Investing In Dirty, Dull, And Dangerous Startups With Matt Olivo Of C2 Ventures

C2 Ventures has an interesting investment strategy many may never have heard before: focusing on dirty, dull, and dangerous startups. Scott Kelly chats with their General Partner Matt Olivo, who discusses the benefits of targeting these overlooked and underserved markets. He explains their investments in early-stage SaaS and robotic companies, highlighting the importance of using AI as an engine rather than as the product itself. Matt also discusses how they maintain a disciplined approach to evaluation, even during market bubbles, to continue generating outperforming returns.

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Investing In Dirty, Dull, And Dangerous Startups With Matt Olivo Of C2 Ventures

I had a great interview with Matt Olivo, the founder of C2 Ventures. He had an interesting thesis that we hadn’t heard before. He discusses their investment strategy, focusing on dirty, dull, and dangerous startups. It targets overlooked and underserved markets in fundamental industries like manufacturing and healthcare.

He explains that these companies solve obvious problems with a clear and immediate ROI for customers, often led by founders who experienced the problem firsthand. He invests in early-stage SaaS and robotics companies, emphasizing true autonomy in robotics with the discrete use cases and viewing AI as an engine or a feature rather than the product itself, vastly different than what you’re hearing in the press lately.

They maintain a disciplined approach to valuations, even during market bubbles, to ensure the power law model works for generating outperforming returns. Matt also highlighted the challenges emerging managers face in securing institutional investment and emphasized the value proposition of smaller focus funds, which we’re going to learn more about in this episode than we’ve learned in other episodes. Give this interview with Matt from C2 Ventures a read. I’ll be back with my takes.

I’m excited to introduce Matt Olivo of C2 Ventures. Matt, welcome to the show.

Thanks for having me, Scott.

How Matt Olivo Founded C2 Ventures

Matt, before we get into C2 Ventures, maybe share a little about your background prior to launching the fund.

I was actually on traditional Wall Street for close to twenty years. I was a banker for twelve-ish, and then I was at a hedge fund for a few years. I was a private company CFO after that.

What’s the genesis of the fund? Maybe share about the thesis, why you set up the fund. Share a little bit more about where you’re investing and how you’re investing.

My partner, Chris, and I were personal friends going back to 2015 or so. We were chatting one day. I was looking for something else to do from the role I was in at the time. He had done some Angel investing, had done pretty well with it, and was kicking around the idea of starting a fund. I volunteered to help him out with as I had done that structuring stuff in the past. One thing led to another. We decided that we had similar views on the world and ideas of how to run one of these things. The next thing you know, we were launching our first fund at the end of 2019.

Benefits Of Investing In Dirty, Dull, And Dangerous Startups

A little bit of homework, you say that you invest in dirty, dull, and dangerous startups. Tell me a little bit more about that.

It’s less the startups themselves. They’re SaaS and robotics, but it’s the underlying customer base there. When we launched our initial fund, this was one of two different focus areas that we had. We quickly realized that this particular focus area was where the real opportunity was. We made a couple of investments elsewhere, but since those first couple, it has been all the dirty, dull, and dangerous. The idea here is a couple of things. One is that America has had slowing productivity growth for quite a while. We’re probably ten or fifteen years in at this point.

We had done some research on this. It seemed to us that this was largely due to being underinvested in tech assets and in software in particular, to the extent that any of these big industries had dipped their toe in the software water, they had done it back in the ’90s. Maybe it was early apps. In a lot of cases, it was internally built things, but software that hadn’t been upgraded since then. A lot of stuff is still even on-prem, not on cloud, etc. With robotics, which has been around a while, in terms of it being sophisticated enough to have real practical applications, we saw that as another opportunity for these folks.

The other things that appealed to us are about the strategy. One is that these are products that sell themselves in a sense. I make that sound a lot easier than it actually is, but the idea being that, unlike a lot of admittedly cool new tech, that’s hard to sell because you have to convince people they need the product to begin with. You can convince them that yours is the version of the product that they now think they need. These are all situations where it’s a very obvious problem. It’s clear, obvious, and immediate ROI for the customer.

In most cases, at least 80%-plus of the companies we’ve invested in, it’s a founder who lived the problem, kept looking for solutions, and finally got fed up with it and said, “I’ll just build one myself.” It is great for any number of reasons. The other, which I’m happy to get into, too, I don’t want to go too long on it. It is a considerably easier sales process. One of our LPs said to me that a lot of these folks will go out and build the world’s greatest hammer and then go looking for nails. We like to see it go the other direction, where somebody is so fed up with, “Can someone please give me a tool to hammer these nails in?” They’re not there, so they go build the hammer.

Two other things on that. The other thing that’s nice is these are not fly-by-night. This isn’t Web3 or some of these other fad sectors that popped up out of nowhere. These are gigantic industries. They’re fundamental to the US and global economies. They’re not going anywhere. Even in the most severe of economic downturns, manufacturing doesn’t die. People still need healthcare services, etc. Last thing I’ll say, too, is that we’re starting to see a bunch of other people throwing out similar taglines. “We invest in boring industries.” Over the last few months, we’ve seen a lot more of it.

It’s still a very overlooked market or under-invested market from a VC standpoint. We’re not having to fight with ten other people over every new deal, and along those same lines, because of where these underlying customer segments are located geographically. They’re a lot more in the middle of the country, in the South, the Midwest, etc. It’s not quite the same feeding frenzy that you get on the coast as well.

How Robotics Is Transforming Different Industries

You mentioned robotics. Where do you see robotics having the biggest impact? What kind of industries are you seeing the trends in where robotics is game-changing?

It’s interesting. The obvious one is manufacturing. Robotics has probably been around the longest there. With respect to manufacturing, it’s less about robotics being new to them. It’s more about the applications that are becoming. There are more things that are being automated. With the applications and robotics, what they’re able to do effectively and what they’re able to do autonomously have increased dramatically. That’s certainly one area. A lot of the other areas are less about industry. It’s more about a specific application.

We’ve probably got seven robotics companies out of 60 or so in total across all of our funds so far. We would do more of them, but every VC passes on considerably more deals than they invest in. With robotics, by necessity, we have to be more selective there because, as sophisticated as robotics has become, it still has a lot of limitations. What we’ve found to be the most interesting to us and the most effective in the market, at least from what we’ve observed, are very discreet use cases where you minimize as much as possible the edge cases.

I’ll give you one example. We have a company called Somatic. By the way, if you google Somatic Robot, they have a bunch of cool YouTube videos that will pop up. These are fully autonomous bathroom cleaning robots for commercial use, so office buildings, hospitals, big manufacturing facilities, airports, etc. What we really liked about the company and frankly about the founders, because they were very deliberate about this application, before they started Somatic, they had tried a last-mile delivery thing. It was difficult to do. They were probably too early at that point in time because we invested in this company in 2020. This was back in the mid-teens when they had done that original.

This is true for the vast majority of robotics applications. There’s a lot of fear out there that they’re taking jobs. They’re actually not taking jobs that people want, or people are in. They’re filling job openings. These are jobs that no one wants to the extent that you hire people, there’s unsustainably high turnover, etc. Cleaning was an obvious one, as far as that goes. Why they focused on bathrooms was because there were far fewer edge cases.

If you think about it, everything is nailed down. Nothing moves in a bathroom. Everything is attached. Toilets, sinks, stall doors, and that sort of thing, there is some variance, but there are three different ways that a stall door opens. Their toilets all more or less look and operate the same, etc. Frankly, having lived through that process, we inherently knew that this was true. It’s been reinforced many times over based on how many edge cases they had to deal with in something as discreet as that.

If you think about the difference between that and even vacuuming a conference room, all conference rooms are laid out differently. Tables are very different. Chairs might move from day to day. People leave things on the floor. I went a little long on that one, but the idea is that when you’re talking about true autonomy, there are a lot of robotics products out there that dance around the fact that there’s a human actually operating them still. If you want to look at true autonomy at this point in time, at least, sure, it will evolve over time. It’s sticking to these cases where you’re going to have minimal human intervention.

How AI Impacts the Investments To SaaS Companies

You also mentioned SaaS. Where is AI playing in how you look at SaaS companies to invest in, and maybe even how you do your due diligence?

A slightly different take than maybe a lot of folks do on the AI side of things, where no question, we are in full agreement with everyone on the power of the product. We’ve had companies even before the language-based, the generative AI, the more data predictive stuff that’s been around for a while, that people will alternatively call machine learning. We’ve had companies utilizing that for years. As far as the language-based stuff goes, two things on that. One is that to the extent that there is a reason to use it, every company in our portfolio is currently using it.

We do have some companies that are newer whose products wouldn’t be able to exist. They’re taking the power of that technology and actually creating a product that you couldn’t do before. I will give you two examples again quickly. One, we have a company called BriefCatch that’s in the legal tech space. They use AI to improve legal writing language. A founder is one of the guys who would go to law firms and do seminars on effective legal writing and things like that. He has this huge database that he started with of some of the best-written legal briefs when it came to.

They started it with litigation and opinions by Supreme Court justices. He had a whole scoring system for the effectiveness of their writing. The original product there was as you’re drafting a document, you could either ask it questions, or it would occasionally jump in and proactively say, “This language for this particular argument you’re making would be more effective.” They’ll show you the source, a Supreme Court decision by a justice or whoever in the past. They’ve expanded that to where it can do more drafting from scratch and that sort of thing.

The other one I’ll mention quickly is a company called Digital Iron. They actually use the generative AI tech through a natural language interface to automate the diagnostic work for heavy machinery maintenance. If you think about the giant cranes that you see all over cities, new high-rise buildings, that type of equipment, the dealer who sold the equipment or is leasing it is typically the one responsible for maintenance. The manuals for these things are thousands and thousands of pages. You’ll input what the user says is happening or what’s not working.

It will instantaneously read through the manuals and pull out the diagnosis of the issue. It will take it a step further, automatically go out, and identify the parts that need to be replaced and the maintenance that needs to be done. It will actually go out and find options for part replacements with delivery times, costs, and that sort of thing, and automatically communicate that to the user. Back to your question, though, we see AI in pretty much every product we have. Where we differ from the market is that we don’t see AI as the product. We see it as the engine behind the product, or even, in some cases, maybe it’s just a feature of a product.

That’s an important distinction because a lot of these big and heavily funded agentic AI platforms, where they’ll say that we can do anything for any industry, my view on that is that that means they can’t do anything for any industry. It’s something that you have to have an internal tech team that needs to be able to spend months customizing it for their particular applications. If they don’t do it well, no one is going to use it. The thing that gets lost here is that the person actually using any B2B SaaS product is, by definition, non-technical.

There are exceptions, but I’m talking about the overwhelming majority of them that have zero interest in having to learn something complicated. Even simple SaaS stuff like pre-AI in some of these products, it has to be able to do the function that’s advertised. A more important thing is that the UI is simple and intuitive. Even more importantly, and this is one of the advantages of having people from the industry, it needs to be effective, to sell effectively, and to have high retention rates with the software.

The workflow needs to mirror what the user does on a day-to-day basis anyway, so that you can seamlessly fit it into what they’re already doing. That’s our thing. AI has to sit within software. We find that it’s most effective, will sell most effectively, and have the highest retention rates if it is already built off the shelf to solve a specific problem or a set of problems.

C2 Ventures Invest In Early-Stage Companies

In terms of current investing in the fund, at what stage do you invest? Do you lead rounds? What’s the average check size?

We’re at the tail end of our second main seed fund. That’s pretty early stage. We will lead rounds there whenever we can do it. That’s a smaller fund because we’re only two funds in. In this market, you’ve got to build up a bit more slowly than you might have in the past. That’s a $21 million fund. Our initial checks are in the half-million ballpark. We can double up there with follow-on for those companies that we choose to follow on with. Out of the nineteen companies we have so far in that fund, we have probably led six or seven of those deals.

There were a couple of instances when a founder wanted us to lead, but there were other VCs interested. Let’s say it was a $2.5 million round. We’re in for $500,000. There are VCs coming in at $1 million or $1 million and change. I had to actually tell a couple of founders, “You’re not doing yourself a service. I love the fact that you want us to lead. We would love to lead, but you’re probably going to lose a couple of these bigger checks because the VCs tend to bristle at the idea of somebody smaller than them and around leading.”

I said, “If you want us to lead, we’re happy to do it, but you’re probably better off with the other.” We would love to lead all the rounds. We’re out in the market right now and hoping to close within the next couple of months or at least the first close of our third fund there. We’re aiming to do at least $50 million on that fund. The strategy scales up to $100 million without us having to change the strategy or to change the profile, the investment dynamics, the valuations, and that sort of thing. I’m happy to get into more of that.

Every time I see somebody announce a $250 million seed fund, it kills me because you’re either wildly overpaying for things, you’re not really a seed fund, or you do so much follow-on that you’re effectively an A fund that occasionally dabbles in seed. That’s where we currently sit. Last thing I’ll add is we also launched a pre-seed fund that we call our tributary fund. We’ve filled up our first one. We’ve launched, and under initial close on our second one there.

The idea there is to do deals that are a shade too early, where we’ll do a single $100,000 check there, and the idea being that your follow-on would come from the main fund. That has actually been great. Our initial tributary fund, we did 21 investments. Some of these are new, but of the older ones, we’ve already had five of them that we’ve now invested in out of our main fund. It has been working pretty well there.

How C2 Ventures Is Planning To Grow Its Funds

Talk about the makeup of the LPs that have been in the first two funds and the pre-seed fund. Who are these investors? Not by name, but by where they fall in the ecosystem.

In our first fund, we had two or three larger family office types. The rest were all individuals, folks that we knew personally or knew from the industry. By the way, these are heroic people whom I almost questioned their sanity. If I look back now at what they were buying into, it’s like, “You guys are amazing. You’re crazy. I can’t believe you gave us money based on how little you knew at the time.” That was that fund.

In our second fund, we probably had 60% to 70% of our LPs from our first fund re-up. That would have been the couple of family offices, plus most of the individuals. We added our first institutional investor in that second fund as well. I’ll get into the institutional space in a second, and how hard that is for emerging managers. The state of Connecticut’s innovation fund came in for about 10% of our second fund.

As far as the third fund, to get to $50 million realistically, it’s going to have to be mostly family offices. We’ll see about institutionals, but we’ve had folks that we’ve been talking to on the institutional side from Fund One, frankly. Fund One was definitely going to be too early. Even Fund Two, we thought we might catch a couple more of them, but wanted to wait to see more traction, etc. It is the artful way of saying they want to see big exits.

The third fund, given the traction and given what you can see, at least in the performance of the first two portfolios so far, even before we’ve had a huge exit and a couple of smaller ones, but nothing like returning half or the whole of the fund yet, we would have thought that we might get a little bit more, but it seems it has gotten harder and harder. Progressively, frankly, from 2019 and maybe even a little before that, to get institutional money into what they would call unproven managers or emerging managers, it seems like that part of the market has gone entirely into much bigger, big-name managers, larger funds, etc.

We can get into it. We’re not going to do it. I don’t think that’s going to serve them very well from a performance standpoint, given some of the crazy valuation reach and FOMO investing that has gone on in those bigger funds, but it is what it is. This third fund will probably be largely family offices. Where we’ve seen the strategy in particular resonate a lot, though, which has been great, is families that made their money in these dirty, dull, and dangerous sectors. As you can imagine, our particular thesis resonates tremendously with them because they’ve lived those inefficiencies. In a lot of cases, they still are. They still might have substantial shares in those legacy businesses.

Why Choose C2 Ventures Right Now

I’m glad you honed in on the emerging managers versus some of these mega-funds. The whole genesis of this show is, in a field of 3,000-plus venture capital funds, a very small swath of large VCs gets a large amount of the LP money. As you mentioned, they’re not getting better returns. They’re not getting better performance from that standpoint. For potential investors who are reading this episode, whether it be family offices, funds to funds, high net worth individuals, why your fund, why C2 Ventures, and why now?

By the way, you can add yourself to the list of heroes for putting a spotlight on the intrepid emerging managers here. If you ask me, that’s where the value is in venture and always has been, frankly. All of these giant mega-fund folks, when they were building great track records, and don’t get me wrong, they did a great job of it, they were doing what we do now with these smaller funds. With some exceptions, I would shout out Union Square Ventures, for example. I don’t think they’ve ever raised a fund of over $150 million. They get it, but these are folks who can’t resist the money, the management fees, whatever.

I think you’re distorting the model to a point where I can’t honestly see how the math works. We have a monthly newsletter if people want to check it out. It’s on Substack. It’s called In the Trenches. I’m writing and laying out the math of why the model works for early stage, and it doesn’t work for later stage. The idea that being the best companies that care about valuation is insane for a professional manager. It doesn’t matter. You could be in all the best companies, but if you pay too much for them, you’re still not going to have returns like that.

You can absolutely overpay. That’s for sure.

Why us? Why now? The thesis would definitely be one of those pillars. There was actually a point in time. Probably you and every emerging manager have the wake up at 2:00 AM and go into the existential dread thing. One of my intrusive thoughts on one of those nights a few years ago was, “What if all the problems get solved and we run out of applications?” My reaction is what you said. No, that will never happen. There will always be more problems. There will always be better software, that whole thing. From that standpoint, there’s so much opportunity.

As I said, these are the products that are such obvious use cases and such clear and immediate ROI to customers that they’re always going to sell. That’s part of it. Certainly, at this point, anybody who wants to do a little bit of legwork and look at the companies that we’ve invested in and how they’ve fared so far. Our oldest investments from our first fund are now at the six-year mark. Folks are poking around looking for acquisitions, but our second fund, we made our most recent investment in that one.

It’s still early, but you can still see how we select and how we stay focused on that thesis and not just the dirty, dull, and dangerous, the high-level part. We focused on narrowing that down to the companies that are solving the biggest problems, that have the most immediate ROI to customers, and folks who know the industries inside and out. They understand the day-to-day user, have connections in the market, etc., and can walk into a meeting and anybody in the industry with instant credibility.

It is as opposed to the stereotypical twenty-year-old who dropped out of college to go build his awesome new tech company, which works for some types of products clearly. You could rattle off a bunch of names. For this type of B2B SaaS thing, that profile doesn’t work. Our focus is on that. To bring the valuation thing back up again, you can go look at the prices we’ve paid. Even through ’21, ’22, crazy bubble periods, we were paying maybe $13 million post monies on average for these companies. It’s staying true to what makes that power law model work, that big upside that you’re looking for, that you need to generate outperformance.

I was writing stuff about this. It’s funny. I’ve called multiple bubbles in my career, going back to when I was in traditional finance. I’m always a year early. We’re in an AI bubble. There’s probably another year to go on that, too. It’s funny. I was talking to a prospective LP about this. I was saying, “We’re not saying that we didn’t chase things in 2021. We’re writing about these. Is anybody else seeing this? How are we the only ones seeing this thing?” They asked me for the link. I went back and looked. It was actually in January of ’21. The bubble is probably two or three X from that point. I would say that adherence to being disciplined.

This is an incredibly high-risk space to invest in, to begin with. You don’t need to compound that by overpaying for things, by chasing companies that are outside of your core focus, that kind of thing. It’s funny to probably hear a VC say this, but we think a lot about minimizing risk here. We try to stay away from binary outcome-type things where you have a company that, if five things go right, it’s definitely going to take off. If one of them goes wrong, they’re out of business in six months. There are so many good opportunities out there. There’s no need to take on even more risk than you actually need to take on.

The Rise Of The Next Google

You mentioned a year away. I was a banker and entrepreneur during the dot-com boom in San Francisco. This has the feel of 1998. I would agree with your thesis that things will get interesting in a year from now and maybe not in a good way. Any final thoughts you want to share with our readers?

I could talk about the bubble thing. It’s interesting. ’98 for sure. I agree with that comparison. I started at my first banking job in ’99. With a year and a change to go on that bubble definitely has a lot of resemblance. I think that is an underappreciated risk. If you go a few years past that, what happened to search? If you look at early search, it was GeoCities, Lycos, and Yahoo. I don’t know if you can google it or try to find it. There’s a cool YouTube video that somebody put together where they’re showing the leaders in search by year.

You see it by quarter. You see it going up and down and up and down. All of a sudden, there’s Google at the bottom. It comes up and up and up. We run a very high risk of that happening with the LLM models, where somebody comes out with some brand new way to build these things and maintain them that is significantly more capital efficient. I’ve said this to people before. They say, “What is it?” I’m like, “That’s the point. I have no idea.” It’s going to come out.

No one knew what Google was. Google came out of left field with a brand new algorithm that was so much better than what was out there and ate everybody’s lunch within a couple of years. You’re at serious risk of that happening. Frankly, I’m getting to the point now where I think it’s going to happen because the amount of money it takes to build and maintain these things is unsustainable. Companies can’t keep burning billions of dollars a year. At some point, you run out of money.

Get In Touch With Matt And C2 Ventures

I find the theory of spending trillions of dollars to make billions isn’t good math. Where can people learn more about C2 Ventures, get in contact with you, and even sign up for your Substack?

As I said, C2V In the Trenches is the Substack. I love to have people check that out. Our website is C2Ventures.co. LinkedIn and whatever, we’re on that. You’ll see a lot of our company news. We’ll have summaries of newsletters. Our thoughts on various things pop up there from time to time. Please reach out to us through any of those mediums. I love to talk to any and all founders and potential LPs.

For those reading, I encourage you to like, comment, and share this show. Again, Matt, thanks for being on the show. I appreciate it.

Thanks for having me, Scott.

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Episode Wrap-up And Closing Words

Welcome back. As we learned during the interview with Matt, he is focusing on these dirty, dull, and dangerous industries. The great thing is that they’re underserved by traditional VCs and the larger VCs. It gives them less competition for deals and potentially much better valuations. As we discussed during the interview, he has a clear ROI and founder expertise. They’re founded by investors and individuals with deep industry knowledge.

He has a disciplined approach to valuation, making sure that even during market bubbles, this approach to valuation helps ensure better potential for more significant upside returns. It was interesting. He mentioned the emerging manager landscape. Honestly, as you know, if you read my show before, the whole thesis of this show is casting a light on these emerging managers, these smaller funds that are better positioned for better returns and generate better value for venture capital compared to larger mega-funds that may overpay for investments.

One thing that resonated throughout the interview was his investment thesis. It particularly resonates with family offices that made their money in these traditional industries and understand the efficiency. He’s taking these dirty, dull, and dangerous businesses, buying them at great prices, and bringing investors who understand dirty, dull, and dangerous businesses. If you’re looking for something a little dirty, a little dangerous, and maybe a little dull, and want to make some great returns, take a look at what Matt’s doing at C2. We’ve got plenty more great emerging managers like Matt coming up. I encourage you to like, follow, share, and tell your friends to read in. Thanks again. We’ll see you soon.

Important Links

• C2 Ventures
• Matt Olivo on LinkedIn
• Somatic
• BriefCatch
• Digital Iron
• In the Trenches
• C2 Ventures on LinkedIn