Ask Me Anything with Investor, Sean Mendy

Transparent Collective is a non-profit breaking down the barriers that acutely affect the success of minority founders at the early-stages of their startups. Committed to supporting Black, Latinx, and women founders in building connections with investors and gaining access to resources, the organization is on a mission to increase exposure and access to Silicon Valley for underrepresented entrepreneurs.

By bringing founders and investors together to talk openly, share advice and get to know others in the community, Transparent Collective is expanding its impact and growing its network.

In our monthly investor Ask Me Anything (AMA) event, we had the privilege of speaking with entrepreneur and venture capitalist, Sean Mendy.

Sean Mendy is a Founding Partner at Concrete Rose Capital, an early stage investment platform focused on capitalizing on underrepresented founders, investing in companies serving underrepresented consumers, and helping early stage companies build diverse teams.

He also serves as an Advisor to Sixth Street Partners and Next Play Ventures. He’s a Board Director of StreetCode Academy, the Boys & Girls Clubs of the Peninsula, and USC’s Brittingham Social Enterprise Lab. Additionally, he’s an Advisor to Mount Tamalpais College at San Quentin, the first independent accredited college operating within a US prison.

Having grown up in Silicon Valley, Sean offers a unique perspective and understanding of the business and how the climate has changed up to today. “I’ve been obsessed with financial and social capital and what happens when you get it, how it can fuel the realization of human potential, since I was a teenager.”

The founding of Concrete Rose Capital was inspired by working on the racial wealth gap. Sean saw an opportunity to do something that was differentiated from other companies that had already been started. Concrete Rose Capital has three focus areas:

First, they look for underrepresented founders. “We think there is a market dislocation there. Traditional venture infrastructure is not picking up founders with great ideas and the ability to execute on them. We’re seeing that with the 19 companies we’ve invested in at this point. 75% are Black or Latino founders and 15% are women,” Sean said.

  • Second, they are investing in companies that are addressing needs or solving problems for underrepresented consumers.

From there, Concrete Rose Capital will partner with them to do just that. They help founders find their culture, make it inclusive, and help them recruit talent for their companies so they can actually retain what they’ve accomplished from this culture work. The last piece is that they connect founders that they invest in with their Concrete Rose Network.

When talking about how founders can break into the general network, Sean stressed that it doesn’t have to be through just the idea of knowing the right person. “Opportunities are going to be missed going forward if you are only relying on warm intros,” he said.

We asked Sean about his feelings around warm intros versus cold intros, how he approaches the topic himself, and how he sees the market approaching it.

“The pragmatist in me understands the value of warm intros in terms of just saving time and having already passed through a screening. The idealist in me realizes that you’re not going to solve institutional and structural issues until we start really challenging some concepts like the concept of warm intros. We’re trying to do both,” Sean responded.

Concrete Rose Capital leverages warm introductions to get access to some of the competitive deals they invest in regardless of the founder. With that being said, they value cold inbounds just as much.

“We’ve got a form on our website that founders can fill out. One of my partners spends a lot of time reviewing deals that come in through that channel. Interesting deals can be found any way,” Sean explained.

Before this process of networking can even begin, Sean explained that they look for the following criteria in a founder and opportunity:

  • Who’s the founder and what’s the evidence of them being somebody who can get things done?

“We try to think not only in terms of what solution have they built today, but also how could the solution evolve or is the market big enough… and then understanding any type of traction,” he said.

When considering this said traction, Sean said that “Traction can take many forms. The simplest one is dollars or users. But that’s maybe not the right thing to be looking at depending on the company.”

While this is generally the process for most venture capital firms, Sean explained that Concrete Rose Capital is different in that they “actually have an external investment advisory committee. [They] screen deals individually with all the members of that committee.”

Moving forward, Sean is excited to work more in the market of sustainability. He said, “The circular economy is very interesting to us, like what kind of processes can eliminate waste, what type of technology can be created to make food production more sustainable.”

When it comes to investing in these founders, Sean emphasized that Concrete Rose Capital are generalists. “We invest in anything we can learn and understand.” However, they are looking for founders and companies that will make a greater difference.

“Ideally, founders that we’re investing in are shaping the type of world we live in. It’s really important that we invest in purpose driven founders. They don’t need to be social impact focused, but we want folks who think the world will be improved by what they create, whether it’s a business tool, consumer product, or an actual green solution,” Sean said.

At the end of the day, Sean sees these deals as long term relationships. He sees his company as in service of entrepreneurs. “We want to be the wind at their backs and we want everyone in our network to do the same.”

Read a recap of the full conversation below:

James:

All right. Well, we’ll go ahead and get started. I’m sure people will trickle in as time goes on. So, anyways, I’m James. The whole point of this is not to have 100 people. The point is to have 10, 15 people get into how we can be helpful, and so I’m just going to start off by allowing Sean to give some background on what brought you to start Concrete Rose, and where things are at today.

Sean:

Yeah. Lifelong journey to start Concrete Rose. Grew up in Silicon Valley. Foot in multiple worlds. So, went to school with the kids whose parents were building this previous generation of tech companies, like the Intels and the Ciscos and the HPs. And then lived in neighborhoods with the kids and families who if they were working at those companies, they weren’t creating generational wealth. They were in service roles, or they were working at hotels and restaurants and grocery stores. So, were paying rent, but their kids were going to be working. And I just remember being in my classes in high school thinking, “There’s smart kids in these classes, but my neighbor Miguel, who I play soccer with on the weekends but works after school at the grocery store, he’s just as smart,” and watched how lives played out as a result of that access to opportunity.

Sean:

And so, I’ve been obsessed with financial and social capital and what happens when you get it, and how it can fuel the realization of human potential since I was a teenager. After college, was a founder myself. Worked at traditional nonprofits for a time. Worked in tech, social impact, as an employee at a later stage funded company. And my last job before starting Concrete Rose, I was leading a fundraising campaign for Condoleezza Rice to fund a program that she had founded that was closing the opportunity gap in Silicon Valley. So, had kind of gone back to my roots and was thinking about kids who were like me who could go in one direction or the other, and making sure they were all given the opportunities that I got.

Sean:

While I was doing that, was in an actual Boys and Girls Club program. We were scaling the program as much as we could. We were helping 3,000 families a year. And people don’t know this, but there’s poor people in Silicon Valley that we were working with, but were here. And, was just getting obsessed with the fact that while we were doing good work, what we were currently doing and everything I had done before was not really getting to the root cause of inequality in the country. Every initiative that I had been a part of was addressing a symptom, and while it was good work and I could’ve been happy continuing to do it, I thought there was an opportunity to do something that was more transformative and more getting to that root cause.

Sean:

And so, started talking to people about the racial wealth gap who I thought might care about it, and by getting to know them, by having been in Silicon Valley for 35 years at the time, saw an opportunity to do something that was differentiated from other initiatives that had been started. So, Concrete Rose, we incubated at one of the folks… What I actually did was… I’m trying to say the short version of this story, but I can’t help but tell this story. There was a few folks who I had initially talked to about potneitlaly launching a fund to address the racial wealth gap. One player for the Warriors, he was actually the first person I told, was very, very excited about it. Is this being recorded, James?

James:

It is.

Sean:

Oh, it is recording. Yeah. So, I’m going to not tell… I’m going to tell the shorter version of this story, or the not so provocative version of this story. Was very excited. I didn’t know what this was going to be, so we didn’t take an investment from him. Second person I told was Jeff Weiner at LinkedIn. Jeff was very enthusiastic about it. I knew he cared about the opportunity gap. I knew he cared about issues of racial inequality. He was, at the time, was planning to step down as CEO from LinkedIn, and that was not public. He didn’t even tell me that. But he said he was going to be doing a lot more investing, and thought we could partner on this, and you could do it with me. And that was an incredible opportunity, but yeah, it wasn’t building a firm, which is what I was kind of set on.

Sean:

The third person I told was a guy named Alan Waxman, who is the best investor over the last 20 years that no one has heard of. He has a $50 billion private equity platform, and what he said to me was the honest truth that a founder needs to hear sometimes. He said, “If you go out and do this yourself, you’re going to fail, but you have all the tools to do it, so I wanted to make sure you go at this the right way. So, come, incubate your fund with us at Sixth Street Partners. We’ll give you the resources you need to be able to really understand the problem you’re trying to address, create a differentiated approach to solving it, and we’ll help you build something that’s going to be best in class, institutional, multi-generational. We’ll make it so that you’re building things the right way.”

Sean:

And so, spent almost a year doing that, and came out of it with a fund with three focus areas. So, in terms of where we invest sector-wise, we’re generalists. We’ll invest in anything that we can learn and understand, and there are people on our team that are much smarter than me who can learn things quickly and understand them better than I can. But, we’re focused on early stage, and three different types of founders. Most of our founders fit multiple buckets that I’m about to describe.

Sean:

So, first, definitely looking for underrepresented founders. We think there is a market dislocation there. Traditional venture infrastructure is not picking up founders with great ideas and the ability to execute on them. And we’re seeing that with the 19 companies that we’ve invested in at this point. 75% are black and Latino founders, and 50% are women.

Sean:

Second, we’re investing in companies that are addressing needs or solving problems for underrepresented consumers. Again, that’s just about driving returns. So, if you’re building a company that is creating fintech products for Latino families, it’s a fast growing segment of the population, that’s been traditionally underserved, there’s a massive opportunity there. We want to meet founders like that.

Sean:

And then third, we’re interested in meeting founders of all backgrounds. They could be underrepresented. They could be a white male who went to Stanford, then Harvard, and worked at Google. Provided that these founders have a demonstrated commitment to diversity and inclusion, and want to build inclusive cultures in their companies and diverse teams. Then we actually partner with them to do that. So, we help them define their culture, make it explicit, make it inclusive. We help them recruit talent for their companies that they can actually retain because they’ve done the culture work.

Sean:

And then the last piece of this is we connect founders that we invest in with what we call the Concrete Rose Network. So, it’s investors, it’s folks like Jeff, it’s folks like that Warriors player that I mentioned earlier, it’s folks like Alan Waxman, CEOs from top companies, investors from top funds, who get very hands-on with our founders and help them build their business. They lend their social capital to those founders, whether it’s making a strategic introduction, being a coach, being a mentor, customer intros, all that. Average check size is about a quarter of a million dollars at the pre-seed level, and up to about a half a million for Series A or Series B. Cover everything, James?

James:

Yeah, I think you covered it. Oh. I guess, how active do you feel like you are? How many investments do you think you’ll make-

Sean:

So, we started investing in February of last year. We did 19 companies in 2020. And that’s the pace that we wanted to do them at. This first fund will be about 40 companies. We reserved a portion of the fund to double down on folks that start to gain traction. We ideally are reinvesting in everybody. And, yeah, it was a busy January. At every month or week I think it’s going to slow down, it speeds up. I haven’t been in venture that long, and investors are telling me it’s never been this crazy. They’ve never seen as many deals being funded as quickly as they’re being funded, and I think that goes for all different types of founders. There’s, I think, different complexities that come in with black and brown founders, and women founders, so underrepresented in general, and I’m sure we’re going to get into that. But yeah, we’re pretty active.

James:

Okay, cool. So, first step to getting funded would be meeting someone, right? What’s your feeling around warm intros versus cold intros and the whole network aspect of things? How do you approach that yourself, and how do you see the market still approaching it?

Sean:

Yeah. So, first, I’m constantly straddling between the world I want to live in and what’s effective now, and the world as it exists now. And ideally, the founders that we’re investing in are shaping what type of world we live in. That’s really important that we invest in purpose-driven founders. They don’t need to be social impact focused founders, but we want folks who think the world will be improved by what they create, whether it’s a business tool or a consumer product or an actual green solution.

Sean:

And so, the pragmatist in me understands the value of warm intros in terms of just saving time and having already passed through a screen. The idealist in me realizes that you’re not going to solve institutional and structural issues until we start really challenging some concepts, like the concept of warm intros. So, we’re trying to do both. And actually, I’ll even give more context, just the way that we even designed our fund.

Sean:

The whole idea of having these three focus areas, we saw an opportunity by virtue of our network and the folks that we have involved and the folks who we have invested in the fund to get into really great deals in that third focus area, who may not have underrepresented founders, but are going to be great companies. And the only way you get into those companies is you have some type of relationship there. So, we actually leverage warm introductions to get access to some of the most competitive deals that we invest in, regardless of the type of founder.

Sean:

And then the other thing that’s actually interesting about that is that we can actually influence who even has the ability to give a warm introduction by getting the right people into those companies. If I get the next James Norman into Slack five years ago, and he makes a ton of money on Slack, now he’s an investor who is going to be feeding companies towards me. Or, if he decides he wants to start a company himself, he’s going to come back to me because I helped him get that job. So, it’s creating this virtuous cycle and diversified networks, the work that we’re doing at the third focus area.

Sean:

All that being said, we also do just value cold inbounds. And so, we’ve got a form on our website that founders can fill out. One of my partners spends a lot of time reviewing deals that come in through that channel. We’re about to bring a deal to IC next week that came in through Twitter. Interesting deals can be found any way. At the end of the year, we evaluated… there was about 540 deals, and VCs will say we met 2,000 founders last year, and maybe they met them, but they didn’t actually spend time on those deals. So, we actually spent time on over 500 deals last year, and we looked at where they actually came from, and where the deals that we actually invested in came from, and they came from everywhere.

Sean:

So, some of them came from warm introductions, some of them came cold, some of them came from founders in our portfolio who just thought somebody was interesting, or got a cold inbound themselves and just forwarded it to us. I understand why people value warm intros, especially if you’re somebody who has been investing for 25 years and has a network of folks who have built incredible companies, and it’s literally like, all right, you’ve had two exits and you’re coming back. Or, I’m being introduced to somebody who’s had two exits and is part of this network of elite, high achieving entrepreneurs. I see why some people, it’s hard for them to get out of that, but I also see that opportunities are going to be missed going forward if you’re only relying on warm intros.

James:

Right, right. Okay. So then, once you get in the door, what’s the Concrete Rose process look like? So, if I get in there to the first meeting, you’re trying to evaluate if I want to continue diving deeper on this. What kind of metrics are you looking at? How are you making that decision? What is the process? What is the process like?

Sean:

Yeah. So, we’re a firm that really believes in making things explicit and defined, so that there’s less room for bias. When there’s ambiguity, bias creeps in, whether that’s within an organization or organizationally. So, we have a defined process, but at the same time, we’re trying to not ignore some intuition and instincts that can lead to really good decisions. So, our first call is really about understanding the founder and the opportunity. So, we’ll have a meeting. When we do take a meeting, and we take most meetings, we go through our… We have a form that we get through. But it’s really mostly about who’s the founder, what’s the evidence of them being somebody that can get things done, what’s their vision, what’s the problem that they’re solving, and how big is the market that they’re going after.

Sean:

And we try to think not only in terms of what solution have they built today, but also how could this solution evolve, or is the market big enough for it, if they haven’t found product market fit yet, but there’s enough opportunity there where they’ll be able to eventually find it. So, that’s what that first call is mostly about. And then understanding traction, any type of traction, whether it’s you built an MVP, you actually started selling something, you’ve got x thousands of users, whatever that is. That first call is to really understand those baseline characteristics and metrics.

Sean:

Then, our team takes longer than most other firms. We take up to 30 days to really take an entrepreneur from a first meeting to an investment decision. So, our team meets with entrepreneurs all week. On Thursdays, we get together. We talk about the interesting deals and interesting founders that we’ve met, and decide on next steps. Next steps are usually follow-up questions over email. And then depending on the answers to those questions, we’ll schedule a second call, try to get as many folks from the team onto the call as possible, to understand the opportunity.

Sean:

And then after that call, we’ll bring into our network. So, the same way that we leverage our network to support founders that we’ve invested in, we leverage it for diligence as well. And so, since we’re generalists, there’s a lot of deals that we might come across where we’re unfamiliar with the sector. So, if we meet a proptech company, we’ll bring it to a real estate focused investor that’s in our network who, one, might actually want to co-invest with us, but, two, just has invested in 40 real estate tech companies and can actually tell us what’s differentiated and what’s not, what’s real and what’s not. We don’t rely on that outsourced diligence, but we do leverage it pretty seriously.

Sean:

Usually after that call, we’ll do one additional call with founders, sometimes with their broader teams, as we start pulling together an actual investment memo. And then another way that we’re unique and different from other funds is we actually have an external investment advisory committee. And, we screen deals individually with all the members of that committee. So, it’s Jeff Weiner at LinkedIn, Theresia Gouw at Acrew Capital, Andre Iguodala, who’s playing for the Heat, but is a very serious investor, and then Alan Waxman, founder of Sixth Street, where we incubated the fund. So, we’ll screen it with all of them in advance of an investment committee call, just to get their questions, what would they want to know more about, why would they lean in or be out on a deal.

Sean:

We have one call with the full committee before making a commitment, and that is for guidance on the situation. It’s not governance on the decision. So, the investment advisory committee weighs in. They don’t make the final call. We make the final call as partners. And after that meeting, we have one final call as partners and make a commitment. So, it’s a pretty long process. It’s thorough. We have some folks in our portfolio, when we’ve debriefed the actual diligence process, they’ve said it was ruthless, is what one founder described it as. Very, very thorough is typically what founders describe it as. But we’re entering a relationship where ideally we’re going to be spending all of our social capital in support of the entrepreneurs that we work with. We really see ourselves in the service of entrepreneurs, and we wanted to be wind at their backs. And we want everybody in our network to do the same.

Sean:

And so, part of the value of that process is that we’ve got… In the case of, I’ll give an example, one of our companies, a proptech company that we invested in called Esusu, these are guys who are building a product they sell to landlords who own multiple units of residential property. The product helps their tenants actually build credit scores. So, a renter pays rent, and Esusu reports that payment to the credit bureaus, and it helps tenants build their credit. So, folks who typically… they’re targeting financially invisible and folks who don’t typically have credit scores. And the reason that landlords like it is then if these folks are building credit scores, they can then access financial services if they have a tough month and they can’t pay rent.

Sean:

But we brought that deal, as we were looking at it and really liked it, to an advisor of ours who’s in the network… His name is Greg Waldorf. And he was one of the first investors in Trulia. He’s still on the board of Zillow. He’s been the CEO of companies like… What’s the dating website? I always forget the name of it. Eharmony. Eharmony. He was the CEO of Eharmony. He was the CEO of Invoice2go. He’s been an operator and an investor at the highest levels. And he loved it, and not only did he help us really understand the questions we should be asking Abbey and Samir, the CEOs, he ended up co-investing with us, and he’s now an advisor to them, and is making customer introductions and helping them actually deal with things you deal with as a real estate tech CEO.

Sean:

So, by leveraging the network during the diligence process, we actually get them excited about the entrepreneurs that we’re investing, and they feel like they’re aligned and they’re excited to see these companies win as well. So, there’s a few other folks in the network that are involved with Esusu as well, but for the purposes of shortening the story, I’ll end it there.

James:

Okay, cool. So, from there, all right, lead the investment, you talked about how you’re supporting people. There’s different markets that pop up all the time. Is there the latest market that you’re really excited about right now that’s really piquing your interest, where you guys feel you guys can dive into?

Sean:

We’re actually spending a lot more time in sustainability.

James:

Okay.

Sean:

The circular economy is very interesting to us, what kind of marketplaces can exist that eliminate waste, what type of technology can be created to make food production more sustainable. So, some recent investments we’ve made in that space, one is a company called Rheaply that is… The founder was actually a PhD at Northwestern and needed a very specific type of microscope that was very expensive, and realized that the building next door had one, after he almost bought one. And so, he literally just walked over and got it, and saved himself several thousand dollars, and realized this has to be a problem that’s happening in other places. So, he literally just hacked together a little tool that can be used on Northwestern’s campus, ended up selling it to a few colleges and thought, “Wait, I think companies might face the same problem with everything from furniture to technology,” and was right.

Sean:

So, he ended up shifting to an enterprise model, sold it to Google, to the Air Force, to massive pharmaceutical companies like AbbVie. And his whole goal is to keep things out of landfills, get things out of warehouses and keep things out of landfills. So, that was a really interesting one. Another one we invested in recently is Julia Collins’ new company Planet FWD, which is really technology to help farmers adopt sustainable farming practices. So, that’s a theme that we did not set… We started the fund with no thematic approach, and that’s a sector that we’ve been spending more and more time and are more and more excited about.

James:

Okay. Cool, cool. And so, looking forward, as Concrete Rose grows, do you anticipate yourself growing into new spaces, or do you feel like you’ll always be playing in the pre-seed and this is where you find yourself, or where do you see this going over the next five to 10 years?

Sean:

I think that we’ll always be playing in the earlier stages, just because I think there’s a ton of opportunity there, and it’s exciting, and it’s inspiring. We want to be able to stay with our entrepreneurs over time as well. And so, future funds, we might invest at later stages as well, but I think we’ll always play at pre-seed and seed. Right now, it’s really important, just because I think with underrepresented founders especially, I think that’s where the most activity is, and that’s where the biggest opportunity to really move the needle is. If we were a diversity focused fund at the Series C level, just mathematically there’s less opportunity there, and there’s even less opportunity to invest in underrepresented founders because of the structural issues that we’ve faced for the past several centuries.

Sean:

And so, that was how we got to let’s focus on early stage, and I think we like it so much and are starting to get decently good at it, so I think we’ll always play there.

James:

Okay. Cool, cool. I think one thing that people commonly ask that I’ll just throw out there, and we can open it up a little bit, is what’s your thoughts on people who are solo founders?

Sean:

If that’s how you work, that’s how you work. In our rubric, there is nowhere that says if you’re a solo founder that you lose points. I think solo founder, co-founder, I think some things that are more difficult but are definitely workable is when you see co-CEOs. But we’ve got a couple… We’ve got I think three pairs of co-CEOs in our portfolio right now. One of the questions that we will ask when we see something like that is how do you actually work together, who’s responsible for what, why are you co-CEOs, and is there a plan for some type of transition down the line. The answer will, one, it’s too early in all these companies to know how it actually will play out, or, what we’re really looking for there is how you deal with conflict, who has authority over what, and what’s the actual working relationship, what’s the evidence that this is not going to end badly as a result of there not being one clear decision maker.

Sean:

But solo founder, that seems lonelier, but… Are you a solo founder yourself?

James:

Technically.

Sean:

Yeah. The thing, too, is that companies can have multiple founding moments, too.

James:

Right.

Sean:

Even amongst our partnership group, there was three of us who co-founded Concrete Rose, but we now have a fourth partner that is… He is a co-founder. He’s fundamentally changed the business. We’re still early in this. We’re two and a half years old, but Reid Hoffman described Jeff Weiner as a co-founder of LinkedIn. I think Jeff joined when there was already a million users. So, I think it’s more about is there evidence that this founder can be a successful solo founder, than just being a solo founder being a yellow or red flag.

James:

Yeah. Okay. Cool, man.

Sean:

What do you mean technically you’re a… We’re recording, so be careful.

James:

I built a product that had a customer before there was anybody but me. But, then the person who came along worked with me for six months, so that’s my co-founder. You know what I’m saying?

Sean:

Yeah. Also interesting too, I think it’s telling how founders talk about their co-founders. I have some founders in our portfolio who we’ve known for years, where if I don’t copy their co-founder on something, like an invitation to something or a question, and they’re constantly looking out for their co-founder and making sure that they’re included, that’s always interesting and meaningful. You want to make sure you’re investing in good people who are… and so, how they treat each other is telling. So, it’s more founder dynamics, and do we believe this is somebody who can do something, than how many founders are there.

James:

Yep, yep. That makes sense. Yeah, it’s a funny thing. So, I’m going to open it up a little bit. I’m sure you guys have different thoughts or questions. But I guess when you ask a question, if you do have a company, just quickly, what are you doing, 30 second spiel or less, and then what the question is.

Joel:

Thanks, Sean. Thanks, James. This is pretty informational and really needed. So, my name is Joel Francois. I’m the CEO of a company called Helius Power. And basically, what we do is we help employees hire more diverse and more qualified candidates on college campuses. So, we use AI messaging experience to automate all of the recruiting process and to deliver ready-to-be-interviewed candidates to employees. So, ultimately, the idea is to use automation to remove bias and to remove barriers from the hiring process.

Joel:

So, my question is… This is something that comes up a lot, and especially for us where we are as well. What is your definition of pre-seed, and what’s your definition of a seed? Because that kind of gets thrown around, and it’s not really consistent across investors. So, I’d like to get your thoughts on that.

Sean:

Yeah. That’s actually a good question that we actually asked ourselves recently too, because we’ve modeled out what size checks we write based on stage, and you have some folks who call themselves pre-seed, but they’ve been around for five years, and have a million dollar run rate, and then you have other folks who they’re raising seed rounds and they actually have not built a product or sold anything yet. Really, for a time, we were just taking whatever the founder defined what stage they were at.

Sean:

I think now, if you found product market fit, and you’re about improving the product, or building a team that can actually increase sales and distribution of their product, that’s typically what we’re calling seed at this point. If you’re an idea or if you’re a beta, then we’re calling it pre-seed. And I think also valuation also really affects how we’re thinking about something, too. So, typically for pre-seed, we’re seeing… Actually, with pre-seed, we’re seeing higher and higher valuations. We’re seeing up to maybe $20 million at this point, where it’s not totally shocking.

James:

Pre-seed.

Sean:

Pre-seed, yeah. Oh, yeah.

James:

Wow.

Sean:

Actually, we’re looking at one that’s $30 million right now, and that’s not scaring us. But, ideally with pre-seed companies, valuation is $5 million to $15 million. Our check’s going to get us better ownership. And there’s an understanding that this is very much, again, about backing the founder going after a specific problem and market, and realizing things could look very different by the time you raise the seed round.

Joel:

If I can piggyback on that, what’s the difference in how you structure the deal whether it’s labeled as a pre-seed or a seed?

Sean:

For us, it’s actually more about our decision making for us on pre-seed versus seed. One of the things that we’re looking for in a pre-seed deal versus the seed deal… and we’re not actually structuring deals, just because we’re not leading. So, we haven’t led any deals yet. So, we’re pretty much taking terms, and if deals are being priced, they’re being priced by a lead, and we’re just taking what the lead has determined. I can’t answer that question for Concrete Rose.

James:

Yeah. Almost throughout, just in general, the thing I see that overtime has become a little bit different is pre-seed can be more commonly be on a safe, or some sort of convertible debt instrument. They’re seen as more commonly coming through our equity than they used to be. Put then as seed rounds got to be $10 million seed rounds and stuff, people started taking more equity. That is different. It is a more costly legal process, but from an investor’s standpoint, I think what you said is pretty accurate.

Sean:

We’re seeing a lot of Y Combinator template emails being sent when we ask about terms.

James:

Yeah. You can always pop on Y C’s website and get whatever boiler plate information they’re giving these people every-

Sean:

We need to rebrand all that as TC… Oh, I’m sorry, we’re on recording, so I won’t say that.

James:

Other questions?

Joel:

Well, I’ll jump in again if it’s okay. I think, Sean, you kind of defined traction, which is rare because a lot of times it’s undefined. Can you discuss that again in terms of what you look for in terms of what you consider traction?

Sean:

Well, traction can look like a number of different things. It could literally just be… I’ll give you the example of one of the companies we invested in, it’s a company, Edlyft.

Joel:

That’s the two women, right?

Sean:

Yep.

Joel:

Okay.

Sean:

Erika Hairston and Arnelle Ansong, they were both… I think Arnelle was at Google. Arnelle was actually at Bain but had previously been at Google, and Erika had been at Facebook, then LinkedIn. The youngest black women to raise over a million dollars in venture funding. But their traction looked very different than an Esusu, the company I referenced earlier, in that when we met them early in their fundraise, they had just done Y Combinator. They had just finished Y Combinator. And, they hadn’t done anything. They had spent all of Y Combinator… They had conceived the company, gone to Y Combinator. They had a plan, and they had tested a few things while they were at Y Combinator, but they hadn’t actually launched anything.

Sean:

And so, we met them I think… Yeah, we met them in February, because it was a week before… February of 2020, so it was a week before COVID changed the world. And loved them. Loved their idea. There wasn’t enough there to justify the valuation that Erika was looking for, and investment. And we saw them again in June, just as a catch-up, and in that time, they had launched their product at two campuses, a very stripped down version of what they have now. They had gotten only a dozen paying customers, but they had several dozen folks in the pilot program that they had run. They had done a ton of customer research. And they had redesigned what they were going to go to market with in the fall.

Sean:

So, there was enough traction just in terms of evidence that they were folks that were going to make things happen in that period of time. It wasn’t ARR. It wasn’t fundraising traction themselves, although when we met them the second time, they still hadn’t made much progress in the fundraising, and then by the end of the week… We met them on a Monday, and by the end of the week, they had already closed. So, it was pretty incredible, and it was because of that story they could tell from February to June.

Sean:

But then another company like Esusu, there was 30% month over month growth. They had gone from 250k in ARR to 1.3 in less than half a year. They were building significant partnerships with institutions that were going to allow them to sell their production much faster. They had far more sophisticated answers to a lot of the questions that we asked, just because they had been trying so many things and learning so fast. So, I think traction can take many forms. The simplest one is dollars, or users, but that’s not always maybe the right thing to be looking at depending on the company.

James:

Cool, cool. In terms of everybody here, has everybody here been out to pitch a number of investors before, or is this kind of like you’re planning on going down that path?

Joel:

I plan on going down that path. I pitch investors. I’ve raised from friends and family. But I’m just really now looking to fundraise institutionally.

James:

Okay.

Joel:

We’ve primarily been bootstrapping and using the friends and family as well.

James:

Okay. Everybody else, you guys have been out to pitch?

Dominique:

Me personally, so I’m probably the one person on the call who is not a founder. I work at WYL with Ofo at WhoseYourLandlord. I’m the director of growth there. So, I’ve been working with him very closely on scaling the company. Very happy that we were actually in the process of creating traction right now. We have six LOIs in the door. Super excited about that. I actually just sent the invoices today. So, it’s kind of exciting at the same time, but the real deal starts because of course we’re building our pilot. So, thank you, Joel, I think, for asking that question about traction, because it’s something that I’ve been really thinking about how to demonstrate. But as far as fundraising, we’re actively trying to close a seed round right now, a seed extension. I believe Ofo has met with Sean’s team before.

Sean:

Ofo is great. Traction is what we would want to see there, too, so focus on the right thing. He was great.

James:

Cool, cool.

Sean:

We’ve had several calls with him.

James:

Fellow Michigan alumni, what you got to say over there?

Speaker 6:

Yeah. Snowing here a lot, so… But yeah. I’m working with a startup called Allergy.

James:

Oh, so you’re in Detroit.

Speaker 6:

Yeah.

James:

Oh, okay, cool.

Speaker 6:

So, what’s really been interesting about… and thank you for hosting this, and thank you, Sean, for being here to open the doors and provide access, just even the information. And what’s always been interesting for me is watching startups who lead by product versus… and they think of themselves as a brand. So, Sean, I’m interested in hearing your perspective on for a brand to get into the door, what is the hook that allows you to say, “Okay, it’s not just a viable concept, it’s scalable, has promise, but I trust that founder,” and what does the strength of that brand story have on your decision to say, “Yep, let’s go to the next level and talk with the further”?

Sean:

So, with brands, we’re always thinking about what’s actually defensible and sustainable about an actual brand as opposed to the actual product or solution that an entrepreneur is building. And then in terms of an entrepreneur’s brand, while we’ve got our framework for how we rate our entrepreneurs, and includes things like grit and resilience and character and accomplishment, and all those things, there isn’t one way to answer any of those things. Accomplishment can be having sold a company for $20 million, or it can be having navigated a serious family issue and finished school. It just looks different depending on context and different founders’ stories.

Sean:

We spend a lot of time with founders before we invest in them. Like I said, one of them describes our process as ruthless, and we took that feedback seriously because we don’t want our people describing us as ruthless. That has a very negative connotation, but it’s thorough. So, it’s conversation with the founder, it’s conversation with their customers, it’s conversations with their team. We want as much data that we can point to as possible. And so, I think while some things vary case by case, it’s really looking at a collection of references, and then actual personal interactions to help us get comfortable with that. And then there’s always risk attached. You can’t really know what it’s like to work with somebody until you’re working with them.

Sean:

And we have a really talented culture partner on our team who we actually recruited to the team to be able to support our portfolio in defining how they do things and what their identity is and who does well in those organizations. She actually ended up doing all of that work with us. And so, she’s really helped us in defining what we actually look for in founders and how we actually engage with them. So, that’s a really tough question to answer without getting into actually sharing screen and showing the rubric and all that, which maybe for our next call we can do that, James, but hopefully that was helpful in some way.

Speaker 6:

Yeah, it was helpful, because some of the founders that we’ve worked with in the past, they have a story about the product, which is clear. They don’t know their own story, and they definitely don’t know the customer story, which comes out at different times that are not positive all the time.

Sean:

Yeah, yeah. And storytelling is really important, but there’s got to be substance behind it as well. Yeah. That’s why I was saying, I’m as big a fan of storytelling and founder story and product story as anyone, but I’m finding more and more that that’s great for the first meeting, and that definitely makes it to the investment memo, but it’s also just about is this a real opportunity that’s worth pursuing that can generate venture returns, and then also, is this somebody who can actually execute and build and weather the highs and lows of entrepreneurship, and sell, and do everything you need to be able to do to actually build a successful company.

Speaker 6:

Perfect. Thank you.

James:

Yeah. This is super important. We are so bogged down in trying to build something to solve a problem, often times you forget the human element that gets someone to give you money when nothing exists. So, even when there’s traction, people may or may not still believe it, and people may not believe you can replicate it, unless there’s a story behind who you are and why you’re wanting to go actually solve a problem. So, I think that’s an important thing for people to recognize because a lot of deals get done because the other person liked the person. Sean’s more thorough. Other people aren’t as thorough. Like, “I really like that guy. I like what he’s doing. I’m going to write him a check. Okay, have all this money.” Some people operate like that. It’s not the way I would run a firm, but that does happen.

James:

So, I think the personal story definitely is super valuable, especially in that first interaction. Someone’s got to meet you in 30 minutes. They don’t know you from a hole in the wall, no matter what intro you got. So, what’s it going to take to get in that door and get to the, “Okay, tell me more.”

James:

So, I remember… I’ll never forget. I remember when I first started doing all this, Michael Seibel was like… I just pitched the room, and I gave out all the information. No holes in what I’m saying. He’s like, “That was great, except for you’re assuming I care.” So, he’s like, “What if we made this six slides, and then maybe I want to talk to you again. Because I’m not going to write you a check the first time I meet you. So, you can tell me everything you want, but I’m not giving you a check. And if I have no reason to talk to you again, I won’t talk to you again. That means you’re not going to get the check.” So, the main thing you’re trying to do is be like, “Hey, this is me. I’m someone you want to hang out with. I have a cool company. We should talk again.”

James:

And if you’re not accomplishing that, then it’s not likely you’re going to raise money, because you can’t just meet people, tell them what you’re doing, and get a check. It’s just not how it works once you start raising institutional capital.

Joel:

If I can jump in, I want to ask Sean, what does the post-investment relationship look like with Concrete Rose or with investors in general?

Sean:

I don’t think there’s an answer to investors in general. I think every investor is different. I’m proud to have had founders that we’ve invested in actually be surprised by how much value we’ve added to the business. I’ve literally had somebody say, “I thought you were like most other VCs and didn’t actually do anything.” Not to say that other VCs are all like that, but in his experience, that’s what he had observed.

Sean:

So, for us, first we try to be flexible and really work into whatever process the founder prefers or already has in place. So, we don’t ask for any specific type of investor updates. We plug into what they’re already doing. If they’re doing monthly investor updates that they send out to all their investors, we’ll just ask them to make sure that everybody on our team is getting that, because we’re all noticing different things and focusing on different things.

Sean:

We try to ensure that the founders in our portfolio, if they want them, all have somebody coaching and mentoring them, who has built a company before, especially if it’s a first-time founder. So, we have some repeat founders in the company who just are not interested in that. They want strategic help, and they’ve got a strategic issue. We’ve got others… We talked to one of our founders two days ago. We’re not the lead in the deal, but he’s like, “Look, I’m 22 years old. I’ve never built a company before. I could really just use somebody that I can call when I’ve got to figure out how to negotiate a starting salary for the next engineer I hire, or how to prioritize different work streams.”

Sean:

And so, if our founders want that, we go out and we find them that, from that network that I’ve referenced a few times. And then there’s some founders who I talk to literally every other night, after I put my kids to sleep. There’s other founders who I talk to once a quarter on a Zoom with the rest of our team. It’s really depending on what the founder needs. One thing that we’ve been trying to do in a more systematic way is sharing what our entrepreneurs… Founders will put asks into their investor updates, and we’re sharing that more broadly with the folks in our network to make sure that we’re helping to solve those problems.

Sean:

So, we’ve got a founder who’s looking for an introduction to Intuit, and we’ve got the former CEO of Intuit and current chairman of their board in our network. So, making sure that he’s seeing those kind of things so that he can raise his hand and say, “Hey, I can definitely make that introduction.” We’re looking to help our entrepreneurs build more organizational relationships. So, we have a founder who’s building fintech products for 18 to 24 year olds. And so, we made an introduction to Chegg, which started as a textbook rental company, just given that they’ve had a ton of success working with that demographic.

Sean:

Those are the kind of things that we do. I don’t know what other venture investors do. The last thing that we really spend a lot of time doing is helping on the talent side, too. So, making sure that job postings are getting in front of the right networks, especially diverse networks so that our founders are spending less time recruiting folks to their companies and more time actually building with an actual team that they have in place.

James:

Cool, man. Well, ladies, any last questions? I’ll try and throw it out there, see if anybody’s got one last question. Oh, hold on. Dominique, I know you’ve got one.

Dominique:

I do.

James:

All right, we’ll pass it to you.

Sean:

We can’t tell who you’re pointing to, man.

James:

I know. This is hard.

Dominique:

Which one?

James:

This is why we need to be using my platform. This is nonsense. Anyways, Dominique, go ahead.

Dominique:

Yeah. You mentioned a couple of good points about traction and data. I’m all about coalescing all of our product intelligence right now to demonstrate traction. What would you say are the most compelling KPIs or metrics that you’re looking at when doing due diligence on a B2B SaaS product?

Sean:

Growth. Growth. Rapid growth is compelling, and growth that you can explain and that doesn’t seem to be an anomaly, but seems to be a trend, like that there’s some type of… Yeah. That’s most compelling. But then also, I also don’t discount demonstrated learning as a result of looking at data. So, being able to explain why something’s happening or being able to explain what you’ve learned from something happening. Sometimes, say growth has stalled, but you’ve never spent a dollar on customer acquisition. So, this fundraise is going to allow you to start buying Facebook ads, and since you’ve never done that, that could cause some type of virality or spike in growth.

Sean:

So, also being able to demonstrate that you can look at what’s happening with your company and make sense of what data is telling you, and to put together some type of action plan moving forward that’s going to yield some type of result. But at the end of the day, we have to see ARR going up, and we like to see it going up consistently, and that growth rate going up as well.

James:

Cool, man. Well-

Dominique:

Thank you.

James:

… I really appreciate you coming out today and spending the hour with us. Thanks for everybody popping in, for asking good questions. Sean, I guess, can you let these people know where they can easily reach you guys?

Sean:

Sean@concreterosecapital.com. I told James that I was doing this because, one, I like spending time with him, but then more importantly, I want to meet TC founders. Thank you for joining.

James:

Thanks guys.

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