Jordan Nof was working at Blackstone, the U.S. company seen as bellwether for the alternative asset sector, that now manages a record $371 billion worth of assets, when he saw an opportunity to expand the scope of the firm’s strategic investment portfolio beyond high-growth fintech companies and into the emerging sector of Real Estate Technology.
He filled this new role on the Innovations team and quickly worked to show the major players at Blackstone that at times it makes sense to be an investor as well as a client. He began looking for companies that could become industry leaders by having a firm like Blackstone as a strategic partner. One of his investments at Blackstone was VTS, which has since become one of the fastest growing companies in the real estate tech sector.
In 2015, Nof took his own bet, when he decided to join Silicon Valley’s favorite political fixer, Bradley Tusk, in establishing Tusk Ventures. As a Managing Partner and the Head of Investments, Nof is responsible for the firm’s first venture capital fund, and has invested in some very interesting deals, including Lemonade, FanDuel, Care/of, and Coinbase.
Omri Barzilay: You took a substantial risk leaving Blackstone, what made you leave a great firm to start up a new fund?
Jordan Nof: Venture capital investing is my passion, and through my experience at Blackstone I learned that you need a strategic wedge to get into the best deals. Blackstone is an amazing firm with some of the smartest and most talented people I have ever worked with. They are masters of their craft, and exceptional at executing on what they do best. However, venture capital simply wasn’t in the ethos of the firm. I joined Tusk because I wanted to make a bet on myself and build something from the ground up. I saw the opportunity to develop a unique investment strategy around an innovator like Bradley Tusk, and execute on a new model of venture capital investing.
Barzilay: What's unique about Tusk Ventures?
Nof: Tusk Ventures was founded in 2015 to focus on helping startups navigate the political, regulatory, and media hurdles that come with reshaping entrenched industries. In less than two years we’ve built the first firm with both a dedicated venture capital fund and a political and regulatory advisory business. The fund invests financial capital in startups where we can leverage our unique expertise to add strategic value at some point in the company's lifecycle. To date, we have made seven investments across various sectors and stages. Many are operating in regulated markets, like Lemonade and Care/of, while others are creating new verticals altogether, like FanDuel and Nexar. The political and regulatory advisory business utilizes a high touch engagement model to work closely with startups, helping them capitalize on or avoid various political or regulatory factors.
Barzilay: In a very short amount of time you were able to invest in highly sought-after companies like Lemonade, Care/of, FanDuel and Coinbase - how did you do that?
Nof: As a new VC fund, you have to find a way to punch above your weight class in order to compete with the larger, more established firms. You have to find your edge. Starting with FanDuel, I began requiring that every startup our advisory business worked with grant our Fund the right to invest in their business. This provision provides our Fund with access to deals in-between rounds of financing, and guarantees us an allocation into the top-flight companies that a new, small fund like ours would never typically have access to. The perfect example of our strategy at play is Lemonade. By helping them secure their first state licenses to operate as an insurance carrier, we provided both financial and intellectual capital to a highly innovative company that we believe will have a significant impact on the insurance industry.
Barzilay: You have invested in different stages from seed to late stage, and across different industries. What stage is your sweet spot for investing, and what sectors do you focus on?
Nof: Our fund is stage-agnostic and opportunistic. This flexible mandate allows us to capitalize on the diverse opportunities that we see as strategic investors. Our focus is less on stage or sector, and more on building a portfolio of high-growth, high-quality assets where we can help drive value. The Fund’s typical sweet spot is the Institutional Seed / Series Pre-A through the Series B. However, sometimes we find opportunities where the risk/return profile is appropriate for our mandate in later stage companies.
Barzilay: Investing at the seed stage: how much is gut instinct and how much is it data based for you?
Nof: There is certainly a playbook of several ways to stack the cards in your favor, and build a successful seed stage fund using just data and constructing a very large, diversified portfolio. But for me, investing at the Seed or Pre-A stage is primarily gut. Specifically, what my gut tells me about the Founders. The “investing in the right jockey, not the horse” philosophy plays a role, but it certainly helps if you have deep domain expertise in the sector as well. However, you have to be comfortable knowing the chances that the product is ultimately going to look nothing like what you originally invested in are high, along with confidence in the Founders and conviction that you can drive value.
Barzilay: To me there is a sense that private markets are inflated, especially with the recent investments made by SoftBank’s Vision fund and the limited number of IPOs. Do you share this feeling? Have you changed anything in your investment methodology lately?
Nof: I take a slightly different view on the current venture capital landscape. Although “average” valuations are up, I believe some of the underlying trends are being skewed. Investments into companies valued above $1.0 billion by large investors (including PE funds) continue to inflate the valuations of later-stage financings.
At the current rate, 2017 VC dollars invested are on track to be the highest in the past decade, while the number of VC deals completed in 2017 may be the lowest annual total in the past five years. In short, fewer companies are receiving funding, but with more capital. The bar for quality is definitely higher than it was a year ago for early stage investing. In this environment, maintaining a disciplined investment strategy is key – and there is no shortage of opportunities out there if you have the right strategy in place, and wedge to gain access.
Barzilay: What are the sectors you are mostly looking at recently and what's the best source of deals for you?
Nof: Our focus is typically on startups with B2C business models operating in highly regulated industries, or creating new markets altogether - where no regulation currently exits. This is because regulators are typically focused on trying to protect consumers, and at times can be viewed as biased towards incumbents. Recently, I have been spending a lot of time looking at FinTech (especially, across the cryptocurrency landscape), autonomous vehicles and real estate tech (one of my favorite verticals, that stems from my time at Blackstone).
We are also continuing to explore themes across Insurance Tech, Transportation Tech, and new applications for Commercial Drone software. With regards to deal flow, it all comes back to relationships. My best sources of deal flow are typically from Entrepreneurs that I have worked with in the past, Founders in the current portfolio, and from VCs that I have developed trusted relationships with.
Barzilay: Regarding blockchain technology, what do you think about the current trend of Cryptocurrencies and ICOs? Are they just trends that won't last, or the future of venture capital?
Nof: Let’s address Cryptocurrency, Tokens, and the Blockchain separately from ICOs. I think that the blockchain is perhaps one of the most important technological innovations that we have seen in quite some time. For the first time, cryptocurrency and the blockchain are embedding economics into the internet, and have created a new way to build networks where all participants have aligned incentives.
With regards to Tokens, when used appropriately they provide the framework to incentivize developers, service providers (miners), and end users (early adopters). The incentives give the application or protocol the potential to achieve the critical mass required to see the benefits of “network effects” very quickly. I don’t think cryptocurrencies are simply a trend or fad, they can provide more than just an alternative form of currency, and people will begin to see that once they understand the intrinsic value of creating a new type of global computational platform.
On the other hand, bad actors are popping up at every corner of the ICO market (as one would expect) because they feel like there is free money to be had. Currently, the landscape looks like the wild west due to the lack of regulatory framework, and the depth of domain expertise required to properly evaluate legitimate token offerings. Our fund has invested, and will likely continue to invest, in startups across the digital currency landscape – however, we haven’t participated in any ICOs.
