“No one in the world has an urgent problem that will get solved by investing in some random guy's venture capital fund.” – Alex Rubalcava
Alex Rubalcava (@AlexRubalcava) is Partner of Stage Venture Partners, a pre-Seed and Seed stage venture capital firm that invests in emerging software technology for business-to-business markets. He began his VC career as an analyst at Anthem Venture Partners in 2002, and he as served on the boards of numerous Stage VP companies, including Balto, NotiSphere, SoundCommerce, WhiteFox, SPIDR Tech, Abett, Gray Matter Robotics, and Dyania Health.
Topics discussed with Alex Rubalcava
- 00:01:53 – Alex’s superpowers in investing
- 00:03:07 – Advice for founders
- 00:05:03 – Learning from Berkshire Hathaway and investment books
- 00:09:17 – The massive energy transition underway
- 00:14:24 – Advice for new investors
- 00:16:54 – Planning and long term success
Alex Rubalcava Resources
Books Recommended by Alex Rubalcava
- The Gorilla Game, Revised Edition: Picking Winners in High Technology by Geoffrey A. Moore and Paul Johnson
Transcript
Daniel Scrivner (00:05):
Hello, and welcome to another episode of Outlier Academy's 20 Minute Playbook series, where each week, we sit down with an elite performer, from iconic founders to world-renowned investors and bestselling authors, to dive into the ideas, frameworks, and strategies that got them to the top of their field, all in less than 20 minutes.
Daniel Scrivner (00:24):
I'm Daniel Scrivner. And on the show today, I sit down with Alex Rubalcava, founder and managing partner of Stage Venture Partners. Stage VP invest hyper early, typically pre-seed and seed, into deep technology companies across four core verticals, which includes space technology, industrial applications, healthcare and life sciences, and eCommerce tooling. What fascinated me about Alex and Stage Venture Partners is the incredibly unique approach of investing early into very difficult technological problems with a proven ability to help shepherd these companies from seed to Series A and beyond.
Daniel Scrivner (00:59):
In this episode, we cover Alex's investing superpower, how he manages his time, why he loves the book The Gorilla Game, the advice he gives founders again and again and again, and so much more. You can find the notes and transcript for this episode at outlieracademy.com/101. You can find Alex Rubalcava on Twitter, @AlexRubalcava. That's Alex R-U-B-A-L-C-A-V-A. And you can find Stage Venture Partners online at stagevp.com. With that, let's dive into Alex Rubalcava's playbook. Alex Rubalcava, thank you so much for joining me on Outlier Academy's 20 Minute Playbook.
Alex Rubalcava (01:39):
Thank you, Daniel. Glad to be here.
Daniel Scrivner (01:40):
So in this episode, this kind of format typically is a little bit faster pace. So, I'm going to try to ask you as many questions that I think will get interesting answers from you in the next 20 minutes. Let's go ahead and get started.
Alex Rubalcava (01:51):
Let's do it.
Daniel Scrivner (01:53):
In the last episode, we dove in and spent a lot of time talking about your venture firm, Stage VP, and a lot about your investing process, your investing approach. One of the questions I want to ask you in this interview is how you think about your superpowers as it pertains to investing. What do you think that you are kind of over-indexed on and how does that show up in your investment process?
Alex Rubalcava (02:15):
I would say that a lot of what I am particularly good at is investing in areas where there's not a lot of technology that has been applied, where there's not a lot of understanding of markets, and where innovation has been a little slower to arrive. A lot of the things that I invest in, there is no legacy software product that is being displaced or disrupted. We are literally competing with clipboards or Excel, completely manual processes. In fact, that is the incumbent solution in the vast majority of things that I invest in. And when you do that, there's no TAM to analyze, there's no market share to think about, there's no 40 page PDF to download from Gartner to figure out who's in the magic quadrant and stuff like that. It's a wild west compared to a lot of other markets in software.
Daniel Scrivner (03:07):
No, that makes sense. Is there a piece of advice that you find yourself giving to founders again and again and again? Or maybe, another way of framing that, kind of saying that would be, is there kind of the same advice that you give to all the founders you invest in?
Alex Rubalcava (03:22):
There's a few things. Number one, a lot of founders are sensitive to dilution on over-subscribing seed rounds. And I have generally advised founders that nobody regrets taking a few extra dollars while they still have not yet achieved product market fit. Achieving product market fit is messy and time consuming and unpredictable, and having a little bit more runway to make a mistake or two along the way before you finally figure it out is always valuable. So, I think that's one piece of advice that I always give. And then, a frequent piece of advice I always give, is if somebody is picking up the phone to give me a call to ask about whether they should let go of a person who is not performing, they already know the answer to the question, and they're just calling me for ratification of what they know needs to be done.
Daniel Scrivner (04:12):
Yeah, I forget the quote on there. I think it's if... Gosh, I'm going to totally blank on it. It's if you're questioning it, you've already kind of decided it in your mind. I'm totally butchering this, but this is a common aphorism I know Frank Slootman talks about at Snowflake.
Alex Rubalcava (04:25):
Yeah. And we are very fortunate to be in the best job market in the history of all time at the moment. And so, anyone who is not a good fit at a startup and unfortunately is going to get let go, they're going to land on their feet. This is a good time to let somebody go pursue some other opportunity that might be a better fit for them, where they could really excel. That is not always the case. We don't live in times like now all that often. But I think that should give founders who are questioning what they should do a little bit more encouragement to make the hard choices, because people are going to be okay.
Daniel Scrivner (05:03):
Yeah, and I think that's a good reminder. We talked about in the last episode that you've gone to 18 plus Berkshire Hathaway annual conferences. One of the questions I want to ask, I feel like anyone who's a student of Charlie and Warren and Berkshire has an anecdote or a story or a data point or a quote, just something that they really hold onto. What is yours? Is there anything that kind of resurfaces in your head that they've said or that shows up in kind of how Berkshire operates?
Alex Rubalcava (05:32):
Berkshire is so different from a venture backed company that there's not a huge amount that's common to them and what I do on a day-to-day basis. I would say that probably the one thing that is in common is the way that they communicate. I try to write very detailed letters that are modeled on what Berkshire Hathaway does to my investors. I try to sort of manage expectations in a way that is similar to the way that Berkshire does. I'm not sure I get it right every time, but I sure try. And Buffet and Berkshire have defined a way of communicating with investors that ends up attracting the right kind of investors that they want, and frankly, repelling investors that they don't want. And I think a lot of CEOs and founders of companies don't realize that they have the power to do that.
Daniel Scrivner (06:28):
Yeah, that's well said. I know as well too that you're a voracious reader. Do you have a favorite book or a book that's maybe most memorable that you've read around investing business broadly?
Alex Rubalcava (06:42):
Oh, investing in business. I'm trying to think about what would be a good book. A book that has a somewhat mixed reputation, but I think is better than people think it is, is The Gorilla Game. The Gorilla Game was published 24 or 25 years ago in the height of the .com mania. It was a book about how to invest in emerging growth technology businesses. Because the.com crash happened shortly after the book was published, it fell out of favor, but the risk management approach that is advocated in the book about how to invest in emerging growth, how to identify winners, and using a basket based approach for all the vendors and then consolidating into your winners as you determine who the platform leader will end up being, it is a pretty robust risk management approach.
Alex Rubalcava (07:34):
You have to make sure that you're not paying a crazy evaluation as well, and the book doesn't talk too much about that topic, but as a risk management approach, it has a lot to recommend it. And in particular, one of the reasons why I find that book interesting is that the value investing world of Berkshire and Buffet and all of his acolytes has a lot of literature about risk management, about portfolio management, and the frameworks that are advocated are self-reinforcing and cohesive in a way that makes them very appealing to a lot of people. Very few people have talked about what risk management looks like for growth investing. And I think that there needs to be more written about that topic, and it's something I spend a lot of my time thinking about.
Daniel Scrivner (08:28):
Well, if you ever publish something, I would love to share it with listeners. And I mean, that book sounds incredible. I have not heard of or come across The Gorilla Game. So, I'll make sure we link to that in the show notes for anyone that's listening as well too. I want to ask a question around kind of time allocation and how you manage your time. So obviously, as an investor, you find yourself pulled in a lot of directions. You, one I think, deal with a lot of volatility, just in terms of daily workload, what's happening in all the different companies you're invested in. And so, it's somewhat unique at least in my experience. How do you think about managing your time and how do you think about allocating your time to different buckets or focuses?
Alex Rubalcava (09:04):
I spend 50% of my time looking to raise capital from LPs, I spend 50% of my time looking to make new investments, and I spend 50% of my time helping portfolio companies. And nope, it sure doesn't add up.
Daniel Scrivner (09:17):
And that's probably how it feels most days, like you just worked 150% of a day. Okay, I'm going to switch pace now. What is something that you've recently been fascinated by? And I think bonus points if there's an idea, a book, a person, kind of a quote, or a talk you've been thinking about. What has meant on your mind and what can't you get out of your mind lately?
Alex Rubalcava (09:44):
I can't get out of my mind how profoundly I think people are underestimating the energy transition that is underway. I think that the cost curves in solar and wind show no signs of really slowing down. There's obviously a raw materials inflation happening right now due to the global supply chains and war that are interrupting that cost curve for a year or two. But the fundamentals of the cost curve don't look like they're going to change for any reasonable period of time. And if that is true, then the power of wind and solar and other forms of renewable energy are being grossly underestimated in terms of what they're going to do to the input of everything energy goes into over the next few years. I think one consequence of that is that we are going to blow well past a 100% of current electricity demand that will end up being supplied by wind and solar.
Alex Rubalcava (10:41):
I think that we're going to end up putting new sources of demand and load to accomplish new goals that have never been possible before, or have not been possible through electricity. I think there's going to be a huge amount of software companies that are going to be enabled by that. I get relatively little deal flow on that area. And so, I'm trying to drum up more founders and entrepreneurs to come pitch me on this kind of stuff, because I'm really interested. And so far, I've seen a few carbon accounting type of ESG reporting companies and I've seen some battery management companies, but nothing that really gets my attention in a big way. And I think things are really moving in a way that is still consistently underestimated.
Alex Rubalcava (11:27):
For example, I'll give you one example of what I think is going to happen. I think we're going to end up running fossil fuel plants in reverse basically. And instead of burning fossil fuels to generate workable energy in the form of electricity, we are going to use electricity to strip carbon out of the air to make liquid fuels that are not fossil fuel, that don't have carbon in them. And there was no way the physics and the economics worked for that up until very recently with particular solar power getting as cheap as it is and that cost curve continuing to go. And now, there's a bunch of companies that are pursuing low CapEx, high OPEX unit economic strategies that enable them to ride that cost curve down in a way that nobody had really conceived of before. This is going to change the world. It is going to be so big it's hard to imagine all of the facets of it.
Daniel Scrivner (12:25):
Just because you kind of brought that up, how do you think about solar and wind alongside nuclear fission? Are you spending any time kind of in those areas as well?
Alex Rubalcava (12:35):
Well, there's no question that there's a lot of advancements in nuclear happening right now. Small modular reactors, molten salt reactors of all kinds are... There's multiple startups doing that. There's multiple nuclear fusion startups out there and there do appear to be substantial breakthroughs, thanks to new advances in magnetic materials that can contain fusion plasma in a way never possible before. So, it does appear that we might be close to first electrons for some systems like that sometime soon. The question is, are they going to ride a cost curve? In general, the technologies that ride cost curves are characterized by high CapEx, high R&D, low labor intensity, so it doesn't take a lot of people to make a piece of equipment, and really high volumes of individual production units. And nuclear has never yet had those characteristics to it.
Alex Rubalcava (13:36):
It's labor intensive to build a nuclear plant. There aren't a lot of them. So, there isn't a huge amount of learning by doing. And it's not like there have been multiple generations that have actually been built. Now, there's four or five or six advanced nuclear generation technologies on the drawing board that have been conceived, but they haven't really been built in the world. And that's the difference. That's what causes a cost curve is building high volumes of things with low labor and multiple generations of it. There are very few things that actually get on a cost curve. Automobiles do not go on a cost curve. Automobiles don't cost a hundred bucks today. The reason they don't is that while there's a lot of CapEx and R&D involved in them, there's also a lot of labor.
Daniel Scrivner (14:24):
Yeah, I think that's very well said. I've never heard someone articulate it that way, but I think it's definitely the most interesting bullish take I've heard on solar and wind as compared to something like nuclear fission. So, I think that's fascinating. I want to ask one question which is if you could go back in time and give yourself a piece of advice when you were launching Stage Venture Partners back in the early days, which I think was seven plus years ago, what piece of advice would you give yourself?
Alex Rubalcava (14:51):
If I could go back, I would say that trying to spend time convincing institutional investors to invest in a firm with no track record was a lot of wasted time, and that there are a lot of other types of investors out there, from just the LP capital raising perspective, that are more efficient to go after and more efficient to close, and nothing substitutes for momentum in business. And I probably spent too much time chasing things that did not build momentum instead of finding things that created momentum.
Daniel Scrivner (15:29):
Yeah, that's very well said. Just because we're talking about fundraising, what is the biggest lesson you've learned in terms of fundraising from LPs or just fundraising in general as a venture firm?
Alex Rubalcava (15:42):
No one in the world has an urgent problem that will get solved by investing in some random guy's venture capital fund.
Daniel Scrivner (15:51):
Has to be much more intentional process-centric.
Alex Rubalcava (15:54):
Investing in a VC fund is a purely discretionary thing. You've got to have a lot of other things in your finances as an organization or as a person sorted out and well put together before you could even conceive of or consider the idea of putting money into a venture fund. And that makes our asset class one of the most interesting challenges to raise money for. Now, on the flip side of it, what we have that no one else does is the stuff we're doing is by definition super interesting, super fun, and just has characteristics of it that are a lot more engaging than some munis bond fund or some insurance product of some kind.
Daniel Scrivner (16:43):
Yeah, it's definitely true in my experience. It's much more fun to follow investor updates from a venture fund-
Alex Rubalcava (16:48):
A 100%.
Daniel Scrivner (16:48):
And to get insight into the companies and what they're building and what they're doing.
Alex Rubalcava (16:53):
As opposed to an annuity.
Daniel Scrivner (16:54):
Yes. No one wants any updates around municipal bonds or annuities. I think that's pretty clear. Okay, two last closing questions. Number one, is there a daily habit of routine that you do? And this could be something you've experimented with, this could be something that you're trying to nail down in your life now, this could be something that you've executed flawlessly and you do it every single day and you're on a hot streak. Is there a daily habit or routine that has had the biggest positive impact on your life, and can you share that?
Alex Rubalcava (17:21):
No, I'm not really a daily routine kind of a guy.
Daniel Scrivner (17:25):
Nothing?
Alex Rubalcava (17:26):
No.
Daniel Scrivner (17:26):
Whether it's morning or work related?
Alex Rubalcava (17:29):
Nah.
Daniel Scrivner (17:29):
I like it. Not even inbox zero?
Alex Rubalcava (17:32):
I have tried to get to inbox zero on a number of occasions, and I'm pretty good at it. Let me look at my Gmail right now. In my primary tab, I've got 55 emails right now, so I'm doing pretty well.
Daniel Scrivner (17:44):
That's not so bad.
Alex Rubalcava (17:45):
Yeah. I don't know. I'm much of a productivity hack or daily routine kind of a guy.
Daniel Scrivner (17:56):
Do you spend much time planning out your day? I'm guessing it still means you're spending time sitting down and planning things out. It just means you're not maybe overthinking and overanalyzing from the what habits and routine should I be getting better at now.
Alex Rubalcava (18:10):
Yeah, it's funny. Any given day is super busy for me, but three weeks out, there's almost nothing on my calendar except for board meetings. So, it ends up evolving in an unpredictable fashion most of the time. So today, I think I have six or seven items on my calendar to do, but three weeks ago, there was nothing here on this particular calendar day except for our interview. And so, everything that I've ended up doing today has been organically developed in that time period.
Daniel Scrivner (18:45):
Yeah. So it almost sounds like to maybe flip it around, a big part of the strategy is be as under-scheduled as you can, and then allow the emergent things to fill up your calendar as it makes sense.
Alex Rubalcava (18:55):
Yeah, I don't feel under-scheduled at all. But I guess I am at T plus 21 days.
Daniel Scrivner (19:03):
Yeah. I try to do the same thing as well too, partly just for sanity.
Alex Rubalcava (19:09):
Yeah. In our business, it's somewhat required because the timelines to complete deals are so short that you don't have the luxury of letting a process go on too long. Yesterday, I signed a term sheet with a company and I have spent two weeks on that due diligence process. I have spoken into both founders, I have spoken to numerous people in those functions at my portfolio companies. I spoke to the company's beta customer and design partner, and completed a pretty thorough process and developed a conviction that there's something really big and really exciting here. But if I had been over-scheduled for the last two weeks, I would not have had the flexibility to drop everything and to prioritize this particular investment opportunity, and I would not be the lead investor of that company, which I now am.
Daniel Scrivner (20:04):
Yeah, that's really well said. Okay, last question. What is your definition of success today and how has that changed over time?
Alex Rubalcava (20:14):
For my business? For me personally?
Daniel Scrivner (20:17):
Any direction angle you want to take it in.
Alex Rubalcava (20:20):
I would say today for my business, my definition of success is to always be investing in the most cutting edge software companies I can. I would say in the long run, my definition of success is to build a firm that is not entirely dependent on me and that will one day be something that outlives me. Up in the Bay Area, there are dozens, if not a 100 or 200, venture capital firms that are on their third or fourth generation of managing partners. There are a lot of firms that were founded in the 70s or 80s where the folks who founded them are long since retired and most people who receive capital from those firms don't to even know the names of the people who founded it.
Alex Rubalcava (21:09):
And in Los Angeles, while there's several hundred venture firms, there's only really one firm that's past its first generation of managing partners, and everybody else is still figuring it out. And some people don't want to do that, some people do. But most to the firms in my neck of the woods are run by the people who started them. And for an ecosystem to grow up, I think that there needs to be some degree of continuity and some degree of firms that outlast individuals and outlast people. And in the long run, I would like to be a part of that.
Daniel Scrivner (21:45):
Yeah, I think that's really well said. And I especially would like to see that because of the focus of your firm, because I think number one, I would agree that we need more kind of multi-generation or just very long term oriented firms. But the second one is we need firms that are focused on very hard, difficult technological problems. And so, I think if you can do both of those with Stage Venture Partners, I think that would be an incredible feat to pull off.
Alex Rubalcava (22:11):
It is fun to pull science fiction into science fact.
Daniel Scrivner (22:17):
And you're doing that across many of your portfolio companies. For anyone listening that's interested, you can learn more about Stage Venture Partners at stagevp.com, and you can follow Alex Rubalcava on Twitter, @AlexRubalcava, R-U-B-A-L-C-A-V-A. Thank you so much for the time, Alex. It's been awesome to have you back on.
Alex Rubalcava (22:35):
Glad to be here.
Daniel Scrivner (22:35):
Appreciate it. Thank you so much for listening. You can find links to everything we discussed, as well as the notes and transcript for this episode at outlieracademy.com/101. That's episode 101. For more from Alex, listen to episode 98, where he joins me on our Investor Spotlight series to go deep on Stage Venture Partners' approach to investing in deep technology companies at the earliest stages, including why he focuses on space, life sciences, eCommerce, and industrial applications, and why in a world of ever increasing private market valuations, his entry point of seven and a half million hasn't moved in almost a decade.
Daniel Scrivner (23:14):
Alex is the master at investing in the most lucrative places where others aren't even looking. You can also find more incredible interviews with the founders of Levels, Superhuman, Eight Sleep, Rally, and Commonstock, as well as bestselling authors and the world's smartest investors all at outlieracademy.com. You can now also find us on YouTube at youtube.com/outlieracademy. On our channel, you'll find all of our full length interviews as well as our favorite short clips from every episode, including this one. Thank you so much for listening. We'll see you right here next week on Outlier Academy.
On Outlier Academy, Daniel Scrivner explores the tactics, routines, and habits of world-class performers working at the edge—in business, investing, entertainment, and more. In each episode, he decodes what they've mastered and what they've learned along the way. Start learning from the world’s best today.
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