Craig Cummings AMA with Capital Factory

Craig Cummings, General Partner at Moonshots Capital, participated in an Ask-Me-Anything hosted by the Capital Factory via Slack. Craig fields questions on a wide variety of topics ranging from how to navigate the fundraising process in a post COVID-19 world to how Moonshots Capital sources and evaluates potential investment opportunities. Craig and his Moonshots Capital partner, Kelly Perdew, are West Point graduates with decades of combined experience as both entrepreneurs and early stage investors.

QUESTION 1: What are the most common pieces of advice you’ve been giving entrepreneurs post-COVID?

CRAIG: In addition to all the advice around staying lean from a burn perspective, I am telling entrepreneurs to focus on relationship building with potential investors. Fundraising is going to take longer so keeping investors warm with updates and thoughtful “touches” (like a recent win or contract, etc) will set circumstances for a “yes” when conditions improve. The other technique is to try and create a forcing function for a raise, but you have to be careful that you don’t misstep.

QUESTION 2: Could you elaborate on creating a “forcing function” with examples (good and bad?)

CRAIG: A bad forcing function would be setting a date for a “final close” to create FOMO, but you don’t hit your fundraise target and have to keep raising beyond that date. A good forcing function would be “We are 1) awaiting/expecting a contract award or 2) we will be cashflow positive in a certain timeframe.

For example, “We’re raising money now to accelerate our growth. The window closes at time X to invest at the current terms because, once we hit that milestone, the terms will change in our favor.” Then you have to hit the milestone.

QUESTION 3: Can you identify any venture investing superpowers you have that either directly came from your time in the military or were greatly influenced by it?

CRAIG: I would say it is our ability to identify great leaders. Our thesis at Moonshots Capital is: “We invest in extraordinary leadership.” The military literally invests millions of dollars to train their people to be great leaders, and we’re not aware of any other population that receives that kind of investment in leadership. Consequently, we are heavy on backing military veterans but don’t exclusively back veterans. We know the military does not have a monopoly on leadership. Many of those participating in this AMA are tremendous leaders given their subject matter expertise, their startup wounds, their startup successes, their range of experiences, and more. We will have more to say about a Moonshots Capital Leadership Score soon…

QUESTION 4: Could you please walk us through your decision making process to fund an early stage company? Like right from the first meeting to closing the deal. What aspects you evaluate right from Day 1?

CRAIG: Let me start by sharing our investment criteria here, but I will say more: The data points that lead to a “yes” are collected immediately.

1. How did we get the deal? Obviously, the warmer and more credible the source, the better. Kelly Perdew and I have now invested in 81 companies in the aggregate so our current and former portfolio founders are a valuable source. However, deals come to us from a large number of sources, and there is no requirement that the introduction be warm. We see about 1500 deals a year so many are cold. How you communicate in a cold email is also a data point for us.
2. How do you communicate with us? Voice, tone, rhythm (in email), followups, and the pitch are all important. Are we seeing some initial indications of leadership through your communication?
3. Most deals are vetted through our Associate team (we have 3 Associates). If they are recommended by the Associates, one of the GPs — Kelly or me — take the pitch. If one of us is excited, we go to full partner pitch. Of course, there are exceptions based on a number of circumstances that would expedite this process.
4. Most of the time we try to get to a fast yes or no. However, sometimes we put a company into “watch” mode because we need more data points to get comfortable with the investment.
5. Once we present and agree to a term sheet, we conduct a deeper diligence process. A key test for us is judging the team’s ability to fundraise. Our lead check is usually in the range of $600K-$1.5M, but raising the rest of the round can still be very difficult, even with our assistance. It is important that the team demonstrates they have the chops to raise capital. Sometimes we see very talented teams fail because they struggle with fundraising.
6. Once we close, we work hard to back the team, acting like a co-founder, to the extent we can.

QUESTION 5: Is it a good idea to get in touch with you right at the company’s launch stage, and send you progress updates along the way, or is that too early considering your check size?

CRAIG: If you know you are too early, there is no harm in saying “We know this is too early for you but we wanted to get on your radar. Will keep you informed as we progress and would appreciate any advice in the interim.”