Oct. 25, 2022

Road Trip to Houston - Innovation through the Investor Lens with Dougal Cameron, Managing Director of Golden Section


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We continue our dive into the Houston innovation ecosystem from an investor point of view. Dougal Cameron is a co-founder and the managing director of Golden Section, a venture capital firm, engineering organization, and early-stage venture partner serving business software companies from ideation to $5M in revenue. We talk about the types and scale of startups, the Houston LP market, and how our ecosystems can connect.

 

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Transcript

ANP056

Michael Scharf: Austin is the new innovation powerhouse, not the next Silicon Valley, but the first Austin. We are adapting to the future in real time.

Jason Scharf: I'm Jason Scharf, a biotech executive and early stage investor. And

Michael Scharf: I'm Michael Scharf, advisor and board member for multiple private companies.

Jason Scharf: You can call us optimist, abundance minded, up wing, and even solutionists.

We see a bright future ahead that can be achieved through innovation and entrepreneurship.

Michael Scharf: In this podcast, we explore Austin's superpowers, the people and companies driving our growth and the macro and micro trends that come together to create Austin today.

Jason Scharf: This is Austin Next.

Michael Scharf: We continue our dive into the Houston innovation ecosystem with an investor's point of view. Dougal Cameron is a co-founder and managing director of Golden Section, a venture capital firm, engineering organiz. An early stage venture partner serving business software companies from ideation through $5 million in revenue. Under Mr.

Cameron's management. Golden section has grown to a team of more than 80 professionals, invested in numerous technology ventures, and served more than 400 software companies with expertise and services since 2011. Mr. Cameron serves on several boards of portfolio software. And several other operating businesses in his personal portfolio.

Previously, Mr. Cameron served as the CEO of Prognosis Innovation Healthcare, a leading inpatient health record system from its turnaround through the sale of the business in September of 2017, prior to his roles at Golden Section in prognosis. Mr. Cameron launched a division of a Houston-based oil and gas manufacturing company to re-certify and repair blowout preventers and other pressure control products.

Mr. Cameron has also worked in private equity and in that capacity worked with a range of industrials, including timber, steel, oil equipment, manufacturing, and similar industries.

Dougal, welcome to the Austin Next Podcast. How's it going?

Dougal Cameron: It's going great. Happy to be here.

Michael Scharf: Let's take a walk through golden section. Now, you guys are unique because you're a service company as well as an investor. Tell us a little bit about Golden Section and your operating model.

Dougal Cameron: Yeah, happy to.

So golden section started as my family's family office and our investment activities into the software space. And so we invested in a B2B software company, the light in the late nineties called Advertising with a product called I Teller and that product and that company went through, a pretty interesting cycle, what the investment, I think was in 1998.

And the exit was in 2003. And so because of that exit, we developed a methodology around investing in B2B software companies. That translates all the way till today in the late 2010s. We ended up picking up a services company and built that out to help provide services, capabilities to B2B software companies.

Normally that typically doesn't get paired with investment very often. But what we noticed with company after company that we would look at is they had pretty big failings on the software architecture that they were building. So the businesses that they're putting together because of either a lack of access to quality talent or because of a lack of knowhow from the founder, there was some pretty big structural problems in the products that were being built.

And as a result, we decided to solve that. Pulling together a team that we had used in the past through a partner of mine named Isaac, she, to bring those capabilities to those software companies. And so what we do now is we have three legs to our stool. We have a studios program, which is early stage.

And in the studios program, we mix our expertise, We call it our guide services alongside our capital and our service company called Golden Section Product to bring that mix of offerings to the early stage founder. In addition, we have a product division which brings software consulting and software architecture services to early stage B2B software companies.

And then the third leg of the stool is our venture arm, which operates like many other venture firms.

Michael Scharf: You were part of the turnaround at prognosis?

Dougal Cameron: Yes.

Michael Scharf: A EHR that was involved in inpatient work, if I understand it correctly?

Dougal Cameron: Yes.

Michael Scharf: Did you see the same kind of things there? What was the problem when you came in?

Dougal Cameron: Yeah, great question. Prognosis is a big part of our origin story. Prognosis started after advertising was sold in 2003, and the team that went to work for the choir, a company named Travel Click ended up leaving Travel. Click over a. One to two year period of time, which happens a lot. And that team got pulled back together and built a new company called Prognosis that initially would, was set out to serve the patient complaint management software needs of larger hospital systems.

It was called HCAP Survey Management, that basically patient satisfaction management and after. Business was essentially deemed to not have gotten the traction that they're looking for. The team pivoted and focused on the EHR components that were being mandated by the federal government ultimately, and what became the High Tech Act in 2008, 2009.

And so that business caught a very similar wave that tell you had caught in years prior. And through that business experience, the partners, in addition to a bunch of families here in town, decided to partner with Open View Partners out of Boston. And that venture firm put a bunch of capital into the business, ran it the right way from a coastal perspective, but as maybe the story will indicate it's a little bit different the way that we think about how to build businesses in Houston than perhaps as present on the coasts.

And and so that business went through a traditional series seed series, a series B process. Ultimately raised a little bit over $20 million and put it to work in increasing the headcount to about 180 people at max. And I ended up stepping in when we bought it back from Open View Partners, technically Square One Bank in a sort of pre foreclosure process.

And when I stepped in to run it the second time, that process was difficult. It was the company had too many people on board. The expenses were too high for the revenue. The customer experience was lacking significantly. The vendors had been badly mismanaged, badly treated so were the employees in many circumstances.

And so it, it became what we call at Golden section a misery factory. And a misery factory is a manifestation of the name and that happens a lot in software companies because software is a communication problem.

You're communicating customer needs from your sales department or from your executive team, or some cases both to your r and d department, who is attempting to put those together into a cogent logical framework that then the sales department has to go and sell.

And then the support department has to both implement and support. When you end up getting disjointed because of that communication breakdown or communication problem, it becomes a really rough place to work and a rough place to invest and a rough place to be a vendor to, et cetera, et cetera. And so that, that business became that I stepped in to run it the second time and fortunately had an incredible team around me.

We were able to pull the pieces back together and pick the business up and get it growing. And so about two and a half to three years later, we got the business on its right footing and then sold it to a portfolio platform called Azalea Health. And their sponsor was Ken Anderson. Ken Anderson partners.

And so that second time that we owned it taught our firm a lot of lessons about how do we want to prevent companies from getting to that same position. And that's what we exist to do today. So we call ourselves Journey Partners. We journey with B2B software founders to achieve a meaningful exit and ultimately lots of meaningful exits means a flourishing community, which we believe in Houston.

We're right at the cusp of starting to see. There's a lot of software in our lens obviously from golden section's perspective is all B2B software. That's the world that we know. The Houston ecosystem has a lot of software executive software founders that have exited their businesses and have done really well, like hundreds of millions of dollars.

And these are businesses that don't end up getting wrote up in Tech Crunch or they don't end up on the front page of anything. But they're huge success stories and that's what the ecosystem needs ultimately to become a flourishing ecosystem is lots of those stories all over town.

Michael Scharf: Let's talk about the pandemic and the ecosystem a little bit more.

Everybody that was making predictions in 2018 got it right. A lot of them got it right, but they got it much slower than what actually happened. And what we saw was just a huge increase in capital, both capital raise, capital deployed. How did Houston's capital scene. Take advantage of what was happening in the pandemic to really flourish.

Dougal Cameron: Great question. Houston's private capital scene from the family offices here in town. That's that's the world. That golden section knows all of our capital comes from individuals and family offices. We don't have institutional capital in our mix. And so that capital, generally it knows certain things really well here in town.

Services, businesses, industrial sector. Oil and gas, obviously real estate. Those are all well trodden paths that the families here in town know a lot about and are very capable in investing in both direct and then also through sponsors. The venture scene is relatively new in Houston, but investing in software companies is not, and one of the things we're passionate about is educating family offices, mostly here in Houston, but also all over Texas, and how to think about investing in venture because unlike.

A office building or unlike a developing a field in west Texas, or unlike a services company, it's a lot harder to understand where all of the big dangers lie. And and so what we found with in the past is that family offices would get excited about a particular technology or a particular company or a founder that charismatic and they would over allocate into that deal feeling the, perhaps the benefit that they had found a deal that wasn't already captured by a venture fund, which.

Maybe some allure. And then the result of that is that, unfortunately it can lead to a comp, to a family over allocating into that opportunity. And then when that doesn't pan out, cause they don't have a portfolio, they end up writing off the asset class. And that happens time and time again.

And so C from that perspective, I think was not good for the Houston ecosystem. There's a lot of companies right now that are having. Chickens are coming home to roost, so to speak, where once high flying valuations in large third party markups are being written down, and that's gonna take a little bit of time to work its way through the ecosystem.

But there's gonna be a lot of people that jumped in from 2019 till 2022, that are gonna see their paper profits evaporate and those paper profits drove them to do additional allocations into venture or into software that are ultimately gonna end up being a problem for. , which is not good. And and so I think there was a lot of excitement in 2019, in 2020 and into the covid world that translated to an over allocation and a venture in the Texas ecosystem in general but definitely in Houston.

Michael Scharf: Let's talk a little bit more about family offices, cuz I've worked with family offices as an investment banker and when you talk about training family offices to invest in. That is a very difficult concept. I've been to meetings of family offices where venture capital firms get up and basically, Badmouth, the family office is saying, You can't do this.

You have to come through us. And I sit next to somebody who's been doing angel investing for 30 years and somebody else who's Columbia, Harvard grad, five years with Accenture, and now she's going to be the second CIO of a family office out of Houston kind of thing. And it's no. These are smart people doing this. But it's a skill set issue, isn't it?

Dougal Cameron: Yeah. Ultimately it's a skill set issue. It's a, it's an at bats. So I if you've seen a lot of these deals, you get a sense for what a good deal looks like and ultimately there, there are things that can be learned and can be communicated and taught, but there's a lot of expensive lessons.

Like we, we have a list of 139 mistakes now, most of them around building B2B software companies. And so we tell our founders and it's a little bit funny, but it's totally true. That we don't know all the right ways to build a company, but we know 137 ways not to. And that list is increasing every single quarter.

And and so when a founder joins our portfolio, they join the journey of going to find the next mistake. And so we don't wanna be a mistake. Sort of avoidance culture. We want to be, we wanna embrace mistakes so we can learn From them. Find those small. That's right. Take care of them. And so that's a benefit that we have that, that a new entrant into the software investing space doesn't have.

And that's what we can provide to the families that invest with us. We have, we give a lot of direct investment opportunities to the families that invest with us. Our goal is that they learn what we learned that I want. of the Texas ecosystem to be a better investor in the software world, as opposed to a worse investor in the software world, which means that valuations are not gonna get crazy.

It means we're gonna take some of the ebb and flow outta this market, which is really damaging. And hopefully it means that families that start to tread into investing in software. We'll continue to invest in software 10 years from now, 20 years from now, a hundred years from now, as opposed to get burned by one big high flying deal and then right off the entire category, which has happened a lot.

Jason Scharf: When you're thinking about those 137 mistakes, how many of them like rough order, right? Are we thinking are. B2B software mistakes that are generalizable to the industry, How many are the ecosystem we're playing in and hey, this is a gap that we need to fill up. Like really trying to look at the state of the ecosystem itself.

Dougal Cameron: Ah, yeah. Interesting. That's a good question. It's hard for me to dissect it because they're the mistakes that we encountered or that we committed and. And so as a result, I don't know how much of them were necessarily due to the ecosystem. I think a lot of them come from reading what's normative in a coastal strategy and trying to apply them.

Where you don't have access to capital every 12 months. And so if your venture sponsor's objective is to get a big third party mark, then our mistakes list might not be as relevant. But I would caution that there's another pool of problems that exist in the venture world that are also right now in this environment, this capital environment, starting to show themselves.

66% of founders make nothing that are Venture backed founders, 66% of them make nothing when their company. , that's a stat that's pretty sobering, pretty shocking. And it's driven from the fact that as a venture capitalist myself, my economic incentive is to bring my portfolio that, particularly the ones that are performing, but technically all of them, to other venture funds, and try to convince them to give me a big third party mark.

And two years ago, that was pretty easy. This year, that's gonna be really hard. And so the problem is if you have created, as a founder, if you have created a dynamic where you can consume my capital really fast, which gives me confidence that hopefully it translates to some revenue growth, and I can bring you to my friends and get a big third party mark, and then I can tell my LPs, Hey, we're up three x, and then we can go raise another fund.

That enhances my economics and my personal self-interest, and that's why we're seeing that 66% number because ultimately the person that loses is only diversified into one deal, which is either the family office that got a little too excited in one deal or in all cases, the founder, they only have one deal.

Their deal. And so as a result, 66% of the time, founders end up not achieving the promised land that they set out to get to. And I think that capital environment is a big reason for that. And so that's a problem. And so if you're gonna operate differently, then there's a whole bunch of.

Information of how to build a company that is premised upon the fact that you are working for that venture capitalist to help them get their next fundraised. That doesn't translate if you're trying to not do that.

Jason Scharf: So how do we think about then merging the two? Because one of the things that Houston's definitely going through, Austin's going through Texas as a whole, is the scale of capital here.

Is growing immensely. It's not at the scale of the California or the Massachusetts yet, but at the same time, what's interesting is when you start looking at the data for 2022, you've seen a lot of clawback, right? We talked about of startup funding generally across the board. I don't have the data right in front of me, but it looks like, I think Houston's the same.

And so as Dallas is. we're coming down less than a lot of the other places. A lot of other places are crashing down and Okay, so you wanna be able to build a company? Not so that ju said that you are with the built-in function of I, I have access to capital every 12 months. At the same time as we grow the capital environment in these ecosystems, the availability of capital every 12 months starts to become actually a possibility.

May not have been a possibility before just because it wasn't there and I wasn't able to see. So how do you merge that? We have the, we get the capital scale. But you still wanna make those same mistakes now that it's available, right?

Dougal Cameron: Yeah, that's a great question. Ultimately, it comes down to what are you trying to do?

So B2B software is not a traditionally conceived of a zero to one innovation cycle, and so that obviously comes from a lot of different literature. But the question of whether or not a large Fortune 500 company is going to buy a tool to improve their cash collection cycle is not the same question. All of us in 2009 asking the question, Are people gonna ride scooters in downtowns all across the country?

Those are two different questions, like two completely different risk profiles. The problem is that the entire world of venture, it pools all of those different opportunities together into one fund structure. Now, there's funds that focus on the, scooter market. There's funds that focus on B2B software.

We're in the latter. But B2B software is not the same risk profile as scooters 10 years ago. It's not the same risk profile as blockchain. And so because of that 66% failure rate might be appropriate on the blockchain side. It's not appropriate in B2B software where it's a mature industry, it's been around for a long time.

If you go back in the ebbs and flows of whether the software is on the terminal or it's in the in the cloud or the mainframe back and forth, going all the way back to the seventies. That cycle depends upon, the availability of technology and computing power and where it should reside, whether in the mainframe or the terminal level.

That dynamic has been at play for the last maybe 40, 50 years. The industry is very mature. And so because of that we think that when those worlds merge and let's say this ecosystem has enough capital to where you can depend upon. Capital, that availability at each of these windows maybe every 12 months.

I still think that B2B software should be funded differently than scooters or blockchain, and I use those as just an example of the, I'll call it bleeding edge technology or bleeding edge adoption questions. As a result. I think when you think about merging those two, I think a coastal B2B software firm that's funded the way we think about funding deals is gonna be more capital efficient than a coastal blockchain deal.

But I think similarly for a, Texas market blockchain deal, it's probably, it probably needs the capital availability that the coasts. In order to see whether or not that industry is going to pick up its legs or not. And there's, there's a lot of, or nots in the past, 10 years, there was a big wave for ai that's catching its wave.

There's a big wave for AR and vr and that to some degree maybe hasn't. And so there's a lot of future states then that venture invests into some of which pan out, some of which don't. And that's part of the game. B2B software. Is different as a category, so therefore how do I merge those two? I think about whether the capital that's available for a early stage software company is the right capital and we think we are for B2B software.

Michael Scharf: I wanna go back to something you said a couple minutes ago when you talked about the source of venture funds in Houston is primarily coming from family offices. Yes. That is not true on the coast. It certainly isn't true in these last couple of years in Austin. We've seen a great big increase in the venture firms in the Austin area.

Talk to me about how the aggregation of family office money into this venture pool here in Houston has impacted the Houston ecosystem in general. Do you see different startups? Do you see more, more or less? What is it? What do you see?

Dougal Cameron: That's a good question. I still see the same theme over the last 20 years, which is that there's a bias towards a direct investment.

 I think there's probably a couple of reasons for it. One of them being a venture fund, like a private equity fund. Has fees that look really high. So 2% management fee, for example, if you compare that, if, and not all family offices are thinking are comparing their alternative strategy to a Vanguard fund, obviously, but a Vanguard fund is like a couple basis points.

And so when you compare those two fee structures, it looks like venture is way over feeing. It's LPs, but then you look at the dynamics of how alternative managers make money and typically the fee gets refunded in order to get to the carry. And so there's a lot of dynamics there that I think the Texas ecosystem of family offices need to learn and that's a hard thing to get into cuz typically the money managers that they're relying upon and that are their advisor.

Are receiving fees on the total amount of assets that money manager is managing. And so because of that disincentive to push into alternatives, there's a couple of barriers I think to get into alternatives in general. And so as a result, the thing that causes the family to decide to go do a deal is typically something that's really exciting about a particular company.

And so maybe it's they know the founder or they met the founder or they're at an event and it seems like that's the hot deal or whatever, and that's what causes them to. Their money manager or their advisor and go direct into a deal. And so over the last 20 years, we've seen several waves where venture gets hot in the Houston market and we were in one of those waves the last two to three years.

It's starting to dial down because of the third party marks that are gonna be dropping here very soon that I mentioned earlier. And I think the same dynamic that has been at play is still at play where families have a tendency to want to do deals direct. And I'll admit that our family. So the origin story of what we just, of what I just explained about where golden section comes from is us writing a check direct into a company advertising with a product I hotel here.

And we were just an example of a family that dice came up the right way and it could have easily not, and then we would've written off the entire asset category perhaps. And so as a result of us developing this capability, the lessons that we've learned, we wanna translate out into other.

And so all of our LPs are mostly Houston families, but we have other families from across the country that are invested as well. But the Lion Chair are Houston families in Texas family offices, and those investors see us as a trusted resource to understand how to invest in venture. And we make introductions to other funds all the time.

I'm an LP and 10 other venture funds. Myself and then our LPs get introduced to those venture funds as well because the entire asset category, no one should look to golden section for their only allocation to venture. That's not prudent but it's also not good for the ecosystem. There needs to be a lot of managers out there making independent decisions in creating a market for these assets.

And so what I'm seeing in terms of the Houston dynamic, particularly in a post covid world, is the same story that has been at play for the last for as long as I've been a participant in the ecosystem of families and to some degree institutions corporate VC operates somewhat similarly, writing large checks into deals that seem like the hot deal in the ecosystem, and that may or may not pan out.

And more times than not, we find that it doesn't.

Jason Scharf: You talk about the family offices are going direct and you can convince 'em to come to l. , how do we think about the investor class here from a stage perspective? Are the family offices stepping in at the angel and seed? Are they large enough? They're doing, a's you generally can't, from my perspective, do B, C's and D'S without institutional funds.

It's just you don't have enough capital available. So where are we seeing kind of the maturity of the various stages of investments here in Houston?

Dougal Cameron: Yeah, good. Good question. I. I see most of the time it's gonna be series A or earlier in terms of the families that are investing in town, and then it does end up for the deals that get these large third party marks.

It typically goes institutional after that. And then that's where the trouble really occurs because those institutions are gonna have liquidating preferences on their investor class. And they're also gonna block out typically other investors from participating after they get in.

Jason Scharf: And those institutions or those larger funds, tend to be outside of Houston.

Dougal Cameron: They tend to, Yeah. Not always. But they tend to, yeah, they tend to be outside of Houston. And there's a, I think a huge. Motivation for the company that's here in town to move out of Houston and whether that's just kind of default mental process or whatever it is, but that story has happened a lot.

And the companies that get really big in town tend to be bootstrapped or they tend to be funded in a different way. And so once they get a big institutional check from a coastal firm or from a firm, and in a non Houston market, there's an impulse for them. Move out, even though that's probably not a directive from the firm, from the institutional investor.

Michael Scharf: I don't think it's that kind of directive anymore.

We've seen that become much less of an issue, especially during the pandemic. But it's interesting that seems to still be happening in Houston. And one of the things, and you mentioned this before, software entrepreneurs who have been successful, who've seen their liquidity events happening, who have.

Large bank rolls. Now, the self-sustaining capability of an ecosystem. Is driven in large part by those folks taking and recycling their capital back into the market as an lp, as an angel investor, as a direct investor, whatever. Are you seeing that happening a lot?

Dougal Cameron: Yes, very much and I think there's a really good part to that.

Then there's the ugly downside to. The good part to the recycling is that as the flywheel of capital getting returned to investors starts to speed up, the availability of capital is gonna going to increase, and that's definitely happening in Houston. There's two things I think, that have pushed Houston investors in that direction.

The first is a. An inherent comfort with alternative investments that the Houston ecosystem has always had because of the oil and gas opportunities to invest that are almost always non-institutional. They're one off deals in addition to the real estate proclivity that the Houston family offices have to invest in office buildings or multifamily or whatever it might be.

And so there's a lean towards Alts that has characterized a Houston Family office community. That makes venture not quite as scary as perhaps other markets. But there's also a and I guess there's also a more, universal push for people to think about alternatives as opposed to the, public market or public equities or debt and equity strategies that have characterized many wealth planning for families in the past, a hundred or so years.

And and so I think that's made capital availability a little bit easier. And as that flywheel occurs, it's gonna start. Causing them to want to do more direct deals, hopefully create and back more emerging managers and and that's the good part of the ecosystem's flywheel. The ugly downside, which is of correlated to what I was mentioning before, is these third party marks being re-priced down is gonna have the effect of the families.

Who may have been allocating out of paper gains, which is very hard not to do, all of a sudden rethinking that allocation. And when you rethink that allocation, it's gonna have a compound effect on the availability of capital. And I, looking at some of the deals that I know pretty well there, there's going to be a lot of families that are thinking that way in, in this environment as those third party marks get reprised down.

Jason Scharf: So I want to take us up a level. We're an Austin based podcast. We're coming here to Houston to learn more, see where the connection points. Where do you see the interaction points between Austin and Houston? Is it, is capital and startups flowing back and forth? Is there not a lot of interaction? What is, what are your thoughts?

Dougal Cameron: I think there's a lot of flow back. Several, a lot of our portfolio companies are in Austin. I can think of three right now. They're probably more than that, in fact. And so that we look to Austin a lot for founders. There's a pretty big density of companies here. Obviously there's a lot of comfort with with early stage software that tends to get over that initial hump that we're looking for.

Proven product market fit, which we determine with just a little bit of revenue, a couple thousand bucks a month. So we're not looking for millions of dollars of revenue to prove that out. And so because of that, the Austin ecosystem I think is really good at that early seed stage funding concept. I think what Houston is good at, and at least what, the lens that we get to see if Houston is good at is taking a company that has a proven fit and building it in a sustain.

what we call a balanced way, where it's a capital efficient approach to, to get to revenue scale. So we look to sell our companies when they get between five and 15 million in. So they don't have to get to billions in revenue to have a meaningful exit. Meaningful exit means different things to different people.

And and so part of our job is to partner with a founder and understand what they mean by meaningful and to also make sure that they don't become on one of those statistics, the 66%. And so what are the connection points? I think companies flow back and forth pretty freely. I think founders flow back and forth in search of capital pretty freely.

I think the thing that I don't see quite as much is Houston families investing in emerging managers in Austin and vice versa. Although we do have LPs in Austin and I have fund holdings in Austin, so it's not strictly speaking not the case, but for whatever reason, I think people lean, particularly for something that's unusual like venture for the Houston Family Office community.

I think they lean towards people that they know rather than people that they meet through a friend or a colleague or something like that. And so that might be a part of that, but I think there's a lot of, maybe it's an obvious statement, but there's a lot of flow back and forth between Austin and Houston.

Jason Scharf: Are you seeing anybody leverage I've only seen this at a couple of companies, but I'm thinking it might be a better thing. We talk about the Texas Triangle as a. As a super region and really leaning into the talents of old regions where it's okay, I've got XYZ talent concentration in Austin, so I'm gonna put a regional office there.

I've got a different set of talents that are great in Houston. We'll put an office there. Are you starting to see these, especially with the hybrid. Spreading across where it's close enough, we, we came this morning, We're gonna be going back to Austin tonight so you can do it in a day.

But, but really being able to leverage the talent pools in each

Dougal Cameron: Yeah, I, there's definitely a lot of talent. Transportability between the regions and I don't see companies being that quite that strategic. I think it'd be a great idea. I think there's a lot of talent in Houston that is fit for a couple of very specific purposes in the B2B software world.

Same with Austin, same with San Antonio and same with Dallas. And you could probably generalize and come up with. Buckets of talent that are available in those places, that might be pretty interesting. But the way that I think about, and in fact in a lot of our companies, when they're looking for talent, sea level executives, or even just talent up and down the organizational chart they're gonna be looking at the entire Texas region because of maybe a, it might be driven by perhaps a perceived lack of talent, although I think that gets overplayed.

But I think it's mostly driven by the cooperation in the region that y'all mentioned earlier. There's just a lot of there's not, animosity between the cities. There's a lot of Texas mindset that drives the way that these cities operate and operate together. And so because of that, someone applying to a job from Dallas for a Houston firm is a pretty normal thing and vice versa.

And so I think that the availability of talent's actually pretty strong in each of these cities. Because you don't necessarily need someone that has 10 years of selling enterprise software to be a great enterprise software salesperson. For instance, someone selling, oil field contracts, service contracts to the to companies here in Houston that translates very efficiently over into selling software.

So there's a lot of. Transportability of the types of talent pools that exist in Houston. And so I think it gets overplayed that the talent's thin or the talent's not quite deep enough. And I think the reason people look to the different cities in Texas is just that people are thinking about hiring at Texas rather than thinking about hiring just in Houston or just in Austin, or just in Dallas.

Michael Scharf: It's interesting though, you talk about how somebody with an oil field. Contract selling experience is often able to transfer those experiences to B2B software sales. Yes. And having been a hiring manager out in that other area, I could not imagine looking at a resume with that background for a software sales kind of thing.

I just couldn't imagine it. So what's developed here is an openness and an understanding that's very different and that serves Texas and that's a great thing. Just wanted to get that in there.

Dougal Cameron: Yeah!

Jason Scharf: The talent is an interesting question. If we start having, One of the things that I really like about, I think this is true of Austin.

I'm seeing it in Houston, I'm sure I see it in Dallas and San Antonio. Is the sector diversity, it, you don't, it's not just B2B or enterprise. There's obviously in Houston and my background's all in, in, in the bio sector. And obviously there's a huge, Texas Medical Center and everything, and you see those, some of the best creative collisions is that intersection between those two.

And while you have, I think that said, sense of openness, but how do you approach like at least your portfolio companies to. . Think about outside the box. Think about these things. I've, as a podcast, you're listening to other podcasts. It's always interesting when you think about workforce and how we've set up the systems to screen out candidates rather than looking for skill sets and screening in.

So all of our base systems are. are blocking different ca Like you're not gonna get that oil field candidate for going to software systems. It's not gonna get past a the ATS system, right? It's just not gonna happen. So how do you advise your portfolio companies or others to think differently from the talent perspectives across section, across sector?

Dougal Cameron: We primarily through our mistakes list, then the playbooks that we derive off of the mistakes because that is a mistake that, that oftentimes founders make. And it pops up when you go to the Google machine and ask, Who should I go hire? And you're picking up stuff from ecosystems that might have deeper talent pools, but like I mentioned before, deeper in a specific vertical or with a specific type of background.

As opposed to someone who can get the job done. And so I think when you think through, what's the objective of hiring somebody to lead my enterprise sales team, I need someone who came who's capable to achieve the outcome. And as a founder, I'm trying to offload that set of responsibilities onto someone else so that they can execute and I can start focusing on other areas of the business.

And so how do we advise them? We advise them to not think sector specific or vertical specific. And there's two reasons for that. One, it creates a bigger pool of candidates that they're looking for. They're looking for culture fit in addition to intelligence and integrity and drive. They're looking for someone that can ultimately get the job done to give the founder leverage.

But the thing that I think comes up a lot with founders is thinking about this person that I'm looking at, that they ask a question that I don't think is strictly relevant. They ask, does this person know my customers really well? So are they a part of my vertical? And for instance, for a company doing, improving the AP process for GE for large businesses, Someone that has implemented software into.

That space may be a good candidate to run an implementation team, but someone who's done project management for a large multi-family operation also could be a good fit. And so the question is not does this person know the customer lingo? Cause the founder is the person that should know that the founder should understand the nuance of how the customer operates and be able to communicate that vocabulary into their organization.

And the people that they hire need to have the capabilities to execute. And so we spend a lot of time on that because that's a key area for mistakes and ultimately a lot of turnover and a ton of cost. When a founder thinks that the only person that they can hire, It hits the intersection of the three circles on the vinn diagram of knows my industry has the capabilities and is in my town.

And so when you look for that, you're looking for a very small set of people and then the culture question becomes really relevant because are you able to find the one of the three people that could fit that box and do all three of them? Could they be a culture fit? Probably. And so it's a challenge.

So you, and so from our perspective, you wanna hire for culture first. In addition to obviously screening through that they have the intelligence to operate in that role. And then the question is, can they get the job done? Can they give the founder leverage?

Jason Scharf: So getting back to the connectivity between the different ecosystems.

From your perspective sitting in Houston, what would be your biggest ask of the Austin innovation ecosystem.

Dougal Cameron: I think there's a lot more that can be done in the broader Texas ecosystem and therefore the cooperation between Houston and Austin. In communicating the types of the types of deals that exist in those cities as opposed to the one or two breakout successes or a parent breakout successes that are getting all of the attention and so that drives some families to make an over allocation to a business and not.

Not be able to understand the risk that they're taking, because it looks like that company having raised a hundred million dollars or $200 million is a pretty safe bet. But with the complexity of a, series of liquidating preferences with the complexity of a valuation that is not supportable in a third party sale that becomes a big challenge.

And so my request of both Austin and Houston Ecosystems is that they spend more time, Elevating all of the players or thinking through what elevating one or two success stories in those towns does to the ecosystem. Cause I think what it does is it causes founders to want to be that and therefore to want to raise more money and therefore to create a business that can raise more money.

And those things don't necessarily translate to efficient businesses. In fact, oftentimes they're at odds with it.

Michael Scharf: Dougal Cameron, Managing director of golden section. We always try to ask one last question. In your case, what's next for Houston?

Dougal Cameron: I think families learning to invest in venture is next for Houston.

We're seeing that happen a lot and we're really excited about it. So I think emerging managers, more emerging managers, training families on how to make effective direct investments is what's next for Houston.

Michael Scharf: That's great. Thank you so much for joining us on the Austin Next podcast.

Dougal Cameron: Thanks.

Jason Scharf: So what's next Austin?

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