For entrepreneurs, seeking funding from a venture capital firm can seem intimidating. But, it’s important to remember that those investors are entrepreneurs, too. In this episode, learn about what it took to start Leeds Illuminate, a venture fund founded by Susan Cates in 2020.
Transcript
Trevor: Today’s guest is Susan Cates, managing partner at Leeds Illuminte, a growth equity fund that invests in education, workforce development, and workforce access companies. Growth equity meaning $10 million plus in revenue all the way up to hundreds of millions in revenue. Essentially Leeds invests in a sector serving learners and workers from the first day of school to the last day of work and everything in between.
Leeds formed in 2020 after its sister company Leeds Equity Partners started passing on opportunities they liked because they weren’t a perfect fit to its fund thesis.
Susan: They were seeing opportunities that fell outside of the, the stage and the scope of their mandate, but that they found really attractive from an industry standpoint. My partner Elizabeth Jo was at an earlier stage, um, firm that was focused on the sector and seeing this real gap in the market for sector expertise, um, at that growth stage. Um, and having spent, uh, having spent more than 20 years in the sector as both an investor and an operator, um, really thinking about what companies need as they’re going from 10 to a hundred million plus and how different that is from what they need, when they’re going from idea to 1 million or one. It’s up to 10 million and the value that operating experience can really have from that standpoint.
Trevor: Starting a company in 2020 could have been disastrous, but what Susan found was that sectors like education that were typically slow to adapt, they were actually forced to make progress…
Susan: Some of the resistance to trying new things in different aspects of the, of the market, have evaporated over the last two years, I sometimes say we’ve had, you know, 20 years.
Of progress collapsed into 20 months because people had to. In a prior life, when I was working with fortune 500, learning and development folks thinking about, about leadership development for their mid-level talent and up, I was talking to folks a decade ago about using hybrid or online, programs to deliver and do that in, those cohorts.
And there was huge resistance to the idea that middle-aged folks would be willing to use technology or that you could create relationships or create community, or really get any sort of experiential learning done in a virtual environment. And I knew that we could, because I was seeing it in the online degree program that I was co-leading the MBA at UNC program.
But getting people to change their preconceived notions, was a real challenge when. Everything’s shut down in spring of 2020, I think that for a lot of folks, particularly on, on the workforce development side I think there was a, a moment where folks just froze and thought, well, we’ll just wait it out.
When it was clear that this wasn’t going away, in two weeks or six weeks or three months the question became, well, are you going to try something new or you going to try something different or are you just going to not do anything around developing your people? Universities had been moving towards online and blended learning over the last several decades, but it was still a minority of faculty, a minority of programs that were being delivered in a fully online manner.
Higher education had to make the shift immediately and once the genie’s out of the bottle and they see the once they’ve gone through the pain of trying and learning and, and figuring it out, the flexibility and the opportunity from a pedagogical standpoint, from a, from a reach and a mission standpoint to do different things because of, embracing a technology and online learning again is something that, you know, I don’t see us going back from in most cases.
Now there are certainly areas of change that happened during the pandemic that were temporary, and blessedly so. Nobody thinks six-year old’s ought to be learning and zoom., least of all the parents who were at home with their children on zoom, trying to do that. But even there, you see changes and shifts in terms of the window that parents had their younger kid’s education and that, and the engagement that that led to, and we see that playing out in trends around consumer spending and consumer engagement and early childhood education, in a more meaningful way than we’ve had in the US historically.
Trevor: It raises a good question though, cause I think there there’s some out there or there’s, there’s some skeptics that say, you know, when we talk about technology and education, are we really doing something that, to your other point moves the needle, or we’re just moving onto more screens in doing something that used to be done in person kind of together and moving on to an iPad or to a zoom meeting or to something else that that kind of is electronic. I wonder if you could speak to that just a little.
Susan: Sure. Yeah, to the extent that people are just moving, what was being done in person and trying to just, you know, airlift it to a screen like that’s bad. Taking a camera and videotaping a play is not the same thing as creating a movie, you create a movie, you using the technology to be able to take in different perspectives then the audience member sitting in a play would have, to be able to tap into a different sort of experience that the person who is experiencing that story could have than if they were sitting in front of a live group of actors and actresses, delivering that at real time.
If we’re not using the technology effectively and thinking about how you really drive the pedagogy in a different way, leveraging that technology effectively, then we are doing everyone a disservice. That said, you know, the idea that in-person education has been great is just not true either. The idea that the best way for a college student to learn is to sit in a lecture hall of 300 and listen to someone lecture at them for an hour, and then, you know, test them periodically on that.
That’s not actually a great model. What we know about the way that adults and children learn is give them new frameworks, new concepts, which I think of as sort of scaffolding to build on. And then you have them practice. You, you engage with that learning, you work through a problem, you work through a project, you engage in a debate to really push your understanding of that idea.
And then you reflect on that and you do it again. The only way you build muscle strength is to actually work the muscle and have some recovery time and do it again. Do it again and do it again. So to the extent that we are using technology effectively to really engage the learner in a different way, then it can be not only as good but better.
But you have to be thinking about it from a thoughtful design perspective and not just using a video camera to videotape a play or to videotape a lecture, which is not great either.
Trevor: Well I think it’s a fantastic analogy and kind of really highlights, like you said, you’re really trying to get to a different perspective or something that you couldn’t accomplish through an in-person classroom. And I also think too, access to education, you know, I grew up in rural Western Nebraska, and, you know, there were issues with country schools and them closing down and people having to drive miles and miles to get to another place to do it.
And once you have technology that can kind of distribute that learning, you have opportunities for kids that you might not otherwise have. So I think there’s a lot of, even if you were just doing the same thing, you still have new opportunities, but if you can do better things and get it to more people…
Susan: Absolutely. I grew up in rural North Carolina, which probably not that different from rural Nebraska and, and thinking about the opportunities in terms of the classes that, and the community of students that you. could have access to from Bushy Fork today, versus when I was growing up there, is pretty exciting.
Trevor: Yeah, for sure. So let me take a step back and ask you kind of how you got involved in investing and kind of got to this point where you’re with Leeds Illuminate?
Susan: Yeah, absolutely. So I, you know, I I’ve spent half of my career on the investing and advising side in the sector and half of my career as an operating executive in the sector. I originally, moved into the investing side from the investment banking side. So I was working with companies, raising capital, doing acquisitions and I was calling on a founder and serial entrepreneur and investor and Dallas, Texas, who had built a, a K-6 literacy business that had really taken off. He was thinking about selling it, and I was as a banker, pitching him on letting our firm sell the company. And he kind of flipped the pitch around at me and said, you know, you really ought to get out of the business of brokering other people’s deals and have to do something once it’s done.
Like that’s the way you create real value and build real businesses. And, you know, you, you should do that, and I thought that was a pretty compelling argument, and that led to a conversation of you should come and do that with me and with us. And I want you to come be a partner and really focus on the investing side as opposed to putting deals together.
Which was an attractive enough, opportunity to shift my own perspective that I, ultimately was willing to leave New York as a single person in my mid-thirties and moved to Dallas Texas. And as I said to the founder at the time, you know, you can’t tell me that being single as a woman in my thirties is normal in Dallas, I’m Southern and I will know your line.
But it was such a compelling opportunity that I, I went anyway and I did it. And really loved it. Loved, loved working with, working with companies and building new platforms and new concepts there. Ironically I did indeed meet my husband in Dallas, and then we wanted to move back to North Carolina.
So I ended up on the operating side for a number of years. And when I first moved onto to the operating side, I thought if I’m terrible at it or if I hate it, I’ll do it for a year and, and that exposure and experience hopefully make me a better investor, and I ended up loving it. So I spent a decade as an operator, both doing non-traditional things inside a traditional university at the University of North Carolina, building our executive education business and launching and leading our online MBA program, MBA at UNC.
And then I left there to be chief operating officer of a publicly traded company, working with universities to take degree programs and alternative certifications online, a multi-billion-dollar company at the time, and then was a CEO of an earlier stage company focused on student success in higher education.
That experience, and it really informs my understanding of the businesses that we’re working with, hopefully my empathy for the founders that we work with as well, and our team’s ability to support the founders that we work with. And so putting the different perspectives that I’ve had over my career and that our team has had in the sector together to really come back to investing has been really exciting and rewarding over the last several years.
Trevor: I’m not sure I know how to formulate this question, but I’m just wondering if there was an assumption you had or a belief that you had kind of when you were on the investment banker side about what it would be like to operate a company that was totally flipped when you started operating a company and maybe vice versa, something that you assumed about investing, that you kind of learn differently once you were on the operations.
Susan: Sure. I’ll put it in the perspective of, even before investment banking, when I was a, after I’d been in commercial banking for a few years, I was business schools looking at going into investment banking. And I really focused on taking every course I could in finance, accounting, tax because the, the hard skills were going to be what was going to get me the job in investment banking and helped me be successful.
I’m ashamed to admit, I don’t even remember the name of the faculty member who taught my organizational behavior class that was required, that was really focused on leadership and management concepts. In that class, I remember thinking how all of these concepts are just so obvious. I mean, of course this is the way you ought to manage people, or this is what you ought to do in a leadership situation. Like, why do we need a course to tell us this?
Once I moved onto the operating side in that first year, the number of dumb things that I did as a manager and leader of people, I could fill up a book probably. And the, the whole reason that there a whole industry focused on executive education and leadership development for people at later stages in their career is that the concepts don’t seem like rocket science, but managing people and motivating people and engaging with them, having hard conversations with them those things are hard to do. It’s easy to make mistakes. It’s easy to know what you should do, but avoid them because they’re hard.
One of my, my great friends who was a, an advisor to me in Brazil when I was doing acquisitions down there once said to me that, you know, if you, if you have a big, ugly frog to eat, you eat it first thing in the morning because it doesn’t look any better as the day goes on. And thinking about hard conversations as a leader, I would put in that same category, like, you’ve got to eat the frog first thing in the morning and not put it off because it definitely doesn’t look better as the day goes on.
So stepping into an operating role and having to build teams, manage teams, deal with that is not as easy as I thought it was in my twenties, and certainly continues to be the case. My, my husband’s a psychotherapist and I, as I often do, I used skills that he’s been taught a whole lot more often than I use some of the more esoteric concepts of finance in my role.
Trevor: There you go, we all need that, like a psychotherapy background for these roles, because we all deal with people. And we, we need that. Tell me a little bit about what’s one of your favorite success stories that you’ve had over the course of your career to date?
Susan: I love building. I love being part of teams that are creating something new, and I, I love doing that in the context of creating something that I actually can mean something to somebody. Early in my investment banking career, I had started in the financial institutions group at Merrill Lynch.
And you know that we were doing bank mergers and acquisitions of asset managers. it was very active deal environment. I learned a lot, and it was numbers about numbers. When I started working with companies in the education sector, being able to work with founders who were driving great returns for their investors, but also really impacting people’s lives, that really resonated with me as the, the, the daughter and granddaughter of public-school teachers over many decades.
So, you know, I, I say the thing that I’m probably, has been the most fun and that I’m the most proud of was being part of the founding team of MBA at UNC our online MBA program at UNC. And we started the exploration process around that in 2010, and launched that in 2011. Now I’m looking back. It doesn’t seem particularly radical. At the time, it was a radical thing for a university like UNC to do, to say, we’re going to do an online degree program that is going to the same faculty, the same courses, the same degree, the same standards for our students. We’re not going to cut any corners.
Although that is a, a child that has many parents, I definitely think of it as my second child. My last human will be 13 in June, MBA at UNC will be 11 in July, and I celebrate both of them. Helping build a program that has gone on to serve now in the thousands of working professional students, who are really extraordinary folks who didn’t want to cut any corners who didn’t want to take any shortcuts, but didn’t want to leave their jobs and didn’t and needed the flexibility of being able to take a program that was delivered in a way that fit their lives, as opposed to having to fit their labs around it, was one of the most rewarding things I’ve been involved in and I still stay in touch with many of those students, and I’m very proud that the program continues to, to do great things for students and for the universe.
Trevor: I mean, it is a great legacy. And I mean, it’s also seems to lay a lot of the groundwork of, you know, what you’re doing today. Cause I mean, talking about providing alternate ways to provide education and you know, you were there many, many years before other people would kind of move in that direction.
Susan: I, you know, it’s one of the great things about being old is that I have, I I’ve been around through a couple of iterations of some of these ideas. So it’s helpful.
Trevor: So tell me a little bit, you mentioned the fact kind of being the daughter granddaughter of, of public-school teachers, how much does that influence kind of what you’re doing today and kind of focus on who you are, or from a career perspective.
Susan: Yeah, so earlier in my career development, I would say that I, I thought that teaching was not something that I wanted to go do, and you know, certainly I have so much respect for teachers. My mom taught eighth grade English for 25 years. And you know, having, having a kiddo at that age right now, you know, I, I, I, I love my own, but you know, 13-year-old are pretty tough characters to deal with. My mom always, you said somebody needs to love them at that age. But I always felt like it was definitely not going to be me to do, to go and do that.
And my dad was in sales and agricultural sales and, and farming and as I was growing up and I thought, well, the two things, I’m pretty sure I don’t want to do are sales and teaching and, and it turned out that those are the two things that I probably really love. And so being able to put those together and do that without taking the vow of poverty that public school teachers unfortunately take has been really attractive and exciting to me.
I love seeing that that they are driving a real impact. They’re making changes to people’s lives in terms of their economic opportunity. They’re expanding their view of what’s possible, given access to opportunity in so many different ways. And so, if you’re going to go through your whole body against something, then you ought to do it against something that is really going to mean something in the world. Certainly that perspective of the impact that my mom and my grandmother and a lot of the women on that side of the family had through teaching, certainly colored my view of, of wanting to have meaning and impact and the work that I was doing on the, on the financial side.
Trevor: Now does that shape to how you think about forming the team around you at Leeds Illuminate and I kind of attracting like-minded people or how did the team come together?
Susan: Yeah. My partner, Elizabeth and I met through our colleagues at Leeds Equity. We’ve both known the Leeds Equity team from being on the other side of deal from, from them in our various prior lives. And so we connected through that and I, I say often choose my, the second-best blind date I’ve ever had. I married my first one and I got my work wife out of my second one. But
Trevor: Pretty good batting average, actually.
Susan: I, you know, it’s, I I’ve had more than those two, but, but, but those are the two that I’ve kept. You know, but Elizabeth and I certainly see the world through that same lens in terms of wanting to have real impact and meaning in the work that we’re doing and not looking to sacrifice anything in terms of the value that we are delivering for investors, the value that our companies are delivering for their investors in doing that.
As we thought about building that team, certainly having that same lens has been important. And Stephanie Nieman who joined our team, based here in Chapel Hill with me has spent the last dozen years focused on impact investing and themes that line up with the work that we’re doing and workforce development, workforce access, education, healthcare, and Mahila Amjad on our team, and I had worked together, in a prior life as well. And it really brings that operating lens as an investor to thinking about how do you, how do you really evaluate investments at the, at the operating level for their likelihood of success and their likelihood of driving value.
The team happens to be all female right now, not by design, but I don’t prioritize it either, as we continue to grow our team, I feel sure that we will, add diversity on, on that front.
Trevor: Well, I mean, I, I mean, cause it was no worthy as you look at the website, but I didn’t know if it was intentional. And you mentioned on the website about promoting diverse voices kind of within what, the companies that you work and within your own team. And, you know, I think we’re all aware of kind of the struggles that sometimes women founders have and women in kind of the venture funding field have kind of having a place at the table.
And I don’t know, what’s your experience been with that, and if you could speak to that at all, as, as you think about your team and your investments going forward.
Susan: Yeah. There’s a, there’s a really kind of horrifying statistic that 1.4% of the dollars under management and the global asset management, world are managed by firms that are majority owned by women or underrepresented minorities. 1.4% of dollars. And that’s gotten better. It was 1.3%., so, some years back, but you know, at that rate, we’re not doing very well. So, you know, certainly I’m aware of that. I also very much believe that having a diverse team and diverse set of experiences around the table, changes what gets funded, and changes the perspective that, that an investment team may have on an opportunity. One of the companies that we’ve invested in as a company called The Mom Project. The founder, Alison Robinson, founded the company because in the US 42% of women leave the workforce altogether for some period of time within a year of having a child, there are all kinds of structural reasons for that.
But many, many women feel like they’ve got this binary choice, you know, work full time or stay home with family. And in the US we do a particularly bad job of supporting, women post-delivery of that child. Alison created The Mom Project to give opportunities to moms, to have a third path to not only have to think about working full-time or not working, but to be able to take on flexible or take on projects. The average woman in their community has eight to 10 years of work experience. They are focused in all areas of professional services, technology, HR, marketing, a whole range of things.
They’re at a point in their career where they have a lot of value to add and where companies are really missing out on that talent that is dropping out of the workforce at a much higher rate than men do at that stage. And so putting those companies together with a community of over 600,000 moms who are looking for a flexible opportunity in terms of project-based work, we’re also reentry into and working with companies that are, have family friendly policies is, is, is what the mom project was built on.
Our team, which is majority moms, very much, had a different perspective on that business because of our own experience because of the experience of women colleagues that we have had, who have made those same choices over the, over the course of their career. And so that certainly informs how we thought about that business and how we thought about that opportunity. In a way that I think, would have been very different in an all-male or majority male team.
Trevor: Yeah. I mean, we absolutely need more voices at the table for just that reason. So you have different experiences, different input, different ideas of what’s possible. What’s not. So I think that’s great.
So many of our listeners are founders or hope to be someday, and so I was wondering kind of, if you could share with them, what did they need to know about seeking venture capital? What are some of the red flags as an investor that you see that might scare them off? Or what, what might, what might make them attractive to a potential investor?
Susan: You know, founders that I, that I think of as, as really good candidates for us to invest in are folks who are, they’re passionate, they’re driven, they’re ambitious for their business, they have, and they’re clear eyed about what it’ll take to get there., certainly, and that would be the case for, for everyone.
I would also add to that, that, you know, I want to see an openness to input and eagerness to bring in additional voices, some humility, understanding that although the founder has a passionate view of What the opportunity is and how to get there, that bringing in folks who have had different experiences may give you information that you don’t have, that may make you change your mind about certain aspects of that.
So that humility and eagerness for input while maintaining a strong drive and viewpoint of their own, I think is a, a combination that I certainly look for, in they get about who’s going to be, a good partner from my perspective as an investor, and where I’ve lack and help support them, as they grow.
From a red flag standpoint, you know, sort of the opposite side of that is arrogance, defensiveness. Defensiveness about, you know, when you own, when you make a mistake, when you go down a path that hits a bump, that hits a dead end, where you were wrong about something, own it. My pet peeve is, whether it’s my kiddo or myself or, or a founder is externalizing that problem that it’s somebody else’s fault that this happened. what was your role in that error and that mistake, own it, be aware of it, be able to, talk about that so that we can learn from it and, and move forward from it, as opposed to sort of pushing that off on other folks?
so, I, I definitely see sort of the defensiveness or the externalizing, a mistake or a problem on to everybody else as a, as a real red flag.
Trevor: So, what are some of the best ways an entrepreneur can work with an investor both kind of before, around, and then, you know, after the check has been written, you know, what’s the way that they can make the most out of that relationship?
Susan: It really depends on the investor, you know, there are a lot of different strategies and approaches. There’s some investors who are more passive and frankly, there’s some founders who prefer that. they would just like to; they very much liked the investment and then please go away and leave me alone.
But you know, I’m going to, we’re going to assume that the folks that we’re talking about are folks that are really looking to maximize those investor relationships. Understand what each investor that you are bringing in can do for you. It’s not going to be the same across the board and you may vary, it may want to intentionally look for investors who are going to bring different things.
Some may bring expertise in terms of go-to-market strategy through their prior experience that can be really helpful to you. Some may bring just an enormous network of contacts, of potential customers or potential talent to help you hire. Some may be the sort of folks that are, that are good contrarians that can really, help you shape your thinking pushing on you and really engaging with you in a, constructive, confrontational way to drive your thinking.
But, but having clear awareness of what you are expecting from each of those investors, and not trying to expect them to go do all those other things, kind of like, you know, when you get married, you can’t assume that that person is going to be everything to you wrapped up in one person. You’re still going to have friends who meet different needs for you. Same thing about your investors. It’s a marriage as well, but you’re lucky enough to get to marry multiple folks as part of, as part of that. Seek out the, the different aspects that they can bring and asked other founders, do they actually do what they say?
Here’s what I think they’re going to bring me. They’ve been an investor in your company, have they actually delivered against that? What have they done for you? Are they able to give me the sort of time that I need? Are they willing to give me the sort of time that they need, that I need? Are they interested in engaging in that way, and then keep them in the loop enough so that they have the information that they need to be helpful to you in those specific ways? When you get together with them, don’t have it be a time that you’re talking at them and sharing information, give them that ahead of time so that when you’re engaging with them, that you’re actually able to pull out of them, what can be helpful to you as opposed to spending that time broadcasting information to them.
Trevor: At this great, I just want to kind of go back and clip that whole segment right there and send it out to a number of our founders, because I think it’s great advice. So, we are the Founders Shares Podcast, and I like to ask all of our guests, if, if you could share one piece of advice for someone thinking about starting a company, you know, what would that advice be
Susan: My dad, when my siblings and I were little, if we were ever like wringing our hands about a decision, my daddy would say, well, do something, even if it’s wrong, and, I it’s, it’s certainly become a piece of advice that I, I live by. So, you know, it, the way I interpreted that now is be willing to make decisions, there’s a precious few decisions that are actually permanent, where you do this one thing and you can’t then go do something else because of it.
So be willing to make decisions and be flexible enough in your thought process that when you see evidence that that decision isn’t leading to the outcome that you thought it would, that you’re not so prideful about the decision that you made and so certain that you were right that you aren’t willing to shift along the way. So be decisive, but be flexible.
And the, and I would also say just, you know, like keep on chugging, just, you know, channel the little engine that could, you know, I think I can. I think I can. I think I can. Thinking about, if you have done the work to know that there is an opportunity there, then the only way you fail is if you stop, so keep, keep trying different angles on it to achieve the opportunity that you, that you see.
Trevor: Oh, that’s great, Susan. I really appreciate it. And if any of our listeners want to reach out to you or to Leeds Illuminate, what’s the best way for them to get.
Susan: I’m delighted to connect with folks on LinkedIn or through our website, at Leeds Illuminate through the contact us button as well.
Trevor: Very good. Thanks so much for your time, Susan. I appreciate it.
Susan: Thank you.
Trevor:That was Susan Cates, managing partner at Leeds Illuminate, which you can find at LeedsIlluminate.com, and Leeds is spelled L E E D S.
Hosted by Trevor Schmidt, Founder Shares is brought to you by Hutchison PLLC, and is edited and produced by Earfluence.