Marco DeMeireles on “Investing in Confusion”

Marco DeMeireles (Kauffman Fellow Class 23) has built a reputation for spotting early-stage opportunities and making methodical contrarian bets that pay off big – most recently seen through Peloton’s 2019 IPO.With such a profile, we wanted to better understand Marco’s approach to the business, investor journey, and key lessons he learned along the way.Today, Marco is a Partner at TCG, an affiliate of The Chernin Group, where he and the team are building a consumer-focused investment firm that specializes in internet business across verticals and stages. Managing Partners (Peter Chernin, Jesse Jacobs, and Mike Kerns) recruited Marco in late 2018 to help lead their investment efforts. TCG recently raised $710M in outside capital as part of their evolution to a standalone fund. Collin West and Nihar Neelakanti sat down with Marco to discuss his journey.

Searching for Growth 

“As a first-generation American born in Queens, New York moving to California represented a place to rebuild your own life,” says Marco. “To me, it felt like my American dream– a chance to surround myself with ambitious, passionate people who willed themselves into having an impact on the world.”In San Francisco, Marco was connected to Barry McCarthy, the former CFO of Netflix, via his boss at Morgan Stanley, Paul Chamberlain, and the idea of partnering with management teams to build businesses was burned into his head. This was solidified through his experience taking Palo Alto Networks public on the NYSE, where he worked side by side with the team for months drafting the S-1 and building the operating model they used to go public.

The New York Stock Exchange floor opening up the first trade of PANW. CEO Mark McLaughlin, Founder Nir Zuk, and Marco share a ride together.He would soon join TCV and cut his venture capital teeth working with a seasoned investment team responsible for investing billions in category-defining companies such as Airbnb, Expedia, Facebook, Netflix, and Zillow since 1995.“TCV was a compelling moment for me because it seemed to fit two very simple criteria I held at the time,” says Marco. “Are these people I can learn from, and can I have an impact?” It was here that Marco picked up many of the operating principles core to his success – from thematic sourcing, and building conviction, to scaling out management teams, ramping efficient customer acquisition capabilities and preparing companies to become enduring businesses. The role pushed Marco to punch above his weight while also developing his knack for exploring the unknown as he had to build his own ‘coverage universe.’“Unlike a lot of traditional early-stage investing, we were a larger fund that was capable of scaling with the growth and ambition of our founders,” comments Marco. “So our balance sheet gave me the benefit of sitting at the ‘adult table’ early in my career, and opened up doors that were often closed to my peers. In parallel, I pushed myself to cover a sector the firm wasn't known for. Looking back at it, these moments taught me to learn how to compete, think creatively, learn through failure and grow technically.”It was during this time in San Francisco that Marco gained exposure to early-stage startup investing that would shift the arc of his career. Fun fact, his San Fran roommate Quinn Slack would go on to co-found Blend Labs, and Sourcegraph.Reflecting on those years, Marco says “After living in an entrepreneurial environment, I became infected with the need to create. Founding a business at Balyasny scratched the itch, and empowered me to build a strategy that embodied my ambition, philosophy, and passion. I knew that having an impact was core to my happiness, and that I would need an ability to act with a higher degree of autonomy to feel fulfilled.”

Working on a Blank Canvas at BAM

Prior to TCG, Marco was a Principal and Head of Private Investments at multi-billion dollar investment firm Balyasny Asset Management (BAM), an experience he cherishes for both valuing his creativity and scrappiness, and providing him with the autonomy and resources to build out the firm’s private investment practice.“The beauty of joining BAM was that it was effectively a blank canvas when I got there,” comments Marco. “We were a 600 person firm at our peak, but out of our entire investment committee, I was the only individual who had worked in traditional venture capital or growth equity. So naturally, I was tasked with building out this business from the ground up. I deeply valued the whitespace and thrived on the responsibility– it fueled my drive.”[caption id="attachment_7947" align="alignleft" width="765"]

From Left to Right: Dmitry Balyasny (BAM Co-Founder), Lydia Jett (Partner, Softbank), Marco DeMeireles and Howard Morgan (Co-Founder of First Round Capital and Renaissance Technologies)[/caption]In speaking with entrepreneurs, Marco seems to embody one in many respects. He built Balyasny’s venture capital business from zero– often competing against established firms that possessed clear advantages on paper including 10x the capital, 10x the people, and 10x the firm experience and massive public awareness. Early wins helped him gain significant decision-making latitude, enabling Marco to scale his team in San Francisco and New York, and ultimately raise his first separately managed fund vehicle at the age of 30.“But my first step was to figure out what pond made sense for us to fish in,” says Marco. “ Key to my success here was to ‘invest in confusion,’ a principle I picked up from Jim Breyer at Accel. In a sense it means, what I most often look for is confusion. Massive confusion in growing markets represents an enormous arbitrage opportunity and uniquely positive for the businesses that I look to partner with. Confusion in this context can refer to a newly available technology, or to changes in the economics of supply, production and/or distribution of a good or service. It can also be driven by regulatory changes, changes in a competitive landscape and so much more. Time and time again, Confusion among the large incumbents concerning a platform shift has made them unable to compete in a new technology wave. Consider the ballooning impact of Facebook, Pinterest, Twitter, Reddit, et. al on our lives and communities, in contrast to Yahoo’s inability to move into social networks. Confusion decreases the chance large incumbents will put together a plan that will capture the opportunity. This holds true across sectors. Look no further than Databricks success commercializing Apache Spark in the face of legacy vendors with larger sales forces and larger Spark investments such as IBM.”“Often, the only option for these established businesses is to buy into the market, but they rarely pioneer a market when confusion runs high. This is partly why the NYSE did not build Coinbase, Schwinn did not build Peloton, and Splunk did not build Confluent. Lastly, Confusion also makes it less likely that investors are appropriately pricing these investments– as often these businesses don’t fold into Gartner’s total addressable market definitions or have elements (including business models) that not many have underwritten in the past. I can’t tell you how many times I’ve heard ‘hardware is hard,’ or ‘no one makes money in media’ before backing teams proving folks wrong – I love hearing that confusion in practice. It’s been a cornerstone of my most successful investments."At BAM, Marco built the firm’s venture theses surrounding software-driven systems, marketplaces, financial technology, healthcare and consumer subscriptions, a focus that led him to uncover 10 core investments in emerging industry leaders such as Coinbase (valued at about $8B, Marco led the investment in the Series D), Peloton (Marco led BAM’s investment in multiple private financings), Bright Machines, Tencent Music, Zola, and a number of other notable early-stage deals.“I thrived on the creativity, and flexibility to invest across sectors,” comments Marco. “I am most proud of the culture we built, the team we scaled, the returns to our partners, and the entrepreneurs that bet on me, as much as I bet on them. But ultimately, I realized the benefits of having a true partnership and felt unfulfilled at a large asset manager. What I craved was a business focused on growing great companies and creating long, loyal relationships with partners who pushed my thinking. I also came to deeply value the sense of partnership and impact that defined the Series A and early stage. I needed more of that and knew what I was missing. I quickly set out to achieve it.”

Learning to Know the Unknown

Marco’s path to venture capital was paved by a mix of ambition, intellectual curiosity, grit, creativity, and a willingness to take risks in the pursuit of personal growth. Often, Marco jokes, he takes roles that many advise him not to take.For example, when considering TCG vs. other partnerships, it was no different. He actively sought partners who were in different cities, had different backgrounds, were diverse in age, and possessed complementary operating skills and networks he could pick up on (and vice versa). To his team, Marco brings his methodical contrarian approach to investing, rooted in Confusion, along with a passion for business-building. While he sometimes colors in the lines, he prefers to lean into his strengths and back new market leaders in categories that are underloved and may not be perceived as ‘real’...yet.“I’m maniacal about finding pockets where you can have an edge,” comments Marco. “Edges come in many shapes and sizes – including owning novel business models, emerging categories, and undercovered locations – but often confusion is a unifying theme. To others, these opportunities may be initially perceived as small markets (Peloton) or onerous to educate a partnership on (Coinbase), or out of bounds (nCino) but often working through such confusion can help you avoid adverse selection and represent a better risk/reward.”Putting this into practice, Marco recently developed a thesis on the rapidly growing cremation market in the United States, a market and consumer purchase experience that is fundamentally broken, but not studied by many. This led his team to spend time with end-of-life services startup Better Place Forests. He would ultimately lead a $40M Series B investment into the business and join Jon Callaghan from True Ventures (who previously led the early-financings in Peloton) on the BPF board.

From Left to Right: Sandy Gibson (BPF Co-Founder), Mike Kerns (TCG Co-Founder), Marco DeMeireles (TCG Partner) and Brad Milne (BPF Co-Founder) at Better Place Forest San Francisco HQ in February 2020“Learn to tactfully navigate confusion in growing markets when others are leaning out,” advises Marco. “Digging deep into an underlying platform shift by speaking with every participant (customers, competitors, industry analysts, founders and operators), listening intently - with "Dumbo Ears!" and forcing yourself to tune out the crowd is how I’ve always invested my time and money. And it’s always worked. I first observed this in Jay Hoag when he was building TCV. At the time, many established VCs were afraid to invest in ‘electronic commerce.’ In fact, John Mumfund, who ran one of the largest venture funds of that generation (Crosspoint), never funded a consumer website during the web’s development while Kevin Harvey (Benchmark), Geoff Yang (IVP / Redpoint), Jay Hoag (TCV) all did. Who was right in the end? Which of these firms do you remember? What side of history do you want to be on?”Marco seems to approach each potential investment company through the mindset of the customer, and explores the evolution of a market-structure, product, and “why now” in parallel. “The franchise businesses that drive outcomes have it all and don't fit into categories,” he says. “Investing is a multi-disciplinary skill. And to build a new industry you also need a multi-disciplinary approach. Consider the Peloton example. Is it a media company? A fitness business? A hardware business? A direct-to-consumer e-commerce business? A social network? Confused? That’s a sign. Big wins sit at the intersection of different markets.” Ultimately, Marco’s frameworks attempt to understand how a particular company has the potential to change the very fabric of an industry, and where the value will accrue – but it’s all for null without the right people. “You need leaders with integrity, dedication and vision,” he advises. And for every person he takes a chance on, he looks back on those who took a chance on him early in his career.“I will always be eternally grateful to them for taking a chance on me,” says Marco. “In particular those I met during my early days out west. My time living in the Bay Area was beyond my wildest dreams, and I built some of the most rewarding relationships I have today – including my wife Joanne! I would be nowhere without her and those who’ve helped me hone my passion for entrepreneurship, lean into my strengths, build domain expertise, compete for deals, and most importantly play above my weight. I constantly find myself stretched in so many ways; it’s exhilarating! I’d love nothing more than to give that feeling to the next-generation and I’m hoping that our partnership will be the means to do so.”Enjoyed this post? Follow Marco DeMeireles on Twitter (@MarcoDeMeireles) and subscribe to Lateral Thinking and the Kauffman Fellows Journal for more!