Jean Sini (Partech): We like to see Series A companies with traction.
25 Sep, 2020
Valerie Red-Horse Mohl, of Cherokee ancestry, is the Executive Director of Social Venture Circle, a network of impact investors, entrepreneurs, and capacity-builders that solves big problems. Valerie is the owner and a founder of Red-Horse Financial Group, Inc. and has a reach in-depth experience in finance and investment banking, but also in the tribal government sector. She holds seven FINRA registrations. In more than 30 years Valerie has raised more than $3 billion in capital for tribal nations. She teaches Entrepreneurialism for Racial Equity and Social Impact at Stanford and is the founder of several non-profit organizations.
I started in finance many years ago. I am Cherokee Indian, so that means I’m part of the tribe, and there are over 500 nations indigenous to America. And I started years ago, when I was young, working in finance to help my tribes raise structure capital and then later, as they gained assets from their different business enterprises, also in terms of investing. So I’m an investment banker as well as an equity trader. I have seven different licenses in America. So I became very cognizant in all asset classes, including venture capital and private equity as well as private and institutional debt by working to help my tribal nations with their needs. And in that capacity, I actually structured or invested or managed about 3 billion in deals that I lead.
So it really was a great experience for me for all those years working with what I would call underserved communities because the tribal nations often don’t have the same benefits of a big corporate entity. They often use their money for their people and for their government, and they never seem to have enough, and they have less out of certain legislative actions. So it was really rewarding for me to do that.
And then I reached a point in my career when my children had left for college and I felt a little bit of the emptiness, and so I’ve decided to leave what I was doing, directing solely at tribal nations and come to work for the Social Venture Circle, where I am the Executive Director and CEO. And this is an organization where we have a membership network of investors, and our members put venture capital and private equity into impact companies. It could be underserved communities or anything addressing climate change or any of the seventeen sustainable development goals. So I basically took all my experience working with the tribal communities all those years and now working in venture capital and private equity, but only focused on those businesses that really address a need in the world and can actually be regenerative.
Yes, our criteria are very strong on impact. But we also expect the financial return, this is not a philanthropic giving. We have many philanthropic partners, and philanthropy is a big part of our ecosystem, but the deals that we facilitate are into for-profit businesses. So SVC looks very much like any other venture capital or private equity structure, maybe with a little more patience, but it’s only those businesses that can articulate to us how they are addressing a problem, how they are being regenerative, and it’s not just in their product or their service. So, they may have a new solar application or something that helps with affordable housing, but they also need to demonstrate that their social impact flows through in their governments and their hiring practices, in the products they use, on their site, all of that is a real deep impact that we look for.
We are mostly angel investors, we do have funds that are in my network as well, and we’ve started to expand, but we’re still primarily at the early stage, the seed stage, pre-series A, but post-in-the-market. So they have to be in the market, they have to show some sort of revenue stream. We don’t come in at concept or really early stage, so that seed capital is right before the series A. Some of our members have also done follow-on investments into the series A or even the series B. But we’re pretty much there to support our businesses with the hardest capital in that early stage, we want to be there to facilitate the growth of their business.
And we also stay connected. So even if they are able to scale and move on, we often still help as the network in terms of introductions to larger companies, if they are b2b, to help with scaling their businesses, getting into big companies or we help with legal support or just mentoring and advising to help them within their sector and their business growth.
We want to have someone very familiar with the product or the community. The founder typically has a reason for developing this product that has an impact. As an example, we have a company we’ve supported that is a catering company, but they also employ open hiring of fostering that would be typically incarcerated, but helping them get into a job and an education. And they are doing that at the communities here, so they are very familiar with the community, but then they also have people that are experts at the products, like chefs, and they have a team that comes from the restaurant industry as well as people that are familiar with the community. And then, to scale, they often have an advisor that has a broader perspective, like someone from a big company like Unilever.
So when we look at teams, we look at both how can they scale their impact and having someone on board who understands the impact strategy and rollout as well as the financial rollout.
We’ve just had a session yesterday, and it was all sustainable food and food that is addressing the sustainable development goals. And one product was bugs like crickets and other sorts of insects that were making an organic food. That was kind of unusual.
I saw a pitch that I really liked a few months ago. We are trying to get rid of plastics and Styrofoam in the oceans and in the world, and this particular company had been able to develop a replacement for Styrofoam made out of shrimp shells. And I found it fascinating and also brilliant because it’s completely biodegradable, and Styrofoam is a big issue.
Another one that I really liked here is a company called Naughty Tie. They are based in Colorado, and they make scarves and ties, and it’s all sustainable fashion, making it in an eco-friendly process, but they also primarily hire resettled refugees from other countries and help them maintain employment and get integrated into their community and the society. And when COVID-19 hit, they did a pivot and were able to raise money to make masks for the COVID-19 of the same material and the same process, and they didn’t have to terminate any of those refugees that they hired. So we love those types of stories when there’s a double bottom line: there’s a financial return and they are doing things in an eco-friendly way, and then they are also helping the community with the refugee hiring.
Yes, we have actually. Often there will be a founder who has started their business, and their team isn’t necessarily other employees, it might just be advisors that help them get started. Sometimes our investors actually like that if they’re running lean: they’re not having to pay out salaries to a large team if they are not ready. And you can often find advisors and mentors from your industry and certainly from our network and from other places that can come alongside you. So we would support an individual founder as long as we saw a plan and a team, even if it was just advisors.
We do a lot. The checks are typically smaller in size because, again, they’re angel investors and they are raising 3 million and under. But over the entire life of our organization we have moved about 250 million into startups, and the check size on average is about 50 000. So there are quite a few entities that our network has invested into. And I think last year we probably invested into 20–30 startups. And that is from 5 or 6 pitch events that we do every year. We do a national one, then we do many local ones, and then we do some sector ones. We just did one in New York, and it was all on clean technology. We’re doing another one here for all Native Indians’ businesses. And we did another one that was focused more on local economies in different areas. And we have a national one. So out of those pitch events, if we do 6 or 7, and we have an average of 10 companies, that’s 70 companies, and then about half of them get investment. So we did about 30 last year.
We’re pretty well-known. We have been around for almost four decades, our original non-profit. We have a platform, we use Gust, which is just an administrative platform to take the applications. And it’s rolling applications, so startups can sign up at any time, and then we’ll put them into whatever pitch event is coming up that would fit their product or their profile.
So we’ve never had a problem with not having enough companies, but it certainly would be great to find other partners to get the word out because we love to be able to get as many companies seen as possible.
On average it’s a couple of months. Sometimes it moves faster, but usually what we do is we will facilitate a pitch session, we will work and coach with the entrepreneur or the founder on their tax, on their financials. We don’t weigh-in on the validity of the financials, we just weigh-in on how the presentation is best presented to the investors because we know what they want. We don’t want to bore them, we don’t want to be more than so many slides and so on. We coach them on their presentation and then, in certain cases, we will actually pay for third party due diligence because we feel that helps the process move more quickly instead of leaving it in the hands of the investors. And when we do that, we hire a third party, but as the non-profit, we try to get a price that makes sense for us, we can’t afford anything too expensive. And it’s usually something that’s a profile of maybe 4 pages. So it’s not in-depth, it’s really just a guide for them.
Then the investors that are interested will come together almost like a group (they are co-investors, even though their money is separate) and they will conduct the due diligence. And if some investors invest in one of our networks, but their round isn’t finished, then we continue to circulate it even virtually to all of our investors because we have investors all over the world as well as in the US, even though all of our investments are in the US.
And then we typically are able to finish the round, if we have received that initial interest into a founder. For example, if we have a couple of investors in our Philadelphia network who have invested into this company, we then show it to everyone else, if they didn’t see it at the pitch event, and then we’re usually able to complete the round.
I’m going to speak for myself personally because I judge a lot of pitch events and I also teach entrepreneurialism at Stanford University, so I see a lot of pitch decks. And what turns me off is when I see a company, even if they have a really good business plan and a good business strategy, if they tell me that the total addressable market is in the billions, and they are going to capture 40% of it in year one – that’s just not realistic for me. Unrealistic rollout strategies turn me off, it makes me feel like they are not being realistic about their market.
But what I prefer to see is if they say: “You know, there’s a billion-dollar market, and we are going to start in this region and in that region; we think it’s 10%.” If it’s reasonable, then I prefer that sort of methodical strategy instead of having to be more like a dream idea.
Also, I really want to see the impact articulated, especially if they are addressing a problem that we care about. We don’t want it to be light-impact, we want to really understand what they are doing with their product, with their service, with their company, with their whole philosophy for running their company, their business and their governments. We want to see that impact and how they predict that impact will grow. Let’s say they’re doing solar energy or an electric car. If they are able to say: “With our product and our rollout strategy we predict this much money from pro forma revenue stream, but we also predict that we’ll reduce the carbon footprint by X,” then we’re able to really understand their idea of how they are addressing their problem and actually have that almost be like a pro forma. So if they are not able to articulate that, it doesn’t interest me.
Absolutely. Often we’ll have investments into a company that ends up sort of derailing: maybe their team has some fights and doesn’t get along or they lose someone, or maybe their product that they thought was going to be so well received in the market, isn’t. And there might be a reason, maybe there’s something that doesn’t work quite right. I think there’s a lot of things that can stop a follow-on investment, even if you were very bullish on the founder and the company in the first rounds.
And we have to see if their proformas make sense, their entry and their expansion into the market make sense, and if it works. So there’s a lot of things that would make me not encourage a follow-on investment.
But sometimes it can be fixed if it’s not a fundamental flaw. If it’s something that can be tweaked, that’s when we think mentors and advisors can come on board and be very helpful. We have a gentleman in our network, Jeffrey Hollender, he was a CEO of Seventh Generation, which is a very large personal care cleaning products company (that are all non-toxic and natural), and he scaled that business, and he’s a super brain when it comes to running businesses. And he’s someone that I always look at as a mentor in that industry. So it’s those types of things you can often fix, but there are absolutely reasons that I would not recommend a follow-on investment if something started to derail or unravel.
I’m sure that there’s been many that we haven’t been able to bring forth, but I wouldn’t say we regret it. We try to run a process that’s very methodical. I sometimes disagree with the investors if we’ve brought a company forward, and they don’t get an investment. Sometimes where I see the rejection come is if the investors are looking for a venture capital return, they want a tech business or a tech-enabled business and they reject the business because they don’t think it can scale fast enough. And then we see that business actually does such a great job, even if they’re scaling a little slower. That’s when I feel bad if investors have rejected a business because it’s going to be slow in terms of traction because maybe it’s not a true tech business, but it’s doing some great things. I regret that on behalf of the founders if our investors rejected that. That happens less with our network because most our network is in fact focused on impact, too, but I do see that when it’s a kind of pure venture capital investor wanting things to happen too fast.
Only in the sense that sometimes we are the ones who are determined through a process, who is selected to pitch at our various events. And sometimes we will get excited about the deck and the product, and the founder may not be a very good presenter. And when it comes time to present to the investors, they are looking at us to have been the highest selective team. Sometimes the founder really isn’t able to deliver in their pitch, for whatever reason, and then we feel bad because it makes us look as if we didn’t do all of our work.
But it’s not that we regret the product or the impact. Because we have a team, we have someone who’s the director of investments on our staff, and she is fantastic, and then she will pick a team of other investors as the selection team. So the diligence to even select those companies is very strong. So it’s typically not that we are disappointed in the product or the impact, it more often is we’re disappointed in the presentation because the founder may not be a good speaker and hasn’t been able to convey everything that he or she needs or needed to convey. And then we get a little frustrated.
Yeah. Obviously we invest into industries that are making a difference in the world, that are very impactful. And so we don’t invest into anything extracted, we don’t invest into mining, or guns, or gaming, or harmful chemicals. And for me, I agree with all of that. But I came from the tribal world, and in my American Indian tribal world, we operate casinos. And I’m not suggesting that gaming is a great business in terms of the community, but it’s a government business for my tribes. And so I was a big supporter of tribal gaming, and it’s casinos. We even were expanding into internet gaming, and I was very active in that space. And in my network now they would never ever consider investing into anything around gambling, but I saw it bring a whole economic industry to my people who were in poverty, and really take them out of poverty, so I am a little conflicted there.
I actually use a couple of books in my class for young startups. My favorite is by Nathalie Molina Nino. She is a woman from Ecuador who now lives in the US, and she is incredible. Her book is called “Leapfrog” and it’s primarily geared to women and people of color who might not have the same network when they start a business of friends and family rounds and the usual connections. And it’s incredible and really gives some great advice.
I’ve also just started to use a book by a woman named Cheryl Contee, and it’s called “Mechanical Bull”. She’s a black woman who started a tech company, and the book has some of the same types of advice that “Leapfrog” does. She focuses a little bit more on tech, but it’s also a brilliant book.
Then, it’s not just for startups, but Jeffrey Hollender wrote a book, and it’s a little bit older, but it’s called “In Our Every Deliberation”. It’s the story of how he scaled Seventh Generation wealth, maintaining that impact, and all the different decisions they had to make to work with certain companies. It’s a very interesting journey: he ended up with thirteen times return in multiple, but it took a long time. It’s a great story, and I feel that it’s good for young founders to read, just so they don’t come in with the expectation that everything might happen very quickly.
Right now I’m involved with several women’s groups in venture. I live in Silicon Valley, so I’m in the middle of the VC world. I’m part of an organization, called “How Women lead” and “How Women Invest”, and it’s made mostly of women in venture, and we’re really trying to encourage women to start their own funds, there’s a fund that they have started internally that will invest only in women. And I’m also involved with some legislative action trying to get the big banks to put more money into the private equity and venture funds of women and people of color.
It’s so important because private equity and venture capital is what go into the young startup businesses that then become the backbone of our country: the small business community, the products that scale, and the innovation. And if we can’t move money into businesses led by women and people of color, it’s just not representative, it makes no sense.
So I am on a mission to try to get more money to encourage more women in venture capital to start their own funds, as well as people of color. And then that will actually flow down into the businesses invested into, and we’ll start to see much more diversity. But right now in America women and people of color get less than 4% of the institutional capital into the private equity and venture funds from the big banks. And it’s just a crime. So we try to change that.
If you follow the first woman I mentioned, Nathalie Molina Nino, and her book “Leapfrog”, she is an activist, and her social media blogs are always leading campaigns and efforts to increase money into women and people of color to help their businesses and funds. She’s started a movement called “Builder capital”. And I think it’s going to take a lot of us working together and working with the holders of the large assets like the big banks, but I do think we are going to see a change. And I think COVID-19 might actually present that opportunity because it’s accelerating the need for money to get into our smaller businesses and into our underserved communities. We’re seeing cap that really increases because of COVID-19, and so I think it’s accelerating our opportunity to change some of that with the bigger and larger banks and even institutional foundations and funds, and state funds, all of that.
What I see happening right now is many venture capital funds and private equity funds, in general, are looking at companies that have been able to either pivot or design a product that addresses this gap in healthcare and equipment, and testing, and also just to how the community has been affected.
Hopefully, this won’t happen again, but when you have to stay at home when you have to work remotely, just the delivery of certain products and just platforms that are able to handle that seamlessly are necessary. So I am seeing a real increase in that desire to see innovation, but also the desire to see how we’re treating our people because the people are really the most important thing that has been affected: people and small businesses.
So I think the venture capital world has always been interested in innovation, but it’s accelerating this need and making it clear that we need to invest more into companies that can help smaller communities and people in general, because it really points out what a gap we had in our world.
I’m always open to new opportunities. Right now I’m in the role of the executive director and a CEO of a very important non-profit, I do a lot: I do part-time teaching at Stanford, I’m on several non-profit boards. So I do a lot with my time, and I’m always open to looking at new opportunities, even if it means just adding as opposed to switching.