• July Breakfast Club Tomorrow!

• Pulse (Sponsor)

• Jay Parekh moving to Boston

• International Student Guests

• Invite to Set Up

• Jack McClelland (Afore Capital) Interview

Tomorrow at 9am - July’s Breakfast Club! (Only Breakfast Club Meetup of the Summer)

See you bright and early in SoHo. We’ll be outside (under some trees) so dress appropriately! Forecast is saying 75 degrees at 9am. Location updated on the luma invite. Also, no pressure, but we’ll have some media people joining us to document the meetup.

We’ll have Coffee - both hot and canned cold brew - provided by Jibby. If you’re a Jibby Fan, check out their crowdfunding campaign. Own a part of Jibby!

We’ll have some Masa chips - instead of seed oils they use grass fed beef tallow. Insane! Thank you Ancient Crunch!

We’ll also have some bagels from Pop Up Bagels - they’re so good.

Today’s Newsletter is Powered by:

Pulse

I couldn't think of a more perfect partner for the Breakfast Club. I've been on the lookout for a way to keep track of all the connections I make between hosting Breakfast Club and attending dozens of other events in New York.

Ricky, the founder of Pulse, has built such an easy to use tool. You import a contact, you tag info, record some notes, Pulse remembers where you met, and then it prompts you about when to follow up - maybe next week?

A big goal for me (now that there's less than 6 months left in 2023) is to stop networking and focus on building relationships - following up and providing value for the interesting, amazing, super talented people I meet.

I encourage you to download Pulse before the meetup. Give it a shot. I think you’ll appreciate that Pulse gives you a free digital business card to share all your links and info with others.

I've invited Ricky to the meetup so if you see him, be sure to tell him what you think of the app.

Jay Parekh moving to Boston -

Jay, an associate at Fifth Down Capital, was an early adopter of the Breakfast Club and has been a big part of the success of the group. He’s moving to Boston this week and will be sorely missed! If you know Jay or have enjoyed chatting with him at previous meetups - shoot him a note or say goodbye to him tomorrow!

Aspiring Latin American Entrepreneurs

We’re hosting 30+ young aspiring entrepreneurs from across Latin America on Wednesday. They’re visiting New York City for their first time at the invitation of TrepCamp. Please take a moment to make them feel welcome. Introduce yourself and tell them about what you’re building!

SETUP

Breakfast Club Member, Nandini Mullaji (Dini) came to me last week with a big problem - her dating app has too many women on it and too few guys. If you’re a smart/ambitious guy looking to date, then use the code below to skip the waitlist.

Get off your phone and get setup on a date with someone awesome, this week

Tired of endless swiping and awkward messages? Want to skip the small talk and skip straight to the date?

Then join SETUP, a members only NYC dating app where you get set up with someone you're into at a cool spot around the city.

Sign up now and skip the 5k+ waitlist with the code BREAKFAST CLUB.

Breakfast Club Member Spotlight: Jack McClelland

If you don’t already know Jack, then you should. He’s not only a genuinely good person but also one of the savviest young VC’s I’ve met. Jack is an investor at Afore Capital focusing on early stage investments… but like actually early stage… like pre-seed. Pre-revenue is cool. Pre-product works. Pre-idea? He’ll listen. Even pre-intention!

This past weekend we got together to look at some art, eat some food at Cervo’s (highly recommend), and celebrate Jack’s recent big wins.

You originally pitched me on doing a paint and sip or a paint and wine class for the interview – what did we end up doing instead?
We went to the New Museum. Yeah, I had just done a paint and pour last week. It’s called paint n’ pour. What did you call it?

New museum was interesting. The exhibition we went to felt like you’re inside a greenhouse. And then it had this industrial feel to it. All the sculptures were made out of pipes and everything was monochrome. Very Brown. There’s some liquid on the floor. The sculptures were slowly moving. I think it was designed to evoke a visceral reaction.

What was your reaction? Did you regard it with disgust or respect?Probably a little of both. The display was meant to symbolize living organisms. But it also felt dead. Interesting to look at.

[Walking in the lower east side]

Do you like New York?
I came here a year ago, last summer, right after graduating. I crashed on a friend’s couch for a month. I quickly realized I wanted to stay here for a while. I like the Bay Area but I really like it here. Besides being fun, I’m making a career bet on New York.

Look at all the “going to New York” parties happening in SF right now. SF hasn’t recovered from Covid. Cell Phone traffic is way down, commercial occupancy of buildings is way down. Lots of different stats. It’s way harder to get an apartment in New York right now, which points to it being more in demand. In the Bay Area you can get amazing terms – rent month to month – because of less demand. Data around new incorporations is tilting towards New York City. Maybe more venture capital by dollar amount is happening in SF but the number of investments favors New York. SoHo and Flatiron are so lively.

You’ve started to focus a lot on FinTech, is that because you’re in New York?
I think it’s just interesting. We’re software generalists. We look at everything.

I think I gravitated towards FinTech because my roommate, Will Messina, founded a payments company. So he’s been in my ear about B2B payments and ACH. Our friend groups have merged. He’s introduced me to a lot of cool founders. I feel pretty lucky. It’s a good relationship and he’s my friend. He’s awesome.

Was your highschool weird?
So the school I went to in the Bay Area, I was fortunate, had really small classes and focused on interdisciplinary learning. Very few tests, they try to teach people to enjoy learning. Social and emotional learning was built into the core curriculum along with design thinking. They would teach design thinking and conflict resolution. There was way less drama.

You were encouraged to follow your passion. There was a class where you could just follow your passion –

What was your passion?
Ham radios. I got my license so I could talk to people all over the world and volunteered with some kind of emergency service organizations. When the phones go out, all you have is ham radio.

There were also competitions where you try to contact as many people as possible in the shortest amount of time. They’ll pick a weekend, and you must log as many conversations as possible. It’s a good way to make a lot of contacts all over the world. I talked to hundreds of people from over 50 countries.

Your passion was cold outreach? Competitive networking?
[Stifled Laughter]

I think I enjoyed it because everyone else, and it’s a problem with the hobby, everyone’s super old. Not a lot of young kids like radios and analog electronics. When I first went to the radio club meeting, I thought I was in the wrong place because I opened the door and everyone looks like Albus Dumbledore copied and pasted around the table. Men with really long white beards.

Classic advice is to do something first before going into Venture Capital. How do you feel about that?
I think it makes sense. I see why people say it. I think the narrative is maybe you start a startup or work at a startup, first. Conventional wisdom is that founders and operators make for better investors. Jason Calacanis tweeted about this a couple of days ago and gave a pretty solid playbook about what to do –

The thing is, look at the top GPs, right now, they came from all different kinds of backgrounds. So only saying that you should follow one path is - hmm, generally prescriptive advice doesn’t work well for Venture. Some of the best VCs of all time have come from journalism or banking backgrounds. You wouldn’t think those paths would make you a super strong investor.

I think it’s more about the skills you acquire rather than your background. Just do whatever it takes to get the skills of deep analysis, asking good questions, that sort of thing.

Despite doing a couple of VC internships in undergrad you were focused on becoming a software engineer?
So I really respect engineering. My dad started out as an engineer, he did engineering undergrad, and then he did engineering consulting for a bit and then his friends started an investment bank and they asked him to lead the tech practice. He always told me to be a software engineer, though.

That’s probably why I studied computer science and always have had respect for software engineers.

But then Em Herrera was the one who told me to take the offer with Afore.

Who is Em Herrera?
Em is an investor at Night Ventures, the consumer-focused VC wing out of Night Media - a top talent management agency who manages people like Mr. Beast. She’s classically trained in journalism and computer science and has a ton of experience in venture and community-building.

She thought I would be really good at Venture specifically. I had a couple of venture internships but saw them as a way to learn about a bunch of different areas and meet a lot of interesting people, not as a stepping stone to a career.

Em said I should do it as a career.

What did Em see that you didn’t see?
She thought I would be good at it. I thought I wouldn’t be good at it. I like engineering. I respect it. I wanted to force my way into engineering for a bit. I thought VC wouldn’t work because I didn’t have any operational experience.

She was like – “what’s your end goal? If you have an opportunity to skip the step, just skip the step.”

Em is uniquely well suited to give that advice
She’s actually really good at giving that exact type of advice. She should be a talent manager for young VC’s. She’s a really good mentor. She started the Wiress, a network that helps young women in tech. A lot of them in venture.

She should become a talent manager, the same way celebrities have talent managers. She laid out my strengths and weaknesses and made the case for why I would succeed. I listened to her and I’m glad I did. She’s usually right about most things, even if I disagree.

I’ll disagree with her and then she’s right. So I’ve learned to listen and if I disagree, then I try to figure out why and why I’m wrong.

Where did you meet Em?
At Contrary Capital. Contrary, with its Venture Partner program, did a good job of getting mainly engineers from all sorts of backgrounds who were social. I love everyone that I met there. Some of my best friends have came from Contrary.

Tell me about Afore
We do one to three million dollar checks into pre seed stage companies. So kind of larger seed size checks but at the stage where it’s usually angels and scouts, not institutional funds. We do that as our bread and butter. Software generalists. Can be consumer facing or enterprise facing. Mostly US but geography agnostic.

Who are the founding partners?
Gaurav Jain and Anamitra Banerji. Both engineers that went into product. Animitra was the first product manager at Twitter and formerly Director of Product Management at Yahoo. Animitra made the blue check and Twitter ads and became an EIR and then Partner at Foundation Capital. Gaurav founded a venture-backed startup and worked at Google. One of the first PMs on the Nexus Team at Android. He joined when they were under a million users and left when they were adding a million users every day. At Founder Collective he invested in Airtable, Firebase, and Cruise.

Animitra and Gaurav had been talking about starting a fund unconstrained by arbitrary traction metrics. They felt they could pick people at the pre-seed stage, they could see them and they were like, I know, you’re going to do really well. It was hard to get other people to buy into investing that early.

They started in 2016. Now there’s 100 active portfolio companies. Some have exited or been acquired or fizzled out. Almost all are still active, though. They’re across all sectors, in lots of geographies.

They’ve raised $300m across three funds. We’re about a year into fund three. There’s lots of capital left to deploy. We do a check or two per month. It’s a fun place to be as a young investor because it’s a small team and we do lots of deals. You get lots of reps.

What’s Afore Alpha?
You can apply on the website, you don’t need a warm intro. Standard deal terms, $1m at $10m post. There's a couple of reasons why those terms are what they are. I think there's been pushback, maybe some investors think that that's too high for preseed, for example, some investors think that preseed shouldn't exist, because it's encouraging founders to not do research and just get funded based on ideas.

We have a high bar for ideas. If you do have an idea, hopefully you've done really thorough research, you can go to multiple levels of analysis on go-to-market and why there's a big opportunity, why there's an inflection point, and what your unique insight is after talking with dozens of potential customers. If you know these things, you can try and maybe do an accelerator or a raise a small angel round.

If you only raised, for example, from YC, which only used to give like 125k (now it's a couple 100k) - you're basically forced to fundraise again in a couple months. You're forced to always be thinking about fundraising. Our idea is the larger check size will hopefully give you at least a year where you don't have to think about fundraising. You can just be heads-down and keep building.

With the $10m post-money valuation, we were thinking 10% is a fair amount of dilution to take at the pre-seed stage. So you get the valuation by working backwards from the dilution. And I think a lot of companies, historically, I want to say maybe Uber, Airbnb, and a bunch of other ones started out with a million-dollar check. The partners at Afore did a bunch of research into how much you might need. And it wasn't like $50k, or a couple $100k. It wasn't like $4 million, it was somewhere in the middle at around $1 million. And then they thought $10 million was like a pretty good valuation for the quality founders that they were seeing. So then after the alpha program, then you receive all the portfolio support. Hiring, customer acquisition, and follow on fundraising. With lots of emphasis on helping with the customer acquisition part.

What can you do for customer acquisition?
I’m working on a more systematic approach where we can combine all the networks of not just everyone in the Afore team but all the Afore portfolio founders’ networks as well. If you want to talk to someone at Shopify, because you want to sell to someone there, you can say alright, one of the Afore team members is connected to this person in sales, but even better one of the 100 active portfolio founders is actually connected someone even higher, and we wouldn’t have known so we’re building a product to aggregate everyone’s networks. More concretely make better customer intros. A lot of people are thinking about this.

What else are you working on?
I’m working on a scout program. I suggested this when I was an intern but it’s a slightly bigger project. Now that we have bandwidth for it, I’m trying to figure out if we should turn our portfolio founders into scouts or if we should find people that have completely new networks. Sequoia has gone with the first model. They turn all of their founders into scouts. Caffeinated Capital has a $40m fund just for their portfolio founders to write checks out of.

Right now I’m excited by people that are maybe, you know, a product manager at modern treasury and know a ton about payments. They’ll be able to diligence payments companies really well and find payments companies and maybe better than we could as a generalist fund.

We’re limited in how much we can do because of the small size of the team but we’re bringing on a chief product officer and platform person.

Has Afore announced its investment in Osiris?
Yes – maybe I should write an article on it or something

How did it feel to successfully source your first deal for Afore? This is kind of big deal - it’s a really big deal!
That was a cool one. My roommate, Will, the fintech founder, had bought Middesk’s product from Jonathan before he started Osiris.

What’s Middesk?
It’s a KYB solution. Know Your Business.

So you have to make sure, if you're a FinTech company, or maybe payment processor, or vertical SaaS company or bank - any type of company that's onboarding businesses, you have to make sure that they're legit and not fraudulent.

Middesk does that by building pipes into the secretary of state offices. They screen-scrape a lot of PDFs. They plug into databases like LexisNexis. And they'll basically say, hey, a business applied to open a bank account with you, let's check their EIN (their employer identification number - like the SSN for businesses) and the address and the name and a couple other pieces. We'll tell you if they’re registered in Delaware as a corporation or not.

If you're doing auto decisioning - if you want to really quickly bring a business on board, you use the Middesk API. You hit their API with this information, and they'll say yes or no - if that company is a legit business. And, you know, they're backed by YC, Accel, Sequoia. They’ve grown pretty rapidly and I think they're really the only company in the space. They don't have too many competitors. Their competitors are pretty legacy companies.

And Jonathan was at Middesk?
Yeah, he was killing it at Middesk and saw an opportunity to build something similar to a Better Business Credit Bureau. Credit scores exist for people but not yet for businesses. And lots of people would want a better credit score for businesses – like business lenders.

Osiris is starting with a better and cheaper KYB product that can basically provide important missing information, not just “is this business’ info registered or not” but also “has this business been on any banned lists” or “has this company's information been requested by a bunch of financial institutions” (in which case, they're probably fraudulent and opening up a bunch of credit cards at the same time).

One concrete example- my roommate, Will, had a fraud attack perpetrated on his startup. He got a sign up, the largest concrete manufacturer (lol) in Indiana. Will thought that's great, they're going to use us, they're going to put our payments link on their invoices. Very rapidly, though, he started receiving a ton of fraudulent payments from them. The original Middesk KYB check did its job perfectly, hadn’t flagged anything and said, “This is a legit business, the employer identification number matches the name which matches with the address” and all of that. Turns out it was a fraudulent company.

It was account takeover fraud. So, someone who basically probably bought a leak of this business’s EIN, on the dark web or something. Or they social-engineered their way into it. They got access to the business's information. And existing KYB checks will only tell you if that business's information is correct or not. And in Will’s case they said it was correct. But there was no way for my roommate to know that this was an account takeover.

It would have been nice if Will could also report this back to the KYB checker and say, “Hey, this business, it is legit. But by the way, I just had a fraud attempt perpetrated. So their information is compromised. You should tell anyone else that pings you (asking if this business is legit or not) to do an extra check like ping the device location.”

So, I think that's one use-case where Osiris could be interesting. Going to Brex and Ramp and also some of the banks, and they can all share data on known bad actors. They all have internal databases of blacklisted, known-fraudulent businesses. And so, Osiris can all kind of combine this into one place where customers don't get to see their competitors’ data directly.

How did you explain the vision to the investment committee?
I was trying to get Jonathan on a call with Gaurav, since Gaurav had invested in a lot of FinTech. I knew Jonathan was speaking to VC firms and was going to raise. Without having been a founder before, he killed it with the fundraising process. He’s a very good salesperson.

He had built a network of VC firms by offering to be an outside expert on KYB. So when he went to start his own company he already had a lot of relationships.

When Jonathan met with Anamitra, it was a Friday, it went really well. My boss slacked me and said to drop everything that weekend. Saturday we talked to Jonathan for a couple hours. Did a bunch of diligence. I wrote a memo. My boss wrote a memo. We compared and consolidated our memos. We spoke with a bunch of potential customers and some cold outbounds and tried to get different perspectives. We gained conviction about the space. For example during Covid it became so easy to open a business that it led to a wave of fraud – Osiris is capitalizing on that inflection point.

We had more calls on Monday. Read some reports. And then made the offer to lead the round for Osiris on Monday. Signed the SAFE on Tuesday. Pretty quick process.

Was there any pushback when you’re shepherding this investment through?
I’m calling a bunch of potential customers and asking if they’d buy this and getting really positive responses. The potential customers knew Jonathan from his time at Middesk. On the research side we identified a couple key questions that if we answered would derisk the investment. If everything keeps trending positive, great. If not, then it’s probably not a fit.

How was meeting Billy McFarland?
We met through Eriz Zhu, the Aviato founder – he’s big on Twitter

The kid who raised money on Zoom from the bathroom in his high school?Yeah, he takes calls from the bathroom. He gets out of class in funny ways. It’s his bit. It’s a fantastic bit. And he’s super smart and introduced me to some interesting people.

So he connects you to Billy who is trying to do Fyre Fest pt 2?
Billy actually knows a lot more about tech and venture than you might think. He knew all the big venture firms in New York. We talked about Fyre Fest 2. He talked about raising money from all kinds of investors. He has been running a marketing agency and has been thinking a lot about AI generated or virtual influencers, like Lil Miquela. You can create a cohort of virtual influencers who are interacting and collaborating with one another.

If you made it this far - shoot me an email. Let me know that you just crushed 4k words!