William Leonard
Hey ladies and gentlemen, welcome back to the Atlanta Startup Podcast. My name is William Leonard, your host and investor here at Valor Ventures, a leading seed-stage venture capital firm headquartered in Atlanta, Georgia. Today, I am overly thrilled to sit down with Alana Mann, Principal at Cultivation Capital. Alana, thank you for joining me today.
Alana Mann
Thanks for having me. Excited to be here.
William Leonard
Awesome. I know we’re talking now. But we’ll be reconnecting here in a few weeks on December 9, with Startup Runway coming up. Really appreciate you being a judge and giving feedback to underrepresented founders.
Alana Mann
Yeah, I’m excited.
William Leonard
Awesome, awesome. For our listeners, before we dive into the conversation, a little bit about Startup Runway, it is really the largest pitch for underrepresented founders, where they get connected to capital and oftentimes the first angel or institutional investor. We’re really excited about the work that’s being done with the Startup Runway foundation led by our newly appointed Executive Director, Mecca Tartt. But for the first half of this conversation, we’re going to talk about Alana of Cultivation Capital. I’m super excited to dig in and get your thoughts on a number of topics throughout the conversation. Some context about who you are would be important for our listeners. Why don’t you give us a high-level background as to who Alana is?
Alana Mann
Yeah, of course. I took the unconventional path into VC, which was taking the long route to becoming a founder. I spent a lot of time getting deep domain expertise in retail and E-commerce. I actually started off my career at Saks on the corporate side, which was really focused on the buying office. It was an exciting time to really be very intrapreneurial and scrappy, and to really get your feet wet testing out new models to work more efficiently. One big project I was able to take on was building up the designer department at the time, in conjunction with the launch of our first Manhattan-based store. That was a big win for the office in that regard, and I had some exciting wins there and decided I want to continue to find ways to develop in my career. I was fortunate to get nominated for the executive excellence program. And so at that time, I actually moved over to the luxury division. What was interesting at Saks at the time is that buying, planning, and e-commerce had been very segmented and distinct, in terms of the organizational structure and how those teams worked together. I went through the program and had a lot of great learnings and education there and development opportunities. Jet.com reached out right at the end of the program, Jet.com had just been bought by Walmart, and was in hyper-growth mode, in terms of figuring out how to really mobilize the new Hoboken office, which at the time, there were a lot of opportunities to get in on the ground floor, if you will, even though it was a large org, it was still very entrepreneurial in nature. Our team was really autonomous in how we started managing, not just suppliers, but also all aspects of planning, executing the buys, and all aspects of site merchandising; it was a really cool opportunity to feel like you’re running your own .com business. You have all the resources at your disposal because you have an awesome technical team in Walmart Labs, and then, of course, all the backing of Jet.com and Walmart e-commerce. It was a really fun run at Jet; I had some cool wins there. I received Leadership Award from the SVP of Fashion. On my one-year mark, I was thinking it seems like there’s a lot of momentum happening in resale, which is really the first big iteration of sustainable fashion at scale. And a lot of the retail companies at the time have been focused on this endless aisle experience whereas coming from Off Fifth at Saks and seeing what Gilt really had success in the early days with, it was this concept of a curated online destination that had a very high touch look and feel, even though you’re shopping from a website. I decided at my one-year mark at Jet to leave and launch my venture at the time called Ver Co. Ver Co was essentially focused on how could I really execute this vision of sustainable fashion to be more affordable and accessible for millennial women. Like I said, one of the ways that I first focused in terms of product lines was on resale. The first really big product focus was on an online resale destination for hand-picked, one of a kind vintage that had high-quality fabrics and had a really elevated and urban look and feel. And as a startup founder, I think the first thing you learn to do is pivot and get as much data as you can, leverage as many relationships with your customers as you can to constantly learn and evolve but not just what the brand should be, but what the customers want, and how those evolving needs should influence your business. The next two big product launches, we were thinking through, “Okay, there’s a lot of customer feedback saying, I actually am shopping on Ver Co, because the price is great, right?” And so really testing out, “Okay, what is the moderate price point that still has sustainable fabrics, right?” It was deadstock fabrics, but then really created these into timeless, almost evergreen styles. Bodysuits, mini dresses, some elevated basics, for that customer as well as another product launch really focused on there are some people coming for one at a kind feel, but wanted a contemporary, more modern aesthetic. We worked on making some of these really high-quality vintage pieces into more contemporary urban selects, similar to a more elevated version of Reformation. And then really quickly I started being able to manage a small team, spending a lot of time digging into not just how to build out a team culture, but also how to think long-term about product vision and what the brand could be. One of the things that I started getting really interested in is venture capital. And one of the things about venture capital at the time, was completely unbeknownst to me what VC even was, even though I don’t fancy myself as someone from like the heartland or even really from an area that doesn’t historically get venture dollars. But I do identify as an underrepresented founder, and I think the challenges that came with that really surprised me in terms of the ability to build relationships, the ability to learn quickly and get candid and honest, constructive feedback from investors. I just kept on feeling like it seemed impossible to understand if my business was right for funding, venture capital funding, and if it was right for venture capital funding, how could I really build-out the process and run a tight and efficient fundraising strategy to really get the funding needed for my business. That’s really how I got interested in VC. It just felt very archaic, outdated, and historically exclusive. And if you think about just the trend of today, where a lot of the market and momentum is happening, I think people are finally waking up and acknowledging that there’s a lot of things about VC that historically have been prohibitive to founders of color and prohibitive to female founders as well. After starting to learn and evolve my thinking as an investor, I had a number of roles in VC before making the full-time jump. I actually started at Starta Ventures, which is a New York City-based fund that’s really focused on a few pre-seed early stage startups. Starta Ventures helps international startups that have had some commercialization overseas, expand their go-to-market strategy in North America. I started in a portfolio support capacity there. That quickly evolved into a true summer associate role, where I was able to spend a lot of time sourcing deals and getting feedback from the principal at the time. All the summer associates were tasked with sourcing about 25 deals a week. Really building out and operationalizing my sourcing process, as well as leveraging existing relationships with founders that I had from being a founder. Once I started really, on this path with Starta, I also joined the GoingVC community. And so for those who might not be aware, GoingVC essentially is an educational program that’s really designed for people who have unconventional backgrounds, when it comes to venture capital, but who are somehow additive in the form of being a founder or being a really strong operator, so it’s really a selected and curated group. We’re super bullish on how they can be a value add strategy to founders. We all were doing this part-time while working full-time roles. And so that’s really when I got involved with GoingVC in the educational program. They have an investor program as well. That was another way to get a lot of shots on goal in terms of sourcing more deals all the way through leading up diligence, which is, of course, great experience as well, in terms of being able to even get it to your investment committee. We ended up not doing any of those deals, but I had so much learning around just leading a diligence process and getting the investment team excited about those opportunities, but also being able to dig in and analyze the risk-return models as well.
William Leonard
I think you’ve taken such a unique path from working at Saks to making that entrepreneurial leap and then understanding the ropes of venture and that scout role with going VC. Talk to us a little bit about Cultivation and your role there, give us the fund overview, and what you’re doing day to day? What types of companies are you looking to invest in and founders you’re trying to back?
Alana Mann
Of course. I joined Cultivation last November, so not too long after finishing up things with GoingVC. One of the things that’s pretty cool about Cultivation, we were launched back in 2012, really around the mission to provide and build out the community ecosystem building so that people would invest in the Midwest, and have startups feel like they could stay in the Midwest because historically, Midwest startups struggled to raise from coastal investors. Also, coastal investors were trying to insist or nicely persuade them to move to the coasts, right? Cultivation is really based on this premise that Midwest founders should have an ecosystem in the Midwest to stay to build their companies here and to know that they can quickly have access to capital. But that’s a huge part of the decision process when you’re a founder choosing where you want to base your company. Since 2012, we’ve developed a lot of different investment focuses and key areas. We have a team that looks at agriculture tech, and they have a global accelerator called the Yield Lab, we have a team that looks at Life Sciences and they recently launched a Healthcare Innovation Fund. We also have a team that looks at earlier seed-stage deals, that is called Spirit of St. Louis, they’re actually on their second fund now. They really are our only, I will say, industry-agnostic vehicle but they do have a focus on regional, right? It’s called Spirit of St. Louis. 70% of their portfolio, I believe, don’t quote me on that number, is represented and is based in the Midwest. And then we also have a team that recently launched Geospatial Technology, which is pretty broadly defined. But really anything that touches I want to say, like satellites, or leverages location-based data, so they look at some stuff that touches like insurance and all these other aspects, which is pretty cool. They actually look at some stuff that touches agriculture. And then they actually ended up doing a deal with one of our agriculture funds. The overlap with the funds is pretty cool. And then I spend all my time on our tech team, which is essentially focused primarily on enterprise SaaS companies. We have a big bias towards companies with recurring revenue or with predictable revenue. We say that we’re pretty industry agnostic, which I think is true. We’ll look at anything from E-commerce enablement, marketing tech, we look at a lot of prop-tech, as well as some great insurtech companies.
William Leonard
Do you have any industries that you, as an individual, lean towards?
Alana Mann
I’ve been spending a lot more time looking at the creator economy. I think we always look at a lot of marketing tech and ad tech. I think I’m obviously looking at those. I would say in terms of everything, I’m really bullish on what is the next iteration of infrastructure and FinTech that enables more generational wealth-building for underrepresented groups or a big focus on financial inclusion. So if you think just about the statistics around the underbanked in the US, there’s still a lot of upside in terms of FinTech opportunities to solve these large-scale problems.
William Leonard
Are you all writing seed stage checks, Series A, what stages are you all looking at?
Alana Mann
We write what we call early Series A checks. It’s interesting, because some people are like, well, that’s maybe late seed. What I always tell people is, the way we like to think about it, is we lead, and we’ve led in our third tech fund about 90% of the time. Really big conviction first investors. Usually, when we lead, we like to do a $2-3 million first check. Sometimes those rounds can be anywhere from 5 to 7. Some people might call it a seed-stage round, it might have used to be called a true Series A, we call it an early Series A but I think usually round size is where we can really be aligned with others, when it comes time to it since nomenclature is more up in the air, I’ll say,
William Leonard
I think nowadays, a round name is literally whatever you want to call it. We just call it venture at this point because a seed could be the equivalent of a Series A or vice versa. You never know what you’re going to get with the naming of these rounds these days. I know Cultivation had its start in the Midwest, I believe, is that correct? And then you are now in Nashville, which is in the southeast, our neck of the woods here in Atlanta. Why did the company decide to focus on Nashville a bit? Can you talk to us about that move to Nashville?
Alana Mann
When I joined the fund, it was an interesting time, because we had the first Co-founder & General Partner Cliff Holekamp, also moving to South Carolina. They were bringing me on or like, look, you’re going to be tasked with helping build-out in the southeast, and the offices there. That was definitely in the back of my mind. When I was thinking through what city would make the best fit, I always like to lean into places where I either have existing relationships or connections that I know, in VC, I always tell people, like I’m super open, so I respond to cold emails. But if you can get warm intros, in the name of VC, it’s always better. I did choose a city that I had some sort of roots in and some ties to because I went to college at Vanderbilt in the Nashville area, and when I was looking into what’s going on in Nashville, and getting excited about the opportunity, there are a few things that got me really pumped about why Nashville is really going to be disruptive in terms of all the influx of tech talent. If you look at all these big universities and institutions in town, the opportunity to have access to a mass amount of entry-level talent and being able to fill into that for these startups, I think also really value additive, when you think about what the Nashville tech ecosystem will look in like three to five years, because companies have to want to move here. Now another is going to be access to capital and then also access to top talent. The trends around tech talent moving here, and the existing ecosystem of all the universities makes a lot of sense. You see all these big announcements of larger corporations moving to Nashville because we’re still in the early innings of what that tech ecosystem will look like. But I think large corporations are starting to realize they want to play a role in this community. It’s time to like plant roots, and really get involved and I think that was one of the things that were really exciting. When I remember, I came down maybe like a month before I moved here. I basically had like a week, maybe three to four days, to find an apartment. It was so stressful. But when I came I was like, “This is awesome.” The city is completely different from probably five and a half years since I graduated. Somewhat accelerated by COVID, moving to Nashville as well has just amplified what that looks like in terms of building a tech ecosystem here as well.
William Leonard
Our team was in Nashville in early August. We’re driving around downtown and we look literally on every corner, you’re seeing construction of apartment complexes, condos, all of that. I think you’re right. Nashville is maybe known for music or healthcare, but we’re seeing a plethora of industries solidify themselves in the Nashville startup world. As you started out at Cultivation back last year, I think I saw you starting a blog post called Get Acquainted. I think I was reading one of your posts where you were, in the first 30 days of being at the team, you interviewed a certain number of female founders. I want to know more about your focus on underrepresented founders, why you’re taking the initiative to help these individuals? Obviously, we know the statistics around venture funding for minorities, people of color, women founders, but talk to us about your passion and your mission for helping underrepresented founders a bit.
Alana Mann
I think a lot of times with what I’ve seen a lot of times with underrepresented founders or founders who may be from communities that have never seen the path of early-stage startups starting from idea going to public listing company, right? Seeing those ecosystems getting built, and the angel investors that will come out of those successful IPOs. That doesn’t exist in every community. There’s education that needs to happen. But historically, VCs don’t want to be open about feedback or help founders learn about VC. And you think about it, in some ways is part of the exclusion tactic, right? Like that is exclusive in itself, if someone is trying to understand and you’re not vocal or comfortable explaining it, or walking them through, like how they can run a tight process, or how they can seek out angel investors, or how they can build relationships with potential universities in town to get access to entry-level talent. All those things that VCs naturally do and have access to and have experience, when it comes to these networks, historically have not really been super focused on diversity and inclusion. I’ve experienced that firsthand, as a founder. It’s really tough. Being a founder is extremely lonely, even when you do have a team around you. Because a lot of times, you might not have a co-founder, you might be a solo founder, and getting feedback, pivoting, having not just execution risk is a big piece, but also have some sort of advisory board or people you can turn to at a more senior leadership level, oftentimes doesn’t always exist for these really early-stage startups. I actually launched that blog series because I wanted to just give people 30 minutes of time with me where they could come up with 2-3 different problems. I could just help them troubleshoot. Because a lot of times, what I found is that people will ask for advice, and a lot of times people giving you advice sometimes may not always be the ones who you should ask for funding. And then what happens is, if you’re asking VCs who might not want to give you advice next for funding that whole relationship becomes really complicated and suboptimal. I just came to those calls and just said, “Okay, what can I help with? I was sincere about it. I think a lot of times people will joke and say, Oh, VCs always say, ” What can I help with?” It’s gotten a bad rep. But I really think you can be tactical about it and action-oriented feedback really can help sometimes, especially in those examples, when it’s a solo founder who’s looking at one problem with one point of view, and might not have the resources to test and pivot, right? This might be a really crucial and immediate problem. That was how that really launched up and it just started to get some momentum. I was able to speak with a lot of female founders within the community. It was awesome. I definitely have seen the payoffs of that and the reward of that in terms of just being able to not just build those relationships, but help at scale. I’m going to continue to spend time making sure those founders feel supported and then I can continue to help them on their journeys. Because I think the biggest challenge is that when you look at all those statistics, it’s really daunting around female founders, minority founders. The worst part is, it seems like no one is making efforts to change those statistics. I don’t want anyone to feel that way and feel isolated, or that they need to operate in a silo. For me, that blog series is really about just saying, “Hey I’m here and I want to support you, and know that you could come to me with questions. You don’t have questions now, you’ll have questions later. But I’ll still be here. I’m just an advocate for you and in your corner.”
William Leonard
When you were conducting those initial interviews and conversations with the female founders that you spoke with, what were two or three biggest takeaways that you assessed from those conversations? Was it regarding fundraising? Was it regarding company building? And then I guess, off of those big takeaways, can you provide any insights to some underrepresented founders who may be listening right now? Any practical advice like that?
Alana Mann
I think most of them were about company building. The first one that was most common was, a lot of times, when people are at that early pre-seed stage, they have questions about, “How do I ensure I’m not just finding the right customers, but ensure that my product is truly sticky?” Problem-Solution, if that makes sense? I think for that problem, the feedback that I gave everyone was to leverage data. And a lot of times VCs will say, “Oh I don’t invest in pre-revenue companies.” It can feel discouraging but the way to work around that is if you have a ton of customer data, and it’s really clear that no one is either messaging to this customer the way that you are, no one is selling in maybe a new channel to this customer the way that you are, and how you’re creating that product stickiness. It could live in the earliest days in the form of customer data or it could live in the form of a customer waitlist. I remember when I was sourcing for the GoingVC investor program, there’s one startup that I brought in that had like a 30,000 person waitlist, right. They were pre-revenue. It’s about figuring out how can you get early traction and those early signals that showcase that two people truly want this product and that they’ll pay. Because for those people on the waitlist, there’s a dollar amount tied to it.They were on the waitlist, but they were committing to pay, I want to say maybe like $30, etc. They obviously were pre-revenue but when the product is launched and ready to ship, they now have all these early signs of product-market fit. I think the second big one that came up as a problem was how do I find investors or know who’s a great investor to reach out to? Because a lot of times, there’s not a lot of pre-seed investors, and they’re hard to find. The solution I told people for that one is, when you’re in those early stages, don’t be hesitant to reach out to angel investors and to find angel investors who have almost like a bias or preference, or even deep domain experience in the space that you’re building in. And a lot of times, angels will just basically be a great way to get you to that next round of growth. Your next round might be institutional investors. That’s what was solved there. And a lot of times early angels that come in that might have that domain experience, they also can probably help with intros to potential customers, intros to potential strategic partnerships, so people a lot of times sleep on Angel investors, but it’s not only at that earlier pre-seed stage that they can be really dynamic, in some cases they can even introduce you to a seed-stage institutional investor. I think that’s one solution for that. I’d say maybe the third one was, a lot of people would ask me about pricing. Because of my background, I think that’s why people always ask about pricing. But the solution for that, and I always tell people is really easy, just do as many surveys as you can and try and get as many people who fit what you think is your target customer, get them to fill out the survey. Get people who say, “You know what, there’s no chance I’m buying your product.” Because you really want to understand how much they’ll pay, right? Because your job isn’t to convince people that might be biased against you to buy your product but if you can get those people to buy your product, that is the bigger challenge that ensures that there’s future scalability.
William Leonard
I think those are all critical points; company building pricing, understanding how to get that early traction is so pivotal, especially for, like you said, these underrepresented founders who are facing those hurdles on top of just biases from the industry, and other factors like that. Really sound advice there, I’d say. I want to transition here a bit and get your thoughts on the venture markets this year. 2020 was such an interesting year where the first half of the markets were paused. But then I think, May or June, things just took off. We haven’t looked back since. Are you and the Cultivation team seeing anything unique in terms of valuations, round sizes, any bold predictions, or insights that you can share?
Alana Mann
Right now, we are seeing a lot of big valuations, a lot of these bigger rounds, and something I think is actually really optimistic, we’ve been seeing a lot more diverse founders. I think we’ve been really strategic about how to form relationships with other earlier-stage venture partners or venture funds that are really focused on diversity. That’s been an awesome way to increase the diversity of our pipeline, and some early-stage accelerators have some awesome programs. That’s been a really exciting piece of some of the momentum this year. But I think it’s very much so not unique, and I think it’s what everyone’s been seeing is that people are raising these monster-sized rounds at these monster-sized valuations. And our team is, like I said, heavily focused on finding capital-efficient founders who are really scrappy and eager to build a sustainable business. It almost becomes really competitive to find those founders when everyone is targeting them and trying to get into this optimal sub $10 million Series A rounds. I think we’ll continue to see that over the next few months. But what’s been really promising has been that there’s a lot of high-growth startups out there right now. Some do have a focus on businesses that have some really strong milestones in terms of revenue traction. We’ve been able to still discover some real Rockstar, capital-efficient founders, who are sometimes hitting a $1 million in ARR, really based on just founder-led direct sales. A lot of heart and scrappiness. That’s one of the things that’s been pretty cool about just all of the larger rounds we’ve seen this year.
William Leonard
I think the talking point of capital efficiency is interesting, maybe that notion went out the window a bit with how much capital is in the market right now. It’s probably, I wouldn’t say easier than ever, but it’s probably easier than ever, right now to raise funding from a venture firm. How do founders balance the conversation that maybe they’re having internally about, “Guess we can be capital efficient. Yes, we can go out there and raise a ton of venture at a high valuation.” How to find this balance and the line on that?
Alana Mann
A lot of these companies have so much opportunity ahead of them from a revenue trajectory perspective that getting this big valuation is still really feasible. But imagine how much upside there is and that next round when some of that booked revenue becomes actualized. In some of these scenarios I think it’s really important for founders to think through what is the, hate to say it, downside, right? In a few months, when the market conditions may change? I was on a call the other day, and we were talking about, “Yeah, we’ve never seen any downside scenarios yet.” I think obviously, that’s an awesome thing. I don’t wish that on anyone. But that could be the caveat of all these larger rounds, and higher valuations today. I think that’s something to address and we should really focus on how the valuation and revenue today correlate? How does my plan for team build out directly tie back to your projected burn after this raise? Do you know how to spend this additional capital that you’re adding to your funding round just because the markets are frothy? All of that goes back to again, balancing out the differentiation between early signs of traction and repeatability. Because once there’s the repeatability of sales, repeatability of selling into these larger enterprise customers, it’ll be really easy for these companies to figure out how to spend and acquire those customers again, especially from a sales cycle perspective. But that really comes from, how well do you know your customers? How well do you understand the sales process today? And all of that really comes from getting to revenue, inflection, and growth inflection that I think a lot of these startups raising these bigger rounds at the seed or earlier Series A are pre-empting, in a way. I think that’s the big challenge that we’re seeing. But I think, everyone says they love all their portfolio companies. We have some really big rockstars that have had really strong markups in their revenue and we really resonated with that. The market is really rewarding them for that. I think it’s an awesome time to be building, it’s an awesome time for founders, as long as that revenue is really aligned with your growth expectations. You need to have a lot of confidence and repeatability in those revenues, and how it relates to scalability.
William Leonard
I think those are all strong points. Hopefully, founders have a strong awareness of some of the metrics that you touched on as well. It’s unfortunate that the markets are going to constrict at some point. Nobody knows when, but I think being smart, being capital efficient, and really focused on growth, and not having the highest fluctuated valuation is going to be critical, as founders continue to navigate that ecosystem. Really appreciate your insight on that because I think a lot of our companies that we have been listening are early-stage, seed stage, maybe Series A, even pre-seed founders, who are thinking about how do I even navigate this for the first time? How do I go out and raise a successive round of capital? What are some of the things that those investors are going to want to see? I think you hit on a lot of those points there. Really appreciate you jumping on here today Alana because, not only Startup Runway is coming up and you’re going to be a judge there but two, you are in the trenches every single day, talking with founders, extracting insights, and turning those insights into really actionable takeaways for founders through your blog posts and through your investment style. It’s really exciting to have you join Startup Runway in a few weeks.
Alana Mann
Awesome. Looking forward to it and hope everyone is able to attend.
William Leonard
Yes. Thank you, Alana. Take care.
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.
