Helping Audacious Entrepreneurs Create Social Impact with Faith-Driven Investing

[00:00:06.540] – Marshall Smith

And welcome to the Ventures in WealthTech podcast. I’m your host, Marshall Smith, with First Rate Ventures. Very excited to have on with me as a guest today. Wes Lyons with Eagle Ventures. Welcome to the show.

[00:00:18.790] – Wes Lyons

Thanks so much for having me, Marshall.

[00:00:21.940] – Marshall Smith

Well, let’s jump right into it. So I like to dig up some background, go hire the CIA private investigators to understand all my guests on the show. And the first thing that I identified on my extensive LinkedIn report that I’m looking at here is that you spent some time in the Navy as an aviator. Tell us a bit about that.

[00:00:43.540] – Wes Lyons

Yeah, I got to go to the Naval Academy and go be an aviator on the P-3 Orion. We would hunt submarines under the water and kind of uniquely, my wife and I were both aviators on P-3a, so we got to get beat up in mock prisoner war camps together and starve together and go through a lot of things that are challenging in any setting. But it was our first year of marriage. We were getting made flight partners at the Rag and things like that. So looking back, I think it was more unique than we realized at the time.

[00:01:18.340] – Marshall Smith

Oh, wow. Okay. So you guys were married while you were on assignment? Yes. Is that in the modern?

[00:01:25.930] – Wes Lyons

I guess, yeah, not over in theater, but they have this course where they starve you and beat you up, and we did that together, and we would go out on Navy planes and have to train together and things like that.

[00:01:40.090] – Marshall Smith

Okay, awesome. My brother is an aviator as well, and he had some good stories to tell from the escape and invasion course that he did in Washington, I think is where they do it.

[00:01:52.750] – Wes Lyons

Yeah. Not a pleasant week.

[00:01:56.210] – Marshall Smith

Did they find you?

[00:01:58.010] – Wes Lyons

They did. Everybody gets found, and everybody gets a bit of unpleasantries for a couple of days. I was just afraid they were going to beat my wife up in front of me and hadn’t really decided what I was going to do if they started just beating her up. And thankfully, I didn’t have to make that decision.

[00:02:18.040] – Marshall Smith

Wow. Okay. That’s an interesting angle there. They could have really used that to get after your psyche there. Yeah, but it also just, like, conjures up unique visions. This is like a Top Gun in real life, except Tom Cruise marries another pilot. I guess in this latest episode, there was a female pilot within the latest movie within the pilot crew. So maybe that’s the third one. They’ll have that version of the series.

[00:02:53.010] – Wes Lyons

I hope they do. That would be fun.

[00:02:55.690] – Marshall Smith

Yeah, I’d say that story is about you and your wife as it is. I’m not sure there’s too many more versions of that. Well, so tell me, how did you get from being a naval aviator to getting into the Venture investing space, help bridge that gap for me.

[00:03:13.780] – Wes Lyons

I wanted to get into wealth management. Had always had a book about God and a book about finance either investing, running, trading strategies, things like that while I was in the Navy. And I got my Certified Financial Planner coursework done while I was at the Pentagon and on my last deployment. And so I joined an RIA in 2015. Just kind of classic 100 high net worth families, helping them do mutual funds ETFs and meet their families goals. But we’re also pretty active in the private market space, both in real estate and venture. We formed a fund for poor clients. And when we got into actually doing direct deals, we hired a couple of guys that we knew had a ton of experience in the space that were actually friends from over in Zerks, Switzerland, who are now the two. Of the general partners in Eagle Venture Fund and got a chance to really just learn under an amazing set of men who love the Lord and were really good at their craft and got to learn in that first. Fund, getting to be a general partner there in a small way with them and kind of cut my teeth on doing direct deals, doing private deals and going through a ton of different due diligence and learning it with them.

[00:04:30.850] – Wes Lyons

And that really birthed into what it was. It was the, hey, we love working together, this is a ton of fun conversations that birth into what’s now Eagle.

[00:04:40.990] – Marshall Smith

Wow, that’s really cool. So you mentioned something there that I want to ask you about. You said when you sound like you’re in the Navy, you got a book about God and a book about investing. And so you got into the RIA space. You started learning about private investments from these experienced fund managers. How have you seen your faith and this venture investing space? How do you see those two things come together?

[00:05:07.760] – Wes Lyons

When I first got into the space, honestly, I was kind of asking. I felt this call to come into finance. I was just so interested in it and felt this draw towards it. And I was a little confused. Why would a Christian that was serious about their faith get into finance at all? Honestly, I thought, well, it must be. And I’m supposed to run a big fund and give money to the gospel movement because that was kind of the only grid I had. And then I started trying to integrate my faith when I got into building portfolios. But the things that I found in 2015 were not that sophisticated. Found some negative vetting that would just kind of chop some things out of portfolios. I was already passionate about combating human trafficking, so I kind of dug into like, well, how are you vetting and crafting portfolios around that cause? And what I found in the particular fund family that I looked at was that they were just divesting of Southeast Asia I was like, well, that’s not a very nuanced way of trying to solve a world problem of just divesting of a whole portion of the globe.

[00:06:06.190] – Wes Lyons

And so I kind of gave up on it and it was actually through these direct deals where we met entrepreneurs live full as a portfolio company nowadays, that their very product was saving lives and they were creating mechanisms for bringing health access and innovation into low income countries. Them and a couple of other entrepreneurs early in the journey that helped me go, wait a second..there may be way more than just negative vetting that’s poorly done in this whole faith driven space and kind of opened up my eyes to really voraciously try to devour what’s everybody doing in the space and have really fallen in love with what’s now known as faith driven investing was kind of called biblically responsible investing back then.

[00:06:51.260] – Marshall Smith

Very cool. So as you came upon this journey yourself and thinking about how you align your investments with your values and your faith, it sounds like that personal journey has worked into, in some ways an incorporation into Eagle Ventures in the fund that you guys have investing in other companies. How did that come about and how do you guys articulate how some of that journey that you went on personally are incorporated within the fund that you manage now?

[00:07:21.190] – Wes Lyons

When we did a post mortem on that first fun, we had done ten direct deals and we looked back and said, well, seven of these. And it didn’t have an impact. It was just total risk adjusted returns for this set of RIA clients. And we looked seven of the ten founders that we had backed were believers and a few of them were doing these really high impact. Kind of the very essence of the business is bringing restoration on the redemptive edge in practice language. And then we were talking to our investors and they were saying, sure you’re good at finding real estate investments, but there’s actually a lot of people who are good at finding real estate investments. What you’re doing that I can’t find anywhere else are these faith driven entrepreneurs that are really making a difference in the world. And from both sides we were kind of hearing the demand for what we did that was really special was around these faith-driven entrepreneurs. So we launched in 2017 around providing values aligned capital to these faith-driven entrepreneurs or values aligned entrepreneurs and we’ve never committed. It was always going to be people that had a relationship with Jesus.

[00:08:25.900] – Wes Lyons

But we are 24 for 24. So I like to say I’m seeing a theme develop that had 24 for 24 but that’s how it came together, was really just seeing that’s what’s special about what we were doing.

[00:08:39.410] – Marshall Smith

That’s cool. Well, once you get to 30 you can make a documentary on it called 30 for 30. I don’t think anybody has taken that name. Yeah, that’s really cool. So 2017, you launched Eagle Ventures. You’ve invested clearly in 24 portfolio investments. And I think the way you articulate is they all have some sort of impact along the redemptive or restorative sort of theme. So has that been the same for all 24 that you’ve invested in thus far?

[00:09:15.110] – Wes Lyons

They really fall into two buckets for us. It’s all kind of one. It looks the same for us from a heart perspective of somebody who really holds a similar value of wanting to express their values, express their faith in the way that they’re building their business. From the outside, people would really bend it into roughly half the portfolio is truly impact of like poor people are getting pulled out of poverty or people aren’t dying because they have a better way of dealing with malaria. And about half the portfolio is just building a better future of this is what the meta verse should look like. It should be about language learning and better training and connecting with one another, not escapism and pornography and trying to get away from our lives, if that makes sense. Each of those really come from a very similar heart place and a very similar reason for founding something. Something beautiful that we want to see created. But from the outside, some people would say, well, part of what you do is truly impact investing where a poor person is getting a better job or getting up skilled into a better job.

[00:10:18.100] – Wes Lyons

And half of what you do looks more like just classic impact investing. But we would say it’s like we’re working on a company right now that’s helping startups figure out how to model their cap tables and model their financial projections and things like that. It’s deeply redemptive for an entrepreneur that hasn’t ever build a financial model to show them beautifully how to model their cap table and how to model their entire finances. That’s pretty redemptive. When you’re rolling it. You have a pitch to a big investor the next morning. It’s just a different type of redemptive, if that makes sense.

[00:10:52.460] – Marshall Smith

Yeah, no, it definitely does. It’s an interesting way that you bucket those too. I kind of hear the first half is kind of that physical need, physical poverty, human trafficking or slavery type alleviation. Whereas the second half is about more fruitfully utilizing the gifts and opportunities in this world to create good outcomes. It’s about efficiency, it’s about productivity, it’s about how can we maximize others time and energy by serving them with some services, enable that in a lot of ways that’s just serving others. I feel like that’s a biblical concept that Jesus modeled and serving others and that we can do that too through business. So I think that’s really cool. So I know you guys have some things going on that you call Eagle Labs. So tell me a bit about what you guys are doing in Eagle Labs and maybe how that differs a bit from the other types of investments you guys make in your fund?

[00:11:59.590] – Wes Lyons

Yeah, absolutely. My partner Wade Myers has really led that effort and it started with he’s a serial entrepreneur, 25 years of founding company after company. And in the ego context, the first one he founded that we invested in was a company called Capital Works that would groom lower middle market companies and kind of tech enable the process of packaging them to help them be ready to go to market. And J.P. Morgan bought that? It was a really successful exit for us. And that company has gone through their whole earn out and they’re building three more kind of SAAS analytics fintech place. And one of them is that performance that I just mentioned of Captable and financial modeling. And what we found was it took them about two years to build the platform on capital. Works about nine months to build the platform on performance. About three months to build the platform on the next one. And we’ll see how fast they get. Probably at some point will hit a lower bound on how fast they can build these SAAS analytics platforms. But it’s really the same. There’s some additions bringing in some raw talent and places where we’re finding more need.

[00:13:07.890] – Wes Lyons

But often when you’re going into an Amazon Web Services environment and there are 200 different selections on how you plug into Amazon Web services, you can just copy and paste and say it’s the same as last time, just tweak this one thing and you just skipped like a week’s worth of work. And so it’s building a team that’s able to kind of more and more efficiently build platforms, especially in that lab is highly focused on fintech analytics plays where some process just needs done much more efficiently than it’s been done before.

[00:13:45.410] – Marshall Smith

So in this space, some people call it Venture Studio. It sounds a bit like that. Is it that you have the ideas in the labs and in the studios and you have kind of like an established crew of people that can do marketing and accounting and software development and you’re trying to attract an entrepreneur into the lab that could take that with all of the ecosystem you put around it forward? Or do people come to the lab hearing that the Fintech Focus Lab and Forward Texas and they bring those ideas into it is a little bit of both. Tell me how that works itself out.

[00:14:25.390] – Wes Lyons

Primarily it’s just building ideas that we feel a ton of conviction internally that we want to create and build them up to a place where they are either ready to sell or we can bring in somebody to lead from externally. We do have vision to be able to bring to scale up to a place where we can accept outside ideas as well. We’re just so busy building kind of the pipeline of ideas that we are really excited to run down right now that Eagle Venture Lab isn’t currently taking outside ideas but we will get there within a year or two. It just takes we’re building three companies at a time right now we want to scale up to six or seven at a time. It just takes time to build that type of throughput capacity.

[00:15:08.210] – Marshall Smith

Yeah, that’s really cool. I think what I found in talking to other venture investors is everybody has a unique sort of angle and perspective on either value adds that they bring to the table generally outside of capital. Everybody generally brings capital to the table when it comes to venture investing. But if it’s a strategic value ad, if it’s a domain sector value ad, if it’s a distribution value add, I’m seeing more and more of these sort of venture backed labs and studios pop up and seeing a lot of fruit come from them. I think the idea that you can work on as a team and the whole team helps produce the result versus what I might say and venture has a lot of the headlines. It’s all about the jockey. It’s all about the lead entrepreneur. And I just got to imagine I don’t think I’m cut out to be to be that I haven’t been kind of the startup entrepreneur myself. But that’s going to be a lot of pressure to handle that. And certainly some people are cut out for it, and now certain people embrace it, and they make Netflix documentaries about the breakdown of some of those organizations, but maybe speak to that a little bit.

[00:16:29.260] – Marshall Smith

How does Eagle Ventures think about when you’re making an investment? How do you weigh the business model with the jockey? I don’t know if it’s derogatory term or not, but it seems to be a pretty common term used by venture investors. Just how do you guys think about that? What grid do you put an investment through when it relates to the entrepreneur themselves, the business model and the ecosystem around them?

[00:16:52.690] – Wes Lyons

There’s a number of other elements there. One is we love serial entrepreneurs in general. We want to be the second or in the time that they found it because there’s just so much brain damage in your first, so much work. First time you raise capital, the first time you build a team, the first time you form a board and all these different elements that are new. And we try to mitigate it with what we call Eagle University where we try to take all those first time experiences and just teach them to our entrepreneurs. But it’s way nicer if we can find an entrepreneur who’s been through a venture around before and honestly if they failed, that’s not a problem in our perspective. We have failed as well and we know what it feels like in some ways they’re much more coachable which actually flows right into we find it’s interesting. We’re minority investors so unless they need capital again which is often the case when they come back for growth capital. To some degree we have almost no control. Often we would take a board seat, but one vote out of five, even one vote out of three is not control.

[00:18:02.520] – Wes Lyons

So as minority investors, finding coachable entrepreneurs that we really like and we’re going to be with for years and years is a really big deal. So about a third of the portfolio has come into our due diligence process, which really is very kind of collaborative and picture kind of a BCG level. Let’s look at your business model and see if there’s any way we can improve it. So if we come into that and we say, hey, if you tweak your business model like this, you actually would be able to scale for $1 million instead of five. Would you be interested in that? They come back and take that really seriously. They can totally come back and say it doesn’t actually work for this or that reason. But having coachability in that process as we walk through our phases of diligence is a really big deal because if they’re not coachable when they want a million dollars, they’re not going to be at all coachable once they got it, if that makes sense. So coachability is a huge deal for us because we’re minority investors and we don’t want to control anybody, but we do want to kind of partner and walk together in friendship and problem solving together because our favorite is actually being on the board is good, but our favorite is actually just getting the call when they roll into a fortune.

[00:19:19.200] – Wes Lyons

They’re about to negotiate with a Fortune 50 on some contract and they know that Wade has been through that dozens of times and just, hey, can we roleplay this? Am I doing this negotiation right? And that 20 minutes to us is actually way more fun and way more value add than sitting through the board meeting where they say, here’s how much we grew. And they’ve kind of really prepped up all the things that they’re going to say they’re not actively problem solving on a board meeting.

[00:19:45.040] – Marshall Smith

Yes, I like that. I found myself identifying when a founder talked about a failure or a company, they tried to start a product, they tried to take the market, and I love to learn lessons from that. And I’ve started giving people Pluses and Stars on my own kind of rating sheet from an interview whenever I hear that, because I can just tell that they’re going to be much more receptive to taking the data about the results of their current strategy and reflecting on it honestly and being more perspective, having better perspective and approaching pivots and challenges and feedback. As per your point, I want to go back to an earlier point you made earlier about human trafficking was something that really was a cause that meant a lot to you. So when people think about human trafficking. I think they often don’t think about for profit business models that are going to subvert that push that back, but often think about NGOs and nonprofits and the like. So maybe you could give us an example of how a for profit business that’s backed by venture that’s obviously looking for large growth can also combat human trafficking.

[00:21:11.510] – Wes Lyons

Yeah, it’s one of the most exciting areas and you’re right, most people just tend to think of nonprofits, this is their job to solve. But if you think about it, we’ve got 50 million slaves in the world and a pretty decent chunk of them call a third and a half are labor trafficking that ultimately are being paid for by a vast majority are coming from US. And European consumers. And the way that’s able to happen is due to just a lack of transparency between the purchasing agent at Target who has just imagine the complexity of trying to figure out all the ultimate beneficial owners of all the suppliers. If you’re a purchasing agent at Target and they are working with an entrepreneur named Justin Dylan at Freedom to get transparency through their purchasing data and who the suppliers are and trying to start uncover it’s kind of like layers of onions because if it was easy, we would have solved this already. But pulling it back layer after layer of the onions. Okay, so here’s the supplier, this level. Behind that is this entity, behind that is this entity and many of them are clean.

[00:22:19.320] – Wes Lyons

It’s not like the entire supply chain is dirty. But being able to get into those, into those onions and find, okay, here we’ve got some mining of cobalt happening with a bunch of kids and we’ve got to be able to figure out how to make sure that they’re clearly red flags so that nobody is in the first world system is able or wanting to purchase the cobalt from that supplier. If that makes sense. And we’ve got a couple of companies. Freedom is one with Justin, and Evident City is another, where they have on the ground, in language, due diligence happening in 81 countries and there’s a lot of demand, but it’s kind of a culmination of a moment where there’s quite a bit of work that has been done on this over the last ten years. There’s quite a few non-profits, quite a few for profits that have been working on these problems. And then there was a billion dollar fine dropped this year on a bank that didn’t do a good job with their anti-slavery processes. So that catches a lot of banks eye when they realize, wait a second, there’s a chance for a billion dollar fine on this.

[00:23:26.770] – Wes Lyons

So the governments are exerting pressure and then throw in the consumer. That the Gen Z consumer. If you can’t show how your social impact, then you’re running it with a little bit of a headwind against your peers that can show social impact. So you got the consumer, the government and then the ability to pull this off all kind of culminating here in the next couple of years, there’s going to be some huge wins in the transparency space.

[00:23:54.340] – Marshall Smith

Really interesting example and it just brings to mind this kind of all wraps under what has now become controversial and politicized topic of ESG. And human trafficking I find is a good example of something that very little support for human trafficking no matter what, whatever political spectrum you’re on, whatever philosophical spectrum on very little. I mean, clearly there are some because it exists in the world today but in the western world at least, there’s the general belief that that should be stopped and not included in supply chain and logistics. And I was in Southeast Asia in the last few weeks and they were talking about the ESG regulatory sort of disclosure requirements that are coming down in Singapore in particular and they mentioned that really a lot of the disclosures are around Carbon initially. But the second area that they believe and they are hearing from the regulators are going to want to focus on is this topic of human trafficking and anti-slavery. And so companies will be required from the regulatory bodies. And this is happening in Europe and in Southeast Asia, and I only expect it will be a matter of time before the US entities start requiring this as well to disclose ways in which they are validating their supply chains and their vendors and counterparties are eradicating this from their ecosystems.

[00:25:35.250] – Marshall Smith

And that is a great thing for us to champion and that’s the kind of thing that can happen through businesses like the two that you mentioned, freedom and evidence that you can actually identify that and provide the information to consumers or even better into businesses that provide goods and services to consumers. So that’s a really cool story and one of which I think a lot of us can see the benefit of something loosely under the terminology of ESG brings us together. Yeah.

[00:26:08.550] – Wes Lyons

And I think what hangs in the balance is whether we use the moment. Because I think it’s quite possible, potentially even probable, that this moment turns into a ton of bureaucracy and red tape and potentially doesn’t make much difference. And that we just climbed the numbers, just click from 42 million up to 50 million, kind of through covet of slaves in the world. We’re moving fast in the wrong direction and many of the start ups in the space are really just kind of tech enabling, sending people a questionnaire and there’s a number of problems with it and that you get flooded with questionnaires from a bunch of different formats, from a bunch of different people. But I think we run a massive risk that a moment in time that’s incredibly pregnant with potential for very real change could get just drowned in bureaucracy if it’s done really skillfully with amazing entrepreneurs that actually produce the change in transparency we want in an efficient way. We have a very pregnant moment where we could radically change the future of human trafficking, especially labor trafficking, but there’s a very real chance that this just gets drowned in tech enabled bureaucracy that just like make who knows?

[00:27:26.250] – Wes Lyons

It would make it worse. Hopefully it wouldn’t make it worse. But kind of a lot hangs in the moment being the next couple of years of how we use this. There’s a ground swell of activity that’s happening and it needs a ton of skill brought to bear with the right business models that actually bring things to skillfully to bear to actually change it.

[00:27:49.690] – Marshall Smith

Yeah, kind of on the environmental side, they call it green washing. Basically taking data to make it look like you’re meeting the standards or meeting the principles, but you’re basically just using and picking cherry picking data and or processes to make you look like you’re passing your concern. It just reminds me of that sort of concept. All right, well, kind of headed towards the tail end of our discussion here. A question I like to ask all of my guests is to think about this whole concept of redemptive capital and you clearly have a very, I think, mature and well thought out integration of that within your fund. But a question I asked everybody, whether they’re startup, entrepreneurs, investors or just people in this ecosystem, is how we can better represent and benefit all of the stakeholders in the ecosystem of a business, and that includes their clients, their coworkers in their community, and then in the venture investment world, we add capital. So venture investors don’t have the best reputation when it comes to thinking about clients, co-workers and community. They often have the emphasis and the reputation to really only focus on the capital and the exponential growth of that capital.

[00:29:07.750] – Marshall Smith

But perhaps you could share either something you’ve seen work a success in this space when thinking about them more holistically or something that you wish. If you could snap your fingers and change something about this early stage start-up venture investment space that would better impact and all of those stakeholders, what would it be?

[00:29:32.290] – Wes Lyons

It’s a good question. What comes to mind is just thankfulness that there’s a bunch of entrepreneurs really kind of innovating on the redemptive edge already, I think. And they’re actually what really inspire me and some of it takes quite a bit of time, like you think of Sam and evidence and a couple of years ago, we were kind of just brainstorming, is there anything redemptive we could do with this network of 81 countries and ability to do due diligence? Now it seems blazingly obvious he’s just cleaning out supply chains and has built so much redemptive fruit into the business model. A couple of years ago, we were just kind of going on prayer walks and going large. We got. A system here. Is there anything redemptive you could do with it? And seeing those transitions has been just really, really inspiring. And then just meeting new people like Justin Dylan and the team at Live Full and just could go on and on. The Bible has this verse that talks about we overcome by the blood of the Lamb and the word of our testimony and it’s the Lord who makes things change. And I feel really encouraged when I look around seeing the testimony of there’s a ton of people doing amazing things around us.

[00:30:57.260] – Marshall Smith

That’s really cool. It speaks to how God is working through entrepreneurs and that in some things that are really obvious the way in which their business model or their work is redemptive. But then there are others like the story you mentioned where a business that is active and operating then all of a sudden an opportunity avails itself and just asking God to reveal how we can use our gifts to benefit the Kingdom and how we can use our businesses to benefit the world. You know? And if we pray and ask and we hope and pray that God will be faithful to answer those prayers, and so that’s a really cool story. Thank you for that. Well, really appreciate you joining me today on the episode Wes. It was great to hear just how you guys are incorporating this redemptive capital approach in your fund and wish you guys the best of luck. Thanks for being on the show.

[00:31:52.050] – Wes Lyons

Thanks so much for having me. I appreciate it.

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