Raising a $20m VC Fund as a Solo GP with Rex Salisbury
Rex Salisbury is the Founder of Cambrian and GP of Cambrian Ventures. Rex is a key figure in the Fintech ecosystem, having started Cambrian as a product meetup in 2015 and ultimately growing it into a community of 15,000 newsletter subscribers, 5,000 meetup members, 1,300 founders and now an early-stage venture fund. Along the way, Rex spent two years at a16z as a partner on the Fintech team, backing companies including Deel and Tally, according to TechCrunch.
Though only just having closed the fund, Rex has already made five investments, including in Keep Financial, a bonus management platform started by Kabbage founders Rob Frohwein and Kathryn Petralia.
In this conversation, we discuss Rex’s approach to fundraising as a solo GP and factors that contributed to his success, raising and deploying a fund in the current market environment, Cambrian’s investment and value creation strategy and much more.
Full Transcript:
Will Beeson:
Rex Salisbury. Welcome to Rebank.
Rex Salisbury:
Thanks for having me great to be here, Will
Will Beeson:
It is great to talk to you again. We've known each other now for many years, I guess probably since not too long after either you or I got first involved in, in FinTech, so it's, it's been fun to kind of track each other's journeys and, and see, see how things have unfolded. And so, so the most recent news, and what we wanna dig into here is, is your huge successful closing of a $20 million solo GP fund off the back of the Cambrian network that you've built. So we, we can, we can go deep on, on a bunch of various things, but maybe just to, to kick things off, love, to get an intro from you and hear how you position the, the platform you've built.
Rex Salisbury:
Yeah, absolutely. And first of all, thanks again so much for having me on, and it's great to you know, one of the great things about the FinTech ecosystem is there's so many people in it like yourself, who've done a bunch of interesting things and seem to interesting, see where you've kind of taken them yourself and then for, for me as well. So on Cambrian, not to bury the lead, $20 million fund investing in Fintech companies, primarily in the US, usually a $500k initial check as first money in US based companies with US based go to markets. And then what's a little bit different about us is as a fund, we take kind of a community approach. So I've been building community in FinTech for six plus years. What that relates to with this fund is we actually have as LPs in the fund 20 plus founders from top FinTech companies.
Those include founders of Plaid, Sila, Alloy, Modus, Jeeves, Betterment, Blend, Routable, Trim, SoFi. The list goes on and the goal for me in running a community oriented fund is provide a lot of connectivity into the best networks of FinTech. So Cambrian, the community, we've got 15,000 newsletter subscribers, 5,000 meetup members, a Slack community of about 1,300+ FinTech founders. And so it's a place where people can come together, forge connections and relationships --particularly important during remote times. But then at the fund level, you know, for founders we invest in, to have access to kind of the previous generation of great founders, by the way, some of those folks are also becoming founders again to start really interesting companies. And then it benefits me just to be in a room with a bunch of interesting people who have done interesting work in the past. And they also tend to send along interesting companies that are coming along and then they tend to be supportive of the companies that we invest in. So that's been a great reason to have them on board, but if you want, I'm happy to kind of dive into my story in terms of how I got here to launching my own fund from a community, and then we can kind of dive into some of the other things you wanted to cover too.
Will Beeson:
Perfect. Yeah, let's do it.
Rex Salisbury:
So yeah, so as mentioned, running my own fund now, but I got my start by building communities. So I started off in investment banking at one point in my career, which feels almost like a past life at this point. Learned a lot, totally hated it. Never understood why it took 30 bankers and 30 lawyers three plus months to close a new credit facility for a business you'd had a relationship with for a decade. And it turns out a lot of the friction in financial services is a feature, not a bug, because friction is how all of the bankers and lawyers get paid. And so there's very little incentive to change things. So I got kind of fed up doing investment banking, moved cross country, learned to code, joined one of the co-founders of SoFi as he was working as the CTO for a new direct to consumer mortgage company called Sindeo.
I worked on building out a fully automated online mortgage preapproval. So think something like what Rocket or Quicken have built out and launched that product. Just had a blast. I still remember the day when I sat there and watched like the first real applications come through as well as some bots. So we had to put in some <laugh> some code to kick out the bots and just some other stuff. And I was like, this is just so rewarding and satisfying to ship product in this industry in a way that, you know, materially has the opportunity and potential to materially benefit, you know, many, many millions of people in this case, around the purchase of your home, which is one of the most important financial decisions you can make in your life. And so I was like, look, I wanna talk to other, and this is where the community starts to come in.
I wanna talk to other people who are building things in financial services, cuz they're just interesting people doing interesting work, but there's an opportunity for them to find analogous inspiration in each other's work. So I started just hosting small monthly events in downtown San Francisco. This is circa 2015 at our very first event we had Charlie Ma and Carl from Plaid demoing the Plaid API. And then we also had the, a product person from my team at Sindeo demoing, what we had built, and we had another person demoing a chat based personal financial management company that was built actually on top of the API. So the, the orienting theme of the night was how APIs are empowering FinTech. So from that one event that we initially did in downtown San Francisco, you know, San Francisco is a highly networked place where small things can get big over time.
And it was right at a perfect moment where there were a lot of interesting people doing great work in FinTech, but there wasn't as much in terms of convening those people in places. And so from that one monthly, the first kind of meetup we started doing monthly ones, eventually running monthly events in San Francisco and in New York, doing two annual summits, quarterly jobs fairs, and working on other programming as well. I got to the point where, you know, I left Sindeo and did another tour of duty at another company, in kind of a FinTech adjacent space. But I was getting more energy from the ecosystem level work. I was starting to do investing, starting to do advising. And so I actually quit my day job and was planning to run Cambrian the community, which had now been running for, you know, four or five years.
And we had the 15,000 thousand newsletter subscribers, the 5,000 Meetup members, had just started the Slack community and was thinking about running Cambrian as a community and events business on the side, and then raising a small fund to compliment that. But as part of stepping out of my day job, the a16z team had found that I quit what I was doing and was thinking about doing something new and they're like, Hey, why don't you come instead and help us build out the FinTech vertical. So I was the first partner hired externally to help build out that practice. And the understanding was, you know, come stay for at least two years. And then if I was still excited about going and doing something independently I could do that. I had a great time, wonderful team there. It was a great place to see so much of the activity going on in the FinTech ecosystem, as well as work alongside some of the smartest minds in FinTech on the investing side of things.
But when it came down to it after a little over two years, I was still excited about doing my own thing. Felt like I had this unique opportunity to take kind of a community led approach to leverage the networks within the Cambrian community to benefit founders kind of at the earliest stage. And so that's why I settled on raising a fund to do just that. So one of the great things about my job now is that I'm very collaborative in the ecosystem. When I was at a16z, you meet with lots of great entrepreneurs, but you only get to back a few of them. And when you back them it means that you're, you know, not always but often competing against other great funds, who would also like to be the lead investor. I know you wanted to ask me about like why not being a lead investor?
Well, by not being a lead investor, I'm actually more valuable to some extent and along certain dimensions than I am as a lead investor. So I can commit early to a fund and then help identify multi-stage partners to come in and lead that round or I can commit early to a fund, and then for the subsequent round of financing, I can provide a lot of connectivity to upstream capital markets, help loop in other founders to be co-investors. All of those kind of collaborative dynamics are not as available when you're at a large firm that is very competitive with others in the ecosystem. And then you layer on that kind of connectivity to the Cambrian community, and it's just a fun way of existing and getting to work with some of the best entrepreneurs for kind of the next decade of, of FinTech. So that's, that's my story and kind of how, how I got here.
Will Beeson:
Amazing, amazing. So, it all makes sense. And I think you addressed some of the pieces that were most of interest to me. Stepping back now and thinking about like, okay, timing of everything that's, that's happened, you know, firstly, so you raised $20 million and you have an amazing, it sounds like, hand picked list of the best possible LPs at a pre-seed stage fund. That probably took some time, you know, different than getting two, $10 million allocations from large institutions and, and you're off and running. Tell us a little bit about how you put all this together. How long did it take? I think you actually maybe have written a few checks already. Can you just talk a little bit about the process and reflect a little bit on what led to your success in putting this together?
Rex Salisbury:
Yeah. So I want to, you know, fundraising is, is never easy and it's not something that kind of happened overnight. I had the benefit of having built out networks and relationships in the FinTech ecosystem with lots of folks over the last six years. And so I was lucky in that the fundraising for the fund went very well. And I had a lot of momentum out of the gate based on relationships that I built over the last six years. And I went out first just to folks within the network and the community who knew me, who knew kind of the value I, and the networks represented by the Cambrian community could bring to the table. And so raising from other founders that I had relationships with actually went very quickly, you know, it could be a 30-minute conversation, end up in and a material commitment, and then kind of move on through there.
And after getting kind of the initial set of founders that I wanted around the table, I then went out to more traditional sources of capital for venture firms. So, in venture speak, limited partners, more institutional sources, family offices, fund of funds, that sort of thing. They, of course, not as familiar with me, familiar with the Andreessen Horowitz platform, which helped me as a quote spin out of, you know, a larger fund or someone who had spun out of a larger fund. I have no, you know, official relationship with a16z anymore, but they're a great funder in the ecosystem. I collaborate with them just like I collaborate with lots of other folks. And so that helped, you know, create signal to more traditional funders, but also part of my story and the thing I was telling limited partners is, look, I'm incredibly connected to the FinTech ecosystem.
I've been doing this work for a long time. This is something I just love doing. These are people I love working with. And by the way, a lot of those people who you respect, cuz you know, some of the companies they built, they're, they're involved in my fund, they're committed to, you know, sending companies they think are interesting my way. They're also not committed in a formal sense, but just because they're also enthusiastic about the ecosystem, excited about the opportunity of seeing the types of companies I end up backing and then being a resource for those founders. And so once you put together a kind of the signal of having great founders, the signal of having worked at a, a great firm, a story where you're kind of being collaborative and additive in the ecosystem where you're relying on, you know, six years of networks and relationships that you've built out over time.
I was lucky that that was a story that resonated with a lot of people. I'm also lucky that I did a lot of my fundraising actually basically at the very end of 2021 and very early 2022. And that was before the market had changed. So how hard would it have been had I gone out later? It's, it's hard to know. It certainly would've been harder, but the timing worked out for me and for a lot of companies, you know, as well as for funds so much is about having the right strategy, the right approach, the right insights, but timing plays a big piece. And so I feel fortunate that the timing seems to have aligned pretty well for the kind of work that I wanna be doing.
Will Beeson:
Mm-Hmm <affirmative> yeah. So on the subject of timing, you know, then, then when it comes to deployment, I think you've made something like five investments or, or at least announced investments. How are, how are you, what sort of market conditions are you seeing? You know, and how, how are you feeling now with $20 million in a bank account with some sort of good faith commitment to deploy it over 24 months or whatever it is. How were you feeling about that?
Rex Salisbury:
Yeah. And so I'll start high level with kind of market commentary and then drive down into like Cambridge specifically and our fund and our deployment. So high level, the way I think about it is if you look at digital penetration and financial services, you can pick the vertical, but it's like 3%, 5%. So what that means is 95% of the opportunity is still there, right? And then if you look at the other side of the equation, so here's the market opportunity, essentially the same as it's ever been. Well, what about the talent, the entrepreneurial talent in the ecosystem that can tackle those problems? Well, 10 years ago, FinTech wasn't a category. You talk to a lot of the founders who were getting started and it was very hard to find venture capital, find first hires, build out teams, because it wasn't yet a category. You fast forward 10 years, there is now more talent in the ecosystem than ever before.
You can kind of pick what data source you want, but you can say that just in the US, there are between 30,000 and 120,000 folks working at FinTech companies. And what that means is, if you drill down into it, there are a bunch of repeat founders and serial operators who are uniquely equipped to build things at the intersection of finance and technology just was not true 10 years ago. So you put that together. Opportunity is literally the same size. The talent is both 10X better and like 10X more numerous. And that means it's a great time to be doing very early stage investing. And I would say, you know, if you wanna back great talent early, like one of the big questions in venture, how do you identify great teams early? And I would argue that at the very earliest stage, the best way to do that is through community cuz these aren't businesses that have raised previous rounds of funding.
These are people with ideas who live in networks of other people. And so you wanna be at the center of that and basically create some sort of way of convening individuals. And that's what I've been doing over the years through Cambrian, or at least aspire to do and continue to do. And so taking a network driven approach to backing companies at the earliest stage, more exciting than ever. And then, so your next question is like, okay, what does that mean for the fund and where we are? So you're right, we've done five investments. We'll do about 30 out of the fund fund I. We'll deploy over about 24 months. We started deploying in January. So it'll be wrapped up in about another 18 months or so. And as far as I'm concerned, we already talked about it, better talent, huge opportunity. The pricing environment has compressed.
So like when I first started deploying in, you know, January, the median seed price was going up and you can find this in, you know, Pitchbook data. In Q2 of 2022, you have to remember that Pitchbook data lags the market. So the data you see in Q2, those rounds are probably actually priced and towards end of Q1. So those prices went up at the top decile from $10 million in 2012 to a decade later $35 million for the top decile of companies. But now what we're seeing in the market we'll know in another six months, the kind of hard data, it seems like for the top decile, that's coming down closer towards like the $20m, which would be where we were a few years ago. So all that means for me is, you know, I tend to think that the types of founders I back are great founders, which means their seed or initial rounds of funding tend to be towards the top decile range.
It means that the price we're paying to get into great companies where the opportunity size is as big as ever is coming down. So that's a tailwind essentially from a fund perspective, because it means that you are able to get in at a lower price and then, you know, be able to build out. But it's not, you know, for founders as well, like the, the previous year of funding the environment and the valuations were so high that created a lot of overhang of potential risk to future rounds of funding. So it's, it's also not like the prices changing is a bad thing for the whole ecosystem or for founders specifically because it sets you up potentially for pain. If you raise at too high a valuation early on, and then were not able to go out and raise subsequent levels of funding. And right now at this precise moment, call it, you know, July and August of 2022. There are a lot of people who are out in market raising seed extensions because they're not quite ready for doing, you know, the next big round, but they raised at a decent valuation before. And so there's just a lot of, kind of, you know, people trying to work through the changing funding environment right now. But I'm fortunate that our portfolio companies all have, you know, 24 plus months of runway because they raised relatively recently.
Will Beeson:
Mm-Hmm <affirmative> mm-hmm <affirmative>. So you talked about the kind of collaborative nature of your relationships with co-investors or lead investors or potential, you know, series A investors, has the tune changed there, you know, if you think about the larger funds that you're connected with, you mentioned having a close relationship through years of work with a16z. Not them specifically. They're hugely cash rich having raised tons of money over the past, what six months or so, but is it harder to attract the sort of more traditional lead investor at the seed stage and, or, you know, more, more difficult to at a series A stage line up the sort of more traditional venture firm who may be suffering from down rounds at other portfolio companies, difficulty accessing capital from the traditional LPs and various other things.
Rex Salisbury:
Yeah. If you're a founder with a, a good story as to why you're building in the space, you have a good background, you are still going to get a deal done. Price might be a little bit lower than it would've been before. But the main thing that has changed is velocity for now. And so it used to be, you know, the, some deals could be done literally in as short a timeframe as a week. Now, like it's going to be even for the best companies several weeks and most likely, or for companies that are perceived by the market as the best companies several weeks. And then in all likelihood several months to do raising. So before pricing changes materially, velocity changes. And that's what we're seeing right now is that deals are taking longer to get done. And then that will probably trickle through in terms of what the pricing ends up being for entry valuations. So that means all of the investors are still active in the market. It's just not as frenetic as it was in, you know, Q1.
Will Beeson:
Got it. How about key themes or, or kind of focus areas within FinTech? I mean even, I guess if you extend your definition of, of FinTech, there's sure been a lot of interest and discussion around web3 and opportunities in kind of quote, unquote FinTech adjacent spaces. How do you define FinTech or more specifically your fund's universe and then, you know, within that universe, are there specific themes that you're most interested in?
Rex Salisbury:
Yeah. Great, great question. And I think, you know, the primary thing I'm focused on is like, how do I identify great talent? And then that lives within the FinTech ecosystem as they think about going out and building the next thing, what I would say and what I've noticed, and the areas that I'm interested in is that really great founders are tending to build in certain areas that have been kind of overlooked because they're a little bit more deep or nuanced than before. So actually so far I've done a hundred percent B2B investing. I don't have any aversion to consumer. It just turns out that a lot of the founders who uncover kind of unique defensible insights have a lens into things that are happening at like the FinTech infrastructure level or at other sectors of financial services that are just a little bit less penetrated.
So in terms of tracking the best talent and what themes that kind of leads you into. So one of them would be next generation of financial infrastructure, the whole prop tech and real estate sector. I've spent five plus years as a real estate investment banker and have done investing in real estate personally. That's a huge category that still doesn't have much digital penetration. There's also the whole category of embedded FinTech which can mean a variety of things. I think one kind of subset of embedded FinTech, if you want to use my taxonomy, would be around vertical software. So thinking about building operating systems for certain kinds of businesses, be they hair salons, dentists, manufacturers, where you have kind of the holistic operating system for them that monetizes through the addition of financial services, the most obvious is like payment processing.
So if you're like Toast being the point of sale, but then you can layer on other things like financing or payroll AR/AP automation, invoice, factory, that sort of stuff. And so within embedded FinTech, there's also the category of kind of the meta vertical SaaS. So like the people who are gonna sell the tools to the vertical software builders to actually be able to layer in the financial services. So embedded B2B lending that can be embedded into the vertical SaaS platforms, embedded payroll, embedded loyalty and wallets for, you know, gaming or food and bev industries. So think like Starbucks wallet as a service type stuff. So there's a lot of stuff in the kind of embedded FinTech space. And then as a, so we've talked about FinTech infrastructure, PropTech, real estate, embedded FinTech, and then like a broad category, but one that's very exciting and hard to pin down is FinTech at the intersection of other places.
So a lot of times people take things they've learned from FinTech, gone out and built things as they intersect with other parts of the world. So FinTech at the intersection of healthcare or crypto or HR tech. So we've done five investments out of the fund. So far the one that's not in stealth is Keep Financial, which is Rob Frohwein and Kathryn Petralia, the two ex founders of Kaggabe. At Keep, they're building a bonus management platform for large employers. So this is, imagine you're a large employer. You want to issue a bunch of signing bonuses. Well, this is the tightest labor market in 70 plus years. Now we'll see where the macroeconomic conditions end up in the next few quarters. But as of right now, it's still incredibly tight. Job openings relative to unemployment. You want to be able to attract and retain workers. One way you can do that is by offering cash bonuses that are immediately available, but vest over some period of time and then are converted into a zero interest bearing loan that is recouped for some period of time if you leave before some predetermined vesting date. So under the hood, the platform from a FinTech infrastructure perspective is a loan platform, but the go to market is about selling into HR orgs for the benefit of recruiting and retaining great talent. And so that's FinTech at the intersection of like HR tech, right? And Rob and Kathryn are great founders building in a really great and interesting category. And I expect to have other great founders go out and, you know, I wasn't thinking like, oh, you know, the big thing I'm gonna invest in is like a bonus management platform, right? It's like, but you find the right founders with the right insights. And you're like, wow, that product has incredible kind of product moment fit as well as great founder market fit. So there are those types of intersectional opportunities, which are harder to pin down, but when you find them, they can make a lot of sense and, and be very exciting.
Will Beeson:
Yeah. Yeah. So you talked about the community led approach for deal sourcing and I think the implication is your value add to founders. Can you talk a little bit more about the value that you expect to be able to add to portfolio founders, you know, both yourself through your community and also the, the LPs that you've put together?
Rex Salisbury:
Yep. So my basic pitch is like, I wanna provide access to some of the best networks in FinTech that are relevant to early stage founders. And so what that means is first of all, access to great potential advisors and co investors that's represented first and foremost by some of the founders who are LPs in the fund. But it also means leveraging the Cambrian community to help you do things like initial hires. So we have a jobs board to build out partnerships in the FinTech ecosystem, and this is actually a huge one. So as I mentioned, all the investments I've done at least to date are B2B in FinTech versus, and even more so than I would say, vertical software or consumer tech, you need partnerships because you need technology partners, probably several technology partners to get your thing off the ground. You probably need distribution partners.
So there's a lot of opportunity to partner with other folks within the FinTech ecosystem when you're first getting started. And so I spend a lot of time facilitating introductions to both potential customers who are other fintechs or potential channel partners, people who can partner on things because they're selling into the same buyer, but providing different or complimentary products. So I think through like one of my very first portfolio investments, which is doing something in the embedded lending space, but still in stealth, I brought in one of the co-founders to invest in them. Their next round of funding was preempted a few months later by a tier one venture firm that I had introduced them to, so help find follow on investors through the network, made 20 plus customer intros.
Their first customer that they went live with was actually an introduction facilitated through the Cambrian Slack community, helped them find one of their key bits of loan origination, infrastructure, and partnerships. And then hopefully we'll see in the next week or two, one of their first product hires will be someone I also introduced them to. So you know, those are all the things like great, great support from other founders, great customers, great hires, great platform partners and then getting the next round of, of funding done as well. So mm-hmm <affirmative> I would say that was an exceptional case of doing like pretty much everything you possibly can do <laugh>. For other founders, you know, like especially repeat founders, like Rob and Kathryn from Keep, they're amazing founders. They've done a couple rodeos before. They need very, very little support. So I don't have that level of engagement with all companies. But with the companies, for whom it does make the most sense. I can be very engaged in doing quite a bit. Yeah. It's not just me, right. Like the whole point is it's not just me, the point is that it's, it's other people that I can provide connectivity to
Will Beeson:
Mm-Hmm <affirmative> all right. So at, at this point, I don't know if you've taken a breath yet. You probably haven't, but you've, you've officially closed a $20 million fund. You've made five investments, you're no doubt very actively evaluating a number of other great companies. You're helping your portfolio companies succeed. What are you most excited about in the broader, you know, FinTech space?
Rex Salisbury:
Yeah. I mean, the thing that, the reason I love my job is because I just get to talk to really interesting people every day. Right? That's both like the, the founders who have backed me and just catching up with them periodically and understanding what's going on in their businesses, what areas they're excited about. That's the founders I get to talk to who are thinking about starting new businesses. And so for me, it's just that again, there's more talent in the ecosystem than ever before and the opportunity is as big as it ever is. And I get to do the job that I'm doing by working with some of the most interesting people in the ecosystem, which is a, a real privilege. And then the thing I'd really like to see, and I think would be fun is like the last decade of FinTech created a bunch of really great companies, but actually like the incumbents are still totally fine <laugh>.
I don't know, like maybe you come up with an example of like somebody who's gone out of business or had to materially change their operations because like FinTech has, you know, quote unquote disrupted things, but mostly they've gone after kind of underserved markets. It would be great to see if in this coming decade that the types of companies that people build fundamentally change the paradigms and the business models of how traditional financial services operate. And that means that, you know, the big five banks, like if you look at their last 10 years of like earnings and now some of them hit road bumps, because they get upset with the regulators or you know, something like that. But generally it's just up and to the right. It'd be great to see if you could like have FinTech, just knock out a line of business from the big banks. And we haven't seen that yet. So that would be what keeps me here is to kinda, I hated working at a bank. Like how are these people still around? And so if I could like, you know, help support the next generation of companies that start to really challenge them in material ways and by the way, inject competition back into financial services, which there's just not enough competition in financial services. That would be great. And I think pretty interesting and pretty interesting opportunities.
Will Beeson:
Love it, love it. All right. So where would you direct people that want to connect with the Cambrian community?
Rex Salisbury:
Yeah. Then you just go to Cambrianhq.com and then when you go there, you'll see the opportunity to subscribe to our newsletter. There's a link to our YouTube channel. So I do interviews periodically with great founders in FinTech. We had recently on the program, William Hockey, ex founder of Plaid now the founder of Column, a new bank that has a charter, well it's not a new bank, but they're now layering on a technology layer on top of an existing bank and rebranding it, and also with Ken Lin from Credit Karma. So www.cambrianhq.com, newsletter, YouTube channel. We also have the link to the Slack community. If you're a FinTech founder and want to interact with other FinTech founders, you should join the 1,300 plus FinTech founders in the Slack community. Also a link to our job board. If you're hiring, which a lot of people in Fintech still are, despite everything going on, you can check that out, whether you are someone who is hiring or someone who is interested in looking for other opportunities. And then otherwise you can find me on LinkedIn and Twitter. My name is relatively unique. So if you just search for Rex Salisbury, you should find those things too.
Will Beeson:
Amazing. Amazing Rex. Thank you so much for spending the time today. Best of luck with everything really, really good to reconnect.
Rex Salisbury:
No, it's great being on. Thanks so much for having me.
Will Beeson:
Rex Salisbury. Thank you very much for joining us today.
