TSP041 | Alicia Robb – Transcription
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John:
Hi, today’s guest on The Successful Pitch podcast is Alicia Robb, who is a Senior Fellow at the Kaufman Foundation. She has her PhD in Economics, and she worked for the Federal Reserve Board. She talks to us today about what it’s like to work with the Co-founder of Portfolia, where they have created a rising tide fund, based on Alicia’s book, Rising Tide, where they have 99 women in this organization. Nine of those women are expert angel investors, helping the other 90 women learn how to become Angel investors, and then they work on finding Founders who are either female, or have a diverse founding team, get funded through their angel Investment firm. She talks about how important it is to know your numbers, especially when you’re talking to somebody who has a PhD in economics. Also, passion is extremely valuable, because they want to fund someone who has passion for what they’re doing, and knows what they’re doing. Enjoy the episode.
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Hi, and welcome to The Successful Pitch podcast. Today’s guest is Alicia Robb, who has her PhD as an economic professor, and she is a Senior Fellow at the Kauffman Foundation. She’s also worked at the Federal Reserve Board. The Kauffman Foundation has $2 billion in assets, and has a focus in education and entrepreneurship, so we’re really excited to have Alicia on the show today. Alicia, welcome.
Alicia:
Thank you. Great to be here.
John:
I always like to ask people about how did they get started? Did you know as a young child that you wanted to get your PhD in economics?
Alicia:
I didn’t. I did go into college, well it’s funny, quick story, went into college with a major in Multinational Organizational studies, which is International Business and Development, with a language focus. I went home at Christmas one year, my dad said, “Gosh I don’t know what that is. What’s your minor going to be?” I said, “Peace and Justice studies.” He’s like, “No, absolutely not. Go do something practical.” I ended up minoring in economics, which then I ended up majoring in economics, when I saw that everything we do is related to economics, From then on, I went to get a Masters, and a PhD.
John:
Wow. You make it sound so natural and effortless. Was there any stops in between the masters and the PhD program, or …
Alicia:
No, I went straight through.
John:
Wow.
Alicia:
I started grad school a little too early, so I quit and worked for an economic consulting firm for a couple years, and then I ended up starting again at University of North Carolina in Chapel Hill and went through the whole Masters, PhD at the same time.
John:
What was your thesis on for your PhD?
Alicia:
I actually looked at the impact of race, gender, and discrimination, on business performance in the United States, looking at how to measure and see what was driving the under-performance of women and minority owned firms.
John:
What conclusions did you find?
Alicia:
That was a long time ago.
John:
Oh, sorry. I don’t mean to test you, but …
Alicia:
I’ve done similar research, that’s been my research stream over the last 20 years. A lot of it is around financing, financial capital, and others are just not having the same levels of startup experience, industry experience, management experience, that can help you as an entrepreneur later in life.
John:
Those early experiences in education continue to be a key criteria whether you’re going to have a shot at this, yes?
Alicia:
Mm-hmm (affirmative). Yeah.
John:
What made you want to go work for the Federal Reserve Board, and what was that like?
Alicia:
I was finishing my PhD, and I had decided not to go on the market. They contacted me because of my dissertation, using census data, and looking at women and minorities, and financing. They actually wanted to interview me for a specific position there, working with the survey of small business finances. They actually recruited me, and so that wasn’t a difficult decision.
John:
I’ll say.
Alicia:
It was a great job, and great opportunity, and so I managed to finish and go right to the Fed in a pretty quick turnaround.
John:
What’s the one thing that people would be surprised to learn about working for the Federal Reserve?
Alicia:
I was at the Fed during the Greenspan days. I don’t know.
John:
Is it bureaucratic? Is it a bunch of PhD’s?
Alicia:
Is it bureaucratic? It is bureaucratic, and that’s one of the reasons I left. Yeah. They have a lot of issues there, and it was not the right fit for me. One of the great things about working for the Fed was working with 200 amazingly smart economists, and being able to just go to any door on your floor, and ask somebody a question, and someone would know the answer, because there’s just a whole bunch of really smart people working there. I’m hoping with Janet Yellen’s leadership, They will do bigger and better things, because it was quite a disappointment from … What’s the previous two chairmen?
John:
Is it a constant conversation about interest rates, and inflation?
Alicia:
It is with the macro people. I was actually in the micro group, so don’t ask me anything about interest rates, or …
John:
Okay. Fair enough.
Alicia:
I’d be guessing.
John:
I do want to ask you your opinion as someone who is a specialist in economics, separate from the Federal Reserve Board is, “Do you think we are in a tech bubble?” That’s all on the news, whether it’s on Vanity Fair, or all kinds of articles everyone’s reading about. What are your thoughts on that?
Alicia:
It depends on what you mean by tech bubble. I worry about some of the valuations that we’re seeing with some of these companies that are not profitable, let alone even having revenues, and I’m just not seeing the core value, that these valuations seem to be reflecting. I worry a little bit about that. No, I have hopes for the country and the world, because we are incredibly innovative, and I do think technology is driving a lot of positive, good changes, going forward. Just worried a little bit about the over-hyped valuations on some of these companies.
John:
Tell us, if you will, about what it’s like to be a Senior Fellow at the Kauffman Foundation, especially with your specialty in Entrepreneurship?
Alicia:
I ended up going to Kauffman because of my work with the Survey of Small Business Finances, and Small Business Finances translated into Entrepreneurial Finance, and they hired me to be the principal investigator on the Kauffman Firm Survey, which is “Longitudinal Study of Startups,” that we tracked over 8 years to try and better understand firm dynamics, financing, innovation. It was right smack in the middle of the economic crisis, so looking at how that crisis impacted small and growing young firms. I’ve been with them for about 10 years now, and it’s just been the most amazing experience. Ewing Marion Kauffman was a rags to riches, successful entrepreneur, that started Marion Labs, and ended up selling it later in life, and set up this Foundation to promote a more entrepreneurial economy, and create an enabling environment in ecosystem, where entrepreneurs could thrive and everyone could achieve the dreams that they wanted to. His focus was really always on education and entrepreneurship, because he saw those as the two channels that would allow for anyone to achieve their dreams.
John:
I love it. What are some of the success stories that you’ve worked on over the last 10 years?
Alicia:
I think we better understand early firm dynamics, and we understand the need to have timely, useful data, on firms and their owners to better understand challenges that they might face. I’ve since wrapped up the Kauffman Firm Survey. That ended in 2012, but we’ve gone on to now partner with the Census Bureau to annualize their survey of business owners. Now it’s going to be called the Annual Survey of Entrepreneurs. It’s going to be the first time that we have annual statistics on firms and their owners, but it goes into very detailed information from these owners on their financing, adherence or credit market, experiences, the challenges that they’re facing. We’re going to have a much better picture of entrepreneurship in our country, and what we can do to enable them to overcome barriers and challenges, so that we can help them grow.
John:
I loved it. Have you explain a little bit about one of the challenges around getting funded, because we’re all about trying to help people with their pitch, and finding the right investor. Has the research shown that it’s easier to get funded now that it was 10 years ago? How important is it for entrepreneurs to realize that they need warm introductions to investors, anything along those lines?
Alicia:
It’s definitely easier than 2008, when we had the crash. It’s important to note that very few firms actually get equity financing through venture capitalists, or angel investors. What we hear all the time is, venture capital backed firms,” but it’s 4,000 or 5,000 deals a year. That’s a tiny, tiny, fraction of firms. There was about $50 billion in 2014 that went to companies that raise venture capital, which was a huge increase over the previous year, which was more like $25 billion. The reality is that was still only 5,000 deals, whereas, angel financing is about $25 billion in funding last year, and that went to about 75,000 firms.
When firms, especially young firms, and startups, are thinking about accessing financing, the reality is only a small fraction actually get any equity financing, and it is really the friends, the family, your owner equity, that you put in, that are driving it. To a large extent, banks are providing debt financing. Now with crowdfunding, we’re seeing more opportunities for alternative financing. There’s a whole host of platforms that are providing debt equity. A lot of entrepreneurs are using crowdfunding platforms like Kickstarter, or Indiegogo to get non-dilutive capital to show market fit and product traction, that’s going to be attractive to banks and angel investors, and venture capitalists, down the road. We’re seeing a whole host of new opportunities for young companies to get financing.
John:
That leads right into what you’re doing with Portfolia, which I’ve read has been described as a better design angel list. Would you talk about that?
Alicia:
Portfolia is a equity based platform, where companies can raise equity from an investor community. I’m actually working with Portfolia to launch a angel fund and training program to drive more diversity in angel investing. This first project, The Rising Tide Fund, an angel trading program, I’m doing in partnership with Trish Costello, the Founder and CEO or Portfolia, where we’re going to bring together 99 women investors to have a fund where we pool our money together, and make 6 to 8 investments of $100K to $200K, in young companies. Of the 99 women, 9 are experienced successful angels with great track records, and 90 new and emerging angels that want to learn about angel investing, and how to do it, how to do it well, how to add value to the companies, and learn while investing, so they can hopefully go on and become really successful angel investors down the road.
Portfolia is focused on women led companies, and building a community of investors, women and men, that want to see more capital going to women led companies. Our program, The Rising Tide Fund, is not specifically targeting women led companies, but obviously, we know the research and know the diverse teams do better. We’re going to be very cognizant of that fact, and look for diversity in the founding teams of the companies that we fund.
John:
There’s so many great bits of information you just gave there. Let me start with the first thing, which I really am fascinated by, which, if I understood you properly, the 99 women that are in The Rising Tide Fund, 9 of them are experienced, and they’re going to be training the other 90, on what it takes to be a good angel investor. Is that accurate?
Alicia:
Correct, exactly. Although I will say some of the 90 that we have are pretty experienced in their own right, but the idea is a lot of them are new and emerging angels, who don’t have a lot of experience, that are looking for advising and mentoring by people who have done it successfully in the past.
John:
It’s a startup that’s helping people become investors, so that they can help other startups. It’s just so full circle. I love it.
Alicia:
It is a virtuous circle, because the more women angels we have, the more that ultimately women entrepreneurs are going to get funding, and become successful entrepreneurs, and then become angel investors, investing back into companies, themselves, after their exits. We need more women on both sides. We need more women investing, and we need more high growth women entrepreneurs, so this is a way that helps build that ecosystem.
John:
When women or other people who are part of a diverse founding team, come to pitch The Rising Tide Fund, and they’re looking for $200,000 is there a framework that’s a reasonable equity to give up for that dollar amount? Is there a ballpark figure, or a range that you give people?
Alicia:
No, because it really is case-by-case, and depending on where they are in their stage of growth. There are several firms that are very early stage pre-revenue, and that’s going to look different than companies that already have shown some product traction, that have revenues, that have a growing client base. Depending on where they’re at, that determines what the term sheet ends up looking like.
John:
Let’s say somebody who’s pre-revenue, but they have a good team, and they have a working product, is it typically, for $200,000, you tell them, “This obviously isn’t going to last you a year and a half, or anything, so you’re going to need to find other people to add to this round.” Is that the kind of thing that you like to work with them on?
Alicia:
For this fund, in particular, we probably will be syndicating with other angel groups. All of the 9 women are part of 1, or 2, or even 3, angel groups in the cities and states where they live. A lot of these deals are going to be in the $500,000 to $1 million range, so late seed, early A, and so we will be syndicating with other groups. Yeah, it is important for companies to realize that they have to think backwards from their end goal, because if you raise too much, and need to go on and raise more, then even a higher valuation, it really limits your exit options. Really thinking through what the next 5 to 10 years looks like, and working backwards to your first round of financing, is very important.
John:
I so agree. I’d love to have you talk a little bit about that, that whole concept of reverse engineering, if you will, and think backwards, which is, “How are you going to get these investors 3 to 5 time return on their investment in 3 to 5 years?” You need to have some concept of what your exit strategy is, even when you’re pitching for $200,000 to an angel? Is that right?
Alicia:
To realize that it doesn’t necessarily need to mean giving up equity. There are definitely firms, if you look and the Inc. 500, the vast majority of them never raised equity financing, and so it’s not necessary that you have to give up equity, in return for funding. If you can build a consumer base, if you can generate enough revenues to use your retained earnings, to feel your growth, or you can use debt financing, either through bank loans, or from crowdfunding, or you can use Kickstarter, or Indiegogo to launch your product base, and then use the funding from that revenue stream to fund your growth, you could get to a really, really, big company and sell it for a huge amount. That gives you a far better return than you ever could have gotten if you took the equity financing. Realizing that there are lots of ways to grow a big company, is really important for startups. It doesn’t mean you have to raise angel or VC financing.
John:
In the case of Rising Tide Fund, for that investment, and from Rising Tide, there would be some equity that investors would give, correct?
Alicia:
Of course. There’s this huge controversy, do you do convertible note, or do you do equity. In terms of the funding that we’re going to be giving, yes, we’re going to be looking for equity in return for that investment. We may be doing an initial term sheet that’s a convertible note, so that we don’t have to do that valuation right off the bat, and we can do it at a later stage, or we may ask for a certain amount of equity at a given valuation, at that time, but certainly yes. The kinds of investments that we’ll be making are high risk, and we want an equity stake in return for that investment.
John:
Of course.
Alicia:
The other great thing about The Rising Tide Fund is we don’t just offer a financial capital, we have 99 amazing women with diverse industry, and sector expertise, and entrepreneurial experience, and so forth. We have a lot of potential to add value in terms of the human capital that comes behind that money, as well.
John:
That’s everything, the connections, the experience, the possible people on your advisory board, all of that really is so incredibly … The key to a startup being successful is surrounding yourself with people who know what they’re doing, and fill some skill sets that you don’t have.
Alicia:
Exactly. It can’t just be your co-founders, it also has to be a broader network of investors, and advisors.
John:
Is there any advice you have for people pitching a rising tide fund? What do you think makes a good pitch, or are the kinds of things that you are looking for in a founder from a characteristic standpoint?
Alicia:
We’re looking for, obviously, the scalability that going to be necessary to offer us returns that are going to be attractive for our investment. Having a very good sound understanding of the market and the financials is going to be key. We’re sector agnostic. We have lots of different sector expertise among our 9 and our 90, so we are focusing on leading deals is a few sectors, but we’re pretty much geographically and sector agnostic, with just a few exceptions.
In terms of looking for a pitch, the way to get into finding out if you’re a fit for the fund is looking at the 9 lead angels on nextwave.ventures’ web site, that’s just nextwave.ventures is the web site URL. Looking at the 9 and figuring out who they are, which angel groups they’re associated with, and getting in through them, because they’re going to be the ones bringing the investment opportunities to the Fund. They’re the ones going to be leading due diligence, and ultimately making the investment decisions. In order to get in to see them, you need to find your way into one of the 9, and then register on Portfolia’s web site.
John:
That warm intro, and doing your homework, and really knowing what those 9 core women are like, what they like to invest in, possibly even talking so some of the other companies that they’ve invested in, to get some insights and advice, all that really sets you apart, don’t you think?
Alicia:
Exactly. Definitely.
John:
You said you’re geographic agnostic, which I love … I’ve read that angels tend to like to invest in people who live within 150 mile radius of them. Is that the case for Rising Tide, or not so much?
Alicia:
When we designed the program, we designed it just specifically so that we’d be geographically disperse. We have women in our 9 and our 90 across the country, everywhere from Texas, to Kansas City, to Boston, and New York to DC, to Florida, to California, and I’m in Boulder, Colorado. We’ve got the states pretty much covered. Angel investing does tend to be local, and that’s one of the things we’re trying to change, in building a community, and a network, where we can collaborate with people on the ground that are closer to our portfolio of companies. There’s a lot of great opportunities that are outside Silicon Valley, that are not necessarily getting funded, and we want to change that.
John:
That’s great. I know you’re the numbers expert, but I want to ask you a non-numbers question about what you think is important in a founder from a standpoint of being coachable, an agile learner, obviously confident. Is there anything else along those lines that you would give advice to the listeners about, when they’re pitching, in particular?
Alicia:
Passion is over used, but it does get at that idea of, “It’s hard to be an entrepreneur.” That’s the reason 9 out of 10 companies end up closing. It’s not easy. It’s not always sexy. It’s rarely sexy. It’s not always fun, and it’s really hard. It’s especially hard on the capital side, because you’re going to hear “No,” 99 times out of 100. That rejection’s tough. That whole idea of really passionately believing in your heart that this is something that has to get to market, that has to grow, that has to be successful, and you’re just willing to do whatever it takes to get it there.
That said, we want to see it being backed up with solid knowledge of your market, solid knowledge of the financials, and a plan of how you’re going to get from point A to point B, over the next 5 years. The passion’s not enough. You also have to have all the other tools to get you through.
John:
With everything being equal, people tend to invest in the person with the passion, because it’s all about the jockey, and not necessarily just the horse, right?
Alicia:
Exactly.
John:
When you talk about the plan …
Alicia:
You need products, you need some products.
John:
Do you also look for things that determine whether this is the team that can execute the plan, and look at their track record as a key criteria?
Alicia:
Definitely, and that’s where non-serial entrepreneurs can be at a disadvantage, because you don’t have a track record. Being able to understand what your strengths are, where your weaknesses are, and building that team that compliments your skill set, and having those things covered, shows a level of understanding and maturity that is a great signal. I don’t want non-serial entrepreneurs to be too discouraged, because it is … If you have a great idea, and you’re very passionate, and maybe you don’t have the whole team yet, but you know what you need and you can reach out to your investors and advisors to help you fill the gaps, is definitely a road to success.
John:
I also feel that having a story of showing your skill set from a different experience, working for another company, whatever, even if you don’t have a serial entrepreneur background, but you have skills, that show you can execute something, that those skills are transferable to your new startup. If you can craft a story that shows potential investors that you have the skills to execute something, even if it’s not from another startup, that, that is also really important to bring up.
Alicia:
Definitely.
John:
Terrific. Alicia, are there any books that you recommend people who are getting into the startup world, read either about, of course, the numbers and the market, or just about life in general?
Alicia:
There’s so much information out there, it’s information overload, I love … The Kauffman Foundation has its Founder School, and there’s just tons of videos, and so forth of insights from successful entrepreneurs. Startup grind has their library of videos, and so forth. There’s so many books out there, I don’t even know where to start. Things around the lean startup, and the startup communities, and so forth, are all good starting points. Just getting involved with your startup community, whether it’s a startup grind chapter, or One Million Cups, which is a Kauffman initiative, there’s meetups and so forth, all around the country, and it’s so easy to just become part of that community, and learn from your peers …
John:
That’s great.
Alicia:
… and those that are successful entrepreneurs, the recommendations that they give you will be just as good, if not better.
John:
We’ll put the links to the Kauffman School videos on the transcript, on the show notes. Tell us a little bit about One Million Cups. I think I know what that is, it’s such a great title, I’d love to have you explain it real quickly, if you would?
Alicia:
Yeah, the idea was that, “Great startups are built over a million cups of coffee because you never sleep.” It’s a Kauffman initiative, and there’s now 40 or 50 chapters across the country. It’s every Wednesday, at 9am, local time, and it’s usually 1 or 2 entrepreneurs come and present their current, or latest challenge and get feedback and thoughts from the startup community. It’s a great way to meet other people that are involved in the startup process, find employees, find investors, find advisors, and help companies get over some of their pain points.
John:
And generate some revenue for Starbucks.
Alicia:
Exactly,
John:
Alicia, how can people follow you in social media, and what other recommendations do you have for people reading your blogs, or anything else that you want to promote?
Alicia:
Yeah, I’m just AliciaRobb on Twitter, and then most of my blogging I do on Forbes, so if you just type in my name at Forbes, all of my blogs will come up, and you can just follow Kauffman’s account there. That’s who I blog through. You can find me on Twitter, or LinkedIn, so happy to help and chat with anyone who’s starting a Company, and looking on how to grow.
John:
Thanks for sharing your incredibly interesting background, and your insights, and I just think what you’re doing with Portfolia, and The Rising Tide Fund is exciting to get all kinds of people in all kinds of cities, the access and the knowledge to make a startup happen in more than just a few places.
Alicia:
Keep a lookout. We’re just getting started.
John:
I love it. Thanks for being on the show.
Alicia:
Thanks for having me.
John:
Thanks for listening to The Successful Pitch podcast. If you like the show, please go to iTunes and write a review, and encourage your friends to write reviews too. It really helps get the word out. People say that the longest distance is between someone’s mouth and their wallet. People can tell you they’re going to invest, but when it comes time to write the check, they don’t do it, so how do you get people to say yes, and then follow through. Visualize yourself on the left side of a river bank and you have to cross the river, and on the other side of the river is where the funding happens.
First you make up your idea, then you make it real, then you make it reoccur. Once you start dipping your toe into the water to get to funding, that’s where I can help. I get you across that river faster than you would on your own, with a lot less frustration than you will get when you hear a bunch of “Nos,” and you don’t know why. If you want some help getting funded faster, with less frustration, go to my free funding webinar, SellingSecretsforFunding.com/webinar, sign up, and get in-depth information on how you can get funded fast. Thanks.