Many first time entrepreneurs are apprehensive about working with a fund. It would be an advantage to work with a founder-centric fund that cuts through the BS, gives realistic valuations for your business, and helps you step by step into fulfilling your vision. Spiral Sun Ventures is dedicated to applying that philosophy inside their niche – investing in consumer product companies that promote a healthier lifestyle. Joining Elliot Begoun to elaborate on the company’s investing strategy are its Managing Partners, Michael Kaplan, Margot Shapiro and Mark Thomann. Spiral Sun Ventures works with partners who are passionate about their business, but they do the one thing that is absolutely critical in venture capital – being brutally honest about scalability prospects and working from there. Join in as the Three Ms share some aspects of the fund’s strategy, including investing early, making unique investments, and leveraging your network.

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Listen to the podcast here

Funding For First Time Entrepreneurs With Michael Kaplan, Margot Shapiro And Mark Thomann

Joining me are the 3Ms from Spiral Sun Ventures, and I’ll give them each a chance to introduce themselves Michael, Margot and Mark. A little bit of personal take here, working with a fund is always something that many founders are fearful of. This is an opportunity for you to work with a fund that has a founder’s mindset. I’ve always appreciated that about the three of them. I think you’ll find them very collaborative. That’s why I wanted to have them join this because they’ll give you straight up, no bullshit answers. Hopefully, they’ll give you things that you can walk away with and think differently maybe about how you approach investors, how you look for investors, how you pitch, and the questions that are asked of you and that you should be asking. Margot, introduce yourself and then we’ll pass it around.

I’m Margot Shapiro, a female member of our Spiral Sun team. As you know, there aren’t that many female venture capitalists, so it’s good. Come on, girls out there, let’s hop on. We are a triumvirate and a finely-tuned machine. We love working together. I had a career in investment banking and private equity. I had my own fund for a while that was focused on clean, green, health, and wellness. I joined up with Mark and Michael years ago, and we are focused on our second fund. Hopefully, all of you can be a part of that.

Michael, otherwise known as Mikey.

It’s nice to meet everyone. Maybe we’ve met some of you before. I was a former lawyer for ten years and that was not exciting. I wanted to find something more meaningful and something where I felt like I was doing good in the world and having fun. I met Mark many years ago, we formed this partnership, and then we brought Margot in. We are now all equal partners. We’re all the managing partners of the fund. Our fund is mostly focused on early-stage and making sure we were promoting better health, wellness, and working with good people. That’s our ethos. We’re excited to be doing this. We love it. We’re committed to it for the long haul and I’m happy to answer any questions that you might have and make it easy for you to hopefully find investment from a venture capitalist.

Last but certainly not least is Mark. Mark, a little bit about you?

Thank you, Elliot. I appreciate what Elliot said about us being founder-centric. My background is I am an entrepreneur. I am a founder and it’s important that funds respect the creation of these emerging brands. We support the founders the best we can. When I was looking at getting into the fund world, it’s also important to have the right team around you. Just like any early-stage company, like your company, your team is vital. Finding the right partners, the right operators, the right people that fill the holes or the gaps in your business is exactly what a fund does.

The most important thing though, if Michael used the word ethos, our values have to align not only with each other but with the portfolio companies, the founders and the entrepreneurs that we invest in. You hear it all the time. It’s always about the founder and always about the management team. It truly is. That is a box on our due diligence list that if it’s not checked properly or not checked at all, we’re not going to invest money into the company regardless of its scalability and the attractiveness of the investment.

My next question is why you guys started this fund? That’s an interesting thing to explain. It is somewhat of a mission-based fund that you guys have established.

Many years ago, I had some health issues. I realized at that point that our food system was broken, the brands within the natural products industry needed to be supported. Early-stage and young entrepreneurs, when I say young, first-time entrepreneurs, they need the ecosystem that maybe someone like me, Michael and Margo can bring to the table. I started looking at spending my time and money on supporting young companies and trying to create a network for them that made it easier to scale their businesses. I wasn’t aware of the natural products industry to the degree I am now, but for me, it was a lifestyle change. It was about wanting to support people that have great business ideas, but maybe need a little bit of support in figuring out how to scale the businesses like I did when I was a first-time entrepreneur.

The unique perspective you have as an operator is interesting and we’ll touch on that. How about you, Michael?

I was looking to do something meaningful. I had retired from being a lawyer and working at a big company. I’ve always been passionate about nutrition, health, and wellness. To have a good life, you need to have a healthy life. I was at a food conference with my wife and I met Mark. It dawned on me that this would be a great way for me to spend my time, which is fun and entrepreneurial. Supporting companies that are putting out healthier and more natural products are important for many reasons. It’s something I’m very passionate about.

When we met back in 2016, we talked about having this fund and we agreed right away that if we’re going to invest, it has to be in health-promoting products. We want to support good people and have fun. It checked all those boxes and that’s why we started it. That’s a very important part of our ethos. We don’t invest in things that we don’t feel are health-promoting, even though they might be good investments.

Margot, I’ll give you a chance to take your hit of water there.

I think Michael and Mark said most of why we started a fund like this but to us, it’s all about people. Our entrepreneurs become family to us. We’d love the scrappiness of entrepreneurs. We think it’s amazing. We build trust together and they don’t have a lot of resources starting out. Typically, it could be a founder blazing the trail and trying to put together a team, but we’d love to help companies. Since they have few resources, we put together a network, money is tight, we like to be able to make their first checks go a long way and help them plan. We try and help them figure it out. It’s not a transaction, it’s the people that we get to know, love, help grow their businesses and hopefully, for the path to an exit. We like to look all the way down the path and make sure that they’ve got lots of vision so we can help them get there.

One of the things is that at the end of the day, you still have to monetize the investment. There has to have a path to that. I’ll go to Mark with it first. All three of you mentioned the importance of people and the founders. I have a more blunt or crass way of saying, “I have a very firm ‘no asshole’ rule.” I know that’s part of your ethos as well. When you sense that you’ve got a founder or a founding team that has something, what are some of those elements of that something that you’re looking for?

Just so you all know, Elliot is part of our ecosystem. He’s clearly not an asshole. One of the important things to know about our fund is we are different and we were structured differently because we saw white space within the fund industry, especially as it relates to early funded. When you look at the three of us, hopefully, we are very much aligned with the type of founder that we invested who are creative, smart, knows his or her weaknesses, willing to listen and get help from people that may have done it before. What’s important is the ability to either change directions or pivot is vital to an early-stage company. You hear that word “pivot” all the time.

I talked to a lot of companies that we have yet to invest in that aren’t quite ready for us and we ultimately make an investment. A good example of that is a company called Brass Roots in our portfolio. Aaron Gailmor is an incredible entrepreneur. We met him probably many years ago at Expo East. I liked him and connected with him on a personal level. We, as partners continue to monitor his progress. When he was ready and he had the right plan, we decided to invest directly in that company. Primarily, it was him and then he started figuring out how to change direction for his business. We liked the fact that he had a scalable business and we then introduced them to people like Elliot, Presence Marketing, and others within our system that have taken to the next level.

Elliot, can I add a little bit of perspective? I was thinking about that question. We all agree that it is 85% of the person on the team. When we meet with somebody, what does that mean? When we say about the founder and the person and Mark touched on the importance of being able to pivot and being flexible, listening, and being open because we know that everyone’s going to need help. That’s a component of it. Another component of it is trust because this is a partnership and it’s a long-term relationship. When we meet people, we’re looking at this person and the team and saying, “Can we trust these people to do the right thing, to be communicative, to tell us when things aren’t going well and reach out for our help to be transparent?”

That is an important thing and a little bit of a feel. The other thing is, do they understand our perspective? It’s important for investors to realize why a fund would make an investment in them, what our needs are and reverse it a little bit because we have investors that have invested in our fund. They want a return on their dollars within a reasonable amount of time. They want us to mitigate the risks for them. When we’re meeting with potential investors, it’s helpful when they understand that and then can present to us in a way that shows that they understand it and like, “This is why it’s going to be a good investment for your fund and your investors.” It is a two-way thing.

That’s a huge point. I coach a lot of founders around that. I would love for you three to either affirm or challenge what I’m about to say. What I try to encourage founders when they’re presenting to funds is that there isn’t a question of whether the fund is going to make an investment. That’s what they do. They’re going to make an investment. The question is, are they going to make that investment in you? Your job is to show them why you as a founder between your product, your team, with the market need that you’re filling, or the problem that you’re solving. Why that combination offers that fund, those investors the best chance to show a return on that investment? That’s it, nothing more. I feel like many founders miss that point. They talk a lot about their product and its attributes. They talk a lot about their passion and philosophy, all great stuff, but at the end of the day, what you’re trying to ascertain, correct me if I’m wrong, “Is this the right place to put the money or do we put it somewhere else because we’ve got to show a return to our LPs?”

Let me give you an example of something that happened. Most of the time, it’s still part of our due diligence. We very much are like an entrepreneur that had launched a new and very innovative beverage product. She shared our values. We loved her grit, her determination to build a brand, and she knew how to do it, but we passed on that investment. Years later, she approached me at a conference that I had been speaking. It was the Good Food Accelerator in Chicago. She said, “Mark, we’re friends, why didn’t you invest in my company?” I said, “Do you want to know?” She goes, “Yes.” I said, “When you first came to me, you presented a financial model. You were pre-revenue.” We can generally get past pre-revenue if we see a real opportunity. I said, “Do you remember what your first-year revenues were going to be?” She went, “I think.” I said, “I remember you said you were going to do a $500,000 in that first year and that’s a little bit aggressive. Do you remember what you’re saying in your revenues?” She goes, “No, I don’t.” I said, “It was like $3.5 million and in your third year is $5 million. Where are you now?” She said, “I did about $125,000 last year.”

My point is she’s awesome and we probably would have invested if she had more realistic expectations and understanding of how you feel a business properly. We’re okay if you’re going to come to us with a model that says, “We’re going to do $125,000, and here’s why,” but what we don’t like to see is unrealistic expectations. One of the things I’ll always ask for, if you’re in business for 2 or 3 years, I’d like to see your first business plan. I’d like to see your first financial model. I’d like to see what your expectations were and how close you came to hitting them? It’s important, to be honest, and transparent about where you are and how are you going to get there. Funds like ours and people like Elliot can help you hit the numbers that you’re projecting.

I was thinking about that. Founders are great and they love their product. It’s their baby. We love founders who’ve figured out their value proposition and why it’s defensible. When you’re talking about a fund and you’re trying to figure out, “Will this fund invest in me?” Funds invest in products that get acquired. That’s our bottom line, we’re looking at that and what happens? Life, the economy and the pandemic happen. We’re looking for founders who are resilient and resourceful. They need to face tough situations and have tough conversations when times get tough. They know that they’ll get through it and hopefully even come out better. Not only this resiliency and resourcefulness but also a sense of urgency about what they’re doing. If we can sense that scrappiness, sense of urgency and the hustle, things don’t always go as you plan as Mark said. You’ve got to be that person, that founder and that collaborator that can work with us and help turn it around.

Before we jump any further, we have a question about the company name that you mentioned, Mark. Was that Brass Roots?

It was Brass Roots. It’s a great example of a company that did change directions. They came up with new products and we helped them figure out what new products they we’re going to launch. Great entrepreneur and years after meeting them, we ended up investing in him. That was an example of close to a pre-revenue company that we solely looked at the entrepreneur in his business acumen and the ability for us to help is why we ultimately invested.

Another question is the dreaded deck. I laugh at this one because I know how one person, in particular, will answer this question, but I’ll start with you, Margot. How critical is the deck in that first conversation with the founder?

The deck presents you and shows your thought process, “Have you buttoned this up?” You figure out your value proposition, why you’re defensible, “Do you know who your competitors are? Have you shown them here or are you missing some?” You need to be able to tell your genuine story, but you need to have all these other pieces in the deck. As Mark says, “If you haven’t built a good team, you can see a lot of things in the deck that makes this person more of a risk or less of a risk for us. Let’s take a look at the team.” If someone has built a good team around them, you can see that people have left their careers and joined this person to make their vision happen.

The fact that this team has put together to power this and drive this product forward or company or platform forward, that makes a difference to us. We can see who their advisors are, “Have good people invested in this company?” There’s a lot about the deck that tells us who you are. It’s the first screen and we want to see who is on your cap table. If you have a cap table of contributors and we can see that these good investors are there, we know that everybody who’s there is going to add value. We’re looking for some risk mitigation when we’re looking at the deck and a strong presentation. Also, the deck is for your ask. If you’re asking for enough money to give you some runway for 12 to 18 months, so that you’re not coming back in three months again, that’s super important as well. There’s a lot in the deck that gives us heads up.

I want to go to the contrarian Mark, who I know personally. I’ve been on many calls with founders in him, but he never looks at a deck before our call.

It drives my partners crazy, but founders get it. Why would I waste my time spending 15 to 45 minutes looking at a deck before I may meet you?” That initial phone call is much more important to me than them reading the deck. I want to know a little bit about you. I want to hear you describe your company to the best of your abilities to me in a conversation. If I like that, I will read the deck, but I also depend on Margot and Michael to read the deck as well so they already have the perspective.

If we don’t connect personally and we don’t align our values, what’s the point? It’s a waste of my time and yours. I will give any entrepreneur fifteen minutes my time. Margot and Michael know this. I have my Calendly link at the bottom of my signature page. If you want to set up a time to talk to me and ask me questions and maybe a sounding board or maybe you’re going to give me advice. That would be okay because I love what I do, my partners, and the portfolio companies that we invested in.

Elliot, we can vouch for that. Mark’s Calendly has taken up. If you’ve got 50 companies reading, they’re all going to be on his Calendly. We’ll never talk to him for another two weeks.

I’m going to come to you, Michael, with this question. It is related to the first, but also pulling back from your days as a lawyer. I always counsel and suggest to founders that they think of the way they can articulate their brand to an investor, the way a good prosecutor articulates a case. That they’re able to walk through, “Here’s the problem,” “Here’s how we’re solving it,” “Here’s the size of the problem,” “Here’s our monetizing,” “Here’s how we have the team that is capable of monetizing it,” and “Here’s the return that our investors should expect.” Beyond that, what are you looking for when a founder has time with you and starts to try to explain their business? What are the things that you are trying to get out of them clearly?

It relates to the deck a little bit because it’s interesting to hear Mark and Margot’s perspective. We all look at decks differently. I look at a deck and I want to see what the opportunity is to your point, Elliot. What is the opportunity and is it a good opportunity that will lead to a good return for our investors? A lot of people make the mistake in their deck of describing and putting the first ten pages about the market and we already know the market. I want to cut through that and go, “What’s the opportunity?” If I see that it’s a good opportunity and then we’re meeting with the investor. Your question I think was, “What am I looking at beyond that?”

We have investment criteria and I’ve been surprised that nobody has ever asked for a copy of the investment criteria because if they did, we’d give it to them. There are ten things and you can see what we’re looking for. I think a company should ask, and then when they meet with us, we go down the checklist and say, “Here’s how I meet all your investment criteria.” Let’s assume they meet all the investment criteria and there’s a lot that goes into each piece. I’m meeting people and I’m trying to assess whether they’re going to be great long-term partners for us, whether there’s trust, whether I’m sensing an openness, flexibility, and ability to listen. It’s not like a marriage, but it is a real partnership and probably will go on for years. That’s primarily what I’m trying to assess once I realize most of the other boxes are checked.

Every deck usually has an example of exits within that category. We already know those exits and I would also challenge each of you, if you’re going to put that page in, for those companies that have a very unique reason to exist and the blueprints never the same in an exit. It defines why you’re going to be the next one that exits to the big CPG company. It’s great knowing that there are big CPG companies are out there requiring for investing but tell us more. Why are you attracted to a CPG company?

We exist as a fund because there are very few people that invest at the same level. There’s a lot of angel funds and family offices, but we’re an actual fund that comes in a lot lower. We’re looking to make the CPG companies of the world better by giving them better products and making them know that companies like yours exist and that’s why we invest in you. Few companies, especially in the beverage industry have to almost exit to one of the big beverage companies because you don’t have the infrastructure, the trucks to go to the convenience stores, and the other very difficult distribution points that Coke, Pepsi, Dr. Pepper and the beer companies can. Always know who you’re potentially going to be attracted to and plan on looking at what they’re looking for as well in the acquisition and why you give them something that they don’t currently have within their own company or a portfolio.

Let me add one more thing to your question, which is what we’re looking for. It depends upon the purpose of the meeting. We should talk about that a little bit too because we’ll often meet with companies to get to know them, start to build the relationship, and learn about their companies. That’s different than having a serious meeting about a potential investment. If we’re going to have the stat second meeting, then you have to get the investment criteria, go through the checklist, make sure that you’re hitting all the boxes that are important to us and our investors. It’s important when founders set up these meetings that the purpose of the meeting is talked about upfront, “I want to get to know you,” versus “I want you to invest quickly in my company.”

That’s a good point, Michael. I have one other thing to add. Margot, you please give your perspective. I would also suggest you have a checklist and what you want from an investor. One thing that we do that most funds don’t do, we’re going to check your references and everything like that. If we’re interested in you, talk to our portfolio companies, talk to the founders. If I tell you that Spiral Sun adds a tremendous amount of value, you might want to believe me, however, the best reference for us as you’d pick up the phone and ask for a conversation with Luke Saunders from Farmer’s Fridge or Andrew from Pots & Co or any of our portfolio companies. They’ll be able to give you an unvarnished viewpoint on whether or not we help them.

Margot, do you have anything to add there?

We give out references all the time. We’re looking at an investment seriously and it’s the best way to get to know how we help is by talking to people we help.

I encourage any brand reading this to always ask investors for access to their portfolio. Ask the normal questions, but then also ask them, “When things have gone bad, when you fit a roadblock or a tough moment, what was it like to work with them?” Because that’s an important thing. The other thing and the point that Michael made that I think is also instructive and important, is to clarify the purpose of the meeting. I think a lot of founders jump on the first call with an investor thinking, “I’ve got fifteen minutes. This is the only moment in the Sun I have to give them the pitch and hope they say yes,” but in truth, that’s very rare how the relationship works. It’s much like any other relationship.

That first call should be a two-way conversation getting to know each other, to know about your brand and you, but also to know about the fund and their investment criteria and how they can support you beyond the capital and what it’s like to work with them? Jointly, make a decision if there is a reason to move the process forward. We have a question here and that is, right now where it’s difficult to have face to face meetings, they’re finding it difficult to engage deeply with potential investors only over Zoom and get a yes over Zoom. What’s your sense of that? I know you are very relational. How are you dealing with the virtual relationship versus the physical one? I’ll ask that to Margot first.

It’s so interesting. I thought that it would be super hard and terrible, not being face to face with people, but I am the less cost office of my team. I live in Southern California, Mark and Michael live in Chicago. We’ve been talking to each other by phone a lot for years, but I have to tell you, now that we get on our partner calls in Zoom, I feel like we have more face to face then than we did before. I may have a different perspective on this whole Zooming thing. I think it’s terrific that people can connect quickly face to face. Even though it’s a little bit distorted, there’s noise and other things, I think the Zooming is pretty good and we’re all pretty available.

Let me say one more thing, especially since this COVID thing, we’re raising for our Spiral Sun Fund 2. I have to say, we have real empathy for what our companies are going through, trying to raise their rounds and the challenges they face all the time in doing this. We’re pretty much walking in their shoes because we’re fundraising as well. As Michael said, “We’re a fund. We have investors. If we don’t raise our funds, we can’t go about our business to help companies.” We have a lot of empathy around this and we will try the best we can to focus on you, Zoom with you and connect with you in any way possible.

Michael, is there anything you want to add there?

We’re about to make a pretty sizable investment and we’ve never met the founders in person. Zoom works well.

We were joking about it. We haven’t even seen the plant and we told the operations head that if he puts a GoPro on his head and walks around to the factory floor, we can get a good sense of it.

The reality is that like any relationship, you have to cultivate it and it takes time. Maybe it was Zoom that takes a little bit more time, a few more calls to cultivate the relationship because you tend to be a little bit more formal in the first few and don’t have that same opportunity.

I will add an important element. Even though we’re making that investment in that company we’ve never met or seen the facility, she gave us access to her existing investors who had met her and worked with her for years. The ability to talk to them gave us a lot of comfort. You have to think about adding additional resources to your requests or to your due diligence, where if you have other investors who know you well, make them available to funds. We got comfortable quickly talking to those funds who knew this entrepreneur for many years.

We spent a lot of time talking to all the investors. It was super helpful.

I would encourage any brand reading to make available to any potential new investors, your investors and your advisors. Know that those people will talk to them with the unvarnished truth. You might want to ask that first, “What are we doing well? What are we doing not well? What are you going to tell?” You should lean into that because there is that trust transference that takes place.

Just disclose if that investor is your mother or your father, make sure you tell us that.

What is your preferred investment range in size? I’m going to take it one step further since you offered and explained that you have your investment criteria, that’s roughly ten items. Maybe you can share some of those criteria to help people understand what it is that you evaluate specifically. I’ll start with you on that one, Michael.

We make $50,000, $250,000 or $500,000 investment. We’ve got a pretty wide range depending on where the company is. When I say we have ten things, some of them take a lot more digging into. One of them would be, “Is their sound financial model is with good assumptions,” like Mark was saying or “Do those assumptions make sense? Does the person and understand the cost structure and the cost needs going forward?” That’s the financial piece. That’s a big piece. We have some quicker ones which is, “Is the product something we’d invest in? Is it healthy? Is there a conflict with anything in our portfolio?” We don’t want there to be, so we’re not going to invest in a similar thing where there might be conflict because we want to get behind one company in a category. That’s a quick one we could look at.

A couple of the other ones are, “What’s the exit opportunity? Has the person thought about that? Do we think this is something that could go from the start all the way there?” which is a very hard path. “Is there someone that might be interested in acquiring this or is it a very small niche product?” We want there to be big exits for our investors. I like that there is a genuine story behind the brand. It’s important to me that the person is doing this for a good reason, passionate about it and I love the story part. Most companies have that. We understand why the founders are doing it. Why they started the company? Why do they believe in it? We’ve seen a couple of companies where it was pretty clear that someone wanted to build a company to make some money. That doesn’t work very well for us because it’s not as interesting because we like to see passion. The team is important and scalability. There’s a company that we’re going to talk to and I love this product, but I’m not sure that they can scale it. They’re making it themselves. That’s a big question that I have. That’s what our checklist looks like.

As far as an investment, we’d like to do follow on investments. We have made investments north of $1 million, at least one of our portfolio companies. Those initial investment amounts are what Michael was referring to.

Margot?

I was going to say it in relation to that, we like to invest early because it makes a big difference. Also, because the valuations usually allow us to participate in a greater way in terms of the equity amount. We do look at the valuations and we look at how the entrepreneur arrived at them. It sometimes depends on the industry. This investment we’re making is a little bit higher-end range than we’ve ever considered before. Even we surprised ourselves sometimes, but we’re looking at that valuation and making sure that everybody’s being realistic.

I want to come back to the valuation question. I also want to lay around to one of the points that Michael made about passion and we talk about that a lot. One of the things that I think is important is this passion is the guard against complacency. It’s the energy needed to persevere because building a CPG brand, whether that’s in food, personal care, pet care, it is hard. It isn’t going to be the material or gain the money that gets you through those difficult days and those dark hours. It’s going to be much more internal, much more heartfelt.

That is that absolute drive that passion, that what you’re doing is something that has a deeper and bigger meaning. If you’re reading this and don’t have that about your brand, ask yourself why you don’t because you need it to make it through. Fritz’s question simply is would Spiral Sun consider investing or mentoring a wellness lifestyle brand selling certified fairtrade, organic cotton, activewear and accessories, organic plant-based with clean, sustainable, and transparent field-to-government value system?

I would look at it. I know a little bit about the apparel industry. I think there’s a white space there in the product you’re describing. You’re welcome to schedule a time with me. Don’t bother sending me the deck, but you can send Margot and Michael the deck if you’d like. We would look at that and we would put it through our criteria. I get to know you and even mentoring if you’re not quite ready for our investment. If we like you and we like what you’re thinking about, and you need resources and help, we are personally more than willing to spend time with you and help you develop your company, your idea and scale it. Don’t be shy in presenting an opportunity to all three of us.

I can broaden that a little bit. We invest in personal care products. We’re trying to diversify ourselves a little bit. We’re looking for those kinds of things. We have a company that has antimicrobial fabrics that they use for different purposes. We’re broadening ourselves but in general, our tagline, “For better or for worse is we invest in health.” Whatever you’re putting forth, promote a healthier lifestyle. Whether that’s technology or soft goods or food or beverage, we’re pretty open.

I’m going to switch back to the dirty capitalist side and talk about valuations and term sheets. One of the things that I think is challenging is the vernacular that we use and sometimes the lack of real understanding of the difference between evaluation cap on the convertible debt instrument and all of those kinds of things that are key to being an educated consumer. Take me through what you’re looking for or what you want to hear from folks when they’re talking about valuations.

The first valuation is we want you to be confident. We want your company to be worth a tremendous amount of money. Early on though, your expectations have to be aligned with ours. As Margot said, where we’re stretching ourselves and the deal that we’re about to close. The valuation is not any standard metric. We looked at the size of the market. We looked at the founders of that company and decided that they’re both worth investing in. We also looked at the investors and they already had and said, “We want to be in this category. We’ll dip our toes in.” The evaluation probably isn’t very realistic to how we generally view it.

For someone like our fund, if there’s a disconnect on valuation, or if there’s no cap on a convertible note or the cap is way too high, we may say, “We’re different than an investor that’s going to add no value to the company.” Maybe we structure something where we get a few advisory points for helping over a couple of years, but it’s important when we do something like that, we usually make it milestone-driven and we do try to help with our connections, introductions and the people like Elliot and others within our ecosystem. We can get over-valuation and you need to be realistic when you converse with us on the ability to potentially rethink how you’re approaching the marketplace.

I’m okay with seeing a big valuation. If it’s way too unrealistic, it may be a non-starter, but we’re willing to listen. We’re willing to work with you and to give you transparent advice. Not so much because we’re trying to cut the valuation down. It’s okay if we’re not the right party. If we can help you and there’ve been examples where we’ve had an opportunity to invest in companies and us as investors, there have been times where I said, “I can’t help you or Margot or Michael can help you.” That’s okay. I still want you to be incredibly successful, but work with the investor on valuation, listen to their perspective, and see if there’s some common ground or some ability to adjust it.

I would like to get your take of whether you agree with that. One of the things that I think is important, we talk a lot and founders show a lot about their path to revenue growth and hopefully, more so now, their path to EBITDA growth and so forth. What they often don’t show to an investor is their capital strategy over the lifetime of that. I think that that could enter in a lot to your valuation in terms of, “What is the right term for this?” If you see that they’re planning to raise a lot of capital over the lifetime, and therefore you’re going to be likely going through a lot of dilution before the end, versus a company that’s more capital efficient and there isn’t going to be that dilution. How does that enter into your thought processes? The capital strategy over the life cycle of the business from birth to liquidity event.

It’s pretty much everything. You have to take the long view. We’re looking towards an exit, we want to get there, but that’s what I said originally. When we’re looking at a round and somebody’s looking to raise a certain amount of money, we’re looking at the runway that that capital is going to provide. We want scalability with the least amount of capital, but it’s got to be realistic. Who’s in there? Is there a syndicate we can build to help? When we look at your projections, it’s tough because projections are only what projections are, like Mark said. When we look at them, we like to see that different amounts have been built in that, you thought through this strategy all the way out, “How are you going to get to your Series A and what is that going to represent? What are the uses of that capital?”

We do look at obviously sources and uses of the capital and each round, and looking to be most capital-efficient in getting there, “What do you need to get there? Do you need to take your capacity to build in house? Are you going to put the debt on the company?” We’ve seen a company fail because there was some venture debt put on the company with the outlandish term. You have to be smart about it. Some of that is being smart about what type of capital you take. Some of the top reasons that small businesses fail are not raising enough cash, poorly managing their cashflow and taking on debt. We’re looking at your capital needs and how you’re planning for those all along through exit.

One of the misnomers sometimes is when vendors show investors that hockey stick, that crazy growth, it’s almost always going to consume crazy amounts of capital to get there. Oftentimes, what an investor would rather see is a more metered, still good growth. The growth that gets you to exit, but a more metered growth that requires far less capital, which means far less dilution over the lifetime for that early investor. Sometimes, we kick ourselves in our own asses when we try to do that. We are going to do some rapid-fire things here. I’m going to go around the circles of Margot, Mark, and Michael. That’s the order. Joanna asks a question and that is, “How do you view companies with social impact mission?” I also want to add on, “How are you thinking about justice, equity, diversity, and inclusion as you evaluate founders?”

I come from a fund where it wasn’t necessarily our investment thesis, but we invested solely in female entrepreneurs because as we know, they get less than 7% of all venture capital money, etc. I am acutely aware of gender-diverse teams. We are completely open and inclusive of all kinds of gender and race diversity. We’re completely open to all entrepreneurs and it’s important to us to be inclusive in everyone and everything.

Most of our companies have a social mission. Joanna is right into the point about the entrepreneur, the founder, having a passion for the business. That passion for a social mission is usually aligned. I would say it’s an important element in what we look at. Can you not have a social mission and attract a fund like Spiral Sun? It would be challenging not to give back in some way for us to greenlight investment in you.

If you could give 2 or 3 nuggets of wisdom that founders who are thinking about raising capital in the midst of raising capital, especially those who are in early stage, what advice would you give them?

It’s to understand the investors that you’re meeting with and what’s important to them. Like ours, is promoting better health performance. Be open, flexible, and ask for help, especially, if they haven’t done it before that they think they know everything and they don’t need our help, it’s not a good fit for us. Realize it’s a long-term relationship that you’re building. It’s based on trust and ultimately a good partnership.

Do you have anything to add to that? Any nuggets of wisdom that people should be taken back with them after this?

It hasn’t come up, but I’m going to throw it in simply because it hasn’t come up. Get online. If you haven’t figured it out yet, you need an online presence. For most businesses, your most important site is your website. Let’s see if everybody could get on the first page of a Google search because I think the statistics are something like 91% of consumers won’t find you if they have to cut a page two. Call us, don’t be afraid to reach out to venture capitalists, especially Spiral Sun Ventures. We’re happy to talk to people, even if you’re not looking for money.

Mr. Thomann brings us home.

Don’t manage your company based on the cap table, manage it based on your cash. By managing your cash properly, you’re going to show and demonstrate to an investor that you’re worthy of being a steward of our money. Don’t be preoccupied with whether or not your valuation is going to dilute you by 0.5 or 2 or 3 points. Look at the investor, the value they will add to your company, and never forget that human capital is the most precious thing that you’re carved of as an early-stage company. You need good people and to develop a team that can execute. Don’t be afraid of recruiting top-notch people that are willing to help you either through an investment or becoming part of your team. You’ll find that a lot of people are willing to take less than the market would give them. Otherwise, to be part of your company, if you’re a good founder and entrepreneur.

If they do want to reach out to you, what’s the easiest way to go to your website, to find you on LinkedIn?

The best way is you could do all those things, but if they happen to know somebody that knows us well and the introduction always works best.

I’m always happy to do it. Thanks, everyone, for joining. Have a great day.

Thank you for having us.

Important Links

• Spiral Sun Ventures

• Brass Roots

• Expo East

• Presence Marketing

• Farmer’s Fridge

• Pots & Co

• LinkedIn – Spiral Sun Ventures

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