Cap Table Balance: Ensure that the founders that are dedicating their life to the business own the company (or at least the majority of it). Sometimes you will encounter founders that are operating the business, but they may hold a minority interest in the business for a variety of different reasons. Steer clear of these companies, because if they don’t have true decision making authority in the business, and they are the boots on the ground everyday, then you could run into some real issues down the road.
As part of our series about “5 Things I Need To See Before Making A VC Investment” I had the pleasure of interviewing Judy Sindecuse, Founder, CEO and Managing Partner of Capital Innovators, a nationally-recognized, Midwest-based, early stage venture capital firm. Capital Innovators offers a pragmatic approach to growth through immersive partnership and top-ranked accelerator programs for entrepreneurs and corporate clients across the energy, defense and other consumer industries.
Since inception, Capital Innovators has helped scale 140 companies nationally, helping them raise over 400 MM dollars in follow-on investment, creating more than 2,000 jobs for portfolio companies and corporate clients.
A visionary leader with a proven track record of starting and making companies profitable, Judy believes in emphasizing solutions over unique tech, metrics-based growth and ensuring that founders are heavily invested in the success of their company.
Utilizing her strengths in emerging and niche market identification, as well as early-stage business leadership, Judy shifted her expertise to cutting-edge technology identification and investment. Her primary interest in creating Capital Innovators and the first two CI venture funds was to use her extensive background with business and strategic development to select early-stage companies with the highest probability of success, and provide those companies with funding and a program that would accelerate their profitability and growth for the purpose of wealth building and long-term sustainability.
Prior to founding Capital Innovators, Judy was the former founder and CEO of Bride and Groom Magazine, brideandgroom.com, Oversees Colorworks and Printing (an international print brokerage company), and Redesign (a real-estate based company). Each company reached profitability in the first six months of operation.
Judy received her JD from Harvard Law School and a BS in Mechanical Engineering from Southern Methodist.
Thank you so much for joining us in this interview series! Before we dig in, our readers would like to get to know you a bit. Can you please share with us the “backstory” behind what brought you to this specific career path?
After attending Harvard Law School I went to work at a large corporate law firm. Less than a year into my tenure there I got my first idea for a business. As I pursued the idea it consumed more and more of my time until eventually I was putting more energy into it than I was my already demanding law career. My gut was telling me to run with the idea. So I did, and so was born Bride & Groom Magazine. Fast forward about 20 years and I had started six companies, all of which were profitable within the first six months of operation. I was looking for my next opportunity and mentoring some local tech company founders when I saw a surplus in high quality founders and shortage of capital and experienced and consolidated mentorship, so I created what would later be known as the Capital Innovators Accelerator program, one of the first accelerator programs in the country.
Is there a particular book that made a significant impact on you? Can you share a story or explain why it resonated with you so much?
Throughout my life I’ve learned to trust my gut to help guide big decisions, like leaving the practice of law to pursue my first business venture. Blink by Malcolm Gladwell did a great job of explaining this phenomenon and it has really resonated with me.
Do you have a favorite “Life Lesson Quote”? Do you have a story about how that was relevant in your life or your work?
I know this is not going to sound as academic or eloquent as people might expect but right now I have been leaning on the advice of “keep your eye on your own ball.” Sometimes when life throws stuff in the way the best course of action is to ignore it. A prime business example is to ignore competitors who may be causing headaches and focus on building the best business that you can possibly build.
How do you define “Leadership”? Can you explain what you mean or give an example?
My approach to leadership is that I try to help the people I am leading to reach their full potential because the closer everyone can get to their potential the better the team will do collectively. My goal as a leader is to help the people I’m leading reach their goals. I do this with my team and with the founders of the companies that I invest in.
How have you used your success to bring goodness to the world?
Women are still woefully underrepresented in Venture Capitalism, but I see that changing and I’m glad to be part of this necessary movement. This world has no shortage of problems to solve, and we need the talent of many to solve them; but it is essential that we support these perspectives and their different approaches. I take a unique approach to the Capital Innovator programs, emphasizing solutions to pain-points and metrics-based growth, and ensuring that founders are heavily invested in the success of their businesses.
Ok, thank you for that. Let’s now jump to the main part of our discussion. The United States is currently facing a very important self-reckoning about race, diversity, equality and inclusion. This is of course a huge topic. But briefly, can you share a few things that need to be done on a broader societal level to expand VC opportunities for women, minorities, and people of color?
I agree with you this is a huge issue across the country and specifically within the VC and startup world, and there is a lot within our power to make needed improvements. We should double down on the growing number of programs and communities that are committed to the education and support of minority founders (and even investors). One of the best things we can do to continue to support diverse founders and fund managers is to invest with them. We have to put capital into these funds and these companies in order to see real change.
Can you share a story with us about your most successful Angel or VC investment? What was its lesson?
One of the first investments I made was into a company that would come to be called Gainsight. Gainsight was servicing companies that transitioned to a SAAS business model. Gainsight was definitely a lesson on timing being nimble. The Gainsight business model revolved around customer service at the enterprise level. Not too long after they started the SAAS business model really took off and Gainsight was able to adjust their product to help address the increasingly problematic churn rates that came with SAAS models. They were in the right place at the right time, and were the fastest and most diligent in serving their customers. They recently exited with a 1.1 billion dollar valuation.
Can you share a story of an Angel or VC funding failure of yours? What was its lesson?
Oh of course. That is a huge part of the process. Failure happens in this industry all the time. We had a company that was doing really well, and raising a Series A and working on a deal with a big VC firm on the coast when said firm gave them the advice to go ahead and hire a large global sales team. But they didn’t have the funding ready to deploy so the company bank financed the new hires. Unfortunately, the VC money didn’t come nearly as quickly as expected and the company didn’t have the revenue to keep the bank loans. One thing quickly led to another and the company had to end up closing its doors. The lesson was to make sure the money is in the door before you start to lean into aggressive growth strategies.
Can you share a story with us about a problem that one of your portfolio companies encountered and how you helped to correct the problem? We’d love to hear the details and what its lesson was.
One problem that we run into with some regularity is disagreements between founders. A while ago we started advising our founders on how to avoid the issues that can cause and complicate founder strained founder relationships. However, sometimes it still happens and I work with them to find the best path forward whether that means going their separate ways or working it out. We tell founders to treat their business partnership a bit like you would treat a marriage and to address issues with healthy communication, to not let them fester.
Is there a company that you turned down, but now regret? Can you share the story? What lesson did you learn from that story?
So actually no. I really believe that to look back on deals that I “could” have been in on is not a fair reason to cause regret. We get such great deal flow at Capital Innovators that I could never invest in all of the great companies that come across my desk. To beat myself up over a missed venture deal would be like beating myself up for not over investing in Bitcoin when it had just come out and was being sold at less than 15 dollars a bitcoin. We had no idea that would happen and that is how startup investing works too.When we first decide to invest in a company we are weighing the opportunity against the risk and there are a number of factors that we consider — if those factors change after we make our decision that is not something we can control
Super. Here is the main question of this interview. What are your “5 things I need to see before making a VC investment” and why. Please share a story or example for each.
- Mentorability of The Founders: Founders can sometimes be hard headed and egotistical. This does not make for a great investment relationship, so an important thing that we look for is mentorability of the founder. This means that the founder is open and receptive to feedback and mentorship. This is an important characteristic trait as it plays into relationships with investors, customers, partners, and employees. You want to invest in founders that can absorb valuable information, determine how to test it within the business, and analyze the data; not founders that deflect mentorship and think they are always right.
- Solution Over Unique Tech: Cool technology is interesting, but for an investment, you want to ensure the technology is actually solving a practical problem. We have seen so many entrepreneurs throughout the years that have built companies around what they think the market needs, instead of what a customer says they need. This is a big mistake and is a sure fire way to set up most companies for failure. Ensure that the startup has done its market research and gathered enough data and user feedback to ensure there is a real need for their solution.
- Functioning MVP: Founders should be able to display a functioning Minimum Viable Product. This needs to be stress tested through demos and customer feedback. Don’t allow a founder to give you a presentation on a pitch deck that shows the product and believe it does what they say. You must require them to demo the product and you will also need to login and demo it yourself. Also, don’t trust a founder that sends you a video demo of their product. We have caught companies in the past that have manipulated a non-functional product through a recorded video to make it look like a functioning product. As an investor, you need to be critical on this component. Another great way to gather feedback on the product (and the startup founders for that matter) is by requesting customer references and calling the customers directly and getting their feedback.
- Cap Table Balance: Ensure that the founders that are dedicating their life to the business own the company (or at least the majority of it). Sometimes you will encounter founders that are operating the business, but they may hold a minority interest in the business for a variety of different reasons. Steer clear of these companies, because if they don’t have true decision making authority in the business, and they are the boots on the ground everyday, then you could run into some real issues down the road.
- Metric-Based Growth: One thing entrepreneurs struggle with is time management because there are so many different things to accomplish. This often leads startups down a path of always being busy, but not spending their time on the most important areas of the business that drive the business forward. This is usually solved through entrepreneurs that have a solid grasp on how to identify and measure critical metrics for their businesses growth. Pay attention to what the founders are spending their time on each day. We require our founders to do a time audit over the previous few weeks to understand exactly how they spend their time. Then we track their time for the upcoming two weeks and require them to track everything they do in a day. This is often eye opening when founders realize how much more efficient they could be if they focus on important metrics and dedicate their time efficiently to improving these metrics and using them to keep them honest and accountable.
You are a person of enormous influence. If you could inspire a movement that would bring the most amount of good to the most amount of people, what would that be? You never know what your idea can trigger. 🙂
I would love to see more women at the top level of VC firms. That is part of what keeps me motivated to keep working hard to make my funds and Capital Innovators as successful as possible.
We are very blessed that some of the biggest names in Business, VC funding, Sports, and Entertainment read this column. Is there a person in the world, or in the US whom you would love to have a private breakfast or lunch with, and why? He or she might see this. 🙂
I would love to have lunch with Mark Cuban not because of his talent and acumen in VC but also because I would like to be the first female owner of an NBA team and I would like to bring that team to St. Louis. We have incredible fans here. I would love to get his mentorship on how to go about doing that.
This was really meaningful! Thank you so much for your time.