Lisa
Welcome to the Atlanta Startup Podcast. I’m Lisa Calhoun, a founding general partner at Valor Ventures. I am really excited to have with me today Victoria Fram, from VilCap Investments and also a Kauffman fellow. Welcome, Victoria.
Victoria Fram
Thanks so much for having me, Lisa.
Lisa
A lot of people know me from the Startup Runway and they know the Startup Runway mock board. What they don’t know is when I was a baby aspirational VC, I came to a Village Capital investor meeting and learned about mock boards. There’s just so much Village Capital’s been doing through the years. Tell us a little bit about the founding and take us back to the beginning.
Victoria Fram
Well, I’m so glad that that lives on in your work at Startup Runway, and we certainly have found it to be a hugely useful tool with early-stage companies with whom we work. The Village Capital story is really very relevant to this conversation and it all starts in Atlanta. This is a fun place for us to focus and kick things off. Village Capital started in its earliest inkling days, around 2009, a sort of brainchild of Bob Pattillo, and my co-founder, Ross Baird, who also grew up in Atlanta. It was really born out of the need that some of Bob Pattillo’s entities Gray Ghost and First Light Ventures had in trying to more efficiently identify early-stage companies that would fit the places that they want to invest and the growth stories that they wanted to bet on about how really great early-stage companies could solve really important problems. The first experiments around that were in Atlanta, some of the earliest companies we worked with, were in Atlanta. We’re excited that a lot of the successful portfolio companies we bet on are still based in Atlanta.
Lisa
Absolutely. How did you personally get into VC? What pulled you into this wacky industry?
Victoria Fram
I think everybody talks about how there’s no real set path, and people are the beneficiaries of generally some serendipity and creativity to find their way in, which I think was certainly true for me. I had done a mix of things prior to co-founding VilCap and having worked in the traditional private equity realm, I had worked in international relations and lived in a few different countries working on challenging social and economic, and environmental problems. Thinking about conflict resolution, thinking about microfinance, thinking about agriculture and sustainability. I left my private equity job to go to business school and at the same time, to think about weaving through together some of these worlds of working on really hard intractable problems and applying some of the skill set that I had from traditional finance. Around the time that I was getting ready to graduate from Business School, a few different professional acquaintances said, “You should really start talking to this guy, Ross Baird, he’s talking about a lot of the same things that you are passionate about working on, and has been building this organization and is looking for a co-founder.” And at that point, he had started to spin out Village Capital from Gray Ghost and First Light Ventures. The premise of Village Capital was really to rethink a lot of the power dynamics about how the venture capital world works. I was really drawn to working with passionate, smart, creative founders, and looking at this industry that has a ton of power and potential with a lot of shortcomings and thinking about what we can do differently that would help contribute to the industry, and be able to solve huge social and environmental challenges at the same time. Some of the ways that we set out to rethink those dynamics are, again, back to the origin story. Bob Patillo had been a really active investor in microfinance. It’s seen the power of social capital and communities leverage up a whole industry of how village banking scaled and Village Capital’s name is a mash-up of village banking and venture capitalists where we came up with it and said, “Can we take some of those same tenants that were so critical in microfinance, to think about people vouching for each other and sort of analyzing who’s creditworthy based on what they know about somebody’s potential, and translate those to the early-stage founder world?” Clearly, there are places where the analogy doesn’t extend fully. There are not groups of founders living together in the same community necessarily, but the first call you make as a VC when your diligence in any new opportunity is to all the other founders in that same space and say, “What do you think about this approach to solving a challenge? What do you know about this team? Do you think they have the grit and what it takes?” We think that the founder perspective is really valuable, so valuable that in our programs, we use a peer selection process where founders actually evaluate their cohort members. We’ll bring 10 groups. They’re working in FinTech together and work with them for the course of three or four months, do things like the mock board exercise that you talked about earlier, and really look for their discernment about which companies they think have what it takes to be investable. Then we write checks based on their evaluation. What that has yielded is my initial comment about setting out to change some of these power dynamics. We have really changed who’s around the table making those decisions and yielded a much more diverse portfolio. Nearly half of our portfolio is led or co-led by female founders. Over a third of our ventures are led by founders of color. We’re invested 85% outside of very concentrated, well-capitalized markets like the Bay Area, New York, and Massachusetts.
Lisa
And so you don’t have to have an investment committee at all, that’s not part of the process?
Victoria Fram
For the first checks we write, and those tend to be oftentimes are first money into a company before they have other institutional investors, we do later have an investment committee process for follow-on checks. We’ll go up to a million dollars at a time but definitely the first we’ve had so much friction in who can even have access to the system at some of the earliest stages. That’s where I think it’s really important for us to think about how we can be doing things differently and more creatively. We often talk about an industry that is so obsessed with innovation. Venture capitalists want to chase the next great thing and think about what the future might look like, and how to make bets that we’ll be able to take advantage of big markets in it. Very few investors actually sort of holding up the mirror to see how they could do things more innovatively or more creatively.
Lisa
You entered into venture capital with a really robust background from a lot of different indices, including some finance and a little bit of international perspective. You made yourself into a VC to change the world. A few years down the road from now, where you sit, what do you think needs to change in our industry most?
Victoria Fram
It’s been in this past year, with as much social upheaval as we’ve seen on so many fronts, that has really left in its wake a ton of despair and real disparity in how different populations have navigated the last full year. I think there’s at least been reckoning on a bunch of levels, and certainly somewhat in our own industry, about what needs to change and how we can be a more inclusive industry. I’m encouraged by the number of new entry points. We’re seeing the class of emerging managers that are starting their own funds, the entry points of rolling funds, and other new structures really breaking down some of the barriers that for a long time prohibited anybody who didn’t have an extremely privileged background and well-established pedigree from even thinking about venture as a path that they could pursue. I’m very eager to continue seeing way more innovation and disruption and how people think about participating. Clearly, a lot of that is dependent on LPs, embracing those new approaches, backing them, and giving people the ability and runway to build what they want to see in the world. But I think the reckoning of this year, and how many very long overdue bills we had as a society, and clearly that none of that stuff is fixed. It’s a starting point for us to think about all of the racial inequality, health disparity, social, and environmental challenges we have to face and venture is a piece of that. Clearly, it’s not the be-all and end-all of how any of those problems will be solved but certainly, a lot of the challenges that I think you saw on a huge scale are reflected also in our industry. We have all the confidence in the world that the more inclusive venture becomes the greater outcomes that we’ll see. I mean, there’s you know, endless data to point you at this point that shows that diverse teams outperform diversity of thought and investment teams pick better companies. I think we’re starting to see more people wake up to that fact.
Lisa
If you had a snapshot from your role as an investor working with founders of the earliest stages every day, and you could share it with the investor community, just broadly, I mean, there are lots of different types of investors. One of the things that I find interesting is that the investor community doesn’t tend to have shared lived experiences with the earliest stage founder community. They can have mutual empathy and mutual appreciation, but they don’t have a lot of mutual lived experience sharing. Sometimes I think of myself as telling stories of connection, trying to bring those lived experiences closer. I think you’ve been doing that for an even longer time. I wonder, is there one thing that you just know to be true, that you wish you could share between these two different groups of people?
Victoria Fram
Founders just have so much to teach investors all day, every day, and the biggest one that immediately comes to mind is what a different experience it is to be all in, like 100% indexed to the success of this one thing and how different that is from the portfolio approach that most investors have where they feel the ups and downs of the startup rollercoaster. But the amplitude of that curve has a ceiling and floor on it that is much different than the founders. I think one of the things that has come to light much more again, in this past year, is how important it is to consider mental health and wellness generally, with entrepreneurs that are pushing themselves to the limit, it’s often a great personal sacrifice for the people that we like to see solving problems, who’ve really experienced it, often without a safety net. They’re not doing this after a full career, unlike many VCs that have started funds, because they have the personal capital to make their GP commitment, and they have a network from which they can raise funds. They generally have several layers of backup plan that they might be able to pursue. I think the two pieces that I would take away from that are just tons of empathy for how different that experience is the sort of all-in on one thing that somebody’s really betting on has to work versus this portfolio approach. The second, I think, the venture community, at some points has really done a disservice to founders by expecting them because of that all in 100% commitment to form their entire identity around the success or failure of their business. We’ve certainly seen in our portfolio that it eventually takes a toll. Clearly, everybody wants to bet on founders that have a lot of grit and resilience, and commitment. One of the founders in our portfolio, wrote a very beautiful piece about this past year, Clarence Bethea. As an individual, you will always be so much more than just your startup. I think that investors and board members can be great champions of that and really side by side when things are not going well to remind the person at home that you’re supporting them, you’re in their corner, succeed or fail, there’s going to be a path forward, or they can really put the screws on people when they’re feeling completely maxed out and vulnerable.
Lisa
Oh, you’re so right. There’s a lot of investors who see that as what do they call a buying signal?
Victoria Fram
Yeah. Right. It’s like, how much more can I extract out of this? Where can I really use leverage? VC Twitter is a whole nother topic of conversation, but the amount of bad advice or bad posturing that I see out there from some investors who are like you have to be fully defined by your company or nobody’s going to take you seriously, is just so potentially destructive.
Lisa
Great insight. I’d like to switch gears a little bit and talk about fundraising from the founders’ point of view. You’ve certainly helped dozens of founders find that first check and I know you see a lot today. What advice would you have for founders, especially in Atlanta, in a particular community that you know well as the home of Village Capital originally, what advice do you have for Atlanta founders on raising that?
Victoria Fram
Well, in addition to starting in Atlanta, we have been really lucky to work with wonderful partners there throughout the years. When I think about a company like Rimidi, which is based in Atlanta, it’s a remote patient monitoring for chronic health care conditions, and they had a mix of Atlanta and other national investors. Another company in our portfolio, Emrgy, does modular hydropower, making any shallow or slow-moving waterway capable of generating electricity. Incidentally, both of those have terrific female science-based, front deck women lead. They’ve both been part of the ATBC community. I think in terms of thinking about other sorts of infrastructure report support, there are lots of great local connections that can come out of enabling infrastructure like that, in addition, clearly, to great things like Startup Runway, where I’m guessing if people are listening to the podcast, they already know of the tremendous connecting node that Startup Runway and Valor can be locally. But I bring up those examples because we worked with those two companies at different stages. And then further down the road, they both knew each other through a TDC. I think once you start socializing within the entrepreneurial community, it can be one of your greatest assets to go to other founders and say, “This is the stage of our company, these are the things we’re working on. Who around locally do you think has an appetite for the kind of thing that I’m building?” We’re huge believers in the power of peer support, given how critical it’s been to our model. But I truly think turning to the people who’ve been on the path before you, especially if you’re at that first stage of trying to find local connections and resources, can be a huge one. I think, clearly, these are the experts on this, but it’s been great from where I’m based in California to watch how much it feels like the Atlanta entrepreneurial community is really in, on a great trajectory that has been rich and robust for a long time. I think that that story is the only sort of gaining momentum.
Lisa
It’s definitely gaining momentum. I think what’s interesting is that the Atlanta entrepreneurial community has been robust for a couple of 100 years to some extent, including a multiracial community at that, but VCs are just starting to wake up to it, which is an exciting timing for Valor, certainly, but exciting timing for early-stage VC. You’ll remember, it wasn’t that long ago that we were all sort of complaining about a seed-stage in the San Francisco area. It was almost an untenable bubble. Where do you go if you’re really looking for values and value-driven companies with really corporate partners, and they will always be a rich place, always a gold mine? Atlanta’s starting to really come on the VCs horizon as, “Hey, I should have tentacles here, at least a team or some Venture Partners.” In a way, the media is seeing it as something that has, we still have a culture of not being a VC-backed startup economy, for sure. And to some extent, and this will sound kind of contraindicating, but I hope we never become the kind of community that relies so much on venture capital that a startup can’t get off the ground without it because that would be a loss for the community. We’ll see.
Victoria Fram
I totally agree with all of those reasons that you mentioned. One of the reasons in 2018, we did a program called VC Pathways with UBS that was looking even one stage earlier than our typical programs are. We picked three cities to focus on and one of them was Atlanta. That was enabled by partnering with a group like Goodie Nation locally, which is another great resource that I would say for early-stage founders, the Atlanta Chamber of Commerce, and inspired and excited by people like Jewel Burks Solomon that are doing Collab. I just think there are so many really positive indicators of what the future for founders looks like in Atlanta. Even from one of our companies, which’s based out here in San Francisco, they’re a company called FinEx, their chief growth officer moved home to Atlanta, and I think has been a big champion for thinking about what more distribution of networks and talent can look like to keep that flywheel moving locally in Atlanta.
Lisa
What do you think that founders should look for in a VC for those founders who want to raise venture capital and it makes a lot of sense for their business model? What are some of the things you feel that founders miss but are actually important? Not nice to have, it’s truly something you need to look for.
Victoria Fram
Our program is focused on investment readiness. We go through all of the stages of sorting out how to benchmark against milestones, and what that means about the amount of capital that you should raise. We spend a fair amount of time talking about who are the right investors that match those needs and levels of the company and at what stage. Are they the right ones? I think the elements that are easiest to overlook, and somehow are some of the most obvious are like, “What type of personal human interaction are you going to have with this extremely important relationship over the hopefully long term journey of building your company?” Following on what we talked about before and what are some of the things that investors don’t understand fully about the founder experience, I think putting up that kind of gut check about, “Is this a person that you think will be able to really empathize with what you’re working on and going through that you are going to be comfortable transparently telling the bad news to?” Hopefully, early before, it’s a huge problem and while you can still kind of enlist forces to help work on it collectively, those things to me are much more important than chasing the biggest valuation that you can get on a term sheet, or necessarily the best brand name that’s offering to invest. I think it’s really important to have the right people in your corner for a journey that’s as hard as founding a company and your investors should absolutely be some of those people.
Lisa
That’s great advice. I really appreciate all the good advice you shared on this program. We always have one final question because everyone cares about what influenced someone’s own personal journey. Who influenced your own personal journey? And to your point, relationships you have can make or break, you don’t necessarily know that when you enter the relationship. But when trouble hits, who’s in your corner, who really sticks, or who opens doors that you didn’t even know are there? I would love to know from your one, two, or even three people, and I don’t mind from what time in your life because we can all relate to having doors open for us, who have been some of the people and some of the relationships that have opened doors for you, or really helped change your trajectory and the ways you wanted it to go?
Victoria Fram
I love this question. I think all of us over the last year have done so much reflecting on missing all of these in person, human connections, and how really vital it is for us as a society to get to interact with people face to face. But from different stages of my life, I would say, I have to start with my parents. Oftentimes people ask, “What motivates you to work on these problems?” or “How do you find the areas in which you want to invest?” I feel like one of the huge drivers for me is that in the lottery of birth, that determines so much of your life in terms of what family you get to grow up with, and where in the world you’re born, and what opportunities you have. I just feel incredibly lucky that I got the starting place that I did. They acknowledged that broadly that is a huge amount of privilege. They definitely contributed. I obviously wouldn’t be here without them but they also built for me, a great series of opportunities that have led to where I am today. Then I think about the other two, I have a bunch of people who I could look to clearly, but my first role in investing, I got from a team that had no reason to take a chance on me and they did. Because they were able to have enough faith that even though I had no track record, and had never done a summer internship at a bank, and had not any of the kind of fundamental skills that so many other people who were trying to get into private equity had. I had to spend my first year out of college. A bunch of people are going into consulting and banking, instead, living off of a $25,000 stipend in China, the Netherlands, Kenya, and Uganda trying to do something useful as part of this conflict resolution fellowship. They looked at that and part of the premise of that fellowship was you also had to raise that same amount of money for the next year’s fellow so that it was this perpetuating thing. They were like, “You know what? Investing is not rocket science. If you can figure out how to move to each of these places where you have no network, and you can find a job, and you can raise enough money for the next person who wants to do the same thing to do it, you’re going to be just fine. We’ll be able to train you to do the underwriting and modeling that we want for you to be able to invest in these private equity funds.” There was a firm called Metropolitan, and the people there were David Sherman, Bob Burke, and Jeremy Ford, and then my first female mentor in investing Margaret McKnight, who showed me a way to carve a path for yourself and be the only person like you in a room and still hold your own. I think the last person who has definitely been very influential in working together has been my co-founder, Ross Baird, and bringing it back again to the Atlanta roots that I didn’t necessarily go into business school thinking, “Oh, on the other side of this, I’m going to come out and start a venture fund.” And there was no better person to think about building that with than Ross. It’s been really fun.
Lisa
He’s a force of nature, would you say?
Victoria Fram
There are a few people I’ve met that work harder or are undaunted by things that seem impossible when you’re staring down the path that it’s gonna take to get there.
Lisa
Thank you for sharing those stories. You’re one of the people I miss seeing this last year. I haven’t seen you at all, as we’ve been in various mini rooms where fundraising was essentially the agenda; nice rooms, nice places, nice clothes, which are not, thank goodness, our everyday. Even if we really didn’t have the agenda or time to catch up, it’s always fun seeing you in the other corner of the room, working those rooms, and knowing that there’s a connection here to the inclusion of venture capital and sort of a new guard. I really appreciate you sharing more of your story and the veal calf investment story today. Thank you.
Victoria Fram
Thanks so much for having me, Lisa.
Lisa
Thank you for listening to the Atlanta Startup Podcast. You know, we’re not just a podcast, we’re a community, and we’d love to see you at one of our digital or physical events, go to valor.VC and sign up for an event that makes sense for you. We have events for founders and the investors who back them. Another event you might enjoy is Startup Runway. The Startup Runway Foundation is a Valor organization that provides $10,000 grants to founders who are women or people of color building next-generation software products. Applications are free and we’d love to hear from you at startuprunway.org. And as always, thank you so much to the organizations that make this podcast possible. Not only Valor Ventures, but also Write2Market, a tech marketing and PR agency in Atlanta, Georgia, and the Startup Runway Foundation and Atlanta Tech Park Valley’s headquarters, and also headquarters for over 100 local entrepreneurs, building global businesses. See you next week. Please bookmark the podcast and join us.
