As part of our Founders + Funders SF 2019 summit, held in partnership with Seneca VC, we brought together an exciting group of startup founders and investors for a day of learning, networking and growth.
Our CEO Kate Brodock sat down with Trish Costello, CEO of Portfolia, an investment platform designed for women. They talked through investing models, getting started and then getting better as an investor, the Portfolia model, and more.
I’m so excited to have Trish here. She truly is an expert in this space. She’s done a lot, in several different forms, and has come to a really neat model for investment, which we’re going to talk about.
I love the model of Portfolia. Not only is it an excellent investment vehicle, but Trish and her team have built into it a really great way for investors to start thinking seriously about investing. So Trish, can you talk to us about the model, both sides of it, from the investment standpoint and then also as an investor, what that means to be an LP in your funds?
Yes. So Let me just start out by saying that, as they mentioned earlier, I was the founder of the Kauffman Fellows Program, which was a program to train venture capitalists. It was the first training program of its kind, and we put over 700 of the top VCs in the industry, with one third of those 700 being women, some of the top women in the venture world. So I had that understanding of how venture capital works across hundreds and hundreds of the most successful venture funds.
A few years ago, about four years ago, I looked at this and I said, “This is best of class in general venture. But still 97% of them are men. What if we took a step back and considered that if we were creating venture capital today, knowing how we – successful, smart, sophisticated women – organize, how we make decisions, how we add value. Would we do it differently, rather than just taking ourselves and putting ourselves in today’s venture capital?” And I came away saying, “Yes. There was other models that could be created.”
How Portfolia’s model works is that our goal in four years is to activate 100,000 women and others who want to invest in a model of venture capital where we go in and we back the companies that we want in the world, and bring our buying power and our social networks to those companies. We do multiple funds in a year, and we have 249 individuals in each fund. It’s completely transparent, even educational.
And just a pause. That number, 249, what’s the significance of that for the audience?
Investing is highly regulated. And the SEC only allowed as of a year ago up to 99 people in a fund. Last May, it shifted and now it’s 249 individuals in a fund. So we completely max it out.
As my VC buddies in traditional firms will say, “Oh my God. 10 limited partners is all I can handle.” A typical fund is $25 million put in by 10 organizations.
But we see the value of the fund is having highly connected investors – in our case from 40 states and 12 countries – who aren’t just suppliers of money, they’re suppliers of the knowledge and networks and they actually help those companies grow.
Stepping back and taking a look at the space, we’ve seen a lot of funds enter the market in the past two, three, four years in a higher volume than the couple of years before then. Some are led by people who should be leading funds. Some maybe aren’t [laughter].
When someone is getting into any type of investing, especially if you do want to make the move and get closer to the higher level VC investing or much more sophisticated angel investing, why is it so important to be really deliberate? Why is it important to be well thought out? It doesn’t necessarily mean speed, but why is that important as an investor?
Let me start on the angel piece. It’s only been in the last five years that we have a lot of information and data on this. Most of the data that’s coming out about this comes from the Kauffman Foundation. We now know that if you’re an angel investor, you need to do a minimum of 30 investments in 5 years, which means you need to look at at least 300 deals and you need to take at least probably 90 of them into diligence, and the ideal is 50 hours a piece in diligence to be a successful angel. I was an angel investor and a very active one, but I did not do 30 deals in 5 years because I also have friends [laughter] and children and I like to travel–
And sometimes jobs.
I have a life. The people that can do that are usually the 65-year-old retired guy that does this all the time.
That’s also part of what we thought through is how to take what we now know will lead you to be successful and create the excitement of what it is to be an angel investor, because that’s why we do it. I mean, we can make great money, but we do it because we love being a part of that entrepreneurial journey. Is there a way to take that excitement of angel investment and put the professional management venture on top of it?
And you’re really hitting on a key point on that professional management. I’m a Warriors fan, so any of us can go out and shoot a basketball, right? But if you’re a professional basketball player, that’s what you study. You practice every day. You understand the game. You have coaches around you that ensure that you’re playing at the highest level. And any of us can invest our own money. But if you want to play at the highest level, make sure that you have people that are doing this professionally that have studied it, they’re a part of that, or that have people around them that have done that. Because that’s part of our challenge as women. We haven’t been in these networks. We weren’t brought in early. And there are some of us that don’t have that full background yet. But make sure if you have that great raw talent that you also have people around them.
Let’s talk about the different levels of investors. From a risk perspective, what do you see being some of the differences between being a solo investor or part of a group? So you’ve just gotten into angel, you’re doing your own couple of solo deals, maybe then you become part of an angel network, then maybe you step into a micro VC fund. The levels of risk as an actual investor, how would that look along that pathway?
First of all, a couple of tips about being an angel investor, and these are the same tips on being a successful venture capitalist. You need to develop a thesis. Unless you’re just going to willy nilly shoot money here and there, develop a thesis. That’s what the top VCs do.
Invest first of all in what you know, where you have expertise, and where you have passion. This goes all the way back 50 years to Peter Lynch, who says invest in what you know. Or Warren Buffett. Invest in what you know, invest in what you buy, invest in what you have a gut level of. People that make mistakes are ones that are just looking for novelty. I’m brilliant in women’s health, but I’m going to go invest in–
Oh, this looks fun. Yeah.
Yeah. This looks like fun. I’ve never seen it before so I think I’ll put my money there. Don’t do that [laughter].
Juicero. I don’t even– the list can go on. Who’s seen the Fyre fest [laughter]? Yeah. That looked really fun, didn’t it [laughter]? Super investment opportunity.
Whoa. Was that fun [laughter]? Yeah.
So invest in what you know.
Then, invest with others who know a little more than you do about that. Because when you first start, even when you’re investing in your own space, everything looks amazing, “Oh my God, I have never seen. That’s amazing.”
But if you’re investing in that space with others that invest in that space who’ve been doing it for five or six years, they’ll go, “Oh, my gosh. There are three companies like that in Boston. There are five in Singapore. There are 25 total.” You have to know the landscape. You want to have others out there that have been doing it for a while that can give you that kind of that grounding.
And then my third thing is start small. Yes. Start small until you figure it out. Because I cannot tell you how many stories I know of people that said, “Oh, my gosh. I was so excited. I put $100,000 to work in 5 deals and I lost it all.” It doesn’t need to be that way.
One thing we’ve also seen has to do with the terms. To understand when you hand over $25K, $50K, what that really actually means. What type of investor are you? How are you reflected on that cap table if the company gets to Series B or C? So that’s another level of risk that takes a lot of time to be knowledgeable on.
Ok, out in the marketplace, for people interested in becoming more sophisticated investors, what other models have you seen where people can start getting included if they want to take it past the solo angel of things that happen to cross their plates? What other places can people go?
As an individual, there are a lot of good training programs out there. Many of you have heard of Pipeline Angels. That’s one training program option. 37 Angels is another training program out of New York, another excellent program. There are a number of groups like that that are training.
There are a number of individual angel groups specifically for women, for others, that are regional. I’m also on the board of the Angel Capital Association and they have a list of hundreds of angel groups that are out there. You’re still investing individually as an angel and you need to do your own diligence, but that’s another way to get started.
Finally, as you would imagine, I think that groups like mine are an ideal way to get started. In the venture world, if you can get into a top venture fund, the minimum is usually about $5 million. If you’re an entrepreneur that’s been cashed out, they’ll often take you in for $250,000 or $500,000. But that’s about the minimum dollar amount.
We’re trying to activate 100,000 people. Ao you can come into a fund like ours much easier. We’re taking 249 people for $10,000, and that’s spread across 10 companies in a year. So that’s a different kind of model. And we’re about the smallest you can get in a fund. The other thing about our fund is that you can see every pitch like a shark tank. Then you see the entrepreneurs go off and you hear the five lead investors mix it up. You’re actually behind the curtain on how we evaluate. You can be on the diligence teams, so you actually learn how to do this by watching us do it. Then you can start doing your own deals and you can say, “Well, I saw a company similar to that. That is really a quality deal.” Or, “This isn’t really venture bankable.”
You’ve sort of covered my last question which is what are some concrete steps that any new investor can take if they want to start getting down this path? You’ve answered quite a bit. But do you have anything else to add on that?
I’d say, yeah, join an angel group , if you’d like. Go into some training. If you would like to do that, join a small fund like ours. And we do ours in categories. First step, FemTech. Actually, Kate, believe it or not, we created the Women’s Health Fund, the FemTech venture fund, portfolio FemTech fund in 2018. Never had there ever been a fund in women’s health. Never.
A fund completely devoted to women’s health.
And 80% of healthcare venture capitalists had never invested in a women’s health company because they’re 90% men. And as one told me, “Trish, even if I can make a lot of money there, I don’t want to talk about vaginas every week [laughter].”
That’s why women’s health doesn’t have a lot of the innovation out there.
One thing I would add is if you’re going to invest, think about making returns and thinkabout how that money can make a difference when you’re putting it in what you like and know and have a passion for. I’m not just saying you’re in a SaaS company, so put it in SaaS. I’m saying think about it beyond that, because women’s health, aging, some of us are taking care of our aging parents, food and ag tech. There are different areas where we can make a lot of money and we can shift, this is not overstated, we can shift the world with how we invest our money, and we really should start doing that. We need to do that.
I love that. [applause] Yeah.
A couple of other resources for people before we go into Q & A. I do know a couple of the VC firms have started to pop up angel tracks. We’ll have Phin Barnes here from First Round Capital in a bit. They’ve got one. Angel List has started an angel track. There’s a new Venture University. We have one or two cohort graduates around here that’s literally training for to enter into as a partner for venture. So a couple of things popping up. They’re newer.
Ok, let’s head into Q&A.
QUESTION: What have you noticed the risk adversity of women? And when we saw the gap table conversation a little while ago, one of my questions is, as women live longer, we inherit money, how is it that we’re so underrepresented as investors when women do have a lot of money?
Let me give you a first statistic that you might not know. Women in the US now own over 50% of the personal investable assets. First time in recorded history in any culture, any country, where women actually own the majority. So we have the money and we need to step up. But yes, women see money differently. And first of all, it was only the 1980s that a federal law went in saying that we had to be treated equally in getting bank loans for our companies and in being able to have credit cards.
We’re not talking that far back. There are still echoes of that. But we’re a little more realistic about this and we like to ask questions and we like to learn. That’s what we’ve found with our people.
So instead of saying, “Oh, pooh pooh that,” what we’ve done is created ways to learn and ways to ask questions and environments that feel like they’re comfortable to do that. And so we think women are risk-realistic and we’re building for that. And I think you’re seeing a lot more groups that are doing that
QUESTION: For founders who are fundraising, is there a typical ladder of fundraising, i.e. angels then micro-VC then VCs? Or is it more of a fluid series of steps?
It really has to do with your type of company and the amount of money you need over time. What I would tell you as women is that there are more women angels and small micro funds that have women partners that are looking for women to fund than there are in the larger funds. And you’re always going to get a better hearing if you’re talking to people that are more open to backing you. Where you’re their pattern, where you’re not playing against pattern.
But if you need $50 million to run that company, you’re probably not going to get that from Angels. Be really smart about looking at what you really need. Don’t buy into that unicorn myth. Really look at what you need to meet your goals and then find the right match.