Clay Gordon With Stout Street Capital

Intro: [00:00:04] We’ll come back to the Startup Showdown podcast, where we discuss pitching, funding and scaling startups. Join us as we interview winners, mentors and judges of the monthly $120,000 pitch competition powered by Panoramic Ventures. We also discuss the latest updates in software web3, health care, tech, fintech and more. Now sit tight as we interview this week’s guest and their journey through entrepreneurship.

Lee Kantor: [00:00:38] Lee Kantor here another episode of Startup Showdown, and this is going to be a good one. But before we get started, it’s important to recognize our sponsor Panoramic Ventures. Without them, we couldn’t be sharing these important stories. Today on Startup Showdown, we have Clay Gordon and he’s with Stout Street Capital. Welcome, Clay.

Clay Gordon: [00:00:58] Thank you so much. Excited to be here.

Lee Kantor: [00:01:00] Well, I’m excited to learn what you’re up to. Tell us a little bit about South Street. How are you serving folks?

Clay Gordon: [00:01:05] Yeah, so South Street Capital, we are a seed stage venture capital firm based in Denver, Colorado. We invest in non coastal markets and we also invest in Canada. We’ve we’ve raised two funds and made 65 investments and then we are still actively raising for our third fund. But we’ll have a first close actually today. So I got some celebration to share.

Lee Kantor: [00:01:30] Well, congratulations. Well, what’s your back story? How’d you get involved in this line of work?

Clay Gordon: [00:01:36] Yeah. So it’s a nontraditional path. I assume that’s probably the most common answer as well. So I was actually doing, I would say, community organizing prior in the Carolinas. So I worked in and lived in Washington, D.C. and then ultimately found a home in Wilmington, North Carolina, where I was doing, I would say, community organizing. And I really saw the power of that as well, finding like minded individuals and groups to come together for a certain cause. And so ultimately, I was going to move to Denver, which is where family and home is, and I just saw the power of that and my partner was involved in the startup community as well. And so we just felt like it was just great complementary skill set to kick off a seed stage fund and support more broadly the community. And that’s what we’ve been doing ever since.

Lee Kantor: [00:02:23] So when you were when you made that leap, because this is a it’s a pretty drastic leap, right, from your work as a community organizer to your work today, when did you start realizing, hey, this is something that I am making an impact? I do kind of getting that same warm feeling I used to get when I was doing the community organizing work and this is really making a difference in people’s lives.

Clay Gordon: [00:02:47] Yeah, I would say there was a couple of different factors that came in and I want to say like the writing was on the wall. But ultimately I worked at start ups in college at the University of Colorado in Denver specifically. And so I saw this this industry really, as I would say, new. And I felt like it was an industry that I would be able to create value very different than, let’s say, energy or real estate. I felt like this is something that I could truly create value to benefit the next generation of entrepreneurs. And so a couple of different factors all pointed to, Hey, let’s do startups and let’s build something that could have a lasting impact. And being on the financing is is an important part of that as well. And then we looked at, I would say, historically underserved regions to to invest in. And so we invest again really in small markets across the country, and that can be Phenix, Kansas City, Denver. And again, we have five deals in Toronto. I got a deal in Charleston. So just really great opportunity, really great founders. And I think a little bit of filling out on resources around some of these stellar entrepreneurs can make a huge difference, and that’s really what we try to do at South Street.

Lee Kantor: [00:03:59] Did you have an experience early in your career as a in a startup and actually participating in a startup?

Clay Gordon: [00:04:07] Yes, we were doing warehouse fulfillment and e-commerce for a startup in Denver. I was in the logistics side. More specifically, I was just shipping things all day long. But I really like the free flow environment of a startup as well as helping others kind of achieve their goal. And again, on the e-commerce and logistics business, we were reselling other people’s product, which I think was a win win for everyone. So I really like that aspect. My partner did have more of a finance bent or I mean that that is his background. And so ultimately we were both around it and felt like it was a really good complementary skill set to kick off a fund.

Lee Kantor: [00:04:48] Now. Are you seeing traits in startup founders that you’re like, okay, these are kind of the must haves. These are the kind of the, you know, red flags. Are there certain kind of qualities you’re looking for that stand out to you that gives you a clue that this that this is the right horse to bet on?

Clay Gordon: [00:05:07] Yeah. You know, we do have a different opinion on this because this is, I would say, one of the most common questions as well. South Street. You know, we do look at, I would say, the underlying business model, maybe a little bit more. We emphasize the underlying business model a little bit more than other firms. And the founder is obviously one of the most important parts, but that is not our sole reason for investing. And so at least our firm, we do look for at least a little bit of product validation. And so that does mean revenue at the end of the day. And so as far as red flags or advice, you know, our advice is, you know, go see what the market on the customer side has to say. Usually there’s a couple pivots to find things, and then you’re going back to investors at much more of a position of strength saying, hey, I’m already in market generating revenue and a little bit of investment would go a long way as opposed to the other way to say, Hey, I have a good idea. Will you invest in my idea to move it to a business? We just feel like having a little bit of product market validation really amplifies the company to investors as well.

Lee Kantor: [00:06:15] So selling something to somebody is a clue that you might be on to something.

Clay Gordon: [00:06:20] Yes, you know, I would say I trust the customer a little bit more than me, you know, and 100% of the cases, I would never know as much about the company, product or industry as these entrepreneurs would. And therefore, if someone’s willing to pay money for their product, I feel like there is a lot or that’s very meaningful. So anyways, we do wait the underlying business model a little bit more than other VC shops. But again, these are all in underserved regions where we feel like there is tremendous opportunity that has been overlooked by coastal investors. So we feel like it’s just a win win for everyone.

Lee Kantor: [00:06:57] So now can you explain some of the trade offs when you’re dealing with these underserved markets? Are there what are some of the kind of the great things because it’s probably a less jaded group of people than you’re you’re with, but then they’re not as seasoned and they may not be as cynical. So can you talk about some of the trade offs of working with these underserved groups and markets?

Clay Gordon: [00:07:21] Yeah, you know, I would say some of the benefits will start there. Some of the benefits are the people. You know, we’ve done a ton in the Midwest. I feel like working with people in the Midwest. I feel like that Midwest values really resonates with us. And I feel like the people that you interact with more frequently are very respectful, transparent and considerate, which I think is incredibly important as as we are investors that invest outside of our region. And so getting, you know, transparent and honest communication is we see the importance of that. And so I feel like the people where we invest is got to be number one. I think number two, again, kind of wearing the investor hat is the prices are significantly lower than coastal markets and I feel like that is due to labor just cheaper to hire someone in Saint Louis than it is in New York. And same with Denver versus San Francisco. So I would say those are kind of the two that come top of mind. As far as the flip side of that, I think the two big problems with investing in this region, which are more opportunities, is access to capital because there is few and far between venture capital shops and access to talent.

Clay Gordon: [00:08:31] The good thing is we started a venture conference called the Unmet Conference, which we’ve hosted eight times in four different states, specifically designed to help companies raise institutional seed and institutional series A and this is really where my community organizer background comes in, but again, that is an opportunity to solve this problem. I don’t know if we’ll ever be able to solve it, but at least it’s better than the status quo. And then as far as access to talent, the good thing with tech, which was already happening pre COVID is you can hire people really anywhere in the world to help. And then we’ve also partnered with firms like Powderkeg and Indianapolis to really help non coastal companies get access to a big database of people in the tech industry looking for jobs. So these are two ways that we’ve addressed. I would say the two biggest problems of non or starting a company in a less densely populated area.

Lee Kantor: [00:09:30] Now, are there niches that South Street Capital focus in on or you’re kind of industry agnostic?

Clay Gordon: [00:09:36] We are industry agnostic, so we are all over the bat. I would say like my preference is, is historically I’ve gravitated a little bit more towards S&P software, a little bit more niche your business. And so we’ve invested in software companies that sell to florist, to dental offices, to veterinarians. And we found a lot of really good opportunity and I would say established markets for a product to improve what’s already existing. We do shy away from, I would say, the truly transfer transformational ideas, which probably do require more coastal capital. You know, we do look for, I would say, minor improvements within an established market, which is a little bit more niche here or a little bit smaller of markets.

Lee Kantor: [00:10:24] So now what’s your favorite part about working with these kind of founders that are in these underserved areas?

Clay Gordon: [00:10:30] Yeah, I mean, ultimately it’s to be helpful. I think that’s everyone’s goal for the most part in the startup community, which is just really filling for a career. And then to kind of going back as the community organizer, I mean, how can we put the right people around the table where one plus one can equal three? And I feel like it’s it’s a challenge, but I feel like it’s a sense of purpose that I feel like is truly unique for this disconnected startup community that we all operate in. But again, I think it’s an opportunity to create value for long term, not necessarily change, but value. And I feel like it’s very rewarding.

Lee Kantor: [00:11:11] Now, how did you find out about the start of Showdown and get involved as a judge and mentor?

Clay Gordon: [00:11:18] Yeah, well, I have known the team over at Panoramic for probably about four years. We have a very good reciprocal relationship when it comes to sharing companies we like with each other. There are much bigger than than Stout Street. And so sending opportunities in our portfolio that have grown is a good fit for them and then vice versa as well. And there’s really a great ecosystem of investors primarily in the flyover country, that just share opportunities to be helpful. And I feel like panoramic has been one of our best partners. And then I’ve also participated as a judge and their startup showdown as well. And I think they do a great job. So that’s that’s how I found out about it.

Lee Kantor: [00:12:00] Now, any advice for startups that have never done kind of an event like Startup Showdown? How would you recommend they prepare and, you know, kind of get in the right mindset to get the most out of that activity? Well, going through the process and making sure whether they win or not, but just making sure they’re they’re kind of leveraging their time and getting the most out of the experience.

Clay Gordon: [00:12:29] Yeah, I feel like this is the most actionable, which I love. I feel like listening to other podcasts, quite frankly, is the best is the best answer. And I would say it’s a pet peeve of mine as founders that come to me to say, like, what a style to focus on. You know, we do have a website that we try to articulate as clearly as possible what we invest in and what we don’t invest in. And this one and I have also participated in a couple of other podcasts as well, where I define what we look for in companies. My background and this is all for the most part free where you can listen into what I look for in companies and not necessarily like tailor your pitch accordingly. But chances are there are investors in the room that put out information of what they look for. And I feel like doing that research ahead of time really sets you up for success. And for the most part, it is free and easily accessible.

Lee Kantor: [00:13:28] And there’s a lot of it. It’s happening every day, so there’s no excuse not to do that kind of due diligence.

Clay Gordon: [00:13:35] Yeah, I mean, I would say like as a fund manager, it’s kind of it’s on us to do the same. So like as companies put out information on their company, like it’s kind of our expectation to do that research ahead of time. And that way you’re going into that conversation prepared and at least educated to a certain extent. I feel like it just makes those because sort showdown I would say is like it’s a resource and it makes that resource much more effective.

Lee Kantor: [00:14:03] Now. Any advice for founders out there? It’s so interesting that you’re serving an area that there aren’t a plethora of other people probably tapping in and helping them and giving them the resources to be successful. What advice would you give them that may be common knowledge in like those coastal cities where there’s just so much density there and there’s so much information just everywhere but to give those people in. Like you said, the flyover areas, you know, a leg up. What would give them an edge?

Clay Gordon: [00:14:38] Yeah, I’ll say for my hat as an investor, I mean, I feel like it’s all the power of the network at the end of the day. And I feel like coastal markets just from density, they just have such a strong network because just for proximity reasons. So as far as my advice, which isn’t necessarily easy and so let’s say a company based in Florida, which does have a limited amount of VCs and it is growing by the day and more capital is going on. The tech on the VC tech side is coming to Florida. I would suggest companies to get to know VCs outside of their state, which is much easier said than done. However, there is other conferences that is free for companies like the Internet conference that you can participate that gets you access to investors outside of your region. So one that’s usually the biggest problem of early stage companies is, hey, my network is in, let’s say, Colorado, and that market just from density is still limited. How do I get to know people outside of my region just because like myself, I’ve got I’ve spent 5 to 6 years establishing those networks, but a new founder, that’s all new to them. You can ask some of these seasoned people like who do you know outside of the state that actively invest in this sector or this state? And a second part just to try to be helpful is I feel like a lot of times service providers specifically have always been bucketed as someone that can help with legal or banking or PPO. And I feel like they have resources outside of their role and asking people that you already work with, that you might view that relationship very myopically to say, Hey, who do you know? And so we’ve actually leaned on like our attorney and our banker and things like that to help with connections because they it’s their job to also network. And I feel like that’s an untapped resource by a lot of people just kind of viewing some of these people and just their own individual role.

Lee Kantor: [00:16:33] Now some VCs only want to learn about startups through kind of a warm referral or a lead like that is at the same street, or you’ll talk to anybody if they, you know, go on your website and fill out a form.

Clay Gordon: [00:16:48] Yeah. So we do respond 100% to people. So we actually use a different database called Startup Networks and that works is with an ex dotcom and someone can submit their presentation to us and we do respond to all of those that submit it. Anyone that does through our website, it’s we do look at 100% of those, but we do respond on startup networks to to all of them. We understand that that is a bias where let’s say you have a really good relationship with a fund and any deal that they send to you, you automatically think more positively about that company. We do recognize that bias and do steer away from it, and we do want to value a cold outreach just as much as a referral. Again, easier said than done, but again, we do respond via startup networks, which is again, it’s all on our website, it’s all on our website.

Lee Kantor: [00:17:42] And then, as you were saying, with the startup in these flyover areas, that it’s important to network and it’s important to take initiative. So by listening to a podcast and you hear a managing partner of a fund talk, reach out to them, comment about that and get, you know, introduce yourself to them, get to know them in the in the way that they want to get to know folks. I mean, I think it’s important to kind of be the change you want in the world. Go out and take action. Don’t wait.

Clay Gordon: [00:18:15] Yeah, exactly. I’m not encouraging anyone to pay money to get on a plane, to go network and in a different state. But you can again listen to podcasts and things that are readily available and for the most time free. And then I feel like that is your your legion, essentially. And so like if again, you’re on the East Coast and you want an introduction to South Street listing this podcast, you know, I have told you how we respond to cold outrage. I mean, again, this is a free form lead. So yeah.

Lee Kantor: [00:18:50] Well, if somebody wants to learn more about South Street Capital, what’s the website?

Clay Gordon: [00:18:55] It’s South Street Capital. Think me on LinkedIn, South Street, VC on Twitter email. Probably best, but LinkedIn is is good as well. So.

Lee Kantor: [00:19:06] Well, Clay, thank you so much for sharing your story today. You’re doing important work and we appreciate you.

Clay Gordon: [00:19:10] Thank you for having me on.

Lee Kantor: [00:19:12] All right. This is Lee Kantor. We’ll see you next time on Startup Showdown.

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