Leading Through Difficult Times: Kelly Perdew, Co-Founder @ Moonshots Capital


"Every single entrepreneur, every single founder has a different discussion, but it's all related around this massive change of events where you throw out your existing plan." - Kelly Perdew

This episode features Kelly Perdew, a Co-Founder and Managing General Partner at Moonshots Capital, an early-stage VC fund that invests in tech companies leaning heavily on veteran founded companies. Kelly shared his entrepreneurship experience starting from winning Trump's “The Apprentice” Show and practical advice for startup leaders during the challenging times, like the COVID-19 pandemic.


Kelly Perdew, Co-Founder and Managing General Partner @ Moonshots Capital

Kelly Perdew is a managing general partner at Moonshot Capital. He focuses on investment opportunities in early tech companies. He won Season 2 of NBC's hit show "The Apprentice" and served as Executive Vice President of the Trump Organization in New York. Kelly graduated from the US Military Academy at West Point and was served as an officer in the army. He earned his JD and MBA degrees from UCLA. Kelly is a nationally recognized speaker on leadership, technology, career development, and entrepreneurship.


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Full Transcript


1. Entrepreneurship Experience from the “The Apprentice” and Donald Trump


Margaret Laffan:

Kelly, we’re delighted to have you on our show today. We have got many things to talk about. First, I’d love to learn a bit more in terms of you, you have quite a unique experience that not many people can share. You won “The Apprentice” Show in 2004. And for some of our listeners here who may not be so familiar, this is Donald Trump's first of its kind reality TV show on entrepreneurship. We are deeply curious to know about how that overall experience was for you?


Kelly Perdew: That’s probably an entire podcast unto itself or maybe several chapters. It was really a great experience for me. The finale that I won - it was like 16 episodes, and the last one is a finale. And they had a viewership of about 30 million people over the three-hour finale, which is like half a Super Bowl. So I definitely got significant exposure. But then 14 months after the show, when I went to work for Donald Trump in New York City, I got to watch how we operated. My office was on Fifth Avenue and in Trump Tower. I traveled with him, went to speaking engagements with him, spoke on his behalf sometimes, but I spent a little over a year working closely with him in that organization.


Margaret Laffan:

That must have been quite a ride at that time, quite the adventure.


Kelly Perdew:

It’s kind of the gift that keeps on giving. I'd like to say that I made it through the show and I made it through never being fired by Donald Trump, which is a hard thing to do now.



2. Book Highlights and Relevance in Today's Business Environment


Margaret Laffan:

And from there, you wrote the book, Take Command: 10 Leadership Principles I Learned in the Military and Put to Work for Donald Trump. I know some of these include leadership principles, such as perseverance, passion, and so forth. What are the ones that you see as the most relevant in today's business environment?


Kelly Perdew:

The reason I wrote that book is I was cast by Mark Burnett, who was the producer of the show. He said I was the “military guy”. There's no narrator for the show. They bring a contestant out of the show and say, how are you doing on this task? What's going on? And you tell the story of where you are in the task and then they post-produce and put it all together later. But all of my questions were, “how do you think your military background helped you on this task”?


So I went with it and then I kept getting questioned after the show during the media and everything else, do I think my military background helps in winning the reality show. And I'm like; my military background and all the leadership training that anybody in the military receives helps you with everything. Don’t you know that? Like I was dumbfounded that I kept getting the question over and over. So that's when I decided to write the book about 10 leadership principles that I thought that I learned in the military were very effective in business.


And then I was like, who's going to believe the guy who went on a reality show who hasn't really built big businesses yet? So I went and spoke to and interviewed a few very well-known, very successful business people who had military backgrounds - Ross Perot, Roger Staubach - he has a multi-hundred million dollar real estate company that he built after winning a couple Super Bowls with the Dallas Cowboys. So I went and talked to the six or seven of these individuals to reinforce that these leadership principles were super important. I’d say that, if you break them all down, they all add value in the business environment. But especially for entrepreneurs, which is where I focus most of my time, especially with the VC fund now with Moonshots Capital, the three “P”s - the Passion, the Perseverance and the Planning, are critically important. And they're going to be even more so during the really tumultuous times that we're going through right now.


Margaret Laffan:

Can you elaborate a bit more about what you've learned from the experience of working with Donald Trump and his team that you put to work as an investor founder later on?


Kelly Perdew:

One of the things Donald Trump is known for saying is you got to think big. And this is incredibly true for entrepreneurs, especially those that are trying to raise money. I get entrepreneurs that come in wanting to raise $200,000 or $500,000 or $700,000. And I said, well, if you're going to raise that much money, you should try to go around to some friends and family members, your credit card, and any other places you can get it, because that's not really enough money to get an institution involved for.


And if you're going to raise money, the process is so time-consuming, and all the documentation, all of the work that you have to put into going to do that, you should actually paint a bigger picture, paint a bigger idea, that's going to be more impressive. It's not only going to help you raise money, it's going to help you attract talent, and hopefully be more compelling to whoever your customer basis or whatever client you're trying to convince to buy the product that you're building.


For the entrepreneur, the only thing you can't get back in this world is time. So if you're going to expand your life force against something frequently to the detriment of your friends, family members and loved ones around you as an entrepreneur, you want it to be for something that's going to be significant.



3. Moonshots Capital and the VC Strategy with Military Background


Margaret Laffan:

Let’s talk a bit more about Moonshots Capital, your investment strategy leans heavily on veterans and veteran founded companies. We're most curious if you can give some examples of how you see veteran founded companies different from other companies.


Kelly Perdew:

The thesis that we have, that is me and my partner Craig Cummings, who's based out of Austin - I'm based in Los Angeles - we’re both West Point graduates. I served three years on active duty. Airborne Ranger certified me and I finished both airborne school and ranger training. My partner Craig, he stayed 17 years in the military. So between us we have a full 20 years. But he helped do things like stand up Cyber Command in the army. He got his PhD at Columbia and taught at West Point, did several tours in Afghanistan, won a bronze star for his efforts. And both of us became entrepreneurs. We have 14 operating companies under our belts, as you know that founders are senior executives at the founding teams.


Over the years we evolved from angel investing, i.e. each of us writing $5,000,$10,000, $25,000 checks into individual deals, to running a syndicate, so together we combined forces, and then we put our check up and then get a whole bunch of other angels to give us their money. And we would invest as a single purpose vehicle into a company. And then finally, as a committed fund, which is Moonshots Capital Fund, it’s the one that we've been investing out of.


In that chapter one, two and three of investment, we looked at chapter one - over 8 to 10 years, and said, look, all these companies that we've invested in that have evolved, some of them performed very, very well, some of them did not perform well. Let's look back at them and do an after-action review and say, what factor that we could control for at the time of investment would indicate that that company is going to end up on the right side of an ROI, in other words, have a good return on investment?


And the only factor - because we're investing in a very early stage that we could put our finger on and we could look at and absolutely say - impacts that was the quality of the leadership. And the only place in the world that we know of where millions of dollars is spent training individuals in leadership is the military. So we lean in heavily, not exclusively, because there are other places where you can get leadership training, but we lean in heavily with our military veterans as part of the founding team.



4. Investment Ecosystem of Los Angeles


Margaret Laffan:

Kelly, you're based in LA, can you tell us more around the investment ecosystem of LA?


Kelly Perdew:

I've been an investor and an entrepreneur in LA since 1999. And I've been an investor, first as an angel as I described since 2004. So I have grown up both with my business background in terms of being an entrepreneur and as an investor in the LA ecosystem. And it has had a staggering amount of growth in the last five to seven years, meaning 30 plus VC funds versus two or three,10 years ago.


The numbers and types of large enterprise-sized companies that exist here and have grown and have gone public, and have sprouted off as you see in the major ecosystems, where those, that now are wealthy entrepreneurs break out of those companies and start additional companies and it covers the gamut from media, to entertainment and gaming, to logistics and supply. Literally it runs the full gamut now.


And I would say, with eyes wide open, one of the areas that I think still needs to be addressed in Southern California is the additional larger fund follow-on capital. Typically you have to go outside of Los Angeles to get Series B and C rounds led. Pre-seed, seed and A - there’re a significant amount of opportunity for entrepreneurs to have local funding. And it's not like other firms are shying away from LA either, they'll still come here, but you're always like, if I have two equal opportunities, and one is in my backyard, the other one, I have to fly to somewhere to get to especially now, it may make it a lot more difficult.



5. Leadership Characteristics in Investor Community


Margaret Laffan:

What would be the one commonly held view in the investor community that you do not agree with?


Kelly Perdew:

Almost always there's a real hard push to describe your sector focus, and I get that, especially as you evolve from seed into A, and A into B, and then surrounding yourself with that. But our hope is that our entrepreneurial team, the founders that we're investing in, have pretty significant chops in the sector which they're operating. It doesn't mean that it's not nice if we have an overlay where we can provide our network and open it up as well. But we're, especially because of the early stage, we go against trying to pigeonhole us into, “this is the sector you're focused on”. We can say, we know nothing about and don't do bio. And unless it's a FinTech app, don't get really involved with healthcare and HIPAA(Health Insurance Portability and Accountability Act) and all the compliance issues with that. We do have a significant advantage on the .gov or .dod side for those dual use technologies because of our background and awareness of how that operates. But that's also extremely unknown to most people.


So our emphasis is around first, what's the actual leadership trader qualities? But in the early stage, no matter what your plan is, all you know for sure is it's going to be different in 12 months or 24 months or 36 months. Almost none of them have ever ended up where they were aiming and when they started out, and that requires significant chops of leadership as the first criteria.


Next, where we're able to help is in the company building. Because Craig and I are both operators, and have a history of operating 14 companies. We are able to help the entrepreneurs who are sometimes first time or second time entrepreneurs, who have not tripped over all the issues that we have or banged our heads on the walls that we have, and we try to help them avoid or get around those. So we're less focused on the domain expertise that a lot of investors focus on.


Margaret Laffan:

So you go broad and you look for the leadership characteristics and the ability of that team to be able to build and grow a solid company.


Kelly Perdew:

You got to complete the mission.



6. COVID-19 Pandemic and the Impact on the Economy


Margaret Laffan:

Let's talk about the current environment. We touched on some of this earlier. Right now, it's truly a tough time, of course with the COVID-19 pandemic and the ensuing impact on the economy. How does the current situation impact your investment strategies and decisions?


Kelly Perdew:

It has a couple different effects. I think everybody's feeling is this, the first step is ,everybody pulls back a little and takes a hard look and a lot of time within your existing portfolio companies. You've already made an investment of both money and as importantly, time, and helping these companies grow any plan that they had a month ago, or maybe six weeks ago. Nobody in six months from now or two years from now is going to go, what happened to your sales? - during the first half of 2020. No, it's not even going to be considered. Just throw it away literally, especially for the early stage, because your anticipation is, it's going to be very difficult to raise money on this next round of financing. That goes without saying in any environment, we always think that way.


When we invest on our standard operating procedure, we're leading a late seed round, we're putting three quarters a million to 1.5 million on a $2-$3 million round. That $2 to $3 million total that we're leading with up to one and a half, is designed to let the company last 18 to 24 months from when we put the money in, at which point along the way with the milestones and the heuristic planning, we set operational metrics that will allow for the next round of financing to occur. Or, in the case of some bad financial environment, which just happened obviously, you're able to take down your burn or your costs, so that you can either pretty much operate independently or with a very small bridge, take it to where you can operate independently. And that's a microVC (under 100 million dollar funds) view of ensuring that you have a successful outcome for the people that invested.


We did that with every one of our investments. And a good portion over half of our investments occurred in the last six to eight months. So we have the ability to safely make the decisions that expand the runway so that it gives the company time to mature enough to have a chance to meet additional fundraisers, in some of these cases can operate profitably. But that doesn't happen in just one phone call. That's a long, hard discussion over a week or two period, if you're doing it fast with each of those founding teams with those entrepreneurs and some tough decisions to make, but having been in the .com burst of 1999, 9/11, the 2008 - 2009 downturn, this is much more severe and much broader reaching. But a lot of the dynamics at play are the same. So coaching these entrepreneurs through that, every venture capitalist who has any portfolio is doing that for the first few weeks.



7. Leading Startups Through Challenging Times


Margaret Laffan:

Are you asking your teams to come back with a couple of options, if we hit this pace or this happens with the economy, this is the go-to plan. How is that conversation going for you?


Kelly Perdew:

The directions typically show me how you can get 12 to 18 months more burn. And then argue with me about why you have to keep these four to seven people because the product has to get out and you're going to generate revenue, and then we start talking about assumptions around what turns around now.


We’re also fortunate to have a few companies who are economically and business plan wise benefiting from what's transpired. So they have a different dynamic, which is, I need more headcount immediately, except that I can't meet them in person. They can't come to my office, they're going to have to operate off their own equipment for a while. So there's a little bit of a different discussion there. But every single entrepreneur, every single founder has a different discussion, but it's all related around this massive change of events where you throw out your existing plan.


Margaret Laffan:

Would it be fair to say you're seeing a lot of creativity and perhaps some surprises as well in terms of what your teams are coming back in terms of, let's think about this strategy, or, obviously from a hiring perspective, you can do video hiring, there's a lot of things that's happening, and that's great. And then you can ship out what you need, to get to your people, to get them going day one. But you're certainly seeing that there's quite active business taking place.


Kelly Perdew:

Absolutely. The range of responses goes from, we cut back to five people and the five people took 40% pay cuts, we now have two years of burn. And we can continue handling the existing business we have and we're going to see what happens over the next four months before we start ramping back up again to 10% of the burn down. And then you have to have a different discussion immediately, like all plans are gone, we're not operating on any stable plans.


So it runs the gamut, and it depends on the experience of the founder, also where they are in their business cycle, because some of them have reached critical capacity, or they're at a point where if they lose part of the development team, it's going to destroy their ability to get out even in the timeframe that makes sense. So there are some gives and takes.


And also, every venture capitalist has allocated some amount of dry powder to each of their deals previously. And with this environment, there's a review of that to see if we're going to shift around some of that dry powder. Dry powder is money set aside to follow on into that company to either protect or grow your investment in that portfolio company. For earlier stages, it’s typically about bridging - we didn't quite get the product right, we had to shift a little bit, we need six more months of runway. Existing investors, can everybody put in their pro rata of a million bucks to help us extend that runway? And I think entrepreneurs that are savvy, have already reached out to understand how much dry powder is allocated to see how quickly they could get it and that will help inform their planning process.


Margaret Laffan:

It sounds like it's a very big collaboration and discussion.


Kelly Perdew:

Nonstop.


Margaret Laffan:

Given this unknown environment, and I certainly see that you've touched on some of this, what advice would you have for startup founders today?


Kelly Perdew:

It sounds trite, but you always have to anticipate the worst. So for Q2 sales, your initial thought is, we're going to lose 20% of them. I would say you're going to lose 80% of them. And it isn't one of the exercises where you move it to the right a quarter. Unless you're selling something critical, you're not going to think about it for the rest of the year, maybe. You have to be selling some critical software component, or something that if you can pivot some makes a difference to your client for their environments. You really have to think about your audience, where the customers are, and you have to give them something that solves a pain point.


8. Outlook on VC funds


Margaret Laffan:

What do you see happening in the next one to two years in VC?


Kelly Perdew:

My position has always been through all of the downturns that have happened, the best companies end up getting better. I think that's probably also true for the VC funds. The VC funds that have built sustainable, investable companies and help their entrepreneurs to build those and are being successful, I believe that the scrutiny around from an LP perspective - LP (Limited Partner) is somebody who invests into the GPs (General Partners) of the VC funds, so the investors into the VC funds - will definitely conduct significantly more scrutiny, because there have been record numbers of new funds started. Moonshots Capital is among them.


But there are many, many venture capitalists who may or may not have operating experience, may or may not have significant investment experience that has been able to raise capital because the capital has been available. And I think all the way up the chain, there’ll be an all hard time, some amount of flight to quality. And quality is going to be defined as either prior performance, which takes away all the emerging managers, because somebody who's already executed previously, or somebody who demonstrates with an existing portfolio that may not be at performance levels on mark to market for evaluation standpoint or had exits yet because of the environment, but can show significant operating companies growing in that portfolio, which is what we obviously hope to do.


But I do think that it'll be much more difficult for any newer emerging managers to raise a fund. And I think that the LPs are going to be incredibly discriminating on who they put money into.


Margaret Laffan:

But there's a lot of resilience in the system though. I think that's fair to say right now.


Kelly Perdew:

A large argument over the probably last five to eight years for LPs deploying capital into VC is, historically, VC has been the highest performing - it’s been hard to beat the public stock market, where there's not a 10 year closed-end fund cycle that a VC requires, from an investment standpoint. Still, all the larger LPs and institutions have a percentage of their portfolio dedicated to alternative investments like private equity and VC. So there will still be a significant amount of capital. And I think it will become even a little more attractive, but again, towards those quality components, and more attractive because of what's happened with public markets.


Margaret Laffan:

Is it fair to say you have a positive outlook?


Kelly Perdew:

I don't have a choice - I’m in this business, and I'm an entrepreneur at heart. So I'm always optimistic. Cut everything I say by 50%, like we do with all of our entrepreneurs’ forecasts.


Margaret Laffan:

Kelly, we love your energy. We love your passion. Thank you so much for spending and sharing your time with us today to talk through some of your top thoughts at the moment, and of course, your experiences as well. We really appreciate it. Thank you.


Kelly Perdew:

I love being here. And you're doing a great service by bringing people out since they can't get out of their homes right now.




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