Sheel Mohnot, co-founder and general partner at Better Tomorrow Ventures, has a gut feel about the founders. He gives an insider view using examples of fintech investments.
Sheel Mohnot, co-founder and general partner at Better Tomorrow Ventures, has a gut feel about the founders. He gives an insider view using examples of fintech investments.
The Sure Shot Entrpreneur
Sheel Mohnot - How does an investor form gut feel?
[00:00:00] Sheel Mohnot: The main thing at the seed stage that we invest; the thing that's most important is really just the founders. We're betting on the team. Everything else with the company may change, but the team most likely will not change. So for us, we really rely heavily on understanding the team. Like you said, there's a sort of therapist angle to it.
And so you need to understand, is this the team that's going to make this thing work?
[00:00:31] Gopi Rangan: You are listening to The Sure Shot Entrepreneur. A podcast for founders, with ambitious ideas. Venture capital investors and other early believers tell you relatable, insightful, and authentic stories to help you realize your vision.
Sheel Mohnot is a general partner at 500 FinTech. He is now the founding partner of Better Tomorrow Ventures, a venture capital farm based in the Silicon Valley, investing in seed stage and pre-seed startups in FinTech. Welcome Sheel.
[00:01:10] Sheel Mohnot: Hey, thanks for having me Gopi.
[00:01:12] Gopi Rangan: Tell us about yourself, Sheel.
[00:01:14] Sheel Mohnot: Yeah, sure. So I've been investing in FinTech for the past four or five years, exclusively first as part of 500 FinTech. And now with this new fund that we started recently, and before that I was an operator, I was a founder and I still really think of myself as an entrepreneur, as you know, starting a fund has a lot of similarities with being an entrepreneur.
There's a lot to figure out. I always will think of myself as an entrepreneur. Even though maybe it's getting less so the case as the time goes on. So prior to being a VC, I'd started a few companies. Two infant tech, one payments company called Fee Fighters. That company was acquired in 2012.
And then an auction company called Innovative Auctions. It was acquired in 2015 and at the end of 2015, I started investing in FinTech. So that's what I've been doing in the past. I've been in FinTech, I guess, broadly speaking, the past 12 or so years.
[00:02:15] Gopi Rangan : How did you become a venture capital investor? What drew you to this business?
[00:02:20] Sheel Mohnot: Yeah, good question. So I don't think I knew what a venture capitalist was until maybe 15 years ago.
Maybe not even, maybe after that even. And when I found out was when I wanted to fundraise for my company, Fee Fighters, I was originally, so I was working at BCG, the consulting firm, and then leaving to start a company. And I didn't. It was a buddy of mine from BCG had been a venture capitalist before, and he actually started the company and then I joined him.
But when we went out to fundraise, I didn't really know anything. I didn't know what the major funds were. I didn't know how to fundraise none of that stuff. But from the first meeting I had, I thought, man, I really would love to be on the other side of this table. These guys get to meet smart people, learn about different topics, dive in and help with their money and time.
That sounds like something I want to do. So kind of very quickly after fundraising, I realized, okay, venture capital is an area I want to be in, but I didn't really have any plans to do so then when we exited the company, I thought, well, first of all, I had some cash. I could start to do some angel investing.
I really enjoyed the angel investing side and I thought, okay, I'm enjoying this. I like helping companies at the earliest stages. Maybe I should be a venture capitalist, but then I had another idea to start a company start that other company. And then when that company got acquired in 2015, I met up with an old friend, Dave McLaren, who had, who had old investor, who had invested in my first company.
And he said, Oh, why don't you join us at 500 Startups? So Dave asked me to join 500. I originally signed on as a [00:04:00] mentor for a short-term stint found that I loved helping founders and then decided to raise a fund around it. And that was 500 FinTech; it has gone really well.
Gopi Rangan : So you switched from being an entrepreneur to being an investor.
I like asking this question to VCs who made that switch. Being an entrepreneur means that you are in the middle of the field. You like scoring goals. You like all the light that's on you. But as an investor, you're on the sidelines. You're a coach. You're a cheerleader. You don't get to be the striker.
You're not the hero in the middle of the year. Is that a difficult transition? How did you manage it?
[00:04:37] Sheel Mohnot: So I should say I was not CEO of either of the companies. So I was not necessarily the person in the spotlight, although I was more public facing and I was doing a bunch of the fundraising stuff. So I, yeah, I was there, but it's a little bit different.
I don't mind the role of a VC. And in fact, in some ways it's better [00:05:00] because you're a little bit out of the action you can sort of, maybe I like this, like. Giving guidance without actually having to execute on it. I guess I was a management consultant before, so I'm kind of used to that.
[00:05:15] Gopi Rangan : That's sometimes I describe the role as a combination of a management consultant and a psychotherapist depending on the day what the entrepreneur needs.
[00:05:26] Sheel Mohnot: Yeah, absolutely. A hundred percent agree with that.
[00:05:29] Gopi Rangan : What's cool in FinTech? Why did you choose to focus on that sector? Was it accidental or is it something that kind of, you opened your eyes into something you got excited about it?
[00:05:39] Sheel Mohnot: No, it's completely accidental. There's this Steve Jobs quote: "you connect the dots looking backwards."
It's definitely true. I can easily draw a straight line from me being a kid. Up until now and how that every step has been along the way, moving me into FinTech, but that's all bullshit. It happened [00:06:00] accidentally. So prior to, at BCG, I ended up serving financial institutions, banks, and insurance companies, but that wasn't by my choosing, like that was by their choosing.
Those were the projects I ended up on and I enjoyed them. And then the work coming out of BCG, we started this company that was related to some of the work we'd done at BCG. So that ended up being a FinTech company. At that time. I don't even think FinTech was a word. I like, I don't remember when I probably first heard the word FinTech, but in 2009-10, I don't think it was something we were talking about, we were a payments company.
And then the second company was really an auction company, had some FinTech components, but wasn't exclusively FinTech. And then when I came to 500 Startups, they kind of said, Hey, why don't you choose a sector that you want to invest in? And I thought, okay, well, I really like I've done FinTech in the past.
I kind of know the players involved and it's a sector I really am interested in and I have an impact bent a little bit. I started out my FinTech career on the nonprofit side at Kiva. So I thought what better way to change people's lives for the better than financial services. So I decided to start this FinTech focused fund and then now being in it for four or five years, it's what I love.
And it's grown so much during that time. You also asked a question around what do I like within tech?
[00:07:24] Gopi Rangan : Yeah, what are you excited about?
[00:07:26] Sheel Mohnot: Yeah, first of all, I invest in anything in FinTech. There's not a specific category that I particularly, you know, need to invest in, but there are some categories I like more than others.
So I definitely like API stuff, sort of the building blocks of FinTech, I think the last decade or so has been largely bringing stuff that was offline online. And I think for the next decade, these building blocks will make it a lot easier for more true innovation. And I'm excited [00:08:00] to see that. So I think this like FinTech infrastructure is a sector that I'm particularly interested in and alongside that there are companies that today would not be called FinTech companies, but tomorrow will be FinTech companies and there'll be enabled by these infrastructure companies.
So an example in my portfolio is Flexport. It's a modern freight forwarder. They offer visibility and control and predictable supply chain costs for freight. So if you're shipping a bunch of stuff, let's say you're shipping a million n95 masks from China to the U S they'll do a bunch of the steps to get them here.
So that to most people does not sound like a FinTech company. But when I met them, I said, Hey, you're going to have everything you need to be a lender. You're going to have distribution. Of course you have customers. You're going to have underwriting because you'll see that this guy in the U S has worked with that same supplier in China, time and time again.
And they're increasing their orders. They're always delivered on time, all this stuff. So that's underwriting. And then you have collections, you're physically holding the inventory. So all you need is a capital markets team, some capital, and you'll be a lender. And that's of course what's happened and Flexport's capital is a big part of the business and they do freight financing and insurance.
So we think there'll be a lot of other companies like Flexport that are today, not FinTech companies, but tomorrow will be FinTech companies. And we think about that as anyone with a data and distribution advantage.
[00:09:35] Gopi Rangan : What stage do you get involved with typically?
[00:09:37] Sheel Mohnot: Very early. So we like meeting companies when it's just a couple of founders, sometimes even one founder.
And we'll often write the first check into the company.
[00:09:48] Gopi Rangan : Do they have angel investments or do they have a prototype or a slide deck or anything prepared or is it okay if they have nothing and just an idea?
[00:09:56] Sheel Mohnot: Typically, they do have a slide deck and some sort of [00:10:00] prototype before we meet with them. But not always, depending on the strength of the connection, we're happy to meet with folks before they have that and help them get that stuff ready.
[00:10:09] Gopi Rangan : Okay. What are some characteristics that you look for?
[00:10:12] Sheel Mohnot: Yeah, the main thing at the seed stage that we invest, the thing that's most important is really just the founders we're betting on the team. And everything else with the company may change, but the team most likely will not change. So for us, we really rely heavily on understanding the team.
And like you said, there's a sort of therapist angle to it. And so you need to understand, is this a team that's going to make this thing work and do they have the tenacity to keep going any brick wall that comes in there where they're going to go through it. So that's one that I think is really important.
Beyond that we really care about the market. If they are wildly successful in what they're trying to do, will it be a huge company? And when I say huge company, I mean, [00:11:00] they'll have hundreds of employees. Is there a potential for there to be hundreds of millions of dollars in revenue for this company? That's the sort of thing we look for. And many companies you meet, you don't see that.
And then of course, we look for our technology advantage and then depending on the stage that we invest. So I mentioned that we invest early at pre-seed. We also invest a little bit later at seed stage. And in those companies, is there some traction? It doesn't have to be like revenue. In FinTech you often don't have revenue, but it'll be some other traction.
It could be traction like they've hired the right team. They've got a compliance person. They've got some regulatory partnerships in place. If it's, let's say it's an insurance company, do they have a re-insurance partner? Do they even know what a reinsurance partner is? Do they know how to get paper, all that kind of stuff is stuff or things we think about.
[00:11:53] Gopi Rangan : A lot of VCs talk about team. Like we focus on investments because it's, it's the team that convinces us. But [00:12:00] within that, how do you tell at the earliest stages? All these startups look quite alike and it's very hard to tell the difference between the ones that might take off and the ones that might not. What gives you the indication? The positive sign.
[00:12:15] Sheel Mohnot: First of all, there's this like gut feeling that you have, which unfortunately is hard to describe and,
[00:12:20] Gopi Rangan : Oh, that's so difficult. Yes.
[00:12:22] Sheel Mohnot: Yeah. I almost feel silly saying it, but it's certainly true. And it's really like the gut feeling is comprised of the things that I mentioned earlier.
Like, is this the person that's going to lead a hundred person company? And can they, the other thing that I think is really important is clarity of thought. So can they clearly articulate their vision to me. Now, if they can't articulate their vision to me, clearly, they're not gonna be able to sell their customers.
They're not gonna be able to sell the next set of investors that they have to raise money from. And they're also not gonna be able to sell future employees. So I think that is the most important one is crispness of vision.
[00:12:59] Gopi Rangan : If they've talked through deeply, the, it will come through in that description of the vision, they are usually quite articulate and they can also go to the second and third layer of the vision almost to the point where they appear very fixed on what they want to do.
But at the same time they are, of course, smart entrepreneurs tend to be open to suggestions from the outside. But how far do you test that vision? Do they need to be really, really stubborn on the vision?
[00:13:25] Sheel Mohnot: You know, I think early on where we invest. Oftentimes the product and vision changes and that's okay. I think I'm more interested in how they'd respond when you push them.
So if they respond with a "no, I know everything" versus if they respond with the, "Oh, that's interesting." Or even, "that's not interesting here's why: I've actually thought about that and here's why I think that doesn't make sense." So all these are reasonable responses.
[00:13:54] Gopi Rangan : So somewhere along the way, the gut feel kicks in and you begin to pick up [00:14:00] on cues and you, you seem to enjoy that process of debating with entrepreneurs sometimes even when they disagree with you.
[00:14:06] Sheel Mohnot: Yeah, I do. Yeah. Pushing back and getting feedback is something that I really like to do because some entrepreneurs really like that. And. Some don't and I think this is a long relationship. If I decide to invest in a company, it could be a 10 year long relationship. So I want somebody that I'm able to have that back and forth with.
[00:14:30] Gopi Rangan : So is there a moment where you go through this process and there's like one clear moment where you say yes, okay, I'm in? Or, do you gradually build up your conviction?
[00:14:42] Sheel Mohnot: I've had both. More often it's a gradual process where some it's rare, but sometimes the first meeting I knew, okay, this is somebody I got to back. More often, it's not that. More often it's you do a bunch of homework, you slowly start [00:15:00] to like the idea better and go from there.
But sometimes there's like ideas you've had all along and you just want somebody to solve that problem. And when somebody comes along, who's thought about it more than you have. And seems like a capable person. You end up loving it and make an investment decision very quickly.
[00:15:19] Gopi Rangan : Okay. So this, this is a good, it's not like one formula where you build up conviction over a period of time. Sometimes it can happen in one moment. What are some things that entrepreneurs have done that had made it easy for you to build that conviction or even know in your heart, in one, what have they done to make it happen?
[00:15:38] Sheel Mohnot: I'd say just like knowing the subject matter well and teaching me something, but I've learned a lot from meeting entrepreneurs through the years and I love learning. And I love when an entrepreneur shows total mastery of the area, it shows that they've thought about all sorts of other stuff, knows the competitive landscape.
All these things I think are really interesting and help me get a sense that this person is going to solve this problem.
[00:16:02] Gopi Rangan : Can we pick an example I'm really interested in seeing how you do it in real life. How did you meet the entrepreneur? How was the interaction? How did you get introduced? What did you talk about in the first two, three meetings? Of course not revealing anything confidential.
[00:16:16] Sheel Mohnot: Yeah, yeah, yeah of course.
[00:16:17] Gopi Rangan : It'll be great to get an insider view on what really happens in that room.
[00:16:22] Sheel Mohnot: Yeah, sure. You mentioned, we were talking earlier about like idea that I have in my head that when I finally met an entrepreneur that was solving it, I thought, okay, I need to dig in here so we can let's use one example like that.
So the example is in the HSA space, for those of you who might be listening, who aren't familiar, HSAs are money that you set aside every year. It's pre-tax money and you can use it on any healthcare expense. And you use it without paying any taxes. You also can invest that money over time and then withdraw it when you're retired.
So it's actually a really good benefit that most Americans don't know about. And don't take advantage of. It's different than FSAs, which are the ones that you have to use every year, which doesn't make any sense. So, I met this company called Starship. It was introduced to us by this guy, Ashay, who is at Haystack Ventures.
And Starship is a modern HSA company. Even from the moment that he sent me this thing where he was like, Hey, have you thought about HSAs is I was like had flashbacks to myself, operating a startup 2010, thinking about health insurance for my employees and looking for an HSA provider. And I thought, man, that was such a pain to find an HSA provider.
I never found a good one. And so then I thought, okay, well somebody's solving this problem. I'm immediately interested. You know, I was interested. I met this entrepreneur, Sean. Sean Engle King is the CEO of Star Ship. And he just had really thought through [00:18:00] everything like how he was going to build this product.
Had a demo to show me, actually, this was all virtually. We didn't meet in person until after I had invested. So we sort of went through the deck with me. Describe what the problem was. There's no modern platform for HSAs. Any HSA solution you've looked at is really painful to use. It's not a good benefit, all sorts of stuff.
And yet there's a huge tax advantage to people using an HSA. So if we can get more people on HSA, it's a very good product. They'll use our product. And I liked the idea after that first meeting and I did more research. So I went out to talk to a bunch of folks who've dealt with the problem. Everyone kind of agreed.
Yes. They want to offer HSAs to their employees, but there's no easy solution. I did some background research on the founder. I try to do a bunch of references on the founder. I generally introduce the founder to my existing portfolio. So I introduced him [00:19:00] to several of our existing companies. To get a sense for, they could be customers of Star Ship.
And also it helps me because they're like sort of subtly selling me as a venture capitalist. So that's sort of my process and how I got comfortable doing the deal. I invested in Star Ship a couple of years ago.
[00:19:19] Gopi Rangan : But this looks like you did a deep dive on it. A lot of positive signs came from various different directions. Is it quite common? Is it the typical structure of how you approach a new investment?
[00:19:31] Sheel Mohnot: Yeah, I would say I try to diligence the team most because like we talked about earlier, I think team is most important and then understand the problem and to understand the problem. I feel like I have an advantage in that I've invested in, between me and Jake, we've invested in over a hundred companies, mostly vast majority of them, FinTech companies.
So we have an advantage in, we can reach out to any of these people. And say, Hey, is this a problem you've dealt with? Or would you [00:20:00] use this solution if it existed? And that is a super power we have. So might as well use it.
[00:20:06] Gopi Rangan : Over the years like since 2009 is what you mentioned when you started the early investments in FinTech. How has the world changed compared to that time?
[00:20:16] Sheel Mohnot: Oh boy. Yeah. So at that time, when we were getting started. We started around the same time as like Square Cabbage, NerdWallet, Credit Karma, Stripe was a little bit later actually.
And so all these guys, we knew, you kind of knew everybody in the world of FinTech pretty intimately at that time, because there were so few of us now things have changed like crazy where even up until two or three years ago, it was rare for a deal in FinTech to get done that I didn't know. But now it's just been a complete explosion where there are many deals that I learned about for the first time when reading Term Sheet.
So Term Sheet, the newsletter, not the actual [00:21:00] term sheets for the company. So things have changed. FinTech has grown from being something that like no one really talked about. It was really payments companies at that time, for the most part and lending and then lending companies. And to now being a super explosion, there have been a bunch of successful outcomes.
Obviously just in the past six months we had Plaid, Credit Karma, Assurance, many, many successful companies, and I think that'll continue and I'm excited to keep investing in the sector. I just did a search for FinTech on Google trends just to see what comes up. And so today we're at a hundred in terms of like relevance.
And Gopi, when do you think there was a time that we were at four out of a hundred in terms of mentions. So there's basically a time that you can clearly see when people started to talk about FinTech. And when do you think it was?
[00:21:55] Gopi Rangan : I'd say, although the word FinTech didn't exist, PayPal would [00:22:00] be one of the earliest FinTech companies. They revolutionized payment, but over the years we've seen many other companies in the financial services space.
I'd say around 2011, 12 or 13 around that time is when the word FinTech became really popular. We got Coinbase, neobanks, and those types of companies that directly addressed the financial services market. Does that align with what you see in the trends?
[00:22:25] Sheel Mohnot: Actually it's a little bit later, even. So really nobody was using the word FinTech until about end of 2014, beginning of 2015.
And really it didn't come into usage that much until like the middle of 2015.
[00:22:44] Gopi Rangan : Yeah, by that time there were about at least $40-$50 billion of venture capital funding.
[00:22:49] Sheel Mohnot: Yeah, but people were not using them.
[00:22:51] Gopi Rangan : Yeah, it was still under the radar.
[00:22:53] Sheel Mohnot: Yeah. Still under the radar. It, things have really changed rapidly even in the time that we've been, we've been investing in FinTech.
I think insurance tech, there was very little at that time, 2014, kind of by the end of 2015, beginning of 2016, there started to be some. And then we had this sort of avalanche in 2016, 2017, 2018.
[00:23:12] Gopi Rangan : Yeah, I, I got into InsureTech in 2014 and Lemonade was one of the early investments that Sequoia made. I think it was end of 2014 or early 2015.
And since then, InsureTech has become more and more popular. As of today there's probably $10 to $20 billion of venture capital funding. I expect that FinTech has still not reached its peak and there's many more waves of innovation that will happen in FinTech. And I think InsureTech is just starting off right now.
So there's more, that will happen in the future. And I'm, I'm, that's one of the main reasons why I'm excited about it. You covered so much on that. Thanks for sharing examples like this. This is what the world doesn't get to see. We could talk more, but we have to stop at some point, maybe some other day, we'll come back and pick up this conversation, but I want to transition to another [00:24:00] topic about community involvement.
Is there a nonprofit organization or a community activity that you're passionate about?
[00:24:07] Sheel Mohnot: Yeah, there are a couple. So there are some that I give my money to. And when I give my money, I search for the charities that sort of save or improve the most lives per dollar. So that ends up being donating to deworming and bad nets.
So bed nets are nets that you put around your bed to save you from getting bit by mosquitoes and getting malaria. And it sounds simple, but bed nets are really effective way to save lives, particularly in Africa. So I give to the Against Malaria Foundation. And then for my time, one of the things that I try to do every, every year on my birthday and my partner, Jake, by the way, his birthday is one day apart in age, both born in April '82.
And he and I both during the time of our birthday, we [00:25:00] sponsor meals for the homeless in San Francisco. And there's an organization called Curry Without Worry. And, it's a great organization. They make meals for about 400 people every Tuesday. And so we cook the meals, sponsor the meal, and then go serve the meal to homeless people in the civic center in San Francisco.
And I love doing it. It's really fun. And you really get to interact with a lot of folks that you wouldn't get to interact with otherwise. So I feel like I always learn so much from that experience and have a good feeling from it.
[00:25:29] Gopi Rangan : I like the balance between global impact through Against Malaria Foundation and the local involvement in, in San Francisco.
When you raise funds on your birthday and Jake's birthday. Thanks for sharing your stories. And thanks for playing an active role in our local communities and the global community.
Thank you for listening to the Sure Shot Entrepreneur. I hope you enjoyed listening to real life stories about early believers, supporting ambitious entrepreneurs.
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