Wal van Lierop (Chrysalix): We are more than just a financial investor; we are a very active contributor to scaling up companies.
30 Nov, 2021
SC Moatti is the founding partner of Mighty Capital and of one of the biggest networks of product managers in the world, Products That Count. She is also the author of the bestseller “Mobilized: an insider’s guide to the business and future of connected technology”. SC is a technology visionary and entrepreneur. She has a rich experience of building great products for Facebook, Electronic Arts, and Nokia.
I’ve spent a dozen years building products and companies as an entrepreneur and an executive. I’ve built products for Facebook, Nokia, and Electronic Arts. And then, after I sold my last company and spent a few years at Facebook, I left Facebook because I was invited to write a book on what makes a great product, it’s called “Mobilized: An Insider’s Guide to the Business and Future of Connected Technology”. And as I was writing this book, I realized that my peers at the time, people building products, all had a valuable perspective to share on that topic. And so I started a network, which today has grown to be one of the largest networks of product managers in the world, it’s called Products That Count. And that network was bringing my partners and me, who were doing angel investing, so much deal flow, that later we spent it on the venture capital firm, Mighty Capital. That’s how we got into venture capital.
We invest at a later stage, so in companies that already have some revenue traction. We also look for a very strong team, big enough market and, of course, a good deal. If you look on our website, mighty.capital, you’ll find the first post at the top is about how to craft a killer pitch deck. I really encourage every entrepreneur to find a way to tell their story like this, it says: “We are a unique team solving a big and hard problem with a sustainably differentiated solution, which we monetize fairly. As a result, we have great traction, so our financials look very promising. To get to execute our vision we need money, and this is how we plan to return several multiples of that money to you, Mr. or Mrs. Investor.”
That story is really simple, it applies to pretty much every business. From there you can customize like: “We are a unique team” – okay, who are you? “We’re solving a big and hard problem” – what kind of problem, tell us about it. But it can be the story of every company. And it answers all the key points I need to know as an investor. So that’s the kind of company we look to invest in.
Yes, we do. We invest in companies that are based in the US and capital efficient. So we will not invest in companies that are based in Canada, France, Russia, whatever. We will not invest in companies that are building ships, semi-conductor, pharma. We don’t even do a lot of brands, we have a little bit.
The way we do our companies that are based on the West Coast of the United States, and then on the Northeast Coast of the US, and we do mostly b2b, software, and then a little bit of precision medicine and a little bit of consumer marketplaces once they have reached scale.
Not really. And if I can give entrepreneurs an advice, you don’t want to be doing something different with your pitch. Your pitch is not the end of the game, it’s the beginning of the game. Having been on the other side, you can spend a lot of time building your pitch and perfecting it, rehearsing it, but really it’s only the beginning. And so my recommendation is you have to play the game. Don’t try to be different, don’t try to stand out. Because what is going to make you stand out is the quality of your team, the size of the problem you’re solving, the defensibility of your solution, your revenue traction. And then, of course, being fair in the terms of the deal.
It’s not having a fancy demo, it’s not dressing all in red, none of that. It’s being really straightforward with: “This is my story. I’m here because I have a business to transact, I need money. And I know you want good deals, you’re looking for good investment opportunities”. And then where you stand out is by the quality of the conversation that starts after your pitch.
Before we invest, just like any professional investor, we’ll do some extensive due diligence, so we’ll get to meet you multiple times, and we’ll get to see if you’re listening to our feedback and if you’re coachable. We’ll get to see if you’re a good leader, if you’ve built a good team, if you’ve assembled loyal customers, if your investors are going to be people we can trust.
So it’s really about building trust and giving us the information we need as opposed to trying to be different.
We’ve invested in companies that have been founded by one founder and have one CEO, but we don’t invest so early that it’s just one person in the company. There’s usually a team, an office, customers, revenue, not just one person. And that’s to be at a risk for most professional investors. Imagine something was going to happen to that person – the business disappears. So most professional investors will wait for you to have a team before they write you a check.
A lot. The job of an investor is the opposite of the job of the entrepreneur. As an entrepreneur, your job is to say ‘Yes’ to everything: “Yes, Mr. Customer, we will deliver this new feature on time,” “Yes, we will observe the cost of our mistake,” “Yes, we will get your business because we want to grow.” So: yes, yes, yes.
The job of an investor is to say ‘No’ to everything that has risks that they don’t want to take. And so just like any other investor, we say ‘No’ most of the time. So we have about 4 000 companies in our pipeline that we review every year – the deck is 4 000. And then we meet in person with about 400. We do due diligence on 40, and we invest in 4–8 companies.
So that’s our pipeline. We’re demanding investors, so we don’t do a ton of investments a year. But when we do, we get really involved, and we help them a lot, and that’s what you want from your investors. You want them to be smart money, you want them to be helpful to you. And where we help, for example, is we give our portfolio companies access to one of the largest networks of product managers in the world, it’s called Products That Count, and it’s reaching about 300 000 product managers. So one in five product managers in the world. So if you’re a startup that is selling to product managers or if you need to hire a lot of product managers, then we’re a very good investor for you because we can expose you to people who are basically your customers and employees.
Anywhere between 500 000 dollars and a million dollars.
It’s very easy to find me. I give generally 1 or 2 talks every week, we have a website, you can email me. But what I do recommend, if you really want to grab our attention, is that you find someone in our network (maybe a lawyer or another investor, or another entrepreneur) to connect us. The best way for startups to get introduced to investors is by a referral.
Yes, we always do. We ran through Products That Count over 100 events a year all over in North America. So we have a lot of entrepreneurs coming our way through these events.
We run 3 due diligence: we do business due diligence, financial due diligence, and then legal due diligence. The business due diligence is us answering the question “Is this the company, is this the team we want to spend the next 10 years with?” So there’s some analytical part to it where we’ll review your team, we’ll meet with your team, we’ll ask for reference customers, we’ll review your financials, we’ll talk to your existing investors, we’ll do a site visit. Generally speaking, we’ll get a sense of whether we could be helpful to you and you’ll get value from us and whether we want to be in a long-term relationship with this team.
In the financial due diligence, we look at your revenue, your financials, the health of the business in general, whether it meets some of the key metrics that we want to see in early-stage growth. And then, finally, the legal due diligence is looking at the deal: is this a good deal? Are we getting a pre-use for the price of a Ferrari or vice versa? And once we’ve completed these three phases, then we decide whether to go or not go. And then we’ll write the check.
How long that can take? As little as a couple of weeks and as long as several months. A lot of it is driven by the CEO of the company. So if they follow-up, if there is good fundraising traction, if there is momentum on the revenue side, it can be very quick. But if it’s not a priority for a CEO, then why would it be a priority for us? We want to see companies who are hungry for a relationship with us.
It comes down to what kind of risks do we want to take. I can think of five different risks that investors can take. There’s a team risk, technology risk, market, execution, and financing. Team risk we never want to take. I want to invest in a winning team. Even if it’s the wrong market, a winning team will be able to pivot to something that works. So we don’t take a team risk. If we see a not functioning team, that’s a red flag.
Technology risk. We don’t take strong technology risk. We like to see a technology that already a few customers have said: “Yeah, it works, I find value in this.” So when we see something that looks more like science or research, it’s not interesting to us, it is to other investors.
Market risk. When the market is too small, the company is not going to be as big as it needs to be, so we don’t take a lot of market risk either.
Execution – we can take that risk. Once we have confidence that it’s a great technology and it’s a great team, and a big market, then we can say: “Okay, can they actually execute, can they eventually either go IPO, if the IPO window is open, or sell the company?”
And then, finally, financing risk. It used to be very popular, these whole ICOs, not so much anymore. We don’t really take financing risk, we think there are enough risks in the execution and overall in early stage, and so no need to go after fancy financial instruments.
We don’t do that kind of investment. Some venture firms will do that pre-seed: if they just have conviction about something, they go after it. We don’t invest this way. The risk profile of that kind of investment is very different from what we do. If you invest this way, you have to do a lot of small investments in an area when you’re convinced that there’s going to be something. And then, there’s usually a fair amount of luck involved where you have to be right about the assumption you’ve made, and that’s the first element of luck. And then you have to have picked one of the winners, which is the second element of luck. And so when you combine that, the odds are significantly smaller than playing the lottery. And so we don’t play this game. It’s not a good profile for us.
We always make mistakes as investors. That’s another thing that’s different for investors than it is for entrepreneurs, which is when you invest, you don’t have a lot of control over your money anymore. Yes, you do, if things go bad, you have terms and things like that, but really it’s the CEO, who’s running the business. So your level of control is very limited, and so you tend to make a lot more mistakes and yes, there are always things you regret that is part of what I think comes with the job of being an investor. It’s very humbling: the things you believe to be true are constantly proven false right in front of you, and the things you said you’d never do you find yourself doing. It’s a lot of constantly reassessing and reinventing how you do your job.
We have a great company in our portfolio, called Mission Bio. It’s a company that is developing unique products and is a strong contributor to curing cancer. It’s a software platform that is curing cancer. And we support them, we’re big fans of this company, even though it’s not necessarily the type of technology we would always invest in, but the CEO is really exceptional. That, I would say, is what we would like to have more often: the exceptional CEO and very defensible technology. I would say, all of our companies fit that bill, but it’s when you look at all startups, that’s the exception: a fantastic leader with a very defensible offering.
I don’t know, maybe in the future there will be things we like, but don’t invest in, but right now we invest in the things we understand and where we can add value.
Yes, absolutely. My book (“Mobilized”) is about how to build a great product, I absolutely recommend it if you’re in the early stage or in the growth stage of your business.
I read the daily post that Seth Godin publishes every day. I find that it’s really inspiring both in terms of leadership and in terms of a good market, so I’m a big fan.
In terms of other books, I think the other really outstanding book is Geoffrey Moore “Crossing the Chasm”. That’s a classic and it’s excellent for anything related to b2b technology. It’s still probably one of the best books out there.
There’s one more book, which is authored by Steve Blank, called “The Four Steps to Epiphany”. He has another one that is called “Customer Development” where he outlines how to do customer development, how to find an audience for your product, and evolve your product to meet the needs of your audience. And it’s excellent as well. It’s also one of the best books I’ve ever read on building companies.
As a firm, we rarely talk about being a woman in venture capital or anything like that. And the reason is pretty simple: if we did that, then that would be all we do, that would be our job, and we wouldn’t have time to do our real job. The other reason is that we want to be known for our trade, our expertise, our value, and not because we’re women. And so our diversity and inclusion policy is really about actions speak louder than words.
So if you’re thinking about starting a company, starting a fund, and you’re a woman or if you’re from another minority, just focus on that, don’t bring it up, so people see that you’re a woman or you are a minority. You don’t need to make that your claim to fame. It’s actually not going to make you famous. What’s going to make you famous is your actions. Famous or rich, whatever you decide is more important to you, but actions speak louder than words.
I’m an optimist, so I think of everything as an opportunity. What you will see happen is funds will have different reactions. The first thing they will do or they are doing right now is looking at their portfolio and saying: “Okay, so how many of my companies are winners? And how many aren’t?” And that’s the first assessment they’ll do. And then the second thing is “Okay, for me as a fund, do I have enough cash flow, a reserve or dry powder (these are all the same thing) to fund these winners when they are going to need more money? Because I have to assume that nobody else is going to.”
And if the answer is “Yes, I have enough money to fund my winners,” then whatever money is left, they will invest. And if there’s no money left, then they will not invest. And so you will be facing a situation where as an entrepreneur you want to make sure you ask “How many investments are you planning to make?” in the next 6–12 months. Because you don’t want to be pitching to somebody who’s just here to pass time and listen because they don’t have money left.
Yes, I think I have one of the best jobs in the world. Also one of the hardest. I’d say, running a venture capital firm is one of the most complex businesses I have ever seen or ran. It’s also one of the most fascinating, but it’s hard.