[Top Venture Capital Series] Fundraising to Reduce Friction at Scale With Martin Tobias

Martin Tobias is a Founder and General Partner at Incisive Ventures, a Seattle-based venture capital firm focusing on cutting-edge technology companies. Martin is a venture capitalist with over 25 years of experience in the technology industry. He has worked for Microsoft, Upgrade Labs, and Tippr. He focuses on pre-seed companies and has invested in different types of businesses, including four unicorns.

In this episode of the Smart Business Revolution Podcast, John Corcoran is joined by Martin Tobias, the Founder of Incisive Ventures, to talk about fundraising strategies that reduce friction at scale. They also discuss the benefits of starting a business during a recession, the challenges with scaling quickly, and Martin’s criteria for investing in startups.

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Here’s a Glimpse of What You’ll Hear:

  • [01:57] How the six-year-old Martin Tobias entered the business world
  • [04:31] Martin’s passion for computers and entrepreneurship and why he founded Loudeye Technologies
  • [10:19] How Martin took his company public right before the dot-com bubble
  • [13:01] The challenge with scaling a business quickly 
  • [15:03] What inspired Martin to enter the renewable fuels industry?
  • [20:11] The value of launching a business during a recession
  • [27:36] Martin talks about the types of companies he invests in and his advice on raising money
  • [38:05] The peers Martin acknowledges for their support 

Resources Mentioned In This Episode

Sponsor: Rise25

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Episode Transcript

John Corcoran 0:00

All right, today we’re talking about why now is an amazing time to invest in new startup companies, especially companies that are reducing friction. And making manual processes work at scale a lot easier than it used to be. My guest today is Martin Tobias. He’s a venture capitalist based in Seattle investing in cutting-edge technologies and startups. I’ll tell you more about him in a moment. So stay tuned.

Chad Franzen 0:25

Welcome to the Smart Business Revolution Podcast where we feature top entrepreneurs, business leaders and thought leaders and ask them how they built key relationships to get where they are today. Now, let’s get started with the show.

John Corcoran 0:42

All right, welcome, everyone. John Corcoran here. I’m the host of this show. And you know, if you’ve listened before, you’ve heard some of my prior previous episodes, but I definitely want to point you to some of my past episodes with CEOs and founders of Netflix and Kinkos and YPO, EO, Activision Blizzard, we’ve got all kinds of good episodes in the archive. So check them out. And of course, before we get started, this episode is brought to you by Rise25, my company, where we help b2b businesses to get clients, referrals, and strategic partnerships with done-for-you podcasts and content marketing. You can learn more about what we do at Rise25.com. 

And as I mentioned, my guest is Martin Tobias. He’s the Founder of Incisive Ventures. It’s a venture capital firm based in Seattle, they focus on investing in technology companies that reduce friction at scale. And we’ll explain what that means in a moment. He’s got 25 plus years experience in the technology world from Microsoft to smaller companies. He’s invested in literally hundreds of different companies, including just in the last four years, four different unicorns, we’ll ask him about that, as well. And I’m really excited to talk to him because of that background, especially right now, because we’re recording this in mid 2023. At a time when it’s kind of a strange economy. And let’s we’re gonna get to that in a second. But you know, Martin, I told you beforehand that I love to ask people about their entrepreneurial ventures as a kid and you grew up in Gainesville, Florida, not too far from University of Florida Gators. Your house actually was right near the parking lot where people would go to the game. And you young little six year old Martin saw these throngs of thirsty people in the hot Florida sun walking by your house, and you thought, Ah, there’s a business opportunity. Tell us about him.

Martin Tobias 2:24

Absolutely. Hi, and thanks for having me. Yeah, you know, when I was young, we weren’t that rich. And there was, as many kids do, you know, lots of things that I wanted in life. And I wanted, like nothing else, this round. Rate radio, it was an am radio, it looked like the Star Wars, Death Star. And it had like a keychain on it. And I was obsessed with this thing. It cost like $40, my parents said, we can’t afford it. So I said, Well, what can I do? And they said, Well, you have to earn money. And when they told me that on a Saturday, and then next Sunday, I saw all these people walking to the game. And I was like, there’s an opportunity. So when you have a need, and it meets an opportunity, I’m like, okay, what can I do here and I started a Kool Aid stand. And every Sunday, that summer, or that fall during the football season, I would sit out there, and I made enough to buy like 10 radios. And that really got me interested in entrepreneurship. And you know, you know, being able to do work that, you know, helps you achieve the goals that you want in life. And, you know, that was a powerful lesson to learn very early. And something I tried to pass on to my kids is, you know, the value of money and the value of earning your own money, and then deciding what to do with it. So I don’t know if you have kids, but my kids, when we go to the store, they’re always begging me for something and I give them an allowance. And I tell them, they have their own money. And if it’s important enough, they can spend their own money. And so they have to learn about the trade off between do I want the money or do I want the thing that I want?

John Corcoran 4:07

Yeah, and and you know, I do have kids, and we’ve done lemonade stands a number of times and such an important lesson. Placement of that lemonade stand every time I drive by some kids on a corner on a quiet street doing a lemonade stand. I’m just like, ah, guys like goat next to the park during concert in the park or something like that. It’s gonna work so much better. You have to work, you know, a fraction is hard and you make great money. So, so you, you learn those lessons about entrepreneurship and you end up studying your double major in business, computer science, and impeccable timing, because just as we’re moving into this really inflection point in technology, and that’s kind of was your early days of pursuing entrepreneurship. Talk a little bit about what inspired that?

Martin Tobias 4:56

Yeah, absolutely. So you know, I was really interested in computer And frankly, to date myself a little bit, but but my first computer programming class, I actually did on a deck Vax. And we had a card reader, and you had to stack your cards. And, you know, if you dropped your cards your program had, that’s what they call when they call a bug. Bugs are actual bugs in, you know, stacks of paper that they used to have. But very soon, we got Macintoshes. But I was always interested in solving business problems with computers, there were lots of my friends that were very interested in the core technical problems at the time, people were writing like device drivers for keyboards and stuff like that. And that’s fine. But I was always like, how can we take this technology and apply it to a business problem. So in college, my computer programs were things like stock trading algorithms, and things like that. And I started a business in college, I hated going to class. So I paid people to go to class for me and take notes. And then I sold those notes to other students. And I was CFO of the student government and helped us increase revenue and that sort of thing. So I was always interested in technology. But that intersection of technology and business, as opposed to the purely technical problems, and that continues to this day. My thesis in investing is technology that reduces friction, why reduce friction, because then you’ve got more time to do something else that you might want to do with your life. And I can go through some examples of things that I’ve invested in. But that’s been a powerful force. For technology from the beginning,

John Corcoran 6:34

I definitely want to get to that. I want to ask about loud AI technologies, formerly encoding now you had done a stand at Anderson Consulting, and then Microsoft. And then you saw an opening this is now we’re talking. This is 9697, very early days of the internet, but you had kind of had a vision that digital audio and video would become a lot more commonplace than they were at least in the early days of the internet.

Martin Tobias 7:01

Sure, certainly. And if you remember, back then in 96, and 97, that was before every PC came with a sound card, and, you know, speakers and stuff like that you had to buy those things separate those were accessories. But my bet was that, you know, audio and video, playing recording, production, everything would be a core part of what people did on PCs, as opposed to at the time people were basically using them for business productivity, word processing, spreadsheets, databases, right? Not a lot of entertainment. But I’m like, hey, you know, people, that’s all that’s gonna get sucked into the core PC, it’s all going to be free. And people are going to want to experience that content. So what’s the opportunity? Well, the problem was that the entire content libraries in the world were sitting on formats that were not compatible with the PC, they were sitting on VHS tapes, beta tapes, CD ROMs, things like that. They were not accessible. So I said, Well, what would bridge that gap? Well, a service provider, somebody that has the technology to convert this into that. And so we built the world’s largest transcoding facility in Seattle. And we had deals with all the major labels, and you know, we they would ship us truckloads of CDs. And we would rip them and put

John Corcoran 8:24

them into digital technology, basically, yeah, push a button,

Martin Tobias 8:27

and convert that to Windows Media or mp3, or, you know, the different various digital formats that we’re still competing, you know, for standards at that time. And I said, there’s gonna be lots of standards, there’s lots of content that’s not in the right format, I can create a business being a middleman and enabler and an on ramp from traditional media, to digital media. And that was the timing of that was pretty, pretty good.

John Corcoran 8:56

I want to ask about that at the timing of it, because there’s gonna be advantage to be advantages to being a early adopter or first mover, but disadvantages to being too early. Looking back on it now, do you think your timing was the was the right time to have that type of business?

Martin Tobias 9:13

My timing was right, because we were sort of speeding that transition along and it was very, very expensive and very hard to do at the time. You know, I tell people, you know, I bought it. In 1990 99. I bought a 300 terabyte RAID array. I paid $100,000 A terabyte? Wow, 90 Nice. So this was an incredibly capital intensive this job was not going to get done unless somebody raised a giant amount of venture capital or went public like I did, and did it. I mean, literally, we would not have had it. Now. You know, you you wouldn’t want to have a company like that today. Because the cost of running that company is is almost nothing and by the way, the rights owners like their labels in And the studios already have digital masters and can just do it themselves. So for the time it was the right thing. We were definitely early, but the industry needed a player to help make that transition. And so yeah.

John Corcoran 10:20

Isn’t it interesting time here because we’re talking 97 to 2000, you actually go public, you actually the last real.com company to go public before the crash around March 2000, I think was kind of the peak. What was that experience like?

Martin Tobias 10:37

Well, it’s better to be the last than the one after the last. So we went public in March on March 17, of 2000. The peak of the NASDAQ was March 21. Wow, days later, we were able to raise $120 million in our IPO for a company with $10 million of revenue got a $2 billion market cap. You know, it’s better to be if there is a bubble, it’s better to be in the bubble than outside the bubble. So so there’s

John Corcoran 11:07

the title of your next book,

Martin Tobias 11:10

we realize a bubble be in the bubble in the bubble, not out the bubble. I mean, I can’t tell you how many, you know, my friends in crypto are, you know, complaining that they didn’t sell last year, that every time a bubble burst you are wishing you had sold when the bubble was full. And the bubble was pretty obvious. But you know, it also, you know, while some of the marginal companies didn’t make it, there were some very transformative companies that were started and made it through the bubble companies like Amazon and eBay and Pay Pal. And, you know, being a capitalist, I am very much in favor of the all boats rising strategy. And you know, after bubbles burst, people can go around and go, Oh, that was stupid, you should have never funded pets.com. Well, okay, maybe pets.com shouldn’t have been funded, but then Amazon wouldn’t have been funded either. So you know, and we just finished, basically, in November of last year, a another 12 year bull run in venture capital, where you had zero up and basically free money. And we had an incredibly positive time for starting companies, because it was a there was lots of money around, and it was basically free. And now we’re going into a different cycle, which I’ve seen before, and it’s going to be a little harder to start companies, there’s going to be fewer innovations that get funded. But we will come back to, you know, a more permissive environment. I actually think there’s some good things about the environment we’re in now, actually, if you look at, you know, at the companies that were started in 2001, two and three after the crash, some pretty amazing companies were started in after the crash, because you have to operate very differently, when money is a constraining resource than you would operate when money is free.