‘We’re investing, we’re incubating, we’ve got SPACs’

Whether or not we’re at some kind of tipping point right now, venture investors, old and new, have done very well in recent years, with their limited partners notching the biggest gains in decades.

Among the newer VCs to be having a time of it is Bradley Tusk, the political strategist, lobbyist and founder of Tusk Ventures, whose firm is just six years old but whose exits already include the insurtech company Lemonade, which went public in July of last year; the smart lock company Latch, which went public this year through a blank-check company; FanDuel, which was acquired and may now get spun off into a public company next year; and Coinbase, which staged a highly successful direct listing in April. Tusk Ventures has more companies set to become publicly traded, too, through tie-ups with blank-check companies, including the mobility company Bird and, if it passes muster with the SEC, Circle Financial.

“For me,” says Tusk. “It’s like, ‘Oh, yeah, of course, that’s how [venture investing works] works.’ And people who’ve been VCs for a long time are like, ‘No, that’s not how it works. We’re in the middle of a crazy market right now.’ ”

We talked with Tusk earlier this week about some of his most recent bets, including that Andrew Yang would become mayor of New York (a Tusk deputy was Yang’s co-campaign manager). He also let slip that he is helping to incubate a new social network with a focus on religion and that on the heels of a $300 million SPAC he formed last year, he has another up his sleeve. Excerpts from our conversation follow, edited for length.

TC: Because it was just in the news, I’m seeing you were blamed by “multiple sources” in Yang’s camp who say your team was responsible for his disappointing finish in the race. How do you feel about that, and what went wrong?

BT: Whenever you win a campaign, you get the credit. So if you lose a campaign, you deserve the blame, and I’ll take it, I recruited Andrew into the race because I felt like New York City just needed a better option than the people who are running for mayor [and that] he’d be able to hire based on talent; he’d be able to attract really talented people. But halfway through the campaign, two things happened. One, the vaccine became available, and violence and crime really spiked in New York City. So the zeitgeist shifted from COVID recovery to crime and violence, and Eric Adams, who won the race, had been a police officer for 22 years and was far and away the candidate most associated with being able to deal with that one issue, and my hope is that he will be a good mayor.

TC: Wearing your political strategist hat, if you were marshaling Facebook’s lobbyists, how would you try and respond to the testimony this week of whistleblower Frances Haugen?

BT: Obviously, they don’t listen to me. But I would take a step back and just stop the charade. Part of the reason why people don’t trust Facebook is they are endlessly pretending you can have your cake and eat it too. And everyone knows that’s not true. You are making a transaction with them, where in order to use this free service, you’re allowing them to monetize your data and to sell that to advertisers to pitch you on stuff. I actually think consumers can handle that trade-off. Instead, by Facebook constantly lying and saying, ‘No, no, no, we’ve got you covered, we’re not doing any of that,’ no one believes it about anything.

Facebook just needs to level with the people and say, ‘Look, this is our business model. This is how we make money. If you want it to be for free, here’s what we need to do. If you’d rather pay for a subscription, we could do that instead.’ I think until they do that, all the spin and all the lobbying in the world isn’t going to change [people’s perception of the company].

TC: Do you see broader cultural changes happening in the startup world?

BT: Yes and no. When I think what we talk to our founders about — and we’re talking about politics and regulation and media — it’s a lot more cautionary than it probably would have been 10 years ago. On the other hand, if you’re an Uber or Lyft — whoever it is — and your ability to operate depends on whether or not you get permission from government or you just go ahead and launch anyway, if it’s existential, you’re still going to take that risk. Because if you don’t take the risk, you don’t exist in the first place.

But the demise of Facebook’s reputation — and the same thing for Google and others — has created an opportunity to have startups that really are more privacy focused. I’m working on a social media platform right now for religion, where it is built by religious leaders for people in the religious community, and the idea is to be the anti-Facebook and we protect your data. We don’t monetize it. We don’t even have control over it; the community manager and leader do, and so there are business opportunities to come out of [this backlash].

TC: Does “working” on this social network mean you are helping to build it or you’re investing in it?

BT: We came up with the idea, we diligenced it, we funded the seed round and we’re now in beta testing.

TC: Is incubating startups something new for Tusk Ventures?

BT: It’s the first incubation that we’ve done out of Tusk. We’re working on a new one now in the esports gambling space. When we see a hole in the marketplace, especially because people are misunderstanding the regulatory climate, sometimes the answer is just go ahead and build it yourself. And I think we now have the infrastructure here, the talent, and the money to do that. And so we’ve gotten our first couple going, and our hope is to probably incubate about two companies a year.

TC: You have such a range of investments. You’ve got a men’s wellness company, Ro, a lawn care company, Sunday. I used to think of the outfit as one that finds startups that could use your political expertise, but that doesn’t seem to be uniformly the case anymore.

BT: It’s still the case. As an early-stage investor, we’re looking for all of the same things as every other early-stage investor. We’re looking at the founder and the TAM and the underlying technology, but then we’re also asking ourselves two other questions. One, is there a gating regulatory issue or opportunity that if it were solved, could really drive growth and valuation? And two, if so, can we solve it?

Using Ro as an example, [co-founder] Zach Reitano really wanted to be able to offer people prescriptions obtainable via text message as opposed to having to go see your doctor . . . and our view was like, yes, if you can prescribe via text, it really will lead to an increase in business. Other times — take Sunday, as an example — the original idea was that we would run campaigns in really left-wing cities like Portland or Austin, where we would mandate the use of organic fertilizer and use that to really create a market for the product. But it turned out that Sunday grew so fast, so quickly, they just never needed to do it. Sometimes you just get lucky and the political problem that you think you’re going to have never really materializes.

TC: You mention having enough money to invest. You closed your last fund with $70 million in 2019. Is there a new fund announcement coming?

BT: I can’t really talk about it. We are investing out of our third fund, and the fund that you’re talking about is fund two. So, by deduction, yes.

TC: By deduction, based on the growth of funds generally, is it safe to assume this will be at least twice the size of that second fund?

BT: [It’s] significantly bigger to allow us to hopefully lead at least half the deals that we do. But at the same time, we still really like being an early-stage fund. Every deal that we do we think has to be able to return to find, and you can only take those swings at the seed and A stage. So while on the one hand, it’s good to be well-capitalized, valuations are increasing so much that you need more and more capital now to be able to win deals. If you have a $400 million Series A fund, then you’ve gotta have like five Birds in your portfolio just to hit a 3x. I’d rather just raise more and more funds and have them be smaller and be able to with a couple of clear winners in each fund to deliver a really good return to my investors.

TC: You also raised a $300 million SPAC last year. You’ve already told me you can’t talk about this. Out of curiosity, is another SPAC coming?

BT: There’s another one that we’ve lined up. The combination of not having announced the first deal yet, plus the SPAC market obviously taking a beating right now, has caused us to not go ahead yet and raise the money. But there are lots of places where the right regulatory expertise, combined with the right company — and this is true whether we’re incubating something or investing out of out of the fund or doing a SPAC — can be really valuable. It’s really limited mainly by how hard I work, and I’m willing to work pretty hard.