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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)

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Building the Social Capital Bank for Founders with Mat Sherman, Founder of Seedscout

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Mat Sherman is the founder of Seedcout - A platform that helps founders build their investor networks. Seedscout has 800+ investors in its network that are regularly reviewing deals on Seedscout and also giving feedback to founders on how they can improve.

We talk about:

  1. Mat's story & why he started Seedscout?
  2. How Seedscout works for founders?
  3. How Seedscout works for investors?
  4. How does Seedscout filter for relevant pitches?
  5. Venture Capitalists V/s Angel Investors
  6. Who is wealthier: Angels or VCs?
  7. What is Social Capital?
  8. Building the Social Capital Bank for founders
  9. What are the benefits of Seedscout Pro Plan?

Mat's story & why he started Seedscout?

I started my career in 8th grade as a singer songwriter. So I learned guitar, how to sing. I started putting up hundreds of videos on YouTube. A few years into this, I started playing shows around Phoenix, Arizona, selling tickets to these shows. I had t-shirts with my name on them, the whole thing. I was even on Spotify for a bit. And I actually did this all the way up to sophomore year of college.

Around sophomore year of college, I kind of had a realization that I was not going to make it in music. I'm pretty good at guitar, but my voice is just okay. And I decided that I was going to try another entrepreneurial endeavor that wasn't dependent on a little bit of raw ability. And I think startups are in this category where you can really learn how to learn the craft and make it happen yourself.

So in 2014, I discovered Y Combinator’s Startup School, led by Sam Altman, and I just kind of discovered startups on the internet and from that point on, I kind of just became pretty much obsessed with startups. I started a company, I was obsessed with the local startup scene. I was obsessed with internet startup. I was just like, I love this concept of startups. And I was only just like right out of college at this point. I started my first real company in 2017. It was called Publoft. We connected writers to startups and their blogs managed and actually have made some pretty good progress with this. We got the $24K MRR.

But a challenge that I noticed while I was doing Publoft is that I was really out of network, right? I was over here in Phoenix trying to raise money for this company. We had revenue. But I still wasn't able to raise any money up until that point. And I thought this was an issue.

Why is this like this? So I decided to start a podcast called Forward Thinking Founders. We interviewed founders before they ultimately get big. It was a goal of kind of like building my network. I've since interviewed about 800 founders, including the founder of the platform we're on now, Riverside.FM. I interviewed him early on and I ultimately got extremely networked in tech, as I said, 800 interviews later, many of these guests you wouldn't have heard of when they came on, but you've heard of now.

Long story short, with that other company, it didn't work out due to many reasons, which we don't really have to go into, but it didn't work out. So I left that and got a job at Prenda, which was a Y combinatory company. I was their first hire based over here in Phoenix. And then the pandemic hit and everything kind of blew up, including Silicon Valley.

People started to leave to go to Miami, they started to leave to go to other places, the middle of the country, things like that, Arizona and I saw this opportunity in about August of 2020 where I was working at Prenda at the time, great crazy growth and they've raised a lot of money since. But I kind of was thinking like, if I'm going to try to solve this networking problem that I have for myself, and I know other people have, I need to do it right now.

So I quit my job at Prenda in August, which is we're coming up on two years ago almost to the date, because I quit on August 1. So I quit my job, started what was then called Forward Thinking City. And that kind of has led to where we are today with Seedscout.

How Seedscout works for founders?

So as a founder, you have the options. You have a free account when you ultimately sign up. You're able to create your affordable intro email. You get tools that serve yourself. You can create monthly updates, things like that. If you want to kind of go into multiplayer mode, which is the only way that it's valuable, to be honest. You have the option to upgrade to Seedscout Pro. And at this point, founders get three different products. They get our Venture Partner introductions; where we have about 90 Venture Partners that have joined Seedscout who are open and willing to meet with our founders four times a month, give them feedback.

So our Pro founders get feedback. We also have investor introduction requests, which  are self-serve. So a founder can go into the platform, find who they want to intro in the click of a button. It doesn't make an intro. It requests an intro, key difference there.

Thirdly, we have a pretty robust IRL experience network starting out here in Phoenix. We have some assets that are pretty incredible for networking, involving suites and arenas, things like that. And I think as we expand to other geographies, we'll open up our IRL platform to other geographies as well, specifically LA, SF, New York, and Miami, and maybe San Diego. 

How Seedscout works for investors?

On the investor side, there's two ways they can engage with Seedscout. The first way is getting our deal flow. This is free. They sign up, they give us their information about their firm, what they like investing in, and then based on those filters, the founders can then use that information to see if they're a good fit for that founder.

So it's kind of completely self serve in that front. This is called our Seedscout investor network. And then the last way an investor can get involved is by becoming a Venture Partner. Venture Partners get equity in Seedscout that's kind of the incentive.

It takes four meetings, a trial, before we decide that we like each other, because it's a mutual thing. Then after that, we give them some carry and we ink a long term relationship. 

How does Seedscout filter for relevant pitches?

So each and each founder is capped based on their plan that they're signed up for at a certain amount of intro requests per month. It ranges from 25 to 100. So the very, very, very max, you know, paying the highest amount of money, a founder can only request interest to 100 investors in a month, which means they ideally want to be thoughtful about their requests.

In addition, I want to make a clarification. You don't press a button and get introduced. It would be overwhelming if we were allowing them to get automatically introduced to investors. What we're actually doing is making it easy for an investor to review a deal and generally they pass on the deal, right? Most of the time they're like, this isn't a fit. But going through Seedscout, they actually get a full look at the opportunity versus a cold email where a founder may not put their best foot forward. In addition, it's pretty much an investor's job to review deals.

 And the way that we have the format within Seedscout, when a deal comes from Seedscout, it looks like any other deal that an investor is reviewing, so it's already in their flow. We have the forwardable intro format where a founder puts together intro email and we forward it to the investor. And to be honest, the investor doesn't really know the difference between a Seedscout deal and another deal because we're so naturally kind of built into the system that VCs already working, then the last thing I would share is if a VC is getting pounded, let's say we have I don't know.

We don't, but just as an example, like a Marc Andreessen on the platform and let's say that everyone's going to him and he's rejecting every single one, we can track that, right? And then we can do something about it. We can be like, hey, Marc is actually a second level. And if you want to request an insured to Marc, you need to be at these levels of traction, these levels of a company. And that's how this works. 

Venture Capitalists V/s Angel Investors

So the main structural difference between the angel investor and a venture capitalist is an angel investor is investing their own money and a venture capitalist is investing someone else's money and maybe their own money too. And because of this, angel investors are able to go more with their gut. They're able to take only their opinion in mind, no one else's opinion. They're able to invest quickly. Generally, these checks are smaller. Generally they're not considered professionals. Some would, but most are just doing it on the side. So those are angel investors.

Venture capitalists are different. These people quite literally get paid to manage other people's money. So in my view, I think they actually take a little less risk than an angel would. I think they do act a little slower. I think they're a little more meticulous in due diligence, rightfully so. They have a lot at stake and at the end of the day, it's their job. They don't do their job right. They just won't raise another fund. And that sucks, right? That's like a bad situation to be in because where do you go after that? So those are the two differences in relation to which founders should go with.

The very basic framework is if you haven't raised much money yet or no money, go with angels. If you already raised a couple hundred grand from angels, try your hand to VC. If you already raised money in a previous company and you know exactly how it works, you can go straight to VC. But I would say most people on Seedscout are signing up because they're not necessarily a first time founder, but a first time fundraiser. And I always think you got to crawl before you can walk and you got to walk before you can run. 

Who is wealthier: Angels or VCs?

A lot of people think VCs are wealthy and a lot of them are like Keith For boy, very rich, right? Very wealthy. Like probably Marc Andreessen is very wealthy. These VCs that we've heard of, very wealthy. Jason Calacanis, invested in Uber. Very wealthy. But you notice that these people have been in the game for quite a long time and they've actually made their wealth from another discipline and then they moved into VC.

All the examples I just mentioned are in that scenario. And VCs, if they were truly wealthy, they wouldn't be VCs, they would be LPs. They would be investing in GPs, they'd be funded funds. But because they like the process of investing capital, they decide to do that. And obviously, depending on the size of your fund, they're probably doing fine.

But a lot of the emerging fund managers are not wealthy and they wouldn't even say they're wealthy. They'll get wealthy if they do their job right. Angels, on the other hand, you can be an angel and write a $1,000 check and that still counts. But if we're talking about kind of standard angels, standard 25K check size, things like that, yeah, you can't just write a random 25K check here and there and not be not be wealthy.

So I would say I don't really have data on this, to be honest, but I will make the assumption that the average angel investor that invests large checks at least like 25K or more, is definitely far more wealthy than a GP at a first time or second fund.

What is Social Capital?

If I told you right now on this podcast, I'm going to preface by saying this is not true. This is just an example because I don't want to leave anyone astray. But if I told you at this second, hey, guess what? We just raised a series B round from Sequoia, you would immediately mentally do this thing where like, oh, this is that kind of guy. He raised a series of B from Sequoia.

It's because Sequoia is known to back the best founders. They are the best firm in venture. And by having them hypothetically on my cap table, I get social capital from them. They are lending me social capital. And I'll give you a real example.

My last company was backed by Jason Calacanis. The moment that Jason backed us, we grew in social capital. Jason put the money on the line. It didn't work out, unfortunately. But in that moment, like, we got social capital. Of course it went away as soon as we got it right once the company died. But that's the way social capital works. So what is social capital? It's reputation. It's how people think of you. And usually social capital is kind of hurtled around in certain groups, what I like to call the Silicon Valley kind of monoculture.

It's a social capital thing where they all give each other social capital. They spread it around, but they don't really give it to like, outsiders. If you're an outsider, you're cool, I'll take a call. But I'm not going to give my social capital to you because it's not cool. There's no incentive to if you're a total stranger. Why would I do that when I could give it to a buddy.

That's social capital. It is what makes you cool and more importantly, what makes you perceived as cool, almost more so than what makes you cool.

Building the Social Capital Bank for founders

So I see Seedscout as a social capital bank over the last 3 years, but really, over the last 8 years that I've been in tech, I as an individual have been building up a fair amount of social capital. And then when I started my podcast, I build up even more social capital. And then when I helped founders raise funding, I didn't ask for a fee in exchange, just did it for free. I got more social capital. And then when I started Seedscout, that social capital was kind of transferred to Seedscout.

So at this point, Seedscout has social capital and intro request from Seedscout is not exactly the same as a cold email. And it's not even actually the same as an intro request from another firm that isn't as reputable as us. So we have the social capital. Now, if we were like a normal VC firm, I know we're not a firm at all, we're a startup. But if we were like a firm, we would selectively allocate that social capital based on who we perceive deserves it. We'd see who comes into the pipeline. We'd see, we think your company's interesting. Here is our social capital. The problem with this, and it's very well documented, is that VCs only fund a certain type of founder.

As a high level, they only fund founders out of this monoculture. Similar backgrounds, similar mindsets. They look a lot like me, right? I have one characteristic of a founder that like white guys. I'm based in Phoenix, Arizona, so like, oh, I don't check that box. Right? So it's been really hard for me to raise to it. It's a certain type of monoculture. And that social capital is not spread to people that don't fit a monoculture. And if it is, it's unlimited supply.

You're like, that sucks, right? Not cool. We're going to start a bank, OK, but not like a bank full of cash. It's a bank full of social capital. And the way we lend your social capital to you, if you spend money, we're not free. It costs $250 at the minimum, all the way up to $1,000 a month. But if you become a paid customer, we will then lend our social capital to you, which you can do something with, which ultimately request introductions for. Will that lead to something? We don't know. But we can give you a shot on goal by lending our social capital. And then the thing that makes this interesting is that every time a founder that we lend our social capital to does really well and raises a lot of money, builds a great company, exits, that social capital actually comes back more than what we lent out and actually helps out all the seed scale because we can lend it more.

If we help the next Uber raise their seed round, then they raise a $50 billion round or whatever, that's really great for Seedscout and our founders. So in that way, I see us like a social capital bank and we lend it out to all our paying customers and all the pain customers are almost a part of how we grow the social capital over time.

What are the benefits of Seedscout Pro Plan?

For $250, you get 25 investor intro requests a month and unlimited IRL events. So no limit there. For $500 a month, you get four venture partner introductions a month. No, these are guaranteed interests separate from investor interests and you get 50 investor requests a month and then unlimited events. And then for $1,000 a month, you get ultimately eight VP intros, venture partner intros, and 100 investor requests a month and unlimited events.

So if you want to expand your network faster, you pay for a higher plan. The events, though, are open for everybody because we think that's the serendipitous part of Seed Scout that almost is better than the virtual introduction. But they're both necessary. 


Seedscout website: https://seedscout.com/

Follow Mat on Twitter: https://twitter.com/Mat_Sherman

Check out Seedscout blogs: https://words.seedscout.com/

Hosted by Prashant Choubey- https://twitter.com/ChoubeySahab

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