Fintech investing with Better Tomorrow Ventures co-founder Sheel Mohnot

The below is a full (unedited), machine-generated transcript of a Youtube session / podcasting episode I recorded with Sheel Mohnot of Better Tomorrow Ventures in June 2021. You can view the video/listen to the podcast on Youtube, Apple Podcast, Stitcher or wherever you get your podcasts.

Erasmus Elsner 0:06
Welcome everybody to another episode of Sandhill road and I’m super excited to have my guests with me today here he’s a minor or major celebrity, and having had a great appearance on a COVID, Ariana Grande and justin beaver beefs video. And we’re gonna talk about this, and let me announce this great guest, Shimano, who’s the co founder of better tomorrow ventures.

Sheel Mohnot 0:34
Hey, thanks. Great. Great. Great to be here. Thanks for having me.

Erasmus Elsner 0:37
And where does this podcast find you today, you have such a beautiful home there.

Sheel Mohnot 0:42
It’s a virtual background. You don’t want to see what’s actually back here I am in San Francisco, and currently in bed. So I had to hide it with this beautiful background.

Erasmus Elsner 0:54
I’m sorry for waking you up

Sheel Mohnot 0:57
for whatever. No, that’s not it at all. I actually just enjoy. And so a lot of my meetings I do in bed to thank God for virtual backgrounds.

Erasmus Elsner 1:05
So let’s talk a little bit about what you’ve been up to during COVID because a lot of people have been sitting at home, you know, working from their bed, and you instead you made a guest appearance with a beef justin beaver. I’m not I’m not sure I’m, I’m going to be able to give you the same publicity, but it had 160 6 million views. I think the way you made your way into this was actually through the zoom Bachelorette show.

Sheel Mohnot 1:31
True. It’s sorry about it. It’s such a weird story. Okay, so there was something at the beginning of the pandemic, there was this show called The Zoom Bachelorette, where there was this woman. And there were 12 of us suitors on this three hour show, trying to win her affection, so to speak. I ended up losing on the show. It was a fun thing. We had to like, give ourselves a haircut. We had to cook a meal, all these other things. I did not when I came in third, I believe, and or maybe fourth. But I think I think I did well with the audience. So they ended up choosing me to be the zoom bachelor, which was a few months later, I know I’ll be a phenomenal husband. Like all VCs, I’m always asking the question, How can I be helpful? And then, sort of watching this soon Bachelorette was Scooter Braun who is Justin Bieber and Ariana Grande days manager. And we were in clubhouse afterwards. And he said, Oh, I’m shooting this music video right now I gotta get you on it. And so he did. And so in this stuck with the music video, I think it’s somewhere near the two minute mark, I have like a two or three second appearance is kind of funny.

Erasmus Elsner 2:51
and supporting this great moustache. It’s wonderful. But maybe let’s let’s jump in with something I read on your website, which is called shield dot WTF. And you mentioned there that you’re generally a happy Yes, man, a very pro noise person. And then you you kindly link to the Wikipedia article on what pronoia means. And it’s a neologism coined to describe a state of mind that is the opposite of paranoia, whereas a person suffering from paranoia feels that persons and entities are conspiring against them. A person experiencing paranoia feels that the world around them conspires to do them. Good. That’s such a wonderful Zen state of mind to be in. And I think it’s probably a state of mind that you have to be in if you’re a venture capitalists, right? Always, always look and think about the upside. I love this. So to talk a little bit about what this entails in your daily life, this paranoia.

Sheel Mohnot 3:46
Yeah, I think you’re absolutely right, as a VC, you should be pronoia, you should have pronoia. Because you should be thinking about what could go right? Not necessarily what could go wrong, because especially in the world of venture capital, as you know, a lot of things can go wrong. And one thing go right, and you still have an amazing fund, business, whatever. So it’s, yeah, it’s it’s a good way to live life if you can, but I don’t think most people have the choice. I think I just lucked out that. That that’s how I tend to see the world.

Erasmus Elsner 4:19
The end, I think, if I look at your background, sort of required because you’ve transitioned through so many roles over the last couple of years, sort of the state of mind is really required. And maybe for the listeners out there, we originally met back in 2016 2017, I think, really 2017 it might have been Yep. In a a startup class at UC Berkeley. You were teaching together with Neil Google, who was at that point, the general counsel for 500 startups. You taught me quite a lot about unit economics, but you’re a person who has worn many hats starting out as a management consultant, then becoming an entrepreneur, then an angel investor, and now a fund manager. Maybe just give us the Quick highlights of your last couple of years, a couple of decades.

Sheel Mohnot 5:03
Yeah, absolutely. It’s funny because, like, the way I tell the story it like kind of makes sense. And like, flows from one to the next. But I think in reality, it’s not always that way. It’s like, you know, there’s that famous CEO, Steve Jobs quote about connecting the dots looking back words, and you can kind of see how it all ties in together. But really, at the time, it was always like, I don’t know what I’m gonna do next. Let me let me think about it. And then something landed in my lap. It happened to be it happened to be turned out great. I grew up in Pittsburgh, I went to Carnegie Mellon, I made software for hospitals. From there, I was working in hospitals, and transitioned into management consulting, also in the healthcare space. And then, you know, I was just like, I wanted to do something different. And I also wanted to like, give back. So I spent a year working in micro finance in India at Kiva. And that was a really cool experience, because I decided to live like a borrower. So Kiva is a micro finance is a website where you can make a loan to an individual in the developing world. And I moved to India and lived like a borrower. So I was living on about $2 a day. That was a tremendous experience. I then came back to the states went to business school, worked at BCG at BCG, also was ready to leave. And a friend of mine had left a couple months earlier to start a company. And he said, Oh, why don’t you join me. So I did that. It was a payments company called fee fighters. We got acquired by Groupon. And so that was an interesting story itself, and then stayed at Groupon ended up starting a couple of other things along the way, one of which is an auction company called innovative auctions. And then I also sort of while doing that, decided to start a couple other things, which were a food company called this’ll and then this podcasts that you’re familiar with called the pitch that was subsequently acquired by gill net, which was acquired by Spotify. And then in 2015, we sort of sold the the auction business, and 500, startups had invested in my first company, and asked me to join. So I came on board to 500 startups at the end of 2015. Originally, as a temporary, like help out sort of thing, then I decided to run a fund 500 FinTech is a small fund $15 million. I just loved it. I think I love helping startups at the earliest stages. And, you know, I was fortunate to choose an amazing category. FinTech, especially at that time, I think was a little bit ahead of what other people were thinking and FinTech. So those companies have done really phenomenally well. And I continuing that FinTech investing as the new fund called better tomorrow ventures, which we raised last year.

Erasmus Elsner 7:51
Yes. And we’ll get to that. But before that, let me maybe as a content creator myself, double click on on the pitch, which I really share. It’s near and dear to my heart. I can’t wait for it to continue. I think it’s been stuck on episode 100. Maybe it’s been discontinued. I’m always checking back in actually two weeks ago, I’ve had another flashback. There was the founder of cow chopper coffee, the vert me’s pour over coffee. Yeah, pitched on Shark Tank. And I think you’re originally set out to sort of make it a more real Shark Tank. And so now that the circle closes, read that one of the babies from the pitches is now I think they got the deal from Robert herjavec. For Yeah, that’s right. 600k for 5%. And I think some advisory shares. And as you mentioned, you sold it to gimlet which, as we all know, is next to anchor the big acquisitions from Spotify in the podcasting space. But talk a little bit about how it all started. Because I think you started it in your home listening. Yeah, just hitting the record button. And so often, you know, as an investor, I wish I could hit the record button in my daily life, but you actually did it and you turn it into a wonderful podcast,

Sheel Mohnot 9:04
it started I think I was, I was sick. And I was at home, like wanting to do nothing sitting on the couch. And I turned on the TV, and was watching Shark Tank got pretty hooked on it. And I really enjoyed watching it. But I was thinking, hey, this isn’t real. This isn’t what real startups pitch like, you know, on Shark Tank, you have like, a towel with a hole in it or something like getting a lot of attention. That’s not what venture capital is like. That’s not what our type of venture capitals like so what if I made something that was like Shark Tank just via podcast? You know, at that time, podcasting was just starting to get very popular and if I just record what people are pitching me, so that was the original idea. I contacted this guy Josh Muccio because that he had a podcast about product times and I thought we could work together on this and we did. And so that was in the beginning of 2015. He was living in Florida. He came to San Francisco, and we recorded the first several episodes in my house. And actually we, for the first couple of years, the the logo was a edited picture of us in my house. Originally, it was me being the only voice interacting with the company. And then over time, we evolved it to actually be much more similar to Shark Tank. We started recording in a studio, and we had four or five VCs with one company pitching. And so it ended up being a lot more like Shark Tank. So we started in 2015, at the beginning of 2017, Apple featured us on their podcast app. So like, if you open up the podcast app at the top screen, like there’s a picture of me and Josh, with with the pitch, and we had a when we originally launched, we had a successful launch on product time, and that that actually went a really long way and we got somewhere I don’t remember but we were one of the top podcasts for that brief moment. And then it happened again in 2017. And in 2017, gimlet reached out to us and said, hey, we’ve been listening to your podcast for a while. We have this podcast called startup and we think you might be a perfect compliment for us so would you consider doing gimlet and then we did they then got acquired by Spotify plus later and I am sad to report t it looks like they’re not going to continue well oh

Erasmus Elsner 11:38
my god i was i was that’s what I was thinking that they left it on episode 100 but for anyone listening out there you should definitely look at the back catalogue it’s so amazing and I mean Josh Muccio is such a great hosts such a great host and he would always follow up with you know, the investors ex post How did it go down? How did the closing happen or not moving on from from the podcast, which which I think is really like a masterpiece that will stay in the in the internet universe moving on to your way into the wonderful world of venture. And I think, you know, today we have this notion of the career of venture capitalist people starting out in the big firms as associates, you know, working on the top of the funnel, you know, talking to lots of companies to become principals and partners and you know, fighting for carry points. But we all know that the prime way of getting into venture is by actually having founder or authority and having actually been in the trenches as an operator, preferably having founded the company have a have an exit under your belt, but the way that you describe it, this wasn’t really planned. It was more like spuriously. Yeah, I can imagine that, you know, still knowing about this perspective of being in the founder trenches, having to find product market fit, must have really shaped your thinking around a lot of things, starting from unit economics to UX, UI, back end infrastructure, everything in between, talk a little bit about all of these aspects, and why this makes you a better investor today,

Sheel Mohnot 13:03
it is really helpful to have that background. And I think where it’s helpful is it gets you respect from founders. And I think it helps you win deals against somebody who may not have that founder, background. And I think what we talk about a lot is founder empathy. Because starting a company is not easy. And you go through a lot. And both myself and my partner Jake had been through that, and have been through some really tough times along the way. And we can guide founders to a certain extent. And then the other thing is like, especially because we’re focused on FinTech, a lot of the problems that a founder might face we have done before, that has worked out really well, for some of our founders. So I don’t think it’s a requirement. But I do think it’s really helpful. And I think our founders would say that they probably talk to us a lot more than some of their other investors. And I think a big part of that is because we are founders and that’s our

Erasmus Elsner 14:08
approach. Maybe let’s talk a little bit about the 500 startups FinTech fund. I think it was originally targeted to be 25 million fund, you ended up raising 15 million. Talk a little bit about how that sort of fit into the whole 500 startups ecosystem. You know, was it its own accelerator? Was it more like a sidecar and investing alongside the main batch? How did it work? And how did it come about originally?

Sheel Mohnot 14:33
Yeah, sure. I joined 500 startups towards the end of 2015. The idea was, I would be a mentor and you know, figure out if I like doing it, and then I might do it on my own. So I turned out I really enjoyed it. I love helping founders at the earliest stages. And then I thought, okay, I want to do my own thing, but maybe I should do it here under 500. So we set up a site Vehicle 500 FinTech originally funded with my own capital, and then raised a fund around it. And you mentioned Yeah, it was supposed to be 25 million. How did it end up being 15? What ended up happening was, while I was raising 500, startups had some issues, you may recall, and then the me to stuff just for clarity had nothing to do with me. Because of that, we had some LPs drop out and ended up becoming a bit challenging, so I decided to actually just keep the fund small. And then I knew sort of, I could go out again and raise another fund, assuming things went well. And things went really well. And I do think, you know, I credit 500 startups with really giving me a chance and a first path into venture that I don’t know if anyone else would have given me. So you know, I really enjoyed my time there. And there, we ran an accelerator programme focused on FinTech and it was an entirely separate Fund, the fund was separate. But in the accelerator companies, we would jointly invest with the 500 startups fund. So we would put up half the capital and every company and the 500, startups main fund would put up half the capital. And we ran an accelerator, we had, I think, five or six batches with, you know, six to 10 companies a piece, you know, a lot of really great companies have come out of there. And so I think I was really fortunate in choosing this FinTech category, and being able to find these amazing founders to work with. And then that, you know, of course, paid dividends, that fund has performed extremely well. And thanks to that, you know, it gave us the ability to raise this, this better tomorrow ventures Fund, which is 75 million, and that one, you know, actually we were targeting 60 million, but there was a lot more demand than we had expected. I think, given my experience, raising the first time was very hard. And then kind of what other people told us to expect in raising this fund. That for me, and Jake, was the first time raising an institutional fund together. We people had told us, you know, actually somebody, you know, very popular in the venture community had told us, you guys are crazy, you should raise a 30 $40 million, fine, you’re not gonna be able to raise 60. But we decided, Okay, we already started we already said we were gonna raise 60. So let’s just raise 60 and then end up being that we were way over subscribed at 70 ended up closing and 75 because that was the hard cap, sort of if to set a hard cap when you’re raising and ours was set at 75.

Erasmus Elsner 17:32
I think it’s an impressive amount for what is considered by institutional LPs a first time fund. Yeah, but what I like about your fundraising is that sort of when you raise the 500 startups FinTech fund, you were part of the track record, actually, of the 500 startups tracking strong other companies like karma flywheel simple, I think Imani and realty shares I saw in the pitch deck there, that’s quite a luxury to be part of the track record their founder and then sort of build from this the first maiden fund and then raise the first independent fund a couple of years later. and if we talk a little bit about that the original thesis for the 500 startups FinTech fund, and how this has evolved, I think was focused on serving millennials in the financial services sector played out quite well talking about mean stocks and Robin Hood and Neo banks and all of Yes, how is this really evolved now in the last five years as the FinTech system is really, really matured in many ways.

Sheel Mohnot 18:30
I think it has gotten a lot easier to start a FinTech company. And so that means they’re just more of them. And there are more great founders choosing to start a FinTech company. So an example would be a simple simple was a company that 500 startups had backed it was one of the original Neo banks started by a friend of mine Shamir simple, took really like $10 million in two years just to get to launch, huge team, they had to build everything themselves, they had to, you know, convince the bank to partner with them. They had to build their own compliance, infrastructure, loan, credit, all this, all this stuff, they had to do themselves. And today, if you wanted to start simple, it would take a team of two or three people, like six weeks to start the company, the bank and be live issued issuing cards. There’s a company in our portfolio called unit unit Co. It’s a banking as a service company that enables that, and we’ve seen this actual thing happened where literally, a company goes from meeting unit six in six weeks, they have cards in hand. As a new bank, I do bank and that’s pretty exciting. And so what that means is like the world of opportunities has expanded greatly. And it’s not just what you would historically think of as FinTech companies. There are all these other companies that are really providing software Plus. So it’s software Plus Financial Services, not just financial services. And another example in our portfolio is a company called coast. It’s a fleet spending card, there are these two companies wecs and fleetcor, that are quite large, like 10 and $20 billion businesses. And all they are is like a MasterCard or visa, but it’s focused on fleet payments only. And coast, we said, hey, these companies actually have horrible NPS is, let’s build a software, let’s put some software on top of a card. So you can manage the fleet, the fleet spending, and it’s similar to ramp or brex, where it’s not about the card, per se, it’s about the software plus the card. And I think there are a lot more of these sorts of companies that are being built. If you think about, like Mind Body online, which is software for yoga studios, there really are doing everything that that the person running the yoga studio needs to do there the software that that person needs. So it handles payment and scheduling and handles marketing to a certain extent. So why not, then if you’re already handling payment, why not add in other financial features and be a bank account, you’re already the place where you know, they’re swiping a credit card or taking electronic payments, you can do more from a banking perspective. And we think a lot of companies will add in banking services. And companies like unit will be enabling that. And so we’re invested, of course, the infrastructure piece with unit but we also are investing in some of those other companies that are enabled that are being enabled by unit. That’s exciting.

Erasmus Elsner 21:40
That’s super interesting, because you know, if I think about neobanks, I today think about it as mainly like a distribution mechanism. And you know, every every other week you have a new neobank focused on it on a different vertical and it raises some questions in terms of defensibility. But what you’re mentioning there is saying that you’re you have sort of a vertical SAS layer, and then you link in a FinTech angle to sort exactly to entrench maybe talking a bit about the back and sides of the FinTech ecosystem. And we have some companies such as plaid being in really interesting data play, then we have the payment processes, the likes of stripe,

Sheel Mohnot 22:18
you know, it’s really exciting. I think both plaid and stripe, enables so much to take place, kind of like what we were talking about, just now how there’ll be a lot more FinTech companies being started, plaid really made it easier to get that bank account information, which meant a lot of personal finance managers made it easier, easier to look at Bank information to underwrite loans, all sorts of other things.

Erasmus Elsner 22:43
Yeah, remember, again, an early podcast episode with the founder of plaid, where he mentioned that in the first version of plaid, they actually had to go and build like a web scraper that went into the bank accounts and scrape the data. You know, it was really the version one of the data integrators and now we can sort of link directly into an API and everything is quite seamless already.

Sheel Mohnot 23:03
And what happens with these sorts of companies is like, you build it for one use case, and then other people find it and start using it for other use cases. At stripe, it used to be a decade ago, you have to go to your bank, and open a merchant account with your bank, and then separately, get a gateway. And that process took a couple of weeks. And then with stripe, you could sort of integrate a couple lines of code and be up and running instantly. That really changed a lot for online commerce. And I think that’s, you know, tremendously exciting. And I continue to be bullish on on both of those companies.

Erasmus Elsner 23:39
Let’s talk a little bit about better tomorrow ventures. And you mentioned already that you exceeded the target and closed at the hard cap of 75 million. Talk a little bit about the fundraising and how having had a number of angel syndicates helped you build trust among LPs? Yeah, absolutely.

Sheel Mohnot 23:55
So we started fundraising towards the end of 2019. And we sort of had to jumpstart our process because we had a company we wanted to invest in, it was actually a unit, the company we talked about, and we had committed to investing in unit in September 2019. We committed to you know, sort of CO leading the seed round. But we didn’t have money at that time, we hadn’t actually started raising the fund. In fact, when we committed to investing, we didn’t even have a pitch deck for the fund. So we committed to invest and we said, okay, the money’s coming. Sort of like three months later, we had, you know, we had put together a pitch deck and then sort of quickly raised a first a first close, which was something like 20 million bucks. And that 20 million was relatively easy for us to raise. I think we have a good enough track record and reputation in the world of FinTech. So a lot of FinTech founders, and other VCs just sort of said, okay, because you’re starting a fund, we’re gonna invest and that was really great. And we had some really amazing people, you know, just sort of say like, very quickly, like Marc Andreessen gave us 2 million bucks. And, and that was our first first LP Actually, it was pretty nice. We, you know, had a meeting with him. He had been, you know, recruiting both of us at various times to Andreessen and then, when we said we’re gonna do this fund on our own, he said, All right, you’ve made the right decision. And here’s here’s the first track, which was really sweet of him. So the first one ended up being close to 20 million bucks, was relatively easy. I had my previous fund, most of those LPs came in as well. And then we went out to institutions. And that is just a longer sales cycle, it tends to be they want to get to know you over three, four or five month period. I think in hindsight, we should have had those meetings earlier on. But you know, whatever we lesson learned, we did have one institutional fund come into our first close it was send out a capital to seed fund seed focus fund to funds.

Erasmus Elsner 25:55
A fan of Michael Kim from Vandana I love his concept and how he’s really able to emphasise hungry over proven and so really happy to have seen him come in as an LP,

Sheel Mohnot 26:07
what was amazing, and what way will forever be grateful to them? Is they came in before anyone else without any anything else. No, no, you know, there’s always it’s always easier to be the last investor in a fund when, you know, eventually we got a lot of institutions to come in. But and then it’s easier to say, Oh, these guys have done their homework. But my goal, not only came in early, not just Michael Graham and Kelly as well sit down and came in early. But also, I think we didn’t, we didn’t know perfectly what we were doing. We had a vision we didn’t have, you know, we didn’t have everything drawn out perfectly. But he helped us sort of build that and super grateful for him. And then sort of beginning of last year, so beginning of 2020, we started going out to institution, other institutions. And these were just people that we could get connected to in one way or another through other VC friends of ours, their LPs, that sort of thing. And it went pretty well it took time but but things were going really well. And then we were going to do a close March 30 2020. And, you know, as you probably recall, we don’t world looks kind of crazy at that point. And all of this capital that we had committed or nearly committed, basically said, Hey, the world is falling apart. We don’t know what’s going on. We cannot commit this money to here. So we had a number of people actually back out. And you know, it’s okay, we totally understand that was a crazy time. And so we kind of just paused fundraising for a little bit. And we thought, okay, we have 20 million now, we probably could easily get to 30 or 40. But getting that 60 might be hard. So then we thought, we sent a letter to our LPs and said, Hey, like, we’ve rethought this, we’re going to have a smaller fund, but it’s okay, because valuations are going to come down. And then of course, what ended up happening was, you know, two months later the market was higher than it ever been. valuations, you know, sort of subsequently really high. And it was actually fairly easy for us to close out the rest of the fund. I think we received as a as a credible group with a very good track record in a you know, starting a new fund. And so we ended up getting a lot of institutions coming in, we have count among them, Greenspring industry, Invesco vintage and send data on the fund to fund side. And then we also have a number of wonderful family offices. And then we have my alma mater, Carnegie Mellon, among others. So like a really great mix of LPs that we love working with, I wasn’t sure how that would all be, but we actually have a really great relationship with them. And we’ve been doing a lot of spvs and a lot of our LPs love that so that’s been great to that we

Erasmus Elsner 29:15
love having co investments, it’s the taste of the time. Exactly. Yeah. But let’s talk a little bit about differentiation. I think it’s an interesting topic because venture is really one of the few asset classes where the asset chooses the money right and and we talked about you and your co founder of better tomorrow ventures having this founder authority, but then the game is more complex, you know, because the stage at which you invest in the pre seed seed stage there, your your job is really to pass the ball along to the later stage, investors and obviously, having someone like Marc Andreessen, as an LP is a perfect way of ensuring that you can pass along this ball, maybe talk a little bit about the different ways in which you you would consider yourself differentiated in the FinTech, early stage FinTech space.

Sheel Mohnot 30:05
Yeah, I think you know, sort of our pitch is, we are FinTech founders investing in FinTech founders. And at the seed stage, we think it’s most helpful to have people who’ve been through it before, it’s when you need the most support. So what I recommend to founders is, at seed stage, you go with the investor, that is going to add the most value to you at that stage, which is somebody who’s been through it before, and somebody who is experienced in the field that you’re in, at series A, we say just go for a strong brand, a brand can be very helpful in, in sort of, you know, recruiting and other things. And then, and then Series B and beyond, you know, just go for go for the best price you can get. And if you didn’t get one of those things, if you didn’t get a brand, if you didn’t get a helpful founder, founder turned VC, then you could get it in the next stage. So that’s what we recommend. I think the main thing that differentiates us frankly, is that, like, we love this stuff, like this is what we love doing. We love helping our companies, you know, we’re in WhatsApp with our founders all the time. We think that, you know, I think for the most part where the first call for entrepreneurs, something good happens, something bad happened, you know, they always tell us, you know, this, I just got off the phone, and I had to call you. And we love that. We’ve helped hire people, we help think through distribution, I think Jake has done a lot. And in helping build company culture, I do a lot on like strategic partnerships. And then we definitely help raise the next round, a lot of our companies have had a lot of success there. And a lot of time, during that two week process of the raising next round, we are always on the phone with our founders, but then also with the VCs, convincing them, here’s why this company is amazing. And it goes a long way, it really helps.

Erasmus Elsner 32:02
You haven’t been through the full cycle yet. But when you think will be the point when you have to let go and let the later stage investors take the ball, it’s a great sign if the founder still calls you at the series D. But how have you thought about this,

Sheel Mohnot 32:16
we have a bunch of companies that are seriously series D, we have companies going public. And all of those companies, I would say we still have a very strong relationship with companies from from 500. FinTech, not from the new fund the new fund, we don’t have any companies at that stage yet. But I’d say all of our series C and beyond companies, I talked to the founder or message with them multiple times a month still. So I think we’re still pretty active. And some of them like multiple times a week. Still,

Erasmus Elsner 32:44
this brings me to the next topic and reserve capital and you have to do a fund model. Obviously, for this fund. I assume that in the 500 startups FinTech fund, you you couldn’t go all the way taking your pro rata would have been beyond the size of that fund. But now that you have a larger fund, you can think about keeping your pro rata for a couple of rounds, or even having a larger allocation. How do you think about that, in this current fund,

Sheel Mohnot 33:07
it really feels like like looking back, the 500 FinTech fund, really kicking myself for not keeping a lot of those companies. Because I think I didn’t put as much money into those follow ons as I should have, I knew which companies to follow on and do like, if you look at the follow on the companies that I followed on into, they were the right companies, but I just didn’t put enough capital behind it. Like I would double in, instead of like, going all in on these four lines. And it turned out that like, of course, I’m still learning so much. But that was a big learning for me was like, you can spot a winner and just pour the gas in when you can. So in this fund, we have one to one ratio of first checks to follow ons. And a lot of LPs and other other GPS had told us, it’s gonna be hard to get more than that. Because the nature of investing today, it’s hard to get your pro rata rights, it actually hasn’t been hard for us though, we’ve been able to get them and I think it’s because, you know, because of that, like being the founders first call sort of thing, it also helps that like, we’re helping them raise the next round. So we spent a lot of time with the investors that are writing that lead check of the series A and B. So they don’t want to screw us that that has been really helpful. So we’ve been able to maintain our and some in some cases, we’ve been able to grow our ownership over time

Erasmus Elsner 34:31
and a lot of first time funds I see it all the time they don’t have enough reserve capital at the performance is driven so much on your ability to double down. So keeping that in mind early on, I think makes a lot of sense.

Sheel Mohnot 34:42
So actually fund two, we probably will have more reserves. So right now we’re one to one I think we’ll have more reserves in sort of really go at go all in

Erasmus Elsner 34:52
for the last part of our session. I want to start a new format which I call the good the great, the bad and the ugly. or have your great deals maybe starting out as a first one chipper cash evolving really nicely. I think you announced the 100 million series seed on after your investment. I think ribbit capital, which is the largest 6/7 generation FinTech fund came in. So you really establishing yourself as being an early signal for those later stage investors.

Sheel Mohnot 35:20
So this company, I met the founders at the end of 2018, they told me their idea, Major, they actually still had not left his company. So it was only him was the only full time employee at that time. But I really liked what they were building. And I thought they were incredibly thoughtful. They had really great reactions to anything, anything I brought before them, and so chose to bring them into the accelerator. So we invested at that time, it was 150k to two and a half million posts and love working with them the accelerator very fast learners always sort of like had tremendous growth week over week. And then we thought, hey, this could really be something towards the end of the accelerator. Nobody had wanted to invest in the company still. So I ended up writing another check into the company to sort of keep them alive for a little bit.

Erasmus Elsner 36:05
Maybe for the listeners give some background on why it was so difficult, because I think it’s a African FinTech a underserved sector.

Sheel Mohnot 36:12
Yeah, sorry, I didn’t, I didn’t do a good job of explaining. So chipper cash is a peer to peer payments product in Africa. Think about it, like Venmo or square cash United States or, you know, a cool analogue would be like WeChat pay or Ali pay in Africa or PTM. In India, there’s a great need for this product in Africa, because the unbanked population is so large. So I really like these founders wanted to invest made that second investment. And then fortunately, a friend of mine den Kimberlin desbiens capital came in and ended up doing the next round, we did the seed round after the accelerator, and I think it was a real challenge for those guys to raise because it’s an African payments company. And especially at that time, many investors were not looking to invest in Africa, many investors were actually not investing outside of the United States at all. And now many more of them are. And we’ve seen funds like usv, who hadn’t done any international investing at all just did the last two deals were International. So I think we’re seeing a lot more of that in the pandemic has made it easier if you’re not meeting the founders anyway. Or you don’t have to travel to board meetings, you know, things are definitely a lot easier.

Erasmus Elsner 37:28
And I think that’s that’s another superpower of you having lived on one or $2 in an emerging country for a year collecting garbage. So having this founder empathy for also out of region out of Silicon Valley founders, I think that’s that’s a superpower that you have there. And then maybe moving on to really your, your best deal so far. I mean, there are a number of examples. I know flex port Ryan Peterson was actually in the same lecture series that you presented in Berkeley, but maybe let’s talk about the one on top of your mind. That’s sort of your shield defining venture deal so far?

Sheel Mohnot 38:03
Sure. I think, yeah, flexport is a good one. Albert might be another, let’s use flexport. Because it was one that I invested in pretty early. So I was a seed investor in the company. But But I mean, I invested in early as in early for me when I was just starting to do venture capital, investing, angel investing. I met this founder and just immediately loved the guy. He was so scrappy. At the time, we both were doing this hack to get free Ubers, which was

Erasmus Elsner 38:32
he invited me for a beer after the session in Berkeley. And then he took the BART back to San Francisco. And that was after his Series B, I think he was so scrappy, even back then.

Sheel Mohnot 38:44
So we were both doing this hack where we were, you had an Uber referral code, and you would get a certain amount of money. I think it was like 20 they varied and and so the the sort of scam, so to speak, work better or worse, depending on how varied but like, they would give you like $10 or $20, or $30. If somebody new you referred somebody new to Uber. And so we just started using Google AdWords to market our own Google promo code over promo code. So if you search for Uber, would get like use my promo code and save whatever on your first ride. And we were both doing this thing and we have a lot in common This is cool. Yes, freedom

Erasmus Elsner 39:29
couponers. TLC sold on these sounds like a great common interest. Yeah,

Sheel Mohnot 39:36
it’s we started hanging out. And you know, I learned his background. He had been an importer from China. And then he started this company and poor genius. And he, you know, he just, I just thought like, this is the kind of guy you want to back. So when he, you know, he told me sort of the idea about what he wanted to do. I said, I’m in like, I want to invest and I actually didn’t have much liquid capital at the time. But I gave him a, you know, a large check compared to what I had. And that was actually before yc, I just really liked, like the guy, and I learned so much through that process as well. You know, going, helping him fundraise for his seed round ended up getting a bunch of my buddies to invest in a company, it wasn’t, you know, it wasn’t necessarily the hottest company like it was, there were a lot of investors in that round. And it was like, some of them were just like, friends of mine that I was able to bring in into the company. And today, in you know, like a hot round company, you have to, like really show how much value you’re going to add and, and the lead investor tries to take most of the round. And so it was a different time. And, and then I also got to see the company grow over time. You know, saw, you know, when he met Peter teal, and Founders Fund ended up investing and, and sort of been along for the ride, which has been wonderful.

Erasmus Elsner 40:58
Yeah, no, he’s he’s such a great entrepreneur. And I think, yes, still, there’s a wigger and focus even after the masa private offering the MPO that some people call it, that’s really funny, I haven’t heard that. Maybe let’s move on as the last point to a post mortem of one of the deals or investments that went sour and how this has really shaped you as an investor, because it’s just the the economics of venture and if you’re a good venture investor, and I subscribe to the Adam street model there, that actually the loss rate at the early stage correlates with, you know how well the fund ends up returning that you take bold bets. But sometimes they are too bold, and looking back, you would not have taken them. Talk a little bit about the deals that went sour.

Sheel Mohnot 41:41
Yeah, you know, I’d say like, I don’t have any, like amazing stories here, I would say the lesson learned is so of course, first of all, of course, we have many failures, dear point, the largest lesson learned to me was at seed, just focus on the founders, a couple of stories of failure come to mind, that are really just the founder gave up. And they didn’t have the will to do it anymore. Or, and so you really want to find founders that have a hunger, hunger for what they’re doing. And we’ll figure out a way to make it work, no matter what it is other sort of the ugly stories are really where I didn’t do enough homework on the founder, had I done more background research, I would have uncovered something funny that would have caused me not to invest. So you know, those are lessons learned. And fortunately, they were learned in a fairly cheap way because they were, you know, lessons learned learned in a small fund that already had done super well. Those are sort of lessons do your background research bet on founders you believe in? And they’ll figure out a way to make it work.

Erasmus Elsner 42:52
Now that’s great. I think it’s a great Paul Graham lesson also that most startups die of suicide and not murder. Yeah, that’s the way to put it. Yeah. So she’ll, as we were running against the clock. Thank you so much for being here with us. I didn’t mention this at the top of the show, but you’re actually a icon on VC, Twitter, almost 30,000 followers by now and and being really active. I’ve been following you for a couple of years now. Maybe talk a little bit about how people can find out more about you and what you’re up to. I saw that you’re going to present at the launch conference Jason Calacanis launch conference.

Sheel Mohnot 43:27
I think the easiest way to follow along is to follow me on twitter at pit de cpit de si. And yeah, I’ll be I’ll be at the Jason Calacanis conference, meet a VC I’ll be I’ll be pitching myself, which will be fun. But yeah, I think Twitter is probably the easiest way to follow me.

Erasmus Elsner 43:46
Wonderful.