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We’ve had a lot of cool people on the pod, but Sheel Mohnot is our first guest to achieve this trifecta: 100X an investment, have a founder in his portfolio go to prison, and have his wedding sponsored by Taco Bell. He invests at the pre-seed and seed stages into startups in the financial technology (fintech) space, and he’s quick to tell you that just about everything is fintech. Through his fund, Better Tomorrow Ventures, Sheel writes $500k to $3M pre-seed and seed checks into fintech companies. He came by to talk about that time he got defrauded by a company, how he sparked a bidding war that led to him returning most of his fund, and why speed of execution is one of his favorite traits in founders.
Highlights:
- Sheel is beginning to think that pre-seed is the new seed, and seed is the new Series A. He unpacks these thoughts and outlines what he needs to see in order to believe in a founder at the early stages.
- Secondaries and early exits and two ways investors can realize an outcome in a shorter time frame than an IPO. Sheel explains how he did this with two companies, Flexport and Indio, and how he feels about his decisions retrospectively.
- Major companies like Toast and Shopify are synonymous with fintech, but there is a vast network of less-thought-of companies making transactions happen in nearly every imaginable space. Hair salons, golf clubs, and garbage trucks are just a few of the places where Sheel is seeing fintech potential and why he believes that everything is fintech and fintech is everything.
- Sheel could’ve saved himself some trouble (and money!) if he would’ve heeded the warnings of fellow investors about a deal. However, he learned his lesson and now he doesn’t invest unless he thoroughly vets the founder through someone else in his network.
- (00:00) - FIFU 16 - Sheel Mohnot
- (01:25) - Sheel's early days as a founder and consultant
- (09:58) - Why invest and why invest in fintech
- (12:09) - Ideal Founder Profile: Who and what Sheel is looking for
- (14:43) - Lessons From the Worst Investment: How to spot a fraud
- (21:10) - Lessons from the Best Investment: Knowing when to take chips off the table
- (34:03) - Sheel's thoughts on the expansiveness of the fintech market
- (38:00) - Speed of execution is one of Sheel's favorite traits to find in founders
- (43:31) - Speed round
Creators & Guests
What is First Funders?
Learn from angel and seed investors bold enough to write the first check.
How do they decide which startups to invest in?
How do they gain conviction in founders and ideas?
How do they add value to their companies?
Shaherose Charania and Aamir Virani are operators turned investors. They chat with their friends investing in early-stage technology startups and learn about their strategies to fund the best founders and startup companies.
If you are an angel investor or seed investor, you'll hear how others operate.
If you are a startup entrepreneur, you'll hear how investors filter and decide on writing that first check.
FIFU 16 - Sheel Mohnot
===
[00:00:00]
Shaherose: Welcome to the First Funders podcast. Today we have Sheel Mohnot, the GP of Better Tomorrow Ventures. And I thought I'd start by sharing a bit about how we know each other. So I remember meeting you back when you were at 500. Yeah. You were hanging out with my friend, Mike Siegel. You guys were making a ton of investments.
And I've just been following your journey through the internet. since you've become an incredible internet influencer.
Sheel Mohnot: It's a bit of a stretch.
Shaherose: No, but really I typed in your name and it said internet personality. Like I didn't even, it's amazing.
I mean, Taco Bell sponsored your wedding.
Sheel Mohnot: This is true. It's true.
Shaherose: Yeah. So you're just like what tech dreams are made of, my friend.
Sheel Mohnot: I suppose. [00:01:00]
Shaherose: I'm excited to get time with you because, you know, I'd love to learn how you've been doing all the investments you've made over the years. Pre fund, you invested in companies like Ramp and Mercury and Pave, and some companies that have had incredible rises and falls like Chipper Cash and Clearco.
And so there's lots to learn from what you've done and I'm just super pumped. And so I'd love for you to introduce yourself and share a bit about how you got into investing.
Sheel's early days as a founder and consultant
---
Sheel Mohnot: Yeah, sure. So I got into investing by being on the other side of the table. So I was a founder and it was 2009, 10. 11. I really didn't know much about venture capital. I was living in Chicago. I had been working in consulting. I worked at BCG in Chicago. Friend of mine was leaving to start a company.
And I was like, yeah, ~like~ I'll, join you. And then, you know, then we came out to California and met investors. I don't think I knew [00:02:00] the difference between a late stage investor and a seed stage investor. I remember I ~like~ knew Somesh at IVP and I like, it's actually a hilarious story how I met him on New Year's in Goa at a nightclub on the beach, But then I knew him, so I was like, Oh, IVP, that's a venture capital firm.
I'm raising a seed round. I should be pitching him, not knowing that ~like~ they're looking to write huge checks and like not the 1. 5 million that we're asking for. , so I really didn't know anything, but the more time I spent meeting investors, I thought, Hey, this is really cool. I think in my mind, it was, these guys are the smart ones.
They have the money, they have the power. ~Like,~ I want to be that. That's cool. I think I might be good at it. Obviously, I've since learned that actually the founders are the smart ones and investors don't dictate what happens in the world or anything like that. But at the same time, ~like,~ I love what I do and it's been really fun.
So my path was founder, in the [00:03:00] early days, one of our investors was actually 500 startups. For our first company, we were actually on AngelList back when AngelList was an email list of angels. So Naval had ~like~ put us on there. I think that's how we got connected to Dave McClure who invested.
And then we didn't actually raise much money from California. ~You know,~ this is 2010, a lot of Californian VCs weren't that excited about investing in a company in Chicago.
Shaherose: Or FinTech. It was a FinTech, yeah?
Sheel Mohnot: Yeah. Or or FinTech. Yeah. True payments company. Yeah, you're right. So we raised from local VCs in Chicago.
We ended up getting acquired in 2012, ~like sort of ~shortly after. We were thinking about raising a series A, an acquisition offer came in that was ~like,~ fine. So we took that acquisition. I had some capital. And started doing some angel investing. I initially, was doing angel investing through ~like~ other platforms.
So, not necessarily ~like~ directly on the cap table, but invested in some [00:04:00] friends, kind of ~like~ got my feet wet with AngelList and other platforms like that. And then I started another company that company had some success. And then I had more capital and had a lot of free time, sort of towards the end of 2015 and then decided, okay, maybe I'll give this venture thing a shot.
And Dave from 500 said, Hey, why don't you join us? I said, let me try it out. And I initially signed on just to help for a little while. Then I said, okay, the companies I work with, I want to invest in them alongside, and then ended up that sort of investing my own capital turned into a fund, which was 500 FinTech.
And then that ultimately turned into another fund, which is BTV, the fund that I've been investing out of today.
Shaherose: I love it. And I love the 500 Mafia going and doing great things, right? you, [00:05:00] Monique, Elizabeth. What's Mike up to?
Sheel Mohnot: Yeah. Mike. I just heard from Mike this morning. Mike's Europe. there's Arjun, obviously so many
others.
Shaherose: Yeah. Yeah. You guys are, you guys all kind of had a similar story of like, Oh my God, I saw so many startups in such a short period of time. Okay. I'm going to just keep doing this. I'm just going to launch my own fund. And it's just so incredible that you guys get to put so many data points to work every day.
And not only in your picking, but in your helping with your companies. Two follow up questions. When you think back to Starting your companies and then again focusing on investing in fintech, what was the reason for staying in fintech or even joining fintech in the beginning and the second question is really ~like~ What is your why for investing?
Why do you even do this?
Sheel Mohnot: Yeah, they're sort of intimately linked. The real answer is probably some combination of I accidentally fell into it. And I thought it was a big opportunity. The accidentally fell [00:06:00] into it is my background had a lot of financial services. In the nonprofit space, I worked at Kiva and I know, you know, Premal, ~um, ~ Premal and I go way back and, had exposure there to microfinance, which I think of as FinTech.
It's a place where individuals in the developed world can make loans, individuals in the developing world. And then I worked in consulting at BCG. I happened to do a lot of projects in financial services that led to my startup being in payments. So it kind of ended up that I had a lot of background in financial services.
And as you pointed out at that time, 2010, FinTech wasn't really a thing. There were payments companies, and then there were lending companies. They weren't yet cohesively called FinTech for a couple more years after that. And, so, what happened was everyone else who was building companies around that time in those sectors kind of are all there today.[00:07:00]
And I had this network in FinTech and that helped. But if I think about ~like,~ still, All those things being true, why fintech? I think I was looking at it from a macro perspective and I said, financial services are huge. It's like 20 percent of global GDP is financial services. And there's a big opportunity in helping those financial services companies become tech companies.
And It's inherently it's ones and zeros, it's numbers. And so it feels like that opportunity really exists. And not only that, if I think about my daily interactions with financers , they suck. And they're so annoying and there's so much opportunity to improve them. And so I want to be able to do that.
And then there's a little bit that goes back to my time at Kiva. I was living in India on a [00:08:00] dollar a day, working, sort of trying to understand the life of a borrower. Um, so I was a farmer. I was ~like~ doing all these crazy things. Today in my old age, I could never do them. But During that time, I really learned a lot about how difficult it can be.
And on the microfinance side, to disperse one loan, you're ~like~ taking a bus, then you're getting on the back of a motorcycle to end up at a farm to talk to somebody about their farm and underwrite them. And then every week you're doing the same thing to collect their payments.
Shaherose: And you might get robbed along the way.
Sheel Mohnot: You might get robbed along the way.
although you're not holding that much money at any given time. ~But but yeah, um, ~so it's a system That's tough and it's very expensive for the borrower, not because someone's making a ton of money along the way, although that may be the case, but that's not inherently why it's expensive.
It's expensive because think about the cost to service the loan. You're ~like~ literally going out there to get the [00:09:00] money every week. So I thought, man, there's just a huge opportunity around the world to make an impact here. And that's why we call it Better Tomorrow Ventures. ~Like we,~ we're building a better future for ourselves and others through finance.
Shaherose: I love it. Yeah. We cannot escape the transactions we need to make. We need to earn, we need to pay, we need to eat. And so, yeah, the points in which your daily life, whether you're in an emerging market or here today in front of computers, we're still touching zeros and ones of cash in even digital form.
So love that you're focused on it. And love that it sort of evolved naturally. It's kind of like the universe was ~kind of ~pushing you towards it in some ways. Right. And presenting you with the opportunities. ~Um,~ would love to talk about the early days of when you started investing.
Would love to hear, is there a memorable first investment that you made that still sticks out in your mind? And ~like,~ what were the lessons from that when you began the journey of investing?
Why invest and why invest in fintech
---
Sheel Mohnot: Yeah, I think the [00:10:00] first investment that I made where I was on the cap table and not ~like~ investing through some platform, because I did a lot of those, but don't really remember them necessarily. I think it was Flexport and the backstory is I had just moved to San Francisco . I didn't know that many people.
And I was kind of just ~like~ getting out there, meeting people. And along the way I met Ryan. It was still, there is, is the CEO of Flexport. And has been most of the way, and I was immediately enchanted by him and I thought ~like,~ we've got a lot in common.
We became friends and I just told him, whatever you do, I'm going to invest in it. Then what he ended up starting was Flexport, which his tagline was the easiest way to import products. And I think, how I came to say, ~like,~ I'm going to invest in whatever you do.
And then especially when he decided what he was [00:11:00] building, it's, he had the right background and he had been an importer. He'd imported products from China before, I think furniture and ~like,~ Scooters or something like that. Then he started another bootstrap business called Import Genius. I was like, this guy knows what he's doing.
And then he was very scrappy. One of the things that he and I bonded on, during this time was we were both, running ads for, Our Uber promo codes. So we could get Ubers for like 25 cents on the dollar. And, you know, I think we had both over time accumulated like 10, 000 in Uber.
Shaherose: This is what I love about you, man, You just. Just go for it. You like throw everything at the wall and you're I'm just going to get most amount of credits I can.
Sheel Mohnot: Yeah.
Shaherose: I love it.
Sheel Mohnot: , and so like we kind of bonded [00:12:00] over these kinds of things and I was like, Oh, this is a very scrappy guy. Like this is awesome. I'm going to, I'm going to invest in whatever he does. And then, when he raised, he reached out to me and I invested.
Ideal Founder Profile: Who and what Sheel is looking for
---
Shaherose: ~Love it. I love that story.~ And it sounds like in this case, this was very much a founder first decision. Obviously you thought the opportunity was important, you really were enchanted, like you said, enchanted by him. And the experience that he had and the background that he brought to bear and it just made it for an easy investment.
When you think about that lesson from that time, when you think about to today, you know, we just interviewed Danielle from 1517 who only invests in very young or majority. And I kind of walked away going, wow, like, of course, some of the most prolific CEOs and founders of our time, some, right, have been, were young and they were dropouts.
And I noticed that I tend to very much have a bias towards, ~you know,~ what you just said, ~like~ he has a background in this. He has a unique point of view from his experience. And I'm curious, ~like.~ What's your approach to investing in folks? Is it you're really looking for that product market or sorry, [00:13:00] founder market fit, or are you open to sort of some green folks coming in?
Because FinTech is, ~is~ really heavy. It's like really complex. It's like investing in digital health or healthcare. I feel like being an outsider, it's fine, but really need to know the system.
Sheel Mohnot: Yeah, you're so right. So I have nothing against young founders. And in fact, currently in our office, we have a group of 20, actually one of them. Yeah. One of them just has a birthday last week in 21. So yeah, we, three founders that are college dropouts. So we do work with young founders. I think these are a special breed.
For the most part, we are investing in folks that have had some experience because financial services are difficult and there's so much to learn. There's so much that's relationship based. And if you've done it before, you have a real leg up because you have that trust. And a big part of [00:14:00] FinTech financial services is trust.
And so, we do invest in some young folks. , not that many probably in the Danielle ~like~ level of things, but we're certainly open to it. I think more often we have founders that are probably in their thirties and have been through some sort of ringer before, been through some of turn at a larger fintech or financial services company.
Shaherose: Yeah. I mean, it's primarily because of your thesis, right? We still have work to do in the industry. It's very human still. Right. And when you say trust, you're really talking about, there's a lot of people in the way.
Sheel Mohnot: Exactly.
Lessons From the Worst Investment: How to spot a fraud
---
Shaherose: Great. Thank you. Now I'd love to hear about some people have shared multiple examples.
You're free for to share as many as you want, if not just one. Investment where you felt like, whoa, that sucked, right? It was ~like~ one of the worst investments I've made. And I had [00:15:00] some really good lessons from making that decision. Would love to hear what it was and what happened.
Sheel Mohnot: Yeah, um, I invested in this company. that turned out to be a fraud. And the crazy thing is I don't know specifically how it happened, if it was always a fraud or if it became one, I just don't know. The company is a lending company that lends against, your car, like a home equity line of credit for your car.
It's an interesting idea. ~Like~ there are a bunch of what are called title lenders out there in the physical world. This one was a virtual one where you could do it all online. They had built a nifty system where you could basically scan your car title. They'd give you a loan against, call it 70 percent of the wholesale value of your vehicle and things were looking [00:16:00] good.
The founder had. Sold a previous company to MasterCard, had this like, you know, didn't come from Central Casting. company was based in Florida, which, the most hilarious thing is when this company went out to raise their Series A, a couple of investors just told me like, I will not invest in a company in Florida.
~Like~ there are too many frauds. And I was like, What a stupid ass comment.
Shaherose: what year was that?
Sheel Mohnot: This is 2016.
Shaherose: Okay. So not since the, you know, the peak.
Sheel Mohnot: No, not since the, not, no. Yeah.
Shaherose: Fascinating.
Sheel Mohnot: Um, so multiple founders, multiple investors, really good ones, told me, just not going to do Florida.
And I was like, well, you're an idiot. You're missing out on this great opportunity. Look at these founders. Over [00:17:00] time they actually raised multiple rounds of funding, including from some ~like~ very good investors. And then ultimately they were needing to raise debt capital, and they needed to raise ~like~ a lot of it, ~like~ call it a hundred million dollars and ~they, like~ the debt investors were like, Hey, we've been looking through the tape, I think there might be some irregularities.
And I was like, I don't know, ~like~ check again. And it became ~like~ clear and clearer that, Oh no, there's fraud going on here. And so that really sucked. Fortunately it wasn't a huge investment for me. Unfortunately, I had brought other people into it and, or not that I brought them in, but ~like ~ ~part of,~ part of their underwriting was like, Oh, like this guy we know is invested.
And so that sucked. And then subsequently. [00:18:00] the founder is currently in jail. Um, so, justice has been served. Uh, yeah, pretty wild.
Shaherose: Okay. That's the most extreme one we've had. We've had some, you know, fraudish, but it somehow didn't end up there.
Wow.
Sheel Mohnot: Oh, actually here, here's one crazy thing. One of the investors who is very well known, sort of personally put up tens of millions of dollars into this company. When I met him, he said, this is the best founding team. I've ever met and ~ like~ this person owns ~like~ a ranch in Wyoming.
He took them there. and he told me, he was like, you should have seen the CEO. ~Like~ he is a maniac out there. I love this. He was a maniac of the snowmobile apparently. And I was like, Wow.
Okay. Well, if this guy thinks this was the best management team he's ever met, although I was frauded, I was still like extremely [00:19:00] early in my venture capital investor career.
And this guy with a lot more experience also fell for it. So maybe it's okay.
Shaherose: For sure. I mean, I guess the question I have is ~like,~ was there any inkling that this would go in this direction? Was this a complete surprise? And based on that answer too, like, what did you learn from this wild experience
Sheel Mohnot: Yeah. So, okay. It was a surprise. I think like the interesting thing is I kept on describing this company ~as like~ one where ~it's not,~ the founders aren't out of Central Casting, like they have a different way of doing things. But, ~you know, like~ I didn't really know, this is ~like ~among the first 10 investments I ever made, maybe first five.
And so I didn't really know. And a lot of people got excited about it. They had multiple term sheets. In each round that, they did. So, ~you know,~ good [00:20:00] investors also were fooled. but in hindsight, I think I take a more cautious eye at the like, Oh, something doesn't quite fit here.
And then I think something that I did not do then and keep in mind, this was actually a pretty small investment. I wasn't able to reach anyone who knew them from their previous company. and now I just won't, if I can't find anybody, ~I won't,~
I wouldn't invest.
Shaherose: I mean, that's ~like~ a great sort of ~like~ continuous thing that you now do because of this.
Sheel Mohnot: Yeah, but it is tricky. It's like, okay. ~Like~ there should be someone out there who's a great founder who I have no connections to, right? But these days we're all a lot more connected and it's kind of, I should be able to find a connection, especially since I invested in a particular area and
I know a lot of people in that area.
Shaherose: Yeah. No, I mean, I think you're right. I think you are synonymous with early stage fintech. So my hope is one or two skips away there, there are but I agree. ~Like~ there's a world [00:21:00] where it is leaving out certain folks. But this world, like you said, is so human driven that hopefully they're in the network and that's good for them anyway.
You know?
Sheel Mohnot: Yeah, exactly.
Lessons from the Best Investment: Knowing when to take chips off the table
---
Shaherose: Wow. Thank you for that story. Um, let's talk about maybe your best investment so far. I don't know if you've had any realized investments. If so, would love to know the multiple, what was the company and what did you learn when you invested in a bang out success if you have, and if not, maybe just one that you're excited about.
Sheel Mohnot: Yeah, I can talk about a few, um, okay, well, Flexport, I realized some, not as much as I should have, but,end of 2021 I I felt like the market was hot And particularly for them in the supply chain world, things were going gangbusters. And so I sold like half my position at a very good price.
If I had to put a number on it, I returned about a hundred times my money and I sold half my position. So [00:22:00] it was rough, rough numbers. It was like 200x or something.
Shaherose: And you still have a chance to realize more upside over time as the company continues.
Sheel Mohnot: Yeah, That's right.
Shaherose: We've been talking a lot about secondaries on the pod and everyone's like, how do I do that? Could you share the story of how you were able to sell part of your position?
Sheel Mohnot: Yeah. So, ~you know,~ there are companies that everyone wants to buy and you're just constantly getting emails. And that was basically it. There's no secret sauce to it. I was getting a lot of emails and then I kind of started a bidding war and got a very attractive price. I think there wasn't a lot of liquidity at that time.
~Um, ~and we can talk about other companies. There's this company, And one unfortunate thing is ~like,~ I'm bound to secrecy on the price, but I can share some frameworks.
So, there's a company called Indio that is a workflow tool for commercial insurance agents. And, they were in my accelerator. So I had invested at a two and a [00:23:00] half million dollar valuation and then did a couple of other rounds. So to give you an idea, timeline wise, I met them in the middle of 2016.
They were in my accelerator sort of ~like~ August through October, 2016, and they raised the seed round. We had invested at a two and a half million dollar valuation. I think they raised the seed round at around eight or 9 million. Then things were looking good.
They raised the series A. ~You know,~ it was a different time, even though it wasn't that long ago. It was a different time. And there was a series A and I think roughly a 20 million valuation. Then things were looking good. There was a series B at around an 80 million valuation. And then, um, and all along the way, like I hadn't taken very much dilution.
And so then, they got approached by a potential acquirer and the acquirer said, We would like to acquire you. [00:24:00] And, ~uh, ~I don't remember what the price was. Let's call it somewhere near the last round, 80 million. ~Um,~ and I said, Hey, ~like,~ this is interesting. Let's just find out, ~like,~ let's just see if there's signal here.
~Like,~ I don't think it's the time for you guys to sell, but one thing to know. And that was the case in this particular industry is the universe of acquirers is two. ~Like~ there are two non private equity companies that could acquire this company. And let's just see what we get from the other one.
And so we did a little bit of a search and then like didn't get what we wanted. But during that search, I was able to talk to the previous CEO of one of the companies. And he worked at another finance company. And so I was able to talk to him and he said, look, ~like ~you have two options here.
Either you sell for something in the [00:25:00] range of X, like a few hundred million dollars, or you go big. And the only option is to go big and become a public company or you take the early exit. So what you should do is wait until you get the maximum value that one of those two companies is willing to pay. And then you have a decision on your hand. Like if you get to that price, Then you need to decide, are you going to take it, or are you going to go big?
And you kind of have a decision to make with the team. Is this team in it for another five, ten years? Probably more ~like~ the latter end, more like ten than five. And do you have, The steam behind you to do it. And so in this case, we ended up , getting to that number. That was very attractive and we got to it in [00:26:00] 2019.
So it had been about three years, from beginning to end. And we got to a number that was a huge outcome for us. So from our first check, it was in between a 50 and 100x and it came in three years. So I was able to return a huge chunk of the fund. Actually , I had returned more to investors than I had called from investors at that point.
so. It was awesome. Now, it wasn't a home run, these are the companies you dream about, but it was a great outcome for everyone. And there's always the like, okay, what if they had kept going? What would have happened? And it's hard to know, but certainly I'm happy with the way things ended up.
Shaherose: That's amazing, thank you the story we've heard, this similar journey with a few of the other folks on the pod where [00:27:00] it seems like there's either that decision point, pre series A really, because as the price goes up and up, the chance of acquisition goes down because not every company has enough cash to pay what it's worth.
And then this go big scenario is of course equally challenging. And I think, it's the timeframe that really makes the outcome worth it. Right. Like within three years to realize anything North of a 30x is very impressive, right?
Sheel Mohnot: Totally.
Shaherose: And we've had people have a 300x in three years and now you're between and a hundred.
And it's like, if someone has really built something that valuable, it's that sweet spot where big companies have an, usually have enough cash balance, to pay for this.
Sheel Mohnot: Totally. It's interesting. And usually ~like, ~every few months, this ~like~ notion of DPI shows Twitter. Usually any DPI you get in the first five years is bad DPI. It's not what you're looking for.
Shaherose: Yeah.
Sheel Mohnot: Because ~like,~ for example, in our 2020 fund, we have some [00:28:00] DPI, but it's all companies that pretty much didn't work out got to an exit. We return capital, maybe some small single digit multiple. But that's not what we're in this business for. In the case of Indio, I actually got ~like~ real DPI that was valuable.
Shaherose: Yeah. And I think that's the difference when we talk about what is good DPI versus just DPI for the sake , and I think what's cool about what you're saying too, is ~like,~ I think that you do want to wait usually to get the even bigger multiples. And at the same time, LP's talk out both sides of their mouth because they're like, I do want some money.
And also getting lucky early is also a good sign. Do you hear that? That like, you want early wins on your track record so that you can continue to fundraise.
Sheel Mohnot: Absolutely. mean, it was helpful for us. It wasn't anything that ~like~ we did intentionally in that case. Now we have done some other things intentionally where we have sold [00:29:00] into a Series B in one case, and just felt like it was a good opportunity. And the new investor wanted to own more of the company and that worked out very well for us.
And in one case, that was the last round the company raised and the company's, I think doing okay, but not killing it. So it was great that we got out and returned a huge chunk of capital to investors.
Shaherose: yeah. Small, taking cash along the way where you think it makes sense. I think that's part of the job of being a manager, right? We forget that.
Sheel Mohnot: Yeah. I feel like so many people don't realize that ~like,~ as an investor, your job is to buy and to sell, and people just don't appreciate that.
part of the job. And I will say I've come to appreciate it. Not that I always did and not that I've done a tremendous job at it, but I sold some, at the peak and I wish I'd [00:30:00] sold more.
And I think next time I would.
Shaherose: This is making me ask a question from your experience on this, right? And we've, again, we've heard something similar, but I've noticed the folks that say this. In terms of taking money off the table along the way are folks that have the , sub hundred million dollar fund size. And it's the folks at the mega funds that kind of are sitting it out because they're going to come on in future rounds, assuming the company's doing well.
And would you say that this strategy of making sure you're bringing money back slowly, also because you're going so early, is more important for people who have sub hundred million dollar fund sizes, or is it actually just every type of GP should be doing this?
Sheel Mohnot: Yeah, I don't think it's necessarily sub million, but I think it is like seed funds. ~Like,~ your time to liquidity is so long, anything you can do to shorten it makes sense. And then you have to evaluate each opportunity, whether it's a time to put in money or take chips off the table whenever you have the chance, I think it's important.
And I think if you look at the best performing [00:31:00] funds, they've all taken chips
off the table along the way.
Shaherose: ~Um,~ let's talk about how you're investing today. Tell me your focus in terms of check sizes. How many deals are you doing a year and ~like,~ what are you excited about? FinTech is back again. I don't know. What season are we in?
Sheel Mohnot: Okay. So we have a 150M fund and we lead pre seed and seed rounds. Seed rounds, we like to invest a couple million bucks ish. We typically try to own 15 ish percent of a company and we get involved in the company pretty intimately. We also have a pre seed program called the Mint.
In the Mint we invest a half million for 10%. So we own a little bit less of the company at outset. And we get our hands really dirty. The company's worked out of our office. We have a demo [00:32:00] day. It's actually coming up next week here. And we try to help founders go zero to one.
And I think like the impetus for this was we've been founders ourselves, and there are a lot of mistakes we made that we can just help people avoid. And so the idea was let's help people avoid these mistakes. And so we have our own experts in tech, design, go to market, And then sort of ~like~ general support of like, how do I build a business?
How do I talk to investors? How do I figure out pricing? How do I make the strategic deal, that we get really involved in? So looking at the fund or looking at our next fund three, there'll be call it 25 investments of the core nature where we lead a seed round. And then another, call it 10 to 15 a year of the pre seed nature, the mint. And [00:33:00] then in terms of sectors, so we are FinTech focused, but that means a lot of different things. The way we think about it is we have this neon sign in?
our office that says "Everything is FinTech." And I think a lot of companies. Make money through some sort of financial interaction.
And we think of many of those as fintech companies. So as an example, vertical SAAS. So if you look at your Shopify's and Toast's of the world, they make money mostly through financial services, payments, lending, insurance, accounting, payroll. And so we think that the next generation of these companies are doing, are starting out almost as fintech companies.
And then there's B2B marketplaces, similar thing, make money on [00:34:00] payments and lending. And so we think about those as in our purview as well.
Sheel's thoughts on the expansiveness of the fintech market
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Shaherose: You read my mind. I was going to ask you, what does that mean to you when you say everything is FinTech? And I love that definition. Where do you think the inning is on this? Cause you've been saying this for a while. Like, where are we at? Is everything FinTech yet? Halfway there? Beginning?
Sheel Mohnot: Yeah, it's funny, I just looked at this chart, I think like we started saying it, it's been five years, I think, five plus. And if you look at ~like~ now Shopify and Toast, they are FinTech companies and they necessarily, they weren't necessarily before. And the cool thing is ~like~ Toast is partnered with one of our companies to build a banking product.
Shopify is talking to two of our companies to build a payroll product and an accounting product. So ~like~ these are happening from the companies that we originally talked about. It's actually happening and they're working with our portfolio.
Shaherose: Ooh, that's so cool. [00:35:00] What are some companies beyond those two that you think have not yet added some of the FinTech components, but you anticipate they will?
Sheel Mohnot: Yeah, there's so like anything in that space is able to. So obviously Toast works with restaurants. There's ~like~ Gloss Genius or Mango Mint for salons. There are companies in ~like~ literally every different micro niche. So we've seen companies that are building software solutions for. Garbage truck owners.
We've seen software solutions for power sports dealerships. We've seen software solutions for golf clubs. ~Like,~ every different niche you can imagine has its own software company, and we think that you can empower all of them.
Shaherose: Yeah. I think that makes sense. And we've seen that already happen with. Healthcare companies or digital health companies, for example. So are happening. It feels like sort of me [00:36:00] slowly. Very cool. Okay. Let's spend a few minutes for founders right now. Okay. So I keep meeting some pre seed founders and I think one of them ended up applying to your incubator.
And they were like, we're doing this thing. It's happening. It's pre seed and they haven't figured anything out. They're coming in and like a team that they know what they're doing, but I felt like there's so much confusion for founders in terms of how do I show up to an investor who's maybe running a program or investing pre seed when I really just figuring it out, do I act like I know it all?
Or do I share it in the form of, here are the hypotheses I have about the customer and the market? Obviously that's what I suggested to them. But I to know from you, I've had like three or four founders in a row, all pre seed. I'm like, wait, so do you know that this is true? And they're like, no.
I'm like, then why is it in your deck? Like what pre seed investors expecting when founders are showing up with the very early [00:37:00] idea.
Sheel Mohnot: Yeah, so, the way I like to think about it is~ like,~ let's have a conversation. Tell me what you're doing. Ask for my advice. That sort of thing I think works. Some founders really know what they're doing at pre seed And some are like, here are some experiments that I want to run. Here's the amount of money I think it's going to take to run this experiment.
Shaherose: And so are you expecting some big vision of how they're going to get to a hundred million at pre seed?
Sheel Mohnot: I need to believe that it's possible to get there. And So the more I have from the founders, the better I can go.
Shaherose: So at pre seed, are you truly making a founder bet?
Sheel Mohnot: Yeah, for sure. More founder bet than anything else, because there isn't much else to go off of. It's not usually there's not revenue or anything like that.
It's really a founder bet.
Shaherose: the top things you look for that make you say [00:38:00] yes?
Speed of execution is one of Sheel's favorite traits to find in founders
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Sheel Mohnot: It's really founder driven, so I think speed of execution is by far the thing I look for most. ~Like,~ in between the first time and the second time I met them, had they made some progress, are they constantly doing stuff and iterating? Are they working hard? If I think about our top companies, they all are working hard and iterating fast.
And then I think there's an additional piece, which is like tenacity. Are they breaking through walls to make stuff happen? ~Like,~ has there been some obstacle that got in their way that as soon as the obstacle comes up, are they ~like~ doing everything they can to get through it?
Shaherose: Yeah. Okay, let's talk about seed. So is seed the new A? What kind of metrics or revenue numbers, if any, what's the checklist for you to say, we're going to put in a sizable multimillion dollar check into a seed company in FinTech?
Sheel Mohnot: Yeah. Is seed the new A? Probably and maybe precedes the new [00:39:00] seed and the previously named seed was before that even named Series A and, I don't know, these things all seem to jumble up and it's hard to know what things are anymore, but typically I would say we're investing in pre product market fit companies and the differentiation, the difference between pre seed and seed is narrow.
But I do think,at seed there's more traction required than at pre seed. At pre seed it's mainly a team and an idea and some mock ups, perhaps a real product and a lot of customer conversations at seed. It's hopefully a little bit further and there might be some real revenue.
There's certainly no checklist like that though. I think it's really hard to do that at the seed stage. So it's really, did the founder make me believe [00:40:00] and everything else is in service of that. So ~like~ any revenue traction that's in service of the founder
making me believe.
Shaherose: Yeah. Thank you. Um, I can't wait to share this little clip with all the confused founders.
Sheel Mohnot: People just say ~like,~ if I get to X revenue, ~you know,~ will that be enough? And it's like, no, that's not really how it works.
Shaherose: Yes, elaborate on that. How does it work then for you? If it's not a revenue metric, is it everything you said? Is there anything more to add?
Sheel Mohnot: No, the revenue is just evidence that the founder can do what they said they were going to do. And there are other ways to reach that, which is they could have done it before. That's one piece of evidence. , they could have reached some milestone. There are any number of ways, but revenue is certainly one of them.
Shaherose: Yeah, agreed. It's an outcome of some good inputs. Okay, question for you. Since you've been in this game, you said approximately eight years, right? How do you get better at at investing besides getting in more [00:41:00] reps.
Sheel Mohnot: I think there's a lot you can learn by other great investors out there. There's so many things available to us on the internet. Good and bad. Terrible advice out there too, so be careful. But I think a lot of great investors have been on podcasts or tweeting or whatever. And you can learn a lot from them.
And I think don't ignore that. When I started as a founder, I felt like there wasn't that much available. And then it really changed rapidly between call it 2010 and 2015. There became just a wealth of knowledge out there and, don't reinvent the wheel or don't try to think that you're going to do something totally novel.
Most likely you're going to end up doing something similar to what other investors are doing and it's good to understand what they do.
Shaherose: Yeah. This is why I'm interviewing you, my friend.
Sheel Mohnot: Don't listen to me though. Listen to ~like~ the really good investors.
Shaherose: No, you're on your way. I love it. Well, [00:42:00] speaking of really good investors, let's say in, I don't know, five, 10 years, you're on the Midas list. What do you think got you there?
Sheel Mohnot: Um, I think all those lists are bullshit, but, um, that's another topic. I know for a fact because when I worked at 500, Dave wanted to be on the list and hired a PR firm, and then he was on the list the next year, so all those lists are fucking bullshit. I don't believe in any of those lists.
Shaherose: I didn't know that. I might like ix-nay this question going forward. I had no idea.
Sheel Mohnot: So what I care about is ~like,~ did I drive great returns to my investors? And for that, I think it has to be investing in companies that have a 10 billion plus outcome. Unfortunately, the way that funds and rounds are structured these days, that's kind of what you need.
And a unicorn sounded great a decade ago, and a billion dollars is ~like~ a lot of money, [00:43:00] but it doesn't move the needle that much for a fund like ours, unfortunately.
Shaherose: Absolutely. I mean, I wouldn't even say unfortunately. It's like, and that's the game you're playing, right?
Sheel Mohnot: That's the game we play.
Shaherose: Yeah. And that's how you filter the founders and you filter the opportunities. And, to your point, you're in a space that hopefully has multiple. You know, 10, what are the 10 billion companies called? Mega unicorns. Do we have a word yet?
Sheel Mohnot: Decacorn?
Shaherose: Decacorn. I should have known that.
Sheel Mohnot: I don't know.
Speed round
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Shaherose: Whatever. Just get some outcomes.
Okay. Let's do a speed round.
Who is another First Funder you admire?
Sheel Mohnot: Satya and Hunter at Homebrew.
Shaherose: Good one. What is a book or piece of media that had a major impact on how you invest today?
Sheel Mohnot: I think like it was probably some tweet where I think it was like, what are founders looking for? And it's improved odds of success.
Shaherose: Of course. I love that. ~Uh,~ find me the tweet later if you can. I'd love to link [00:44:00] to it. Zoom, phone, or in person meetings?
Sheel Mohnot: Um, it really depends widely. I think each have their purpose. There are a lot of meetings that are Zooms that don't need to have video on. And I try to just ~like~ have video off and go for a walk.
Shaherose: I think it's so important. I actually wish we were doing this in person. We'll do that next time. ~Um,~ let's see my last question. And I think I know the answer to this, but social media platform of choice
Sheel Mohnot: Yeah. I'm very active on Twitter. It's my platform of choice, although also active on Instagram, but not In the same way.
Shaherose: In a more personal way. I love it.
Oh my God. Sheel, thank you so much for your time. Where can people
Sheel Mohnot: Thank you. ~Um,~ at Twitter or x. com/pitdesi, P I T D E S I. And I think I'm the same on Instagram and wherever else you might be.
Shaherose: I love it. Thank you so much. This was awesome.
Sheel Mohnot: Thank you. Super fun.
[00:45:00] Wow. What a great fun interview. Thank you, Sheel for making time. So great to connect with people I haven't seen in awhile. So just wanted to share a few quick takeaways. We had a great discussion with shell about changing expectations at pre-seed seed series a. And we have talked about this. , on the show before. But yeah, expectations are a little bit higher. And. Not that much different, right?
Shure MV7 & FaceTime HD Camera: At the end of the day, we're still looking for companies that stand out, teams that stand out. And Sheel really honed in on one of the things we all look for. At every stage, which is speed. And I want it to just double down on how important that point is when you are investing. Venture investing is all about creating the greatest amount of value in the shortest amount of time.
~It's this time? Value money metric that matters. . And.~ The benefit of speed is that it's creating momentum and momentum begets more momentum. And [00:46:00] so when we think about the changing expectations, I think. Really what we're saying is yes, the bar is a little bit higher, but it doesn't change in that we are looking for teams. That are moving at a breakneck speed and measuring this as an investor can feel a little intangible. When you're not seeing teams on a week by week basis.
I know for me, when I was running founder labs, That was ~like~ the greatest advantage I had was I would see the progress or the lack thereof on a week by week basis. And she'll can see that with his program too. So the question is as an investor, how do you measure this? And I think it's looking for proof points between meetings.
Have the founders made significant progress. Do you get a sense that a lot has been done since the beginning of the round or the beginning of the company? I think just paying attention to proof points that this team is learning fast. They have that. Speed into their culture. They're constantly integrating, learning and [00:47:00] deciding quickly. And so I feel like at the end of the day, this takeaway is about, can you feel the speed? .
If you can feel the speed. Then it's probably happening, but if you don't feel it, it might not be moving. Fast enough. So speed. Speed is everything. Even in changing times. The second takeaway that, , really stuck with me was Scheel's thesis around FinTech is everything. And I like this thesis. I can see how a company that let's say already does transactions.
For example, a company like Shopify or Gusto or Toast. Examples that she'll gave that they could. Offer adjacent services in the FinTech space and really become a horizontal offering for the customer. My thinking on this is this could work and it is working in some companies. , But I think. It's not just about a company that offers an existing product that has includes a transaction. I think what really needs to happen for a company [00:48:00] to really offer more than one. You know, go horizontal in this way. Is that they have to at first build something that people really love. And love using right.
Most FinTech experiences. Our awful. And so if you can create something that leads to joyful customers, loyal customers. Customers will pull and pull you in directions that allow you to grow your product horizontally. So, I think just being a FinTech company and thinking you could certainly go adjacent isn't good enough.
Like. What is the real experience with the user? And is it something that they love? Enough to want to do more with you, when, when she'll talked about everything being FinTech, , I'm not so sold, right? When you think of a company, that's trying to do something in the FinTech space that sort of leads them to crossing over. That's a big bet. An example, right? Apple launched a credit card. I think it was 2000.
I can't remember now. Would there becoming a bank? We all said. But really the solution [00:49:00] was simply a credit card. It didn't have any differentiation. And I think it confused customers, , they didn't want to bank with Apple . They weren't looking for that. Right. The emotion that they get from using. Their products is different from the emotion they would get from banking. And so you need to be thoughtful when you think about your, when you're investing, like is how big will this company get?
I think blanket statement of everything becoming FinTech is not one I'm totally sold on. , but I can see how it can work in specific situations. Like we've talked about. So I think ultimately going FinTech, horizontally and growing your business should feel organic and not like a leap. That's just my 2 cents. , the other thing we talked about, which we've talked about in a lot of, episodes is as a pre-seed and seed investor. Looking at ways to take chips off the table, along the way. Because the markets have continued to be so tight in terms of outcomes, right?
Whether that's an IPO. Or any other type of exit. Taking chips off early. [00:50:00] So Scheel's example , was a great one. When you angel invested in Flexport. And, my experience is one of my companies that are incubated, where I had founder shares. , I too was able to take money off the table early and really the significant markup. , And that only was possible because. My entry price was so low.
I had found her shares. . And so for shield coming in. As an angel investor at a really low price for Flexport. , Taking chips off the table. Makes sense. If your entry price is low enough. , but I did like his point for companies to think about this fork in the road where, , is the price for an acquisition. High enough that it makes sense to take. At a sort of earliest stage. Then going big, like where do you realize the greatest value again, in the shortest amount of time? Not a blanket statement, so case by case, but, , Yeah, it was a great discussion and one that I think [00:51:00] we'll continue to have until the markets. Change in some way or return to what they used to be. , the last takeaway was on references. , I think it's. Critical to do references.
I've been up and down on this, in my own journey because they don't always feel like a glowing, positive reference. Gives me any information to make my decision. But doing them to avoid. Fraudsters I think is super important. And so I think of. References in a way to avoid. Unknown negative. Outcomes with founders. As opposed to informing me. Whether I want to invest.
at the end of the day, I know that. The reference is probably wanting to make the founder look good. And they probably worked with them in a different context. So their experience working with them in a company doesn't always easily transfer over to their experience as a founder.
So. And I know that from my own experience, like I've worked in big companies and I'm a different person I operate [00:52:00] differently than I would as a founder, particularly in the speed park is. Corporations working at a different pace. So I would say , like, for me using references is really just to. Avoid.
Real big situations where You're being fooled. So. With that. , thanks. Hope y'all are doing well. , I know times are crazy. And I'm just focusing on the things I can control and staying positive. We'd love feedback. Join the newsletter, all the good stuff. Have a wonderful week.
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