Cindy Bi, General Partner at Capital X, on Investing In 12 Unicorns | Seed To Harvest S2 Ep13

Hello everyone, and welcome back to Seed to Harvest, a podcast with founders, creators, and investors sharing their stories, frameworks, and tactics. My name is Paige Finn Doherty, and I'm the founding partner behind Genius Ventures and author of Seed to Harvest, the children's book about venture. Today I'm joined by Cindy B., general partner for Capital X. She was previously the founder of Spartan Camera while working at Accenture.

Yeah.

And she's invested in over 100 startups since 2011 and seeded 12 unicorns, which are companies that are worth over a billion dollars, including Cruise, Rippling, and Zapier. So Cindy, welcome to the show. Thank you much, so much for taking the time.

Thank you for having me. It's my pleasure.

Of course. Okay, so I wanna dig right into the nitty-gritty of it. You once set a goal to raise $2 million in 2 weeks. I would love if you could share your philosophy behind setting self-imposed deadlines in venture.

I would say when I started CapitalX, I was very lucky for the timing. It was when rolling funds first got very popular and the environment was good. The economy was strong, stocks were high, so there were a lot of individual Credit, accredited investors. So $2 million for a year to raise that within a short time, it was pretty reasonable. It seemed pretty reasonable to me. I did achieve that goal. I think you may set your goal higher than you think you can achieve, but with a clear goal, it just makes your work easier. Actually, I would say one of my biggest LPs who invested in almost half of my fund size, I only talked to them for less than half an hour and they committed on the spot. But that one, I didn't plan. So sometimes, you know, great things happen outside of your expectation.

Mm-hmm.

So, so, so that was pretty awesome.

Yeah, that's super cool. And notable LPs of yours, for context for our listeners, include Marc Andreessen and Chris Dixon, as well as David Sacks. Super angels with multiple unicorns in their portfolios, GPs at multi-billion dollar funds, breakout winner portfolio founders, which I think is my favorite. I feel like that's a really strong sign of confidence in your investing style, and founders that you've invested in have also invested in your fund. And as well as founding executive members at Square, Stripe, Twitter, and other tech companies. So I'm curious if you could talk a little bit more about what your fundraising process looks like. It sounds like there's some synchronicity involved and you can't always plan what the outcomes are, but I'm curious how you think about your fundraising process overall.

Because my fund was a rolling fund, so I could publicly talk about it and Again, because of the timing, and also I did have some track record from previous investing activity, I would just tweet about it. So I use Twitter as the main platform, and I would list the AngelList link, and in that link, I would list my previous Previous investments, how I got into the deals, why founders love working with me, you know, all the regular stuff GP wants to talk about. And then most LPs actually signed up without talking to me. Yeah, so it's really, so right now you cannot imagine LPs would invest without having a meeting at least. But back then, I would say more than 90% of LPs didn't talk to me. Wow.

More than 90% of LPs never talked to you?

Yeah, more than 90% of them. Yeah. And some LPs, they were so nice and convinced. So after they invested, they introduced more than 10 LPs to me. And many of those LPs that they introduced didn't talk to me either, because then there is a Lended trust. So, so, so the, the first LP trusted me, talked to me and trusted me, and then other LPs trusted him or her. Yeah. Oh, so it was relatively easy for me to raise the initial funding in 2020.

That's super interesting. I was reading this book recently. I was on vacation with my family and I was reading a bunch of books and one of them is called The Name of the Wind. And in it there's a paragraph on inherent versus borrowed power. And I feel like borrowed power is something that you come into contact a lot as a fund manager with because, you know, as you enter the industry, you build credibility through the investors who trust to invest in your fund as well. So I'm curious if you could share some more examples of like your experience with that like lended trust that you were talking about.

So I just shared the landed trust for investors. I also have experienced the landed trust for founders. So, so, you know, some founders, they ask to talk to the portfolio founders as a reference check. So, so, so that's one way. The other way is sometimes when I approach a founder, I really wanted to invest, and then I mentioned some of my previous portfolio, and then they're like, oh, you invest in these company. Oh, I'm good friend with this founder. If that founder let you invest, then I trust you. So it goes both ways, right? Investors and also founders. And of course, sometimes, like, you may not take an intro. We all take inbound cold outreach, but sometimes when it's a founder you really like that introduced company to you, or if it's investor who did that, you would definitely pay more attention to the, to the deal and digging more before you, you sometimes respectfully decline, but you would definitely, you know, do more, do enough research.

Right, right. And I've read stories from burger dinners, barbecue parties, personalized and persistent messages, warm intros, matchmaking stories. Don't get me fired, please. Lightning fast wires, and sometimes even love letters, which I had a good chuckle reading about. So tell me about one of your favorite instances of getting into a competitive deal.

So I have 2. I have so many. I have so many stories because each of those stories were real. I wrote about it on my Medium. I haven't written Medium. for a while, but that's also a good way for GPs to, you know, build a brand. But anyway, so I can tell 2 stories. One story is the— 3 stories, if you allow me.

Yeah, please do.

Burger Dinner, that was Zapier. That was when I first started investing. And back then, you know, I would invite them to dinner or lunch because I need to eat anyway. So why not combine work and I could Together, and they need they need to eat too. So it's not like they have to schedule extra time to talk to investor. So it's good for both ways. And so I invited them to a burger place in Mountain View downtown, and I mentioned, "Oh, you know, I work at software company that's remote only." So that was in 2013, I think. Yeah, 2012 or 2013, and. You know, it's very efficient, very low cost. Back then, remote only was not common. It was especially, you know, in the tech center in Silicon Valley, you want to, you wanted the top talent to be around you, even though they are so expensive. So, but I mentioned that. I'm not sure if it's because the founders really listened or they already planned to hire remotely, but Zapier is very well known for, you know, for doing that since the early days. They have been profitable.

Yeah.

very, very early on, so they never needed to raise a new round of funding. And so, so that's a great example because then you are in person and you can say things you may not think of if you just quickly, you know, talk for half an hour at a busy cafe or something like that. Yeah. And also another one matchmaking is for Algolia. So that's a founder from France. And it's, they already closed the round, I think. So, but I asked 2 people to make intro, including a French friend to make intro so I could have a coffee meeting. So finally we had a coffee meeting, but I think the founder was ready to say no, right? I'm just being polite to meet you. But then I'm like, you know what? I matched the 2 couples and now they are still together. And one of them is a French guy who introduced me to you and That means I can also do matchmaking for hiring. So if you need to hire people, I can help you hire all over the world because the software company I work at, they hire from all over the world. So also I sealed the deal, although the check size was half of what I usually wrote. Yeah. So the third example is barbecue. So I went to a founder's barbecue and then DreamTool founder was also there. So at the barbecue, I didn't pay a lot of attention to what he was doing, but we had a good chat. And then afterward, you know, we went to a coffee shop, he demoed his early product, and that was in 2017.

Mm-hmm.

So, and then I didn't invest right away, but I really liked his sales capability. He's a tech founder, but he can do sales. He's so natural. You cannot ignore that. And then, you know, I think a couple weeks later, he emailed me saying, we are closing the round, but I really like you. So if you want to put in a small check, I can still take it. So I invested, and I'm so glad I did because now it's worth more than $3 billion.

Wow.

Yeah. And also the barbecue dinner, the barbecue dinner founder, Hays Company, now it's worth more than half a billion. I also invested. So, so sometimes you really want to go to the right parties, the founder parties or investor parties to, to meet, to meet the top founders. And, and then you, you do a deal and then it makes you a name and good return.

I love that. You mentioned sales skills right before this, but given your track record investing in these unicorns like Cruise, Rippling, Zapier, what criteria do you look for in founders that you back at their earliest stages? And I'm curious what patterns you might have seen arise given your incredible success and unicorn hit rate.

Thank you for that. I think, but I wanna say one thing. I think a lot of investors who started a decade ago have good track records, have a lot of unicorns because the time was good, you know, the time was good and now it's been more than 10 years. So, so, so it's, yeah, so I'm seeing a lot of my peer investors that they have quite many unicorns. So, so I'm so happy to know these people. So as for criteria, I think it's really case by case. Investors usually like to see a few things. Founder's own background, either they, either your technical, your sales, or your work experience is the founder background. And then they see your, how fast that you can, let's say, make a product if it's not hard tech or deep tech, and all the potential market. And your leadership to hire and your storytelling skill. So usually VCs look at all these things. There is like a, I think there is a, everybody can follow certain rules, but when it comes to each individual startup, there is intuition. End of the day, end of the day, you want to invest in people who are smarter than you. Who you know can figure things out, you just can't, you just wanna be part of their journey. Even, you know, you are taking a risk. Of course, VC is all about risk-taking, but you just wanna witness and help if you can to be even a tiny part of it. Yeah, I would say, I would say it's both some analysis, due diligence, but Maybe data if available, plus some intuition on, on the founders. Yeah.

Yeah. I find intuition, the more that, that I talk to specialists versus generalist investors, I feel like the generalist investors quite often say intuition in public. I think that a lot of specialist investors definitely use intuition, but might not speak about it as much. But I'm curious, what advice would you give to other emerging managers who also consider themselves to be generalist investors?

It's actually pretty hard to be a generalist when you first start because there will be too many deals for you to look at and you may not realize your strength. And even when you work with other people, it confuses them what deals to send to you. So I think it's good to start with A smaller niche, even though you define yourself as a generalist, it still helps to start with a smaller subset and then gradually expand because then as you, as people get to know you more, as you know more founders and investors, it's not uncommon to expand. Yeah. So, so, but I still wanna, I think emerging managers wanna still start with either your, your special skill or, or a subset of sectors you, you are bullish about, you are most interested in to start with.

Yeah, that, that's super interesting. Did you find that to be true in your own experience? Did you start off with a, a smaller niche of companies that you were evaluating?

Yeah. So my background has always been software. And so I started with enterprise software and gradually I expanded. Like Cruise self-driving was in 2014, I think. That was a pure bet on the founder because he's, he, he already founded Twitch and he's from MIT and he did the early prototype, drove to computer museum, pastry museum on demo day. I'm like, wow.

Wow.

So I was blown away. So definitely I just bet on the founder and the execution, early execution. But if you ask me to really due diligence the self-driving car, I mean, I cannot disassemble the prototype and ask deep questions, right? So, but gradually, gradually, because early stage, I do early stage. Early stage is mainly about the people.

Yeah.

I think being generalist is a, you can, you can defend yourself being generalist in early stage. Yeah.

And as you think about the evolution of your investing style, I'm curious also about the evolution of how you think about building a firm. So you've been a solo GP. Are you thinking about building your team? Do you have folks that support you already? Curious for your thoughts on that and how you see CapitalX growing in the future.

Yeah, so I think I will continue with rolling funds, uh, uh, and so I wanna throw it out there because it's very flexible and it's easy to run. On top of that, I, I do hire venture partners to share carry with me, and because it's good for them to continue building their track record, but also they can do other things.

Mm-hmm.

Not everybody wanna become, becomes a full-time VC. So, so I do have venture partner, for example, Mandy, Mandy Hong. She's my venture partner and she also runs her own startup and she also is angel investor. She invests in other companies on her own. Sometimes, you know, some of her portfolio also comes into CapitalX if it fits the fund. I don't think I will hire a full-timer because the fund is designed to be relatively small. So I think just hiring venture partners to share carry is more scalable. And also I share carry with my LP, with my LPs. So in another sense, I have almost 100 LPs who work with me. Right. I, I make money for them, but also if they refer a deal to me, I give them very decent carry. Yeah. So, so I do have a lot of people to work with and of course, the co-investors, founders, uh, uh, everybody, you know, we work with the, the network. Yeah.

Yeah. I think about that a lot. Like our team internally is quite small. It's like me and then our chief of staff and then my brother. is interning for us this summer and editing these podcasts. So hi Tate, I know you're editing right now and listening to this, but I think that the community of founders and investors and co-investors that we get to work with has been just really rewarding. 'Cause like for us, yeah, we've 120 investors in Fund 1 and, and so many of them have stepped up to help either in sourcing deals or doing diligence in, in spaces that we aren't as familiar with. So it's been really great and cool to hear that you're running your firm in a very community-oriented way as well. I'm curious to hear more about that decision-making process. What, as you were transitioning from an angel to starting a rolling fund, how did you make the decision between starting a rolling fund versus starting a traditional venture fund? And if you could explain the difference to folks, that would be awesome.

Yeah. So a big reason for me was, uh, it's the timing. When I, because when I wanted to start a fund, the Rooney Funds became popular, so I jumped on the train. But if you ask me, I actually would prefer a traditional fund, but I want to be able to do public fundraising. So that, I think that's the fund structure for MAC.

Mm-hmm.

As a rare breed.

Yeah. Yeah, same as 506 as well.

Exactly. So I think that's a very good combination. So if I could change in the future, when I say I wanna stay on rolling fund, what I really meant was I wanna stay on public fundraising.

On fundraising.

And if it's a traditional, let's say if it's a 2-year or 3-year commitment period instead of quarterly, Rolling fund is a quarterly commitment, although most LPs commit 4 to 8 quarters at a time. So that mimics the traditional fund, you know, 1-year or 2-year deployment period. But in order to attract more institutional LPs who are really familiar with the traditional fund structure, I prefer traditional fund.

Right.

raise, uh, public fundraising capability, the 406 structure. Yeah. Yeah.

Yeah.

Yeah.

I had, I had Mac on the podcast. I think it's getting published actually like this week on YouTube.

I heard about it already. Yeah.

Oh, cool.

Yeah.

He talked a lot about his decision-making process. So it's interesting to hear you wanting to shift more towards like the traditional structure to attract Institutional VCs, but keep the 506 designation so that you can publicly fundraise. I think that's been really interesting on my journey since I'm 506, so we can't talk about any like open fundraising, but we're still able to share our journey about building a venture fund. But I, I definitely, there have been moments when I've been tempted to switch because I feel like it's, it's really cool cuz you don't have For folks not familiar, it basically means that you can't talk about any open fundraising things or that the SEC can persecute you for public solicitation of funds. And, and the process, the difference between 506 and 506 is that with 506, you'll go through a full know your client, um, process. And I think it's like something like $100 extra per investor as you onboard them, and then they'll have to fill out A longer form. So I, I guess the reason why we decided to go the other way was on a smaller fund, it's a bit more cost intensive. And then also it's more, adds additional friction into the onboarding process for like a traditional fund.

Yeah. So actually AngelList has done a great job. That's why I, you know, I wish one day they offer a traditional fund with the public fundraising structure. Yeah. Because When my LPs sign up, they only need to supply, let's say, paperwork that shows they have more than $1 million assets, or they make $250,000 a year, or their CPA can write a statement saying they are, you know, accredited investor. So there's no extra cost, it's all inclusive.

Mm-hmm.

And also when I host my fund, When I say I host my fund on AngelList, I don't get to touch the fund, funding. AngelList takes care of, you know, all the money transfer, the KYC, and also when I want to invest, I only get to make the decision. I don't even get to send the paperwork and I don't wear money outside. So everything is by the platform, by AngelList staff. So there is an extra layer of trust.

Mm-hmm.

with LPs because most of my LPs are strangers to me. We've never met before, we've never talked before. So, so I think they also trust and release a platform in between so the GPs cannot make fraud, right? The GPs cannot take the money and run.

Right, right.

That's the worst scenario.

Yeah. I'm, I'm curious, it sounds like you think very intentionally about scaling your time. Especially like that's prevalent in your decision to go on AngelList so that you can focus on the investing side of things. And I'm curious, what other habits have you set in place that allow you to consistently do efficient work? Yeah, if you could expand on that, I would love that.

Okay. So I, I'm not sure if, uh, if I intentionally, uh, do it. So I know a lot of VCs talk to many, many startups. And to collect data, to do research, and they don't intend to invest. I think a subset of investors are like me. We usually don't talk to startups until, unless we are quite convinced, you know, we intend to invest.

Mm-hmm.

So, that saves me a lot of time. Because it's very easy to check out a pitch deck and check out the founder's background online and do some quick research online to decide, oh, you know what, I don't wanna invest, or it's too early. Then, oh, you schedule a time and then you talk to half an hour and then you need to reply an email, think of what to say to reject them. So, so I, I think that's a big thing in my, in my work.

Yeah.

I don't talk to a whole lot of startups, although recently I talk to more startups than before compared with the amount of companies I invested. So because I am more careful now, I wanna, I have one more layer to think, oh, I wanna see how much money they can already raise so they can survive. Although I'm not waiting for other investors to come in, but I Have a filter. Uh, uh, I, I, I do think about that. So, so now I talk to more companies. Uh, but, but before, my, like, my hit rate, uh, is very high from the companies I talk to, to the company I invest in. Yeah, because I already did the research beforehand. Yeah.

Right, right. Yeah, sounds like you've been very, like, asynchronous-oriented in your work.

Yeah, yeah, yeah. And, but another thing is, uh, I think that that's something I should do better. It did save me time, but I think I should do the opposite, or I should go out more, meet more people. I should meet more investors, go to more events, because before I tried to avoid. I think a lot of those events are probably If they are not a waste of my time, but they are probably not the best use of my time. But sometimes, you know, we need to let serendipity play to our favor. I think I need to go out more.

Yeah, I love that. I love that. Yeah, I think that's definitely something that we think a lot about at B2B. So I've really focused on throwing events kind of like every other month in different cities. So I'll definitely let you know when we throw one in San Francisco. I think hopefully we'll be there this fall. So I think, yeah, that'll be fun. Cindy, I really appreciate you spending this time with me today. To close us out, do you have, or what advice do you have for folks that might still be in school and are considering starting their careers out?

I think they, they can start whenever they want. Uh, I worked with, uh, with people who are like 17 years old. 15 years old, and I've seen founders who started companies at around that age too. So, because there are so many ways to collaborate with the VCs, if they wanna get into VC, just reach out.

I love that. Perfect. Well, Cindy, thank you so much for joining us. For those of you listening who wanna learn more about Cindy and her work, I'll drop her Rolling Fund link and her Twitter in the show notes. And again, Cindy, thanks so much for coming on. I had so much fun.

Thank you, Paige, and I really appreciate you spending the time with me. And best of luck to your fund, and hopefully they get to co-invest in the future. And I have a lot of admiration for you starting VC at such a young age.

I so appreciate it. Thanks so much for tuning in today to Seed to Harvest. If you enjoyed this episode, be sure to subscribe wherever your favorite podcasts listening platform is. I'll be releasing new episodes weekly, and if you have any questions or comments, feel free to let me know on Twitter. That's Paige Finn— Paige and then Finn with 3 N's. Thanks, and see you again next week!