Courageous Entrepreneurs Are Heroes, Not Consensus Seekers
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Investing in a startup is not like some kind of highly intellectualized, abstracted process. It is a very meaningful, emotional partnership that we are making with entrepreneurs. Because in a 10-deal fund or 15-deal fund, the opportunity cost of any one deal is extremely high. You are listening to The SureShot Entrepreneur.

a podcast for founders with ambitious ideas. Venture capital investors and other early believers tell you relatable, insightful, and authentic stories to help you realize your vision. Welcome to The SureShot Entrepreneur. I'm your host, Gopi Rangan. My guest today is Dan Kimmerling. He's the founder and managing partner at Descience Capital. Descience focuses on seed investing in fintech.

There's a significant overlap in many of the topics I focus on. It's related to InsurTech as well. Dan doesn't live in Silicon Valley, nor is he on the East Coast. He's in Albuquerque. We're going to find out more about him, his decision-making process, what kind of founders he likes to back. Why does he build Desiants with such a concentrated portfolio? What are things that people are missing? What can founders learn before they go to meet him?

Dan, welcome to the SureShot Entrepreneur. Thank you very much, Gopi. I really appreciate being here. Let's start with you. You grew up in Edison, New Jersey, but you now live in Albuquerque, New Mexico. Walk us through that journey.

Yeah, of course. I grew up in Edison. And Edison is a suburb of New York. It's a commuter town. But I think its most interesting feature is that it is one of the most diverse places in the United States. It has an extremely large South and East Asian community. I'm neither South nor East Asian.

You know, I grew up surrounded by kids from all over the world. There was no intention there. That was where my mom moved me. But it was a great place to grow up, especially insofar as I learned how you have to be able to collaborate and partner with everyone. Very early in life, you got a taste of how to work with people who look and behave differently than you.

Yeah, probably as early as elementary or middle school, for sure. Do you feel like those days really shaped the way you think and it still helps you today?

It certainly gave me a strong appreciation for South Asian culture. You know, both my business partners are South Asian. I love South Asian culture, food and music, sweets, of course, Indian sweets are well known around the world. But I think kind of when you grow up, you don't have an awareness of how unusual it is to be in such a diverse place.

Right. You're in the town where you were like, you have no control. Like I didn't control where I grew up.

It wasn't really until I went to college that I had any control, more or less. You know, you're just going to go to whatever school you're in. But it gave me a deep appreciation for being able to get along with everybody, collaborate with everyone, partner with everyone, be appreciative of their cultures and traditions, and have them be appreciative of my culture and traditions. And I think that that serves me well even today, 30-ish years later.

I see that you're an honorary South Asian. That open-minded attitude still helps you today. You started your career as an analyst at TechCrunch, and a few years later, you started your own company, and you sold the business to Silicon Valley Bank. You got deep into the world of fintech, and eventually, you made your way to venture capital and started Descience. What is Descience about, and how is Descience different from other VC firms?

Well, so Descient is about partnering with entrepreneurs who want to build the next generation of great financial services businesses. That's really what we're focused on 100%. You know, that leads to a couple unusual practices.

So first, we only lead finance. Of the last 24 investments we've made, we've been the lead financier in 23 of them. And so that's a core part of our practice. We get extremely involved with each and every company. My colleague Ishan likes the joke that if we do our job right, the founders should consider us their third co-founder. And we're not afraid to do things that nobody else gives a shit about.

We've really developed our own path and our own worldview. And that guides us. Gopi, as you know, and I think many of your listeners know, average venture capital returns are garbage. 50% of venture funds do not return 1x capital.

They don't even return the capital their investors gave them. It's not until the 55th percentile do you hit 1x. This is data, all vintages, all sectors dating back to the 70s. So like a very large data set would suggest that like median venture capital outcomes are terrible. And so if you believe that,

then you have to be willing and able to do things which aren't median, that defy what we would call defy orthodoxy, that kind of go against the grain rather than with it in the search for greatness, in the search for incredible returns, partnering with entrepreneurs that move the world forward in economically and non-economically important fashion, and so on and so forth.

I want to get to some of those topics, but let's clarify when you say you want to lead investments, what stage do you prefer to lead? Is it pre-seed, seed stage, series A stage? What's your sweet spot? Yeah, so we call it pre-series A.

And that can be everything from working with people before they have an idea, which we've done and taking ideas and finding people for them. We've done that all the way to businesses that are doing like a million bucks of revenue and are trying to find that last round before they go raise a series. Well,

what you would call maybe post-Seed or Seed Prime, whatever. There are many different idioms. But just like we want to get involved before the Series A as the lead financier. But within that, you know, I personally really like the incubation work. I get a lot of personal satisfaction out of it. But I've also loved partnering with entrepreneurs that have built real businesses of their early, but there's a locus of greatness, their nexus of greatness. And

And so we've had great success doing both and are passionate about both. You invest in pre-A, and that could be as early as at the time of incorporation, as late as seed, seed plus, something like that. I know that you take a very principled approach to venture investing. And I can see that the way you approach investing in startups and how you build relationships with founders, it's a very deliberate, thoughtful process.

What are some VCs and LPs missing? Why do you take the approach you do? Why are you so concentrated with your investments?

In portfolios where you have a finite amount of capital, like our second fund was $100 million. There's not $101 million. There's just like in what are called finite dollar funds, there's a real trade-off that you have to make between three variables. How many deals do you do? The initial check you write

and then the percentage of dollars that you reserve for each company. And those are like intention, right? Like you cannot optimize for all three. You have to optimize like between these variables and figure out what is a steady state equilibrium for your system. And so, you know, our belief is maybe it's a little bit of Charlie Munger, but it's like this idea that,

I'd rather put all my eggs in one basket and watch that basket like a hawk than, you know, kind of like spread my bets around, so to speak. That's one thing. I think the second thing is entrepreneurs are truly looking for partners. Being an entrepreneur is an insanely lonely journey.

And they're looking for investors that can truly be partners in the most wholesome sense of the word. I don't think most entrepreneurs want transactional financiers. They want relational partners who can help them build their business. I think that's a second component of it.

Third is, and I'm going to quote another venture capitalist, Ho Nam from Altos Ventures. He says that due diligence starts at the closing dinner. And I think that that is just like such an eloquent way to describe this. As an investor, you're on the outside looking in. Gopi, if you were pitching me, I'd be learning about you and your company.

And we would just always be subject to what are known as principal agent problems by being on the outside looking in. But once you've invested...

Once you've had to borrow Ho's phrasing, had the proverbial closing dinner, you're not on the outside looking in, you're on the inside looking around. And part of it is once we're on the inside, we can help entrepreneurs avoid landmines and, you know, build better, bigger, better, faster. And we can allocate our scarce follow on capital with great precision.

And I think that that is really something that we have worked hard on, what's known as the reinvestment process. That's another important part of our process. And if you have 100 companies or 50 companies, you can't spend that much time with each company. And therefore, being on the inside doesn't actually accrue privileged or specialized knowledge. Whereas if you're with 10 or 11 companies...

Being on the inside can actually give you a fairly sophisticated set of insights and perspectives. So as an investor with high conviction and high concentration, because you have fewer eggs in your basket, you watch it like a hawk and you are a true partner to founders and the founders really enjoy and benefit from that partnership because it's such a lonely journey. A lonely journey and a long journey. You know, we expect to be partnered with these entrepreneurs for at least a decade.

And sometimes when this company doesn't work, you're usually the first choice for them to come back when they start the next company. So it's a very long relationship. And thirdly, being on the inside, if you're deeply committed and you have such high conviction, you become one of them and you begin to see the world from that perspective and you can actually help them. Is it fair to say that VCs who have a very diversified portfolio wouldn't enjoy these three? The

the benefits of the three, which is they don't need to watch their portfolio like a hawk because they have lots of bets. So they can afford to have a few things fail, not a problem. They would not be able to be a credible, thoughtful, deep partner with the founder because they have too many portfolio companies and they don't have the bandwidth to do that. And because of that, the third is also impossible to achieve because you can't have that view from the inside because you haven't invested the time and the effort to really learn about the business when you have too many companies.

What are they missing? If the incentives are such that you should be focused on raising and deploying as much capital as possible and turning a artisanal relational business into an industrial transactional business, that is what the incentives are.

The question you ask is, would other VCs enjoy the Decian's approach? I don't know what they would enjoy. I can't speak for them, of course. But what I know is that the incentives are such that you want to raise as much money as you can and deploy it as quickly as you can so you can raise more money and kind of continue that journey.

And you want to be taking only as much risk as is necessary

to deliver the returns that are sufficient to raise that next fund. Right, Gopi? I think I've said to you before, I'm happy to say this to your listeners, Dacians is the get rich or die trying venture fund. Right? Like, I know, and of course, I'm quoting 50 Cent, his well-known song, Get Rich or Die Trying. But this is the thing about a very aligned partnership.

Right. Like investing in a startup is not like some kind of highly intellectualized, abstracted process.

It is a very meaningful, emotional partnership that we are making with entrepreneurs. Because in a 10-deal fund or 15-deal fund, the opportunity cost of any one deal is extremely high, 7%, 8%, 10%. And entrepreneurs need to know that when they partner with us, their success matters to us. It really matters to us. That is also strictly parallel with LPs.

When an LP or an investor allocates capital to us, commits capital to our funds, they should know that their success is extremely important to us. Again, it's not abstract. It's not intellectualized. It's very visceral.

All of our LPs have my cell phone number. All of our LPs can get me phone, text, WhatsApp, call pretty much from like 6 a.m. to midnight, pretty much any day of the week. And it's not Ivory Tower. It's not Sand Hill Road. It's in the trenches, on the streets kind of venture capital.

The traditional venture capital model was just like how you describe it. And by the way, for the record, I belong to that philosophy, that school of thought where concentration and conviction matters more. And I build a concentrated portfolio as well. It's truly delightful and fulfilling to have tight relationships with the founders. It's an honor to even get an opportunity to watch that journey, let alone have an opportunity to invest and perhaps even contribute.

But the venture capital asset class has evolved over the years. And now there are different types of VCs, different types of LPs, and their expectations are also different. So now I feel like we have entered a world where VCs enjoy building a diversified portfolio and not having such tight relationships. And they get other benefits. We should talk about those as well at some point.

And the LPs want that. They want VCs who can chase and find deals and build fund after funds versus concentrated portfolio and building tight relationships with founders. It's an interesting time now when the asset class is evolving. You and I are still practicing venture capital in the old traditional way.

What I would say is David Ogilvie, the world famous copywriter, probably the best copywriter to ever live, founder of Ogilvie and Mather. He said that in parks around the world, you never see statues to committees.

which I thought just like summarized it so eloquently. It's like, I do this, my partners and I do this in the search for greatness. And we have to have courage and boldness and fortitude. And I think there are a lot of VCs, a lot of investors who are not doing it from a place of courage.

We often talk about this idea of momentum versus value in venture capital. Momentum investing is investing in whatever is the sexy flavor of the week and just trying to do things to get marked up and get on the Midas list or whatever it may be. That's one form of venture capital. And clearly that works for many people, but it's not good enough for us.

Diversification minimizes downside risk, but it also significantly reduces upside. And that's true for LPs. Right. Ogilvy had this other quote, in the absence of courage, nothing worthwhile can be achieved.

And that's why we don't see committees or statues at parks. That's right, right. Yes. When we look at our heroes, we don't see committees. You know, we see people who had tremendous courage, tremendous fortitude, and

And they were willing and able to sacrifice it all for their hopes and dreams. Those are heroes. Those are the people I want to partner with. And that's the kind of person I want to be. And I have a team of seven people now. And, you know, we partnered with 25 teams. I never want to ask more of others than I will ask of myself. If I'm asking entrepreneurs to work nights and work weekends and stuff,

suffer blood, sweat, and tears for years. And I'm sitting in the ivory tower. That doesn't feel aligned.

I want to ask you, why Albuquerque? Because I married one of New Mexico's finest daughters, and I really want to stay married to her. It's for personal reasons you're in Albuquerque, and I know that you travel quite a bit, quite extensively to be in areas where you need to be, whether it's Silicon Valley or New York or other places in the country. Let's talk about your startups. Roughly, how many startups do you invest in in a year? Two to four.

And you have a team of seven people. So you have you and another partner and a couple of others who help with the portfolio companies. So that's roughly about one one-ish investment per partner.

One to two deals per partner per year is a kind of good pace. Although we have a model where my partners and I, we have equal carry. So even if I'm on the board, we're all fighting for each other rather than fighting against each other. And so it's more of a team effort. So that's like in a given year, we'll do four deals.

three, four deals. And like maybe in a year, I'll do one and my partner will do three or we each do two. And it kind of evens out over time. So it's one thing to start something like this by yourself. You can have that brave, bold view of staying traditional, staying old school, staying contrarian.

It's always challenging to find others who align with that philosophy and join you in that journey to build decisions. And I hear from you that you have equal partnerships, which means that it's an egalitarian partnership. How do you find such like-minded people?

It takes a long time. And you're looking for aligned values and aligned ambitions, right? I want Desians to become one of the best venture capital funds in the world, the best financial services venture capital firm. I want us to be massively successful.

And I'm willing to put it on the line, as I mentioned, all day, every day for years to make that happen. And you're really looking for people who have very similar values and ambitions.

but different skills and networks and capabilities. I kind of like joke that a band filled with Dan Kimmerlings would be a pretty uninteresting band, right? You kind of like want the drummer and the bass player and the guitarist and the singer, and you need a panoply of musicians to create a great band, just as you need incredible people in the front of house and in the back of house in a venture firm to make it work.

And you need them to all be really, really committed to the success of the firm. But you want them to be very different in terms of their knowledge, networks, capabilities. Just as one example, I've come to see that I'm not as organized as I need to be. I'm very creative, but I'm not the world's most organized person. Shocking as an entrepreneur, I know.

And so, you know, like we have like incredible colleagues who are like insanely organized and keep the proverbial trains on the tracks. And Gopi, your listeners may not know, but when you run a venture capital firm, the administration is just insane. Every year we have filings with the SEC and taxes and K-1s and audit. And, you know, everyone like talks about the brilliance of front of house. I think the back of house is as important as the front of house.

That's how you find it, by looking for aligned values and aligned ambitions. I didn't realize it when I started Shore Ventures.

Venture business is enormously operational behind the scenes. And you got to have solid partners on the legal side and on the fund admin side and internal operations. You got to produce quarterly reports on a regular basis. Now let's talk about startups. So you started a firm, built the firm to where it is now at seven people, both on the front end and the back end. And you invest in roughly two to four companies, one deal per partner on average.

Can you give an example of a company where you met the founder? What happened in that first meeting? What questions did you ask the founder? What got you excited after the first meeting or the second meeting? Yeah, I mean, a funny story. You know, in Fund 2, we invested in this company called Simply Wise, which is just a kind of brilliant company run by Sam Abbas and Ali Fledler.

But funny enough, go up to your point. I met Sam a number of years ago. We'd gotten breakfast in New York and he was running a different business at the time. And I explained over breakfast to Sam why it wouldn't work. And I basically for an hour told him that he

he shouldn't be doing it. And then several years later, apropos of nothing, he called me up and told me I was right. But he was starting a new company and he wanted me to be his partner on the new business because I was the only VC to ever tell him that he was wasting his life. He knew that if I ever thought that simply was the new business, I would have no issue telling him that. And so it's just like one example to your point of it being a long and iterated game.

And how if you treat people like the way you would want to be treated, good things come back to you. Visceral honesty. You said no to the first business, but you invested in the second one. What got you excited about SimplyWise? Gopi, let's talk about actually the big question of how do venture capitalists choose what to invest in?

Because I think it's mysterious. Now that I've been doing this for a number of years, what I've come to see is that most venture capitals invest in things that other venture capitals want to invest in. There is a profound, what I would call reflexive nature of venture capital. If there's social validation, people will do it. And if there's not social validation, they won't.

And this means deals that get validated, socially validated, get all the capital and great deals that can't for some reason generate social validation get no money. And it becomes like a very feast or famine kind of dynamic where some rounds get massively oversubscribed, but most rounds can't raise the dime. You know, Gopi, that never made sense to me. And it's very simple.

The only way to make money in venture capital is to invest in non-consensus deals and be correct. But if you invest using this kind of like FOMO, if you're missing out the social validation contract I just mentioned, you're definitely only investing in the consensus deals. And so that has led to a multi-year journey around building a framework which lets us invest in companies in the absence of social proof.

And we've written about it extensively at decimes.com. You can read all about our framework for picking what we would call, what does greatness look like? And how can we assess greatness, or at least the antecedents of greatness, the necessary, albeit insufficient conditions for greatness? And that guides us to doing things which are off the run, out of the consensus.

So over the years, you've invested in 24 companies where you have developed that conviction. You met the founders and you decided to lead investments in 23 of them. At the time of making the investment, it was a contrarian view. You took a bet that was against the trend. Other people did not believe in it. But as a VC leading that deal, very quickly, you want the next round or the subsequent round, you want other investors to follow.

It cannot be permanently contrarian for a long time. It has to stay contrarian for some period of time where you actually believe in something that is different, but very quickly it needs to follow the trend. And that's a very difficult judgment on the part of you as a VC. How do you find such contrarian things where it is not so contrarian that no one will ever believe in it,

But it's just a short period of time or perhaps one or two rounds of funding. And then it becomes quite popular. And many other VCs will follow. At least a handful of VCs need to follow. That's what I want to understand. Like, what questions do you ask founders that gives you that conviction? Respectfully, I'm going to disagree with you. And I'm going to disagree with you because I'm not sure that we love having co-investors.

But we do not want to take what we would call existential funding risk.

So the way we think about it is if you're building a company and it's going great, but you need to raise money or the company will die, you've introduced what we would call existential funding risks. And we have observed that oftentimes companies become financeable or unfinanceable without regard to anything about the company's performance. It's more macro-driven or sector-driven.

And so rather than encouraging companies to take existential funding risk, we actually encourage companies to hedge out existential funding risk by figuring out how to optimizing for growing as quickly as they can without needing to take on that next round of funding.

And so in some ways, we encourage companies to avoid the scenario you were just talking about, Gopi, where we are, quote unquote, forced to convince other venture capitalists that they should invest in us.

We don't want our companies to be in the coercion or forcing game. We want our companies to be just so fucking great every VC around the corner wants to invest in them. And if other VCs don't see what we see, that's okay. You know, we're very long term, very patient capital.

And oddly enough, other VCs need our deals because we pick good ones. This is part of the power dynamic that founders don't understand. VCs don't have a job if founders don't need their capital. And so in some ways, not needing capital is the ultimate flex.

You lead deals and you are willing to take a contrarian view, but you're not the only investor on the cap table. You have other co-investors who also have similar contrarian views. And as the company grows... We're willing to be the only one, but that happens quite infrequently. I think it's only happened in like 10% of our deals, something like that.

I think in my career of where I've been part of 50 deals, there was one deal where I was the only investor on the cap table in that round. It can happen, but that's unusual. When potential is unleashed in these companies, when a few more points on the board are added, it becomes easy for the next set of investors to have greater faith, which they may not have had in the earlier stage where you invest. So I see how you're thinking about it.

Venture has evolved over the years. And I want to ask you more of a philosophical question. What's one thing you would like to change about venture capital to make this industry better?

I would like to make it so that VCs get paid more on performance and less on fees. I think the biggest funds generate so much fee income that the performance as an entrepreneur, the performance becomes almost irrelevant. And so fund managers get paid more

They get paid on their fees, whether the fund is great or terrible, and whether they create value for entrepreneurs or their clients or not. There can be a number of different ways in which you could create more performance fees and less management fees.

Just two of them would be the introduction of a hurdle rate by which you only get paid if you perform above a certain specified rate of return, usually 8% to 10%. That's very common in other private equity asset classes. Alternatively, move back to budget-based firms where the clients have to approve the budget every year or every quarter, maybe half year, whatever, the logistics don't matter.

But in exchange, if you profit, there's more profit sharing. Because I think by focusing more on the carry and less on the fees, you actually get the tighter alignment between entrepreneurs, limited partners, and general partners. I see that that's what you'd like to achieve. Better alignment between founders, VCs, and limited partners.

We're coming towards the end of our conversation, and I want to ask you about your community involvement. Is there a nonprofit organization you are passionate about? Which one?

And we're very involved with things in Metro Albuquerque. For all of your listeners, I would encourage you to come to New Mexico. It's the land of enchantment. It's one of the most beautiful places I've ever been. And I'm very lucky to live here. But ultimately, it's not a land of tremendous financial resources.

So my wife and I are very involved with philanthropic works in and around Metro Albuquerque through the Albuquerque Community Foundation. Community foundations are incredible resources around the country, and I'm a strong advocate of community foundations who help support local nonprofit organizations and communities around the country.

Perfect. Dan, thank you very much for spending time with me. Thanks for sharing contrarian views, unusual views that we don't get to hear in venture capital. This used to be the traditional old way of doing venture capital. I'm glad to see that you still maintain that fresh perspective while you're still building a new firm. I look forward to sharing your nuggets of wisdom with the world. Thank you, Gopi.

Thank you for listening to the SureShot Entrepreneur. I hope you enjoyed listening to real life stories about early believers supporting ambitious entrepreneurs. Please subscribe to the podcast and post a review. Your comments will help other entrepreneurs find this podcast. I look forward to catching you at the next episode.