Samara Hernandez, founding partner at Chingona Ventures, talks about investing in underrepresented and overlooked badass founders from different backgrounds. Samara explains her 5Ps framework of evaluating startups and gives her thoughts on how access to capital for underrepresented founders has changed. She also gives her advice to founders as they maneuver the current market downturn.
Samara Hernandez, founding partner at Chingona Ventures, talks about investing in underrepresented and overlooked badass founders from different backgrounds. Samara explains her 5Ps framework of evaluating startups and gives her thoughts on how access to capital for underrepresented founders has changed. She also gives her advice to founders as they maneuver the current market downturn.
In this episode, you’ll learn:
[5:34] Underrepresented founders don't need more advice. They need capital.
[7:45] Is it now easier for founders of overlooked backgrounds to get venture dollars?
[12:44] 5Ps of evaluating whether a company is investible or not
[21:20] Downturns are a reality check for startups.
The non-profit organization that Samara is passionate about: Latinx VC
About Guest Speaker
Samara Hernandez is a founding partner at Chingona Ventures. Prior to founding Chingona, Samara was an early stage investor at MATH Venture Partners, where she led new investment review, diligence and execution. Samara previously worked at Goldman Sachs in sales as well as advising on portfolio construction and consulting on business practices.
Samara is actively involved in the Chicago tech community and is passionate about helping underrepresented groups get into STEM education, venture capital and entrepreneurship. She co-founded the Latinx Founders Collective organization to bring together Latinx founders, investors, and community leaders to support the entrepreneurial ecosystem. In addition, she is an active member of Latinx VCs, a San-Francisco based group of experienced venture investors coming together to connect, engage, and foster the Latinx VC ecosystem.
Chingona Ventures is a Chicago-based venture capital firm that invests in badass founders at the earliest stages of technology and technology-enabled companies all over the U.S. Chingona Ventures focuses on industries that are massively changing and founders whose backgrounds uniquely position them to create businesses in growth markets that are often overlooked. Companies in its portfolio include: Certiverse, Elevate, Tiny Organics, SUMA Wealth, Innovare, Olivex, Paerpay, Scout, She Matters, Cartwheel among others.
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Samara Hernandez: We look for the 5Ps. We look at people, product, profit, potential and portfolio. People's the first and foremost, especially at the pre-seed where there's very little of everything else.
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.
Welcome to The Sure Shot Entrepreneur. I'm your host Gopi Rangan. I'm here with a new guest, Samara Hernandez. She's the founding partner at Chingona Ventures. We're gonna talk to her about her focus on investments. She invests in everybody, but does she invest in every business? Maybe not. We'll find out what kind of businesses she likes to invest in.
Samara, welcome to The Sure Shot Entrepreneur.
Samara Hernandez: Thank you for having me.
Gopi Rangan: Tell us about yourself. You were born in Cuernavaca in Mexico, and now you live in Chicago. Tell us about your journey.
Samara Hernandez: Yeah. So I was born in Cuernavaca, which is just an hour south of Mexico city with no traffic. I moved to the US when I was six years old and I lived in Rogers Park for a little bit and then moved out to just a suburb of Chicago.
Gopi Rangan: Very interesting. How did you plot your way into the venture capital industry?
Samara Hernandez: When I moved to the US, we really struggled. It was a typical immigrant story where low income, dual language, multicultural household, where you get a spectrum of different cultures and languages and food, but you also have to adjust to a different culture. You're in between these two worlds. I actually ended up picking up math quicker than I picked up English. So that's what led me to study math and be interested in engineering and led me to study engineering at the university of Michigan for undergrad.
When I graduated, I went to Goldman Sachs. I had done two internships at Goldman in New York. And that was my first job out of undergrad. I started right before the beginning of the last financial crisis. I was in sales, so I sold our financial products in one of the worst markets when the products weren't performing, the markets were all over the place and we were in the news.
And so I went from engineering where you're solving problems to sales, where you're also solving problems. And I think there, that was where it correlated, where I was able to take numbers and then adjusted to relationships and storytelling and solving a problem for a client.
I went to Northwestern for my MBA, and then shortly after I graduated, I joined a local venture fund here in Chicago. The reason why I was interested in venture capital was because I took a class called VC lab at Northwestern. And it exposed me to the early-stage side, which I was fascinated by. I loved talking to founders at the idea stage with very little information and they were disrupting all sorts of industries. So, I was interested in that, and I didn't realize how long or how hard it took to get into venture capital, but I eventually found the founders of MATH Venture Partners who had just launched a fund. I was third person on the team that joined. And then I was there helping build the fund one and fund two from the ground up. That's why I saw an opportunity in the market and that's why I launched Chingona Ventures.
Gopi Rangan: Very interesting. You took to math early on in your educational period, and you spent some time at Goldman Sachs and switched to venture capital. What is it about venture capital you like the most?
Samara Hernandez: I love working with founders that are changing the world. You know, I was working at industries and corporations many times that it took a while to get things done. There were so many things that were backwards in some of my internships that I had done in engineering and industrial engineering specifically. One that I studied was about making things more efficient, was about bringing technology tools into an organization to optimize the supply chain pieces of it. For me, I was always confused as to why it took so long or why we needed to wait or get all these approvals or just take such a long time.
So, when I looked at these early stage founders, they were just disrupting everything. They were thinking about brand new ideas. I mean, the name of the game was to move fast, right? There was no barriers to that. It was just besides obviously capital in many cases, but it was just go, go, go and solve problems. Solve problems that mean something in many cases, that can change the world in many different ways.
Every day is different. I come in here and I literally have a Porter, potty company to, you know, B2B payments company to a baby food company. And all of them are changing the world in a very different way. You can come home and have these conversations around the dinner table. But think about companies that are changing the world, where these founders are basically risking everything they have by taking a leap of faith and trying to do this. And for me, I'm very fortunate to be a small part of that journey and to be able to help with capital, but also to build relationships with founders in a very unique way. Many of these founders come from these backgrounds that are like mine or that have a unique understanding in that specific market. We can relate in many different ways. So for me, it's ultimately the founders that I work with and the way they're changing the world.
Gopi Rangan: The speed of impact in the startup world is way faster than anywhere else in the business world. The variety of topics that we get exposed to as investors talking to founders is just amazing. It's fascinating to listen to the stories of these entrepreneurs. I can see why you like venture capital Chingona Ventures. What is Chingona Ventures? How is it different from other VC firms? What's the philosophy?
Samara Hernandez: Well, Chingona means 'badass woman' in Spanish from Mexico in particular. We're investing in badass founders at the earliest stages.
Gopi Rangan: I like that.
Samara Hernandez: It's a nod to by Mexican heritage. But it's also a nod to what we're doing. The fact that we're investing in these founders, we aim to be the first and largest institutional check in. Now, when I started, being in the Midwest, being in Chicago, I had seen the differences in the Midwest versus the coast in terms of available venture dollars, in terms of investor appetite for risk, in terms of industries that were being built, to the founders that were getting funded and the opportunities that were there, right?
I had mentored founders for many years and founders don't need any more advice. They need capital. I saw a need to go one earlier, especially in ecosystems that didn't have mature angel networks. One of them is Chicago, but many others outside of the valley. Two, go and invest in industries that were changing, where consumer tastes were changing, where consumer demographics were changing. The US is looking very different and it's gonna continue to look very different, but VC dollars were slow to fund. And then, three, back founders that didn't always fit your traditional mold. Maybe they didn't come from Stanford. Maybe didn't come from big tech, but they have built something unique and that's growing. There was a huge opportunity to find these founders and to invest in them and be the first check in.
That's why I started the fund and we're based in Chicago, but we invest all over the United States. The one other thing I would say is uniquely different is that, it's founded by 'chingona' basically, and where we represent less than 0.1% of all venture capitalists. Latinos, in particular, are one of the fastest growing groups in the United where we represent one of the highest purchasing powers. One out of every four kids being born today is Latino and yet we're underrepresented in almost every category in financial services. So, I found that there was a unique opportunity to also understand certain types of founders and invest in some of the fastest growing demographics. So that's why I started the fund.
Gopi Rangan: It's a great mission, indeed. And you're targeting an overlooked opportunity where other people haven't really focused on the founders that you focus on. This venture capital sector has had this disparity for a long time. Do you think the change is happening now, and why now?
What are the drivers for those changes that finally now it's possible to build a VC firm by a Latina VC and founders of LatinX background and any other background able to build businesses. Do you think that that change is going to happen soon or it's already happening?
Samara Hernandez: Well, particularly for Latinos, we've always built businesses. We've always built small businesses. Actually, if you look at the demographics of businesses being built, both tech and non-tech, we have some of the highest numbers of entrepreneurs from the Latino community. But we don't get past the $1m mark many times because of most likely capital needs. Many times the businesses that we start are started by own personal capital, credit cards. That's why you see a lot of small businesses, but they stop and they don't get to that next stage. Latinas are one of the fastest growing entrepreneurs in the United States. And the pandemic has affected everyone but particularly the black and brown communities. This new recession we're going through, these communities are gonna be impacted by this a lot more than some others.
I'm like, you know, I came from this background. I understand it uniquely. I understand that it's not a niche market. I can relate to it in a very different way. For me, it's what I've lived with my whole life. It's something that I never thought, going into venture capital. Oh, you're one of the first, you're one of the fewer, I never thought that. I think if I would've known how hard it was to get into venture capital or the lack of people like me, maybe I wouldn't have gone in but I just loved what I did. I loved my internship the firm that I was at. And so I was like, I just wanna join.
And when I came into it, I realized, oh, wow, this looks very different. I mean, I always knew because of engineering and Goldman's Sachs, you know, I didn't realize how big of a gap there. Now more recently, there have been some initiatives and people have been louder about the lack of diversity in the space.
A lot of it was after the murder of George Floyd, but this is something that I've always had a focus on even pre any of these recent initiatives. Some of them have allowed me and some other fund managers to come into market to grow in the market and to accelerate. But I think, as much news that there is the reality is if you look at the percentage of dollars going into some of these fund managers, it's still low compared to what goes into all a venture capital. The amount going into founders and fund managers is still a small percentage of the overall venture dollars. I think a lot of these initiatives, which have been really good to get some big checks in early on, have died down or starting to die down. And so a lot of us are questioning, will they continue? Will there be new initiatives? Where are the dollars?
So, for me, the first and foremost, look, I'm a venture capitalist. I need to make money. I need to make strong returns for my investors. That's my first and foremost goal like any other venture capitalist, but I just so happen to wanna be doing it with these founders who fit all different types of molds. I believe that's gonna be a true differentiator in some of these founders that maybe are not as obvious or overlooked by certain groups. And look, it's where the US is going. I see a lot of our investors, many of them who are banks that are looking to target these communities and they just dunno how. I'll give you one example.
A company I invested in called SUMA Wealth is a financial wellness platform for the Latino community. The founder, Beatriz Acevedo, she started a company called Mitu which is like the Buzzfeed for the Latino community. They actually had higher engagement, more views, than Buzzfeed at one point. They know how to engage the US Latino community in a very different way, because it's kinda like how I talked about before two different cultures, different upbringing, different ways you interact with your phones with social media, with things. So, she knows how to uniquely target these communities.
When she came out of that business and just start a new business, she's like, look, I know how to engage this audience in a unique way. Now I wanna get them to do something with their finances because the, the average household is increasing. People are getting more higher education degrees than never before. How do we create wealth in a unique than we ever did before? That's when I was like, well, I wanna be your first check in. So I was her first check in before a website, before a name before anything like true pre-seed. I led her pre-seed round and her seed round, and she's already gotten more engagement than many of the other FinTech platforms that have raised millions and millions of dollars.
That is one example of businesses that are unique, that I'm looking at that have a competitive advantage to understand the customer in a unique way because of the founder background, because of what they know, and to really build a big venture scale business, to be able to build wealth in a unique way for the customers that they cater to for the founders and for the investors that invest in.
Gopi Rangan: So change is happening and change is happening now. Opportunities are not evenly distributed although talent is everywhere. You're using your superpowers for noble causes and you're finding opportunities that other people aren't looking at and looks like this example is one of many more startups that you've invested in.
I wanna dig deeper and find more examples in your stories. You mentioned that businesses need to be investible. How do you evaluate for that? What happens in that first meeting? What do you look for and how do you evaluate for whether this company is investible or not.
Samara Hernandez: I'll give you our framework. We look for what we call the 5Ps. We look at people, product, profit, potential and portfolio. People's the first and foremost, especially at the pre-seed where there's very little of everything else. Founder-market fit, their background, how it uniquely ties into their business, what unique perspective do they have on a market?
So, there's three types of founders we fund. The experienced founder, which everybody looks at and it's not differentiating. We do fund those. Big tech companies, startup companies before they could probably raise a lot of venture dollars. We've invested in those, but that's not differentiating. Everybody's looking for them.
The second one is the inexperienced type of founder. Someone that has started a company but not venture back before, or has run big groups at large corporations or as unique customer base understanding, but has never raised venture dollars. We provide a unique value add there.
The third piece is the nontraditional founders. So founders that have never raised venture dollars, never started a company before, but they have a unique perspective and they have some early validation of the problem that they're solving. Profit. Even pre this last few months, we like companies that can make money, basically that from early on, know how they're gonna make money.
Potential. What is the big potential here? We need to able to have exits, funding dollars. Ultimately, it needs to be able to get a big exit for the portfolio. People product is: do people need this product? Is it doing something relevant that people wanna use? And then portfolio is how does it fit in with our portfolio and our value add in our thesis? So we look at that.
For us, what makes a really good first meeting is basically sales. Can you tell a story about your background, about the business, about the potential customers, or if you have customers and why this needs to exist in the world? And what's the underlying infrastructure that is broken in your industry, that you know something uniquely about that nobody else does, and that you are building a product that someone is willing to use, love, be obsessed about and pay for it. I know it sounds so simple, but 80% of the conversations are not always there.
It also has to align with our thesis. So we could have a really great founder that we talked to, but if they're a series C company, like it just doesn't make sense with our strategy and what we pitch to our LPs and how we're gonna make returns. But for founders that are true pre-seed, we like to be the first and largest check in if they're in the sectors we focus on, which are financial technology, female technology, food technology, future of learning, and health/wellness, and have found an early validation, whether it's wait list, whether it's an actual product, whether it's actual revenue and have a unique perspective on a market that nobody else does. The last piece of it is like, do we connect? This is a long term relationship. This is now my fourth fund I've been a part of, and I've been able to see some early signs of working with certain founders. I've seen like, you know, some early warning flags or, and kinda not listening to them. And then years later understand like, oh yeah, that didn't work out. Anything from not communicating, not responding, kinda, not answering the question directly... a lot of different things that when you're looking at a hundred deals sometimes per day, you can quickly pass on and that could be good or bad. Right. Cause sometimes every time I pass on a deal, I'm like, "did I pass on the next unicorn?" which I think every VC thinks about.
I'm also pitching them because many times, I'm not somebody that says after a few minutes yes or no. I want the founder to get to know me and I want to get to know the founder as well. Cause it's a working relationship. We're gonna be in this for the long term. So my process is not only what I look for - the 5Ps and do the founder and I connect - but also is this something that both them and I can look at for future potential and work on, and can I provide a value add to the founder? And maybe I can't, and maybe I'm very with that. I'm like, "look, I'm just gonna be a passive investor. I can't really help you, but I love what you're building and it fits our thesis. And it's like, great. You know, we can be direct about that too."
So, that's what I look for. And it's really great when you can have a really great connection with the founder and be excited to invest.
Gopi Rangan: I see that you have a very structured approach. First, you look for what kind of founder it is: the first-time founder, repeat founder, founder with traction, founder with product that you like. Once you figure that out, then you use four piece to go through all the details and see if it's a good fit for you. Then eventually you look to see you're also being interviewed. So you're pitching Chingona Ventures to them and see if there's a connection to build a long term relationship. I see that you have a very thoughtful process.
Can you give an example from one of your recent investments? You mentioned SUMO Wealth. I'm curious to understand what happened in the first meeting. What questions did you ask them? How was the response? What did you expect? And at the end of the meeting, what was the conclusion? I'm curious to understand what happened in that first meeting or second.
Samara Hernandez: Yeah, so we have an online form that both warm and cold intros submit. So we can ask them all the same questions, you know, first 10 to 15 questions we would ask in the first few minutes of a meeting. It helps us reduce some biases because obviously a bias would happen if you get a warm intro versus a cold intro. It allows us to quickly say yes or no as a small team.
We also have our entire process online and the first questions that we ask a founder and I can easily send that to a founder. And they're like, oh, we're outside of the US. Okay. We're not a fit. I'm like, great. I just saved you 30 minutes. You just saved me 30 minutes. Or someone will say, "oh, we're too far along for you." or I've got a lot of founders that say, "thank you so much for putting this together." And so for me, it allows me to scale myself. It allows me to be transparent, hopefully provide differentiated experience, but it allows me to also hopefully try to change the industry in a different way for founders.
In terms of particularly SUMA Wealth, this was not a cold and bound, although I have invested in cold and bounds before. So another example is a company called CERTIVERSE. The founder is someone that I met through an organization I started called the Latino Founders Collective Network. This was started in Chicago with two founders and me basically, and we wanted to connect Latino founders with other founders, with investors and potentially investors with LPs. So we'd have small dinners in Chicago, but all over the US.
So this founder, I met at a dinner, he was in the second bucket. Somebody that hadn't raised venture money, but had started a company before. He is also a Latino immigrant to the US. He had to actually dropped out school because he couldn't pay for it. He started in a job that paid for him, get a technical certification, and once he did he was able to have at higher increasing paying job, get back to school and graduated. So since then, he started basically in education space. Very humble, kind guy, just direct, was very passionate about this space, and when he started his next company, he reached out to me. He basically said, I wanna change the way we take ACT and SAT I'm like, "well, that's a big undertaking." But he is like, "we're gonna start off with low stake certification, so restaurants, certifications, nursing, tech certification, that kind of stuff.
Many founders come in and say, oh, we already have our first client signed up. The reality is they don't, or, you know, it's a pilot or whatever. When Ruben said that, I'm like, "OK, well, lemme do due diligence." And he actually helped me do due diligence on a potential client, which nobody ever, you know, agrees to. And the potential client's like, "yeah, we are ready to go the minute they build a product. Ruben is someone I've trusted for years and most young founders come in here and they try to talk to me about the industry they know nothing about and build a product for an industry they know nothing about. Ruben, I've seen him, worked with him. I trust him. He, in every stage of the process as CEO will be there working with us, making sure the deadlines are met." It was some of the best potential climbing interviews that I've ever had. So, I led his pre-seed round and he barely had a name, barely had a website and he's executed on every piece of it.
You won't see him on the Twitters and the panels and all that. But he's someone that is just executing and working incredibly hard. That's a founder that, it's not always a first meeting, second meeting, third meeting investment, but it was someone that I had met a year before he actually launched his company. We kept in touch and I love to meet founders before they start building and then be the first call to be the first check and do due diligence. Right. But it not for the sake of a process or for the sake of due diligencing but actually learning about the founder and them learning about me and really understanding everything about it and everything about a founder's life.
The fact that they have a family, the fact that he moved to Spain to be with his wife, and that's where he started the company. His wife was finishing her PhD. Founders are humans first. Especially in the early stages. I mean, they have nothing, they don't have a product, they don't have much. And so really understanding that piece of it. And then, you know, in an environment like today where you're having to have difficult conversations with many founders, or they're coming to you with very situations, they're able to in unique way, when you understand when you that relationship over time.
Gopi Rangan: This is very interesting. You've given a specific example. You're giving the stories of what really happened in those conversations and with the founder. The market has changed in the past few months. Things have slowed down and I'm curious to see how the next six months to a year will play out and what impact it might have on us and also on startups.
What's your advice to founders? How can they prepare for the next phase in the next few months?
Samara Hernandez: Yeah. There's a lot going on on Twitter. Every VC giving like their toolkit and even with our founders, giving advice. Everyone's like "have three years runway, two years runway." there's no kinda blanket advice for every founder. Every business is different. Even in our portfolio, we looked at which companies have runway, which companies are struggling, which companies are okay. We did that analysis that a lot of VCs have done.
The ultimate thing is like, can you control your own destiny? And that was pre this environment that was pre the last two years. One thing about being in the Midwest that I love and that I've always loved, is that we always focus on getting to profitability. We've always focused on good unit economics for better or for worse. Now is that time where it's now become attractive again. The reality is many of our founders that don't come from certain networks that didn't get to raise five to ten million on pre-seed with nothing or had to get revenue from the earliest days. So, this isn't something new to them.
There was a founder in my portfolio who was fundraising and obviously the environment kinda had to stop, but then like, all right, well, I'm just gonna focus on getting more revenue for my customers when he's doing that. He's had one of his biggest contracts in this environment and it's something that they've always had to know. That's always been a reality for them. I talked to Business Insider recently on this it's like these founders have had to struggle and make their own money. So it's your time to shine in an environment where it's gonna be pretty crazy.
So it's not necessarily blanket advice, but control your own destiny. If you can raise more money, do it. If you don't have to, if you can increase your client base or if you can increase your contract size from current customers, do that. It's gonna be a reality check for a lot of founders.
Gopi Rangan: Timely advice, indeed. I want to switch to the next part of our conversation and ask you about your community involvement. Is there a nonprofit organization you are passionate about? Which one?
Samara Hernandez: So Latinx VC is definitely one. We talked about the lack of Latino representation in the VC community. Latinx VC is one that is helping increase more Latinx investors into the community, help them get promoted and then started their own funds. I'm involved with mentoring younger, Latino venture capitalists, helping get more fund managers funded I'm on the GPLP committee, trying to work with that.
I'm actually, through the Kauffman fellows network that I'm a part of, doing a research report on the lack representation and talking to a bunch of LPs on what we can do about that. So that's something I'm very passionate about.
Gopi Rangan: Thank you very much, Samara. This is very interesting. You've shared real life examples from your own experience and given lots of stories on how you make decisions, how you run the process internally at Chingona Ventures. I see how you carefully choose the badass founders you want to work with. I'm looking forward to sharing your nuggets of wisdom with the world.
Samara Hernandez: Thank you so much. This is really great, and thank you for amplifying our voices and reaching founders that hopefully will one day invest in.
Gopi Rangan: Certainly. Thank you very much.
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I look forward to catching you at the next episode.