Investing in the Southeast, with Venturesouth’s Charlie Banks

VentureSouth is an early-stage venture firm that operates in 16 locations across the Southeast, has over 350 members, and has invested over $50M into 80+ companies.  Today, managing partner Charlile Banks talks about the value of being in a portfolio company rather than a solo investor, taking the community approach to investing in the Southeast, and the feeling he got from writing his first check.

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 Charlie Banks, co-founder and managing director at Venture South, which operates angel investment groups and funds comprised of more than 300 accredited investors across the Southeast  Their investment portfolio includes Spiffy, 6AM City, Baebies, and dozens more.

Today on the show, Charlie talks about the value of being in a portfolio company rather than being a solo investor, taking the community approach to investing in the southeast, and the feeling he got from writing his first check.

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

Tim McLoughlin:  My guest today is my friend, Charlie Banks, co-founder and managing director of VentureSouth. How are you doing today Charlie?

Charlie Banks:  Good man. How are you doing?

Tim McLoughlin:  I’m doing great. I’m doing great. So listen, I think a lot of our audience would be excited to hear about more about VentureSouth.. And I go on your website and I see angel investors.

I see groups, I see all these different terms and I just got to hear it from you straight. So tell us about VentureSouth and what it is.

Charlie Banks:  Yeah, man. So VentureSouth is, a little bit of a unique animal in the early stage game.  We started back in 2008 as a group in Greenville, South Carolina that got together to aggregate some capital to support the entrepreneurs just in that community.

But you know, we quickly realized that we were having to syndicate with other groups and high net worth individuals  to write a large enough check, to make an impact on a company. So, you know, we knew there was a lot of latent capital on the sidelines in South Carolina and across the Southeast.

So we felt that if we could take what we built in Greenville and replicate that in other markets at the time, just in South Carolina, we could free up some of this leg capital, write larger checks  you know, attract better deals to the region. You know, and then create this flywheel effect once we start exiting some companies.

So that’s what we did  you know, we replicated what we built in Greenville and other markets and quickly realized that we had hit this vein of opportunity or vein of desire if you will , to create this,  outside of South Carolina. So we quickly rebranded to VentureSouth and I’ve since created a network of community-based angel groups that we’ve developed.

And continue to manage and 16 locations across the Southeast, we’ve got about a little over 350 members and we’ve invested at this point a little over $50 million in, almost 80 companies now.

Tim McLoughlin:  That’s great. I think that one of the things, maybe some angel investors underestimate early on is financial risk and ability to get follow on capital and write checks large enough and protect those investments.

It sounds like you guys had a great strategy  to mitigate those risks. And then when I look at it, I mean, deploying over $50 million from an angel group that started really in Greenville to this network  is just incredibly impressive. So congrats on that.

Charlie Banks:  Thanks man.

Thanks. So we’re, we’re really proud to be a part of the Southeast ecosystem with folks like you.

And there’s, there’s a lot of others that are doing some great things. So I think what we’ve, what we’ve all built in Southeast is the foundation that, you know, we’re going to be talking about for years to come.

Tim McLoughlin:  So let’s, let’s go back to the beginning. So you got together with a couple of friends, you’re looking to deploy some capital.

Tell me what, what was exciting to you about getting into the angel investment scene?  And do you remember that first check that you wrote.

Charlie Banks:  Yeah. You know, I do. So, you know, me personally, I was, I don’t, I don’t like the term, but you know, kind of a serial entrepreneur and you know, with varying degrees of   success and just massive, awesome failures.

So, you know, at a, at a fairly early age, I realized you know, the importance of risk and the importance of building a portfolio is understanding portfolio math to try to really mitigate that risk because, you know, as folks get educated on the asset class, they really start understanding just how important it is to build, you know, to build in those risk mitigators.

And, and really to build that portfolio to where that you’re going to no, you’re going to have some winners, but you’re definitely going to have some losers.  So that, you know, that feeling when you, that feeling you get, when you first write that first check it’s it’s excitement, you know, most angel investors start in this because they’re, they’re just pumped up about what this entrepreneur is doing.

You know, it’s a passion at that point. It’s a passionate decision. It’s buying the Doritos at the checkout line.  It’s, you know, so, you know, cause you’re hungry. So that’s why and how angel investors get get into this game.  But what folks really start to understand as they get more educated as they lose their shirt, as they, you know, understand that the passion wanes, they really start understanding that this does need, in fact, to be a part of a larger portfolio of life.

Tim McLoughlin:  It’s really interesting. A few things that when we talk to high net worth individuals that are investors in our fund you know, they’ve, probably made a couple angel investments on the side before, but we talked to them about two things, really portfolio diversification, which you touched on, but also a fund management or a fund management like mindset, where you have enough capital to protect those investments. And when I say protect it, it could be two, three, four, sometimes seven or eight follow on investments into those companies. How do you talk to your group, your members about that?

Charlie Banks:  You know, when, when we talked to folks that have done this before, as lone rangers.  The first thing they tell us is like, you just mentioned that they didn’t really understand how important it was to continue to support a portfolio company. Now that’s not just with capital, either. That’s with expertise, that’s with contacts, that’s with, you know, spheres of influence. That’s all of the above. And  if folks like you and VentureSouth and others that are doing good, good things in the ecosystem  can show the value of continuing to support and how they do it and having these high touch models like we all do. That’s important and they quickly understand the value in that.  But you know, the ones that, unless they just get lucky, the ones that don’t have that can focus on continuing to support the portfolio companies, those are the ones that typically they lose out on it.

And,  the reality is, is that we don’t, you know, the Southeast when we’re historically underserved from a capital standpoint, we don’t really have many at bats.  So we’ve got to take that back. We have, we’ve got to take a really serious, and we’ve got to make sure that we’re doing everything in our power to drive liquidity, because that is the name of the game and the ones that are supported, unless that, as I mentioned less, to get lucky.

You know,  they’re going to lose her shirt and you know, they’re not going to, they’re not going to do it again. Yeah.

Tim McLoughlin:  And I think a lot of angel investors, folks that are new to it, they think about that follow on capital in terms of if the company is not doing well, right. The company is really struggling.

Then they’ll have to come out of pocket for another check, but that’s not always the case. It’s also, the company is doing incredibly well. And you want to participate on an inside round of funding or there take advantage of your pro rata rights that might be built into those term sheets. So do you have VentureSouth new folks to your network? Are you guys educating them on, on that? And what’s the process for getting involved with vet yourself?

Charlie Banks:  Yeah. So we’re doing a lot of that. I mean, we, you know, we take an education first approach and philosophy to a lot of what we do. So I mean it goes all the way to, you know, board service, you know, there’s, we’re taking is we’re taking seats on these early stage company boards.

It’s,  you know, how do we, how do we communicate the information needed back to the investor base? And how do we call that network to make sure we are fully inadequately supporting the companies moving forward. But like you mentioned, you know, the pro-rata rise and the following rounds that’s important.

And oftentimes, and more times than not really it’s, it’s when the company is doing well and they just need, they need some capital to continue to grow or to make another top-notch higher or to.  You know, do you know a big PR drive or something that you can continue to support that company?  So yeah , that’s super important and, you know, we take that education very seriously and try to build that in everything we do.

Tim McLoughlin:  Yeah. And just as a point of reference for our listeners with our first fondant Co-founders Capital, we had a $12 million fund and 50% of that money went into new investments. And about 50% of it was for reserve for follow on investments.

When we raised our second fund, we realized we probably should have reserved more capital for the companies as they grow. So in our second fund, which is a $31 million fund, we invested, we’re going to probably invest about a third into new deals and about two thirds follow on into those companies that are, need a little help or the ones that are performing really well.

Charlie Banks:  We’re very similar in any given year will 2019. For example, we did 28 different closings.

Tim McLoughlin:  Wow.

Charlie Banks:  10 of those were new companies. The rest were following rounds.  So we’re tracking about the same ratio as you guys are.

Tim McLoughlin:  And that’s 28, closings is an example of why it, why it’s beneficial to be part of a network, part of a fund where the deal sourcing the infrastructure is set up in a way that you can take advantage of these opportunities because access to deals, deal flow is going to be something that’s gonna, you know, I’ll punch it’s class from a returns perspective.

Charlie Banks:  Yeah, for sure.

Tim McLoughlin:  Do you know how many deals VentureSouth looked at in 2019?

Charlie Banks:  Wow. Wow.  No,  not off the cuff, but I mean, that would be interesting as shots to go back and really see. I mean, I can tell you, I can give you kind of an, a somewhat off the cuff. I mean, we  look at 20 to 30 deals a month. We narrowed that down to. A handful that we then bring in through a formal process and have that handful, on a monthly basis, we’ll invest in one, sometimes two, through that. So, I mean, that lends itself and you know, we don’t meet every month. We meet roughly 10 times a year from a screening standpoint.

So that, that lends itself to about where we’re at, where we landed in 2019, you know, eight, 10 new deals.  But the rest is follow-on. So at any given point we have 11 open rounds in the portfolio right now. So to your point on the benefit of being a part of a network is that you come to a group like VentureSouth, and you can build a portfolio of these type companies immediately.

And that’s it’s so important. You really, you know, you really can’t stress the importance of building the portfolio and understanding portfolio math  enough.

Tim McLoughlin:  So when I think of it, different angel groups or networks, I look at kind of the differences in them. And so for some of our listeners angel groups, a lot of times refer to groups that where people invest their capital or angel funds, where people will invest their capital.

And then the group is a decision maker.  Makes the choice on whether or not everyone or that fund is investing in the company, or a lot of times angel networks, each individual member, has the opportunity to participate or not participate on a given deal. How does VentureSouth work?

Charlie Banks:  Yeah, so we have two ways that investors engage with us. So we call it an active model in a passive model. So our active models where individual investors, they pay an annual membership fee to be a member of VentureSouth. Once you’re a member of VentureSouth you at that point pick and choose your own investments. So of the 28, for example, we did last year, you know, you can opt in to any of them or not do  any of them.

You know our minimum is $5,000 in any given deal. So you can choose to put $5,000, you know, in a couple of deals you can, and there’s no, really no maximum.  Then what we do is then we aggregate that capital across everybody that says yes to any given deal. So I think our last deal we had, you know, almost 60 individuals that have, you know, rose their hand said, I’d like to put X amount of capital in this deal.

So we aggregate that capital to make the investment in the company.  So that’s the active side. Now we then have a passive side it’s more of a traditional fund model, but it acts more like a, an index fund. So the fund index is across what all of the active investors have chosen to invest in.

So you can put money into the fund  and if a minimum of 10 investors on the active side, just to make an investment automatically kick in. So the fund gave you this hyper force diversion, all the deals that these really smart, active individual investors have chosen to invest in.  So, you know, we, we have the passive one for folks that may,  may not have the time or the energy to really dig into the diligence and pick and choose the ones that they want to invest in.

But yet they still want access to that glass.  And then you know, they get this force diversification. So that’s the, on the passive side. Then you’ve got the active side.. I mentioned our folks that. You know, pay their annual membership. They come to meetings. They may or may not serve on diligence team, but they really dig in and they make, they make the decision themselves on what they like to invest in.

Tim McLoughlin:  So the shorter answer is the best of both worlds.  You give them the best of both worlds there.

Charlie Banks:  And I honestly so we’re on fund four is what we’re investing out of right now. We call them our sidecar funds, the industry term. And, you know when we raised fund one, our plan and our thesis was that we were just trying to get the people that definitely were not going to join an, any kind of group or network, but yet still likes what we’re doing. They wanted the exposure. They wanted to build a portfolio of these side companies. But they were never going to join. So that was entirely passive. Fund two, you know, some of the members started saying, you know  I missed this meeting, and VentureSouth invested in this company.. And because I missed it, I chose to say no. And you know, we had a big exit and you know, my buddy that sits next to me,   he had a nice return and I didn’t because I didn’t come to the meeting. So we had some of the members start saying, you know, I’m going to do both.  And then fund three rolls around.

And we had a lot of members who said, man, I don’t want to miss out on these, on these exits, so I’m going to do both and I’m going to pick and choose some that I think are interesting. But I, you know, if I say, no, I know I’ll have  a slice of the pie and then fund for that remained the same.

So it’s you’re right. I mean, we, we do get both. We give folks options to do both.

Tim McLoughlin:  Got it. So try to think back 2008, you’re getting this started. You’re looking at your first deal through VentureSouth.. You’ve been an entrepreneur before, when you were doing diligence before you made an investment, do you think that you were looking at it more as an entrepreneur or more as an investor?

Charlie Banks:  I still find myself looking at it as an entrepreneur.  You know, so there’s three managing directors with venture South.  You know, I was the entrepreneur you know, I’ve raised money, I’ve lost money. I’ve exited up, you know, I’ve done some cool things and had some big, awesome failures as an entrepreneur.

And then, you know, the other end of the spectrum you’ve got, Matt, who’s been an angel group operator for a long time and surgical board of the ACA he’s done. You know, he’s done some amazing educational things, DAC ACA, then you’ve got Paul in the middle. Who’s, you know, he’s kind of the private equity guy, you know, he’s done some really, really awesome stuff in the public markets, things like that.

So you’ve got a really unique skill set across the three of us. So each of us look at it, look at it a bit different still.  And I think we’ll probably always do that way. But when I first kind of bridged the walk, the bridge from a full-time entrepreneur to a full-time investor, you know, I certainly looked at it and thought, what is, what’s important to the entrepreneur? How can we bridge that gap between the investing the entrepreneur a little bit better?  Not that we can get in the deal,  but more so can we, how can we diligence this so we can understand it? Yeah.  So yeah, I mean, I think depending on your, your back Browns and your history and successes and failures, you have, you certainly have a vantage point that investors bring to how they personally invest.

I don’t think that’s going to change. I think it’s important, actually.

Tim McLoughlin:  I think it’s really important. I think that one of the things that you mentioned was bringing some different skill sets and looking at things in a different way. And I know at Co-founders we have three former entrepreneurs that are managing that fund. And so what we have to always check ourselves with is that we’re not the entrepreneurs that are running this company, right? Yes. It’s an exciting opportunity, but you, you really invest in the team and as much advice and introductions and everything you can do as an investor or a board member or a formal advisor to the companies, it’s still about the team that you’re investing in and whether or not they’re the entrepreneurs to pull this off.

Charlie Banks:  That’s right, exactly right.

Tim McLoughlin:  Yeah. So as you’ve gone through the years, I think one of the things you’ve probably seen change and we’ve already seen change too, is you talked about access to capital so that you were putting in enough money into these companies to mitigate kind of that financial risk.

And getting partnerships with other funds, you know, you and I are on the phone all the time, talking about, you know, deals and ways that we can co-invest together.  As you’ve gone through this journey in the Southeast, what’s been the biggest changes from check size collaboration, you know, that you’ve seen and where do you think we can go from here?

Charlie Banks:  You know, over the last handful of years, you’ve really started to see these regions take shape. You know, you’ve kind of got Greenville, you’ve got Greenville, South Carolina, you’ve got the triangle, you’ve got Charleston, Atlanta, you know, Richmond, Virginia, you’ve got Nashville, Knoxville.

You’ve got these regions that are back when, you know, incubators accelerators just started taking off. It was, you know, everybody wanted to have an incubator accelerator.  And you know, the federal government and the state governments got together and said, let’s fund some of these incubators and accelerators and they did just that, you know, the reality is none of them really worked.  But you know, I say that, I say that kind of jokingly, I mean, they all worked because what the by-product of a lot of it was awareness of what it means to build scalable companies. Whereas before, you know, we were just kind of taking flyers. You know, looking back even  before I was, you know, an investor or even an entrepreneur, the ones that were successful were, you know, the  seasoned, heavily seasoned entrepreneurs that had built and scaled and sold, numerous companies. And those were the ones that were continuing to have success. You didn’t have many companies that were being built out of college entrepreneurship classes or incubators accelerators or things like that. But  now you do have that.  So what that created, regardless of those incubators accelerators are still around. I think that it has created an environment that people understand what it takes to build and scale and sell and raise. You raise capital in this type of environment.  And that’s been a really fun thing to watch.  And I said, so I think the next, iteration of those are going to be somewhat of a consolidation of efforts. You know, you’ll see regions come together and say, how can we, as a, you know, greater Charleston support the entrepreneurship ecosystem, as opposed to, you know, the city of Mount Pleasant, for example.

And so you’ll start see Greenville and the upstate of South Carolina is a perfect example. The triangle may even be a better example of that. You know, the folks at CD and things like that are just doing great, great work. So I think that’s one thing.  Some other changes have certainly been in, you know,  a by-product of the shark tank world for good or for worse, you know, everybody thinks they can be an entrepreneur that they have a good idea.

So I think, you know, we see a lot of really, really great ideas, but we also see a lot of really dumb ideas, that they thought they could be entrepreneurs and they just don’t, they don’t, you know, they don’t have a good idea. The market’s not there for whatever they’re doing.  So that’s been fun to watch. But that on the other end of that, I think of that the shark tank environment has also made it cool to invest in startups.

Tim McLoughlin:  I got to say, I feel a little bit cooler since we had an former guest of First Check podcast here, John Hayes was in the portfolio, raise capital, went on shark tank, raised money from Cuban and then had a successful exit.

Charlie Banks:  So awesome.

Tim McLoughlin:  I got a little cool that came off of me as a by-product of that. I think I tell myself that to make myself feel better.

Charlie Banks:  But yeah, I’m going to show the shark tank by-product  that’s a real phenomenon that certainly we, I’m sure other regions have experienced that as well, but it’s been fun to watch.

Tim McLoughlin:  Well, I think the shark tank thing might trick, some angel investors to, you know, the five minute questions that they need to fire at these entrepreneurs and ask to try and figure out whether or not they make a deal. And one of the things we we learned is that they’re actually talking for an hour and a half or two hours, and then they just boil it down. And do months of diligence

Charlie Banks:  It’s made for TV investing, that’s kind of how we refer to it is that it’s not real at all. So anybody listening, I would highly suggest you be an angel investor, but not do it like how those guys are doing on TV.

Tim McLoughlin:  So Charlie, I’m going to tell you one of the things that I think I’ve seen change in, and you can feel free to agree or disagree with me, but I think five or six years ago, if there was an angel that wanted to write a check into a company, a good company where there was other interests and other investors coming in, it was still fairly easy, but you have funds like Co-founders Capital. You have groups like VentureSouth that are writing bigger checks and getting to the point where we can invest capital that you know, we could probably invest sometimes more capital than what the entrepreneur needs or wants to take at that time. And more and more I’m seeing angel investors that are kind of flying solo, get left at a deals and all of a sudden, access to deal flow and access into a specific deal is becoming a real thing in the Southeast. What do you think?

Charlie Banks:  I agree. I agree with you entirely. I mean, you and I have had many conversations about just that,   I don’t think we are definitely not at the point where we have to, like, heavily compete for deal flow, but we are getting to the point where there are groups and funds, like both of ours that are, you know, they’ve grown up. So they understand what, how to do this.  And they treat it like a business accordingly.  So it, that you’re, right, that’s been a fun phenomenon to watch too. Is that in the last couple of years we’ve seen increasingly you know, pressure’s not the right word, but I’d say  increasing desire and, and getting in some of these quote unquote hotter deals.

And that’s a fun thing for all of us to be a part of.

Tim McLoughlin:  Yeah. And you and I, for the first time had a deal recently this past year where there just wasn’t room, we were both interested in it and there just wasn’t room for both of us and you and I got on the phone.

Charlie Banks:  When it was going on. It was funny. It’s like, Man. I don’t know if I’m going to piss him off on this. There’s actually two term sheets on this thing. And I don’t know if the entrepreneurs play in this or, or not, but in that case, that certainly wasn’t the situation. We all should know where it was just a case of a really good, a good deal, and we somewhat had to compete for it.

And I’m glad that you and I have the relationship we do that we could just call up and be like, Hey man, you know this is what we’re doing are we cool?

Tim McLoughlin:  Yep. And, and the, the whole point is to have that, be able to pick up the phone and have those calls for decades to come. But the thing that the entrepreneurs, I think need to realize is they’re not going to play us in that we can’t pick up the phone.

Charlie Banks:  We’re a long way away from that. And I hope that’s never as the case.

Tim McLoughlin:  Yeah. So you’ve been doing this a while. You’ve been an entrepreneur. When you start thinking back on deals that worked or didn’t work, you can take it either direction.  What are some of the characteristics you see about maybe the deal and then maybe the entrepreneur, if it worked or didn’t work now that you can look back.

Charlie Banks:  Yeah. So  one that we talk about often is convertible notes, you know, and if you go onto our blog, we write extensively on convertible notes.  You know very simply, we don’t like them.  And I think entrepreneurs don’t quite understand the impact that convertible notes have on cap tables.

It just muddies the water,  way more than it should. So we’re big, big proponents of price rounds early on. You know, get the capital in,  build out a clean cap table so that the next investors are not having to you know, rely on valuations that are take part in valuations that have all these conversions.

So that’s, you know, that’s one thing that we’ve seen that  has not hasn’t is it’s still a bit frustrating.  Cause you know, convertible notes are popular for entrepreneurs, but to the investors that understand the implications on cap table is it’s still a frustrating dynamic that we’re having to deal with.

But the things that go well, you know, back to your point earlier about. Betting on the team. You know, that is,  by far the most important element of this, and the ones, the entrepreneurs that can walk into the pitch and give the investors a feeling of these guys are going to do whatever it takes to be successful.

That’s a, that’s a gut feel that the investors  won’t and shouldn’t ever look you know, look over, and they should always trust your gut on that. So that’s, that’s been the ones that we’ve had successes is we look back and say, what did we, you know, what were we thinking when we wrote the check?

You know, in all cases, the thought process was this guy or girl is going to be successful.

Tim McLoughlin:  Yeah.  That’s great.  On the convertible notes piece, you know, I think it’s going to be a challenge for some of our, you know, listeners that want to be angel investors into these companies when there’s not an open price round, the easy thing to, and they’re not, and they want to write a 10,000, $20,000 check into a company.

They’re not going to be able to price around, right? They’re not going to say, hey, I’m going to take X percent of equity. It’s it’s more expensive to do it. You’re not going to do it every time you take a small check. So their options are either join a group that has some buying power and can actually go do the work to price around.

Or, put it in on a convertible note, right. And a smaller convertible note.  But to your point, we we’ve seen that same problem before where, you know, notes when they convert can have a very negative effect on not only the  future investor, when they come in and muddy the waters, like you said, but the entrepreneur as well, if, if there’s some steep discounts and all that to those terms.

Charlie Banks:  Yeah, you’re right. You’re right. That’s convertible notes have their place.  We have certainly done our fair share of convertible notes, but they, they have a place in the cap table. But those early, you know, the early browns of capital are not always the best place to do those.

You know, to your point though, I mean, if you’re talking to a first time investor and they’re excited about, you know, fill in the blank deal, but the only option they have is the convertible note. You know, I’m not saying never do it. I’m just saying it’s a lot better when you’re investing in a via price round,

Tim McLoughlin:  Which means you’re joining some other group that’s coming in and probably doing the work.

Charlie Banks:  Or being an LP in a fund, as opposed to you know, just a one-off investor.

Tim McLoughlin:  Right,  so VentureSouth’s grown a lot since 2008. And you talked about the number of cities getting over $50 million in invested capital. So what, what are the next 10 years bring?

Charlie Banks:  You know, I still think there’s there’s a whole lot of Leighton capital on the sidelines still in the Southeast.

You know, there are a lot of, there’s a lot of money that’s not being put in the asset class. So we’re going to continue to grow into different markets. You know, we’re going to continue to have a, an education first philosophy where we’re, you know, we want to teach people how to do this effectively and efficiently.

More so than just, you know, providing access to a professional, curated pipeline of early stage companies.  so I, you know, I think there’s going to be, you know, there’s an opportunity for us to grow into other markets, because of this new factor, zoom, zoom world, we’re all in, you know, I think there is an opportunity for us and others, to provide access to investors outside of the Southeast.

That won’t, you know, this is  arguably better price rounds in the Southeast, because there’s not the capital that we just talked about. I mean, there’s not the competition for capital, like we just talked about.  So I think there’s opportunities for us to expand,  geographies a bit and into who we, provide opportunities for. And yeah, I mean as we grow, we’re obviously going to be writing larger checks and hopefully that continues to attract deals that want to come into the Southeast. So I think you’ll see, you’ll see opportunities for companies to, to move to Southeast, to set up shop and, I think hope us and you guys will continue to have an impact there as well.

Tim McLoughlin:  We’ve now moved four companies to the triangle from out-of-state or entrepreneurs, right. Or entrepreneurs that are relocated because of it. And I think we’re going to keep seeing that the cost of living is better. And so just because the cost of living is better and, and wages are what they are. That means cost of customer acquisition is less. If you have a or sales team less. So the metrics work, one thing you mentioned, and this might be a tip for, for some of our angel investors on the call is we get deals over the transom all the time. As I know you do, you open your inbox in the morning and it’s , you know, mass emails that you’ve been getting about the next best, company and can’t miss opportunity. And early on, it’s easy to get excited about those. And then you start to get numb to them. But one of the, one of the tips that I always look at is this is a Silicon Valley company or Boston or New York company.

And they can’t get folks in their own network in their own backyard to put some capital. And it’s a good question to ask why.  And so when you say, you know, capital in the Southeast or other investors coming here, it’s more , other investors are coming here to find those companies, right. It’s not companies that are coming here to look for investors if they’re not planning on relocating to the area.

Charlie Banks:  That’s right. Yeah. We see it all the time. Yeah. We see it all the time. And you know,  when a new member for VentureSouth joins, you know, they might move into the Southeast and they might’ve been a member or an LP somewhere else.

And they say, wow, you know, their first reaction is, wow. I didn’t realize that this caliber of a group or network or fund is here and you know, so  that always makes us proud. And so I think, I think we’ll see more of that. And that’s something that we’re, we should all be proud of.

Tim McLoughlin:  Yeah, definitely.

All right. So here, here we go. I’m going to ask you a hypothetical here.

Charlie Banks:  Okay.

Tim McLoughlin:  You are personally going to make an angel investment, which you do all the time. You meet with 10 companies for the first time 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. What is the question you ask?

Charlie Banks:  I love that question.

First, the first and only question I would ask is very simply tell me how you failed in the past and then how you overcame that failure.  To me, you know, I mean, failure is so important and the entrepreneurs that have hustled their way through failures, are the ones that I want to personally bet on.

So yeah, my question for that hundred thousand dollars would be.  Tell me about your failures and how you overcame them.

Tim McLoughlin:  I think that’s such a great answer, especially because of the answers and your description of yourself as we’ve gone through this conversation has been, you didn’t shy away from saying I had some incredible failures is how I think that you described it and someone that’s been a successful entrepreneur, investing in companies that have worked, haven’t worked and become a, you know successful investor. I think you realize how important that question is.

Charlie Banks:  I use the term awesome failure all the time. Failure. Yeah.  I love talking about failure. I mean, yeah, there’s a reason there’s whole conferences around, I think it’s called fail con I don’t know, obviously they’re not doing it, covid times.  And you know,  entrepreneurs inherently unbelievably passionate, and they’re gonna fail , and the ones that have failed, never come are the ones that we want it back.  I’m a big fan of overcoming adversity.

Tim McLoughlin:  Okay. So Charlie, you’ve talked about overcoming adversity, you know, awesome failures. Can you give us an example of something you had to overcome and awesome failure you’ve experienced?

Charlie Banks:  Yeah. You know, so back when I first really got into the entrepreneurship game, I, started a company in the green building space.

You know, we were manufacturing product and, it was one of those scenarios where we knew that we had something big. So I went out and raised a little bit of money. You put up a good bit of my own money and I bet the farm on one project and that’s not what entrepreneur entrepreneurs do that because they’re passionate and they want to see have success.

But, it was a great example of diversifying your revenue stream. So, you know, I bet the farm on one project, the project went south, had nothing to do with any decisions that we made.  But it was a, you know, we were manufacturing products for large, for a large project.  The project didn’t happen.

And, you know, we had this  mushroom style,  infrastructure that just failed and it just it got to got too heavy and it fell over.  So I’ve been able to parlay that experience into having conversations with entrepreneurs on revenue diversification.

Tim McLoughlin:  Yeah, that’s great. I mean, that’s something that we preach. How do you diversify your customer base? Right? How do you diversify your you’re offering a different product, some modules.  And if you look at, you know, even the environment we’re in right now,  this COVID world that we’re living in. For no fault of any of our entrepreneurs, they could have had the best idea, but if they didn’t have diversification somehow, or the ability to pivot, when needed, it’s been a tough year for a lot of those companies.

Charlie Banks:  Absolutely. Super important. .

Tim McLoughlin:  So Charlie, let me ask you if there’s a angel investor out there, that’s listening to this and you know, I have PR I already talked to them and they may or may not be interested in investing in Co Founders capital fund three down the line, but maybe they do that and they want to join VentureSouth. So if they want to join, how do they get ahold of you?

Charlie Banks:  Yeah, venture south.vc, V as in venture, C as in cat, those probably are the best place we’re also really active on Twitter. So you can look us up on Twitter and take part in our long diatribes on convertible notes and anything else.

But no , our Twitter handle and our we’re also on LinkedIn too. So you could find us on LinkedIn pretty easily, but let’s start with venture south.vc.  and we’d love to get anybody, anybody involved in what we’re doing.

Tim McLoughlin:  And they’re, if they’re in our fund and they’re in VentureSouth, there’s a good chance that they’re going to be in a deal from both of those sides one day cause we’re going to do a deal together here soon, right.

Charlie Banks:  That’s right. Absolutely.

Tim McLoughlin:  All right. For sure. All right, Charlie. Thanks for coming on.

Charlie Banks:  You bet, man.

Full Episode Transcript

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

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