Sam Teden │ .Cocoon Workshop: Invisible traits needed for raising a VC round

Updated: Dec 30, 2021




Getting a Venture Capital investment seems like a huge task, nearly impossible. But thousands have done it. Yet, millions have failed. So, what holds you back from getting the investment?


Every person has their own unique set of shortcomings (weaknesses) that guide the person to live so that they would avoid situations that make them fearful, uncomfortable, or feeling stupid. Some of the shortcomings people are aware of but some are very hidden but are running people's lives.


In this workshop, we talked about the psychology of getting VC round investment.


Sam Teden is a VC investor at Anthos Capital, USA. At this workshop, he talked about his experience as a VC investor and how he sees founders who are ready for investment - and who are not.


 


Aleksander: Sam is an investor in Anthos Capital. They are on the United States west coast in California. And it's pretty amazing - their last fund is $1.5 billion. Sam, my first question to you is that if you look at your website, it's the most minimalistic I've ever seen. I don't think I've seen a more minimalistic website, it's almost I would say secretive.


Sam: The point about the blank landing page of a website - it's something that we've always done. We believe in a couple of things that are represented through this kind of blank landing page.


One is that we're a support mechanism for a company's success, not the reason for the company's success. I feel that in the world of Twitter and social media, a lot of investors try to pride themselves on Twitter followings, and promote themselves rather than their portfolio businesses. We like to be very much under the radar and just be the support team for our companies success. At the end of the day, if we do that, and our companies have successful outcomes, then that means our investors get their money back.


The second part of it is that we don't like being promoters. A lot of the websites out there have prettied up their company, everybody says the same thing. We simply like to take the road less travelled.


About Anthos Capital


It is a 14-year-old minority growth equity fund. We got started back in 2007 when our two founders launched a $30 million fund on two core principles:


  1. We want to be high conviction investors. Meaning we want to put more wood behind fewer arrows, which in turn, leads us to our second principle.

  2. Being a servant investor. That means being an investor that has the capacity to do whatever our companies need us to do whether we have the internal capability or we need to go out and find external resources.


We are now investing in our 5th fund. It's a $1.5 billion fund that we raised in March. We still practice this high conviction strategy, and really like to be opportunistic. We don't like to draw lines in the sand that would prevent us from getting a deal done.


And we like partnering with our entrepreneurs for a longer time horizon. We don't just invest in a Series A or seed round, we'll invest from seed series all the way up to a later stage going $50 and $100 million checks.


How do we operate internally at Anthos?


It all starts at the pre-investment process of getting to know entrepreneurs and building that relationship because, at the end of the day, relationship and alignment really matters. It’s important to make sure that both team and investor are really on the same page.


A lot of that, especially for us being generalist investors, is making sure that we can really understand the business. We lean a lot on our team to be the subject matter experts, we get up to speed and understand the opportunities that they're going after, but really lean on the teams to educate us. And the ones that can do that the best are typically the ones where our processes move extremely quickly. We can create alignment around the big vision, and then identify areas where we can be helpful.


Honesty


I think, over the 14 years of Anthos being around, not one of the companies regardless of how successful the end investment was, never went uphill for the entire time - there are always issues, problems, and areas where we’d like to see our companies raising their hand and saying: “Hey, I need help here figuring this out!”. As investors we enjoy helping and being a part of the ride.


I think that a lot of entrepreneurs probably don't understand that if you want to be the perfect investment, it’s not possible. There is no perfect investment. Everybody has problems running their businesses. I encourage you to be honest with the investor and really create that kind of relationship. Because if you're looking for dumb money, there's plenty of that out there today. I would encourage you to find people that can help solve the problems that you're actually having.

Intensity of use


What we always look for and really think is important, is intensity of use. If I can identify that people are utilizing technology or products at a higher rate then that is one of the more important metrics I value. If you can demonstrate that your product is ingrained in someone's workflow or show a repeat purchase rate and be able to get this kind of addictiveness of use from product or technology, that's something that we look for.


Team


Your executive team isn't built right if you're wearing 100 hats and doing 100 different tasks a day. We want to understand where exactly you see your hiring plan going. It’s important to explain why you’re the person/team to solve this problem. This is why you have gotten to this point, but don't feel like you need to act like you have all the domain expertise. Also, leveraging third parties is super helpful to get to that point as well.


Alignment


I also mentioned before but another important thing is alignment. Really creating alignment with the investor is super important. Let’s take for example Honey, a company that we've been super successful with. Honey is a browser extension that automates coupons at the checkout. We invested in them in late 2016 and exited the business in early 2020. It was sold to PayPal for $4 billion. It went from 25 million of revenue to 125 million in a few years.


But why was this company successful? First, it is an amazing product, they create a lot of loyalty to it. But as they were evaluating investors we were picked, because we had our president who had a lot of experience at Google, Facebook, Snapchat, Instagram, which was a very beneficial relationship for them. They were looking for help on the cost of acquisition and based on our previous experience, it worked. We actually spent a week with them on-site and were thinking through strategies and what was working and what wasn't. There were some pivots and we were looking at different marketing aspects.


I think from an alignment perspective, Honey realized that Anthos has the expertise that fits well with where they have a couple of blind spots, even though they were an extremely high growth business when we got involved.


Willingness to ask for help


The second successful quality is the willingness to ask for help. We had a company based in Arizona and they were going from 5 million of revenue to 15 million revenue.


They had been incredibly successful. We invested $40 million in this company, and six months into the investment they raised a red flag to us - they were starting to see a slowdown. They were expected to go to 15 but were stuck at 12. We gathered an internal team, went on-site with them for a couple of days, worked through what we were seeing from the data. That enabled us to work through the problem quickly, instead of startup thinking ways how to hide this from the investor. We ended up exiting that business for 500 million the following year.


We had a company that at the time of the investment had gone from 3 million to 12 million in revenue, showing very positive signs of profitability. But what they weren't noticing was that there was a change of regulation going on. The team was unable to listen to what the market was telling them, focusing more on operating efficiency. And not taking responsibility: “The reason for our failure isn't because of us, it's because of an external force”.



11. November 2021

 

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