Prolific VC Chris Hollod talks angel investing, rejection and the deal that got away

John Siegel

Chris Hollod is, undoubtedly, one of the great success stories in the LA tech community. Months after losing his mother, breaking up with his live-in girlfriend and being laid off from his job in investment banking following the financial crisis, Hollod couch surfed his way through LA until he was able to connect with uber-successful investor Ron Burkle.

But you know all of that already.

Fast forward to 2017, and Hollod isn’t just the right-hand man to Burkle, a managing partner at A-Grade Investments. He’s developed himself into an accomplished angel investor, consultant and advocate of the LA tech community.

Recently, we spoke with Hollod about how he makes investments, companies he missed out on and the misperceptions associated with being a renowned venture capitalist and angel investor.

What’s one thing people don’t know about you?

I think there’s a pretty common perception that everyone in my line of work (especially those living in cities like LA) is constantly on the go, hustling, wheeling and dealing, that sort of thing. Truth be told, I’m actually pretty introverted and kind of a homebody.

My work schedule gets super intense and takes me all over the world, so when I’m in LA, I like to hang out at my house with a glass of wine. I’ll binge on Netflix, order food from Postmates, and spend alone time on my other interests, like working on my non-profit wine label KMH Vineyards and writing a book entitled "Big Fish Big Pond," which will encourage millennials to break free of restrictive conventional wisdom.

You receive dozens of pitches a week. What’s one way for an entrepreneur to get the attention of a venture capitalist?

The best way to get my attention, or the attention of any VC for that matter, is a warm email intro from a mutual contact. I’ve seen it all though – you’d be surprised at how creative entrepreneurs can get. Although I candidly dislike unsolicited emails, if you do not share a mutual contact, sometimes a cold email is the only way for an entrepreneur to reach a VC.  If you have to guess a VC’s email address and send a cold email, make sure that you personalize the message as opposed to simply cutting and pasting it. I get a lot of random emails every week, and I always wonder how an entrepreneur expects me to personally respond to their email if they didn’t even take the time to personally write it.

Alternatively, I actually enjoy replying to random emails when I can tell that the entrepreneur seriously took the time to craft a thoughtful and personalized message. For example, a few years ago, a random, unknown entrepreneur sent me a very thoughtful and unique email that closed by saying, “Chris, I’d love to meet you. Just name a time and place and give me an hour’s notice, and I’ll be there!” That level of hustle resonated with me. So I quickly replied to the email and took him up on the offer. Now, three years later, that entrepreneur has become a close friend and a big success.

What’s your biggest “miss” and why did you opt not to invest?

My biggest miss is undoubtedly Snapchat. Now that Snap is a well-established, $25 billion company, a lot of people take it for granted and cannot believe how some VCs missed the investment. But at the time Snapchat launched in 2011, it was far from a “no-brainer” investment. When the company originally launched, it was an innovative platform used by a very young demographic. And I’ll be the first one to admit the fact that I did not fully understand the beauty and value proposition of the app. Since I personally was not an early-adopter of Snapchat, I questioned the sustainability of the platform.

Plus, at the time, the social media world was being bombarded by new startup companies every single week, so I was extremely concerned about the over-saturated, constantly evolving competitive landscape. But sometimes, when the startup does not personally resonate with you and elicit an instinctual gut reaction, you must confidently rely on the data and metrics to make an informed investment decision.

Can you give a few examples of things that would scare you off from making an investment?

No matter how good an idea, I believe the success of every company is directly tied to the sustained drive, passion, and competence of its founder. So, when hearing a pitch, if the entrepreneur informs me that he or she has a “day job” or some other type of “side hustle,” I get very nervous. When I invest in a startup, I want the founder to be 100% committed to the success of that endeavor. They should almost be monomaniacal about it!

In addition, I want the entrepreneur to exemplify strength and confidence, but cockiness is a huge red flag. Any time a founder tells me something like “my new startup has no competitors,” for example, I get very scared. I don’t care who you are, you can always find a competitor. Or, “we’re going to make a billion dollars of revenue within one year.” That’s another quote that I hear a lot more often than I’d like.

I know you’re involved with investments made in companies all over the world, but what stands out about LA tech?

I’ve been traveling full-time with my boss, Ron Burkle, for the last six years. We’ve been everywhere together. But, LA is still my favorite city on the planet. LA is just so diverse and exciting. I love the progressive culture and positive mentality here. The LA tech scene is much more than just Hollywood-based entertainment startups. Sure, that’s a huge component, but LA is a sprawling mosaic comprised of so many fascinating and unique neighborhoods and cultures. I believe that diversity is LA’s greatest strength when it comes to the tech scene. With that said, we’ve invested in a wide variety of LA-based startups, ranging from the virtual reality company 8i to Thrive Market to House Beer to a new online menswear brand Life After Denim. LA is anything but homogeneous, so it can both fuel all different types of innovation and attract all different types of investors. I don’t think any other city can replicate LA’s tech ecosystem.

Does your thought process/mentality change when you’re considering making an angel investment (as opposed to how you operate with Yucaipa, Inevitable and A-Grade)?

On a general level, the answer is “no.” No matter which entity is making the investment, I always want to back compelling companies led by passionate entrepreneurs. And we only invest in startups where we can add strategic value. But, with my own entity, Hollod Holdings, I’m often willing to accept a bit more risk and invest in more early-stage companies.

If there was a checklist that existed for making an investment, what would be on it?

I think the number one item on my checklist would be “gut reaction.” Things move extremely quickly in the VC world, so you have to trust your instincts. If my instincts are positive, I then transition into my due diligence process, which always begins with an initial call or meeting with the entrepreneur.

When meeting with an entrepreneur, I always start with the high-level questions first. For example, what problem are you addressing and how do you plan to solve it? What’s your ideal use-case scenario and user demographic? How big is the total addressable market? Who are you competing with and is your solution actually differentiated and sustainable? What’s your monetization strategy? What’s your background and who is on your team?

Once I obtain a general understanding of the startup, I then transition into more specific, fine-tuned questions and also delve into the numbers and metrics. For instance, how many people are currently using your product or service? What’s your projected revenue for the next twelve months? How much cash do you have and how much new money do you need to raise? What’s your company’s valuation and how do you substantiate and justify that number?

You went through an unbelievably rough period of time around 2007. What advice do you have for entrepreneurs regarding pain, loss, and rejection?

Yes, 2007 to 2009 was a rough time for me – my mother lost her battle to cancer, my girlfriend — who I lived with — and I broke-up, and when the markets crashed in 2009, I was laid-off after four years in investment banking. These three events shaped me in ways that I could never have imagined. They forced me to re-evaluate everything I thought I knew to be true and push forward with a new profound sense of determination and positivity.

For those going through tough times, I’d like to hope that I’m a testament to how things can get better, so long as that’s what we want. I learned that no matter how bad it gets, it’s ultimately up to us to find our way forward. There’s a Proust quote I really love that says, “Happiness is beneficial to the body, but it is grief that develops the powers of the mind.”

Can you talk about the process you went through to make an angel investment?

When it comes to my own personal angel investments, I try to adhere to the same process every time in order to maximize efficiency and minimize the chance for error. First, I always like to review the company’s investor deck. If the idea piques my interest, I then quickly try to learn as much as I can about the company and industry. It’s incredible how valuable of a resource Google is, and after reading various articles and exploring related websites, I’ll solicit the opinions of friends, experts and colleagues. If I’m still interested in the company at this point, then I schedule a call or meeting with the founders. If the founders pass my test, I always like to speak to at least one existing investor in the company, in order to get their opinion of the founders. Once I conclude my personal diligence process, I then negotiate my proposed investment allocation and corresponding deal terms. I’ll then review the legal docs, execute the signature pages and wire the money. From that point forward, I try to actively help the founders as much as possible.

You have a lot of priorities. How do you create a work/life balance?

Funny you ask, it’s kind of the opposite – I have very few priorities. I always say that if you have more than four priorities, then you have no priorities. Through living in the extremes which feel natural to our generation, balance can be achieved through aggregation. We go really fast and hard, then we shut down to neutral. Rinse and repeat. I like to think that when we practice moderation at work, we generate moderate returns. In order to reach our true potential, we have to push the limits. When we go hard at work, we shouldn’t leave anything on the table. But, then we need to implement a counterbalance. When stuck in one extreme (work, work, work), we burn out. When our goal is “all things in moderation,” we hold ourselves back from the highs achieved only when we push ourselves. It’s easy to think a healthy balance comes from moderation, but I think the key actually lies in finding the right extremes and counterbalances.

 

Images via Chris Hollod.

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