We just invested in our 100th company…

Wow. That amazing milestone caused me to sit back and think about a lot of things… It made me think about the thousands of entrepreneurs we have met, especially those who allowed us to partner with them on their incredible company-building journey. It made me think about the peaks (and the valleys) we fought our way through side-by-side with those same extraordinary founders. It made me thankful for my Moonshots Capital co-founder, Craig Cummings, and all the things he brings to the table (that I do not!) as well as the dozens of associates, interns, co-investor GPs and supporting vendors who have contributed so much to our success. Finally, it made me very thankful for those investors who have believed in us and our strategy for investing and who rely on us to find and support the best founders so that we can return multiples of their invested capital.

Why do I do this?

Initially, I started writing checks as an angel investor in early-stage technology companies in 2004. At the time I had many reasons for wanting to invest:

• I loved being an entrepreneur and wanted to help others with their dreams of building their ideas to large, profitable, world-changing businesses.
• I knew that entrepreneurism was truly the lifeblood of our country and felt that supporting this ecosystem would be a fantastic way of giving back — that feeling spawned from the same urge that led me to volunteer for military service for this amazing country.
• I read and took to heart Robert Kiyosaki’s second book following “Rich Dad Poor Dad,” called “Cashflow Quadrant,” and understood that I needed more activity in quadrant IV (Investing) if I wanted to self-actualize.
• I also understood that early-stage technology investing was (and still is) one of the highest returning asset classes in any investor portfolio.
• I was inspired by my good friend and mentor, Luis Villalobos. Luis founded the Tech Coast Angels, was a founding board member of the Angel Capital Association, helped start New York Angels and many other angel groups and was an amazing board member and mentor to dozens of entrepreneurs.

Those factors led me to start this chaotic but awesome and rewarding life of investing in extraordinary early-stage technology founders.

How did we get to 100 companies?

Chapter 1 — Angel

In 2004, I wrote my first check into an early-stage tech company (TrueCar founded by serial entrepreneur, Scott Painter). Now I have personally made angel investments into 76 companies. That process is straightforward: meet a promising entrepreneur, decide it is a founder worth backing in a company that has great prospects, convince that founder you can add value by being on the cap table, and then write the check. The checks have ranged in size from $5,000 to $150,000 and in some instances, the founder has also asked me to be an advisor or board member.

Chapter 2 — Formal Syndicates

In 2014, one of my good friends and fellow angels with whom I shared deals, Craig Cummings, and I decided we would join forces and formalize our investing activities through syndicating our deal flow. We ran our first syndicate in 2014 for a grand total of $150,000 and have grown that to multiple investment checks ranging from $1.5M-$11M. Angels following us on AngelList number over 5,000 and we have over 900 angels in our off-AngelList network who like to participate in our deals. This syndicate vehicle allows us to follow-on not only into early-stage deals that we have previously invested in, but also to opportunistically invest in later stage deals we have access to through our long-standing relationships and extensive network. The process for syndicates is like the angel process: find a great entrepreneur with a great company, negotiate an allocation in their round of financing, then “herd all the cats” in our syndicate to make the investment. We have completed investments in 40 companies with over $44M via our own syndicate vehicle.

Chapter 3 — Committed Funds

In 2017, Craig and I co-founded Moonshots Capital, and raised our $20M Fund I and invested in 14 companies. In 2020 we raised our $36M Fund II and have invested in 13 companies out of that fund so far for a total of 27 companies from the fund structure. The process for raising and investing from a committed pool of capital is quite different from being an angel or leading a syndicate and I previously wrote about that here: So you want to raise a Venture Capital Fund. Our Fund check sizes have ranged from $600,000 to $2.5M and we are typically focused on late Seed stage deals across several sectors and, in cases where we lead the round, we take a board seat. In every deal we get as involved as the entrepreneur would like us to be to help them succeed.

Footnote: Several of the 100 total companies span more than one investment vehicle (angel, syndicate, and fund) and may have multiple investments hence the sum of the three chapters is greater than 100.

What do we invest besides the $s?

My ability to deploy capital has grown over time. From scraping together $5K for my first angel deal to leading $5M funding rounds with $2.5M checks out of our Moonshots Capital Fund II to acquiring an allocation in a late-stage deal and running an $11M syndicate. However, more important than the dollars, I have also increased the ways in which I can help a company. Early on I could only really provide advisory services in a couple of capabilities — primarily in business development and finance because those were my personal skills. As I evolved as both an operator by building companies and as an investor by partnering with Craig and building out our team, I have radically increased my ability to provide value to a portfolio company — the list is extensive but some primary value adds include: cap table re-structuring, talent recruitment, business deal structuring, financing strategy and negotiations, go-to-market strategy, sales team development, and perhaps most important, helping think through strategic decisions in good times (and especially in bad times). Our founders tell us that the added value we provide has been critical to their success.

Who do we work for?

While we do have limited partners (“LPs” — investors who trust us to invest their dollars both in the syndicate and fund structures), Craig and I both feel, at the end of the day, that the founders are our true long-term customers. The early-stage ecosystem is quite small and a VC’s reputation about how he/she treats founders is of utmost importance. The changing nature of the investment community is showing that how you help the entrepreneurs (not just providing the money) is how investors are winning deals. Craig and I are operators in our DNA and this empathy comes through to the entrepreneurs. The founders know that we have their backs right up to our fiduciary responsibility to our investors. This characteristic has become even more important as increased money has flowed into the early-stage VC asset class from PE over the last 24 months. Early-stage startups raised $100 billion more last year than in 2020, collectively raising $201 billion. Seed-stage startups raised $10 billion more in funding in 2021, for a total of $29.4 billion. During the process of competing for deals with exceptional founders, we request that they speak with three or more of our previous founders and when that occurs, we typically win.

What is our investment thesis?

When we decided to raise a committed fund from LPs it forced us to articulate a specific strategy for investing as LPs need to understand how a VC invests so they can ensure they are creating diversification in their portfolio. Craig and I looked back over our 70+ angel investments and 15+ syndicates that we had completed and determined that there was only one factor for which we could control at the time of each investment that resulted in the best outcomes — and that was the quality of the leadership.

People

We look first to invest in founders who have demonstrated extraordinary leadership capability. Frequently, and as reinforced by our own leadership training, these founders will be military veterans. Where else in the world is millions of dollars spent training an individual in leadership per se? Additionally, because we share that background, our ability to “vet the vet” and the accelerated speed to trust with that group gives us a strong advantage, not only in winning those deals, but in working together to well after the investment to increase the likelihood of success. However, the military is not the only breeding ground for extraordinary leadership — we have also found the same grit, passion, vision, and resilience we see in military veterans in former NCAA team athletes who have been disciplined in pursuing a goal and focused on winning as a team as well as in non-traditional founders such as women and people of color who have overcome insurmountable challenges just to get in front of us to pitch the company they have built.

• In Moonshots Capital Fund I, 86% of our companies have at least one non-traditional founder
• In Moonshots Capital Fund II, so far, 64% of our companies have at least one non-traditional founder

And, of course, like every other investor, we like to see 2nd and 3rd time entrepreneurs who have the battle scars from their previous entrepreneurial ventures to help them navigate the difficulties of building their latest company.

Stated simply, we are drawn to people who have demonstrated extraordinary leadership.

Stage

Most of our effort is directed toward companies that are in what we call late Seed stage. In addition to extraordinary leadership, they typically exhibit the following characteristics:

1. Disruptive in their industry and can achieve a 10x+ return.
2. Product (or Minimum Viable Product “MVP”) is live with client/customer traction.
3. Annual recurring revenue (ARR) of $1M+.
4. Raised at least $500K in seed capital.
5. High applicability of our operational and/or investment network.
6. Chemistry with the founder(s) and they evidence coachability.
7. We can take a board seat or formal advisory role.

Every deal is different, but at the late Seed stage and with all those characteristics present we would like to get to 10–15% ownership with our lead check of $750K–$2.5M in a $1.5–$4M round.

Most micro-funds (< $100M) are typically unable to follow-on in companies after more than one or two rounds. We, however, use our syndicate vehicle to allow us to continue investing and supporting the companies after we reach the limit on the Fund (like most funds we have a limit so that we are not too concentrated in any one deal). The syndicate vehicle also enables our LPs to over-index in those deals they really like.

Sectors

We are agnostic as it relates to the sectors where we invest as you can see from our portfolio construction (our full portfolio is listed here). I will say that again — we are agnostic as to sector because we know technologies change rapidly, and that pace of change continues to accelerate. What does NOT change is the importance of leadership. Pitchbook recently released data showing that, contrary to what many have believed — sector targeting or specialization does not perform better than a “generalist” VC strategy.

Craig and I have held 15 operating roles between us across different industries and have invested in 100 companies over the past 18 years where we have developed extensive networks. We also have 100s of angels and LPs who have invested with us who also have deep expertise in an array of sectors. When appropriate, we call on them for assistance with our portfolio companies. While we really want to find the most extraordinary leaders in any sector, these are the sectors where we see market opportunities now.

• Fintech: Carta, ProducePay, Groundswell

• Dual Use: Red 6, ID.me, Transmute

• AI/ML: Olive.ai, Wildfire, Backtracks

• Cyber/Security: Gretel, Harvest, Threatcare

• Consumer Internet: Cart.com, Pacaso, Realize.me

• Web 3.0: Zabo, KOJI, Afterparty

How are we doing?

From an entrepreneur’s “likelihood of success in fund-raising” perspective, the number of deals that a VC fund reviews can look daunting:

• Moonshots Capital Fund I: We saw 1,800+ companies and invested in 14
• Moonshots Capital Fund II: We have seen 2,000+ companies and invested in 13 so far

As you can imagine, the screening process is intensive and the due diligence on those that make it through, even more so. We feel like we are “pretty good” at picking the companies, but believe we are “really good” at helping the companies after we invest. Either way, our numbers speak for themselves. Interestingly, in this business, no one knows how good you are (including you!) for 5–7 (and sometimes 10) years after you start investing.

Across angel, syndicate, and fund investments here are some of our high-level numbers:

• 13 unicorns to date, eight where we were part of the earliest rounds

• Five of our unicorns we invested in later stage through our Fund or syndicate vehicles

• 22 exits and 17 deaths
• ~$85M invested and ~$250M AUM
• Moonshots Capital Fund I (2017 vintage) is tracking top quartile*
• Moonshots Capital Fund II (2020 vintage) is tracking top quartile*

*Pitchbook as of 3/23/22

To give you a better idea of the types of leaders we look for and the relationships we develop with them over time, here are two fireside chats that I recently led with two of the extraordinary leaders in our portfolio:

1. Blake Hall, Founder & CEO @ ID.me. Kelly and Craig have been deeply involved with ID.me since the company’s inception and have invested in every round either as an angel or via the syndicate or Fund vehicles. Kelly has been an active board member since 2010. ID.me Fireside Chat
2. Dan Robinson, Co-Founder & CEO @ Red 6. Craig heard about Red 6 via AFWERX and the Capital Factory relationship and we led their Seed round based primarily on Dan’s leadership capability. We have invested in every round and Kelly has been an active board member since 2019. Red 6 Fireside Chat

Hard things about this VC job…

Deaths

In addition to the 22 exits we have achieved and the many more successful outcomes we anticipate in the future, we have also, unfortunately, had 17 deaths — and there will surely be more. Most people do not talk about the companies that did not make it; however, it is part of the reality of being in this business. I have personally had two “learning experiences” as an operator where I poured my blood, sweat and tears into a business but despite my absolute best effort, I was not able to make it work. Start-up companies are very risky by their very nature, and we do everything we can to help them succeed, but they do not all make it. For many entrepreneurs this is where the most learning happens — when things do not go well. It is important to take those lessons to the next venture. And while they are most certainly not what you read about in TechCrunch every day; the deaths far outnumber the exits. I hope that our founders who travel this difficult path feel our empathy and know that we still do everything in our power to guide them down the best possible route to close out the business and prepare for their next venture.

Fund-raising

I have previously written about our journey to raise our Moonshots Capital Fund I (“So you want to raise a Venture Capital Fund”) and how hard it is to raise money for a fund. I do not want to belabor that point; rather, for all you entrepreneurs out there who have a fully developed CRM to track your outreach to 50–200 VC funds (especially those that never reply…) just know that the VCs you are pitching must do their own pitching to get the dollars they are investing in you. And what comes around goes around! 😊

Conclusion

There is nothing I would rather be doing; this is the best job in the world! We are extremely fortunate to be able to meet, invest in, and help these phenomenal leaders build out their meaningful companies.

I look forward to investing with our incredible team in the next 100 companies and their extraordinary founders!!