental to being able to not just source interesting opportunities, but also perform due diligence and analyze themes and then kind of ultimately help our portfolio companies once we make those investments by leveraging the network that we have. In that answer, I also just mentioned another piece, which is pretty critical, which is I mentioned themes. A lot of firms talk about themes, but we don’t believe it’s possible as a sector focused firm to invest without being thematic. 

Dan Rosen
And our theme process is pretty highly defined, and it means that we go very deep into areas that they could be popular sound bites for other people, or they could be areas that kind of another venture firm, even another sector focused venture firm, might really not have spent any time at all. But the distinction there is really that kind of we’re asking our partners, these large corporates, these individuals, and even looking at trends in startups, what are the big problems that nobody’s paying attention to? What are the opportunities that if you brought a new solution to market, you could unlock? And some of those might be exciting and sexy kind of gen AI for whatever, but more often than not, they’re really boring, sleepy sounding areas that don’t get the same attention that some of the broader mainstream and less sector focused investment does. 

Brett
What are some of those themes that you’re looking at right now that you’re excited about? 

Dan Rosen
They’re going to sound super boring, but we generally love system of record opportunities. So kind of anytime when there’s an opportunity to upgrade a core system of record, we think that’s exciting. We just went through a pretty extensive analysis of next generation loan servicing systems, so that gives you a sense for some of the less sort of broadly exciting areas that we tend to look at. But my colleagues who focus on tech for the retail ecosystem have been looking at innovations in travel and hospitality. We are doing the requisite analysis of how gen AI will and can change areas of retail and financial services. 

Dan Rosen
I would say the jury is very much out on that analysis, because first of all, everybody’s doing that analysis for their own areas of focus, and it does still feel like the horizontal opportunities in generative AI are way more fast growth and exciting than the verticalized applications of the technology. But yeah, no, I mean, I’d say there’s a whole bunch of really sleepy, interesting opportunities that are in our backlog of themes to look at next. And they’ll probably have to do with payments or core systems of record inside of banking or financial services. 

Brett
And given the state of the market today, what are the conversations like with your portfolio companies and the founders that you work closely with? What are those conversations like and what are you advising them to be doing right now? 

Dan Rosen
Well, first of all, this market, it’s confusing, it’s dynamic, it is not one thing to all people. We’ve been sort of in this shift of market environment for over twelve months, for those of us who’ve, I think, been kind of living in it. And so twelve months ago were having a lot of important, difficult conversations with our founders about the oncoming slowdown and kind of where people could, and especially where our best founders saw it the same way. Folks made pretty meaningful changes to their operating plans in order to preserve cash where they could, and if they needed more money, develop plans to raise more money in ways that they could to make sure they had enough Runway to get to key milestones. 

Dan Rosen
So if you sort of rewind twelve months, the last twelve months has been a lot around, a lot of working with companies around the portfolio to make sure they had the Runway they needed to reach the next funding round, if you will, or profitability. And I feel really fortunate to say that most of the companies I work directly with have been able to do that. I’m sure we will lose some number of companies in the portfolio, kind of in a way that relates to this tougher funding environment. But by and large, we’ve been pretty fortunate thus far. But I think the market, it’s going to continue to be difficult, but I think it actually feels like it’s starting to get a little bit better. 

Dan Rosen
Meaning not that people’s scrutiny is any less, not that valuations are suddenly going to get more insane or unrealistic, but just that investment feels like it’s starting to happen again at a pace that is closer to a healthy, steady state. It’s early in that sort of return to normal, but it feels like it’s starting to happen. 

Brett
Was this the worst slowdown you’ve seen in your career over the past 23 years? 

Dan Rosen
Not even close. 

Brett
What was the worst one? In 2008? 

Dan Rosen
No, it was for sure, 2000. In late 2000, early 2001, things literally went to zero. Of course, they didn’t go completely to zero because there was always follow ons and stuff like that. But the firm I was at back then, I was in the direct investing group of a large venture and private equity firm called Harbor Vest, which invests both in funds and in companies. And the direct investing part of that business, we literally decided not to make a new investment for, I want to say it was like 18 months. By the way, were not alone in the industry. There were a lot of firms back then. If you remember, I started off by saying it was a fairly concentrated industry, which means there weren’t that many firms. 

Dan Rosen
And a lot of firms had that same mindset of, like, I’m not making new investments for a little while. So it was dark days for the venture industry back then. 

Brett
Did you ever have any points in those early days where you thought, maybe I shouldn’t have a career in venture? 

Dan Rosen
Those were the days. So it used to be that the hardest part about a venture job was getting one, because there were so few of them. And so if you got one, you just wanted to stay in the industry. And conventional wisdom had been, once you’re in the industry, you have the best shot at being able to stay in the industry. But as you’d imagine at that point in time, it was totally unclear whether or not there would be an opportunity to stay in venture. Kind of back in 2003, 2004, when things were really still fairly quiet, only beginning to recover, and there just weren’t that many venture firms. Now, interestingly, I went to business school in 2004, and by the time I graduated, were in another really awesome bull market, which is great. I got really fortunate. 

Dan Rosen
But also in those late 2000s, there was the beginning of the emerging manager trend. It was slow, but you had first round and Union Square and Kefa and true ventures getting started in this period of time, which gave us all, ultimately, the sort of confidence and conviction to kind of spin out of the firms were at. And part of the reason that I had the audacity to believe that I could start my own firm. So, anyway, it was an interesting progression, but I guess I never really, totally lost faith in my ability to be in venture. But, yeah, there was a period of time in business school where I said, at the very least, I should ask myself whether or not I should be doing something different and use this business school experience to explore that, which is what I did. 

Brett
And what was it like when you raised your first fund? Can you take us behind the scenes of that first fund? 

Dan Rosen
Super brutal. Like really not fun at all for a variety of reasons. First of all, in 2012, when I started having those discussions, there really wasn’t a very large emerging manager universe. Like, I was one of a relatively small number of managers. I mean, that changed a lot over time. But that was the first piece. The second piece was, I had been a principal at the firm. I left to start this fund, not a partner. And fundraising without that partner distinction was more challenging, I think. And then I wanted this to be a sector focused firm. And my strategy thus didn’t really fit for almost any institutional investor. And the size of the first fund, the target was so small that again, almost no institutional investor could invest in me. 

Dan Rosen
So by definition, I had to go to individuals and I went to some corporates, and I was able, fortunately, to scrape together enough to sort of gather that first fund and have it be kind of execute on an investment strategy. But it’s really, first of all, I don’t know if it’s just my background growing up, but it’s really uncomfortable asking other people to part with their money, especially individuals. And you don’t realize at the time that it’s actually a fairly normal thing to do in the venture ecosystem, but it’s very uncomfortable if you haven’t done it before. The second piece of that is, once you get comfortable with asking people, you have to also get comfortable with people telling you no and not take it so personally that you feel defeated and demotivated. 

Dan Rosen
Once you get there, actually life gets a lot easier and you realize it’s a numbers game. And if you have an interesting idea and you’re reasonably persuasive, going back to my earlier points, then you should be able to raise enough capital to do something. And hopefully with that capital, you can prove your strategy out a bit and get people excited about investing more in the next time. 

Brett
What do you think most people get wrong about what it’s like to be a VC? 

Dan Rosen
Historically, I think the belief was that the VC job was a really cushy, fun lifestyle job. And honestly, there might have been a version of this job that was that. But I’ve really never experienced that. I would describe kind of venture capital as primarily a sales job. You’re really out there trying to pitch dollars to founders who oftentimes have, especially the best ones, have many other sources of dollars they could choose. And so coming up with a pitch and a differentiation relative to those other sources of dollars is really important. And so, first of all, it’s not cushy. You do work a lot and you’re selling a commodity, it’s a sales job. And I think that isn’t always what people think about when they maybe aspire to a career in venture capital, either early in their career or down the road. 

Dan Rosen
But there is a lot to love. I mean, it’s a fun career if you love learning and it’s super dynamic. It’s never a boring day, truly. I can’t remember a day where I was like, wow, I really wish, kind of I had something to do today. It’s almost always the opposite. I wish I had a few more minutes to think today. 

Brett
And final, a couple of questions. As I was looking on your website earlier today, I saw there was a section for founders from underrepresented backgrounds and an email address that called them out to get in touch. Can you tell us a little bit more about that initiative? 

Dan Rosen
Sure. When a lot of other people realized three years ago that we probably weren’t doing a great job of attracting diverse deal flow, and we looked at our portfolio and didn’t see a lot of diverse founders in our portfolio, and what occurred to us is that were generating a lot of our deal flow, or a lot of our investments were coming from proprietary deal flow were seeing. And of course, a lot of the proprietary deal flow were seeing were coming from people with experiences and backgrounds like ours. So they tended to look like us, which, it’s not that those things are expressly bad, it’s just that you’re obviously going to miss out on investing in folks who have different backgrounds who don’t look like you. 

Dan Rosen
And what we learned is the first thing is we needed to track deal flow to figure out actually if we had some diverse deal flow kind of coming into us and make sure we had a sense for that. And after determining that we probably weren’t seeing enough deal flow like that, we tried our best to create channels to us, even ones as simple as just calling it out on our website. But like accelerators and conferences and events that we’ve helped to put on, that really invite those sorts of founders to get to know us and to tell us kind of about their missions and their journeys and see if we might be part of that journey. 

Dan Rosen
Because it is the case that the natural sort of equilibrium or steady state will take you to folks that sort of have similar backgrounds to you and the people in your network. So you actually have to invest energy in order to break out of that. 

Brett
I think makes a lot of sense. And final question, Dan, if founders are listening and they say, wow, I want to work with Dan. Dan sounds like the type of investor that I want to work with. Where should they go? How do they get in touch? 

Dan Rosen
It’s literally Dan at Commerce VC. Just send an email. I will do my best to respond to them. I’m not perfect at that, of course, but we do our best to be responsive. The only caveat is, if you’re not in our industry focus, my answer is always going to be sorry. It’s just not a fit for us. So if somebody has a tech innovation for retail and financial services and wants to get in touch, it’s just Dan at commerce VC. 

Brett
So you don’t want to back my medical device company, you’re saying? 

Dan Rosen
I just wouldn’t know how to even think about it. 

Brett
Dan, thanks so much for taking the time to chat. I really enjoyed our conversation, and I know our audience is going to as well, so really appreciate it. 

Dan Rosen
Thanks, Bret. Appreciate you having me. 

Brett
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