Ep. 2 Michele Romanow talks about how to invest in venture capital on the Decoding Digital podcast

Decoding Venture Capital: Michele Romanow Rethinks How to Invest


28 min

Ep. 2 Michele Romanow talks about how to invest in venture capital on the Decoding Digital podcast

28 min

Venture capital has a people problem. Typically, it requires personal introductions and face-to-face meetings. It also takes a long time, and bias inevitably creeps in. Hear from Michele Romanow on how she is changing that dynamic by using data, AI, and automation to accelerate funding decisions and make it much more diverse.

Read transcript

“I'm always ultimately looking for entrepreneurs that have that persistence and resilience to iterate and pivot their business. And that's a pretty brutal process. That's going out there with the product and then it's like, no one likes it. It's like, punched in the face.”

Quick takes on...

The Value of AI

"A lot of people will say, well, look, AI, if you build it on your old models, it will just take our inherent biases that we had before and then supercharge them. But here in this model, what we were doing was we were automating not the part of the process with the bias, which is the human part. We were just automating the diligence part and saying, you know, these had really solid unit economics, good return on ad spend, and hadn't effectively saturated their audiences. ... But we funded eight times more women than the venture capital industry average. We funded founders in all 50 States of America for comparison... So that's a huge difference in terms of diversity and, you know, a ton more founders from diverse backgrounds."

The Importance of Flexibility

"Be really selective and ruthlessly prioritizing. I think one of the things that's really tempting to do is create a list at the beginning of the week and be like, I have to finish this list. But I think every day things actually change and the faster you can iterate your own cycles and figure out what really matters... you can take advantage of opportunities that others don't see."

Meet your guest, Michele Romanow

President and Co-Founder, Clearbanc

Michelle Romanow spotlight on Decoding Digital Podcast

Michele Romanow is a Canadian tech entrepreneur, television personality, board director, and venture capitalist. Before her 33rd birthday, Michele started five companies. She has been ranked as one of the “100 Most Powerful in Canada” by WXN, she is the only Canadian to be named to Forbes’s “Millennial on a Mission” list, and she has been honored as a finalist for the EY Entrepreneur of the Year Award. Most recently, she co-founded Clearbanc, a San Francisco-based provider of revenue sharing solutions for online businesses, and serves as the company's president.

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Ep. 3 Brad Feld on how to thrive as an entrepreneur

Decoding Entrepreneurship: Brad Feld Explains How to Thrive


42 min

Every entrepreneur spends a lot of time thinking about their business, but for Brad Feld, it's not enough. Founders also need to be mindful about their work and the impact it has—on the market, on their colleagues, and on their own wellbeing. Hear the legendary investor and startup mentor talk about building businesses, coping with change, and remembering to be kind.

Episode transcript

Michele Romanow: [0:04] I actually think the…

Michele Romanow: [0:04] I actually think the most natural personality type to be an entrepreneur is the class clown. If you fundamentally didn't believe in rules in grade two, you were perfect at 21 to be like, "Why? Why did we build things this way? Why do we have to do things this way?" That questioning and curiosity is a really good trait. It's about just putting your own horsepower behind it and making it a reality.

Daniel Saks: [0:28] This is "Decoding Digital," and I'm your host, Daniel Saks. Every episode, we hear from someone who is working to build something new in the digital economy. Each guest has a unique perspective to share. Together, we've worked to understand or decode a trend that is shaping our digital world.

Today, I'll be decoding venture capital with Michele Romanow. Let's decode. Michele, by the time she was 30, was a serial entrepreneur having started over five businesses. She focused on resilience to be able to pivot that into a career in television. She was the star of Canada's version of "Shark Tank" called "Dragons’ Den," and evaluated hundreds, if not thousands, of entrepreneurs on that show.

From her learnings on how to win in financing entrepreneurs, she discovered that she could create an AI‑driven platform to improve the way that people take investment. That will totally change the game for businesses around the world having access to the capital and the technology they need to scale their businesses. Here we go. Welcome, Michele. Great to be speaking with you.

Michele: [1:40] It's wonderful to be here, Dan.

Daniel: [1:42] Amazing. I know you were recently awarded the Forbes Millennial on a Mission list, the only Canadian to be on that list. I would love to know what that's all about and what your mission is.

Michele: [1:55] It's a good question. I started off as an engineer in undergrad, met a couple of friends, and we were just determined to be entrepreneurs. The first business that we came up with was we figured that the worldwide supply of caviar was down by 95 percent because the world had overfished the Caspian Sea.

Entered some business plan competitions, and then we're crazy enough to graduate and actually go try and build it. We drove out to the East Coast. Boats, fishermen, my hands knee‑deep in fish the whole nine yards. The crazy thing is we were right. Chefs couldn't find the product, so they loved it.

We went into recession in 2008. I realized I was 21 years old selling the world's most unnecessary luxury product. [laughs] That was the beginning of my entrepreneurial career. From there, I got to do a lot of other things. We ended up building one of the big e‑commerce companies in Canada, which is now the EMERGE brands, built in an early AI app that got sold to Groupon in 2014.

I got to join the cast of “Dragons’ Den,” and now really devoted to making it easier for founders to raise capital for their business because it's the biggest problem we have. That's been my work at Clearbanc. That's now my mission, is how do we get anyone with a great idea, no matter where you're from or no matter where you grew up, to be able to get funding for your business.

Daniel: [3:30] That's great. Before starting Clearbanc, started five businesses. You're on “Dragons’ Den.” You're seeing a lot of ideas. How do you really understand what's a good idea from a bad one? You have some of your investments through “Dragons’ Den” then.

Michele: [3:45] How do I really understand a good idea from a bad one? I like to think more about the entrepreneur. Ultimately, the thing with ideas is they pivot so much as you're building. You know this, too. [laughs] As you start a business, you have an idea of what you think is going to be a good market and what you think is going to be a good business model.

You try it. You're like, "Ugh, the market doesn't like this." You have to keep iterating that idea until you get to big innovation. When you look on “Dragons’ Den,” it's always very focused on the idea and the market. What I'm always ultimately looking for is that entrepreneur that has that persistence and resilience that they can really continue to iterate and pivot their business.

That's a pretty brutal process. That's going out there with a product, putting all of your social credibility and saying, "We're launching it," and then no one likes it. It's a punch in the face. It's like, "OK, I got to try it again." [laughs]

Many businesses don't take one or two iterations. They take eight or nine to really get right, even on Clearbanc. This was the third product that we tried. This is my fifth startup. It wasn't like [laughs] I didn't have experience. I call it the je ne sais quoi. It is this resilience and this chip on your shoulder as a human that allows you to get that success as a founder. Sometimes that's not having other options in life. Sometimes that's having something to prove. It comes in so many different places. When I bet on that trait, that's when I've always had the most successful investments.

Daniel: [5:27] Michele, tell me about Clearbanc.

Michele: [5:31] It's a great story. I joined the cast of “Dragons’ Den” six years ago. I'm watching all of these entrepreneurs. We see 250 entrepreneurs in 17 days on the show. I'm watching all these entrepreneurs come on the show. They're giving up effectively equity in their business to go by Facebook and Google ads. I'm like, "This doesn't really make sense for these businesses."

These are all businesses with positive unit economics that they need capital to grow. I remember on the show being like, "Look, these entrepreneurs are looking for 100 grand. Instead of me giving them 100 grand or taking 20 percent of their company, why don't I do this? Why don't I give them the $100,000 and take five percent of their revenue until they pay me back $106,000?"

I was only going to charge six for my capital. It wasn't very expensive. This wasn't a loan. There was no fixed payment timelines, compounding interests, or personal guarantees. This was a true revenue share deal. The entrepreneurs on the show loved it. I never guessed from there that we have deployed $1 billion to founders this way.

We've invested in 2,500 different e‑commerce companies, making us the largest e‑commerce investor. This all happened because we realized that 40 to 50 percent of venture capital dollars were being spent on advertising, which means that founders were using the most expensive capital to do something by definition that should be repeatable and scalable.

Now, our capital can be used for anything. It's not just ad spend where we started. It's allowed us to be able to build a data‑driven way to invest in thousands of different businesses and do that in a much more egalitarian way. It's been so powerful that last year, we've invested over $1 billion in 2,500 e‑commerce companies, making us probably the largest e‑commerce investor in the world. I don't know anyone else that's invested in that many businesses [laughs] in a single vertical.

The way we could do that is we had to automate all of the effective due diligence that a VC would do. We look at the same things. We have you plug in your digital data sources. We can calculate your lifetime customer value and your return on ad spend. Because we're doing that in an automated way, we can do it all in 20 minutes, versus this process where we're asking founders for this.

The other thing happened, I don't think I fully expected this. I was thinking about speed when we built this and what would be better for a founder in terms of speed. Now that we've done so many deals, what we realized is by using AI and data science to make investment decisions and not human‑to‑human interactions, we've removed a lot of the bias out of investing decisions.

We funded eight times more women than the venture capital industry average. We funded founders in all 50 states in America. For comparison, 80 percent of VC dollars last year went into four states in America. [laughs] That's a huge difference in terms of diversity, and a ton more founders from diverse backgrounds.

Daniel: [8:43] You're digitally transforming venture capital.

Michele: [8:45] Yeah, that's our goal. [laughs]

Daniel: [8:46] That's amazing.

Michele: [8:47] To totally disrupt venture capital. [laughs]

Daniel: [8:48] What do you see is the future of e‑commerce?

Michele: [8:52] Such a good question. The first thing is we have accelerated from e‑commerce in 2020 to e‑commerce in 2030 overnight with COVID. The number is we have gone from 14 percent of total retail sales in the United States pre‑COVID. Now, we're at close to 28 percent. That is a 10‑year shift in three months.

What this means is that, first of all, every business will have some online presence, because no one's going to forget this. If you're a shoe store in a small town, you're going to be like, "Oh, I need an e‑commerce business because there could be a time where I will have to shut my doors for four months," because we all just experienced this crazy world event.

Every business today will be built with some e‑commerce presence. That's probably the first thing. The second thing that COVID did is it really accelerated all of these e‑commerce categories that people considered difficult.

People considered food difficult. Like, "I don't know how to deliver a perishable item, and I don't know if my berries are going to be crushed." There's this fear around doing this. You order grocery delivery a couple of times and you're like, "This is way better. What was I doing this whole time?"

People that are in our parents' generations are now ordering groceries. Big bulky items have always been scary. Furniture, all of that has really changed. People are getting barbecues delivered, all sorts of things that we thought were too big for delivery.

The last category that we really broke open in COVID was things that felt very personal that you had to try like color cosmetics. Now, we've created all of these insane online tools where people feel very comfortable buying categories like that. That's been a big part of the shift. We're just going to continue to see e‑commerce surge.

Daniel: [10:43] With Clearbanc, are you finding some of your people that you're funding were traditional businesses that are now growing an e‑commerce presence, or is it often built‑from‑scratch e‑commerce?

Michele: [10:53] It's both. We see a lot of businesses that had really meaningful wholesale businesses or brick‑and‑mortar businesses that now need to come online. We have seen businesses that have actually closed all of their retail stores. We have a couple chains that had 250 retail stores and then went entirely online with a really strong brand that people recognize. We see a lot of digitally native e‑commerce brands, where it's founders that have been like, "We are going to start this first for the Internet and then figure it out from there."

Daniel: [11:26] Wow. How do you assess resilience?
Michele: [11:28] [laughs] I don't know. You try and hear people's stories and see how they've really been able to handle a lot of things and where they are. It's also like what kind of adventure you want to ask. That's one of my favorite interview questions, is what adventure are you looking for in the next two years?

I'm not going to give you a calm, cool lifestyle kind of job. [laughs] I'm going to give you a ride of your lifetime, never been more excited, also probably never been more stressed out kind of job. It really depends on if people are in the mood for that.

Daniel: [12:03] Talk about the tech. You mentioned that you layer in AI. How did the platform emerge? What were some of the tech challenges for being able to bring this to market?

Michele: [12:11] That's a really good question. The first thing is we couldn't have built this business four years ago, because you actually couldn't get access to this many digital data sources in a reliable way.

When a founder looks for money from us, we're saying, "Give us access to your payment processor, your bank account, your ad spend accounts. We can see how efficient your ads are and a bunch of different data that we connect." The first thing is that's really easy for a founder.

If you remember your passwords, this takes you 15 minutes to connect to us versus this process with VCs, which is like pull this number, build me this spreadsheet, build cohort analysis. That all takes a [laughs] lot of time. I've done that process. We've just gotten better and better. I won't lie. Our early cohorts, we lost 20 percent of our money. It was really expensive to do that.

You can get better and better over time in terms of what we're looking for. It's an enormous amount of data we're processing. It's an enormous amount of money we're moving, especially during times like Black Friday. We've had to really ramp up infrastructure over time. It's been a fun journey to go on.

Daniel: [13:21] That's incredible. What were some of the learnings from that early cohort that you applied to the algorithm in this more recent cohort to drive better returns?

Michele: [13:30] There was a lot around what size of business you need to be to be stable. That point where you get out of side hustle into something that could sustain you as a single founder, because then you're seeing people that are a lot more committed.

We need founders to have $10,000 in monthly revenue, which still means we can start founders when they're pretty small. That's still a very seed stage side of this company. We'll give founders up to $10 million so they can really scale with us.

There was a lot of learnings from there. There was a lot of learnings around the type of business where your inventory sources are... There was looking at risky behaviors that could have happened that we could see with processing data, returns data. There's so many things that we've learned that we didn't expect that you can only do with a big enough data set.

This was the cool thing, is a lot of people will say, "Well, look AI, if you build it on your old models, it will just take our inherent biases that we had before and then supercharge them." [laughs] Here in this model, what we were doing was we were automating not the part of the process with the bias, which is the human part. We were just automating the diligence part and saying, "If these businesses had really solid unit economics, good return on ad spend, and hadn't effectively saturated their audiences, they could continue to grow a lot."

Daniel: [14:53] Is there any human element to this? Do you meet the entrepreneurs? Is there a human screen and interview?

Michele: [14:59] There is a human element, where we at least make sure that the entrepreneurs totally understand our product because this was very revolutionary. [laughs] We had to raise a ton of money for this business. We've raised close to $400 million now. Everyone on Wall Street told Andrew and I that we were completely nuts for doing this.

They're like, "This sounds like you're giving really small businesses money with no security, no personal guarantees. Ma'am, this is not how you do this." [laughs] I literally got that. Our thesis was we were pretty sure that the data would give us better performance, not worse performance. It took years to really prove that out.

Now, because we invented something new, we wanted to make sure we explain our product. We do try and talk to every founder. You can't go through a process without talking to someone. We'd like to be able to make sure we explained, we just double‑check, and then we build that relationship, because then there's a lot ways that we can help.

We have a program where if you want equity fund dollars at some point and you're in this high‑potential zone, we can introduce you to other VCs or venture partners in our network. We have a ton of agencies that we work with that we can help you optimize your ad spend. After you're in our network, there's a lot more we can do. We want to have that touchpoint where you meet someone on our team.

Daniel: [16:20] You started with a few data sets. You mentioned Google Ads spend and others. What are some additional data sets you think in the future could be interesting to assessing success?

Michele: [16:30] Oh, man, the Internet spits out so much data. [laughs] It's a matter of time. What we cared about in the early days was data sets that couldn't be altered. We always knew that we were seeing in real‑time how businesses were doing. There's businesses that look closer to what humans upload and play with. Those would be things accounting data.

There's lots of other forms of traffic data and tons of things that we can look at. The advantage of servicing e‑commerce companies is that they're all online by definition. You can take a lot of what's happening to their core business and really translate that into how they'll grow.

Daniel: [17:19] Got it. A lot of people in our community are aspiring entrepreneurs or entrepreneurs at large enterprises. What advice would you give them when they're starting with a vision?

Michele: [17:30] My biggest piece of advice is just get started. What typically happens to early entrepreneurs is they spend two years researching. [laughs] Here's the thing. You're never going to feel like it's the right time. It's never going to feel like you have enough knowledge.

By getting going, it's like by jumping in the pool, you have to swim. [laughs] That's the part that's super important, because I see so many entrepreneurs who's like, "I've been thinking about this. I've been working on this." I'm like, "Well, if you just get started, if you're just trying to get your first customer, even if you don't have the perfect product or it's not quite ready yet, you'll start that process of learning and iterating, and that iterative process is what creates great innovation."

We make this mistake, where we think that we can dream up a big innovation. We do this disservice to entrepreneurs all the time, because even when a founder's like, "You and I talk about our business. We only have 30 seconds to describe it. We talk about one eureka moment. We knew this was going to happen, and then this is a big success story."

You and I both know that it didn't happen like that. [laughs] It took years of perfecting and changing a business model a little bit to really get to the point where it was working. I always like to remind people that great innovation comes from a lot of iteration. It should feel like every day, you're trying and it's getting a little bit better versus having one amazing idea. That should make the barriers to starting so much lower as well. You don't need the most incredible idea in the world to get going. You just need to start, and you'll eventually get there.

Daniel: [19:11] That's where I love resilience as well. You brought that up earlier. Just the concept of assessing resilience, building that muscle, that really leads to great entrepreneurship and growth. What else do you do to really keep yourself sharp? You're obviously really busy, accomplished person. What do you do to stay focused both at work and in life?

Michele: [19:31] That's a good question. The answer to this is I'm not perfect either. I hear so many people being like, "I wake up at 6:00 AM. I have morning routines. I always do things." I wake up and I do the first sin, which is I check my cell phone because to me, I want to know that nothing is burning down.

That's actually very calming for me because I have a very high filter for things going wrong. As long as nothing's blowing up, I can be like, "OK, I can start." I'm not a morning person. I work at night. I've never been that way. One of the things that's super helpful to keep me focused is remembering that I can only do three things a day that will really move the needle, and so being really selective and ruthlessly prioritizing.

One of the things that's really tempting to do is you create a list at the beginning of the week, and then you're like, "I have to finish this list," where every day, things actually change. The faster you can iterate your own cycles and figure out what really matters... When I feel overwhelmed to try and go outside, I grew up in the mountains in Calgary, so being in nature, really, really resets you.

The other hack is being around, especially for entrepreneurs, a group of other entrepreneurs, because no matter how close your other friends can be, there is nothing quite this risk profile and needing to fail this often in their career. It's just every day, there's something that blows up and something that doesn't go wrong.

I always find being around my other entrepreneur friends reminds me that that's a totally normal part of the journey, that most of the biggest companies in the world were a disaster for the first 10 years, not the first six months. [laughs] They're just figuring it out. That makes it so much easier for me to be like, "OK, Michele, just keep going."

Daniel: [21:27] For Clearbanc, what's 10 years from now look like? What do you hope to accomplish in 10 years?

Michele: [21:36] I hope that we can be a funding option for every entrepreneur in every country in the world if they have an idea because, fundamentally, capital has been... Let me put it this way. Today, we beg VCs for money when we got an idea built, or high net worth families.

If we look even 2,000 years ago, it wasn't any different. It was just you as the entrepreneur were begging the king. The king decided which roads got built and the king decided which businesses got built. That created a lot of challenges because you needed to have these deep relationships with people that had capital.

The more that we can make this around you let your data just speak for itself, if you have a good business, your data will show that. It was just that there were so many people that had awesome businesses that could never get in front of the right people.

That will build the world that we want to see, because I genuinely believe on betting on entrepreneurs to solve the world's biggest problems. I look at a problem like climate change. You're like, "Well, governments have now spent trillions of dollars on this problem." The people that have made the biggest difference in solving something that's huge have been entrepreneurs.

It's like the entrepreneur that built cars and trucks that people wanted to drive [laughs] that were green. The Nest thermostat actually made a meaningful difference in [laughs] greenhouse gases in the United States. It was entrepreneurs that developed these solutions. That's my long‑term bet. I really hope we can get there.

Daniel: [23:09] From your experience with “Dragons’ Den,” can anyone be an entrepreneur?

Michele: [23:12] For sure. This is something you have to want to do, because this is not for the faint of heart. [laughs] This is not for the folks that don't want to work hard. If you want this, you can learn risk‑taking tolerance. You can learn how to hustle. You can learn how to sell. Those are the primary components of being able to do this.

It's like, are you willing to put yourself out there and look stupid when your idea doesn't work and then try again, try again, and try again? Are you willing to figure out how to sell? Because you're selling all the time. You're selling your product. You're selling to get employees. You're selling to capital. Are you willing to do that?

Do you have the resilience where you really want that? I, 100 percent, believe that can be learned. There are more natural personality types for this career. I actually think the most natural personality type to be an entrepreneur is the class clown. If you fundamentally didn't believe in rules in grade two, you were perfect at 21 to be like, "Why? Why did we build things this way? Why do we have to do things this way?" That questioning and curiosity is a really good trait. It's about just putting your own horsepower behind it and making it a reality.

Daniel: [24:29] Michele, there are all types of entrepreneurs out there that you see, ones that interact offline, ones that interact online. What's the secret sauce to making their business successful?

Michele: [24:38] The first thing is you have to have an interest in learning online because it is a way more technical space than operating offline. There are so many businesses. You think about your favorite restaurant, your favorite bar, they can build an incredibly loyal base by just creating a human‑to‑human interaction.

There's an incredible skill set. Effectively, what we're doing is we're trying to duplicate that same behavior offline. That comes in different forms. That's an email touchpoint. That's personalization that feels personal but not creepy. That is reminding you when you think you might have wanted to do something but didn't, like a retargeting ad where you just keep seeing something that you clicked on, and you're like, "Oh, yeah, I really do want that. Thank you for [laughs] reminding me."

First of all, anyone that's offline can go online. People can totally transition between the two. It's really about interest and then interest in getting technically good at some of these things, because it's not super simple. There's much, much, much better low‑tech tools out there.

You do need to want to learn. You want to be able to think about how do you replicate the same thing you were doing in person online. Some people will be like, "Well, why do I want to do that?" The advantage of that is that you can replicate yourself to not 100 people, but 20 million people. The scale that comes with that is really powerful in being able to share your brand and share your story.

Daniel: [26:07] Thanks for listening to Decoding Digital. Today with Michele, we had the pleasure of going through her experience and learning how she pivoted her career as a serial entrepreneur into television and, ultimately, to transforming the venture capital industry.

She shares her thoughts on what it takes to be a successful entrepreneur, whether it's at an enterprise or whether it's starting a company from scratch, and really pinpoints the focus on resilience as a skill set for success. She also touches on Clearbanc and her vision for the future of venture capital, and the ability to help businesses scale through access to capital in a way that's AI‑backed.

This is just the beginning of Clearbanc. She's done so phenomenal so far. We're going to see far more from Michele, Andrew, and the team at Clearbanc. Don't miss the next episode of Decoding Digital.

Brad Feld: [27:02] Everyday was worse than the previous day. The cliches abounded. My favorite one was don't catch a falling knife. It's like the cliches are not helpful. Everything's just [beep] and it's time to [laughs] try to deal with it and figure a way through it.

Daniel: [27:15] Thinker, writer, activist, runner, mentor, investor, and legend of the startup world, Brad Feld. Make sure you never miss an episode by subscribing to the show in your favorite podcast player. To learn more, visit decodingdigital.com. Until next time.