Managing Mindsets as an Early Stage Investor

My interview with Allison Long Pettine, founding partner of Seed San Diego.

Each week, I have conversations focused on the growing number of female angel investors, the real unicorns. You’ll hear from existing female angel investors, VCs, and fund managers on their investment thesis. From deal flow to exits, they will share the best practices that contribute to their success.

Today we have the honor of having somebody who has really shaped the San Diego ecosystem and has made inroads into making sure that there is a strong angel investing community in San Diego based on her partnerships and what she’s done.

This is Allison Long Pettine. She is the founding partner of Seed San Diego, a premier venture group in San Diego that provides both capital and strategic value to startups, developing disruptive technologies across multiple industries. Allison is also president and founder of Crescent Ridge Partners, a local seed-stage venture fund. Prior to founding Crescent Ridge Partners, Allison was VP at Viscogliosi Bros, a New York-based venture capital company focused cutting-age orthopedic medical device technologies. Allison is also a mentor at Techstars, sits on the advisory board of UCSD — University of California San Diego — The Basement incubator, and is a committee member at EvoNexus, and is on possibly every panel that I’ve thought about VCs and angels in San Diego. So, welcome to the show, Allison.

Thanks, Silvia. You’re too kind. With that intro, I have big shoes to fill now.

Oh, no. We just want to learn more about you and more about what it has been to be a VC, what your life is as a VC, what your perspectives are, and how it’s done. We’ve heard a lot about angel investing, but not so much about VCs, and you are one of the VCs that I admire.

Well thank you. I started Crescent Ridge Partners, which is a seed-stage venture fund, in 2012, and I started it after working in venture capital. I worked at a small venture fund in New York City, on the operating side. I worked for one of our operating companies at the early stages. I started my own venture firm because I was passionate about supporting visionaries and supporting innovation.

Your focus for She Invests! is really understanding an angel’s perspective and encouraging other females, in particular, to be angels, and I think part of what I went through when I decided to start Crescent Ridge Partners was, “Am I ready? Can I do it?”. Even though I had been in the industry, I still had that self-doubt. I think that is one thing a lot of females, in particular, face; a kind of uncertainty in themselves.

I had spoken to a fellow investor who I didn’t know very well. He was actually a surgeon, and he was giving me some career advice out of the kindness of his heart. He was asking me, not offensively, but out of curiosity, “Why don’t you feel like you’re ready? You’ve had over six years of experience at a venture firm. You could obviously go back and do that again. But, there’s nothing to stop you from doing it now. You’re obviously qualified and you understand what it takes. Just give it a shot. You can always go back to venture.”

I thought a lot about that. Every step along the way when I have this self-doubt, I always go back and say, “Why do I have this self-doubt, and why don’t I think I’m good enough or qualified enough?” I think, for females, it’s a very risky proposition to invest in early-stage startups. I think, at the end of the day, my desire to really be at the early stages of value creation takes over that self-doubt.

That was a little bit of meandering, but that’s essentially why I started my own fund. I think that there’s different stages of investing as well, and I really like to focus on the early stages. In this stage, there is the most uncertainty, but also, in my mind it’s the most fun. Companies are the most malleable and there’s a lot that you can create at the early stages. So, hopefully, that gives you a little bit of insight into my perspective.

I love that. I’m also an early-stage investor and I love the fun and dynamics of creating that value in the marketplace and creating with somebody who’s as passionate about their product than I am in investing in her. I just want to ask one more question about being a VC. If somebody is an angel investor, and they’re thinking: “I want to be a VC, I want to create my own fund,” how does she really go about doing that? Do you go around and ask your colleagues, “Would you be willing to invest?” Do you need to have an investment thesis before and communicate that investment thesis? How does that work?

I was fortunate to be in the situation where I had friends and family who believed in me. I mean, it’s not dissimilar to an entrepreneur who’s just starting their business that doesn’t really have a track record, right? I was able to convince a few people that this is something that I’m passionate about and that I think that there’s an opportunity, and also this is a way to get exposure to an asset class that, maybe, they typically or historically haven’t had. I think my situation is a little bit different. I wasn’t going out and raising a huge fund. I think I was really just going internally to people that I knew, and I think that it just depends on where you can get the capital, just like any business that starts.

But, I do think as you’re continuing to raise more and more then you do have to have a track record. You do have to show that you have a sound investment thesis, and there’s just a lot of competition out there in terms of people who are raising a fund and where the dollars are going.

I think that most definitely has the same effect or process of an entrepreneur, as you said. You need to build somewhere, and if you’re building something worthwhile and you’re building something small enough to make that difference, that’s important and worth starting.

Right.

Now, about the investment thesis, one of the pieces of your investment theses was to invest in San Diego and SoCal. What does that San Diego ecosystem look like? How has it built? Where is it going?

When I arrived, one of the reasons why I decided to focus on Southern California and San Diego is because I saw that there were just a huge need for early-stage capital here, especially capital that was experienced and that could help the entrepreneur along the way; what they refer to as smart money. There were definitely pockets of it that existed. When I initially started Crescent Ridge Partners, I decided to focus on San Diego because I saw that there was a need for early-stage capital here. There were very few investors who were focused on the early stages, and particularly very few investors who had experience building companies from the early stages, from the ground up and also investing in those companies from the inception, quite frankly, investing in those type of deals.

San Diego is funny because it’s a small community, and everyone knows everyone else, but it’s also very fragmented in the sense that a lot of people don’t necessarily work together. All of us early-stage investors, Silvia, you and I know each other, and we know the angel groups, and you see everyone around. But rarely do we leverage each other’s skill sets and have regular interactions with each other.

That’s actually one of the reasons why I founded Seed San Diego; I really wanted a cohesive group where I could say, “Okay, there’s four other partners from whom I can draw on their skill sets that are complementary to mine, and we’re all looking at the same deals, and we’re all generally thinking the same things, but let’s build an infrastructure where we can talk to each other on a regular basis.” I think that’s been working well, but at the same time, we need to do a better job of reaching beyond just the five of us. So, that’s one of the things that I’m focusing on over the next 12 months; leveraging other investors in the community and whether we can just create these regular communication channels, because I think, in San Diego, we’re too small to compete. We will succeed as a city if we can syndicate successfully and work together on deals.

I think one of the things that’s challenging is we have these geographic disparities. People are located all over San Diego and that makes natural connections and run-ins few and far between, and we don’t really get those coffee shop talks or unintentional synergies, if you will. I think that is a disadvantage, but something that we can focus on and try and be better about.

I think you do that really well because we’ve gone out to lunch and coffees throughout the years and really built a good collaboration between the two of us saying, “Hey, how do we build this better? We have this entrepreneur. How do we connect with her better? How do we connect her with others?” So, I think that that’s wonderful that you’re building it that way.

To your point about how San Diego has grown, I’ve seen a lot of maturity in the entrepreneurs here, and I think a good deal of it is because the resources that are available to entrepreneurs today are much richer than they were five years ago. Case in point is what you started, right? I mean you’re one of the examples of an amazing resource down here. We have the Hera Venture Summit which didn’t exist when I was here five years ago. So, I think there are a lot of people doing a lot of amazing things to help foster innovation and build better entrepreneurs in San Diego, because we don’t really have a lot of great exits and a lot of successful kind of repeat serial entrepreneurs like the Bay area does. We all do our part.

I think that’s one of the conversations that we’ve had in the last couple of years, even the panels that we’ve had, or events that people put on is that we are not Silicon Valley, and who are we here? We do not have, let’s say, those serial entrepreneurs, but how can we activate capital within San Diego to make it more robust?

I think that’s one of the things, also, where you had mentioned you asked about what our investment thesis is, and that’s one of the things that we’re really trying to focus on at Seed San Diego. Can we invest in a way that correlates with what San Diego’s strengths and personality are?

I think part of that is we don’t have access to hundreds of millions of dollars, and we don’t have the talent and the visionaries that, maybe, the Bay Area or New York have. So, what do those types of companies look like, and how do we take baby steps in order to nurture and breed those visionaries in the capital? You can’t go from 0 to 100 overnight, right? So, for us at Seed, it’s almost like we’ve got to take a step back and say, “Yes, obviously we want eventually get a home run and invest in a unicorn,” but is that going to happen over the next two years? Maybe not. Over the next seven to 10 years? Maybe. But, we have to build that, and how do we build that?

And communicate that as well.

Exactly. I think it’s difficult because a lot of people read the media, and they think all startups are the same, and all valuations should be the same, and all exits should be the same. The reality is that most companies exit for less than $50 million, and that doesn’t mean they’re not a successful exit. You can make just as much money off a $50 million exit as you can off a $500 million exit depending on how much you raised. Sometimes, you can even make more.

I think it’s all about understanding how to create as much value without going overboard and leveraging what we’re really good at in San Diego, which is a lot of companies are very capital-efficient because they have to be — they’re scrappy. We have a really loyal talent base down here. People don’t jump from one company to another. A lot of times, they’ll stay with an organization for 10-15 years. We have amazing culture, a really collaborative culture, people like to work together, like to help each other. It’s not cutthroat. There’s obviously a very balanced work life as well. Some people argue you should be working 100 hours a week, but I think here we can enjoy life outside of work and still be productive.

I love all those points because that’s what makes that ecosystem thrive; that we understand each other and we collaborate. Can you think about anything that has been a win, a really good win for San Diego so far?

We have had a few good wins. The most recent probably was Nirvana Systems. They were a few senior level engineers out of Qualcomm Ventures that started their own AI platform and ended up selling to Intel for, I think, $400 million in less than two years. I think that exit was last year, I believe. We have had some really good exits, and there are some really smart people down here. So, it’s starting to happen.

Wonderful. I know that Craig Venter Institute was able to acquire a really early stage company from Rady School of Management.

Yeah, Human Longevity, right?

Yes.

Who acquired Cypher Genomics, which was a big win as well. So, both biotech and technology, and then also we have a lot of wins on the early stage stuff too. There was a company called QuickFire that was founded by Craig Lee, which was sold to Facebook before they raised their series A. One of the companies that we invested in, Lymber, was recently sold to MINDBODY also before they raised their series A.

I think the more of the earlier stage stuff that we can build and sell quickly in less than a year or two, the more it creates immense value. The capital requirement to get it up and started is pretty low, and the capital that we get back from the exit can get re-funneled into building new companies.

But wait…there’s more?!

This post has been adapted from the She Invests! podcast. Listen to the full episode here and don’t forget to subscribe to She Invests on iTunes.

About
Silvia Mah is the Executive Director of Hera Labs, an SBA Small Businesses of America and City of San Diego funded business accelerator for female founders to thrive in launching startups and scaling existing businesses and CEO of She Invests, a podcast and soon to come book, inspiring and connecting female funders around the globe. With a Ph.D. in Biochemistry from Scripps Institution of Oceanography and her MBA from Rady School of Management, a double UCSD alumna, she helps accelerate university discoveries through the commercialization pipeline. Her focus is in on empowering, nurturing, and launching female entrepreneurs & female angel investors. She invests in socially relevant ventures that will allow women to break through barriers and leads a female-only angel investing group, Hera Angels, with an affiliated Hera Fund.

Follow Silvia on Twitter at @silviamah. We welcome your comments!

Investor | #accelerator 4 #fempreneurs @stellalabs | integrity @ core | mom of 2 B 1 G | Venezolana | #STEAM | #PurposeFilledLife | She Invests! | Ad Astra VC

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