Mat Vogels (00:10)

Hey everybody, welcome to another episode of Fundraising, a podcast where we interview early stage investors and ask them all the questions that you, as a fundraising founder, need to know about the fundraising process. And today we have a very special guest, Sarah Koontz, the managing director of Clio Capital. And Sarah, I was mentioning before we hit record, I've watched dozens of your TV.

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interviews where you've gone to Bloomberg and CNBC. and I think that as an investor and certainly as a founder listening, the insights and things that you have shared on there are exceptional. So we are very lucky to have you on here today. I have no doubt that you will be able to give some unique insights to the founders that are listening. Can we start a little bit with more on Clio Capital, what you're investing in, the stages that you're investing in, average check size and those types of things.

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sarah (01:05)

Yeah, absolutely. thanks for having me. So I, Cleo Capital, we invest from pre-seed to series B. pre-seed is sort of self-explanatory. you can come to me and say, Hey, I want to build this company, I have a advanced degree or I've been working in the relevant space. you know, here's my idea. I don't have a pitch tech yet, and and I will back people to give the money to, you know, quit their job and start building. on the series B side, the way that I I kind

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of think of that series B is very different in Silicon Valley versus Minnesota versus you know the outside of the US but the way that I think about it is I need to be able to underwrite to at least 10x so if you have a billion dollar series B valuation but it is clear to me right it anthropic at a series B would have been a screaming deal right whereas if you're in a market and you're at a billion dollar valuation but the TAM the total addressable market of your industry is two billion

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Then all of a sudden, you know, making money, more money from there is gonna be really hard for me. So so that's kind of the upper bound. on the early side, I think that earlier is better. I really like pre seed and I like series B. I think seed and A are almost a little bit tougher because often you're just sort of paying a a sort of markup and valuation because somebody else gave the founders money so that you could be a little bit less risky, but you can only lose your money once. So I'd rather go

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Mat Vogels (02:28)

Hmm.

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sarah (02:28)

earlier.

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Mat Vogels (02:30)

I love that. Are there any sectors that you're looking at or excited about right now?

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sarah (02:34)

So

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we're a generalist. I'm location agnostic. I am a relatively stage agnostic, sector agnostic. that being said, I have areas that I get more excited about. on our website, Cleocap.com, we have a blog and I'll publish occasionally areas that I find more interesting. You can also look always at an investor's portfolio page to get a sense of, especially more recently, what they've what they're investing in and maybe where their interests lie. so right now.

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Now I'm really interested in three areas that kind of seem disconnected, but they're not so much. they all probably it sort of are an indication of my like larger anxieties keeping me awake at night ⁓ existentially, which is cybersecurity, particularly consumer cybersecurity, as well as for fertiliz fertilizer, next-gen fertilizers, how are we gonna eat if if we don't have the

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Mat Vogels (03:15)

Ha ha ha.

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sarah (03:29)

inputs needed to grow food. and then next gen energy, right? How are we we we live in a time where oil is complicated and expensive to access and it is not sustainable when you look at the biggest and I don't mean that in an environmental sense even but when you look at the biggest oil producers, the Nordics, the Middle East, they are balls to the wall if I can say that on figuring out renewables, figuring out next-gen energy because they know better than anybody else.

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That we are at or near peak oil and our kids, our grandkids are going to have to be able to do something else.

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Mat Vogels (04:03)

Yeah. I haven't

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heard the that concept of almost investing where your anxieties are the highest, but I think there's a lot to to be said there because it's gonna show where you have where you're gonna spend most of your time thinking about those problems. And you're right, they're not quite tied together, but they are in that same realm of things that we have to figure out fairly quickly. So that's a good theme for sure. What were you doing before jumping into to VC?

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sarah (04:27)

I was doing kind of a mix of everything. so I my first two jobs were on a farm. I'm from a very small town in Michigan, so very different. I I am not afraid of hard work. I was picking strawberries on a farm when I was like 11 to get money to go to the mall. And like it was all very and so, you know, have always kind of worked hard, have always been pretty entrepreneurial, got really interested in in venture capital.

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Mat Vogels (04:35)

Love that. So you're not afraid of hard work, that's for sure.

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Wow.

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sarah (04:53)

Kind of by accident. I was working at a Y Combinator back startup and I was doing business development and product. And I was talking to an investor that I was trying to get them to invest in our company. And she was like, Look, your company's basically running out of money from what you're saying. It sounds like the co founders, I wasn't a founder, the co founders, you know, barely speak to each other anymore. Like this company's deadpooled, that's fine. But you have a lot of experience. I'd worked at Chanel in marketing at their corporate HQ in New York.

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York, should you have a lot of experience in media and retail, and I'm interested in in you know figuring out more about that. She was sitting in Silicon Valley. You know, will you come on part-time to kind of consult for us and help us figure out these sectors? So I started doing more and more and then ended up at that fund as like a analyst and then left, started a startup, ran that for a couple years, and as that was running out of money and winding down, I had been actually.

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actually recruited by Rulof Batha at Sequoia to be a scout at Sequoia. And so I was angel investing with their money, which was great because I didn't have a lot of my own. And I liked it. And then I was talking to a friend who had a small fund, telling him about scout investing and how it was so interesting to me that it was such a niche thing that was really only a couple Silicon Valley funds at that point. and he said, well you should start a fund and do a lot more of that. And so

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So my first fund was like three million dollars in twenty eighteen.

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Mat Vogels (06:19)

I remember

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you had this on a podcast, I can't remember when it was, where you talked about for folks that are interested in becoming investors, that time is one of the greatest assets that you have because and I believe in this too, if you can be a scout or somehow get those reps in early that feels low risk isn't the right term, but

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not quite the same as that, you know, certainly when you raise your own capital and are investing into those things, the more reps that you get earlier, like anything else, the better your strategy and the relationships you've built with founders, the pattern matching ability, all of those things. But the fact that you have both the investing side and the operator side is, I think, the perfect combination, certainly for for founders listening, because you can speak languages on both sides, which is important.

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What is your favorite part about the job and being a VC and then what is your least favorite part about the job?

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sarah (07:08)

My favorite part, well, I have to be honest, right? My favorite part is making money on my investments because that's my job. I'm a capitalist by by nature. Anytime an investor tries to tell you it's not about the money, I would be a little bit concerned because that's literally our job, right? but but you know, the reality is day-to-day, it's it's the founders, it's finding founders who are building amazing things, getting to play a tiny role in that and and being able to help them. and and then on the other side.

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Mat Vogels (07:14)

Exactly right. Yep.

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Yeah. Yeah.

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sarah (07:36)

Side

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in terms of the parts that are not so great, starting a fund, running a fund is let me put it this way: as somebody who got to see an accounting, the fact that I have to have four accounting firms, right? It's terrible. It's terrible. And and they're all fine, right? I I love my lawyers. Like I have back office, I have accountants, I have banks, I have all it's so much operational overhead. because the interesting thing about venture funds and this

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Mat Vogels (07:46)

Ha ha.

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sarah (08:03)

Is like the world's smallest violin, but is that you? I have the same amount of things I have to do as a emerging manager, microfund manager, as a Blackstone because private equity and venture capital are the same asset class, right? So we have to file tax. Blackstone's actually publicly traded, whatever, so it's slightly different, but like a huge multi-trillion dollar, right? hedge fund or private equity fund or venture fund, it's still the same business. And so where it's very different to be a one

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Person startup where you don't even, you know, you don't even barely pay yourself, you don't have employees. I am in all emerging managers, we have headaches, like you would not believe, doing all of the the sort of back office piece because the SEC rightly says, Okay, okay, big girl, like you you took all this money from people, so now you have to be very responsible with it. And I am, but you know, you know too, it's just a lot of unseen, unglamorous, unfortunately.

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Mat Vogels (08:59)

No, it definitely doesn't. and it is it's not the part that you sign up for, that's for sure. are there any other areas or things? I mean you mentioned some of those pieces there, but I find that the more that founders know of what happens behind the scenes or what goes through a VC's head, the better they will be in the fundraising process. Is there anything else that you could show as a kind of a peek behind the curtain in everyday VC things that maybe might surprise a founder that's listening?

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sarah (09:24)

So

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I think sometimes investors, especially sort of earlier career or investors who are a little bit cockier, can try to act like you look at them like you are God. You you decide if I live or die. They are not omnipotent because they have a boss, right? Actually they have loads and loads and loads of bosses, which are if they're not a named partner or the general partner at their firm, the people they work for. venture is very different in that you don't really you don't have

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To hire anybody, right? Some people have five partners at their firm, and other people with the same amount of capital have one or two. So you sort of exist at the benevolence of the senior partners who decide if you're worth your salary. And then the other piece is your LPs, right? Your investors. And so sometimes I I don't think this is helpful, but I do understand the urge that sometimes you hear of investors who are like breathing down founders' necks, being like, when are you going to get to this milestone of revenue? You know.

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When are you gonna sell your company? When are you gonna go public? And you're like, what is wrong with you? The thing that is probably wrong with them is that they have an investor breathing down their neck asking them those questions, and they are instead of dealing with it in a in a productive manner, they are sort of transferring that anxiety to you. And so, whenever an investor or another thing you'll see is investors will switch to being like operating partners or some some other thing at their firm, right?

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They're a board partner, that is a polite way to say that they kind of got demoted. they generally don't have check writing power anymore. and and that sucks, right? And they feel ashamed of that, but they might not tell you that, they might just sort of pass on you or give you sort of frustrating feedback. and you have to remember that they are working in a deeply political, deeply often stressful and annoying job, the same way that you.

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Mat Vogels (10:53)

Ha ha.

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sarah (11:14)

Used to incorporate right, most people who work at bigger funds are more similar to somebody working at a Fortune 500 company in terms of like the internal politics, everything they have to navigate than they are you as a founder, where sure you might be broke, but you get to decide your schedule, you get to decide no one can fire you, right? And so if they're not an emerging or if they're not a a fund manager like me who runs the fund, they definitely can be fired. And even I can be fired by my L.

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LPs and I can fire my LPs too if I want. So we have a lot more sort of day-to-day job stress than it might seem like when you're looking at us thinking you get paid hundreds of thousands a year to occasionally write checks, you have no problems.

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Mat Vogels (11:58)

And take summers

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off and all those things that people talk about with VCs. That is actually yeah. Yeah.

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sarah (12:01)

All the things, yes, yes. Which are true, right? VC VCs

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don't work that hard. Like I my my hardest day as a VC is so much easier than some of my easiest days as a founder. Absolutely true. especially when you're not actively fundraising. When you are a VC who does not have to actively fundraise either because you're not in market or because you work at a fund where your investors are constantly just shoveling more money at you, your life is a dream. And then every five, six years, people look

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at your marks and say, have you made any money? Because if not, I'm gonna pull the plug and like good luck out there.

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Mat Vogels (12:36)

Yeah,

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yeah, exactly. Yeah, that is that is excellent insight for sure. last question here before we go into the fundraising process. Why should founders pick you andor Clio Capital to be on their cap table?

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sarah (12:48)

I mean, I think there's two things, right? One, the reality for the vast, vast, vast, vast, vast majority of founders is that they don't have a ton of optionality. I like to say that if if the the terms are clean and the money's green, like you should probably take it. I love when people use things like Cooley Go has good documents. I think Stripe has a a thing around documents, why Combinator usually publishes, you know, boilerplate saves. Use clean documents, and it doesn't actually matter how much you

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Love that investor because they don't have a ton of information rights or super prorata or board control or all of these other things, right? So you could love me, you could be my best friend, you could think I'm the best investor in the world, I could get hit by a bus tomorrow. You have to hope whoever buys my fund also isn't gonna drive you insane unless we have really easy, really clean, really good terms, in which case it does not matter if it is me or an amoeba because the paperwork is going.

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To dictate so much about our relationship, and I think that is the number one thing that matters for founders when they're looking at money. Now, us personally, I mean, I don't know, I think I'm good at my job. I'm in a lot of unicorns and I got in pretty early, and I'm I have good founder relationships. I tend to help on the call it CMO suite side. So does your does your design look good? how are you thinking about getting customers, making money? No going viral.

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viral on product hunt is not a scaled strategy, right? ⁓ so how how do you think about those things? how do you think about when and how to do press? and and then also on the longer tail, eventually, how do you think about what an exit might look like? With my later stage companies who are now, you know, kind of D, E, whatever, those unicorns, I'm always pushing them, think about talking to bankers, like let me introduce you to some

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Mat Vogels (14:13)

Ha ha ha.

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sarah (14:38)

not because you want to sell, but because you don't want to wake up with one offer to sell and not have any idea of who else to go to to really like make it a real process.

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Mat Vogels (14:49)

Yeah, it's valuable.

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Founders sometimes don't think about that long game that way, but it can be incredibly valuable to have that insight for sure. All right, let's go into the fundraising process. We break it up into three different segments. The first is getting in the room. A lot of the folks listening, maybe they don't have the relationships or the access to the network. They're trying to just break in and and get their pitch deck or their memo in front of somebody like us.

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So this section is kind of how do they go about doing that? It kind of starts obviously before they even think about fundraising. What advice would you give founders that are at the very, very earliest stages and they're even just thinking about which investors to reach out to? What characteristics should they be looking for? You kind of mentioned something right there that I actually like is how picky should they be, how broad should they go? What advice would you give founders that are at that very early stage, just thinking about building that CRM at the beginning?

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sarah (15:44)

So I love accelerators. I think that accelerators are often overlooked because people have an idea in their mind that they don't need them or they're, you know, too far along. You don't need them when you have your pre seed round raised, like you've raised once you have some million plus in the bank, you you probably can be pickier about maybe I don't need an accelerator, but the really big ones, the Y combinators, Text Stars of the World, or the ones that just give you fair terms that are similar to those.

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Say look at Tech Stars as kind of the benchmark. that's a really low-hanging fruit place to start. Often the easiest place to get your first like half quarter to half million. and and then building out from that network in terms of getting in front of angels, demo day, early stage funds, all of that. and and then in terms of like making the list, I don't know where these lists are, but I do know there's a bajillion of them because I constantly get emails from them, which is literally Google.

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pre-seed in pre seed venture investors, right? And there are all of these people who put together all of these lists and you whatever have to join their newsletter or something. And then you get, you know, a spreadsheet of of hundreds, if not thousands, of people. I will say one thing I don't love is recently there's been a trend of like AI agent doing like weird fake marketing drip campaigns. So I got, I've gotten a couple emails like this, which are like, you know, I talked to one of your partners

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last year. No, you didn't. No, you didn't, because I'm a sole GP. And like that's sloppy and a little bit like low integrity. And I'm an integrity person, so I I'm now turned off from you. with the drip campaign, there are arguments for and against. I don't know if it ends up working better or not, because I have a very different way of sourcing, which I'll talk about.

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Mat Vogels (17:07)

Yeah. Yeah. Exactly.

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You're talking like a cold email campaign,

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essentially.

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sarah (17:27)

Yeah, where you're you're sending

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two or three to them. The problem with that is if you're in my inbox all the time and I don't know what you're doing, I'll just hit spam sometimes and and then you're in my spam inbox. Yeah. And that's not great. And by the way, if you're always getting marked as spam, then you know, I would just say before you do any of those, yes, really understand. but downloading one of those lists, sending like emails to them, sorting them by, you know, stage, check size, sector, whatever, and then sending out a bunch of emails.

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Mat Vogels (17:36)

A lot of ECs will.

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Bye bye domain.

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sarah (17:55)

NFX, the venture fund, has a a good sort of thing like this. if you're in deep tech, there are things like deep checks, which is where we found each other for this. you know, I highly recommend all of those things. What I personally don't do, I am obscenely well connected as a human at this point in my life. Okay. I do not care if one of my friends who is a billionaire, a minor royal, whatever, a CEO, right?

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Emails me and says, Will you invest in or will you take a meeting to invest in my cousin college roommate friends company? There is no one on earth I like well enough to just give a million dollars because a third party asks me, right? Even my LPs, I'll certainly, if it's one of my big LPs, I'll take a deep look, but I'm not going to just invest. And so the amount of time that people spend trying to find pretty cold, warm.

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Mat Vogels (18:35)

Mm.

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yeah. Yeah.

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sarah (18:49)

Intros thinking that that's their edge at the really early stage is so silly to me because I think that it's much more of a shots on goal game. It's much more about getting a big top of funnel and seeing what comes through and casting a much wider net to mix every metaphor I can think of than it is spending weeks to try to track down one intro to somebody who can intro you to somebody who will send me an email and then I'll send them a policy.

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Mat Vogels (19:17)

Yep. I am surprised that more people on this podcast don't take that approach, because that's the approach I recommend as well, is how can you send a lot of emails out there, meet a lot of people and just go very, very broad. but most of the folks on this on this podcast will say, try to get the warm intro to a handful. It's better than sending a thousand cold emails. and granted, there's a fine line, you want to be able you want some taste, you want to be respectful, you don't want to send spam and there's risk in doing that.

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But I agree, I think shots on goal and and building some of those relationships. I'm not saying you send a thousand emails at once, but you'll send ten at a time, learn from those, send another fifty and just keep going. I agree. I think that's a better approach.

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sarah (19:57)

Yeah, and the other thing I'll say, so I anybody can pitch me on Cleocap.com. We literally have pitch Cleo Cap. I personally read them, it just dumps into a Google form and I am the person reading them, right? and and so and and a decent amount of my peers do this, even in Silicon Valley. One weird thing that founders tell me is, well, but I don't bother with those because I know that they're not re and I'm like, bitch, I am spending my weekends reading these. Like

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Mat Vogels (20:21)

Yeah. I don't know a VC that does not read

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sarah (20:24)

Yeah.

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Mat Vogels (20:24)

those. Yeah, every VC I've talked to reads those. Yeah. Yeah.

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sarah (20:25)

Because if you don't read them, you don't have one. You don't have one, right? And so so

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I I think that there's this weird myth that like we don't read those and it's almost like frustrating to me because I'm like, Can you everywhere I am on social says pitch us via CleoCap dot com and then on Cleocap.com there's a button that says pitch Cleo Cap. So then when you message me on LinkedIn, cold message me with like a bunch of paragraphs, like I'm like, Can you not read? And that's fine if you have your AI assistant or

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Never doing it, but like you also have to respect the fact that VCs are putting a lot of effort. The VCs who want to see a lot of deals are putting effort into seeing a lot of deals easily. I've looked at every YC pitch deck, probably for the and like functionally every tech star's pitch deck for functionally, like at least since COVID when they all moved to online. So that's six years of me looking at every single one of them, right? And I I look, I love to see decks, I love to know what's going on in the industry.

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Mat Vogels (21:17)

That's a lot.

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sarah (21:21)

I love to know what people are doing. I literally have looked at over 10,000 pitches that I've gotten through CleoCap.com. Like, and I'm not unique in that. I I a lot of investors do that. And then founders think like that when I say this, that that's not real. And I'm like, if you don't believe the words coming out of my mouth, I'm probably not a good investor partner for you.

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Mat Vogels (21:41)

Yes,

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that's absolutely right. But one of the things you mentioned, I mean you mentioned ten thousand, the hundreds of pitches that you might be getting each month. What are the one what does it take to stand out? Like once you is it the, you know, the pitch deck? Do you go to a specific slide and you're looking for something specific? Is it in the blurb and you're trying to find some of those things you mentioned earlier, the sector or the problem? What is the hook that gets you to dive deeper perhaps before scheduling a meeting? But

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If there's a this weird phase between, you know, the email is sent or you receive it through your website and you're interested and you dive a little bit deeper, what causes you to lean in a little bit there?

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sarah (22:18)

So I'll tell you the worst thing, which is when there's no teaser deck attached. and people say, Can I send you a deck? Because I'm like, no. Like I you want me to respond to you. Like, you didn't ask me if you could email me. You emailed me, but then that like it's it's a very bizarre, whatever the marketing motion is there, it doesn't work. Stop doing it. I like to see a teaser deck. I love Guy Kawasaki's 10 slide pitch deck format. that literally I linked to that on on

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Mat Vogels (22:24)

Ugh Ugh It's the worst. Yeah.

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Yeah.

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sarah (22:45)

On the pitch Cleo Cap website, team is always gonna be incredibly important, problem solution. I wanna understand how big the problem is, especially if it's something that's not super self evident, right? So you know, if you're building a next gen way to to to get fossil fuels out of the earth, obviously I can understand how many people use fossil fuels, which is functionally all of us, right? If you're building something that's a little bit more esoteric, a little bit

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more niche. I need you to really like explain to me how this can become a multi-billion dollar company relatively easily, which means the market's multi-billions of dollars, and ideally hundreds of billions or trillions, but at least multi-billions, and how you're going to get to call it at least a hundred million in revenue.

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Mat Vogels (23:32)

Yeah. And

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the part that I always hear a lot on here is that the you know, the TAM number is you know, sometimes you'll see folks like five trillion TAM, but then they don't tie it back and it's it is one of those industries where you can kinda get it, but you have no idea how they got to that number. So adding a little bit more context on on how they got there is is important and that kind of goes more into the the problem as well.

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sarah (23:54)

Comps, comps are great too, right? So if you're saying, you know, you're building a AI coding company, right? Pointing out that, like talking about the TAM, there are X, you know, millions, tens of millions of coding, you know, coders, engineers, right, currently right now in in XYZ markets that are, you know, that that you can reach. And by the way, cursor just sold for $32 billion. That was a really high watermark sale, so that's probably not the

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Mat Vogels (23:56)

Yeah.

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sarah (24:21)

Best comp, but you can point to you know a couple other right. It helps right size VCs are always on vacation, we're a little bit lazy, right? So make it easy for me. don't think that I'm gonna be so excited about your business that I'm gonna go and dig around, in part because if I go dig around, I might run into a blog post from you who's been really burnt on the AI coding space because you had a company in it that failed, and you talk about how it's all a terrible idea, and I like and respect to.

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you as a person, so then I say, this is a bad market, not under right. So you want to control as a founder, I think the narrative of I'm going to tell you one, the truth, but two, how big and how great this market is, and I'm going to sort of shape your understanding of it so that you don't go and see either are too lazy to look at all, which is probably what will happen because we all get thousands of pitches a year, or hear the wrong information and get the wrong idea and are not excited about it.

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Mat Vogels (25:17)

Yeah.

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You mentioned the the team slide obviously being important. Can you share what makes a good team slide and maybe what makes a a bad team slide that folks can maybe remove from that slide?

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sarah (25:27)

So the

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the main things I like to see, and different people are different, but the main things I like to see are you know, ideally you have ideally you have all three, but there's kind of three main kinds of experience, right? There's lived experience, and and there's education, and there is work experience. So if you're building a senior care company and you say, Look, you know, my parents owned a senior care company growing up, and then our my grandparents lived with us when they

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were older when I was in high school, okay, that's lived experience. And then I went to med school and I specialized in geriatric care. okay that's work experience or or that's education experience or social work or whatever. And then I went and I worked at the biggest senior care company in whatever Texas, right? You all of a sudden like I believe that you can do something in this category because you deeply

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Deeply, deeply know it. What I really don't love, and this is me and not every investor, is what I call lovingly an MBA in search of a problem. And this isn't specifically a knock on MBAs, but you get somebody who's like, I was an investment banker for two years, and then I went to, you know, XYZ MBA school, and I was doing a project. And while I was doing the project, I realized that this the TAM of senior care is blah blah blah. And like, you know, my grandparents died before I was born, and I've never stepped in a

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nursing home and I've only ever worked in investment banking, but I saw this opportunity. I'm gonna build it. Do companies like that work? Sure. But like three people with that background starting a company compared to three people with the other kind of background, I know who I'm personally more bullish on because building a company sucks. Even when everything is going well, like you read about how people sell their companies for a billion dollars are so depressed they can't, that is so real. That is so true. Everything is hard.

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Mat Vogels (26:52)

Yeah.

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sarah (27:19)

So you need a reason to love what you're doing specifically because almost everyone who pitches me is smart and can figure it out. And if your only goal is to kind of make money, then honestly, like you're probably better off like playing the prediction markets or something. Cause I believe in you to beat those odds. And even those terrible odds are probably better than the odds of actually making money on a startup. So you really do have to love the process.

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Mat Vogels (27:44)

Yeah, it's the that that

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why is so important and sometimes founders forget to to share that. All right, let's say they've done those things, they've impressed you enough, they're going into a first meeting with you. Before we kinda jump into that, one thing I like to highlight here is just how big of a leap that is from sending somebody an email or getting them in the actually getting into the meeting. Could you share roughly what percentage ish of companies that you receive via your website or other

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And then going into a meeting. What percentage of those companies do you think are actually getting the meeting with you?

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sarah (28:16)

Yeah, so this varies investor to va investor. I

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almost never take meetings. I almost never take meetings. The hit rate, the conversion rate of me taking a meeting to me investing is actually pretty high. because I almost never take meetings. And the reason that I don't generally take meetings is you have twenty four hours in a day and you have to sleep a little bit, right? So you can spend your time in one of two ways. You can spend your time, even if you're just doing twenty minute first phone calls, right? That's not really three an hour. That's you know that

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that that's limited, right? There's the back and forth of scheduling, rescheduling, hearing the pitch text, doing the that takes a lot of time. I spend the time and some investors do that because they are really driven by their emotional connection with a founder. I have to like the founders I back as people if I think that they have low integrity or they're, you know, rude or mean or whatever, I'm not gonna back them, but I don't need my founders to be good friends. I have a lot of friends. What I need is to understand

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That they are building in a market where they can build a multi-billion dollar company and that they have some sort of unique edge to do that. I find I get a lot of that from the deck, from their LinkedIns, from or whatever their Google scholars, whatever their internet stuff is. So I it is normal for me in a given week to read 300 pitches and not take a single meeting. it it's very normal for me.

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to do that. and when I do take a meeting it is and usually when I take a meeting, sometimes it'll be that I just completely misunderstood something in the pitch deck or they've pivoted and this is totally fine, but I

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Mat Vogels (29:50)

Ha ha.

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sarah (29:51)

You know, it's up to you. I would say I don't I can't knock the hustle. If you have a meeting with somebody, you'd send them a pitch deck a few weeks ago, they you finally get the meeting, it's like four or five weeks later, you're pre seed, you've pivoted, like, sure, whatever. Still take the still take the meeting and don't be surprised when they hear the new company idea and they're like, Wow, not a fit. Thanks so much, bye, right? it is what it is. But so occasionally that a lot of times there's a lack of I would say kind of coachability.

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Or a sort of arrogance about these pre seed founders think everything they're going to do is going to work exactly the way that they've predicted it. I don't care how smart you are and how big the market is and how good your go-to-market or your sort of zero to one is. I can't bet on somebody who is that unwilling to be humble about the fact that startups are mostly failure, and you have to be really resilient about iterating around.

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Mat Vogels (30:43)

Yeah. So it sounds like I mean the percentages like a percent or less of of the deals that you would receive easily. Do you invest if you haven't met them or are you only investing in companies that you have have you done some checks that are kind of sight on scene, you'll just throw the money in, or do you meet with all of the founders? Yeah.

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sarah (30:48)

yeah.

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Have a phone call. I always have a phone call in

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part because I there are deals where I will get on the phone thinking to myself, they're really gonna have to mess this up for me to not put a small check in. And and sometimes they do, and it's not a fit. But the the reason for that is sometimes you can raise an entire small round, especially coming off a demo day or something, or if you have like one.

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And

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you know, say that you're good friends with the one of the Stripe co-founders, right? You're their cousin from Ireland, and so you can they put in a little bit of money, a bunch of other people will put in money because they did, and you can raise it without ever talking to anybody, great, but they're probably not gonna bankroll you forever because it would be a lot cheaper for them to just give you 50 million than it is to like invest 50 million in your company and have you burn it on a bunch of things and then come out the other side and still be kind of broke and still want money from them, right? So the reality

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Mat Vogels (31:50)

Yeah.

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sarah (31:50)

Is you're gonna have to go raise money. And part of that is I want you to pitch me. I want you to walk me through your ideas. And it doesn't mean I am incredibly extroverted. I love talking. I am a salesperson. You don't have to be like this. I love my quiet little PhD neurodivergent founders who like their pitch decks are ugly. They have bad, like you know, they have terrible diseases.

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designs it, that's fine, right? I can help you with that. This isn't like dazzle me with sort of your ability to sell. But if you're so sort of heads down and you're so anxious that you're never gonna get on a pitch call and you're not gonna go find a co-founder to do that for you, a lot of the best and smartest ideas in the world die in the lab because the person in the lab won't leave the lab and I can't risk that either.

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Mat Vogels (32:39)

Yeah, 'cause you're gonna have to sell yourself for hiring the best people, obviously continuing to fundraise. It is a core part of the job, that's for sure. What are some of the you mentioned sometimes you'll go into a meeting and you're th they have to mess this up in order for you not to invest. What are those things that they could mess up or what are those red flags that pop up that steer you in the opposite direction?

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sarah (32:59)

It

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really tends to be almost always the same thing, right? Where you ask them something innocuous, they'll be like, yeah, it's gonna be great, you know, we we are building something, it's adjacent to prediction markets, and I'll all these examples are made up, but you know, it's adjacent to prediction markets, and so we're gonna use Kelshi's new API and that's gonna be a huge flywheel. Okay, but what if Kelshi turns off their API? Well, they're not gonna do that. Like you do not have a crystal ball, right? You have no idea what they're going

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to do for any number of reasons. So if if you don't have an ability to think through that and to say, well yeah, you know that would be a problem, but we actually found this other, you know, great growing community on Reddit that we're really tapped into, or here like there's always potentially a problem, right? if we don't get this provisional patent or if if we don't get this higher, you don't have to have 10 plans completely sort of written out, but you should at least be able

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to

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kind of talk me through it, right? It's like an airport problem. You wanna you you don't want to miss your friend's wedding and there's a little bit of bad weather and you're flying out of New York, well what's the plan to get to California otherwise? well I can definitely take the train to DC and the weather pattern's different enough, right? If I have to, I can get in a car and drive and I can drive to this place, I can drive to Michigan and that's gonna be out and then I can take a flight from Michael. I don't care what the solution is. When you look me down in the eye and you say, No, it's fine

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And like, you're gonna hit a brick wall and have no idea what to do. In the my favorite quote in the world, poet philosopher Mike Tyson, everybody has a plan till they get punched in the mouth.

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Mat Vogels (34:35)

Yep.

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Yep. And I think it's fun because you're not saying that they have to have thought about the infinite possibilities of things that could happen or break. You should think through a lot of But it's more you're saying their ability to kind of think on their feet and problem solve as it relates to their business when they do hit some of these problems.

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sarah (34:53)

And just be willing to accept reality. Because I think a lot of early

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stage founders are like hyper achievers. I call them my little box checkers lovingly, right? So they've been whatever their backstory is, they've always been the best. They've always been at the top of their whatever. And they're maybe not as they maybe haven't encountered as much adversity. And so they're like, Well, I'll just do I mean, I got a four point in college, right? I got a I got I did this on my SAT and I was the top of my class in my my my

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My

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recruiting class at my bank, or I was, you know, hired, I was the youngest, blah, blah, blah, ever hired at Google. Okay, but like you live in the real world, and running a company is not going to be a bunch of boxes with a rubric that you can check and occasionally get extra credit, whether or not you realize that's what's happening from a professor who appreciates your effort. Like you, you know, will get you won't necessarily get featured in the app store, right? So what's the backup plan? And and people

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who have that sort of rigid, fixed mindset often can accomplish a lot. but it never works in startups because y you plan and startups laugh.

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Mat Vogels (35:57)

Yeah, and

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it's one of those things too where especially if you're defensive about it, like if a VC asks a question and you get defensive about well, that's not gonna happen, or you just you kinda just close it off completely, that's a red flag for sure.

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sarah (36:09)

Yeah, and and by the way, if you are pitching a VC and you're like, this person is so stupid, they are genuinely brain dead. I've na I cannot believe anyone that is fine. However, VCs are social animals by nature. It is definitely still in your best interest to take it as a learning lesson. whenever before I was married, whenever I'd go on a bad date, if I if it wasn't like, you know, if it's like bad, but I don't need to get up and leave, I'd be like, I'm I'm gonna learn something, right? And so like I would

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Mat Vogels (36:16)

Yeah.

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sarah (36:37)

Just be like, you golf, interesting. What's going on with live golf? And like you learn something and you walk away with some data points, right? And so as a founder, you should always take a pitch meeting as a data point. after like 20-25 minutes, if it's really not a fit, you can always politely end it. but you never know if that investor that you literally hate is going out to dinner that night with the number one investor on your wish list that you're pitching the next day.

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And so i it just never hurts once you're already in that position, to paste on a smile, look at it as a learning experience and get through it.

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Mat Vogels (37:14)

Yeah.

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And we all talk to each other. It's a small community. you cannot burn bridges in this industry, that is for sure. What are some of the questions that founders should ask? Usually this is maybe towards the end of it, whether it's for the learning experience or just how the process is going, how do they take ownership in these initial meetings to make sure that they can not only for that particular investor, but handle, you know, the dozens of investors that they're currently trying to to herd through the process?

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sarah (37:38)

So one thing I personally don't love is it it don't ask questions. In general, I think that it's not the best thing to ask questions you can Google, right? So people will ask me, like, you know, tell me about the other companies you're invested in. And like, do you mean ClioCap.com slash portfolio? Right? And and I get that I don't think everybody needs to do a half hour of studying before every meeting because that's a lot of time. And I also think it's fine to

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Mat Vogels (37:56)

Yeah. Mm-hmm.

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sarah (38:06)

not ask the question if you can just look it up later, right? So if you walk away from a call with me and you're like, I liked her, that was interesting. I'd be curious about them investing. I want to see what's in their portfolio, Google it, right? And and so I I think that especially I notice that founders will do this when I'm like, okay, great. Well, you know, we're wrapping up. And it it is a hard stop, right? Like the time was on your calendar, you're at the end of that time, and then you're like, but I have one more question, and then it's a question that's

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like not a great question. I don't love. I like questions. And then I personally, this is never a good or bad signal. It's just what I do. I a lot of times founders will say, you know, would love any quick feedback. I don't give feedback in the moment because I might have a headache. I might have an annoying call after that. I might, you know, have like whatever. And I'm I yeah, like I just I don't have and I don't think it's helpful to send you on a wild goose chase. I think you should be mindful

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Mat Vogels (38:54)

You haven't digested it, yeah.

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sarah (39:02)

mindful

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during the meeting of where do people seem stuck, where do people seem confused. If everyone's asking you, wait, so you don't have a CTO, and you're like, no, I do have a CTO and it was on the deck, then clearly something's getting missed, right? So then maybe you open with that. My CTO and I, right? So I think you can context clue a lot of that. And then also a lot of people in my industry, our industry, they will smile to your face, tell you they absolutely love it, and then ghost you like it is a bad hinge date, right? So

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So it doesn't mean that much. Questions that I think are good questions to ask are, you know, would love to understand your process and next steps. and then just listen. I don't think that it's like a sales closing. I think it's fine if you want to ask for the sale in the moment, but I think it should be really brief because 90% of the time they're going to say I need to think about it, or that they're not ready to commit on the spot. And so I I wouldn't sometimes founders

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will sort of draw that part out and they try to keep kind of asking in a couple of different ways to close you and I'm like, that's not my process, so that's not gonna be my process. And like if you don't seem to understand that I feel like you're not listening, which isn't great.

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Mat Vogels (40:10)

And I

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think founders sometimes think that by being aggressive or pushy shows more strength, but it it comes off, I think, for VCs more of the opposite, where it it's almost more of a desperate plea than it is something that shows that you're actually a hot company that has a lot of options right now. Absolutely.

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sarah (40:26)

But you should follow up, right? So, so like

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have something ready, like a data room type thing, a leave behind that you say, Hey, this was great, Sarah. You know, would love to understand next steps in your process. I tell you, you say awesome, you know, I'm gonna send you today, I'm going to send you a link to our data room, a recap on some of this stuff, and then I'll check in next week. And then they might say, I'm gone next week. Okay, great. I'll check in in two weeks.

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Mat Vogels (40:52)

Going into kind of the last phase, which is usually after you've had all these meetings, you're continuing to meet with folks, and you're kind of in this position of hurting cats, building FOMO and momentum and all these things there. But what I like to ask is: what are some of the mistakes that you see founders make in the selection of investors on their cap table? You've invested in a lot of companies. Some of those companies have probably had

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not so great investors. Is there any pattern matching or things that founders should kind of take into this if they're in the privileged position of not necessarily picking and choosing, but as they're about to take money from an investor and go on a long journey that they should either think twice or to use their gut or anything like that.

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sarah (41:29)

So clean terms will save you almost from every personality problem. you know, really quickly, I think optimizing for the highest valuation possible is not always great, either because they have, you know, terms in there that are not great for you, like preferred liquidation preferences, things like that. They want too much control, they take too much ownership. there are books written on this topic, but but optimizing for a higher valuation instead of the best partner for you is a vanity thing that so many founders

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Mat Vogels (41:31)

Exactly. Yeah.

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sarah (41:57)

will warn you off of. And then the other thing I would say that I see a lot is especially when you're filling in around kind of the lead, you'll see founders who get really flattered that they have like five CTOs, 10 CTOs who've all invested.

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That's great. And is there a way to maybe cram down some of those people so that you also have room for people who have different skill sets, right? If every single one of your investors is like a friend of each other, they have the same jobs, they're in the same network, the same geographic area, like all of that, what you're gonna find is that you have quadrupled or duplicated rather the the help that you can get because none of them are gonna know

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The head of regulatory for a healthcare company in Wyoming when you need it, because they are all Silicon Valley Series D CTOs, right? Whereas if you have eight Series C D CTOs and then you have a CEO from the Midwest, or you have a CMO, or you know, somebody like me with a I'm I don't have a technical background, right? And by the way, you also wouldn't want 10 people who have a profile just like mine, like having more redundancy in your

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network is going to help you so much more than the kind of vanity metric of I have five co-founders from OpenAI as angel investors, great, but their network isn't super differentiated.

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Mat Vogels (43:21)

Yeah, yeah.

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The diversity that you can have across your investors, which are now on your team and one of the greatest levers that you can pull, having that is is incredibly important.

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As far as let's say that they've they've closed their rounds, so we're kind of in the the after phase of fundraising, which still continues. That's why we like to kind of dive a little bit in here. What are some of the mistakes that you see founders make as they have to switch from fundraising mode back to company building mode? Because it it needs to happen fast. It doesn't always happen that way. Any advice you give to founders or common mistakes you see there?

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sarah (43:53)

so two things. One, if you are not if you have a lead who's like you cannot raise any more money, like that was in our terms, it was a priced round, then just stop fundraising. You you it's like being a little bit pregnant, doesn't exist, right? you don't need to start having conversations for the next round when you have, you know, 36 months of runway or whatever. That being said, usually what'll happen is you theoretically could take a little bit more. You announce the fundraise and then you get people popping up who say, I just became a scout at Clio Capital. I just have

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Mat Vogels (44:05)

Yeah.

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sarah (44:21)

Had

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an exit or made a little money. I want to angel invest or a fund that you know is new and is suddenly on your radar. I think it's reasonable to talk to your investors and say, look, can we open a note that is just sort of like what would it look like, right? If if we, if a couple people came to us and wanted to write 50K checks, 100k checks, and we think they're helpful, most of the time your bigger investors will say, Yeah, that's fine. I understand the idea. I don't want you to spend time outbound funding.

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Raising, but you know, it would be a note that's on a post with a discount to the next round, right? So if you raise at a 20 million post, we're gonna put it at a 30 million and you can raise or 20% discount and you can raise up to a quarter million or a half million, whatever. Have some of those thoughts and conversation so that then if somebody does come to you that you really want in, and they really are just one call, one meeting, whatever, they're ready to write the check. you are

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Have a framework for that. And then really just sort of shut it down, focus. Post regularly updates on your social media or if you have a newsletter, but I think social media is still best. And then just kind of don't think about fundraising. You don't need to be at every conference. You don't need to be, you know, going to every VC funds like away days or whatever, because that ends up eating a lot into your time when you should probably be heads down.

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shipping and launching and then maybe six months before you need to start raise, so six months before the six months of runway, so a year before your next fundraise, like start to ramp that stuff up again.

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Mat Vogels (45:52)

Yeah, yeah.

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It's a hard thing to turn off, especially 'cause there is a moment right after you close where you s you tend to be very popular. So you're right, maybe taking advantage of that, putting some time box structure around it, but then you gotta flip that switch and then and then get back to work.

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Last question here before we kind of tie things off. You've seen a lot of companies go through, we mentioned this earlier. The default is that most of these will fail. What are some of the patterns? What are some of the the main reasons why you see these early stage companies fail so that founders listening can at least start to think about those things?

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sarah (46:24)

I mean the biggest reason you fail is because you run out of money, right? Well, you either run out of money or things fall apart with your co-founders to such a degree and you don't have a co-founder agreement in place and you can't keep going. Those are the practical reasons. if money is important to you and what I mean by that is, you know, you don't have a lot in savings, you you have, you know, kids, right, who need health insurance, whatever. be really mindful of that up front and and don't be incredibly cautious about runway.

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And just be really mindful of that. If money means a little bit less to you, you're willing to go, you know, live in your parents' basement or whatever for a few months if you have to. like you didn't hire a bunch of people, it's mostly co-founders, so you can skip payroll because you generally can't skip payroll if if you have employees, like then you can be a little bit looser about that. In general, it's because the product isn't quite working. That doesn't mean that you don't have a ton of revenue, because in early stages you often

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But it usually means that when you talk to the people who are the users of the product or you show them the product or the product is launched, there's just a disconnect. You don't have product market fit. And so, you know, be willing to this is not your real life baby, right? You can pivot, you can kind of get a new baby, right? So be willing to be more flexible about that. and then again, co founder disagreements are real, so make sure that you have co founder

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Mat Vogels (47:36)

Ha ha ha.

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sarah (47:44)

Decided, you've signed a co-founder agreement, especially if you have more than one co-founder. So if you do need a breakup, it's clean and it doesn't scare new investors from coming in.

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Mat Vogels (47:56)

Yeah, it goes back to your

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earlier point of clean documents can make a huge, huge difference. And doing them before the problems start makes things a lot better. Sarah, this was awesome. Thank you, thank you, thank you so much. There was a lot of unique insight in here that I don't think folks had heard from from any of the other episodes. So I appreciate that. You've already mentioned some of them, but where can folks continue to follow along with you and in Clio Cap?

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sarah (48:18)

Instagram and LinkedIn are the best places for me and then and and Cleo as well on LinkedIn and then in terms of pitching us Cleocap.com, please do not get a warm intro to me that's like I heard you on this podcast, they'll be like, I don't think you listened.

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Mat Vogels (48:33)

That's exactly right. Yeah, so

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true. Awesome. Sarah, thank you so much. we're recording this on a Friday. Hopefully you have some some great plans for the weekend and enjoy the rest of these summer months.