How to grow a VC Fund? w/ Daniel Ibri, Managing Partner, Mindset Ventures

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Daniel Ibri is a Co-Founder & Managing Partner at Mindset Ventures. Mindset Ventures invests in B2B software startups based in the U.S. and Israel.

Investment thesis at Mindset Ventures

We invest in early stage Israeli and American companies. Mostly startups that initiated or are generating traction in the US or Israel. Mostly B2B and software companies. So B2B SaaS US and Israel, early stage. We started in Brazil. I'm Brazilian, based in San Paulo and still have very strong Brazilian roots, but now with the distributed team also in Israel and the US.

When we started, we wanted to be the first completely cross border international VC firm in Latin America. Really connecting the dots between Brazil and Latin America and the foreign ecosystems. When you think about international, there were two very captivating areas, I would say. One is naturally the US, I think it's the biggest market in terms of tech, VC, investments, exits, et cetera. So lots of things happening there. And if you position yourself as an international VC, you just cannot be out of the US.

In Israel, we actually started by Israel with a partnership with Microsoft, and Israel has a very strong track record in producing great technologies because of several reasons we can talk about. But on the other side, Israel is a very small market. So this combination between Israel and Brazil and Latin America, like developing very good technologies and great talent locally in Israel, and being able to expand that to a big markets such as Brazil and Latin America seemed very interesting when we started, and it has proved a long over the past years.

About the growth of the fund

We started in mid 2016. So I've personally been doing VC for around twelve years now, but we started Mindset Ventures with this idea and thesis of connecting the dots between foreign ecosystems like the west and Israel, Brazil, Latin America in the middle of 2016. And when we started, we decided to kind of bootstrap and do a very small fund to prove that we were able to get into good deals and expand these companies here and then ramp up over time. So that was the goal and that's what we did. So Fund 1 was kind of a pilot fund. We raised $3 million in 2016. Then in 2017, one year later, we raised Fund 2, almost like a continuity of Fund 1, we raised around 18 to 19 million.

Then at the end of 2019, we raised Fund 3, which was a full scale fund in the sense that we brought all the team together, established the governance, the process, everything that we are trying to deploy today is what was built like Fund 3. So in Fund 3, we raised 52 million, as you mentioned, and now going to Fund 4 of 100M$. So that's kind of the scale over the past six years. And something on the road with Mindset Ventures.

How has your approach in investing changed over these different funds? 

I don't think that the objective changed. It's still like B2B software, US and Israel and early states since the beginning. But I think the approach we have in dealing with the companies, the founders evaluating the process, the criteria, it has improved a lot over time.

So as you start investing and start looking at the hundreds or thousands of companies over the years, you start discovering what you really want to look at in those companies, what you're searching for, what you want to invest in, et cetera. So we developed a very strong process and step by step approach and lots and dozens of criteria that we look at before making a commitment. And of course, when we started, it was much more like it was hard to get into a good deal. So whenever you found a good deal with other great investors, great founder, you did it just because it was so hard to and so much competitive.

But over time, as you build your brand as a good reputation, as founders, recognize your value and everything that you're generating, I think you're able to get into better deals a little bit easier. So then when you're able to choose, you need to distinguish which deals are actually good or not. So for that, we developed this kind of process and approach. So I wouldn't say the type of company, in essence change, but I'd say our approach to analyzing making decision actually evolved a lot. 

Investing in the mindset

So we're kind of flexible so we can do bridges, Pre-A's convertibles, post A's. The official mandate is anywhere from C to series B. But normally like C plus A is like 90% of what we do. Also because of check size, et cetera and what we look at.

First of all, the team, always the team, great founders, experienced founders, knowledgeable space, preferably not just a single founder, two or three founders that are complementary, have worked together in the past, have experience in that segment that they are starting the company. So this is probably the biggest criteria.

Then of course we look at the market. So again, big markets in growth, trying to solve relevant problems, etc. And also to the problems and the technologies and products they're developing. So there needs to be some kind of unique approach, unique solution, unique technology to what they're doing just to sustain this competitive advantage in the short term. And of course, about the stage that you asked, we are looking to early indications of traction. Normally that means revenues, but not necessarily. So it's not only about generating revenues, but about product market fit and having customers that buy the product pay for it and are confident that it's actually solving the problem they are promised to.

Is single founder a bad thing?

I don't think that ‘bad’ is a good word, but it's just a lot more challenging. And that's because this entrepreneurial journey is very hard and it's harder than people usually think when they are outside. And it's made of ups and downs all the way. So if you're alone, it's very hard because you don't have someone to talk to, you don't have someone to challenge your ideas, you don't have someone to bring another point of view and especially on the downs.

If you're down, if you're in trouble, if you need help, if you're depressed or sad, or you need someone to talk to. That makes a lot of difference in the ongoing development of the company's passion and early stage. So I think having at least two or three that can have complimentary visions, approaches, ways of doing things, can really generate more value and make it a little bit more sustainable and ease the journey a little bit. 

Is there a way, a strategy to get exits and maybe even early in the game? 

It's mostly on the back of my mind because the founders don't have that intention when they start out, say they all want to do IPOs or big assets and be ten years on the road. But you know, in practice, it's not what's going to happen for most of the cases. And the B2B SaaS actually enables that. Because different from like a DTC company that you need to be like big numbers and accreditations and masses and all that. The B2B SaaS is very appealing to strategic buyers to M&A, once they see the value of what you're building. And they can be just like an Acqui-hire just buying the tech, or they can really buy the business in the early stages just because it's much cheaper than buying later.

So I think it's something that's definitely always on our mind and I think that's part of our thesis. Like when you focus on B2B US in those countries, like good founders, strong tech, you're really focusing on being able to generate more liquidity on the portfolio. So there will be those companies that will become really big and will be there for like ten years, but there are some that will succeed before be sold. You do a good multiple on your capital in a short time and then you can start proving your cases. So it's part of the job.

And again, if the founder wants to sell and it's an appeal offer to them, it's very hard for the VCs to just say “no, it's not what I wanted”. You just need to go with the founder. 

How to grow a VC fund?

Whenever you're raising, they're trying to see the results, of course, which you don't have, because the results take time to come. So you can have an early exit, whatever, or some mark to markets of companies that raise following rounds and you show the equity, striking up, et cetera. But they're also trying to understand how you think, what's the process, what's the approach, what type of companies are having access to, what's the strategy?

So now you're growing the fund. Do you have a strategy to deploy more money? Are you going to do the same thing in the same quality or just going to open up and do a lot of stuff that doesn't reflect the performance that you had on initial one? So I think having the good story and strategy on how you're going to grow, how you're going to deploy, why you need a bigger farm, what's the why the bigger fund makes a difference for you as a team and also for your position in the market and also showing results and consistency with the the approach.

So that's all they are trying to look when it's like ten years ahead, you can just show and say, hey, my fund is a top performer and everybody wants to invest just because of the results. But until you have the results, I think the investors, the LPs are trying to look at the trend and what promise to what's the strategy, what you realize so far, does it make sense and can it scale for you to be able to maintain the quality and speed with two, three, five times the size of the fund?

As the fund grew and the check sizes grew, you needed to migrate to more like a bigger or more professional piece. So you go to the high net worthy videos, to the multifamily offices, to the corporate, et cetera. Just because the check sizes are bigger, you have a little bit more track record then you can sell to these bigger players. So I think it's a natural evolution. You don't start with big institutions, you don't end with high net-worth individuals. So you grow the profile of the investors and the LPs over time. But of course, if you have good individuals at the beginning that have the capacity and like your job, they'll keep going with you. 

What's the strategy behind not leading the round but co-investing?

I think the main point is about adverse selection. When you are a very small fish in a very big pond. So just like us, Silicon Valley, Israel, et cetera, there are so many players so much bigger than us and so much more established over time than we do want to have the presumption of, I just got here, I'm the best VC in town, I want to get into the best deals I can even be. And I really consider we are better than some of these big funds in some capacity, not in all the senses, but in some senses there are some things that we can do that they can't and vice versa.

But I don't assume founders will just automatically recognize us for that. So having someone like a brand name or big name fund on the captain just shows that it's not adverse selection. It's not that Mindset found that. We found the deal, we assess the deal, we did our diligence. So it's all independent. It's not just like a blind check just because someone is investing. But having someone like those guys investing is just like double diligence.

So it's less risk because of the analysis and also because if they are getting in, I'm not the only smart guy who thinks this is a good company. There's another great guy who thinks it's about diminishing risk when you join. 

How are you adding value to your portfolio companies?

So we created early last year a value creation team. So now we formalize that by having so far 2 people fully dedicated to that. And we try to be very respectful of the founders time, but also be very valued whenever they need. So they have to nudge us and ask for help. And we have a process and a way of doing that, but to try to be help in many areas. So from like helping them recruit, helping them sales and open doors of potential clients, international expansion, fundraising. So we go all the way.

For instance, if they're raising, we can help them, like doing pitch training, preparing the deck. So we do a lot of market research. So really hands down with the companies. And one of the things that I think that is the main differentiation, not an obligation for other companies, it's our very strong presence in Brazil and Latin America. So whenever one of these companies aims to expand here and sees the opportunity, we are really able to get them here and open doors with potential clients, help them build the team locally, establish the branch, go through the legal stuff. So this is something we did for 20% of our portfolio. 

What change do you wish to see in the VC landscape?

I think that the biggest change that I want to see is more concerned about the product and the technology and the difference they are making and less concerned just about making money and valuation. So I always say that I don't like seeing my business as part of the financial industry, especially in the early stages. Because it's much more than money and money is not being generated at the early stages. So it's about creating good products to tackle great problems in big markets and putting a good team together, developing new technology.

So it's about it and all the valuations and the metrics and the money and all that will come as a consequence and I think we've been through a time, because of the amount of liquidity in the world, that everybody was just concerned about investing, making money, upside valuations and unicorns, et cetera, which is also good and part of the game. But it's not about that. It's about building great companies with great people. And that's the consequence. So I think kind of a re-shift on the perspective of the market would be very productive for everyone. 

Rapid fire round

What are the sectors and regions you invest in?

US and Israel. Pretty agnostic on the B2B SaaS. So, very quick example, we did a lot of Fintech, we did typical AI, ML SaaS, we did Insurance, we did Digital Health, we did Agro, we did Fiber. So pretty agnostic on the B2B SaaS only.

What's the typical stage you come in?

Typically close to series A, so we do anywhere from C to B. But around A or between C and A is the sweetspot.

What's the typical check size?

Between 1.5 and 3 million. When we join, plus follow-ons over time, we can go a little bit lower or higher, depending on the case.

Where can founders apply for funding?

Founders can apply through our website directly. We're pretty responsive. They can write me directly if they want at daniel@mindset.ventures

Where can our listeners follow you?

Mostly LinkedIn. I think that's the best platform. I'm one of the VCs that is not so much attached to Twitter, so I'm not active at all. Don't go there. Follow me on LinkedIn. I post quite a few things. So that's the best channel.

Links mentioned:

Mindset Ventures website - https://mindset.ventures/

Follow Daniel on Linkedin - https://www.linkedin.com/in/danielibri/

Hosted by Prashant Choubey