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Human Ventures’ Joe Marchese on the Journey of Building a Studio, Raising Capital, and Navigating the Attention Economy

January 3, 2024

I first met Heather Hartnett of Human Ventures back in 2018 shortly after my team and I sold GSSN. Since then, I’ve always looked up to Human as one of the best positioned and well-branded studios in the world. Plus, their portfolio speaks for itself.

Then, I had the pleasure of meeting Joe Marchese, their first LP, a few years ago. Joe has an impressive and inspiring story. He sold a company to 20th Century Fox and invested a large chunk of his proceeds into the first iteration of Human Ventures. He later become a GP and is now working closely with Heather and the rest of the team on a handful of their portfolio companies.

Joe is world-class in branding, storytelling, and earning real estate in what he calls “the attention economy”. Candidly, when I reached out to him to ask him to come on show, I didn’t know what we would talk about. There were simply too many topics to pick from.

Im very excited to share this week’s special episode of The Gallery where Joe and I dove deep on a handful topics, ranging from Human’s origin stories, to how he and Heather raised their first fund, to the importance of branding for building a studio and new ventures.

Here’s what Joe had to say:

Q: Joe, great to have you on The Gallery. For those who don't know your background, can you give us a quick overview of who you are and what path led you to co-founding Human Ventures?

Joe: Thanks for having me. I previously started an ad tech company called true[X] which was focused on improving the television advertising experience by doing fewer, better ads. We had a thesis that intrusive ads were actually damaging the business models of media companies long-term. I ended up selling the company to 21st Century Fox and went in to help transform their ad business across properties like Fox Sports, Fox News, National Geographic, and more.

After the Fox sale I took most of my proceeds and co-founded Human Ventures about 8 years ago with my friend Heather Hartnett. We bonded over a shared passion for helping founders build companies in New York City. At the time the startup ecosystem in NYC was not very mature yet relative to tech hubs like Silicon Valley. Heather and I saw an opportunity to leverage our backgrounds and networks to provide hands-on support helping founders in fields like healthcare, consumer products, hospitality, media and more.

Q: Let's go back to the beginning - what was the original vision for Human Ventures and how did you initially fund and structure the studio?

Joe: Our vision was to create the most sought-after co-founder experience for founders, especially in New York City. I provided an initial round of financing and we set up an LLC structure that allowed us to partner with founders as an operational team while still letting them build standalone companies with outside equity.

A big part of our value proposition was offering startups access to our networks and expertise in areas like sales, marketing, branding, media, and advertising. For example, we believed we could help companies be much smarter about customer acquisition costs and avoiding common pitfalls in advertising instead of overpaying for users that would churn quickly.

Beyond funding and advisory we always wanted to roll up our sleeves and get involved as active co-builders, sitting alongside the founders for key decisions, hiring, fundraising, etc. I think we differentiated ourselves from pure venture capital by offering more hands-on support in getting these businesses off the ground.

Q: As someone with an AdTech background focused on grabbing consumer attention, how do you apply lessons around attention and storytelling to your work with founders and raising capital?

Joe: Attention is at the root of every modern business - if you want funding, sales, users, etc. you need to effectively grab and retain attention. This meant Heather and I needed to master storytelling to inspire and persuade people to get behind our vision for Human Ventures.

I love referring to compelling stories and metaphors when trying to convince partners, investors, and other stakeholders. For example, the children's book "Stone Soup" is all about gathering ingredients for soup through effective storytelling. Similarly, founders need to craft narratives that encourage others to contribute their time, resources, and talent to the mission at hand.

Q: Where do you see the biggest market inefficiencies in advertising? How did COVID impact your thesis?

Joe: In my view there is still a tremendous amount of waste and opacity in advertising approaches today. The majority of companies I observe overspend on poorly-tracked tactics because they don't really know what's working. They play a dangerous brand marketing shell game. This drives up customer acquisition costs substantially across the entire economy.

COVID caused some pivots for us in areas like hospitality and events where we had ideas for new business concepts. But we also doubled down on market segments we felt were undervalued like health, wellness, and future of work companies. Those became very prescient as the world rapidly changed.

Overall though our core thesis holds even through major crises - advertising dollars need to be spent far more effectively and targeted. Hidden inefficiencies in customer acquisition represent one of the largest invitations for startups because the figures seem daunting. But streamlining even small parts of that funnel leads to huge value creation.

Q: Back to the startup studio side of things…Heather was able to raise a $25 million fund early on - how did she pull that off and what was the strategy?

Joe: During Human Ventures' early days as we incubated a number of startups, Heather and I realized that capitalizing each venture individually from our balance sheet would be challenging. So she put together a pitch deck and thesis around a formal seed-stage fund that could finance both internal and external companies we were discovering.

The strategy involved highlighting the progress made to-date across our portfolio within the New York tech ecosystem while structuring a fund in more traditional venture capital fashion with a detailed operations plan. Heather also deliberately targeted high-profile figures in sectors like real estate, finance, enterprise software and advertising as potential LPs. We viewed the Human Ventures brand and story as carrying enough weight to sway prominent individual investors and family offices rather than institutions at that phase. The LP composition was meant to mirror the invaluable knowledge and networks we aim to leverage on behalf of founders in NYC across industries.

There was certainly a contrarian angle to raise eyebrows as a startup studio fund vehicle several years ago. But the combination of compelling returns in emergent segments and diverse backers spoke volumes about Heather's knack for storytelling and vision that Human Ventures could scale into a platform on par with coastal tech accelerators. Winning over those initial 10 to 25 million dollars of commitments helped catalyze the flywheel.

Q: What is Human's current pace and focus when it comes to building new ventures vs. purely investing in them?

Joe: We made a conscious decision to slow down the pace of company building to focus more on traditional venture capital investing through our seed fund. I would call it "studio investing" now vs. "startup studio" to better describe the evolution.

In terms of company building, we take a highly bespoke, bottoms-up approach - identifying standout founders we want to partner with for the long-term rather than trying to incubate 10 or 15 ventures simultaneously. For example I might only do 1 or 2 new builds per year that originate from my long-term relationships and conviction around filling portfolio gaps.

We want our builds to reflect unique hands-on value from Human Ventures vs. just being a passive source of capital. That means going in as true co-founders on those ventures. Whereas on the investment side we might do 8-10 deals per year extending pre-seed financing to promising startups out of our NYC network. The investing helps us take more shots on goal while building ensures we have enough leadership bandwidth to influence likely success.

Q: Studios represent a contrarian model in VC - what's it like evangelizing something so different?

Joe: It is always challenging when you have conviction around a viewpoint that goes against the grain. In our case, touting the builder model and very hands-on, service-driven approach for early-stage ventures was unusual relative to mainstream VC. Of course we had plenty of doubts and tough moments in those first few years. The path was winding with stops and starts - and essential pivots where we learned critical lessons.

But ultimately if you believe strongly in a contrarian idea, you have to stick with it through various tribulations and iterations. For us that meant letting our successes and brand do a lot of the talking rather than having to self-promote or shout from rooftops as to why our model made sense. As more of our portfolio companies like in consumer products and enterprise software reached exits or breakout growth phases, it became self-evident we had pinpointed an undervalued spot in the market with room for disruption.

Q: Major tech giants like Facebook, Google and Amazon have advertising-driven business models - what needs to shift there and why?

Joe: Platforms like Google, Facebook, Amazon and more essentially have to keep demonstrating 20-30% revenue expansion quarter after quarter to please Wall Street. The only way to move numbers at that scale is to take advertising dollars from elsewhere - they have become an unescapable tax for many industries as a result.

The downside I see is that over-dependency on their ecosystems from a user acquisition and marketing perspective erodes margins over time across DTC brands, mobile gaming, entertainment and beyond. Once you're reliant within their walled gardens the ultimate leverage shifts away from individual startups and creators towards the platforms.

To counteract this we are proactively investing in and building companies that embrace brand and community-building far beyond performance marketing alone. The hope is to drive repeat purchase behavior and loyalty that withstands platform algorithm changes. I'm very focused on business models that incorporate hospitality, local events, membership programs - anything that drives real human connections instead of just chasing clicks and downloads. That deeper loyalty earns attention and monetization advantages over the long-term even amidst digital disruption.

Q: Why is building an enduring brand so important for Human Ventures and your portfolio companies despite inevitable market shifts?

Joe: Strong brands drive down customer acquisition costs over time - full stop. If people associate your company with quality products and content they seamlessly pay more for that trust via loyalty and repeat purchases. Brands essentially serve as reputational collateral amidst technological changes and economic cycles.

We've already seen attention move from TV to the Internet and now to mobile devices and AI-based interfaces. Enduring consumer brands with ethical values withstand those industry tsunamis even if they require adaptation. People still signal shared identity by buying Patagonia fleece vests, driving Teslas, wearing Rolex watches, or drinking Coca Cola. And B2B brands like Salesforce, Oracle, SAP or AWS connote enterprise reliability.

From Human Ventures we've similarly had to build credibility through our founders, launches and events that signify expertise and taste. Whether in sourcing promising startups or identifying the next great consumer product brand that endures, we want to be viewed as proven guides. That brand halo makes hiring talent, raising capital and securing favorable partnerships easier quarter after quarter. Of course the fastest way to build an admirable brand is help others do it first!

Q: What is coming up next for Human Ventures? Any exciting portfolio companies you can preview?

Joe: We recently began fundraising for our first institutional venture fund backed by bluechip LPs like Bank of America and an ultra high-net-worth family office called The Churchill Company. This represents the next phase of maturity for Human after close to a decade now operating and investing actively across NYC tech. I could not be more thrilled to bring these pedigreed institutions into our cap table for the next chapter.

On the portfolio side, we already marked up several assets out of the new fund like Komos Tequila which is seeing triple digit revenue expansion. I also started building an exciting new startup in the digital media and attention space with an uber-talented founder. And we'll soon be announcing another senior team member from a breakout DTC brand who will takeover as CEO of one of our early-stage health portfolio assets. There is palpable momentum across founders we backed as well as our internal studio team. Lots to be proud of while remaining vigilant given the uneasy macro climate!

Q: What wisdom would you share given the breakneck pace of change we're experiencing in tech and business models nowadays?

Joe: There are certainly still lessons to be extracted from past eras, but historic approaches won't be directly transferrable. Founders nowadays need to focus more on extracting timeless principles vs. attempting to parrot outdated tactics. I've found expanding my interdisciplinary knowledge into subjects like evolutionary biology, ecology, physics and more to stretch mental models incredibly helpful.

The common thread is observing patterns in systems and nature over long time horizons. That helps render sound judgment on which human needs persist irrespective of interface evolutions. I'd also examine what represents the "hard things" currently holding startups back from scaling successfully like regulatory nuances or hiring. If you can pinpoint one overlooked yet highly painful friction for underserved groups there is almost always latent demand waiting to be unlocked.

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