Securing Venture Capital Investment with Unshackled Ventures

I'm really, really excited to have Lucas here, Lucas from Unshackled, to basically drop some knowledge on us in regards to venture capital, pre-seed, seed, and all fundraising-related things. And I know this is a pretty hot topic for everyone. So I'm going to go ahead and lob it over to you now, Lucas. Maybe you can give us a little bit of a you know, an introduction on you yourself and kind of what Unshackle does, and then we can kind of get into the webinar.

Absolutely. Mike, thanks for having me. It's great to be here, great to be talking about fundraising and talking about Unshackle as well and kind of the value prop we have for entrepreneurs. So a little bit about my background to get us started. I'm one of those guys that got into venture straight out of undergrad, been investing since my junior year with dorm room fund. Spent some time on the corporate venture side working at Joplin Ventures investing in aerospace, and then moved over to Unshackled about a year ago. I basically help Unshackled from deal sourcing to supporting portfolio companies, also supporting on, on, on some admin tasks as well. But the bulk of my work is really in meeting entrepreneurs and telling them about the Unshackled value prop and help guide them through the process of decision-making. I don't know how much of you guys in the audience know about the Unshackle Valley prop, but we do precede for immigrant founders. What that means is that we lead extremely early rounds in teams that have at least one person who was not born in the United States. And the idea is for us to come in early and support the companies throughout their lifecycle. And then in all stages, be a high conviction investor, a high conviction supporter, and really invest in people's superpowers. And what I mean by that is not only the idea that team comes first, which is something that I think you hear all VCs say, but for us it's extremely important to understand the entrepreneur's personal story and how does that tie to the problem they're trying to solve. And that's the key element we use in our evaluation. Being a fund for immigrants, we also know the challenges that immigrants face. I'm an immigrant myself from Brazil. and we have a suite of, of, of, uh, products that we use to support our founders, uh, and, and the, the main one of these being immigration support. So that's kind of an overview, um, about Unshackled, and, and I'm sure you, you press some more specific, uh, topics around it as we go today.

Definitely. I mean, uh, you know, just, uh, I'd love to kind of have you maybe elaborate, you know, you, you briefly mentioned superpower, uh, in regards to like, uh, entrepreneurship and how you kind of think about this. You want to kind of maybe elaborate on that a little bit and just kind of give us a, a thought about you know, how you all, or what goes in your mind when you think about a superpower with regards to entrepreneurs?

Yeah, absolutely. I think there is no perfect person, there's no perfect founder. And we oftentimes see a lot of people spending too much of their energy trying to improve traits that they see that they're lacking on, right? Instead of really leveraging on the things they're really good at. And it takes a little bit of self-awareness and self-confidence, frankly, to go in and hone in on the strengths that you have as a founder. And I think we look for people either by experience or by self-awareness, ideally both, have had the understanding of what makes them unique as a founder and how do their uniqueness tie with the team. We believe in complementary teams. And when I think, when I talk about superpowers, it can be for something as abstract as extreme hustle and having a history of, you know, personal achievement, for instance. But it can also be a very deep sector expertise or extreme technical ability or things like that. I think we look for what makes people special. I think that's a broad way of defining it. And I think I'm happy to tell stories about how we went about finding these on the entrepreneurs we backed, right? Tell stories about founders that we saw something special in a specific trait or a specific line of their careers, and that really is manifesting very strongly on their businesses today.

And I'd love to get into that, but before we do, you know, just for everyone on the call, like everyone here is basically in the pre-seed, seed stage. Some people are kind of evaluating whether raising money makes sense. Obviously raising money seems to be a very popular topic in the industry, but I'd love to kind of get your thoughts on, on, on kind of what, you know, what kind of companies, for what kind of companies does it make sense to go down this path to raise, you know, venture capital? Is it, is there a specific type of market opportunity or how, you know, how do you think about that and what are your thoughts on that?

Yeah, I think venture capital is not a product for all businesses. I think there's, there's a fallacy in the market that VCs is a great source of financing for, for most businesses and does I don't think that's true. It's actually a very small percent of businesses who would benefit from the type of capital that VCs provide. And these are technology companies that have economics that are driven by the need for scale. And I think the key defining aspect that technologies that are VC ready or will be VC ready at some point have is the ability to reach, to either reach a very large amount of people using technology or to unlock technology in a way to enable their customers to pay a lot of money for what they're providing, right? And I think you can use that framework in software and materials and hardware, but the idea is really for you to unlock a very large revenue opportunity that can be hit fast. And then you use the VC money to explore that opportunity and make up that revenue composition within 5 to 7 years. There are businesses out there who are extremely, they're awesome businesses, they're great businesses, and will probably hit $50 million in revenue by year 20. These are businesses that people should continue to start and think about, but these are not necessarily businesses that VCs are most interested in investing. The litmus test is, Do you see a path? Do you see a growth in the market that's so outrageously obvious and you see the team coming together to really leverage an opportunity that's so large that it's possible for you to get to $100 million in revenue by year 7 or 8? I think that's a good litmus test and it takes a little bit of tinkering on us to understand how exactly does that work and whether your hint is actually true. But I'm also, on a side note, I'm also happy to see that there's been an increase in other sources of funding for people who are not venture-backed or venture-backable businesses. And I think as an entrepreneur, understanding where you fall in that spectrum really saves you a lot of energy and headaches as you start your business.

Yeah, no, I agree. Makes sense on that. And, you know, maybe you can even touch a little bit on that too. Right. I guess that, you know, once, once you go down this path, right, you have to have a certain level. It's kind of binary, right? Like you go down this path, you're basically design— you're basically designing a business essentially for hyperscale. And so, you know, I guess from a founder's perspective, right, that's something that you probably have to think through is like, you know, is this the kind of business that I want to build, right? Like, do I want to go out and build something that's very, very large? And basically it's quite binary, right? Like, either goes down that path or, you know, it might not work. Whereas the other option of bootstrapping potentially, right, is something that you can kind of keep doing for a while. And that doesn't mean there's anything wrong with it. It's just that it might not make sense for you to go out, go down this path. I don't know. Do you have any thoughts on or comments on that as well? And just kind of like the founders, I don't know how to use it, maybe founders' ambition or things like that.

I think so. Ambition needs to be tethered to market conditions at the end of the day, right? So there are markets that will support venture-backed companies with venture-backed outcomes, and there are markets that just won't. If you're creating a great brand for a certain kind of books, for instance, or if you publish some kind of content, or if you're creating some kind of game, or you're doing any kind of content creation, for instance, I think that's a great example of a type of business that is viable. It may even reach scale, But because there's no repeatability afterward, after a first hit, for instance, it's hard for a VC to find conviction to invest. It does not mean that these businesses are not viable. And I think a lot of people are waking up to that fact. There are a few startups that have even been funded recently that are providing that alternative financing. I think it still makes sense for you to raise money from friends and family on a non-venture-backable business, quote unquote, and then bootstrap from there. For instance, use that as your initial capital. Capital. But the way we look at it as venture capitalists is really what is the inflection point that this company's leveraging on in terms of how people are behaving in the world or how enterprises are behaving in the products they're buying? And how would this founding team really leverage that to create a really, really large business? I think that's the mindset where we're really applying on a daily basis. And I think it's Our job, unfortunately, ends up being saying no 149 times out of 150. And a lot of the time has to do with having that idea of whether you're ready to be venture-backed or not, or whether your business should be venture-backed or not. It's not a discount on the business viability.

Yeah, and I agree on that. You know, how do you think about location, right? Like the location of where the company is headquartered in regards to, you know, from an Unshackled perspective, you know, do they need to be in the Bay Area, the companies, do they need to be in the United States, and why?

We're focused on teams who are selling to US, to North American companies, or selling to North American customers. We, of course, our value prop is really to help people who come from abroad to establish your permanent residency here in the United States. So we like the founders to be in the US, but it's not, it's not a requirement to be in the West Coast with us. We have an office in Palo Alto. A lot of our teams are based in California, but it's not something that we have as a hard requirement. I think technology these days really makes things easy for us to keep in touch with founders. We are very high-touch. Investors in the sense that it will be as present as the, as the founders would like us to be. So we welcome teams all across the United States, and we also welcome teams that are just coming to the United States, people who have started their companies or have just an idea and they're just fresh out of the boat, one would say, coming here to the United States to just test something out. We love to talk to those people as well. Cool.

I see that there's actually a lot of questions already in the chat room, so I'm going to go off script here a little bit. Tom asked this question. I hear that there's a lot of cautionary tales about VC money, that the common model is set up so the CEO has these lofty goals that if they aren't hit, you can make a change to the leadership. Is that a sour grape reaction from CEOs who didn't yet have the chops, or is this actually something that's common practice?

I think it's such a great question. I think great investors will partner up with great CEOs and will help the company grow together. I don't think any great investor will back a business with the expectation that they will replace the CEO shortly, especially if the CEO is a co-founder. Later on, there are other effects that come into play when you really raise your Series C, Series D, and you have other investors that come through. The dynamics of these companies get different, and I think there are other factors that kind of blend into all that. But at the pre-seed and seed stage, it's really about alignment, right? Do bad investors out there invest in people expecting them to oust the CEO later on? Perhaps. That's not something we do. We invest in— for us, it's about high conviction. It's about high conviction on the founders primarily. So we're on with the founders all the way.

Yeah, sometimes. Also, just to piggyback on that, Tom, sometimes, look, some people are really good at getting the company off the ground. They're awesome at that. But maybe they're not as good at running a 100-person or thousand person or sometimes 10,000 person company, right? Not everyone can make that transition all the way up. And that's the reason why there's sometimes a change. And sometimes it happens where the founder is like, hey, I don't want to do this because it's a completely different thing, right? It's like getting something off the ground is much different than, you know, basically running a city, right? It's just a kind of a different concept. So that's why that happens. But it seems like in the industry in general, You know, most people right now are looking exactly like Lucas said about in regards to alignment, you know, can everybody be aligned on the same page to kind of get really good outcomes for everybody? Hugo asked the question, for a VC, is what's more important, innovation or profitability?

Innovation that leads to profitability. I think that's what we're looking for. Innovation for the sake of innovation It doesn't create businesses, it creates interesting tech. We're not investing in interesting tech, we're investing in great founders building great businesses, right? If you can prove, and that's why I think one of the biggest things we look for, and I'm going a little bit off the question, but one of the biggest things we look for when we hear, for instance, someone talking about, a product that is built over years of research, or there's a hard tech kind of vein to it, we really look for the customer perspective on that. Many, many, many companies that are building biotech solutions or building transportation solutions, for instance, that are leveraging some of the latest innovations in battery technology or new ways to extract protein, for instance, from certain kinds of vegetables. And when you see the technological wealth that these founders have, you get impressed, but we only go forward when we actually see the other side of the ecosystem, the customers really ready to adopt these markets. There are many, many research projects that fail to become great businesses. So I think innovation has to do— innovation in the context of VC and what type of innovation we're looking for, it's really what can be leveraged into an amazing new product. Product. And sometimes it can be simple, right? It doesn't have to be something that the world has never seen before. Maybe it's something that the world has seen before, but it's just packaged in a different way.

Uh, pretty funny question here in the chat room: are Canadians considered immigrants from your perspective?

Yes, we have invested in, in a couple of Canadian teams, actually.

That makes sense. Um, uh, Swati asked a question. She says that her startup is basically tech-enabled and a blend of basically wellness and real estate. What are some alternative options for funding for companies that are kind of in a niche space such as wellness?

So you can— I don't think there is a divide between— so there's two things I'll say here. First thing, just because you're in certain spaces doesn't mean that you are venture-backable or not venture-backable. I used the media example before, content creation. It's something that usually lends itself to non-venture-backable businesses, but it doesn't mean that you cannot have a company in media that's not venture-backable. So Just being wellness does not make you not venture-backable. That being said, it really has to do with the business model and potential reach, right? That being said, if you really, if you identify that VC is not the right type of financing for you, kudos. I think that's a great beginning in terms of understanding where you should spend your time as an entrepreneur. There are, I think, angels and people who will put money based on their personal experience with you as a founder. Are still a great option, even though they have— because they have different requirements around ownership and liquidity events and things like that. A lot of them will come in as partners and will help you. I think they are still a good option, especially people who are experienced executives or entrepreneurs in the space, because at that point they're mostly trying to help you and your business. There are emerging solutions for small business financing. There are small businesses, small business funds in the United States. That's a growing scene. There are startups that are offering that more interesting or more favorable credit lines to small businesses that you could use to bootstrap. I think it's a good practice if you're not raising venture money is really to find a way to kickstart your revenue engine and really to start making money from customers as soon as possible, even if that means growing a little bit slowly. And I think all in all, the type of support and the type of the ability for you to raise money as a non- venture-backed business is something that is— there's a growing ecosystem of people who are following that path. There is a group called Zebras Unite out of New York that I think is really interesting. You guys should check it out if that's the path you guys want to go. That is, it provides resources for people who are in that boat. So I think that the number of resources will keep increasing. Cool.

Carolyn asked the question, do you have any suggestions on getting, you know, radically honest feedback about why a founder or company doesn't align with a particular VC strategy. I think what she's referring to, Carolyn, if I had to kind of elaborate on that, is sometimes, you know, you get a no will sound like not now or something like that. And it's just, it's really unclear to the founder why maybe someone passed. And, you know, I think Carolyn's trying to figure out how she can kind of get some figure out exactly why so she can use that to improve her next pitch or whatever?

Yeah, I think there's a few things here. So oftentimes being in a program like Founders Institute or an early accelerator can give you access to feedback that's very direct, directly applicable to your business. And I think these folks are not necessarily in an investing position, but they pretty much have a similar wealth of knowledge that VCs have, which is having seen many, many companies in the space. Or many, many companies run a similar, have similar problem sets before. So that feedback is valuable. Just because it's not coming from an investor, it doesn't mean that, or just because it's not coming from an institutional investor, it doesn't mean it's not relevant. That's one. Two, some VCs will be great at providing you feedback right away. I always advise founders to ask at the end of each meeting some form of, what do you think about this? Or what are your early thoughts? Because the best investors will come to you and say, um, these are some of the things that I'm excited about. These are some things that I'm going to probably have to talk to my team about or really try to understand as we look into this business. So probing that when you're on a call with them or at the end of a meeting, I think it's a great way because it's hard to get that feedback via email afterwards. I also think, um, there is, there is a pressure from the VC side. Actually, let me rephrase that. It's a desire from the VC side to get back to founders as soon as possible because we know you guys have to get back to work. Your time is so much more important than ours. And for us, it's important to tell you whether we are yes or no and move on from there. What that means is that oftentimes we won't have the time or the ability to write a big outline of the reasons why we're passing on a company, but it doesn't mean that we don't have them or it doesn't mean that we haven't thought about it, or it doesn't even mean that we wouldn't be able to let you know. So ask. I don't think that the worst thing that you can have is a no, a non-response if you ask for feedback and probe beyond the generic reason is something that great entrepreneurs do.

Awesome. The next question here is around stage, which kind of fits the next topic that I wanted to cover anyway. So we'll get to this right now, Costadine. So look, there seems to be a lot of confusion in the market right now, particularly early, about what pre-seed means versus seed, you know, and when you get out even outside of the United States and even part of the United States, really what a Series A really is, you know, how do you think about those stages? You know, and maybe if you just to give everyone here, can you somehow broadly define what a pre-seed stage means versus a seed and kind of what metrics?

Yeah, absolutely. And I'm pretty sure that this will change in 3 years and then change again because it's an industry in flux. So pre-seed is really the very first money into your business, historically being called angel round or family and friends round. Now you have institutions like us investing at that stage. It's really about a team of founders and an interesting market. And it's about the intersection of those two things that makes a company interesting for us to invest. Having high conviction at this stage is extremely important for us. So that's why I keep bringing that up because at this point, we'll never tell you, you're too early for us. Will tell you you're right for us or not. Actually, it's more we're right for you or not. Later on, other factors start coming into play, right? And what you've seen is before, people who are investing in my stage at the pre-seed would call themselves seed stage investors. But now your typical seed stage fund will ask you for revenue. They'll ask you for having a product in the market. They'll ask you for customer references. And the, the, the, the, the amount of traction you need depends on the industry you are in. And I think it's important to have sensitivity to that. But largely you have some early product validation. So the product you built, it's built, it's real, it's out there and people are actually using it and you can actually see how people react to it. I think that's, that's the typical seed stage investing. Um, if I'm putting dollar amounts, pre-seed would be like $500,000 up to $500,000. Maybe up to a million depending on the case. Seed stage would probably be between $750K to $4 million in the Valley. You see some of those, whereas in other geographies you see different ranges, a bit lower than that. And then Series A is about having a very healthy pipeline of customers coming in. The litmus test for a lot of Series A funds these days is at least $1 million in annual recurring revenue, which is something that varies by industry. But they are looking into deep metrics in terms of how you're actually getting to customers, what's your speed of execution, what's your cost of acquiring each of these customers, and what's your path for growing. And then these funds are coming in to really help you expand. And at that point, you're not testing anymore. At the pre-seed and seed, you're testing things out. At the A, it's really about growth. And then after that, you have the B and the C who are just accelerating that path even more. I think that's a framework. And it's something that I wanna add to this framework is that be very mindful of how picky Series A investors have become. Actually, not picky, but rigid in terms of the business progress that you show to be interesting for for them. And definitely think about your pre-Series A funding as what's the minimal amount of money that I need to raise to hit the milestones I need to hit to get to that $1 million in your recurring revenue by year X. And I think that's why you see a market for the pre-seed, and then there's a seed, and then seed extension, and the post-seed extension, which is mango. Mango. Exactly, mango seed, which I, Never.

Right.

So you start seeing this because you're just delaying, delaying, delaying, and the founders are getting diluted and there's this, the progress feels a little stale, but it really has to do with making sure that you understand the milestones you wanna hit with that financing and raising enough to hit those milestones, right? That's why I think it's actually a better strategy for you who's a founder who's starting out to raise a small amount of money, prove the core thesis, and then raise a seed fund, seed round, than out of the gate trying to raise $2 million and, you know, receiving the feedback the market will tell you, but also not having enough runway to get to that million dollars in annual recurring revenue by the time your Series A comes around.

This is, I think, a great point where maybe we can start, maybe if you can think through like an example so that we can really kind of use this example of a company potentially in your portfolio, but how you basically evaluated them at the pre-seed stage and decided to make an investment and kind of where they were, what they had, uh, so that we can really get kind of like start to maybe use a concrete example to define a pre-seed-ish, you know, if you have an example that you'd like to share, that'd be great.

Absolutely. So there's a company we invested in called Plantable Foods. Um, they're based down in San Diego. Um, they're building a, different method for extracting and refining a protein source from a vegetable, legume actually, called lemina, which comes from aquaculture. It's something that people have been studying for a while in food research circles, but have just now starting to see the potential to create protein sources that have no smell, no color, and no taste. Which is the holy grail for food manufacturers because you can just add in that plant-based protein without affecting your food composition, your, your, your, and the taste profile of the product you're putting together and selling. So when we met Maurits and Tony, the two founders from the Netherlands, they had a very compelling body of research on the topic. And they had some early designs of what the extraction process would be. They have been, had been doing testing with some organizations in the sector for a few months, but there's no product made. There are, there were a few key tests still to be done to determine viability. So it was really at an early stage, but the team composition was set. At that point as well, they had, gotten early validation from CPGs that that product would be interesting for them to buy. And it's something we also validated independently in our process. So I think that's an example of something that is not software. It's based on a body of research that we validated interest from the market. And we saw a team that had an extremely, a great grasp on the business fundamentals in addition to having a lot of technical expertise. That's one example. And then that was enough for us to invest in and create conviction around it. Another example that I think it's complementary to this one, we invested in Purva Gupta, the founder of Lily AI, who came out of Founders Institute about 3 years ago, a little bit less than that. And at the time she had a dream and she had a body of research in psychology and women's psychology. That she wanted to use to tackle problems in retail. And she came to us with a series of ideas on how she would go about exploring those things, a brilliant co-founder that added to her own brilliance. And we started working with them and saw how much grit and determination and the ability to really go beyond It was so easy to see how driven she was, but also how much, how well she went about creating the first few iterations of the product. And then we invested in them as soon as she was coming out of Founders Institute and they raised multiple seeds from some top tier funds here in the Bay Area. But that's a software example, a B2B SaaS company. Who we came on in the very early days because we're extremely impressed with the founders.

In your first example, you touched a little bit on some validation that you had with CPGs, and for everyone here, I think that means consumer packaged goods, right? And so what, what, you know, on a high level, right? You don't have to get super detailed on the ground. What kind of validate— what did that validation look like that was enough for you to kind of like say, "Okay, there's enough here to make this." I think it's less—

actually, it's not them looking at us and saying, "Yes, I would use Plantable Foods." That's not what we're looking for. It was really about seeing how the market was being shaped. So you had companies like Ripple and others who had been on the plant-based protein market for a while, and it's really understanding their supply chains and what was important for them when they're creating new products. Talking to people who develop these products, we saw how important the taste profile is and how an ingredient that can blend in into any kind of food makeup or food ingredient composition, how helpful that will be for them, how would that actually decrease your costs, and how that would actually just widen the the number of different food products they could actually have in the pipeline and therefore increase revenue. So when we— Plantable Foods told us why their product was amazing, which is something that I think we look for in entrepreneurs. You need to be able to articulate why your product is unique and really understanding the market and the technology behind it. I cannot highlight this enough. So many founders we talk to, they have an idea of what makes your product that idea is not validated by the market because there are other people out there actually have it better or have it as good as, or that the single thing that they're working on that will make their product better, at least according to them, is actually not relevant to the customer. And that's something you quickly find out as well as you go through diligence. So for Plantable Foods was really about seeing, okay, the value prop that they're selling us actually makes a lot of sense for the customers. Therefore, there's a business case to be made here. I think it was intersection of those things that really make us, you know, get conviction and invest in.

Thanks, thanks for that example, by the way. I think that that answers your question, Swati, about, you know, you kind of building this, this, uh, this product that's not as, you know, doesn't have an app component to it. Hopefully that, that's helpful. Um, you know, I'd like to dive in a little bit more on process. So, you know, how, how can founders, how do founders get to you, right? Like, you know, how do they approach you? How do you, you know, how do you get, they get, how do they get in contact with you? And what are some of the best practices on doing that effectively?

Yeah, every single application, every single founder that reaches out to us, either people that got introduced to us directly or people that come through our website, every single person, every single company is reviewed by at least 2 members in our team. What that means is that if you just go on our website and submit your deck and your information on the pitches link, I will be reviewing that application as well with Maria within a couple of days. And we try to do that, as you may guess, there's a very high volume of people that come through, so we get back to people within a week timeframe with basically, yes, let's jump on a call and learn more, and then, or no, that's not a fit at this time. I wish we were able to provide extremely tailored and very specific feedback to everyone that applies to us. That's just not feasible from a time perspective. But if you jumped on call with us and if you actually passed that first stage of the process, where we're basically evaluating just elementary fit, we always provide you feedback either via email or on a call. So after that, that initial review, we'll have a conversation between either me and Maria, one of the two associates, and then one of the GPs. We'll sit down and chat for about 20 minutes and really, to really understand if there is a, there's an interest here in moving forward. After that, the conversation is really focused on the superpowers and then the market conditions. And then after that, we'll have different conversations with the general partners assisted by either me or Maria that will actually drive us to conviction. So reaching us is extremely easy. And I think the idea for us is to really break down barriers and have people not feel Have people feel confident about reaching out. Something that I always like to underscore is that it's never too early for us. Never. If you had an idea yesterday and you wanna talk about it, we would love to. The first thing we'll see is whether your experience and your profile fits the market you're operating on. And then if there's more customer validation to be done, we'll tell you so. right? But we're not necessarily looking for a lot of traction and customers in your pipeline. It's never too early.

Um, let's— okay, so somebody basically was able to get past that first filter, um, and, you know, I guess what's the next step? The next step is a call, you mentioned, or maybe a meeting. What does that look like? You know, what does that meeting look like? What, you know, is it, you know, it's a founder with the deck going through it, or is it a conversation? I don't know, just give us some thoughts basically on how you run a meeting like that.

Happy to. So that first meeting, it's really about understanding 3 things. So we're trying to understand your superpower as a team. We're trying to understand what are the inflection points in the market, and it usually goes in that order. So what's special about your experience and what are you bringing to the table? What's changing the industry? And then how are you using these things to create something that's unique. We can usually get through those things in about 15 to 20 minutes. And then also leave the chance for the entrepreneurs to ask us questions, right? 'Cause I think it's extremely important for, it's much more of the entrepreneur seeing if we're a fit for them than we're seeing if the entrepreneur is a fit for us, right? It's more than both ways. So that conversation is open-ended. At that point, we already reviewed the deck, We know your background. We really try to use our time to get smart on the business and the industry instead of using the founder's time. So we'll do as much research as we possibly can in the background to really leverage those 20 minutes that we have with teams. The majority of times when we say no to a company at that stage is when founders are not able to articulate what makes your product unique. And we don't see something that would actually drive a lot of customer behavior in a large scale. If after that conversation, we'll usually get back to people within a day or two, and then we'll have conversations with, with the rest of the team that will be 45, 60 minutes each. From a process perspective, we've invested in companies that we had met 3 days ago. So there was 3 days between meeting and actually investing. And we invested in companies that we met 8 months before investing because we created a relationship and not because the whole time was due diligence process, but because we kept in touch and that relationship can build over time. So there is really no, there's no specific timeline we follow other than just being Trying to be respectful of the founder's time in every single point of the way. And then towards the end of that process, when we're high conviction, we'll start engaging people in the industry. It doesn't look like, it's not necessarily customer calls. It's about activating our own network on our side without asking too much from the founders to really understand if what they're saying makes sense. We know we don't know everything. There is a lot of external knowledge there to be tapped into. I hope that answers the question.

Yeah, no, that's great. I was going to actually go dive into a little bit of due diligence, right? So you have this initial meeting and then let's say you— if there's interest there, then you go in and do due diligence and you start looking through the network and find if this makes sense, I guess, is the next step. Is there other things that you look at in due diligence as well? Like, do you look at the founders' backgrounds or, you know, anything like that and how What are some of the things that you look at in due diligence besides the market?

Yeah, so we actually use that 3-point framework that I spoke to you about on the very first meeting. We actually use that as the guideline for the rest of the diligence process. So on the founder perspective, it's about spending time with the founder, jumping on more calls, meeting them in person, understand their personal history, understand the personal values, see if there is a fit actually, because We have our own style of work and we understand that not everyone will be a fit. This is a very long-term partnership, right? And we're cognizant of that. So that's how we continue to evaluate the team piece. It's just spending more time with the founders. The market piece is really about understanding what do we know? And we have a wealth of knowledge of companies we've seen in the space or companies that we invested in. And we record all of that research work, I may say. And we use that to help us understand how things have changed or what are the key drivers on this, that market specifically. And then oftentimes the knowledge that we're lacking, we'll get from external people. Again, without putting a burden on founder, we activate our own network. And then the unique insight piece has really to do with the core product or the product concept at that stage, stage. And if so, if there is a hard tech component, like Plantable Foods has a, what would you call, an innovation when it comes to food for protein extraction of certain sources, we kind of dive deep into that technology, the research work that founders have done. We try to get smart about what the product entails and what are some of the more technical elements that the products are talking to us about. We, we like to be investors that really understand what the founders that we support and are working on. I don't think we would invest in a company that we don't really have full grasp of their product. And using, using that also to, to cross-reference with the other two elements, right? Market and founders. And then if you're talking about a typical software company, it's about understanding how the development cycles work and how do the features that the founders are telling us actually get productized? I think that's the basic framework we need. It really boils down to spending more time with founders and then on the background doing our own research. We do reference calls, but we don't go too deep on financials. I think we want to understand the core business drivers in terms of what will drive revenue, but We don't ask for extensive spreadsheets with a lot of numbers or things that the seed and series A investors will ask down the line.

Yeah, that makes sense. And, you know, I know you mentioned earlier that it was like it could take as little as 3 days and it could take as long as 8 months. On average, what do you— what does a typical process like this take for you guys? Is it a few weeks, a month?

I think typically it takes up to 3 weeks and it's much more associated with founders' availability than anything else. I think scheduling is very frequent that we'll have a meeting today, we wanna have another meeting, and then we schedule for the following week, that kind of thing. But I think we make decisions, we actually track the amount of time we ask for the founders each step of the way. So we took 20 minutes of the founder here, and then at this next point in time, we actually took another hour, and we track that. And I think most of our decision-making comes in between 3 to, I want to say, 12 hours asked for the founder in composition, 12 hours being the outlier.

And does Unshackle lead rounds and stuff, or?

We only lead.

Okay.

Yeah, it goes back to the point of being high conviction, right? We are— if even if you have no other investor interest, or if there's no angel investors on the pipeline, or even if we're the first people you talk to, we'll evaluate your business in isolation and then basically ignore other investors' interest at that stage. Because I think this is the type of capital that the Pre-Seed world needs, and we're not swayed by different kinds of external validation, um, they were really swayed by the team. The team is the most important thing. So, uh, for us it's really about understanding and partnering up in the early days, and that means leading.

Makes sense. That's an awesome, awesome strategy. I'm sure that's music to a lot of people's ears here because usually finding the lead is always the hardest. You know, I see a lot of questions starting to come in here in the chat room, so I'm going to start going through it, through them kind of rapid-fire style here. So, yeah, Costa asks, you know, is there— do you have cybersecurity companies? Is that a vertical that you're basically investing in right now?

Cybersecurity is a— we have not invested in a cybersecurity company, but we have a healthy deal flow of cybersecurity companies coming through. We are very interested. I'm personally interested. Interested in, in the field. Um, there are questions about how do you get out of POC limbo with cybersecurity companies, which is something that, yes, we are like 2 steps like ahead of the pre-seed stage. Often times you just have a concept, right, which is what we, what we welcome, but we really need to see that unique insight coming through. Um, I would say cybersecurity, like even more than other sectors, having technical experience in the field and having some level of industry expertise is it's even more important. I find it unlikely for us to back a first-time set of founders who don't have experience in cybersecurity building a cybersecurity business. So yeah.

Tori asked, you know, without— he doesn't— Tori doesn't have an immigrant founder, you know, on his founding team. So is there— should he reach out to you still? And, you know, he's also mentioning here in parentheses that he's courting more multiple people, multiple immigrants to potentially join his team, but not at this stage.

You're more than welcome to reach out. Um, the— our mandate is to invest in teams that have at least one immigrant team. Um, so, um, if, if at the point of conviction or at the point in which we jump on a call with you, um, you don't have that team composition, I think it just makes sense for us to table the conversation at that point. But if you're building something interesting, you're recruiting other immigrant teams, Either let us know what you're working on now, and then, or let us know when you have that team composition and we'll have a conversation. I think it's, discipline is so important for us, right? We really don't wanna deviate from our core goal here. And I'm happy to see other pre-seed funds focused on all kinds of founders, not a specific type of founder. We have a very specific product and, We would love to just continue being as focused as we have been so far.

Tom asked this question around debt. How big a deal is it that the business has run up debt but has really good traction because of it? Is that an issue in your diligence process? How do you look at that?

It depends on the stage. If you have a lot of growth and you raise half a million dollars in debt, you probably not a stage fit for us anyway because you're not at the early formation stage. You're probably more of a fit for a C or even Series A company fund depending on how much revenue you have. But I think that is a great choice for some kinds of businesses but not others. If you're building a standard software company, I find it hard to see why that would really benefit you or why would that not count against you on the VC evaluation process. But if you're building hardware, for instance, and if you needed some level of financing to get there, or if you're building something that is, it's costly to produce, I think it might make sense. It's really on a case-by-case basis. And we don't see it very much on the pre-seed stage. In 90% of our companies, we're the very first investor in. So at that point, people have raised nothing, like not even debt.

Um, Juan asked the question, you know, have you invested in a startup that basically kept you updated? Uh, you know, so I'm gonna elaborate on this one because it's a little bit unclear, but basically let's say you, you met with a startup, uh, and, you know, you had some concerns and maybe, you know, uh, initially, and then but they kept you updated and they kind of resolved those concerns And then you ended up investing.

So we have had the experience of creating relationship with the founder for some period of time, and then we created conviction around the product and the market, and we ended up investing after, after, like, some progress. It's not something that, it's something that only happens when we're impressed with the founders in the first place. So we'll tell them. So I think what we hate is this VC practice of saying, you're not, you're too early. I think that's, we want to avoid that as much as possible. So we'll never come back to you and say, hey, come back to us in 6 months when you have more traction, we like you, and just to keep that optionality open. No, we'll tell you, hey, I don't think we're a fit. But if you'd like to keep us posted, we would be more than happy to. I think the likelihood of that evolving into a relationship is smaller than what it would be for a typical seed fund, but it does happen. I think if we give you feedback on unique insight and you actually find something that really cuts through a market and it's super compelling for customers, we want to hear about it. And hey, we make mistakes as well. We pass on companies that we shouldn't pass. We try to minimize these as much as possible, but entrepreneurs keeping in touch with us helps us understand where we fell short, right? So for us, just to summarize, we'll never tell you it's too early. You're more than welcome to keep in touch. The likelihood of us investing after the first review is smaller than what a seed stage fund would be, but it's still there. So I'd encourage everyone to do it.

Neil asked a question about the enterprise space. Does Unshackled have any strategic partnerships which can assist with oil and gas startups?

We have a company called Bluefield that is basically tracking methane emissions on the atmosphere using satellites. They're selling to a lot of oil and gas companies We have built a wealth of knowledge and a lot of connections in the space. As a pre-seed fund, we don't necessarily bring in a lot of CEOs and CMOs to hang out with us over a weekend type thing, which a lot of later-stage funds will do, but we do have direct access to a lot of the prominent people in the space, other investors and executives. And we also hustle to create our network every time we invest in a new field. We invested a number of— we knew a number of people in food technology, for instance, when we first invested in Plantable, but that network has grown exponentially because we are supporting Plantable now. So even if we didn't, we would create that network pretty quickly.

Which kind of leads me to like the last kind of closing kind of topic here for us, you know, post-investment. right? Like what, how do you engage? How do you help post-engagement? What's the process look like? And, you know, to piggyback on that, how can founders maximize that? Is it through monthly updates or something like that? And, you know, just love to hear your thoughts on it.

So we like to put ourselves as wartime VCs. We want to be, we want to be trusted enough that first time, if anything happens, we'll be your first call. And that's something that takes different forms with different founders. Some founders want to jump on a call every week and tell us what's going on. We welcome that. Some founders don't want to tell what's going on until they actually have a major milestone. We also welcome that. There's no way for us to really force down any type of relationship structure that works for everyone. So it's really for us about understanding what founders want and delivering that to them, right? We work as a team in terms of portfolio support. So you see Nitin and Manan, the two partners, they have a lot of more senior relationships, so make a lot of introductions. Me and Maria, we know a lot of other investors in the Valley, a lot of seed stage funds, people that can help you with fundraising. I spend a lot of time with companies helping them flesh out their decks for seed financing and their storylines. And creating investor lists. So that is usually initiated by the founder and they have the responsibility to let us know how we can help, right? But we'll never be following up with them all the time and kind of be that pain in the ass, apology for my French, investor that will just take the breathing room out of the founder's creative process because that's the most important thing they're doing, that's the work. We like to be extremely hands-on and be, and really join the founders in the biggest challenges they have. And that takes form to what the founders desire, whatever form the founders desire to get. And that's something we learned over the years that it's about trust. So we help portfolio companies when they let us know. So for other, for other companies out there and for other investors, the best way for you to utilize the resources is just to let them know what you need help with. Be specific. And oftentimes, oftentimes when you send an email update and saying, hey, these are my asks, that does get lost in the shuffle. Sometimes there's so many other priorities, it's hard for you to get through. So just jump on a call with them and say, hey, can you help me with this? If you're looking for introduction, be specific about who you wanna get connected to. Great investors are always willing and enable and, and, uh, available to help. But being specific in your ask really shortens, you know, cycles of misunderstanding of like, what is it really that you're doing, etc., etc. So just be specific, be present, be proactive.

Yeah, so the theme here is exactly just being proactive. You know, I, I hear it a lot from other investors I've talked to as well. It's just one of the most, uh, kind of frustrating things is just kind of finding out that company, you know, is about— has got like a month left of cash or 2 weeks left of cash, you know, after radio silence for like 6 months, and there's nothing they can do, right? But if you're proactive, you can start thinking through that strategy, um, you know, a couple months, 3 months before, and, and, and put the company in a better, better situation, right? So if we look at the best portfolio companies in our— in the Founder Institute, they all send regular updates, you know, as a, as a, as a, as a minimum. If not, yeah, actively reaching out.

And then another thing I'll say to that is that we, some VCs don't want to rediscuss the existential aspects of the business because they want you to show, so let's discuss tactics and not necessarily strategy or talking about a pivot, for instance, something that's very hard for founders to really address and think because that means a complete shift on their strategy. We welcome existential questions. We think the pre-seed is for you to test things out. And if it's not working or if it's working not as well as you'd like to, we want to be the people who you would go to and sit down and whiteboard for 3 hours and think, what else could you do here? How can you, can you review your initial assumptions and create new assumptions that will really take you to the next step? So don't be afraid of asking hard questions. Actually, we, we'd love when founders are asking the hard questions all the time. Not, not in the sense of just dwelling on things that are unanswered, but really trying to hone in on the most important thing you have to prove. So you tackle that first and you really make good use of your limited time and energy you have.

All right, we have 4 more minutes, so I'm going to ask a few very rapid questions here that are coming in the chat. They're all kind of coming in as usual at the end here. So Phil asked kind of like typical terms, you know, is it convertible debt or some other instrument that you use for the pre-seed round?

We use a SAFE with the side letter, standard post-money YC SAFE. We found that to be, to simplify the process. The usual cap we work with is defined with the company and there's a big range that we will adopt. So it's really on a case-by-case basis. We are investing in the very early rounds though. When it comes to the structure later on, we're set up in a way in which we can follow on in future rounds if the founders desire us to, either by doing our pirata or increasing our ownership later. But we see this, we see that the act of following on as a sign of continued support and the founders' interest for us to continue to support them. More than the ownership that we gain investing in a follow-on round.

Neil is building a healthcare platform and, you know, he's trying to figure out, or, you know, do you— if he should build out the POC first before he approaches VCs or before, kind of what would be some advice on timing on when to—

For seed stage investors, he has to have the POC first. Or ideally have more than a POC. For us, there's no, it's never too early. I think having, understanding your customer well, having clarity of thought on why customers care about your product is what we're looking for. That could be from a wealth of experience on that industry and you just know because you've been there for a while or because you talk to 100 customers and you've seen that need come up again and again and again. So the POC is not necessarily to come in Come talk to us.

Swati asked the question about, you know, how can, you know, founders network with people like you to get this level of advice that we're getting here and just best practices on that?

I think I personally have qualms with not being— with VCs not being accessible to people. I do recognize that sometimes scheduling is challenging and, you know, and calendars takes you places and I cannot get through all the messages people send me on LinkedIn, unfortunately, I wish I could. So there's an availability problem. I also think that there are organizations that will concentrate that kind of advice. Founders Institute, of course, is one of them, which of course you guys have been through. Other accelerators are those as well. Making friends with other founders is a great way to get introduced to people who will be able to give you good advice. Advice, but also pick and choose the advice you hear from as well. I think there's a lot of destructive advice out there in the, in the ecosystem. So just be cognizant that you're doing your own thing and you should filter out what you hear.

Awesome. That's perfect, perfect way to end this webinar. Lucas, thank you so much for taking the time on your busy schedule to drop all this knowledge on our, on our community here. We really appreciate it and we continue to keep working with you all, you know, in the future here. Thank you so much once again for doing this.

Absolutely. I'm more than happy to. If there's anyone who wants to get connected and chat more, just feel free to reach out. I'm at lucas@unhackablevc.com. If you just apply through our website, we will take you for real. So please do so. And I remain available if there's any way I can help you guys.

All right, thanks, Lucas. Have a good rest of your day. Thank you, everyone.

Take care, guys.

Bye-bye.