From Founder To Fund: Winning Big In Venture Capital With Erik Huberman Of Hawke Ventures

Scott Kelly chats with Erik Huberman, founding partner of Hawke Ventures, who shares his career path that led him to the vast world of venture capital. In this conversation, Erik talks about Hawke’s extensive network, the importance of securing an “unfair advantage,” and investing not just in a founder’s goals but their dreams as well. He also discusses the composition of his limited partners, their risk mitigation strategies, and the role of AI tools in an ever-evolving venture capital space.

—

Watch the episode here

Listen to the podcast here

From Founder To Fund: Winning Big In Venture Capital With Erik Huberman Of Hawke Ventures

It was so nice to see our friend Erik Huberman come on your show. It has been years that we did the webinar. It seems like it was just last year, but I think it was more than that.

I know. Erik and I have known each other since the time I was in Southern California. We’ve been on panels together, we’ve done events together, we did this webinar with you and he’s had a really meteoric rise in the advertising industry. He then converted that into having a meteoric rise in the advertising investment field.

He started out as CEO and Cofounder of Hawke Media, which still exists. It’s a marketing agency and then he had just about the time that we had done the webinar, he had spun off and done Hawke Ventures and really advanced it into something more than just a couple of investments.

Yeah, he obviously they have a legitimate fund with some great investments and he seems to be on the cutting edge of just about everything regarding advertising and marketing, whether it’s AI, whether it’s the latest trends in MarTech and AdTech. The great thing is he takes his vast skills and relationships in the industry and makes that the main thesis of his investment.

A lot of the companies that come out of whatever niche it is and then move into investing in that niche usually have exposures to a handful of brands or a handful of companies or a handful of software tech and, but Hawke Media’s grown over 4,000 brands worldwide and the company alone is worth more than $150 million. That’s impressive.

If you want to have an investor that knows how to build your AdTech company, he’s the right guy.

Absolutely. Let’s hear from Erik Huberman, Hawke Ventures, and then we’re going to close out and have a discussion about Hawke Ventures in general and our interviews with Erik and Clark.

I’m excited to bring a good friend of mine from many years, Erik Huberman from Hawke Ventures. Erik, how are you doing?

Good, how are you doing?

Introducing Erik Huberman

Awesome. Erik, what I’d like to do first before we jump into what you’re doing in the venture capital space, I’d love to get some of your background of what you did prior because it’s a lot and you have great stories. I want our audience to learn about the genesis of Erik and where you came from.

I won’t go too far back, but I’ll start with just post-college. I went into real estate a week before Lehman Brothers collapsed and the rest of the banking industry. I made $350 that year as a commercial real estate agent. About halfway through, about six months in, I started working on an online music company that I launched in a year in and ran that for two years. It was basically one-on-one business coaching for musicians. It wasn’t made for the music career. I had a bunch of great coaches, big music executives, things like that. I then built that for a couple years, got it to profitability, hired someone to take over and then consecutively built two subscription eCommerce companies. One was a T-shirt company, the next one was activewear brand called Ellie that’s still around.

I sold both of those consecutively and then started consulting and advising for a bunch of big brands and small brands and everything in between. I saw how broken the marketing ecosystem was, so I started Hawke Media, which is a marketing agency, basically outsourced CMO and marketing team to currently about 600 companies, about 300 full-time people.

About a year into it, I was hanging out with a friend of mine that had a media company that we had done some media buying from. He said, “We’re pivoting to eCommerce and we want you to be an investor in our pivot in our company.” I was like, “I spend my time on this risky stuff. I don’t need to put my money into it too.” He said, “I’m not asking you. I’m telling you. It can be a small check but you got to be in here.”

I was like, “All right, fine.” I gave him a small check and that company became a multi-billion-dollar company and I went, “I should not be so stubborn about these investments.” I started angel investing and about 3 or 4 years in, I had made so many angel investments, but we were also doing a lot of sweat equity deals where we would take equity for marketing services into businesses because and I brought in someone to help manage all that.

After about six months he goes, “Your investments are doing really well, but these sweat equity deals, the problem is there’s almost negative buyer selection where those businesses that are willing to give you a chunk of their business to do marketing don’t value their own business. They’re not valuing their own equity. They’ll just give you 10% or 20% of their business to be their marketing partner.”

He is like, “We should stop doing that and just write more checks.” I’m like, “I don’t have unlimited money,” and that’s where the idea of raising a fund came from. We raised our first fund, closed it in 2021. It’s done really well. Our first fund was a $5.6 million fund and then we closed our second fund in February of ‘24, which is a $20 million fund all focused on marketing, technology, commerce, tech, all the tools we use. Yeah, I’ll get more into my views of venture, but that was what kicked us off and it’s done really well. We’ve been in some of the biggest marketing technology companies. Quite a lot of the biggest ones.

Let’s talk about the fund first. Let’s talk about fund thesis. Talk about what you look for in entrepreneurs, where are you investing and some of the trends you’re seeing going forward.

I think it’s important to say I’m also an LP in eight different funds and I have a cashflow business too. I’ve been able to build okay that side and then have a whole family office on the real estate side too. I’m investing in a lot of different things. I actually think venture as an asset class is a pretty terrible asset class.

If you look at even the top decile of returns, they don’t beat a lot of the more stable investment classes. I just saw something, which this is ridiculous, but if you invested in the past 20 years in the top 5 tech companies, you’d have a better return than any venture fund in the world. If you invested in Nvidia and Netflix and Microsoft, but that’s ridiculous.

Good luck picking those 4, 5 stocks 20 years ago. Even the S&P 500, I forgot the average returns of the top decile, but again, they’re not really risk adjusted when you average it out. What you need is a very specific phase of a very specific fund because there are individual funds, I won’t name one but one fund that I’m very familiar with. They have like a 32% IRR in the past 20 years. Private funds are crushing it, but what I’ve seen is there’s two ways to identify those funds. The one is really hard to do upfront, which is are they just brilliant people? It’s really hard to sit in a room and meet with a fund, even if you spend a year with them and go, “These people are brilliant, I’m going to give them money.”

I’ve invested in one fund like that and I did it 3 to 4 years into the relationship with them before I gave them money. They’re brilliant and I’m really confident. I, of course, invested in the worst economic time for venture investing in twenty years. I still think I’m going to have a really good return with those guys. That’s one of them.

The other one is what incredible unfair advantage does this fund have? That can come in a lot of forms back to our fund thesis, we have 600 companies we currently run marketing for. We’re bringing on 30 to 50 new companies every month. We have a database and a relationship with over 5,000 companies. We’ve at some point run marketing for. If I invest in a piece of marketing software, I should be able to be a decent go-to-market partner for them where I can go find a bunch of clients that need their software.

When I say should, that was the original thesis. The answer is we are a good go-to-market partner with most of our investments. Building that strategy where it’s not just about writing a check into a great founder and a great business idea because we are a pre-seed and seed in early stage, but then because we be their unfair advantage.

I joke like I want every competitor of every investment we make to go, “Oh crap.” That’s what I’m looking for. That’s definitely a lens we put on these investments. We’ve passed on deals that are great deals that we go, but we can’t help you. We can’t be an advantage and therefore we can’t push the scales towards us because even with that strategy, you still have a bunch of failures. Starting a business has so many X factors that even if it’s a great founder, great idea, great partners, etc., you still don’t know what’s going to happen in the market.

You still deal with all sorts of things including black swan events. Thankfully, we didn’t, but if we invested in a retail software in late 2019 or early 2020, that would’ve been a bummer, and we did lose one company during COVID that had a hard time the first few months, but it also burned out the CEO that they just never recovered. There are things like that that you have to be careful of. Even with all of that, if you don’t have an advantage beyond that, good luck and then it’s just a lottery ticket. What I heard recently is lottery is a tax on the poor and angel investing’s a tax on the rich. There’s a lot of truth to that.

We try to make it so that even though it’s still a very risky asset class, we really mitigate that by being an incredible partner. Again, other ones I’ve seen in terms of that advantage could be you’ve got one of the GPS, one of the founders of the fund are one of the most successful people in the space they’re investing in. They have not only an insight into what makes these companies successful, but also all the connections and Rolodex and everything that can help those companies.

There’s a lot of ways that can manifest that it’s not just like the platform that Hawke Media has, but they’ve got to have something. When I hear, “We’re a generalist investor investing in gross SaaS and our thesis is to find great entrepreneurs with great ideas that can be vertical SaaS,” it’s like, “You and everybody else. Why?”

Choosing The Right Founders To Invest Into

Obviously, your secret sauce is your background experience in AdTech and MarTech and you obviously can bring the go to market to bear when you make an investment. You mentioned a couple of times founders. Where does the founder play into your decision?

It’s become heavier and heavier. For a long time, we’d test the tool. We’d be like, “This is great, we can use this.” Founder seems great. It was a light like, “Yeah, you seem cool,” but now we’ve realized because it’s happened to us a couple times, the founder is still everything. We used to joke and I still believe this, that you got to invest in the jockey, but I would add on, but you can’t invest in a jockey riding a donkey. That’s part of it.

The founder side, the thing I’ve found is like there is a very high chance the original idea for the company’s not going to work completely. The original strategy’s not going to work. There’s going to be headwinds, there’s going to be stress, there’s going to be near failure, they’re going to have existential crisis. You need to have a founder that’s resilient that’s going to push that isn’t going to give up.

When I say give up, I don’t just mean actually quit, but a lot of people just take their foot off the gas and burn out. You need someone that’s going to really want with all of their being wants to will this into existence and into success. You have to make sure that their ambition is high. One of the best piece of advice I got, you probably know Paige Craig.

I’ll give him credit for this because he was advising when we started our fund. He said something that stuck with me forever, which is you have to invest in the ambition of the founder. That goes back to why the sweat equity deals at Hawke didn’t work. That goes to something we have to look at. It is like, where do you want this to go? If they’re like, “If I can get this to $2 million in revenue and just let it maintain, we’re all golden.” I’m like, “Not at a $15 million valuation pre-seed. What the fuck are you talking about?”

It’s really important to understand what are they trying to do, where do they see this going? You want it to be almost unrealistic what their ambition is. They’re pushing for something great, not just like, “Yeah, we’ll grow incrementally every year, like 30% a year.” That’s not what you want to invest in because you know you’re going to aim for the stars and hit the moon. If you’re aiming for the other side of the desk, it’s going to be a bad situation.

How AI Affects Investment Decisions

You’ve been involved in AI before it got really popular and obviously, you’ve documented that many times. Share a little bit about how AI is playing in terms of your investment decisions or your due diligence and maybe how AI is playing into the rest of the company post-investment and your own company.

For the first question, I look at AI like you would look at the internet. We made one investment into an AI company, but it’s more how is your company going to live in a world with AI? Every company needs to be using AI. Not over the top yet, but it’s like if you’re a company right now without a website, what are you doing? I’m not saying you have to to survive, but it’d be dumb not to. That’s how we look at it is how they’re incorporating AI into what they’re doing. Is there still a solution? I’m being very careful to invest in AI specifically like the AI agent side of things, etc., because it’s so crowded.

Picking a winner is where you run into trouble there. Not saying that that technology isn’t going to go somewhere, but there’s a 5,000 people building the same company. That’s an understatement. Not sure if that like where the winner’s going to be. Honestly, sometimes sitting that one out is okay. We’re not a A16z where we can write literally 200 checks into what we think one of them will win and pay the rest. That’s not the fund we’ve built. They’re going to lose on all those other ones.

It’s an interesting strategy. I haven’t looked at their returns, but that’s one of them in terms of how it affects my business, thankfully I was on the board of a nonprofit called XPRIZE on the advisory board many years ago. I was talking to Peter Diamandis who started XPRIZE. He introduced me to Ray Kurzweil and all his predictions, which in 2013, he predicted that by the beginning of 2023, we’d have computers mimicking artificial intelligence. It would feel like artificial intelligence.

I believe ChatGPT 3 came out in November of ‘22. He was off by 2 months on a 10-year prediction. I don’t think we can hold that against him. I heard that and understood exactly what he was saying, now in hindsight to be clear, that it was like, “I get how that affects the world and what that will look like.” He was very articulate on what he thought was coming and I understood it and understood the implications of that. I say that not because I would’ve said that back then, but now that it’s all happened, I’m like, “This is exactly what we thought was coming.”

With that, we started building our own AI system. Basically, the idea was I’m not going to build the actual AI. There was already IBM Watson. I knew that it was going to be a multi-billion-dollar tech company that ended up seeding AI. I wanted to build what I had that would be in a strategic advantage in that world. The same idea as if you told me in 1975 or 1980 that you know what the internet would look like and I believed you and it was actually accurate. What would I do to my business in 1980?

It’s like you’re not going to do that much, but you’re going to start playing some games. You’re going to start building out certain aspects. What we did was our proprietary data is going to be the big winner here because if we can be the one to teach AI what good marketing looks like better than anyone else, that’s where we’re going to win.

We started digesting more and more marketing data. We got contracts with all our clients, prospects, partners to download data. Now we have 6,000 companies marketing media and revenue data running through our pipes anonymously in real time. We plugged in some algorithms to look at. If we plug in an individual company what’s working, what’s not, where are their opportunities, like their click through rate on these campaigns on Instagram or 20% below market, which means this and this. Here’s the things you need to do to fix it, but here’s where you’re outperforming. You might want to double down here and here.

It’s already that this is all built so sure now you can plug in your company you, and it’s called Hawke.AI. You can plug in your company, look at all those things and then immediately see, “Here’s where my opportunities are, here’s where I need to focus, here’s the low hanging fruit.” We even quantify the numbers. If you got this to par, to average, this is how much money you would unlock.”

If you’re underperforming in certain areas, we can tell you if you even perform an average, this is how much that’s worth to you. That being said, that’s where it is now. Right now, we’re playing with the user interface, making it easier to read, easier to digest that stuff while we wait for AI to get to the point where we can plug AI in and it can just make those changes. Instead of telling you your copy on this headline is causing you to have a lower click-through rate, it’s like, “This is this way because of this, this is what we think you should change it to. Do you want us to change it?” “Yes.” “Got it.”

Is that platform also helping you in terms of due diligence of companies you’re looking at? Can you plug that into and determine now we have a quantifiable way to determine how we can be helpful this company?

Yes and no because the way we’re helpful to our investments is not doing their marketing. We do that too, but it’s the strategic partnership. The better due diligence we do, frankly, is we go use the product on our clients and see if we like it and the team likes it. That’s more important. We do partner with a lot of private equity funds because you need enough data to then be able to benchmark that data and say, “This is what you’re doing wrong.”

When I say enough data, it can be an early-stage company that’s just started marketing, but they have to be in market. They have to have some data there because. A lot of the software companies we’re investing in are not running. It’s the performance marketing tool really, the tool we built, and performance marketing. When you’re talking about a pre-seed software company, they probably haven’t done that much performance marketing yet. It’s not going to be that big of a factor, but for consumer brands for and for any later stage company, it’s a huge factor. Using it in partnership with a lot of the bigger private equity funds has been something we do a lot of.

Hawke Ventures’ Biggest Success Stories

You alluded to some of the great success you had in Fund 1 and Fund 2. Can you shout out any of your success stories that you’ve added in Fund 1 and Fund 2?

Yeah. Postscript has been our best winner. We invested in their pre-seed round and now they’re in the number one SMS marketing tool probably in the world. They’re crushing it. I don’t know what I’m allowed to share, but I got their annual report and I cannot believe how well they’re doing. Name a metric and it’s exceeding everything I’ve seen. That’s now. That’s years into that business. That one deal is triple our first fund at least. That’s a great one.

Sidecar has been another good one. Superfiliate’s another good one. Instreamatic is a really fun one, which is like voice advertising and a lot of interesting really advanced marketing strategies. The most recent one, I don’t know if they’ve announced yet, so I can’t say, but I can say that we have a portfolio company in our second fund that is about to close or has closed the largest Series A in history.

Congratulations.

Thank you. We were in their pre-pre-seed. They’re like friends and family, “Do you want to throw some money into this? I have this idea.” I knew the founder very well. We had a company together. We were a partner on his last company and we threw some money in. I would say at the time, it was a hare-brained idea, but it was one of those that was a jockey bet that was like, “If this works, it’s massive and you’re the one that could make it work, so let’s see what happens.” Now it’s working. They did it. There’s still a long way to go, but they really pulled out. A lot of the hard parts are done. Yeah, we’ve got a lot of good ones because thankfully we know the space.

When we see something, we can be so quick to be like, “That’s not interesting.” Right now, just being transparent, we are looking for AI optimization tools because AI’s replacing search pretty quickly. Now instead of SEO, you need AIEO or whatever they’re calling it. It’s like, “Someone’s going to have a tool that people are going to want to use for this. Who’s building a good tool in it?” That’s been one.

Retail media’s really on the uprise. We’re looking at some retail media partners and what we can do there. I do like physical still, we are looking at businesses that help with like CPG rollouts in store and things like that. We’re always looking at like where are the pain points of our clients and who is solving those and can we back them bringing them a bunch of clients and go from there.

Hawke Ventures’ Limited Partners And Investors

Let’s talk to potential LPs for a couple minutes. First of all, maybe share a little bit about the makeup of the LPs that you have currently.

Yeah, so our anchor is Bank of California, which was their first and only venture investment when they passed what’s called the Volcker Rule, which allows a bank to invest directly into a fund. We had a relationship with them and liked them. We literally just happened to have a lunch with them the day we finished the deck for Fund 2. We were just talking about partnering in general, like, “How can we send business to each other? We should switch our banking over and all these things,” and we did.

They’ve been great partners. They went, “What’s your most important priority right now?” Again, it was the day I finished the deck, so I was like, “Honestly, it’s to raise this fund.” It turned into a full conversation with them anchoring it. Other than them, some high net worth individuals and family offices that we know in the area and relationships that we’ve had. It’s a lot of people from our space. Founders of eComm companies that sold and exited, agency owners strategic lps, honestly, in a lot of ways that come from the space and understand what we’re doing. It’s also my relationships in that sense.

Now, to potential lps. My understanding is you have another fund that you’re going to be launching soon, so why your fund? Why now?

It’s funny, I’d say you want to have exposure to the venture side of things for that higher reward. You don’t want the exposure to that risk. You want the higher reward and if not, you’re going to have a hard time beating the S&P 500 if you’re pointing with alts and not taking some risk in certain things. It’s about finding where can I get the high reward with mitigating the downside risk that cause me to lose everything because that’s really the downside of going into venture. To me, it’s not investing in the venture index funds because then you’re just, you might as well be in the S&P 500 from what they’ve performed at. It’s finding partners that have an unfair advantage on the upside, but also can mitigate the downside of exploring venture.

For us, we can lead rounds not because we just have conviction or because we have money a big enough check to be the leader, which is what most funds sit on. It’s because we don’t really care if another fund likes a deal or not. We’re going to go try it, use it, and there are very few companies in the world that have the insight we do into these tools and where they’re needed and where they’re not and when it’s not an issue.

We’re able to do that in a way that again, we’re going to have a lot less losers and it allows us to be open for those winners. You get a lot more at bats in that way because you don’t end up with something that you’re like, “That never worked out. Oops.” It’s like we do enough diligence that we’re pretty confident there’s going to be a market for it. How big that market is, we can try to anticipate and we can posture all we want and just like anyone else, but we at least can check the box that most funds can’t on is this something that people are going to actually use, which is really hard to do.

Advantage Of A Large GP Contribution

I appreciate that perspective. Anything else you want to share with our readers?

The nice thing is we also have a large GP contribution. Back to the whole thing is like, again, I don’t necessarily like the venture asset class if you’re just talking about it broadly, and we’ve now proven it out. We have this thesis years ago that now has proven. It turns out if you have an advantage like this, there’s so much that we built out in this ecosystem now that it’s not only just we know how to invest in a company because we try it and test it and use it.

We can then onboard a bunch of clients and really get them to market quickly. We’ve also now built such an ecosystem that if we invest in a piece of marketing tech, we also bring them into that ecosystem where it’s like if you’re now the go-to, let’s take Postscript, they’re the go-to SMS partner. We already have a relationship with Shopify, with Klaviyo, with all these other MarTech companies that now they’re the go-to partner for that.

We’re not their only partner. We introduced them to everyone else. Now they’re all feeding each other and it becomes this really this moat. You’re either on the inside or outside in that ecosystem, the Shopify ecosystem and if you build the next SMS partner, but everyone already likes Postscript because we put our stamp on it and then everyone else does. That becomes another interesting moat that’s been really powerful for us that we really invest in, frankly.

Episode Wrap-up And Closing Words

Obviously, you’re all over the media and all over social media, but for those who don’t have access or are too lazy to find out, where can they learn more about you and Hawke Ventures?

HawkeVentures.com. That’s easy for the venture side. Me, I’m just @ErikHuberman or Erik Huberman on any social, so pick your poison. I’m pretty easy to find.

Fantastic. Erik, thanks for being on the show. I appreciate it.

Absolutely.

—

I really enjoyed this one probably because it’s my area. MarTech and AdTech is an interest area for me, but they’re experienced in it and the fact that they stress what I call market proof, that is so big. You were just mentioning to me before the common thread between the two.

They both have vast experience in advertising and MarTech and they can take that dual expertise and not only use that to pick very good companies to invest in, but really add value add before and after the investment. A lot of times Clark and Erik tested the product with their clients and in their agency and if it looks like it’s going to be a great opportunity for their clients, it’s probably going to be a good opportunity for their fund.

I think so much of what I don’t see happen at a lot of startups and the early-stage investments especially is that they don’t get hooked in with enough testing clients. They don’t get a real-world view of is this going to work? They get 1 or 2 people in and they’ve got their beta or they get a bunch of free users in, but they don’t really aren’t putting in into practical application to say, “This thing can make money if we sell it for this amount of money.”

One of the things that entrepreneurs get asked a lot is, do you have product market fit? They have a built-in mechanism to determine product market fit. I think it really lends another essence, another avenue to really help these companies succeed and really help them make good choices.

I think also it helps them recognize very quickly when they know something’s going to fill a gap that they’ve had. When you’ve got 4,000 clients, you’re bound to see some patterns of gaps.

The reality is, in those gaps, they’re constantly filling through either acquisitions of companies or investments in companies or using the applications of these companies. I think they have continually evolved with the industry and that evolution has allowed them to really get in front of some of the top AdTech and MarTech companies that are out there.

It was really interesting also, when you get to interview the two partners, which I think we don’t always get to do, I know most of the people, we talked to the principal, but they have other partners, but we don’t get to talk to them. What did you think of the two of them in terms of how they work together?

I think obviously they come from similar backgrounds, but they have different journeys. I think Clark spent a lot of time more on the investment side and less on the advertising side of, although he does have experience there, but Erik has been the consummate, grinding entrepreneur. When he is not skiing or running a marathon or a triathlon or any of the myriad of different things he’s doing, he is fully engaged in the business and fully engaged in the investments they take advantage of.

I think that’s one of the things that I see Hawke Ventures do so well and obviously because of Erik is his experience in that publicity side of things is they do a much better job of bringing visibility to their fund and to their investments where we don’t get that a lot in other investment firms.

They have a built-in engine to not only market themselves, market their clients and that same engine markets their portfolio companies.

I look forward to seeing even more of what they do because I think this is such a really volatile area right now where so much is changing and investment dollars are going down. You really have to maximize and use your MarTech, your AdTech, whatever it is. Their client base has to use it to its best ability right now. I think this is a real big challenging time for the industry and I think they’re way on the edge of it.

It is. I think they’re leading the way. They seem to be in front of the curve almost all the time.

Hawke Ventures so amazing. Clark Landry, Erik Huberman, we’re going to have even more people on different segments, but I think we got to follow up with these guys and see where the market is in a year.

Absolutely. They’re a news and a PR machine I plan to talk about.

Important Links

• Hawke Media
• Hawke Ventures
• Erik Huberman
• Erik Huberman on Instagram
• Erik Huberman on LinkedIn