Thursday, October 11, 2018
A Chat With Kelly Perdew: Moonshots Capital And Its First Dedicated Fund
This morning, Moonshots Capital (www.moonshotscapital.com), led by Kelly Perdew and Craig Cummings, announced its first formal fund, a $20M seed stage fund. We sat down with Kelly ahead of the announcement to chat about the new fund, why they think military veterans are particularly well suited as startup entrepreneurs, why the two went from organizing individual deals for funding to a formal fund, and more.
Tell us about this new announcement?
Kelly Perdew: I think you know that, since 2004, I have been an angel in LA. In 2014, a West Point buddy of mine, and also a serial entrepreneur, Craig Cummings started working together to find entrepreneurs we liked, to help them an invest in them, along with Luis Villalobos of the Tech Coast Angels. What we would do, is we would round up ten other angel investors, get $25,000 from each of them, and then roll up our sleeves and help that entrepreneur find venture capital. Finally, when that happened, we'd roll off the board and help in an advisory slot. We had been doing that for several years, and decided we wanted to start syndicating deals in September of 2014, so we formed Moonshots Capital. That was the umbrella. We brough on associates, a regular attorney, put in place a back office, and hire a part time CFO as controller. We deployed a little over $10 million from the syndicate since 2014. I'm in Los Angeles, and Craig is in Austin. In October of last year, we did a first close on our first committed fund, which we're announcing. We have continued to hone our thesis, and this gives us the ability to move the needle, and help more entrepreneurs we are investing in by being thd lead on a term sheet. It also allows us to do more late stage seed funding, and early A round, and enables us to set deal terms, board seats, and get a lot more sureness around the amount of money and the check we are able to write. That really helps to catalyze the process for entrepreneurs, and helps to get others involved. We did our first close on the fund, and have made a number of investments. You've covered one or two of them, but there's one which we haven't announced yet from the Techstars group, where we led the seed round. That startup, which was named Unity Influence, recently changed its name to Catalog, and they're also announcing this week.
Talk more about the ability to lead investments?
Kelly Perdes: Craig and I are serial entrepreneurs, and both of us have gone through the fundraising process multiple times. We have fourteen operating companies under our belts. One of the biggest challenges of growing technology companies is fundraising. Craig and I are known for doing heavy lifting when putting money in to help entrepreneurs. So we help them a lot with this. When you're fundraising, you talk to a lot of people who are kind of on the fence. They're interested in putting in money, but they're not going to lead a round, and they're not cutting as big of a check. They might be investing $50K, $100K, $200K, or $250K, but they're not going to lead with $1.2M or $2M on a round. Understanding this, Craig and I, with our entrepeneurial DNA, wanted to help facilitate the process. When we see a deal we like as a syndicate, it had gone like this. We'd say, we love the business, both Craig and I can add value, and we'd like to put in something between $200K and $500K in the next 90 days.
Usually, an entrepreneur, hearing that, won't say no. But, that can't use as as a lead, to catalyze a deal—we were just filler, especially since we didn't know how much we could put in the deal. If it's a hot deal, that means we need to get the CEO or the entrepreneur's promise to hold $300K for us in the round. That's what we did with Scott Painter and Fair. We've been in every round of Fair's financing. That's a very different scenario than me saying hey, I like your deal so much, we'll write a $750K check on a $4M pre-money valuation, I'll take a board seat, and do the heavy lifting to help connect you with the 20 people we know that can help you through our portfolio. We're going to help you clean up your cap table, get rid of hair, such as your Uncle Bob's side letter which says he gets 10 percent of the IPO, which will keep you from getting future financing. We apply the experience that Craig and I have to help you build a successful company. That's a very different conversation for an entrepreneur, seeing that we have the energy and ability to move quickly. It's much better with committed funds and bigger checks. The four deals that we've invested in we've led, and have been exactly that scenario. It's working like we thought it would.
So you mention your thesis as a fund. What's that thesis?
Kelly Perdew: Craig and I have made investments in 68 companies over the years. As we've looked at them, from those that were not very successful, to those that have been very successful investments, you start to identify the factors you can point to and control for. You want to repeat that and keep investing in ones that do well. The primary factor we can control for is quality of leadership. For Craig and I, who were both West Point graduates and military veterans, we know that the only place millions of dollars are spent on training for leadership, is the military. We make it known, authentically, that we look more closely at deals with military veterans on the founding team. That's in order to take advantage of the leadership training they have, and have exhibited in the military. That's whole bunch of stuff. It's not to say that's the only way to get that leadership training—your second or third time around as an entrepreneur, you probably carry a few leadership battle scars, and those capabilities. However, of the money we've invested as individual angels, through syndicates, and in our first four deals here, 70 percent were under management of military veterans or with military founders. All of the venture capitalists say, bet on the jockey and not on the horse. You often hear that, but our application here is very specific. That gives us a great advantage in the ecosystem. If you look at a Techstars, a YCombinator, a 500 Startups, and the local incubators and accelerators in LA and Austin, we lean in heavily when military veterans are involved. Techstars has 15-20 companies in their programs every six months, and each one of these will have a crop of companies which might include three fintech companies, two augmented reality companies, three healthcare companies, you name it.
For each of those, there are hundreds of VCs who service those sectors. However, one of those teams might be led by a former Navy SEAL. The conversation that leadership has with that Navy SEAL will rise above the noise, and those programs will recommend to that entrepreneur to talk to Kelly and Craig at Moonshots, because they like military veterans. That means we get to see a curated deal flow out of the early stage ecosystem which is pretty neat. The next step, is also interesting. It takes Craig and I only five or ten minutes to check on your background. If you were a former Navy SEAL, and Techstars referred you to me, it would take me about ten minutes to find your former commander, or a teammate, and I'd ask them one question-- do I want you in our foxhole, or not? We ask them if they'd vouch for you on their life, and if we should work with your or not. We always get an unequivocal answer, yes or no. if it's a yes, we move forward with all that normal VC stuff, the size of market, products and services, and so on. However, all of those transactions and engagement come from a seed of trust, because of the common background and venacular. It really facilitates and speeds up everything. An entrepreneur with a fundamental trust with their lead VC is not always the case. Post investment, it helps build companies, because we reach out to our network. If you're the CEO at a cybersecurity company, we'll help you connect with a veteran at an IT department, and 99 percent of the time, they're happy we're making the intro because you're a military veteran. It really resonates with our stakeholders.
It's often tough to make that transition from the military to the tech startup world. What do you see that helps military veterans successfully make that switch from the military to the entrepreneurial world?
Kelly Perdew: There are lots of things that can make that challenging. It's about information. There are no phenomenally comprehensive solutions on the military side. They are trying to get better with the transition process. There had been a significant amount of entrepreneurs that were military veterans after World War 2. It was massive. 8 to 9 percent. But, that's dropped to 2 to 3 percent now. However, it's coming back for a whole bunch of reasons. Some of them are like efforts like Bunkerlabs, and the other is a myriad of national organizations who are providing significant support and assisting with that move.We haven't been able to talk about this because the SEC doesn't let us market when we're fundraising, but what we have seen from our historical performance with veterans, is that it's been spectacular. About 70 percent of the money we have invested has been behind military veteran entrepreneurs. We're not doing this as a feel good, give-back-to-veterans thing. We're doing this, because they actually perform better. All of the dynamics of early stage tech companies, such as having to operate without complete information, not giving up, showing up on time, every time, and having a high level of integrity are all of the key leadership characteristics which are ingrained in the military process. They are vital to have in an early stage technology environment. It's what separates being successful from being unsuccessful. We're bridging the gap, and informing military veterans that these opportunities exist for them as technology entrepreneurs. Scott Painter at Fair is a military veteran, and there are a bunch of them in the industry. People just don't promote or talk about it.
Thanks, and good luck!