TCA San Diego Community Newsletter – May 2020

The May TCA Community Newsletter is out today! Featuring a special message from TCA San Diego President Caitlin Wege, our 2019 Annual Report as well as our latest COVID-19 resources, community events, and more!

 

 

Leadership for the Pandemic and the New Normal

By Dan Rosen

The COVID-19 Pandemic has caused every startup to assess how to survive and plan to thrive in the “new normal.” No one knows what the new normal will look like, but based on other jolts to our economic system, we do know that life after this pandemic will be different than life before – at least for a while.  Just as there is no natural immunity to the Covid-19 virus, there will be no immunity to the economic disruption that results.

As I previously posted (see http://blog.drosenassoc.com/?p=140 and http://blog.drosenassoc.com/?p=145), startups need to act  while they can to survive, pivot (as appropriate), and figure out what unique things each business can do to solidify their future.

This is a test of leadership.

Most angels cite the team as number one thing they look for in their investments.  The critical role of dynamic leadership is more important in this time of unprecedented upheaval and startup survival threat.

Founders and CEOs must maintain team enthusiasm in the face of societal and personal hardships now more than ever.  While maintaining team cohesion, startup leaders also need to motivate their investors to stick with them and subscribe to their changing vision.  Both founders and their investors are in this to create great companies that lead to great exits.  Ultimately future investors and acquirers will judge and value the enterprise based on how well it adapts to this new normal.  But, of course, there is no company to value if it runs out of cash before it gets to an exit.

As I’ve spoken with many startup CEOs, I’m finding that they seem to fit into one or several of four categories.  These are:

  1. Immediate action.  These CEOs (generally guided by either their own experience or that of an experienced CFO who has experienced previous downturns) see that cash must be conserved with a potential path to becoming cash flow positive.  They tend to involve their entire employee team into the conversation and take rapid action to conserve cash.  They often have a company that already has some cash flow, so balance the reduced cash flow with cuts to stay alive and potentially thrive.  Given that cash balance is finite, early cuts have a bigger impact than later ones; this is similar to the response to Covid-19, where earlier actions seem to have more effect in preventing widespread infection.
  2. Benefit from the “New Normal”.  There truly are some business that will benefit from the disruption.  A clear example is Zoom, which is blossoming as we all need to move to videoconferencing.  Or, one of my portfolio companies, DocuSign that has enabled transactions to still be done virtually.  Some clever entrepreneurs have quickly pivoted to provide a piece of critical infrastructure for businesses to reopen safely.
  3. Wait and see.  Some CEOs decide to wait to understand how bad their situation will be before taking action.  They might have considerable cash in the bank – they believe sufficient to weather the storm.  And, guided by their prior experience, believe that when cash get low, they will have achieved milestones that allow them to raise more cash.
  4. Denial.  These CEOs believe that, while things look bad right now, their business will turn around and go back to the way things were before.  In some cases, they were in the middle of raising institutional money and believe that the money will come (it might).  In some cases, there is a logic that says if every one of my competitors cuts back, but I continue to move forward, then I will be the biggest winner when the market does turn.  There are probably some businesses that will do well in the “new normal” but I doubt that it is as many as think that they will do well.

The purpose of the above discourse is to point out that there are many different paths to leadership in this tumultuous time.  No one path is always correct, and most leaders will use some elements of more than one.

Over the next few weeks, I will talk with leaders who I believe, through their actions, have demonstrated exceptional leadership in the face of what could have been a company destruction.  I believe that their examples will serve to illustrate why we invest in startups and be a guidepost for others to adopt best practices.

Dan Rosen is the Chairman of the Alliance of Angels, former Director for the Angel Capital Association, and a Tech Coast Angels member. He has a Ph.D in Biophysics from UCSD.

TCA Community Newsletter April 2020

Check out our mid-month update here!

How Angel Investors Survive the COVID-19 Economic Crisis

By Dan Rosen

To: The Angel Community

After publishing my companion piece, “How Startups Survive the COVID-19 Economic Crisis,” I have received a number of comments about how this impacts angels and angel investing. Here are my thoughts.

Unlike VCs, who have a fund to invest and collect a management fee for investing their fund, Angel Investors invest their own money and are under no pressure to invest in any company or at any time. Our decisions to support a startup are totally our own. As in previous market downturns, there will be some themes that help us through our investment decisions during the COVID-19 pandemic and the resulting economic crisis.

Angels have limited funds. And many of us already have extensive portfolios. We quickly will be (or already are) in the position of getting funding requests from many of our portfolio companies for new rounds of funding. Some will make it, and some won’t – even great companies with fabulous ideas will fail when the cash dries up, and sometimes Angels alone can’t provide sufficient cash to carry them through.

For Angels, this is a good time for both investing and tough love. Great companies are often started in market downturns. I believe this is because only the most dedicated entrepreneurs (the ones that feel absolutely compelled to create their new company) will leave a stable, good-paying job in the middle of a downturn.

My friend and colleague, John Huston of Ohio TechAngels, commented on the last two recessions: “One strong recollection I have of those periods is that CEOs (with a strong BOD) who most effectively & frequently communicated their parsimonious plans to use the emergency funding were helped and survived.” An inexperienced entrepreneur might neither have the experience nor the tools to manage their impending company crisis; we as knowledgeable Angels and mentors and board members can draw on the experiences we have faced as investors in those previous cycles. It is our hour to shine and help our startups survive and thrive!

Here are my rules for Angels during this downturn:

Stay in the Game. I know that our public equity portfolio is way down, but, most likely, you aren’t bailing out while the stock market is down. Same is true of Angel investing. Stay in the game. Keep reviewing companies, meeting with entrepreneurs, etc. And be prepared to invest in both some of your existing companies and some new ones.

Be highly selective.
Most Angel investors are always selective, but this is the time to turn your filter even higher. Funding is even more limited than it was a few weeks ago. There will be lots of great opportunities, both in your existing portfolio and new ones. So, take your time and invest with care. The funding requests will vastly exceed your ability to invest!

Work in a group or a team. Angel groups (or groups of Angels) can help a lot, both in terms of assessing deals and in making sure that there is a sufficient pool of capital and expertise to help companies succeed and thrive. In stressful times like these, this is even more important. The Alliance of Angels has survived the 2000 (dot com crash) and 2008 (mortgage crisis) downturns, with a group IRR of over 20%. Angels and the startups they support can really benefit from that institutional wisdom.

Be ruthless. All Angels investors have their favorite companies. We want them to succeed. This is the time to step back and realistically consider the probability of success with limited financing. Advise your existing companies to conserve cash and focus on how to help their customers. (See my companion piece.) You may think you are helping by keeping a portfolio company alive, but make sure that their plan is reasonable to actually survive – tough love. Some of your portfolio companies will not survive – even great companies will die from running out of cash and runway. But it is likely that some good ones will come through this crisis even stronger and give a better return than you expected.

Multiple financing rounds. This is a time to avoid companies whose plans require multiple rounds of financing with large cash needs before they can turn cash-flow positive. I’m not saying to sub-optimize the outcome of great companies. But for at least quite a while, it is likely that cash will be tight, and it will be difficult to raise money. Companies that are frugal and can make the most out of the Angel cash have a much higher probability of giving you a return.

Deal terms matter.
This is a time for resets. Both Angels and entrepreneurs need to reset expectations. The world will recover, but it is likely to take a while, so make sure that the terms on which you invest are in synch with the market and the projected future. Resetting valuations to match today’s reality is a must. If you agree to too high a valuation, the company will have trouble both attracting enough investment now and, particularly, more investment at the high post-money valuation later. Watch for other terms, like liquidation preferences, that can lower your return. And, for a less experienced CEO, do not be afraid to have some protective provisions, e.g., the company can’t exceed its budget without the approval of the investors or investors’ rep.

Be careful, but not greedy. As Angel investors, we invest for the future and to give back. It is OK to be careful, ensuring that the return you get is commensurate with the now higher risk you are taking. But don’t be greedy and ask for large multiple liquidation preferences, too much of the company, or asking the entrepreneur to throw all their energy into the company without retaining a big enough stake. This is a time when we want a “rising tide to raise all ships.” We are in this together.

Exits. In the short term, not many exits are likely to occur. Unlike VCs, Angels can do well with modest exit valuations (provided that the initial valuation was in line with reality). Entrepreneurs can also do well with a modest exit. Make sure the entrepreneurs in which you invest are on the same page – look for early exits, even if they are more modest. You want entrepreneurs who want to be rich, rather than becoming a king!

We are in a challenging period. It is natural to want to pull back. As an Angel investor, this can be a good time to both maximize your current portfolio and find some new fantastic deals with fantastic teams at reasonable terms.

Reposted with permission from http://blog.drosenassoc.com/

Dan Rosen is the Chairman of the Alliance of Angels, former Director for the Angel Capital Association, and a Tech Coast Angels member. He has a Ph.D in Biophysics from UCSD.

Resources for Startups: CARES Act Information

Several TCA members have compiled a list of reputable resources about Government programs and initiatives that may be relevant, including loans for venture-backed startups, grants for companies that can help combat COVID-19, and tips for startups to survive the crunch. Obtaining up-to-date information about one of the largest bills in U.S. history during a crisis is hitting a moving target, but we wanted to help you get started with resources you can access in a folder HERE.

Venture in the Time of Pandemic

By Julian Zegelman Having spent the last few years investing in and advising Seed and Series A stage startups, I grew suspicious of the prolonged bull run and expected a correction in the private and public markets. However, I could have never imagined that the correction will manifest itself as a world wide pandemic, causing […]

How Startups Survive the COVID-19 Economic Crisis

By Dan Rosen

Being trained as a scientist, and having lived through several investment cycles, I’ve been asked to share
my perspective on the financial impact of the COVID-19 pandemic on startups.

I firmly believe that the human and societal impact of COVID-19 will be extreme, even though we are at
the early stage of this pandemic. If we, as a society can pull together, enact social distancing and other
means of delaying the spread of this virus, we can come out of the other end of the tunnel. Most
people really don’t understand the concept of exponentials – it is not in human nature to grasp what
this means.

As a scientist (a biophysicist at that), this kind of modeling is something I was trained on early in my
career. At this point, suffice it say, that we cannot prevent COVID-19 from spreading and our best hope
to minimize the impact is to (a) lengthen the time it takes to effect a substantial portion of the
population; and (b) prepare for the impact that will have. The key right now is to ensure that our
medical system is not overwhelmed by this impact.

In 12-18 months, I expect that we will have a viable treatment for those with the disease, a working
vaccine and that a large enough percentage of the population will have developed immunity through
recovering from being exposed to the virus. The combination of the herd immunity and a vaccine for
the most vulnerable will potentiate the impact, provided that we can wait it out through mitigation
measures in the meantime.

I went through this detail because the depth and timing of the disruption will have major impact on the
startups we support and fund. A deep and shorter disruption might actually be more severe for both
our society and our companies, so let’s pray that our remediation response works.

For startups, this will be a particularly difficult time. In the recessions of 1982, 2000, and 2008, funding
for startups dried up. While many have heard me say that great startups are often created during
market downturns. Sometimes, easier said than done. So here are my suggestions:

1) Survive. This is pretty obvious. Is you don’t survive, there is no upside. So all of the strategies
below are about survival. It is time to put aside the wonderful plans to become a huge company
with world-beating products. None of this matters if you don’t survive.

2) Cash is king. Startups don’t generally die for a lack of ideas. They die because they run out of
cash. Put in place a plan to conserve cash. Be aggressive in this plan; early action will be much
more impactful than later action. Have at least 12 months of cash on hand, because it is likely
that is what you will need. Even if the COVID-19 crisis resolves itself much sooner than that, the
turmoil left in its wake will persist, particularly for startup.

3) Forget about raising money. While investors might have cash to invest (especially VCs), the
sudden downturn in the market, coupled with the disruption of almost all business as usual, will
make VCs pull back for a while. Assume that this pullback will be till after the COVID-19 crisis is
over and add a few months to that for them to get back on their feet. M&A will dry up; if you
were in discussions last month, expect that nothing will happen until this crisis ends. If you are
lucky, you might get your existing angel investors to help carry you a bit, but expect it to be
really costly and only if you have a plan to make the money last a long time. And, as I believe is
always prudent, communicate well with you shareholders, giving them the bad news and the
good.

4) Revenue is likely to be curtailed. If you are counting on contracts in the pipeline to close, you
shouldn’t. Most big companies, government clients, and especially small and medium
businesses will also go into survival mode. Unless you are supplying a product or service that
they consider absolutely mission-critical, you should expect that revenue will be deferred for at
least 6 months and probably longer. If you existing contracts have cancellation clauses, expect
that some will be exercised.

5) Opportunities. If you have a way to shift some or all of your business to be part of a solution to
the COVID-19 problem, stay alert to do so. For example, even as GM is closing plants, they are
looking at how to make ventilators and respirators. While there will be great economic
dislocation that effects small and large businesses, there are still some opportunities, especially
for direct to consumer businesses. People are sheltering at home and online a lot. If you are
selling something that will make their lives better during this difficult period, there are
opportunities. Examples might be things like online learning or classes, online consulting, or
even things that bring a smile in these difficult times. Similarly, any product or service that
makes working from home easier will have a ready market (if your customers can find you
online).

6) Downsize. While this is a really difficult decision, survival is the single most important thing.
Many companies will have to pare back to the essential. Salaries will need to be slashed (as they
were in 2000 and 2008), if companies will survive. I’ve already heard from several of my
portfolio companies that they had company-wide meetings and agreed to 50% salary cuts.
While the pandemic will certainly curtail travel, make that a policy. Cut all contract help that
can be cut. Cut marketing and sales spend until the your customers are back to work and buying
once more. Again, any step that cuts your burn early on, will have a lasting impact on the later
cash balance and your cash horizon.

7) Non-equity cash raise. Look for sources of cash that are non-equity. Think of ways to get
government grants. Explore the SBA programs that have been put in place to help small
businesses. Be creative about finding sources of cash to stay alive, including potentially doing
some short-term deals that help the immediate crunch. These are things that you wound never
have considered doing three months ago.

8) Stay alert for the inflection point. As with almost all things in life, this too will pass. It is hard to
tell what the country and market will look like when this is past, but if your company is alive and
flexible, there will be great opportunities. Watch for it, since none of us can predict when it will
happen.

Dan Rosen is the Chairman of the Alliance of Angels, former Director for the Angel Capital Association, and a Tech Coast Angels member. He has a Ph.D in Biophysics from UCSD.

TCA Member Spotlight – Nii Ahene

 

This month’s TCA Member Feature is Nii Ahene, Co-founder of CPC Strategy and Chief Strategy Officer of Tinuiti. A Bay Area transplant, his Angel Investment interests lie in Innovative and Disruptive 5G-Oriented, CPG, and B2B SAAS Organizations.

 

Please describe your personal history – your career, personal interests/hobbies, and what you’re currently doing for work.

I got my career started back in the early 2000s when I was still in college. I grew up in the Bay Area, so I saw the first dotcom boom and bust when I was still in high school.  I attended UC Berkeley from 2002-06. While there, I started doing freelancing for companies locally in the Berkeley area, helping them with their marketing, setting up AdWords accounts –  that’s how I got into internet marketing in general, back in 2003. I ended up starting up a small company, but I couldn’t figure out how to get that to scale so I closed it down when I graduated and took a job at eBay.  I was a product manager within their internet marketing department, then moved up to algorithmic merchandising. Six months into my eBay career, I started CPC Strategy, the digital marketing agency I grew with a couple partners here in San Diego in 2007, which was the start of my entrepreneurial journey.

We sold CPC Strategy to Elite and Mountain Gate Capital in 2018. The agency had grown to about 135 employees, we managed north of $350 million in ad spend for over 400 clients across Google, Facebook, Amazon by the time we exited. Post-sale, I’m still working full-time with the agency, as part of Tinuiti; I’m our Chief Strategy Officer, navigating the company through M&A opportunities and strategic partnerships. I’m very excited about what we’re doing as a larger agency. We’re the largest independently run agency in the United States, managing up to $1.5 billion dollars of ad spend for over 900 clients. Very similar to what we were doing with CPC, but we have higher-level relationships with our partners at Google, Amazon, and Facebook.

When I’m not at work, I’m typically working with my portfolio companies. I’ve made a number of angel investments outside of TCA. I’m involved in those companies to varying degrees, from advisorship to hands-on assistance, helping them think through strategic challenges. For fun, I do like to travel, I have a goal of visiting all seven continents before I’m 40, and ideally doing it in one year. I’ve visited six already, so we’ll see if 2020 or 2021 is the year when I finally get down to Antarctica!

 

What circumstances led you to taking an interest in angel investing, and TCA in particular?

At CPC, we didn’t have the opportunity to raise outside capital. I think of it as a long 13 year MBA in a lot of ways. I got into angel investing because it’s an opportunity to be involved in the early part of an organization, and to providing guidance to founders which is something I’ve come to enjoy. I’ve been a part of other founder mentorship programs, and to be able to apply capital to that with mentorship is the best of both words and allows me to combine two of my passions, investment capitalism and providing guidance to other business owners. When I heard about TCA and the great work they’ve been doing, especially the newer model the ACE fund developed, it was an exciting opportunity to be able to meet and work with more founders and see a greater variety of businesses and potential ventures.

 

How has your personal background influenced your investment strategies – how have you been able to leverage your areas of expertise?  

Over the course of my career at a digital marketing agency I’ve seen hundreds if not thousands of companies. We’ve helped hundreds of companies with their growth, especially consumer companies on the internet.  While building CPC we’ve been able to create lead magnets, and digital marketing campaigns have allowed us to grow in scale, leveraging content and webinars, so I’ve got a very good sense about B2B and raising market awareness for service, as well as the B2C market from an internet marketing standpoint. That allows me to take a look at a company’s metrics, their unit cost and understand the best way for them to raise awareness – or if internet marketing even makes sense for them. And given the fact that we’re spending an increasing amount of time on digital or connected devices, that gives me an interesting opportunity to be able to evaluate both consumer and b2b deals whether it’s internet marketing, their content plans or paid media plans, helping businesses determine if their plan makes sense. In addition we built up – for an agency of CPC’s size at exit – a pretty robust b2b inbound marketing and insight sales team. I didn’t think I was a sales guy until I booked my first sales team, so seeing how that works, putting up the processes, tweaking Salesforce and Marketo to be able to work together and generate the right leads and have the right leads surface for our sales team… that entire process and the metrics behind it, that’s another passion that I kind of picked up along the way. And as I look at other companies and I see where they are in their process, that’s another place I feel like I can use my experience, examining how companies put together their sales teams, and what their sales processes and sales enablement looks like.

 

Are there any lessons you’ve learned from your own experiences that you’d like to share with other investors, especially those interested in angel investment?

I’ve been a product manager on and off for the last 15 years and whether it was working at eBay or working within CPC or Tinuiti, I would say that a lot of entrepreneurs underestimate the complexity associated with tech and having the right team, the right infrastructure, the right scalable processes around their product. Just because you have a product that’s brilliant doesn’t mean you’ll get product adoption. I see a lot of pitches where people have phenomenal tech but when asked about marketing they don’t have a specific plan. When I ask about sales processes, how they’re going to get in front of targeted leads and targeted accounts, there’s nothing there. I’ve failed in launching SaaS within organizations, so I’ve seen what that looks like, and what a challenge it is to be able to cut through the clutter in crowded markets. I would say that paying attention to what your go-to market strategy is, is just as important as having great engineering behind the product – but having great engineering to be able to be sure you can ship your product is equally important, so I’m not enamored with SaaS companies unless I see traction. There you can signals you can look at to determine if there’s traction that’s sustainable and long lived. Signals like client churn, logo churn, how quickly the product has evolved, the ability for a development team to be able to present a clear plan for what they’re going to do (and getting there), understanding the level of technical depth within a specific area, the company’s approach to infrastructure and thinking through cloud options between the big cloud providers – Google, Amazon and Microsoft. Those are all areas where having that conversation lets you know the maturity of the management team. When they’re coming back to you with questions or they don’t understand why these questions are being asked – if you’re already an investor that’s an opportunity to get them some guidance, and if you’re not invested yet that’s a sign they have a lot of growing to do to be able to tackle those challenges.

 

 

What impact has joining TCA had on your investment strategies? Have you benefited from TCA membership in ways unrelated to investment?

TCA has exposed me to the entire bio space, an area I don’t have first-hand experience with. I have friends, family, colleagues that are in that space, but personally I never been involved in that space, so it’s a whole brand new world, and there’s different aspects and multiple layers to evaluate companies that I’m discovering, which is exciting from an investment standpoint and being able to participate in that via the fund has been awesome.  I hope to be able to develop more interpersonal connections, but the people I’ve met in the organization and had the opportunity to connect so far with have been awesome. I can see that the organization is healthy and full of like-minded and diverse membership.

 

 

Are there any organizations you support and would like to highlight? Any causes, events, companies that the startup community, TCA, or San Diegans in general would benefit from knowing about? 

The Lavin Entrepreneurship Center at SDSU is an organization that I’ve supported financially as well as through mentorship. It supports a cohort of students being taught lessons in entrepreneurship. I’ve been a mentor there for 3-4 years, it’s a phenomenal organization with great people running the program, I’d love to put on the radar for people who haven’t heard of it before. A number of great friends have come out of that particular organization, Pure Vida (Bracelets) recently had an exit, Blenders Eyeware recently came out of there too, it’s been awesome to see a number of companies come out of that program. CPC and Tinuiti have been involved with Startup San Diego over the last decade, hosting events here at our office. These two organizations are connected to our entrepreneurial ecosystem. I think San Diego as a region needs to do more work bringing the different organizations together, but as long as there’s some interconnective tissue, whether it is members or conversations, I think we can strive towards making San Diego a beacon for venture and angel activity.

 

 

Why did you decide move to San Diego, and how has it benefited you personally and professionally? What makes it unique and stand out from other places you’ve lived? What excites you about the future of San Diego?

I moved down to San Diego from San Francisco when I was 23, back in 2008, so I’ve been here for 12 years. I came right before the recession, during Facebook’s emergence in the years before they went public. Coming down to San Diego was interesting because I went from a situation where venture was on everybody’s mind to one where you really had to work to find people who were thinking about ventures and startups. But what I’ve seen over the last decade is that energy, that entrepreneurial spirit, has absolutely become a part of the fabric here in San Diego. I’ve joined other organizations like EO (Entrepreneur’s Organization) and I’ve met other business owners and I think that the right balance has been struck here, between looking for home runs but also ensuring that we’re building businesses that are meant to last, our startups are not just burning money and not being good stewards of money they’ve raised.

We have several great universities, the talent here is just as good if not better than the Bay Area. We’ve been able to forge relationships with the universities that I don’t think, at least operating on the scale we did at CPC, would have been possible if we were dealing with Stanford and UC Berkeley –  but we were absolutely able to do with SDSU, USD, and to a lesser extent UCSD. I think the right components are here, I think the weather absolutely is something you can’t underestimate, and the Bay Area is only an hour away thanks to our very convenient airport. Not to mention the costs of living here are significantly lower – still an expensive place to live but less than the Bay Area! I think all those factors make San Diego a very attractive place to do business and I’m excited to see larger organizations like Amazon, Apple, and Facebook open offices here, alongside our thriving entrepreneur ecosystem.

TCA Member Spotlight – Angela and Sonia Steinway

Angela and Sonia Steinway

December’s Feature Spotlight introduces TCA Members Angela and Sonia Steinway. East Coast transplants by way of the University of Pennsylvania, they’ve chosen La Jolla Shores as their new home and TCA as their vehicle into the San Diego startup and innovation lifestyle!

 

Can you tell us a bit about yourselves – how you started down your career paths, where you’ve ended up at this point in your career, and what you do to blow off steam when you’re not busy?

 

Angela:

When I was at the University of Pennsylvania, I tried to start my own medical device company. I invented a device and received a provision patent, but I quickly learned that it takes a lot of money – and I had a lot of student loans. Instead I joined Oppenheimer after graduating as a research analyst covering the medical device and diagnostic space. I stayed there from 2007-09. There was a lot of M&A activity, so it was a really fun time to be on Wall Street, and I learned a lot.

After the market crashed, one of the companies I had covered was looking to start an investor relations program. With my interest in entrepreneurship – and the fact that people weren’t jumping ship from this company –  I thought it was a good time to switch paths again, so in March of 2009 I moved to Integra LifeSciences and started their IR program. When I joined, we were near $500 million in market cap; we’ve seen a 10x appreciation since then, to nearly $5 billion in enterprise value today.

Once the program was established and running, I picked up responsibility for corporate finance and strategy and also became heavily involved in their M&A activity. We did over 18 acquisitions while I was in that role. When we moved to San Diego in 2017, I changed to a sales role to get more commercial experience.  I had the corporate finance and strategy boxes checked and wanted to get experience on the commercial side of the company as well so I did national contracting for a year and a half. About a year ago I became the sales director for one of our fastest growing lines –  regenerative skin substitute products – and currently manage a group of 55 salespeople nationwide.

Outside of work, I dive as often as I can! I’m part of a local nonprofit social meetup scuba group organizing dives in La Jolla Shores, buddying up and going out a few times a week if possible. We’ve been to some cool dive spots in the world. We used to be exclusively vacation divers when we lived back east – and Sonia is still primarily a vacation diver because the water is too cold for her. We’re doing a big diving trip in Honduras this spring.  This fall we went to Rarotonga in the Cook Islands.

Sonia:

I am an attorney by training. My particular focus and passion is consumer finance and regulation. I started out working with people filing for bankruptcy leading up to the 2005 Reform Act, and was amazed at how bankruptcy laws act as an additional social safety net, allowing people to get out of the hole so that they aren’t scarred permanently. You couldn’t have a thriving start-up sector without bankruptcy; if you knew you couldn’t declare bankruptcy, you would never be able to start a company because you’d be at risk of getting permanently stuck with the debt.

Angela and I met my first day as a freshman in college. After graduating, I went to work for Bain & Co. doing management strategy consulting. I wanted to help businesses solve problems, learn to speak business lingo, and develop the skill of thinking like a consultant in 2×2 matrices and 3 bullet points. I then unlearned all of that going to law school at Yale, where you speak in 600 page briefs and footnotes. I was still interested in consumer finance. By that time, Dodd-Frank bill had made massive changes in the industry, and it gave me the opportunity to do some regulatory consulting work.

But after working with banks to implement the new rules, I realized that, while most of the time regulation is incredibly important, it often doesn’t help individual consumers. I wanted to engage more with people to empower them to make smarter financing decisions.

At the end of clerking – I worked for two judges, one in Delaware (home of corporate law) and one for the U.S. Second Circuit in New York – I met the person that would become the cofounder of my consumer auto finance company, Outside Financial. I actually deleted his email at first because I thought it was too crazy an idea to become the founder of a startup. I’m more risk-averse; Angela is the entrepreneurial one. But I “undeleted” the email and forwarded it to Angela. We decided that since she had job stability and health insurance, it would be amazing to operate in this innovation space as the founder of my own company. We’ve been running it for 3 years now, operating remotely – my cofounder is still in New York. It has been a fascinating learning experience being in a startup on every level.

Outside of work, my personal passion is rock climbing – I love to climb, I would climb every day if I could. I’m also a competitive crossword puzzler. We also have a nine-year old son, who we spent most of our other free time with. He wants to be an entrepreneur when he grows up, so I guess we’re doing something right.

 

What led you to taking an interest in angel investing, and TCA in particular?

 

Sonia:

There’ve been a number of paths that led us to angel investing. We’ve both felt some skittishness around the future growth of the market, and we were looking at alternative ways to invest our money. We both also firmly believe in the power of innovation and entrepreneurship when it comes to growth and opportunity, and we believe in building and investing in our community. We love San Diego, and we want more companies to thrive here so that people can have great qualities of life here. San Diego has developed such a strong and rich community and we see entrepreneurship as a great path for continuing to grow and enrich that community.

Angel investing feels like this amazing way to not only grow wealth through investment, but simultaneously create good sustainable jobs and give entrepreneurs a chance to thrive – so it really fit in with a lot of our personal goals. But because we’re totally new to angel investing we didn’t feel comfortable doing it on our own; we wouldn’t see enough good deals or be able to vet good deals, and we wanted to learn from other people who know how to do this well. We canvased the landscape of local organizations that do angel investing and discovered TCA. We’ve learned so much from attending meetings and speaking with other members, but also really enjoy the camaraderie at TCA! We’ve devoted a lot more to angel investing than we ever thought we would before we were angel investors! We’ve made one investment separate from TCA and being in TCA has really informed how we’ve thought about that – the questions we’ve asked, understanding how that process works – which has been great. It’s fundamentally an investing group with the goal of earning money, but the social aspect has been really amazing and we love the people we’ve met.

Angela:

When I was at Penn, I was heavily involved in a student incubator called the Weiss Tech House. After gaining some work experience, I came back as an alumni advisor and a judge and mentor for student startups coming out of that program. That was something I enjoyed doing with my spare time when we lived in New Jersey. When we moved here, I was hoping to find something that would fill that gap, and although I haven’t gotten involved in TCA as much as I’d like to, it stimulates that part of my intellect and gives me an outlet for that impulse.

Sonia:

We love going over deals together. Angela has a background in life sciences and deeply understands that space, I have a tech and regulatory background, and we enjoy meeting in the middle to bounce around our thoughts about the deals. Our rule is that we both have to want to invest in something, we both have to feel strongly about it, before we go through with it. It been really cool, almost a romantic couple activity to do this together, we get a babysitter for TCA dinners or other functions, it’s been really lovely, (laughs) keeps the magic alive!

 

How has your personal background influenced your investment strategies?

 

Sonia:

My investment thesis is probably a little more targeted and narrow than Angela’s. I want to see companies that are going to make a meaningful difference in the world. It’s easiest to see that in something like life sciences, whether it’s a life-saving technology or something that provides a meaningful quality-of-life improvement. But even with other kinds of tech, I want to see that there’s some element of societal progress in their offering. I’m also really interested in non-traditional founders, particularly women. These are the traits that make me more excited about an investment opportunity. We’re not to the point where we wouldn’t invest if a company was not fitting in these boxes of a non-traditional founder or a high-social-impact product, but that’s probably where we would ultimately prefer to invest.

Angela:

I like to think about whether companies would be a good investment from the context of having been on deal teams for a public company; would I acquire this startup if I was an established company in this space? The other factor I look at is the leadership team, and whether they can build a team that can execute on their proposed business plan. In my experience, so much of the success I’ve seen, whether they’re going to hit their earnout payments after they get bought, is from entrepreneurs who are not just “The Person” handling everything themselves but a person that can build a team. And the last piece of it would be does it make sense from a financial standpoint, do they have a strategy, do they have a good commercial plan? These are the same three areas of focus I’ve been developing over the course of my own career, and so I’m trying to apply what I’ve learned from my own experience in determining whether a company has these elements for success and is a worthwhile investment.

 

Can you share any lessons you’ve learned from your experiences that our readers might find helpful?

 

Sonia:

We’re so new to angel investing that we haven’t yet screwed up badly, thank goodness! I’m sure we’ll get there. I can say, as an entrepreneur myself and watching other entrepreneurs going through processes like fundraising with TCA, the largest lesson I’ve learned is to build your network far in advance of when you’re going to need it.  Try and take in as many diverse viewpoints as you can, because every entrepreneur thinks that they’re facing issues for the first time, that nobody’s ever dealt with their particular issues – but the stronger your network, the more you realize everybody faces the same challenges, and you can lean on those people to help you make smarter decisions.

 

Are there any organizations you support and would like to highlight? Any causes, events, companies that the startup community, TCA, or San Diegans in general would benefit from knowing about? 

 

Sonia:

If anyone would like to know more about Barbara Bry’s mayoral campaign, I would love to talk about her. She was a former TCA member, before she became a City councilperson, and we were drawn to her by her stance on scooters. She’s also a Penn alum, and a successful angel investor who believes in funneling her success back into the community, particularly funding female entrepreneurs, which has made us very excited about her ability to foster innovation, attract the right kind of jobs, and bring more talent to our community.

 

Why did you decide move to San Diego, and how has it changed your life? What makes it unique and stand out from other places you’ve lived? What excites you about the future of San Diego?

 

Sonia:

We came to San Diego on vacation about 8 years ago and absolutely fell in love with it! We’re both analytical, so we had a spreadsheet with different factors we were looking for in a city when we were thinking about where we wanted to live, but when we got here we immediately thought, “this is it, this is everything we want.” It then became a question of how we could make it out here. I ended up going to law school back east, much to Angela’s chagrin. When I was done clerking and after founding my startup, I was working remotely, and it turns out there’s a lot of auto finance talent in the area – there were some legacy companies that left and their people didn’t want to leave San Diego, so they stayed here – and we’d actually engaged consultants and experts here, which felt like a sign.

At the same time, Angela’s work wanted her to move to a more commercial role, which she could perform from many different places, and so we felt this was the time since everything was trending in that direction. We came out here on President’s Day weekend in 2017 and found the perfect home on the last day of our trip. It just came on the market that morning, and we were the first people to see it. We put in an offer right away… and then told our families, “Surprise! We’re moving to San Diego!”

We love the climate, the weather, and how active and outdoorsy San Diegans are. When we were living in New Jersey we’d go hiking and people thought we were crazy for spending time in the woods.  It felt so warm and welcoming here. We’re both vegetarian, and the food is so much better here (I’m a big farmer’s market person). In terms of entrepreneurship, I’ve always felt that New York is too big and too much is going on – yes, there are lots of resources but navigating the massive ecosystem can be challenging. Whereas here, it’s a little easier to wrap your heads around things and meet folks, so I’ve definitely enjoyed getting engaged in this community in a way I don’t think we ever did when we were living back east. When you find the right home, it feels like everything clicks into place!