Episode 76 / August 2, 2020
Sheel Mohnot, Better Tomorrow Ventures on his journey from Fintech Entrepreneur to Fintech VC
Sheel is a Fintech-Entrepreneur turned Fintech-VC investing in Pre-seed & Seed rounds. His first startup was FeeFighters in 2010, which was acquired in 2012 by Groupon.
In this podcast, Sheel shares his experience of being an entrepreneur twice and becoming an Angel Investor and later starting his own VC firm.
01:03 – His journey from a Fintech Entrepreneur to a Fintech VC
04:50 – Starting “The Pitch Podcast” (acquired by Gimlet, Gimlet was later acquired by Spotify)
07:55 – What does he look for in founders while investing in startups at Seed/Pre-Seed stage?
09:57 – Brief about his game-changing fintech portfolio companies
13:29 – From hating working at a company that made software for hospitals to investing in a startup that makes software for hospitals
14:50 – “Majority of companies in the future will be Fintech companies”
22:15 – How did he spot his first Angel Investment?
Read the full transcript here:
Hi, this is Siddhartha Ahluwalia, welcome to the 100x Entrepreneur Podcast. Today I have with me Sheel Mohnot, Founder of Better Tomorrow Ventures. Sheel has been an entrepreneur two times and both his journeys, you know, he saw a successful exit via acquisition. With better tomorrow ventures, Sheel typically invest at seed and pre seed stage writing between 500,000 to 1.5 million check. Welcome Sheel to the 100x Entrepreneur podcast.
Thank you for having me, Siddhartha.
Sheel, we would love to know about your journey as a founder and then as a VC.
Yeah, absolutely. So my journey as a founder, I guess, even before I was a founder, my journey in FinTech, financial technology, starts out on the nonprofit side, I actually spent some time working on the nonprofit side with a nonprofit called Kiva. Kiva is a website that allows individuals from the developed world to make loans to individuals in developing wold for the sake of alleviating poverty. And I actually moved to India to work on this project. And, you know, through that, through the course of Kiva, we’ve done several billion dollars of loans all at zero percent interest. But this, you know, although it’s a nonprofit really operated like a startup, and we had a lot of really influential people guiding us. We had Reed Hoffman on our board. So this is my first foray into FinTech and ended up being a foray into startups as well. So I really enjoyed that. Before and after that I was in consulting, I worked at BCG serving financial institutions. And then another buddy of mine from BCG had an idea for a company. And we left and started this company called Feefighters. Feefighters was a payments company that was a reverse auction for credit card processing. We started in 2009 and raised a seed round 1.6 million bucks at that time. And then, you know, ran for a couple of years had a acquisition offer from Groupon, which at the time, was growing pretty fast and wanted to expand into payments. And so we got acquired then, in a couple of years. And, you know, ran our group within Groupon for a little while. At that point, I had an idea for another company. That’s an auction company called innovative auctions. And being some friends started this company that we bootstrapped, we didn’t raise any money for it, and it got acquired in 2015. After that acquisition, I ended up becoming an investor full time, I found that I, you know, I’d done some investing after the first exit in 2012. And really enjoyed it. I just love working with entrepreneurs at the earliest stages. And I thought, you know, let me double down on this and make this my career. So in 2016, I started working with 500 startups, originally as a mentor and then started a fin tech focus cohort within 500. And then originally was putting my own capital up in these companies and then raised a fund around it within 500, had some success with that fund and then, late last year, set up this new fund. That’s a $60 million fund focused on pre seed and seed stage FinTech. And the fund is called Better Tomorrow Ventures. And in this fund, I’ve got a partner. It’s just two of us. Jacob and myself. And Jacob also is a FinTech founder. He co founded a company called Nerdwallet. It’s pretty successful here in the States.
Fantastic. And Sheel you started a podcast which was acquired by Gimlet. Can you share more details on that? Would love to hear on that side?
Yeah, absolutely. So there’s a show here called Shark Tank. Are you familiar with it?
So, at the beginning of 2015, I was watching Shark Tank. You know, I thought it was a fun show to watch, but very unrealistic. What they depict is not the reality of venture capital. And the majority of the companies that get funded on the show don’t actually get funded all sorts of issues. So I was watching that. And I thought, I wonder if it’ll be interesting for people to listen to me as I take pitches, and this time, I was just an angel investor. So I started recording some pitches. And then we evolved the show over time, started in 2015. And actually, in 2017, the beginning of 2017, we got acquired by a company called Gimlet media, that’s a podcasting company that got acquired by Spotify. And so we shifted everything, it became a much more professional show. There’s now a five person staff dedicated to the show. And I’m still on it, although not on every episode there recorded in New York and I live in San Francisco. But it was a cool, cool thing to go through. And acquisition for a podcast is unusual.
And you mentioned that that you had $1 million in ad revenue. This was before the acquisition or after acquisition?
After the acquisition. I think before the acquisition, we were doing something like, maybe not quite a couple hundred thousand in ad revenue, but something in that 150 to 200 K.
But podcasts have really taken off, you know, like as an industry very recently, and you have been doing it from very early. So do you believe that there is a potential for independent podcast creators, rather than a platform?
I think so. I think that advertising is tough in podcasting, like, we made it work for us, but it was not easy and you know, we had a lot of listeners and despite that we only got, you know, didn’t make that much money. Um, so I think there’s a real opportunity to have paid podcasting and subscriber based podcasting, I think will do really well. And I’m surprised that that market has not been cracked yet.
So, Sheel this will count as your third exit.
Yeah, yeah, that’s that’s right. Although, you know, It wasn’t a big exit, not really a tech company more of a media thing. But yes, that’s correct.
Yeah. Yeah. And Sheel, you have been an investor from 2012 when some of the billion dollar companies today, like Coinbase has been one of your, you know, initial investments and there are some others right, what were you looking at very early stage because majorly other was Instacart right? So you have an inclination towards FinTech? What’s that inclination? And how do you spot very early, you know, companies in FinTech that you believe are going to become tomorrow billion dollar companies?
I think primarily at this stage that I invest, which is pre seed and seed, what I look for more than anything else is the founder’s vision, I believe that this founder is going to be able to execute on their vision and be relentless in that pursuit? And that’s the number one thing beyond that, everything else changes. But what I’m investing in is a founder and a set of founders. And that’s really what I look for and everything everything changes, you know, famously actually, amazon.com one of the names that Jeff Bezos was gonna call the company was relentless. And even today, if you go to relentless.com, it actually redirects to Amazon. So, I look for founders playing in a big market, because, you know, you can be relentless in a small market, and it still won’t do that. Well. So I think, you know, ultimately you have to be able to build into a larger market, but that those are the two things that count on more than anything else. And then beyond that, you know, we look for how much traction have they achieved? Are the terms right? Is there a technology advantage? Is there a reason that exists now? these sorts of things.
and Sheel can you talk about the current investments from better tomorrow ventures?
Yeah, sure. So, like I said, we started this fund just late last year. It’s a $60 billion fund. And we have done four core investments to date. And we led each of them. The first one is called Unit. They’re based in San Francisco. And they help technology companies build financial services into their products, and launch vertical banks to their audiences. So if you are a tech company wanting to add in banking services, you can work with unit. It’s a banking as a service company.
Got it and what about the other companies, the other three companies?
Yeah, sure. The second company is called Super. They’re based in Mexico City, and it’s a parametric insurance company that’s starting in Mexico. Parametric insurance is simple. It’s insurance based on parameters. What are the parameters if x then y. And the first product is earthquake insurance, that pays out automatically if the earthquake happens. So if there’s an earthquake of a certain magnitude, within a certain radius of you, you automatically get paid a certain payout. And this is a game changer in this market, which is the insurance is not well penetrated in this market. And so they’re starting with earthquake insurance because that was, you know, a good place to start a big audience, but parametric insurance can be used in many other fields such as your hurricanes can be next. Life Insurance as a parametric product, they’ll do many others and also plan to move beyond Mexico. The third company we invested in is called Quinn. It’s a cloud based operating system or emergency or electronic health record for smaller hospitals. And there, this is a big opportunity typically has been a tough sales cycle selling into hospitals, but we really like this team and what they’ve been able to do. And you know, you might say this is not a fin tech company. But for us, this really fits our ethos that everything is a fin tech company. And a lot of these companies that are operating systems for businesses will actually be selling financial products. So in this case, it’s more clear. They have a billing module, they work with insurance. So these are the FinTech components. The fourth company we invested in, it’s called Figure HR. It’s a compensation platform. So they help companies figure out compensation. How to pay their employees, how much salary, how much equity, they have a system of record for salary, bands and job ladders, dashboards for analytics. And you know, this is a typically an old industry, where they have manual compensation surveys. And they’re bringing this all online with real time analytics and data. And the idea is that if you bring transparency to compensation, it’ll make things a lot more fair.
Sheel, you said in one of your interviews that you were making software for hospitals and you hated it? What was that time? And then what made you then invest in the hospital software company?
Yeah, it’s a great question. So yeah, this is a long time ago. So it was 2000 to 2004. I worked at a company called Cerner. It’s now a pretty successful public company. Yeah. Actually, since since the time that I was there, the company has 10 to 15 X the stock price. And it’s now a 20 plus billion dollar company. And they make software for large hospitals. And they’re used it many hospitals around the world, including the largest hospitals. It was a tough business for me to be in, because I didn’t like certain things about the sales cycle and the product and the control I had over what I was building was minimal. What I’m excited about in Quinn, is they’re building it all with the right end customer in mind, and I think they’re gonna build a really phenomenal product. And their focus on these smaller hospitals is a good one. The larger hospitals all have massive customization needs which the smaller hospitals have.
Got it. And you said a couple of minutes ago that every company will be a FinTech company. What does it mean? And why do you think is the reason for that?
Yeah, I should say, we always say that everything is FinTech. What we mean is, many companies in the future will be FinTech companies. And especially companies that are marketplaces, or vertical size businesses. If you have distribution, and you have a data advantage, you can layer in other stuff like lending, insurance, payments. And so, because of that, we think many companies will be FinTech companies in future
And Sheel you spent one year in India, what was the idea of that year spending? And did it occur to you that you can spend more of your time in India seeing India opportunity or make investments in India?
Yeah, absolutely. So yeah, I moved to India in 2006. I was working with Kiva, the nonprofit that I mentioned. And also did this fellowship in India called indie core. And when I lived in India, I was trying to live like the people that we serve our borrowers. So I was living on a salary of 2000 rupees a month.
Wow. That’s pretty much like $40.
Yeah. It was a tough time in my life in many ways, but very, very rewarding. I actually got very sick, I got typhoid and I went to the free hospital, all sorts of things that I went through were very interesting for me, but I think, you know, one of the things I realized is what makes me happy is not money. I’m not very money motivated, even though I’m in a field that is very lucrative and, and success involves, if you have success, that means you make more money. I realized that’s not something that necessarily is what makes me happy. It was a really wonderful experience for me. And I did think about moving to India afterwards. And in fact, afterwards, you know, I had I ended up working in consulting at BCG, but I came back with BCG to work in the office in India for a little bit and even contemplated a job in India. But the timing never worked out. And for whatever reason, I didn’t end up living in India again. But it has a very soft spot in my heart and I go almost every year in terms of investing in India. Yeah, I would love to. One of the things I think about a lot as I think about India and me leading pre seed and seed rounds is Is it right for me to be the investor I like to be very hands on It’s a little bit harder to be hands on with the team in India. And then I also think there are many great investors in India already. So am I adding enough value for to make sense for me to be a lead investor? So these are things I think about. So I haven’t led any deals in India. But for the right opportunity, I would love to,
But you carry a very different perspective of what the future of FinTech could look like, because you’re already living and breathing in Valley and investing in the future of FinTech in Valley. So I think that would certainly reach India at the pace India’s innovating. You might have heard of UPI stack in reverse. that is a moment for India, in terms of serving the billion population of India in terms of financial needs financial products.
Yeah, it’s really cool. You know, what the government has done In India, and UPI, AADHAR, these are all really smart things that the Indian government has pioneered for the rest of the world and it’ll be interesting to see where else these things happen. Honestly, it’s very impressive.
You mentioned that, you know, at point in life, you were in job. What was the key if I could ask in the last 10-15 years, key moments in your life that shifted your orbit for the positive if you get what I mean?
Yeah, sure. I think you know, one is simply, as I mentioned, living in India and that 2000 rupees a month. That was very influential to me. And I think one of the things you learn about when doing that is in India, you’d call Jugaad, Here, we’d say like scrappiness. And I think that’s very important. I think it’s important in the people that I choose to work with also have a good ability to be scrappy. And that’s true in my companies. And it’s just, you know, surviving. And so much of success in startups is literally just surviving and not giving up through any adversity, if you just keep going. Eventually, if you work hard enough, and are smart enough, eventually you’ll make it work. And so I try to find people that are scrappy, as much as possible. So that that was one big point for me. And then the other was just finally doing my thing like, you know, growing up with Indian parents, they always, of course, they wanted me to be a doctor and then if not a doctor than an engineer and have a steady job. And my parents left India in the 70s. So their impression of the world is that, that success is having a consistent and steady job. And so, when I was quitting my job to do a startup, it was uncertain for them. They, you know, they didn’t like that idea. They said, Why don’t you just do that on the side? There’s not going to be you’re not gonna have success. You know, finally having some beginning inklings of success was great for me. I finally felt like okay, you know, I’m doing my own thing, and I’m enjoying it. And this is what I meant to be doing. And kind of at that moment, maybe 10 years ago, I realized I’m probably never going to work for somebody else again. And you know, it has not happened since That’s been it’s been wonderful.
Yeah. And how did you, you know, since you had an early exit in 2012, you know, we just went in half years into the business. How did you spot your early angel investments? Because that must have been pretty tough. You know, you need to have a lot of luck on your size being an angel.
Yeah, definitely. I had a lot of luck on my side, no doubt about it. What I did was, so I was living in Chicago at the time. I moved to San Francisco in 2012. And I became an angel investor for a few reasons. One, you know, meet people make friends. I figured I could, you know, meet interesting people that are trying to change the world and some of these would become my friends. And that worked out a little bit. I figured I could be inspired by these people. Think about Businesses that I want to start and maybe I would join them in their pursuits. And then I thought, you know, final thing I thought, maybe I’ll make money if I’m good at it. And I naively thought of myself as being good at it at that time. Of course, I had a lot to learn. And early on, I did, by dumb luck, have some successful companies. But it was an easier time to be an investor in 2012. There were a lot fewer investors. You know, you could literally just show up at YC Demo Day, invest in a few companies and have a good chance of success. There’s nothing like that today. Like, you know, at the time, the YC demo days were one 10th the size of that they are today and the quality was higher and you know, nothing like it anymore. It’s gotten to be a much more difficult business to be in the business of venture. And I think returns will show that, you know, being a seed investor those years, you know, so when I started investing 2012, we think about those vintage years from a fund perspective, that’s 2010, 11, 12. Those are the best years of venture. And it’ll be tough to replicate going forward.
And why do you say that thsoe were the best years for venture?
Yeah, there were. There was not yet enough capital in the system. And there were very many good ideas. So right now, there are many good ideas, but also many other people doing the same idea. There’s a lot of competition and that costs money. And at that time, there also were not that many investors. So valuations were much lower. These days in the States, a seed round is, you know, somewhere between now I’m seeing really crazy stuff. I would say a seed round valuation is somewhere between 10 and $20 million. It’s insane. And pre seed, you could call it five to 10. At that time, you know, we’re investing in companies that are one and a half to three $4 million valuations. And so if you think about the outcome required, it’s much higher than it was then.
And the Y Combinator check has remained same, just the number of companies has grown from 20 a batch to 280 a batch.
Yeah, No, actually at that time, the YC deal was only 15,000 for i think it was 6%.
Yeah, it might have been seven.
125000 per 7%
Yeah. But at that time, it was, it was lower. And at that time, they actually gave you a little bit more money if you had more co founders, I believe it was something like15 to 18,000. But a minimal amount of money,
but must have been easy to select from a batch of 20. And today, you have a batch of 280 companies to select from.
It’s hard to even look at all the companies look, I only invest in FinTech. Now, even for me, it’s hard to meet all the 20 plus companies in FinTech.
20 to 30 companies. So, yeah, it’s it’s a different world now.
And Sheel, so what are the key lessons that you have learned during your last seven years of venture investing that you can share with us?
Yeah, number one. I think it’s all about people. This is a people business at the seed stage. Beyond see things change, and you have numbers, the place that I play more than anything else is the people business and invest in people with high integrity that you want to work with. That will never give up. And that’s, that’s all. If you do that you’ll have success.
And what are the key things you look for because a FinTech entrepreneur must have some experience of financial technology or working in a bank. What are the key things that you look for because you are investing in people?
Yeah, it’s a good question. So it’s funny you say that because I don’t think I’ve invested in anybody who is from a bank was working in a bank. Okay, like I think all of my founders have come from the technology side, not from the banks are young, but they need to understand how financial technology works. And you know that that can be done. It doesn’t have to be from working in a bank, it can be just from understanding, reading, talking to people, they need to have an understanding of the market. And they need to have an understanding of all competitors and how they’re going to get into the market and when, but they don’t necessarily need to have worked anything. And in fact, it’s probably generally seen as a negative signal if they have worked at a bank. Not always but many times.
Because you would be thinking backwards if you’re working in a bank and entrepreneurs have to invest in the future, or what can the possibility be.
Thank you so much, Sheel. It was wonderful to have you on the podcast today you for taking time out. It was a real pleasure listening your wisdom and experience.
Yeah, absolutely wonderful chatting, enjoyed it.
Transcribed by https://otter.ai