Radical Reads

Jordan Jacobs (JJ): For the past three weeks we have been talking with a group of incredibly talented AI researchers about how to make the transition from research to founder. Let’s start there. What drew you to becoming a founder?

Michele Romanow (MR): I graduated engineering school and figured out that the worldwide supply of sturgeon caviar was down by 95% because the world had overfished the Caspian Sea. I was crazy enough to graduate, move to the east coast and build a fishery from scratch. It was everything it sounds like: boats, fishermen, my hands elbow-deep in fish, the whole nine yards. That was my initial immersion and it was a great first business. It failed three months later as we went into the giant 2008 crash and I found myself being 21 years old selling the world’s most unnecessary luxury product.

JJ: Reflecting on that first pitch, when you were looking to get into the caviar market, what would you have wished you knew, or what would you tell yourself if you could go back and give yourself advice?

MR: There are a few things that I have learned that may not be as obvious as you think.

First, you have to have a pitch that has a vision. We first started pitching Clearco as building a bank for the freelancing gig economy and our feedback almost universally was that our idea was not big enough. I had never actually experienced exponential growth myself and so I could not speak to that with a lot of credibility. Thinking about how big the world can be is a really important part.

Second is creating a business model that is a win-win on both sides of the transaction. For example, I invested in the Airbnb of RVs. It was the simplest pitch to understand. There are two million RVs in Canada that are used two weeks of the year on average. You also have people who want to use an RV for only two weeks, but cannot afford to own one. Pairing these groups together, every transaction benefits both sides. These types of business models tend to be monopolistic.

Finally, founders have to lean into who they are and why they have the grit to succeed. Those are always the founders that produce alpha.

JJ: You have had an incredible career building many different successful businesses, plus being an investor in the most high profile way possible, where people can see your work in real time. What are you looking for in an investment?

MR: The first thing that draws me in is the founder’s story and looking for evidence of overcoming some difficulty in their life. Because, in the beginning, businesses need to pivot many times. For instance, at Clearco our Seed investors invested in a bank for freelancers, our Post-seed investors invested in a bank for Uber drivers, our Series A investors invested in a company that backed Airbnb hosts, and our Series B investors invested in what will be the largest e-commerce investor. We are now on that path, but companies pivot. This is not unique to Clearco. The core of every single business is figuring out these pivots. And so, in the early stage if you are overly consumed with market size and unit economics, there’s a chance that you may be missing a bigger point. You need founders that are smart enough to see the data and know that something is not working and to understand they need to pivot and have the guts to do so.

This idea of ‘total addressable market’ can be a misleading indicator for investors. My favourite example is a research document from an investor in Shopify that concluded there would only ever be 40,000 companies in the whole world that would ever need e-commerce software. I always say that if McKinsey has written a report about the market then there are already players worth billions and you have missed the opportunity to build that market. You need to be looking at markets that seem very small today. Looking back, the best decision I made was choosing to go into a fintech company in 2015.

In 2015 there was no Stripe and the existing companies in the market had no scale or size to indicate that fintech was going to be the next big space. You have to be OK going into an industry when it is in a bit of a trough and when people do not quite understand the value proposition. For example, when it comes to AI, people may not understand that this technology will impact every industry. You need to be looking for early litmus points, not just the hottest thing.