If you’re having conversations about startups and investing in Minnesota, there is one person you’re going to come across very quickly: Reed Robinson.
Per Twin Cities Business magazine: Reed is the founding partner of Groove Capital, a pre-seed investor in Minnesota-based startups, and the Groove Investment Group, one of Minnesota’s largest angel investor groups. He has co-founded or worked in a variety of technology startups and community resources, including BETA and Twin Cities Startup Week. (https://tcbmag.com/author/reed-robinson/)
Casey:
Reed, thank you so much for chatting with me today.
Reed:
Yeah, my pleasure. Thanks for the intro.
Casey
Of course. So first question. What inspired you to start BETA and Twin Cities Startup Week? (What were you doing before this?)
Reed
BETA was my sneaky way of staying involved in the local tech community. I was just coming off of a failed technology startup. I found myself desiring to stay connected and continue to be a part of this small, but exciting and energizing group of technologists. Because I didn’t have a company, I wanted to stay in the cool kids club, and BETA allowed me to do that, by throwing parties for those startups to help drive awareness and potential customers, potential investments, for those people that were still operating businesses.
It wasn’t any intention to grow it to what it is now. It was really just, we wanted to build a community, we wanted to build a culture around startups and there really wasn’t a lot of that happening at the time. So we tried it once and it worked. They wanted us to do it again so we did it again. And it just kind of snowballed from there.
Casey
Can you tell me a little bit more, you mentioned a failed startup that was kind of the transition into BETA?
Reed
Yeah, it was a company called Heroic. It was a competitive product to Angie’s List, where, instead of seeing reviews from strangers, we would send you recommendations from your friends and neighbors. So we started building an engine that would unlock people’s network of trusted home service providers.
By the time we actually pulled that together we were starting to run low on cash, we were having some issues with founders. It was kind of a little too late. We had raised a couple hundred thousand, we had spent that money, really were kind of at the end…
Heroic was like this interesting combination of this life changing event. I would call it a mini MBA, where I learned… I paid to learn, but I paid less than if I had actually gotten my MBA. So I feel like I paid less and learned more by starting a company. And that learning came from failure.
Casey
Yeah. It seems to be a common theme in the founders I talk to and read about that failure can be one of the best ways to learn and grow and be successful in the future.
Reed
Yeah. There’s all different takeaways from it. The silver lining was I was better as a result of failure. It prepared me to do what I’m doing now. It gave me the confidence and the courage to pursue things again. Because I think one of the biggest reasons why people don’t start companies in the first place is because they’re afraid of that.
And it turns out it’s not that bad. When you experience it and you realize, well, I can survive even when the worst thing occurs. I could do this again. I don’t need to worry about that anymore.
Casey
That’s great. And who is one person that guided you along the way through that initial process with Heroic into BETA? And since then?
Reed
Um like, was there an individual that was kind of helping me kind of work through that failure?
Casey
Yeah. Was there a mentor, a coach, a supporter of some sort?
Reed
I would say probably not.
Not one individual, for sure.
Reed
But that was the cool part about BETA was you’re surrounded by your peers. There’s a bunch of people. So I don’t know if anybody deserves credit more than another. I think the reality is, the thing that picked me right back up was just seeing so many other people grinding it out, trying to be successful. So I learned from them. I was encouraged by them, either directly or indirectly. And I had a lot of people that gave me a shot to do my next thing that I’m very thankful for. But I didn’t necessarily have the sherpa along the way that was telling me exactly how to do things.
Casey
Sure. And whether it’s amongst that group of peers now or kind of outside of the people you work with day in and day out, who do you go to for support and who can you confide in?
Reed
I think there’s different people for different reasons. My partner Mickayla is somebody that I can confide in. She has a good strategic mind. She’ll let me vent. So she’s been super helpful for a lot of different reasons as a partner. In the venture community. I think the cool thing about this town is I think a lot of the newer general partners are friends and desire to see each other be successful versus competing. So they’re always available. If I have a question. In my investors, people like Daren Cotter, who have invested in a number of things, have certainly learned a lot and are willing to share.
Reed
And then kind of from the more experienced perspective, I would say that somebody like John Tedesco from an operator’s perspective who’s more the kind of sage at this point that can help me just kind of think and frame things up from somebody who’s had a lot of different experiences.
Casey
Okay, great. That’s very helpful. And that’s absolutely… what you were saying about not necessarily viewing each other as rivals or competitors. I’ve noticed that the more that I’ve dug into the Minnesota startup community and watching some of the presentations from AngelFest and things happening at MNCup and lots of different things like that, it just seems like there is a very supportive community, cheering each other on, which is great.
Casey
So, speaking of the startup community in Minnesota, what would you say is the best way to give back to the startup community?
Reed
Probably depends on what resources you have available to yourself. If you have the means to invest, the best thing that you can do is invest. That’s one of the most significant ways to make a meaningful impact.
If you can’t, what are the other options? Sharing your expertise is certainly one. Mentoring. Making introductions. There’s a variety of ways you can support founders. Buying their stuff. That’s a big one.
That’s probably second on the list of important things, especially early on. Is being customers.
Going to the events, telling… And encouraging them. Kind of depends on what each individual thinks they can do the best.
Casey
Yeah, absolutely. That’s helpful. And going back to your number one, it’s best to actually invest. What are the first steps to becoming a venture capitalist or an angel investor?
Reed
Um, they’re very different answers.
What’s the first step to becoming an angel investor? Well, I guess both of them. It’s important that you have a tolerance for the risk factors and an ability to evaluate people and opportunities. I think that’s probably the commonality. The venture capitalists; you’re basically combining a startup and being angel investor into one thing. So you have to start a business, which means you need customers. Those are your LPs. And you’ve got to have the energy and wherewithal and competitive advantage to be able to stand up a venture capital firm, which I think sounds super sexy, but is actually a lot of paperwork and a grind in a lot of different ways and less sexy at the end of the day than I think, what a lot of people would imagine.
Reed
So I think there’s a lot of people that might be drawn to it, not fully knowing what they’re getting themselves into. What led me to decide I wanted to do that was when I was running the BETA Cohorts and I was talking to entrepreneurs about how to win, I would focus heavily on what is your competitive advantage. Like, why did you do this to begin with?
Reed
How can you be successful? And I did the same thing to myself. I applied that to myself and I said, okay, what can I do? What do I have access to that nobody else has access to? Well, the answer to that question was I’ve got now hundreds of founders that I’ve met along the way. They know who I am, I know who they are, I know how to navigate this community because I built a lot of the infrastructure. So I had relationships that I could tap for investors, I had relationships that I could tap for potential investments. And I felt like I had experienced enough that I’d seen what would eventually become our investment thesis, what to look for in really early stage companies. Back to the question at hand of how to become somebody in venture. Well, you better have a pretty damn good idea of how you’re going to get into really good deals and know what you’re looking at and understand how the business model works for venture. Now, if you’re an angel, I think that’s a little bit different because you don’t necessarily report to anyone but yourself. You can have different decisions based on what is your personal thesis.
Reed
Tactical difference between the two is like if I’m a general partner in a fund, my job is to return capital and so I have to make decisions that are going to do that. If I’m an angel, I might still desire to do that, but that might be secondarily considered amongst supporting a female founder or investing in the climate. I have more flexibility on my return potential to favor investments that mean more to me personally.
But in both cases, and I think that’s part of the answer to the question, like having a thesis really matters if you want to be successful.
Casey
Okay, makes sense. And about 90% of Groove Capital’s investments are Minnesota based. What makes that focus on Minnesota based companies important to you?
Reed
There’s a few reasons why. Back to the competitive advantage piece. I knew that I could access Minnesota based companies better than anyone. So it’s exactly connected to what I think will drive the returns for the fund. So that’s part of the reason why. The second part of the reason why is I love this place and I want to see it be successful in perpetuity. And I believe that startups and small businesses are the best way to improve the community. And then lastly, I think the deals are better. So I’d rather invest here than in a lot of other places where I don’t feel like you get the same value.
Casey
Interesting. Yeah, makes a lot of sense. And you wrote an article, for those that don’t know, about the founder archetypes that you call sellers versus builders. And I’m including them for reference in the paper:
| The Seller | The Builder |
| Makes promises | Delivers on promises made |
| Is best at explaining WHY | Is best at explaining HOW |
| Is magnetic | Is pragmatic |
| Moves fast | Moves slow |
| Leans into sales | Leans into product |
| Gravitates towards roles like CEO, CRO, and President | Gravitates towards roles like CTO and COO |
| Is the sizzle | Is the substance |
You stated, “Builders can learn to sell and Sellers can learn to build. However, the more we see, the more I’m convinced that the best founders gravitate towards the function that comes most naturally to them. And given that all startups are short on time, it’s best to have people focus their energy where they can make the largest, most immediate impact.”
Could you tell us about a time that the distinction wasn’t obvious and what you did to identify the builder and the seller in that situation?
Reed
Yeah, sure. There’s a part of it that I left out in that article, which is from a venture capitalist perspective, I also don’t want to invest in you learning how to do another one of those things.
I would rather you do what you’re best at than pay and wait for you to build another skill so that’s the probably more aggressive way of describing kind of how that influences our investment decisions. To your question, it’s usually pretty obvious. I think at some point along the way I thought that there might be maybe the one in 10,000 that you bump into that might be capable of both. And I’m maybe less certain now that that actually exists. But I haven’t made up my mind on that subject. But if it’s not obvious, which it is in most cases, then I’m thinking of one person right now that I’m not quite sure, then I’ll ask them. I’ll kind of give them the framework or the construct and say like, this is kind of what we are interested in. Does this make sense to you? And if it does, which one do you think you are? Or we can kind of on that same article on the list of kind of qualifications, I can kind of figure it out depending on how comfortable you are with fundraising. If I can tell they’re uncomfortable asking for money, then they’re likely going to fall into the builder bucket.
So that’s kind of a dead giveaway.
Casey
Okay, makes sense. And you had mentioned that if they were missing certain skills that it may not be worthwhile to invest as a venture capitalist to help them build those skills. If you ran into someone in that scenario, if you saw potential in them, would you recommend that they take certain actions to build those skills before they come back and pitch again?
Reed
I would say in most cases we’re pretty direct and constructive to help them understand the way that we think and what we think they might need. But I think there’s sensitivity to it because built within that feedback, it’s very personal. You’re saying things to them that they may not have realized yet or maybe somebody else hasn’t said it and it can be and it occasionally is taken out of context or like you kind of say it one way but it hits them in another and then we can’t control that, but it happens. But I would say in most cases it’s like I’m thinking of one investment that was all builders and we had this conversation a number of times. It was like, you just don’t have that other side of the equation. And it’s just so obvious that it’s stalling your sales, it’s stalling your ability to invest. Go find that and add it to your team. We both can see the evidence of this thing, but I would say if you’re mature and you’re kind of in this game with the right kind of strategy, you’re going to take that and you’ll adapt. If you believe what we’re saying is true or that’s your opinion.
I think we’ll just keep doing what we do, and they could be right as well.
It’s not like it’s impossible if you don’t have one or the other. I just think your likelihood of success is lower.
Casey
And I think you mentioned in the article that there’s been cases where you’ve helped introduce a builder to a seller or a seller to a builder. Is that true? Have you set up any duos?
Reed
I don’t think any of them have converted.
But yeah, we’ll do that from time to time where I’m making introductions and I’m hoping that’s what happens but it doesn’t always work out. In most cases it doesn’t.
Casey
Okay. So it’s worked out in the past when it’s more organic or they’ve already come in as a seller and builder pair or group. That’s complementary.
Reed
That’s true.
Casey
Interesting. And just to do a quick time check, are you good for me to keep going? I had a few more questions for you.
Casey
All right, sounds good. So you already alluded to this earlier a little bit with your own example of starting Groove, but one of Groove’s prerequisites for the startups you target is a minimal viable product, and you say past concept stage with a working prototype or proof of concept. So I’m curious, what do you expect founders to bring to the pitch? Like, what might that proof of concept look like?
Reed
Um, sometimes it’s, you know, it’s like a demo or, you know, screens. We can access it and kind of see how it works if we desire to do that. But in most cases, the pitch, they’re mostly talking about it. What have they built so far? How does it work? And then in some cases, where they’re not there, they’re talking about what they’re planning to build and the functionality that they desire to build into it. That’s how to answer the question on the product side. But I think the same thinking around an MVP could be applied to the business model, where it’s like, you haven’t built the scalable version of your business model yet, but you have shown that your pricing is approximately correct and that people are willing to pay you for this solution to their problem. And so when we say MVP, I think that’s just a good signal of, like, we don’t want to see your idea on a napkin. Yeah, we want you to have something that people can react to, some prototype that gives us indications that your assumptions are true to some extent and that we can trust that you’re going to be successful in filling in the rest of this.
Casey
That makes sense. And when you mentioned the pricing and the willingness to buy, so would you say that they’re coming with evidence of product market fit?
Reed
Sometimes it depends on the stage of the investment, a lot of times not.
But then in which case, in most investments that we’re looking at, we’re looking at the team and trying to understand do they have any sort of realistic chance of getting to product market fit? And that’s going to come from experience in the category, experience as founders, experience as operators of similar business models. You don’t already have to be there, but if you’ve never started a company before and you don’t have any sort of traction we can look at in answering that question around assumptions, you better have the previous experience in your background to suggest that you can. Otherwise we don’t have any indications of your success.
We just had this conversation two days ago. And these are founders that I know and I trust. We desire to support them at some point in this journey together, but they were too early and working in a category that’s different than their previous startups. And it’s like, I know you’re capable of starting companies, but you don’t really have any sort of business here.
And they also didn’t have any product or any sales or anything else that kind of could overcome the lack of experience in the space.
Casey
And what would your advice be to go get experience in that space if they really wanted to pursue that idea?
Reed
Go answer the key assumptions of your model or some of them, as many of them as you think you need to. And it usually comes down to the key assumptions. Are you the right people for this? Is there a market here? Can you access the market? Are people willing to change their behaviors to do your thing versus what they’re doing currently at the core of it? That’s kind of what every company is up against.
Casey
Makes sense. I had one more question that I had sent you ahead of time and then if we have time for it, just kind of a bonus. But what are your hopes for the future of Twin Cities startups?
Reed
I want to see another three or four Fortune 500 companies grown, built and grown locally that begin as startups in my lifetime.
Casey
Yeah.
Reed
You know, I want to see a continued emergence of some really critical categories of enterprises that we can look to and rely on as consistent communities of innovation. We have that in medical device. We have that in some kind of insurance and InsurTech stuff. We’re building that in FinTech. We’re building that in food, we’re building that in kind of SportsTech. So there’s things that are emerging, I’d like to see those continue to be invested in and the exponential growth of exits, producing new companies and new talent happening in each of those categories reliably.
Casey
I had mentioned that I’m wrapping up a professional coaching program and that was kind of the impetus for this research paper and this interview. And you had mentioned earlier that with having a guide along the way or a person you could confide in, it sounded like it was more kind of your own cohort, your peers, your partner, but not necessarily a coach or mentor or anybody like that. I’m curious, what are your perceptions of the professional coaching space and any value or lack of value they might bring to Twin Cities Startups?
Reed
I’ll probably describe it using different words.
I think the master and apprenticeship model is proven and timeless, you know, and I think as I look to the future of all of the different offerings that we have now in the ecosystem around cohorts and accelerators and incubators, I’m kind of starting to think that that master-apprenticeship model is probably due for some follow up attention. But the difference between I would say maybe that and the Coach, as you’re saying is like you don’t become a Master unless you know your shit.
Reed
And you only work with the Apprentice that’s trying to do something that’s just like what the Master is capable of. And so I think that approach makes a lot of sense to me. The more generic coaching I think there’s certainly room for and a place for what I would call more of a therapist function that’s more of a general encouragement person versus the tactical ‘this is how we forge this metal.’
Casey
Yeah, absolutely, that makes sense.
For me this has been really helpful to… learned a ton from this conversation and look forward to running into you here at Twin Cities Startup Week and hopefully some other events.
Reed
Yeah, well come and say hi. Looking forward to seeing you again in person.
Casey
Sounds good. Thank you so much, Reed. I really appreciate the time.
Conclusion
I agree with Reed that I’d love to see “another three or four Fortune 500 companies built and grown locally [in Minnesota] that begin as startups in my lifetime.”
This is the reason I contacted Reed. This is the reason I’m promoting BETA and Groove Capital and Twin Cities Startup Week (TCSW) and other events and organizations like it. I want to be there when an idea goes from inception to reality to revolutionizing an industry, a market, even our way of life.
We have an incredible community of talent, innovation, and determination here in the Twin Cities and I’m SO excited to see what the next 50 years has for us.
Let’s go, Minnesota!