David Gardner (Cofounders Capital): We have a joke that if we don’t understand something in the first 2 minutes, we won’t invest.
30 Jul, 2021
Whitney Sales is a managing partner at Acceleprise and an angel investor at Mapped. She is the founder and creator of a consultancy The Sales Method, which helps businesses find their target markets, get products to those markets, and build really efficient sales teams. She has over 10 years of experience in the startup sales area and successfully led four of the companies she worked with to the Inc. 5000 Fastest Growing Companies list.
It was kind of by chance actually. I was running a b2b SaaS consultancy (I’ve worked in early-stage venture most of my career, specifically working with founders on go-to-market) and I’ve met my business partner Mike about 3 years prior to when I’d started the business and he’d started Acceleprise. And over those years we’ve spent a lot of time getting to know each other, and I’ve worked with a number of his portfolio companies at the time. And when the first partnership became available for the fund he’s asked me if I’d be interested. I spent some time thinking about it and then I did my feed a little bit into what it would be like to work together by doing a part-time relationship on mostly EIR-style of relationship for about 6 months. And then I realized that it was a pretty good fit for what I was looking for.
We have my skillset of what I really enjoy, we have an interesting model because it’s an accelerator as well as a seed fund, so I get the hands-on working directly with the founders as well as the investment side. So it’s pretty fun for me because I still get to use a lot of the operating experience I had as well.
We specifically work in the b2b space in the pre-seed to seed-stage side. So some of the things we are looking for is a really strong founder/market fit. Like everyone, we want a product technical team, so we want people with experience in the market as well as with the technical founder on board just because you need someone to build the product and really understand the direction the product should go.
And then we usually are looking for a company like product-in-market. We have some indications of product/market fit and we don’t do a ton of deep tech, but we’re looking for companies where for us they’ll be all up the way for enterprise, but we really want those strong indications for product/market fit and unique perspective on the market. Obviously, the business needs to have a vision of defensibility and some viral loops split into it for scale.
So: a unique perspective on the business in the market, the defensibility factor, and then strong founder/market fit and experience in the ecosystem with the technical team on board.
We don’t. We have invested pretty much all over Europe as well as the US, Canada. We haven’t done a ton in left-hand, but we have invested in Australia and New Zealand as well. We’re looking for companies with a product that can sell into the US market. So when we take the company because we’re focused on the global market side of the business as well as the fundraising, a company with the vision of selling into the US market with an opportunity to sell into the US market is really important for us if we’re looking at international companies.
The best teams we see have a long working relationship, so people who have worked together in the past on previous projects, have known each other for a very long time and had a chance to work together on something else, have a personal relationship as well as a professional relationship. So it can’t just be personal, there needs to be some element when they’ve tried out working together before and had a chance to test out their relationship and the strain that comes along with it.
The other things we look for are clearly divided responsibilities. So if you have a founding team, and there’s a dual co-founding team, there needs to be a clear division of responsibilities and who’s taking what: a clear technical lead and a clear product-business lead. We’ve seen a lot of businesses where it’s kind of a co-CEO role, and there seems to be some tension because too many people are trying to take the lead, and you need to know who’s doing what. Investor calls kind of pass off between conversations and knowing who’s going to answer what is really critical, and people aren’t talking on one another.
You want people who have indicators of perseverance. That comes from the long-standing relationship: people have overcome difficulties before and have a working dynamic overcoming those difficulties because they really will be tested. The relationship will be tested as well as each of those people will be tested in startup relationships.
We want people, who are passionate about the space and the market, and they’ve shown passion around the space and the market. We don’t want people who just come into the business because they want to be entrepreneurs and make a lot of money. It really needs to be a passion and seeing all the way through, a personal tie to the product and mission they’re building, and show signs of that passion.
Yeah, we have. I’d say probably about 30% of our founders are solo founders. We don’t shy away from that at all. There are some upsides because you lose a lot of the potential team conflict. I think the most common reason why the companies break up outside of running out of funding is team dynamics. So you lose that piece of it, that founding team dynamics, but you also lose the additional perspective, the ability to have someone else in it with you, someone to continue pushing you when things get tough and that sort of obligation to one another.
So we have made investments in solo founders, but they need to be product/technical founders or have something unique about them if they are not a product/technical founder. Usually, it’s a person who can get the product to where it needs to be to launch or has gotten the product to where it needs to be to launch, so there’s a strong indication of that product/market fit. And they have to have a really strong background.
With the founding team, ideally, everyone has a strong background in the space. But the person who’s driving the product forward or the person who’s driving the technology side, they may not necessarily have experience in building that type of the product for that particular market, but they should have a skill set in that particular space and building that type of product. And the product team, the founder specifically, should have experience in that particular market. And so if you’re looking for a solo founder, they need to have it all, and that’s a little bit harder to find in one person than in a team generally.
Unusual pitches don’t have to come down to anything incredibly unusual. We see a lot of pitches, over a thousand pitches a year, especially in the San Francisco location across the two cohorts and the seed funds. Nothing that stands out sounds out to me, it’s more founders that stand out to me. There’s this kind of X factor we look for in the founders. There’s obviously the pedigree things of working with the past-grown startup or coming from a top university, being a serial entrepreneur, and things like that, that everyone looks for. But there are some X-factors that you find in founders. And the conversations that really stand out for me is when you get this founder-investor dynamic, where the founders educating and teaching the investor in a unique way. And it’s really fun for me as an investor when you get into these conversations because I get the perspective that the founders are coming from. Especially in the spaces that I might be more familiar with, where the founders are bringing unique insight, a unique perspective on how the market is going to work in their conviction.
When you can get into that dynamic with the founder, there’s something special that happens there. And that’s when you can break up the guard and you start to build trust from one another, there’s kind of a give and take in that conversation as opposed to being a one-sided conversation. So I enjoy these conversations a lot. That’s the dynamic I search for in the investor conversations I have with founders.
In San Francisco, we probably look at about a thousand companies a year. And the range of how we look at it, it could be a first conversation, that could be an application, that could be a deck that we’re looking at. But we’re probably looking at about a thousand companies a year, and the percent of those that make it to due diligence I’d say is probably about 50% or so, then we accept between 8 to 10 companies per cohort.
So it’s a pretty competitive process, to be part of the Acceleprise program, and we look at quite a few companies to get down to 10 or so companies that we take for a cohort.
We see companies in several different ways, so there’s an application online, we have taken a look at pitch competitions. But I wouldn’t say that’s the best route for us. Usually, the best way to get in touch with us is the introduction through one of our portfolio companies or one of our mentors that we work with, someone we’ve built a relationship and trust. And getting an introduction through one of those existing relationships is probably the best pattern for us because it’s someone we know. They aren’t going to just refer any company, they are going to refer someone that they think highly of and are also willing to be honest with us about what they think.
So that’s probably the best route: through an existing relationship we have. And we’re pretty active in our network as well because we work and are talking to our LLPs, we talk to our referral alumni network all the time, we’re talking to our mentors regularly. So these pre-existing relationships are the best path out there.
We target about 2 weeks from the first conversation to close. So it’s a pretty fast process, and we try to keep it pretty tight. When things take a little bit longer, usually it has to do with diligence when we’re trying to talk to people who’d be potential customers. Meaning that we could talk to the company’s existing customers or users, but there are still questions standing out, so we want to go and do some backchanneling on our end. That’s when we usually see a little bit longer conversations.
But usually what the process looks like is there’s the first call. At that point, if we’re still interested after the first call and we’ve reviewed the deck, general information about the company, and have done the first call, we’ll do some competitive landscape and market research. If it’s a saturated market, we’ll see where the company really sits, how the founder sits across the ecosystem, what kind of funding looks like in that space. From there, our program managers usually take the first call, and from there I’ll have a conversation with the founder which usually lasts between 45 minutes to 1 hour, sometimes an hour and a half, if it’s to get to that sweet spot of founder/investor education.
And after that conversation, if we’re still interested, we’ll do some additional research around diligence docs like cap table, bank statements, articles of incorporation, maybe customer contracts, depending on where the customer is from the revenue perspective, some product diligence, so we’ll dig a little more into the product. Then from there, we’ll do some customer due diligence, ideally talking to one of the company’s existing customers or talking to some people that we know in the ecosystem to get feedback on the market as well as the company’s positioning in the market and the pain point they are solving for. And from there, if we’re interested, we would extend the offer.
So it’s a pretty lengthy process from a work perspective on our end, we do a lot of heavy lifting from market research and customer due diligence perspective, just to learn quite a bit and make sure that we’re making a good bet.
On the accelerator side, we invest between 50k and 100k, depending on where the companies are and whether the founder prefers less delusion or a bigger check. And then on the seed fund side, we invest between 150k and 750k. And it just depends on where the company falls from the valuation perspective and whether they want it through the accelerator or not.
Red flags for us can be team dynamics (that’s a big one), how much runway the companies have because we need to make sure that they have enough runway to really get to market, and have an opportunity to prove product/market fit. Also, a founder not being fully upfront about certain things, so when we dig in for diligence if there’s a lot of delusion on the cap table or a really messy cap table – that can be a red flag for us. Maybe the founder is misrepresenting some information regards, for example, for the contracts, then it’s a red flag.
When we’ve spoken with customers, and their reference isn’t super strong, it sounds like something that has been built based on a friend relationship vs there is an actual need there. Kind of nice to have vs need to have or them buying based on a price specifically, so that’s not an indicator of fit, that just means that you priced your product as the lowest in market. And so the company was buying it because it was the cheapest product on the market, not necessarily because it was the best product for them. Which means that someone could just come in and undercut you. That nice to have/need to have category is pretty interesting, and it comes up in a number of ways in investor conversations.
The culture fit of the industry and how they perceive the product is a very interesting one. That usually comes up in diligence when we dig in a little bit deeper with the founders. But I would say the biggest one for us is the misrepresentation of information and the founder not being fully upfront with where they’re at and their traction and the conversations they had. That will always come up and we almost always find it. So that perception feels like there’s a misrepresentation of information, and that’s probably our biggest red flag.
The Coronavirus has created some interesting market dynamics. It’s definitely a threat from a portfolio perspective for the companies who are in the industries that are being hit really hard, so anything that requires you to be in person. But it has also created some interesting opportunities for those companies that are focused on digitizing of various aspects of the business or making it easier for distributed and remote teams. Because that is the new market dynamic, and we think it’s here to stay. So I’d say it’s both.
I think there are some very interesting changes that are going to happen in the work ecosystem, specifically around the offices and team dynamics. So we’ve seen some really interesting tacking in those spaces, in the remote workspace and distributed teams space that we’re pretty interested in and we’re digging deeper. I think there are some interesting things that are going to happen from a medical perspective because I think the Coronavirus has forced some visibility into the decentralization of power and how vaccines and testing is being done.
Also, there are some things around the speed of access to information, some interesting dynamics around how offices are going to be working. I think the commercial real estate industry is up for a pretty big overhaul in how those offices are being run. Travel and sales are going to change quite a bit because we are not going to be able to go back in person for a long time.
So there’s some interesting dynamics that create opportunities, and the founders we’ve seen who have been able to adjust to those and optimize their business models for them are going to be the winners. With the market downturn that we’re seeing, I think it’s hitting a lot of people financially really hard, there’s been a lot of layoffs, but that frees up a lot of talent for some of the startups who are in a better position to capitalize on the market dynamic.
So again, there’s going to be winners and losers for sure, but a change in any environment creates opportunity. And so for the people who can take a perspective and pay attention to that data that has validated those hypotheses, that’s going to put them in a pretty interesting place to capitalize on the social and behavioral changes that are happening in the market. I think privacy and security are going to be a big piece. We saw what happened with Zoom recently, they’ve got surface that has become a central tool for how people are communicating some private information.
There are some cool opportunities that are going to happen, and they have me pretty excited as an investor. Obviously it’s going to hit the market pretty hard, and I think we’re just at the very beginning of that. So how everything plays out is really unknown right now, what’s going to stick and what’s going to go back to the way it was before is kind of a question mark. So we’re paying pretty close attention to the market.
When I joined as a GP and as a managing director at Acceleprise, I think I was one of 37 female GPs, and it was a very interesting market at the time because I joined around when the MeToo movement started. And Mike, my business partner, he’s great, and about 30% of our portfolio is female-founded. So we’ve done very well in the female founder ecosystem, and Mike has been great in creating equal opportunity from the very beginning way before the MeToo movement. And it’s been kind of the culture of our fund from the very beginning.
But as a female and as a person who didn’t come from venture, I came from the startup operator side, and coming into it, into a really interesting shift in the market overall, it’s been fun to see and be part of. There are these old-school investors and new-school investors in the market dynamics that I’ve seen. And you can think about from the standpoint of people, who have been a long time in venture, they have their pre-existing relationships, they have the brand behind them that’s existed for sourcing, where a lot of the best deal flow just comes from, so they don’t necessarily need the same relationships in place that newer funds do. I think the inequality in this space has created a lot of opportunities to break some of these existing relationships and create a new market dynamic. And with that comes a lot of innovation as well because you have a new set of eyes on the existing market.
And so I think that there are a new capital and a breed of investors that’s coming into the market is shaking things up a bit. But as a woman specifically in the space, I think that there’s a dynamic that you see a lot of the time and we talk about the boys club. It’s not necessarily a boys club, it’s that there’s a lot of people who’ve been in this space for a long time and had a lot of experience, and venture for a lot of time has been like a black box. So opening that black box as someone who’s coming in from the outsiders’ perspective, who didn’t come from a finance background or traditional VC pedigree, opening that black box and learning about it is a lot harder because you don’t have the same access to the networks, etc.
But as I’ve been in venture longer, I’ve watched those networks open up a bit more and people have been willing to take their time to teach and educate me. Part of it is a lot of people prune out of venture quickly because it is a hard market, it is very hard to learn about, it’s very network-based, and the time you’re in the space really does develop the relationships in the space. So I wouldn’t necessarily say it’s a male/female dynamic, I think it’s some certain aspects of how venture works that makes it harder to break into. As a result, this makes it harder to break into for people who don’t have those existing networks and existing knowledge which has been traditionally harder to get for people like women and minorities, because we didn’t have those existing relationships or that existing knowledge.
But I wouldn’t say the network itself is particularly closed off, it’s just how the markets work has made it harder to break into and some of the dynamics of the market make it harder to break into. But the shift for LPs investing and new funds are starting to move some of that money and starting to get a new opportunity to people from diverse and minority backgrounds. On one end, it has started to create a little bit more of a shift to power and starting to open up this black box a little bit more, which creates more opportunities for more people to come in.
So it’s a change, but it’s also very interesting, and it’s been pretty exciting to be part of as well.
I talk about this a lot. I actually couldn’t have designed a better job for myself. I don’t think I would enjoy being a traditional investor, where my primary focus is finding deal flow and investments. I actually really enjoy working with founders and helping early-stage founders go after their dreams, and specifically on making money from those businesses.
I don’t think I would enjoy a traditional investor role, so this hybrid operator-investor role at Acceleprise as the accelerator as well as the seed fund is perfect for me personally, and I really enjoy it. That’s an interesting thing for a venture in general, having this hybrid role, it’s pretty unique to the accelerator model and pretty fun if you really enjoy working with the companies as well as investing in them.