The Full Ratchet: A Q&A With Nick Moran, General Partner, New Stack Ventures
NICK MORAN (MBA ’08)
General Partner, New Stack Ventures
Nick Moran (MBA ’08) cut his teeth sourcing and vetting promising technologies while working on mergers and acquisitions at Danaher Corp. He also developed one of the most successful products in Danaher’s history — an IoT solution with an innovative method for testing compounds in drinking water. Read on to find out how Moran became a successful angel investor and venture capitalist, with a little help from a popular podcast, “The Full Ratchet,” which he launched in 2014.
Sean Carr: What is New Stack Ventures?
Nick Moran: It’s a venture capital firm based in Chicago. We look for compelling technologies at the earliest stages of company formation, and we like to be the first check in. We don’t invest beyond the early seed round. And we focus on the IoT space — the intersection of the physical and the digital worlds. Those are often sensor-based technologies. That’s my background, and the product that I released years ago was in IoT, so we’re comfortable in that segment.
Sean Carr: How old is New Stack?
Nick Moran: It was founded four years ago. We started out as a group of accredited angels co-investing in early stage deals. Because our portfolio companies have performed quite well, we were able to raise our first fund, which closed in 2018. Now we have both a fund vehicle and an angel group.
We added the fund because, as a group, we couldn’t move quite as fast as a VC. Speed can limit access to the best deals. When I make a decision to invest, it takes me two weeks to reach out to everyone in the group to see if they are interested in a deal. As a venture fund, we can make a decision and sign documents the same day. We also know exactly what our check size is at the time we commit.
Sean Carr: Why do you focus on early stage investing?
Nick Moran: We specialize in the early seed stage because we’re good at it and because that stage produces the largest returns for VCs. The first money in yields the highest multiples in the asset class.
The vetting criteria change significantly as you move stages, so it’s hard to be an elite practitioner if you’re investing multistage. At the early stages, it’s more about the team and the market potential. Is the market growing fast, and is this team uniquely positioned to address the problem at hand? We’re best suited to evaluate those things.
The challenge with early seed is the check size. I’m cutting checks for $200,000 to $750,000 per deal. It’s hard to put a lot of money to work at the earliest stages. With series A and series B stage ventures, one can cut $5, $10, $20 million checks. A firm can build up their assets under management, hire a team and institutionalize. We’re fortunate to derive income and revenue from a variety of sources. We run a VC podcast, which subsidizes our operations in a significant way, and we have a well-developed internship program for undergrads and MBA students. Currently, we have a team of seven, which is rare for an early stage firm.
Sean Carr: You mentioned your experience in technology and your own venture.
Nick Moran: After Darden, I went to work for Danaher, a science and technology conglomerate. I did M&A for them, looking for early stage tech companies to acquire. I owe a lot to Darden and Danaher. They gave me the playbook on how to source and vet early stage tech companies. In addition to mergers and acquisitions, Danaher also invested in disruptive, organic innovation. They have a large business in the water analytics space, and I took on the challenge of reinventing the water analytics process for drinking water municipalities. The product was designed to automate complex chemistry procedures with lab-on-a-chip technology. The executives allowed me to lead product development, and it was a big commercial success for Danaher.
Sean Carr: As you think back on your experience at Darden, did it influence the path you’ve taken?
Nick Moran: Darden elevated my personal and professional game in many ways. It improved my strategic abilities and gave me tactical resources. I also created many valuable relationships at Darden, and I started approaching networking in a more authentic, long-term way. Many limited partners in my fund were my Darden classmates. New Stack wouldn’t exist, at least not in the way it does today, without my experience at Darden.
I’ve always had dreams of starting my own company, but I didn’t have that front of mind while I was at Darden. I knew that I had to go out into the world and get experience and stumble across a problem that needed to be solved, and that problem happened to be in the venture funding space.
Sean Carr: You mentioned your podcast, “The Full Ratchet.” What does it mean and what is it about?
Nick Moran: “The full ratchet” is a term used in venture financing and private equity. It’s an anti-dilution provision. I crowd-sourced the name among entrepreneurs. In 2014, we were the first podcast in the VC space, and it’s been key to building our brand and the largest angel group in the Midwest, about 550 folks. Many of them listen to the show and not only invest but send deal flow from across the country. The more people in the industry are sending you high-quality deals, the better you’re going to do. We’re in the rare position of having too much deal flow, due to the reach of the podcast. While most firms are focused on sourcing more deals, my team is focused on efficiently vetting all the deals we receive. I’m leaning on my Darden and Danaher experiences to implement processes to filter that, but it’s a good problem to have.
Sean Carr: What’s next for you and your firm?
Nick Moran: Now that we have a fund under management and I am a fiduciary, we need to drive outsized returns for our limited partners. The way to do that is by identifying the best founders working on the most compelling issues. In a couple of years, we'll be raising a new $30–40 million dollar fund. The goal isn’t to have a second fund but to be in the top decile. To do that, we need to take our current efforts and step on the gas.