From the largest European tech exit ever to venture capital, with Tobi Walter

As an entrepreneur, Tobi Walter was part of the largest European tech exit ever, then raised both angel and VC money with his company Shoeboxed. After that exit, instead of the 100 hour weeks and sleeping-in-the-office grind, Tobi decided to take his startup expertise to the dark side – venture capital. On the show, he gives inside information on what it’s like to be on both the founder side and the VC side.

Transcript

Voiceover: Welcome to First Check, a podcast so you can learn how to be the next great venture capitalist or angel investor.

You’ve seen the Uber’s, Google’s, and Pendo’s of the world; the 10 X to 100 X returns. And you want to know how you can get in on the action. As a partner at Cofounders Capital, Host of First Check, Tim McLoughlin has invested over $43 million in startups. And on this podcast, he’s going to share with you what works and what doesn’t so you can be ready to write your first check.

On each episode, Tim brings on investors and founders so they can tell you the ups and downs of venture capital and what lessons they’ve learned along the way.

Today’s guest is Tobi Walter, former entrepreneur turned venture capitalist at Cofounders Capital.  Tobi has had an incredible journey to get to Cofounders including the biggest tech exit in Europe ever, trying to raise money during the financial crisis of 2009, and eventually taking his startup knowledge to venture capital. On the show, he gives inside information on what it’s like to be on both the founder side and the VC side.

Here’s the host of First Check, Tim McLoughlin.

Tim:  My guest today is the newest member of the Cofounders Capital team, my friend and colleague, Tobi Walter. Tobi, how are you doing?

Tobi:  Doing well, thank you for having me, Tim.

Tim:  Well, it’s great to have you. I know we talk mostly every day, but I think this is going to have a slightly different spin on it from than our normal conversations. If that’s all right. 

Tobi: I was going to say it’s probably been about a year that you’ve truly interviewed me the last time. So, looking forward to it.

Tim: That’s right. So, I did interview, when Tobi joined our team in January and the great story I like to tell. Tobi was the first person I talked to about the potential opening at Cofounders Capital after posting that position on LinkedIn, getting 27,000 views of the job position that I posted on LinkedIn after hundreds of resumes, 70 plus interviews.  We wound up hiring Tobi, which is the first person I talked to about the job. So, there you go. So, you got in early Tobi. That was, that was great, but 

Tobi: I’m glad that it’s audio only. So, you don’t see me blushing on video right now. 

Tim: All good. Well Tobi, before you were a venture capitalist, which I know probably still feels a little weird to you. And one of the things we like to tout at Cofounders Capital is we were all entrepreneurs first. So why don’t you tell the audience a little bit about your entrepreneurial journey. 

Tobi: Yeah, absolutely. So, I’ve been part of two startups before I joined Cofounders Capital earlier this year.  To start from the beginning, I went the business school route. I got my MBA in Germany, went from originally, started out in investment banking, worked with Morgan Stanley in M and A for about a year. And got bitten by the entrepreneurship bug kind of after that year and during which I figured there’s got to be something more, there were out there in the world to do then filling out the same Excel sheet and the same cubicle over and over.

So, back then I joined a startup in Berlin, Germany, three guys that were just about to start basically what Facebook is here in the US over in Germany. This was back in ’07. So, it was at a time where Facebook had just expanded beyond about a dozen campuses here was, but was still pretty early stages as well.

We got crazy lucky and hitting the market timing right in that we were the first social network in continental Europe, and joined as the second employee after the three founders, was with the company for two years, and really found my love for entrepreneurship and kind of the fast-paced web and mobile world too.

We had a very quick success. So, I said it, being extremely lucky in the market timing. We launched the website in March of ’07. By the end of ’07, we had grown to be the third largest website in Germany in terms of page impressions after Yahoo and Google. So, we got about 90% of German speaking students on our website and just six months, about half of them locked in on a daily ratio.

So, we, we became one of the largest or most traffic websites in Germany, and sold very quickly too. We sold just about eight months after launch to a large German media conglomerate for about 125 million Euro.  And I stuck around for another year after the acquisition, and then re-connected with a Dukie, who had spent a year in Berlin and worked on that company with us.

 He and I, we connected and he said, hey, do you remember this idea, I told you about last summer for shoeboxed? I think I’m going to go ahead and start it now, why don’t you come over here and we’ll do it together? So that was my, that was my start to move over to the US from Germany about 12 years ago now.

And shoeboxed it was a small business SAS solution to help small business owners with bookkeeping and accounting. We were digitized receipts, bills and invoices, and get all that paper clutter from analog records to digital records, we would extract the data, categorize it, move it into the tools that you need it in, to help small business owners and use accounting and bookkeeping workflows.

Tim: Got it. So, during your entrepreneurial journey here, you’ve come across a bunch of different types of investors. You raise capital for shoeboxed. Why don’t you give everyone a feel for the type of money you raise?

Tobi: With shoe box, we were a little bit lucky in finding our seed investors. Those were two of those co-founders of the German Facebook. I would say that’s not an unlikely story or an uncommon story. Right, so oftentimes, and, and still, when I speak to people early in their careers, I do think there’s a lot of benefit to having seen a startup from the inside. Be it an internship that you might do during college or business school med school, law school, or if you just work in an early stage of growth stage startup for a year or two, one thing you typically get out of it, it’s a lot of connections, right?

And it’s not uncommon that when you company selves, the founders of that company, if typically, just made a good bit of cash and might start getting into angel investments after. So, we had a very easy, started to shoeboxed in that we went to our two former bosses and said, hey, Taylor and me are going to go at this. Now we’re going to do our own thing. And their response was almost like, you don’t really need to tell us what you guys are doing. We like you. So, here’s the 150k. 

Tim: Yeah. And I think that’s a lot of what angel investors are doing, looking for, and the reason why it’s friends, family, and some folks that they’ve worked with in business in the past is at that point, you’re really just investing in the people, more so than a technology, build technology or proven market or anything like. 

Tobi: Absolutely. So, we started with the investment from those two.  The other good news was when that news became public and that German Facebook company was the biggest web 2.0 Exit in Europe, back at the time, so there was a lot of PR around it and coverage.

So, when those two guys made this angel investment, we got a lot of interest from other angel investors that figured they made the right pick and they wanted to add to the round. So, we ended up raising about 300, 400 K in angel money. Basically, as we were building the product. With that, we came here to Durham and, and set up operations here.

We did not quite expect that we started the company right before the financial crisis. so, our plan was in fact, in 2009 to raise a venture capital, our plan was to go for about a $2 million round then, and that was a crazy year trying to raise. One story. I remember like it was yesterday was, in early ’09, I got connected to this one bay area VC, we got on a call and I said, Hey, I’ll be down there in two or three weeks.

You know, why don’t we meet in your office? He said, you know what? I’ve actually decided I’m just going to spend this year on a golf course. He said, I could pretend and keep listening to companies and pretend that I’m writing checks. But really, I know if I would make a capital call to my investors, they’re going to default on it and I can’t do that.

So, I’m just calling it what it is. I’m not going to make an investment this year. I’ll be on the golf course, come back next year, if you want to. I think that was the moment where I thought, okay, this might be, this might be an interesting year for raising VC. 

Tim: Is that also the moment you realized you wanted to become a VC when they say I’ll take the year off and be on the golf course?

Tobi: Yeah. I’m not sure like that person that much, you know, those were the days when a hundred hours was an easy week, and if you slept less than twice a week in the office, you had a pretty good week. So, I’m not sure I liked that idea of, you know, the guy who could just take off a year. I think I was a little bit more with the entrepreneurial VCs at the time.

 But yeah, so long story short, we did still try to raise that round in 2009, went out for about 6, 7, 8 months. Pitched about a hundred investors, mostly VC, some angel groups, ended up with two term sheets. And I think, you know, back in ’09, which was a different crisis than what we’re having now, which was truly a crisis in raising capital.

Right? A lot of the capital markets were shot. A lot of people could not be financed themselves to get the capital together, to make new investments. So, the few folks that still invested, knew that they had their say on terms. And ultimately, we came out of that, after that eight month on the fundraising trail, and had the discussion with our angel investors back then and said, look guys, here’s what we can do.

We can go with one of those two term sheets, you know, dilute everybody 40, 50% basically give up control of the company and sit there a little bit with our fingers crossed that these investors will make the right calls. Or we said, what we’re seeing back then was that we had interesting units. So, we were selling a product of just about 50 bucks a month to customers, but we had really high retention rates with a really good margin.

And we were still pretty cheap and capital efficient at the time. So, we went to our angels and said, the other road we think we can go is if we can get 300, 400 K around the table together, we think we can become cashflow positive, on a what people like to call now to ramen noodle profitability, right?

So not with actually pay market salaries, but our goal was about, 600, 700 K a year revenue, we thought we could become profitable, and that’s exactly what we did. So, the investors around the room said, yep, that’s the right way to go. We’re going to throw in additional capital, we added a few angel investors around here and said, that’s what we’re going to do.

We’re going to hunker down. We’re going to be very focused on our goal, which was 2000 paying customers. So, it was about how can we get them the most capital efficient, and you know, said let’s wait two or three years until the market’s open back up. And then ultimately go out for an institutional round and that’s exactly what we did.

So, we ended up raising institutional money in 2011 then, right exactly at that point, we got to about 800, 900 K in revenue, we were ramen noodle profitable. And in 2011 raised around from Novak Biddle venture partners up in DC. Ultimately the last round we needed. so too fast forward on the shoeboxed fundraising story, after that round, we closed the venture debt round with what used to be square one bank.

Now, now PAC west. They gave us about a million dollars in venture debt, which was what got us through the finish line. In 2018, we ended up selling the company to an Austin, Texas based private entity fund 

Tim: So, you raised capital from angels’ multiple times, you raise money from VCs. What were the differences in the fundraising process and what were maybe the pros and cons of each?

Tobi:  The one thing I think I would differentiate on first is I think there was a very different angel, right. So, VCs overall, I think seem pretty similar to me in what they do in an investment, what they do post an investment dose. I see as more of a homogeneous class, while angels, I think can still take a lot of different ways shapes and forms.

 While I might only say that angels are quicker, that only pertains to some, I think there was some that, that equally take a long amount of time.  But, overall, I would say angels are typically quicker in raising, might believe more in the team than in specific business metrics. So don’t have folks ultimately to answer and don’t need specific boxes to be checked.

So, you can maybe talk an angel into something more than you might be able to talk institutional investor into something, and typically a little quicker to decide. I think on both sides post-investment, I think it really differs. I think there was very active angel investors, that are truly smart money.

There are folks in there that, you know, might in fact bother you and might call you every two weeks. And want to understand what’s going on and all you want, right, it’s time to execute. There are some that you really good job and mentoring at the right time, and there was some that are really passive. I think the same is true for VCs.

Right. And I think you just need to know, who you’re talking to, what they typically do and what you’re looking for. But I think both of them, all of that exists too in VCs, I think there is some that can be overbearing. I think there are some that do a great balance between trying to be helpful, but not overloading a team. And then I think there are some that are very passive and, you know, just check in every now and.

Tim:  So, before you were able to get a check during the diligence process, what were some things angels or VCs did that drove you nuts? Was there anything specific you can remember that was, not a fun experience as an entrepreneur?

Tobi: I remember one thing which I think was maybe somewhat fair, but it was always a little bit of a nuisance. So, I said right, or product offering at shoeboxed too, was we helped digitize receipts, bills, invoices. We actually for a while also try to business card product. So, the idea of, you know, you can take a picture of a business card with your phone, or you could simply mail a stack of business cards to it.

We would scan them and extract and human verify the data.  So now one thing that made almost every VC think, it’s a good due diligence is to give one of their assistants, a subscription to shoeboxed and say, look into this and see if this makes sense. A lot of times that person wasn’t actually motivated to try something out.

It didn’t really know what that app was, or what this weird big blue envelope was. So, I would say the hardest part, maybe for me, was to go back to some of the VCs that have gotten feedback from their assistant or just had gotten a, oh, I haven’t used it yet. And then came back to us and we’re like, why are our assistants not using it?

I’m like, well, maybe because, you know, you guys don’t have business cards, so they don’t do that. Or they don’t understand that. I would say that was the thing that was a little bit hard and how they were trying to test the market. And I think what we saw as our actual market. 

Tim:  That is interesting. Maybe they weren’t your target customer, your response should a just been, I’m very focused on my target customer and you’re not, not it I’m a very focused entrepreneur that probably would have gone a long way. 

Tobi: That’s exactly the lesson I should’ve known before I learned during that process. Right on. 

Tim: All right. Right. So, if you got at a shoe box, you raised money, had a successful exit, and then you’re thinking a reason why you would tell yourself I’m never going to be a venture capitalist. What are some reasons why you would think I’m never going to be a venture capitalist? 

Tobi: So, I might start with, Even doing business, during business school, right. And you noticed him, there was kind of the general path and people will talk about, oh, you got to do consulting or you got to do investment banking, et cetera. Whenever I looked at, especially the consulting business, I always had a little bit of an issue with what is my impact in the world or what am I doing?

Am I just painting pretty slides, and maybe recommending something, but not in fact, doing something, that might’ve been a valid concern about a VC, right? Is that, are those just folks that right, don’t really have an impact that can’t actually do something? I think that that would be one. I think there’s another one and kind of the overbearing nature.

and you know, maybe how great of an operator or entrepreneur VCs, or some VCs tend to see themselves, kind of that arrogance, that might’ve been a little off putting too. I might say those two, my two biggest, if that makes sense. 

Tim: Yeah, definitely. And then of course she got to work with us and then there’s no arrogance at all. Right, everything’s fine. So anyway, what, what do you think before you joined the team? So, you joined the Cofounders team in January. You did a lot of diligence before coming on and joining Cofounders. What were some of the biggest surprises that you had being on the other side of the table? 

Tobi: I would say the biggest one and even just in the first month or two was how many deals you are truly seeing, which kind of had two effects.

One was, I think even in my second month I started seeing the same concept for the second or third time. And that was always hard to believe for me when I heard that from VCs before it was the, oh, we’ve seen this plan 10 times, you know, everybody’s doing this. So, looking back, it was like, really, you’ve seen those 10 times. and sure enough, second month, right? Second or third time, it was a, you know, some business plan that, kind of came back around and a lot of people were working on, that is one part. 

The other part, I think the amount of deal flow was it was humbling to me to see how picky VCs really can be. And how little maybe they have to chase a deal. So, coming from the entrepreneur side, right. I think you look at an entrepreneur investor pitch as it’s very much a peer-to-peer relation, and you obviously believe heavily in your company and you probably portray that that other person should too. And that you are probably the best investment opportunity that you’re pitching to that firm this year, or even this decade.

Right. Or things like that. And I think after a few months now, in having been in VC is on the one hand, you’re truly seeing so many deals. And I think there’s only a specific comfort level that you can get to and saying, yes, this company will really work, right. I mean, you notice Tim, we make our bets. We, we think a lot about where we’re going to place our bets and truly what we make an investment. So, we have very high hopes for it, but you know, they still, we couldn’t say with a 90% plus likelihood that this is going to be the company that will make or break our fund. so that was interesting to me, kind of seeing that from the other side, right.

While an entrepreneur, might think that you truly are the perfect fit and the perfect deal for that investor. On the investor side, I think you look at this more a yes, there’s this one that could fit. But also, frankly, there’s 10 other companies that might fit our bill just as much. And so, I can only go that far out of my way to potentially close the deal when they are, you know, when it could be looking at 10 other companies just as much.

Tim: And I think that, one thing I try to be transparent with entrepreneurs about is you’re not just competing with, it’s not just a binary decision you’re not competing with, is this an investible deal or is it not? It’s is this an investible deal, is it the best deal at the time for the focus of the fund?

Can the fund focus on doing the diligence they need to do and spending time with this company right now when I need the capital?  Where’s the fund in its life cycle? Is it ready to make a check the size that we need? Does it fit the portfolio that they’ve already built, and to maximize return expectations for the investors?

And when you look at all that stuff, that’s out of the control of the entrepreneur, and the entrepreneur, a lot of times just thinking about is this an investible deal? Can I present this as an investible deal and probably a frustrating outcome to the entrepreneurs? If the answer to that is yes, but they still don’t receive an investment.

The other thing I think is, you know, that could be the same with angel investors, too. Timing. It could all be about timing, for angel investors too. Cashflow situations, whether or not there was just a recent big exit. So, keep that in mind too. I think for the entrepreneurs that are, involved in this.

Tobi: I think, you know, for one, one thing I might say to entrepreneurs that are looking to raise angel capital too. I often recommend that pretty early on you asked a question of when was the last investment that you made, right? Or how many investments have you made over the last year or two?

That’s pretty easy to follow along for institutional investors that, you know, might be listed in all sorts of databases, have portfolios on their website, et cetera, might be a little harder to figure out in angel networks and angels.  But yes, I think, and it makes sense that there was that same kind of up and down, right on when, when the right an interesting time are for them to invest.

But I think it’s something for, especially the entrepreneur to potentially check in early on of, of it’s just a reasonable time, and can I expect that person to actually make a call? Or is it unlikely? 

Tim: So, looking back on your pitches, your fundraising, you as an entrepreneur, is there anything now that you’ve been on the VC side, that you just, you just slap yourself in the forehead and say, I can’t believe I did that, or I wish I had done that a lot differently.

Tobi: You know what I’ve been wanting to look back. And actually, this is a really good reminder, so I’m going to do it today. I’ve been wanting to look back at my market sizing slides at shoeboxed, because I remember how tough that was and how weird it seemed for us to try and put together, what is our market size?

Right, and I’m sure a lot of entrepreneurs think about that the same way and a lot of the tech and the new innovations. There’s just simply not a market research report you can look at, right. If you start Googling around of what is the market size for receipt organization, you probably won’t find a lot.

You’re coming up with all these different ways, right, of trying to figure out, well, how big is the accounting industry? How much of that might be document prep or numbers, prep, et cetera. But honestly, that was one thing I’ve been now that I’ve done, you know, probably 20, 30, maybe even 40 different markets sizing analysis in this one here, that I’ve really wanted to look back at and probably laugh about myself in looking back at saying, oh my God, yeah, this is one of the slides that you now have to have this smile about and be like that’s really unrealistic. That’s not how you figure it out.  

So that might be, that might be one of the very technical ones, but I think maybe one of my most interesting learnings, And I think that’s another one, you know, especially are specifically more for the VC investment side.  I got in touch with, with one, mentor to a lot of early-stage companies who helps them kind of put the pitch decks together. One of his big things that he says is VCs invest in markets, not in companies. That might’ve been the other one that made me always want to look back at my pitch deck, which I think is common from an entrepreneur that you think about this very company specific, right. And you always talk about S specific traction, how you foresee this or that rather than maybe talking more about what the VC specifically is interested in this, what does this market look like? How big is this market overall? You know, what are the barriers to entry? who’s playing in this now who will play in this in five years. And things like that. 

Tim: No, that’ll be interesting. Well, if you come across an information, share with me, I’d like to, you know, maybe use it as an example of what to do or maybe not to do for entrepreneurs. So, we’ll see,

Tobi: We did get a check from a VC in the end. So, I hope it’s not completely terrible.

Tim: That’s true.  So, Tobi, you and I, you know, part of our audience is, you know, folks that are studying, maybe finance, maybe want to get into the investment world, maybe become a VC. We work with some great interns across some of the local universities, you know, UNC Kenan Flagler.

We worked with Duke and Fuqua. We work with NC state, a lot of the students from those. And they’ve been phenomenal. But what surprises you, if some of the stuff that maybe they don’t know, that they didn’t learn in school that you, you thought they would just know about being a VC or studying entrepreneurs?

Tobi:  So, my first point would actually be, I think just the expectation of what the work is like.  And I would say one thing that’s important for, for folks to figure out is where in the chain or in the stage of investing do you actually play? So, one thing I often run into and even in interviewing potential MBA interns is the expectation of VC work is heavy financial modeling.

And that may be true in growth stage VC and, and up from there, right in private equity and buyout, et cetera. When you look at seed stage or even series A investors, it becomes a lot more qualitative, right? There is really little financial modeling or, you know, we still get the question of is the valuation made by a discounted cashflow analysis and things like that, but it’s really a lot more positive, right?

It’s a lot more just understanding little bits and moving pieces in the business, understanding a bit of marketing, understanding a bit of sales, understanding a bit of product, understanding a customer relationship and needs and markets much more than I would say the financial analysis.  So that will be my, my first comment. I think that’s, that’s one thing that people still miss expect maybe based on just kind of the stage of where you’re playing in the investment life cycle. 

Besides that, on kind of tactical skills that are maybe not taught in schools as much is, I think market sizing to come back to that point is something that is really, really common. I think actually pretty straightforward, but it’s still not very common to be taught maybe well in school, so often in schools. But, but maybe sporadically, the other part of actually, customer and market validation, might be another one that, that is maybe not that big in business school, where it’s more higher-level analysis and not kind of bottom-up approaches, unit economics. So, and just really understanding a customer, understanding their problem, you know, everything that might have a bit of a sales mentality attached to it. That might be things that you need to catch on, besides business school.

Tim:  And it’s one of the things you and I do is going on sales calls, talking to customers, understanding what the problem is, understanding what the solution does for them, what the value props are and what the ROI is, which effectively drives.

All of the assumptions in the financial model for us, because we don’t have years of historical financials to evaluate. So, I think that, you know, a lot of the folks we work with underestimate just the conversations, we need to understand the pain point rather than a unit economic, right. From a customer, because a lot of those, that data doesn’t exist where we’re investing.

Tobi: Absolutely. 

Tim: So being a VC now, what’s the hardest part of your day, your week. What’s something that maybe you didn’t think would be as hard, but it is?

Tobi:  So, I still find it hard to evaluate companies for investment fit. And I would say the hardest part in that was across how many markets you might need knowledge or, you know, at least have the right connections and be able to gain knowledge in a short period of time in the market via industry experts that you might interview or the founders and other players in that.

But I still find that hard, right. It’s you know, in the same day, what talking about a prop tech company that figures out, you know, how to make data from HVACs more actionable, as well as you’re talking to a marketplace for social media influencers and, you know, somebody who helps insurance companies with their modeling actuarial workflows, right.

You’re thinking about so many different industries so quickly. And I think very often, right, it’s you really have to catch up on the first few slides of somebody saying, look, this is our problem in healthcare today, this is a payer provider XYZ problem, you have to stop yourself. You’re like, okay, I need to start learning how these two works together and how this works and how that works. I would say that’s still a high part actually in evaluating companies on kind of the business model. 

The other part that I would say is still hard, is trying to figure out how to be the most helpful to the portfolio companies in also kind of running that line between I mentioned before, overbearing versus actually helpful, or also coming from the operator side in trying to be helpful while you’re not actually doing the work.

Right. So, it’s interesting when you have a board seat with a company and, you know, you might form your own ideas of, okay, this is what we need to do, but then it’s a oh wait, I’m not the one who’s jumping in there and doing the pricing split test now, or, you know, I’m not the one jumping in there and sending these emails to potential business partners now.

And it’s kind of finding that right line right in h ow do I consult or advice or mentor, how do I, you know, what’s sort of ideas, what should I be working on? How am I truly the most helpful with knowing I can do it and I’m just helping other folks do it.  And staying, staying out of the actual tactical parts of it.

Tim: I find the challenge also being not overstepping the bounds of being helpful or not, but also how do I provide value in a way that I can still keep up with all the portfolio companies that we’re working with? How do we do this in a scalable way? Because if I dive in deep with one, it’s probably going to sacrifice some of the help and value that I can bring to another one.

Tobi: Yeah, absolutely. And, you know, I think during my entrepreneur days, I’ve still grown up with that one liner that is the best investors are the folks that will always pick up your call, but never call you. With, you know, doing that on the institutional side. I think there is general acceptance right from entrepreneurs of okay, we also have to report back to our investors, so we need to check in on a company and, you know, we need to do a call, but right there, there’s some, a few things that are kind of back in the, in the back of the mind from the entrepreneur’s side that you’re now kind of trying to ride and trying to balance, which you know exactly what you said, I think makes a lot of sense.

Tim: So, if you had $10 million personally, that you can invest, you can invest it as an angel. You can invest it as a venture fund, or you could do a combination of both of those things. How would you think about that decision? 

Tobi: That’s a good question. So, the first thing that pops to mind, you know, having the business school background and having worked in banking before is you’ve got to have a portfolio theory, right?

That’s the first thing that jumps in my mind is how do I diversify? How do I not place all the risks into, you know, one thing, one company, one area, one fund, or something like that, but how do I start spreading it out, right. I think that’s definitely one consideration, also in thinking, right, do I try to do, some angel investments myself and do some VC investments too, to diversify my portfolio? I think that’s a very valid question I would ask myself. 

The second one is I think, what do I want to do from a timing perspective? Right. So, if I do a VC investment, I’ll have upfront time needs and figuring out which VC do I want to invest in, do I believe in them? Do I believe in that strategy, and the team? While on the angel investment side, chances are I’ll be more involved over a longer time.

Right, so I think that’s another question. And that Could be apparent with where could I add more than capital maybe too, right. So, a thought might be that I say, okay, so I want to place my money in, or maybe I know B2B SAS well, so how about I make angel investments in B2B SAS, but then I also invest in a clean tech VC, and in a, you know, you call it consumer goods VC, and kind of spread my money there a little bit to make sure.

You know, where I can be helpful with more than money, I can actually put time in, but I’d never find my money on the other side with, folks that might be better in, in other areas than I would.

Tim: That’s great, I think that’s a good way to look at it. Well, all right, Tobi, I’m going to, we’re winding down now. So, I’m going to ask you a hard-hitting hypothetical. So, you’re going to make investments at a Cofounder’s Capital.

Now, keep in mind, this affects you and I, right. We’re both running this thing right along with our partner, David. So, you got to make it, have a good answer to this one. So, you’re going to make investments out of Cofounders Capital. You’re going to meet with 10 companies you never met with before, and you have to write a hundred-thousand-dollar check into one of the 10, but you only get to ask one question to each company.

And I’d like to remind our LPs, this is not something we’re actually going to do. This is only a hypothetical. We ask more than one question, but Tobi, what is that one question you asked the entrepreneur? 

Tobi: So, if I’m investing on the VC side, my question would be how big will this business be in five years and why? 

Tim: Okay. Now, if you had to invest your own personal money, So Tobi’s going to his bank account to pull out his money or wire the money directly to the company. 10 companies you’ve never met before a 100 K check is going into one of them. What do you ask them then?

Tobi: What are your most important characteristics or traits that will make you a great entrepreneur 

Tim: All right. Well, that sounds like an interesting one. I do want to follow up, and what is a good answer to that question for you to write a personal check? Or on the flip side, what do you not want to hear the answer to be?

Tobi:  All right. Yeah. So, so for a bit of background, right? I think. So overall, and even in our VC business, right, we still invest primarily in the entrepreneurs.

the business needs to make sense, needs to be doomed not from the beginning, needs to have a big enough market, but it’s still mostly an entrepreneur decision. As an angel investor, I would see it even more to almost only the entrepreneur decision, because there you can even deal with it. Smaller companies, smaller markets, smaller outcomes.

And you might even be more concerned about does the entrepreneurs, stick it out. Are they going to run as soon as they, you know, get into any problems or are they going to, you know, do this for 10 years on a ramen noodle salary? 

Tim: Which you’ve done. 

Tobi: Yes. So, what are the right answer? What is the right answer to, you know, what are your characteristics or traits that make you a great entrepreneur? The thing I thought about in that question is it allows for a number of different ways, right? So, it’s a little bit cheeky in that, in that one question.

But you could expect answers like, well, the first characteristic is I’ve done this a couple of times over. I’ve done it in this market, I’ve done it, you know, on this trajectory and raising money. I mean, that’s, that’s a good signal, right? I think other ponds and just truly personality traits. I think it’s things like, grit that is a huge entrepreneurial trait for success. Fluid intelligence, kind of this, strong opinions loosely held, right?

You have a good perspective on what you think will happen with the business, but you’re also willing and able to change those perspectives when, when you get the data that it doesn’t make. Being able to think wake, being able to deal with holistic, you know, being an 80 20 rule type person that doesn’t work on the perfect solution for too long, but rather gets it into the market.

I think there was some number of responses that could, could get me convinced to invest in an entrepreneur, or deter it when it’s maybe not one of those or the, the complete opposite of some of those answers. 

Tim: That’s great. Well, Tobi listen, we’re very lucky to have recruited you to the dark side of venture capital from the entrepreneurial world, it has been great working with you for the last. Thank you for giving me and the audience your perspective, and we’ll get back to the grind right after this podcast and making some good investments and some great entrepreneurs.

Tobi: Right on, I can return that favor. It’s been, been a pleasure working with you and David and Scott and Alex too, and all of our portfolio CEOs over this first year, looking forward to many more years and decades to come at Cofounders Capital. And thank you for having me today. 

Tim: All right. Thanks Tobi. 

Full Episode Transcript

First Check is hosted by Cofounders Capital partner Tim McLoughlin, and is a production of Earfluence.

Amplify Your Expertise
About the Author
At Earfluence, we are proud to produce this podcast. We believe in sharing amazing stories, providing knowledge to the world, and celebrating diverse voices. Through podcasting, our clients are amplifying their expertise, expanding their networks, building a content engine, and growing their influence. If you're interested in podcasting, we'd love to hear from you! Schedule your free 15 minute podcast consult today.