Diane is the founder of Rogue Capital Collective, a venture capital firm that invests in tech startups that focus on building solutions in the following categories: the future of money and real estate. Prior to Rogue, she dedicated 10 years to the successful operation and expansion of her Manhattan based commercial real estate company, landing her in Forbes Company to Watch. You can follow Diane on Twitter @InvestorDiane.
I'd love to kick off with a little bit about your background and how that led you to the world of early stage startups.
I started out as a bootstrapped founder. To be totally clear, I was a founder first, and an investor second. My previous business made it possible to make angel Investments, which I started doing five years ago. One motive for me was the meaning and purpose I find in providing founders with resources, advisement and capital in a way that I did not have when I started out. I definitely cut my chops doing it the hard way, and though it toughens you up, the hard way can be overrated. Instead, you can get a lot done with the right counsel and resources at the right time. So part of my objective was to share some of the hard-earned knowledge I acquired launching and subsequently running my business for a number of years.
The other thing that drew me to this work -- and I spoke about this a little in my TED talk -- was curiosity. Long before I was a tech seed investor, even before I could legally drink, I was making small investments. I worked through school, and whatever didn't go towards necessities went towards making very small investments, often in tech companies. This was back when companies would IPO a lot sooner, so I was able to buy a modest number of shares in public companies, many of which grew to become household names in tech.
I was a thesis-driven investor before I had that language for it. I asked myself, ‘Where is the world going? What's happening in the Zeitgeist, and how is that influencing consumer decisions and how we live our lives?’. I think about products as an extension of how we live, how we view the world, what we want from life -- all of which drives consumer behavior. This thinking informed my early investment decisions and it played out well.
Can you talk a little bit more about your own company and some of the key learnings there that are particularly relevant to your early stage investing now?
One of the things I learned from my first company was how to hire well. Making an early investment in not altogether different from making a decision about whether I'd hire this person or team to be the founders of this company. Sure if the title of “founder” had a JD, it'd be broader, more cross-functional, and have higher risks and responsibilities than a regular job would, but it's still a question of fit -- is this person fit for this mission?
My most significant business was in commercial real estate. As with any founder starting out, there was a lot of recruiting people into something that was just a vision at the time. Winning the best talent early often meant effectively competing with the perceived security of lucrative roles at established companies. To win the war for talent as a new company, you have to be beyond persuasive, you have to have an opportunity that's legitimately compelling, and be someone people can get behind. Winning candidate interest is the first hurdle, choosing the right hires is the next, since first hires are mission critical. Assuming a sound founding team, these all involve learnable skills and I emphasize them in my work with seed stage founders.
Another thing I've developed a nose for is partner dynamics. This one makes me laugh because it often gets relegated into the world of soft skills, which is code for "optional things". But in fact, it's one of the leading causes of startup failure: founder disputes.
So I think about the dynamics of founders and whether their strengths are complementary. None of these considerations are prescriptive but they are important factors that I take into account.
What portion of the experience that you've accumulated, especially regarding hiring, is transferable or teachable to the founders?
If a founder is of sound character and intrinsically motivated, a lot can be learned. If the raw material is there, a founder can be coached. With hiring, there's identifying the right person for the right role, and then there's getting a yes from your first choice recruits when you don't have as much to offer upfront. Beyond that,whether it’s recruiting, fundraising, or selling the product, someone on the founding team must be able to draw people into a vision before it exists and demonstrate that they are the leadership team to bring that vision to life. While I can't hand a founder these skills, I do choose founders who show potential in this area and then build on that, sharing my own tried and true strategies and perspectives. When it comes to hiring, it’s knowing how to see a person beyond their LinkedIn and their stats to determine if they're a cultural fit for the team and have the aptitude to deliver on what needs to be done. It's also important to suss out whether they can thrive in a start-up environment because of the vast difference between start-up and corporate. Before I was a founder, I worked briefly at a top global investment bank -- the level of resources and the number of tiers of support are worlds away from that of a startup.
Lots of people are up for that adjustment to start-up life because they want the creativity and the opportunity to have their contributions directly affect outcomes. They want to feel vloser to that generative process of building a company.
Can we talk a little bit about what your focus is at Rogue Capital Collective?
I tend to be a thesis-driven investor. Right now I'm focused on two areas. One is what I call the future of income, and the second is real estate software.
For the first area, when I say the future of income, I'm not talking about the gig economy or even the future of work necessarily. I'm specifically talking about the future of income itself. I'm looking at the various ways that people pull in money that do not necessarily connect to any type of conventional employment. I like to look at recreational income -- whether it’s from managing a small stock portfolio on my own, earning credits for creating game content on my favorite gaming platform, or selling my old clothes on consignment online. I'd include these or anything else I do online for fun that also contributes to my financial well being.
Usually when we talk about fintech, we think about payment and savings, but I'm really more interested in the creation of alternate ways to make even small amounts of income. So, platforms like earn.com. I would even include Airbnb, where there's secondary income being generated and it's not being generated from what is traditionally considered work. You could call it the future of non-work.
The second area I mentioned is real estate SaaS. Apart from having domain expertise here, real estate interests me as a sector whose time has finally come. It’s overcoming its historical reluctance to change. It has particular incentives as an asset class and nuanced stakeholder behavior patterns on the commercial side. The residential side changed first, and the commercial side is soon to follow. Commercial real estate also has its own set of problems to solve that haven't been touched by software. But software is a great decision making tool for the built environment. From repurposing existing real estate assets to discovery of real estate assets to construction management. For perhaps the first time, there's enough capital to support growth in that sector.
Can you talk a little bit more about how you view your role as an investor with these companies and what your level of involvement and engagement tends to be?
I often say I'm an investor and I'm invested -- meaning, I have a stake financially and otherwise in the outcome of this company and it's a bit personal in that regard. I'm invested in what happens. Seed stage companies' needs differ from companies that are further along. So to me, seed investors are loyal advisors at a time when founders are getting a lot of conflicting advice. They're a fresh pair of eyes on the situation and dispatcher of resources. Even if strategies and business models inevitably evolve, investors should be supporting founders and upholding their vision.
That being said, I personally believe in founders running their own companies. I'm not a fan of internal power struggles.With the exception of cases of misconduct, I am unconvinced that it leads to better outcomes in the long run. To the degree possible, founders and their investors should be on the same side of the table.
I think that aligned investors are going to keep founders true to their vision of the company. It’s what I would want. And that alignment comes from the founders and investors having the same goals for the company and understanding what venture capital is and isn't for. All of those things should be part of the picture.
Do you run into a lot of situations where it seems like there is a mismatch between a given company's trajectory and expectations and venture capital as a whole?
I think you sometimes see it from the outside, in hindsight, if founders publish post-mortems. Sometimes these things play out for further downstream, after the seed stage. My focus is in the very beginning, and I think that is a great place to determine alignment: who is on the cap table matters, what the configuration is matters, and how well they reflect the founders' outlook for their own startups matters. I actually think fundraising can become easier when that is part of your strategy at the start.
What drove you to start your own fund rather than join an existing one?
I was surprised by the degree to which people had been waiting for me to launch a fund. After I announced, that became clearer, but you know, I'd been working in the ecosystem, advising, and investing for five years at that point. A lot of people had sort of suggested that I start a fund here and there, but it wasn't until I sat down with a very prominent VC friend who really made the case in no uncertain terms that this was the direction that he strongly believed I should pursue. He was not the first person to suggest that I launch a fund, but he was the last.
I think that for me -- and this is true when you start any business, a fund is no exception -- it came down to this: is there a gap in the market? is there somebody else who's doing this that can help as opposed to starting my own thing? When all of these answers pointed to a new fund, it became clear that this was something worth pursuing. Once it was clear that there was a market gap in terms of my thesis and who I am as an investor -- only when that was clear -- did I decide to explore doing a fund.
I think a misconception about venture is that you want to break into something. People are always trying to get into the space and break into the VC game. Ok, you want to break into it, but why? Does that space need you, and if not, well, what can you bring that the space does need? I think that's a hard question but once enough of us have a strong answer, it elevates the game.
What have been the biggest differences in the transition from angel to sole GP institutional VC?
I am the founding member of the Rogue Capital Collective and at the moment, it's a solo GP fund. That may or may not change in the future, but I'm ready, willing, and able to do it solo.
One of my favorite differences between being an angel and running a fund is having LPs. I've been an LP, and now Rogue has LPs, and any time you have other stakeholders, it changes the trajectory of what's possible. When I saw that the work I was doing had material benefits and favorable outcomes, it became clear that expanding upon it was important not only to me, but also to the ecosystem.
Being part of a fund, which I called Rogue Capital Collective for a reason, changes what's possible. It changes how much you can offer founders and how many founders you can support and at what level. It's also drawing together of a set of people who have an outlook in common that is a little different from what already exists.
That word, "Collective", is an expression of how fundamentally collaborative this investment work is. Every group movement or every set of cultural factors of this industry is driven by a collection of people who agree about something. And there are collectives of people who agree about things that are not yet industry standard, but when we find each other, it completely changes what's possible. I would include you in that collective for sure. There are a lot of new voices coming into this business, and I think that's what's going to create the new opportunities. That's what's going to create the next fresh crop of ideas because in the end, this industry is about discovering what's new, not replicating the past. I think that when the industry gets too stuck on replicating the past, it stagnates. And for venture capital as an as set class, stagnation is death. I actually think that it becomes a risk factor. The difference between being an individual investor and being part of the fund is that more is possible within an institutional structure rather than without it.
Absolutely -- having LPs adds a different level of rigor and accountability that I think changes the dynamic in the working relationship in a positive way.
A thousand percent. I believe that having external stakeholders and having accountability are incredibly useful for many reasons, not the least of which is having a sanity check. Primary control rests with whoever is in charge, but external accountability will help people see blind spots and possibilities they weren't seeing, and I'm no exception. If you're a founder of a fund, you're subject to the same status of being human, which means that there are things you can't see, and there are only 24 hours in a day. So that leverage is incredible.
I also really liked your point about stagnation in the venture industry and how that is, as you said, death. I'd be curious to hear a little bit more about your thoughts on what you feel has changed over the last couple of years as you've been increasingly involved in early stage funding.
A few things. There's more money in venture than when I started five years ago. And that money is also pooled more and more towards the later stage. I think that the need for seed stage capital is increasing in a way. Yes, there are a lot of microfunds, which are counted as anything under $100 million. But there's a lot of daylight between, say, $1 million and $100 million, yet they're all considered micro.
The increased size of rounds and the pooling of capital later, even later in terms of what we'd formerly refer to as "seed", has really created white space in what I'd call "true seed", by which I mean a team with a defensible market position, a working prototype, and maybe some early users. People conflate the overall increase in capital in venture with everything getting funded and that's not actually true. The distribution of those dollars matters. These dynamics create opportunity for me as a seed investor. So I'd say that's a big change - the amount of money and how that money is being distributed.
I will mention this briefly -- the conversation about diversity did not exist five years ago. When I started, it was not a thing. One of the byproducts of that, interestingly, is that a lot more has been said about it than has actually happened in terms of increasing the numbers. The numbers don't bear out the degree of attention that the topic has gotten. I think that could be a little dangerous because people think it must be a solved problem because of how much has been said, but when you look at the data, it doesn't bear that out. Yet, I am what I call a battle-tested optimist. I believe that those dynamics can and hopefully will evolve, but at the moment, the conversation is ahead of the progress.
What do you think is causing that lag?
That’s a good question, and it has a multi-faceted answer, but I'll just say that there's got to be people who deploy capital with the willingness and the authority to depart from business as usual. And I'll leave it at that. It really comes down to the replication of the past versus building towards the future that we want.
What do you see being the main drivers of that shift, if you were to map out what it looks like on a structural level? Because it's one thing to have a one-off success story and it's another to really re-evaluate the incentive structures and the alignment issues that we were talking about earlier.
I think that it's important when we have this conversation to think about how the incentives work in this industry. As individual investors, we are driven by returns. So I really need to see where are the opportunities to realize financial returns, and do so in a way that creates real value. To me, those two things are tied together. There are ways to make money without generating value, but those aren't what I'm focused on as an investor. I'm focused on what's actually going to generate value creation for people, and the financial returns are a proxy for that value creation.
Not everyone who's managing capital is looking at it that way. Sometimes, the incentives are to not lose money. Then you're not looking for opportunity, you're looking to avoid risk. I think that any conversation that doesn't speak to the actual incentives of the people at the table is going to be a conversation that goes in circles.
As far as what it will take to move the needle, I think a lot of people are genuinely ready to see things done differently for a number reasons -- not the least of which being the fact that everyone's looking for alpha -- where we can get more returns? So we have to be in places that haven't been tried before.
I'm a big believer in directing resources towards people who have a credible track record of supporting places and people that aren't overrepresented already. For LPs backing funds, it's important to back fund managers who have already actively gone to bat for diverse entrepreneurs in some way, ideally over a meaningful time period. Let me be completely clear about this: | think anyone and everyone can back founders who don't look like them. I certainly did. It's not to say that the only people who can do it are the people who represent the group in question.
There are many, many groups that are underrepresented in terms of access to capital. But when it comes to the redistribution of resources in a way that will allow these emerging opportunities to reach their full potential and to realize the return that they're waiting to deliver from the market, I think that it's a good idea to give the reins to people who know how to ride the horse. Channel the resources to people who have the credibility to deliver and to properly evaluate founders who are matching new patterns, because every investor is pattern-matching in some way or another. The problem with pattern-matching is when you have hidden heuristics - like when people are not counting that all the founders have something in common that's not being named.
If you want to see different outcomes, then you want to back people who know how to properly evaluate a candidate who doesn't match the existing pattern, but matches a new pattern -- one that positions them for success -- and is not based upon dubious factors that have nothing to do with success such as gender.
Can you share some thoughts on your outlook for the industry?
I think we are in an incredible time in the industry and in the world right now. In my time in the ecosystem, one thing that I've seen is that when new VCs step up to the front, new founders surface. That's an incredible thing -- who's at the front of the room influences who raises their hand. As venture investors, it's our job to find opportunity where others are not looking. It's our job to stay ahead of the curve and to open pathways for founders who are ready to deliver tremendous value and will take off once they have a way in. And that's the role of the seed stage as I see it.
Right now I'm laser focused on the two areas I mentioned, and as a founder, if you even think you might be in one of those areas, contact me. I read every deck that crosses my desk, even if I can't respond personally, and there's a reason for that. I think the closed network aspect of the industry can make it harder than necessary, especially for first-time founders.
I also think there's enough information out there that first-time founders can assess for themselves if they're even ready to pitch. It's a two-way street: we have to make a pathway for founders to get in, and founders have to be able to accurately self assess if they're ready for prime time, if they have something to pitch that's actually investable.
But if we all do our part to widen our lens -- and that includes GPs and LPs -- we can all play a role in the industry leveling up.