Jason Shuman is a general partner at Primary Venture Partners, a seed-stage firm in New York. He leads new investments across the built world, fintech, and marketplaces. He came to venture the hard way. He founded and ran a direct-to-consumer footwear company in college, burnt out, wound it down, then broke into the industry by sourcing deals for free during the day and driving for Uber at night to cover rent.

Primary runs concentrated. Each partner does three to four deals a year. Behind that focus sits an in-house operating team, three former executives plus recruiters and salespeople, who work inside portfolio companies day to day. Primary refuses to call it a platform. They call it impact, and Jason brings the numbers to argue the difference is real.

Most of this conversation is about the unglamorous part of the job. Doing the reading before the meeting. Owning demand before you try to own the rest of the value chain. Being honest about which markets are actually big enough to matter. If you build in a hard industry, the lens travels well, because the companies Jason backs sell to dentists, contractors, and restaurant owners, not to other software companies.

The conversation

Jay: The founder-to-investor path is well covered. Less known is your time driving for Uber. Are there lessons from that which stay with you now when you evaluate founders?

Jason: I started my direct-to-consumer company at 20, while I was at the University of Miami. A year out, I was burnt out. My version of burnout was that I wasn't thinking about my company in the shower anymore. That meant I couldn't problem-solve day to day, and I couldn't imagine doing it for another 10 years. When I realized I didn't want to do it anymore, I wound the business down.

Then I heard about this thing called venture capital. I figured if I could do the job before I had the job, I'd be able to get the job. During the day I sourced deals for VC funds in New York for free. A scout without a checkbook. But I had $500 in my bank account. There was this young company called Uber. This was 2014. At night in Boston I'd drive for three or four hours. Here's how it helped. The range of people who get in that car is huge. One of them was a guy named Ben Jubas, in private equity in Boston at the time. Years later he joined a venture firm called Avenir, which ended up leading a round in one of our portfolio companies, Latch. We reconnected years later. I didn't even remember driving him. He said, we met years ago, you drove me for Uber, and I'll never forget that ride, because my Uber driver was an entrepreneur.

Jay: Compared with Miami, Austin, LA, what ingredient does New York have that the others are missing?

Jason: Start with the customers. Wall Street is here. Every major advertising agency is here. The big fashion brands are here. When your customers are here, that matters. Second, after the financial crisis, you had floods of people leaving consulting, Wall Street, and law firms for tech. Part of why Primary went long on New York was this idea: smart people can build big companies, but an ecosystem is built by people who have seen scale. The city used to do only a few hundred seed deals a year. Now it's close to San Francisco on seed volume. People watched companies go from zero to a billion, they left, and they started new companies. Miami is different. That ecosystem hasn't seen that scale yet, and the customers aren't all there. It will just take another 10 to 20 years to catch up.

Jay: Say more on customer density.

Jason: A lot of the fast-growing SaaS companies were SaaS companies that sold to SaaS companies. Think about Brex. That's exactly why you need customer density, because these face-to-face interactions are a huge advantage. In New York you don't need to get on a plane to see your customers. You hop on the 6 train.

Jay: You lead with a prepared mind. Give me an example of when that helped you diligence an investment and get to a yes faster.

Jason: I've said publicly that I think 50% of zeros in venture capital are avoidable, just by doing more work, both as a VC and as a founder. Let me give you a couple of frameworks. One I love is what I call the X for Y framework. Look back at the history of venture. People made a lot of money with X for Y. The Uber of China is worth tens of billions now. That's the first derivative. The second derivative is asking why a business was successful in one industry, and how you recreate it in another vertical using the same dynamics. There was a company called Coast that raised a Series B. Coast is basically Brex for blue-collar jobs. Another is a company we invested in called Ply. We're also investors in Dandy. Dandy gives away free intraoral scanners.

Jay: My dentist still does the putty molds. I did it last month.

Jason: You should introduce them to Dandy. So Dandy gives away the free scanners, builds software on top, and when the scans are done, the order goes to our manufacturing facility. Ply is similar. The key insight there was to provide free or very low-cost inventory-management software to people who own mechanical, electrical, and plumbing companies. Those owners spend about 15 hours a week figuring out what inventory they have and what they need to order. So build software that automates the ordering. But the real key insight is that you need to own the demand. Own the demand and you can figure out the rest of the value chain in any industry.

Jay: What I struggle with is understanding the context in which a business model was successful. If we try to apply the models that worked for Casper in the DTC boom, there were specific dynamics then. How do you account for that?

Jason: A lot of VCs don't double-click into what actually mattered. Look at mental health. Alma has been incredibly successful. Why? Not just because it's a business in a box. It's a business in a box that helps therapists grow their business, handle billing, and get in network with insurance companies. That's the key. One more thing. Therapy is a massive market with incredibly sticky customers, and I don't just mean the therapists, I mean the patients. More recently, people have backed companies in the dietitian space. Dietitians is a good market, just not as great as therapy, because insurance might cover only five sessions. So you have natural churn built into the model. Double-clicking into what actually made a company great and what made a market amazing, that's the important job on our side of the table.

Jay: You've said this is a great time for AI for small businesses. Why now?

Jason: There are 5 million small businesses in the United States that will change hands over the next decade or so. That's about a trillion dollars in assets. The biggest returns come from the intersection of a technology or platform shift and a demographic shift. Generative AI is showing up right now, and a lot of these small businesses don't know how to navigate it. But when a younger, more tech-forward owner takes over, they'll want to shake things up. My belief is that vertical software companies, the Service Titans and Housecall Pros of the world, will not be the winners in the next generation. The real winners will be the businesses that do all this work for the people buying the companies.

Jay: My challenge with SMB has always been customer acquisition. After one to two million ARR, they exhaust the community and the cheap spend. Now what?

Jason: I don't think you'll ever get rid of the SMB on-the-ground sales team. You have to get people walking into restaurants and selling to owners, like they did at Toast. One layer deeper: the unit economics of Toast, of the Service Titans of the world, are incredibly differentiated. Then here's the big piece with AI. If you can create a beautiful, magical demo, and if you can bring the cost down, elasticity of demand increases. So my SMB thesis is to go after companies that can drop the price significantly, with a culture that sells very hard.

Jay: Everyone who starts product-led ends up going sales-led. They move up market because selling 10 to 20K ACV contracts isn't attractive. And downstream capital is the other issue. When you pitch a Series A and say the bulk of your market is SMB, they don't take you as seriously.

Jason: It's all about velocity at the end of the day. Look at Dandy. When we pivoted the company, we spent about $500 on Facebook ads, and that acquired 30 dental practices. You need an insane amount of focus, that's first. Second, you need a massive TAM. There are two and a half million home-service companies in the United States. Nobody's going to laugh you out of the room. But you can't go after SMB markets with only 15,000 providers, because you'll never crack the nut of returning one of our larger seed funds.

Jay: Tell me about an expert call that changed your perspective on a company or market.

Jason: I worked for Mark Gerson before I joined Primary. Mark founded GLG, the original expert network. So at Primary we not only use expert networks, we spun up our own internally. Then we can get people on sales calls and hear how they pitch. I did diligence on one of our companies called Grips by hopping on an expert call. You hear about real estate owners logging into eight different systems every day to produce reports, and how many hours it takes. Then you learn the same person used to manage two projects and now manages 10. It's a huge problem.

Jay: You go further than most and listen in on sales calls. Talk about a memorable one.

Jason: With Grips, we got them on a call with the Rudin organization. Before the founder was even three or four sentences into the pitch, the person said, I get it. I got to see the buyer grabbing onto it, the level of excitement, and then coming up with action items. That made me comfortable with the product, and comfortable that she'd know how to sell it and scale a sales team.

Jay: At Primary you're concentrated, three to four investments per partner per year. And I take it platform is a dirty word at Primary. Why?

Jason: Platform is not allowed to be used at Primary. Our team is our impact team. We have three executives, Cassie Young, Rebecca Price, and Lisa Lewin. These are people who ran companies with multiple hundreds of millions in revenue. They build teams internally that drive real impact with real KPIs. In platform world they say, I'll introduce you to so-and-so, or I'll throw an event. In the impact world, we execute. Recruiting. Since the beginning of the year, our recruiters placed six people at one portfolio company in 75 days. Impact is also driving real sales. We built a pipeline and helped a portfolio company close about a million and a half dollars of initial sales, because it turns out when VCs email potential customers, they get a better response rate. That's a big reason our seed-to-Series-A graduation rate is twice the industry average.

Jay: Vinod Khosla says most VCs destroy more value than they add. Which is it? Give me an example of a company your support saved from going to zero.

Jason: Most VCs do destroy more value than they add. I agree. We have operators helping these companies day to day. It's not me jumping in and doing the work. The specific example is Dandy. When they pivoted, they went from basically zero to 40 in revenue in about a year. Cassie Young jumped in as interim chief revenue officer. My partner Rebecca helped drive the interviews to scale the team from a couple dozen people to a thousand in about two and a half years. I hopped on a hundred calls with candidates. By doing that day to day, you're not changing the strategy or distracting the founders. You're saying, tell me where to go and what to do, and I'll do it.

Jay: Why are the incentives set the way they are for the folks slamming portfolio support?

Jason: Let's use numbers. If we manage a billion dollars, that's about $20 million in fees. We spend $4.5 million of those fees every year on our impact team. If another seed fund doesn't have an impact team, and there are four partners, they're each paying themselves another $1.1 million a year. So the incentives are not aligned for you to say portfolio support isn't worth it. At Primary we're not going to make our money off fees. We're going to make it off carry.

Jay: Why do LPs chase multi-billion-dollar funds when the carry opportunity isn't as clear?

Jason: Two reasons: incentives, and stage and returns. A lot of larger LPs might not have big teams to attack the venture asset class. It's easier to give capital to one or two managers and treat those larger funds as an index. Second, you can give a multi-stage fund capital and it might not need a portfolio impact team, because the company already proved it can execute. So you're really just a capital allocator, not a value-added partner.

Jay: You've said the only deals you lost in the last year were to multi-stage funds. Is it just price?

Jason: It's price. And they think they'll be able to get that firm to do the Series A. I think that's a dangerous game. We just went through a zero-rate era where company prices got out of control. Most VCs are lazy. It's hard to look at a company and say, I like the business, but your last round was too high, and now you need a down round. If they are willing to do the work, there's a lot of money to be made, but most people won't.

Jay: I always tell founders about signaling risk. You get your seed from someone who typically writes 10 to 20 million dollar checks and they wrote you a 2 million dollar check. Are you really expecting the same attention?

Jason: Here's my analogy. Imagine you own two homes. One is a $2 million home, the other is a $50 million home. If both are on fire and you can only save one, which one do you save? The bigger one, obviously. That's the world we're living in. I've heard stories about multi-stage fund investors not even showing up to board meetings anymore when companies hit challenging times, or sending an analyst to take their spot. When things get hard and seed isn't your core business, you don't want to support the company through it.

Jay: The constraint on an investor is not money, it's time. And the constraint for a founder is also not money, it's time.

Jason: I completely agree. Because this is our core business, and because everyone on my team deeply cares, I can't imagine walking away from a founder just because the road gets bumpy. I've seen those bumpy roads become unicorns. Take Brad at Alloy. We invested in that round when I was at my last fund, Launch Capital, in 2015. It really took until 2019 to crack true product-market fit. They were doing the right things all along, but it was linear growth, and then a couple of product unlocks changed things. That belief took four years and a couple of bridge rounds to manifest.

Jay: Tommy from Alloy came to one of our investor days and pulled up a revenue chart. You say linear, it might have been close to flat, and then it skyrocketed. He said Primary wrote checks here, and a dot popped up above a flatline, and here, another.

Jason: By having people work closely with these companies, we see and hear what's going on day to day. It helps us build conviction with asymmetric information to make smart decisions. I have a saying I tell all the new junior investors: I never want to walk into a board meeting and learn something new. I meet with founders for 30 minutes every month, and I probably text every founder at least every week or every other week. Three months is an eternity.

Jay: Is there an investment you were so confident would succeed that ultimately failed?

Jason: I've only lost one company since I joined Primary. The market was and is still great, but I got enamored and married to the market. It was an unbelievably challenging business to operate. The complexity was insane. It wasn't a team that had operated or scaled businesses before. The wheels came off, and they couldn't recognize where to put out the most important fires.

Jay: First-time founder with industry founder-market fit, or a second-time founder who doesn't know the industry well. Who do you bet on?

Jason: The second-time founder who's insanely hungry and still has a learning mentality. I love founder-market fit. But I want to answer differently: I will never back a great founder in a bad market, because the market will keep its reputation and the founder won't.

Jay: What's a piece of advice you find yourself giving founders that doesn't get taken often enough?

Jason: Reach out to as many people as you can who've been on the same path in the same industry. Every week, wake up and email three people who did the thing you're doing and have solved those pain points. If you can skip months of learning by reaching out to the right person, it saves you a lot of headaches.

Jay: Why don't more founders do that?

Jason: Ego. It's a vulnerable thing to reach out to people and pick their brains. A lot of the best founders in the world are unbelievably confident. But you also need to know when to ask for help. The best founders in the world are insanely confident, but they also have a beginner's mind.

Pull quotes

1. "I think 50% of zeros in venture capital are avoidable, just by doing more work, both as a VC and as a founder."

2. "Own the demand and you can figure out the rest of the value chain in any industry."

3. "I will never back a great founder in a bad market, because the market will keep its reputation and the founder won't."

4. "I never want to walk into a board meeting and learn something new."

5. "The best founders in the world are insanely confident, but they also have a beginner's mind."

Source

From CLIMB Episode 069 with Jason Shuman (Primary Venture Partners). Watch the full episode: https://youtu.be/1SNYRLQMduM