VC10X - VENTURE CAPITAL PODCAST
Venture Capitalists (VCs) & Angel Investors share their investing thesis, screening process, value-add, exits, and more. Hosted by Prashant Choubey (@ChoubeySahab)
Samara Hernandez is the Founding Partner at Chingona Ventures, a Chicago-based venture firm that invests in pre-seed startups, primarily in the Midwest and primarily founded by overlooked individuals who are focused on massive markets.
Samara's story & how she started investing?
I'm an immigrant to this country, was born in Mexico, moved to the US. At a young age, picked up math quicker than I picked up English. So I studied engineering at the University of Michigan. But I grew up in a dual language, multicultural, low income household. That's the lens I've always brought to my investing style.
After Michigan, I joined Goldman Sachs during the beginning of the last financial crisis, and I was in sales, so I sold our financial products in one of the worst markets. When the markets weren't performing, no one's products were performing, and we were in the news every single day. So I learned a lot about selling, about authentically selling to customers. And then I was there for the early part of my career, and then I went to Northwestern for my MBA, and that's where I took a class called VC Lab that exposed me to venture capital. And from there, I joined a local firm here in Chicago that had just started. So it was literally building from the ground up. And it was great because I got to learn everything that you need to learn to build a firm all the fun stuff, all the not so fun stuff. And I was there through fund 1 and fund 2 across five years.
And then I saw an opportunity in the market. So I saw an opportunity to, one, go in earlier, especially in ecosystems that didn't have mature angel network. So Chicago is one of them. But many outside of the valley. Two, go in industries where consumer demographics were changing, but VC was slow to fund. And three, go with invest in entrepreneurs that didn't fit your traditional mould. So not all go to Ivy League schools and have a great network.
So I launched Chingona Ventures in April of 2019. The first fund we invest in 27 companies preceding seed and fund 2 we just closed in May of 2022. It's a $52.9 million fund. We aim to be the first and largest institutional check into a company. We do pre-seed, mainly and some small seeds, and so far, we've invested in nine companies in that fund.
Who is the badass founder?
Chingona means badass woman in Mexican, Spanish. And the way I think about it and the way we assess a Chingona factor, which we literally put in our investment memo, is we look for founders that come from all walks of life. So distance travel is really important to us. Where you came from, what you learned, the grit, the hustle associated to coming from where you are and understanding your unique customer base and how that led to starting the company.
So founder market fit is what a lot of people might reference, but this could be anything from teaching yourself to code to using guerrilla marketing tactics to sign up your first few customers. And many times a lot of that happens in certain communities regardless, because they don't have access to capital. And so for me, it helps me understand you as a founder, what you've done to get early validation and really appreciate where there's not much validation. And it helps me understand if the problem you're solving is truly a problem that people are really willing to pay for. And so we look for that Chingona factor. It's also funny, right, when people address that. You don't necessarily see badass founder in many VC websites, but it's a nod to the name.
It's a founder market fit, essentially, and it's all the grit and hustle that many of the founders have and making sure that we incorporate that in our assessments.
Investing in diverse founders
We're very clear that we want to invest in all founders from all walks of life. We don't exclusively invest in women or minorities, but over 80% of our portfolio companies, CEOs are women or minority. And that's above industry average, right? And so that's what happens when you get a Latino woman running a fund. And we understand certain markets that they're targeting and understand certain unique challenges that they have beyond being a founder. And it helps that that's a big part of my network as well.
I represent a millennial mom, Latina, a lot of different things, which I'm very proud of, and so is the team that I'm building. But the way I think about diversity is less of a check the box, right? It's not like, oh, you have a founder that's diverse. It's more of, hey, how does this person, whoever this person is, whatever gender they want to be or they associate with, or whatever pronoun or whatever they identify as, what do they have that's unique to this market?
And it could be a direct translation. So, for instance, we have founders that are Latinos that grew up in this country and want to build well for the Latino community. That's great. Founder market fit. There are some that they're a mom and they couldn't find healthy baby food for their kids, their working mom that did that. And so they might have a unique perspective on that market. So we assess that, but we think about diversity more broadly. We think about the founder, but we think about the team that they're building. We think about the cap table, the customers that they're targeting, even the LPs that are in my fund, and even on the board that I serve on. So I think about it more broadly in the way, first and foremost, we're looking to make returns, but we're also looking to change the infrastructure of this industry that looks many times the same. And we think we could do both. It's not exclusive. It's not either we invest this way or we make returns. We make returns first while we're doing it in a very thoughtful and diverse way. And so I've invested in all white male teams, but the core customer base were Latino and African American. And I'm like, how do you not have any minorities on your cap table or on your board? And so we're also able to win in oversubscribed deals because we have that perspective.
Even more broadly, I think about the people that I hire both part time as well as full time, the suppliers that I work with, the advisors that come on board. So we think about it holistically versus just kind of a one off shot and kind of a check the box as well.
Value add for portfolio companies
We look at the pre-seed. They're super early. Oftentimes we like to lead. We believe that you don't need a lead, but if you lead, especially with certain founders that don't have access to a network or aren't in a capital intense city where there's a lot of capital, you oftentimes can set the terms, help catalyze the round, bring in other strategic investors. Sometimes we join the board and help them get institutionalized and have board meetings, budgets, just very kind of simple things basically get very involved. And whether it's making connections to other investors, whether it's making connections to customers, we've done a lot of product R&D especially if I'm the consumer demographics.
I've done even like, videos for founders and ads. I'm like, whatever you need, I'm going to do. Because there was one company called Encantos that is selling to parents for bilingual kids, and my son uses the product. And so they had me do a video. Not that I'm an actress or anything like that, but I was like, hey, it's an authentic, real, authentic feedback, insight from a true customer. So anything our portfolio companies want. But the biggest thing is the capital getting basically de-risking to the seed.
And then the last thing is sales. I was in sales for many years. So building out a sales team, hiring, interviewing, thinking about a sales process early on, people get customers, but many times it's just like, who's going to sell? Who's going to buy our product? And then once they get to a certain point, it's like, how do you institutionalize that? How do you build a sales team? How do you formalize a sales process? It's something that I've also helped with.
Biggest red flag in pitches
A big red flag for me is not being fully honest. It's like a big no no. I'm not saying people are lying, but I think I know the game. I know that you have to sell the vision and all that, but also be realistic with it. And for me, I like to dive in deeper. I like to ask a lot of detailed questions. I've been told I do the most diligence at the stage that I do, and I'm proud of that because for me, it's like I really want to understand everything that you say you're going to do, knowing that your business is going to change five times before the next raise.
But really understanding how you're thinking about the business, what your go to market strategy is, how you're going to make money. Just really understanding all the pieces of it. And if things aren't adding up constantly. And if you're not following up and you're rushing to make an investment, I'm like, why are all the things I've been doing this for years now and I've seen a lot of mistakes that I've made, and a lot of that involves not doing enough diligence. Not really rushing because of FOMO, not getting to know the founder as well. They need to get to know you, and you need to get to know them. It's a two sided thing because it's a long partnership. And so for me, that's been the biggest red flag of we're just not going to be a good fit.
But there's a lot when it does work out, when you get excited, I get excited about it. We're like, jamming out about the business. I'm hopefully adding insight. You're adding insight. What gets me really excited is when someone's just changing this industry, and it's like this crazy big idea. You're like, well, how are you going to get there? And then we can talk to, okay, well, this is where you're starting. And get really excited about the huge potential for me is what excites me. And then obviously not being detailed or rushing and lying is a huge red flag.
What change do you want to see in the VC ecosystem?
I would love for it to look different. I would love to have wealth in different communities, and I would love to get capital to a lot of different types of businesses that are solving real world problems. It's great to get your food delivered faster, but the climate change is one of the biggest problems that's facing our world today. And be able to solve some of these problems, I think is huge. And so that's what I'd love to see.
Rapid Fire Round
What are the sectors and regions you invest in?
Fintech, femtech, food, tech, health and wellness, and edtech, and all over the United States.
What stage you typically invest in?
What's the typical check size?
250k to a million.
Where can founders pitch you?
On our website, Chingona Ventures, submit form and submit your business. We literally look at every single deal that comes through, and we respond back if it fits our thesis.
Where can our listeners follow you?
So I'm on Twitter,@ SamaraMHernandz, and we have an Instagram @ChingonaVentures.