🎧🍌 Sheel Mohnot on Building Two Fintechs, Starting Better Tomorrow Ventures
Current opportunities in fintech, why accelerators work, lessons competing with Stripe, common early fintech startup pitfalls, navigating hot vs underhyped rounds, and fundraising advice for VCs
Sheel Mohnot is the Co-founder of Better Tomorrow Ventures, an early stage fintech focused fund leading rounds in pre-seed and seed-stage companies.
Our conversation weaves through Sheel’s two decades of building and investing in fintech, starting BTV, and why they started a fintech-focused accelerator, The Mint.
We talk lessons competing against Stripe before selling his first company, common fintech startup pitfalls, and the trick every VC should use when fundraising.
Some fun facts if you don’t already know Sheel: he was a contestant on the Zoom Bachelor during COVID lockdowns, in a Justin Bieber music video, got married in the Taco Bell Metaverse, and was once banned from Uber for accumulating over $10k in ride credits.
Timestamps to jump in:
3:13 Why fintech makes disproportionate positive change
7:49 Most interesting opportunities in fintech today
9:09 The accountant shortage
12:59 Common early fintech startup pitfalls
16:09 Building Fee Fighters to cut payment processing fees
21:15 Lessons competing with Stripe
21:57 Getting acquired by Groupon and adding $600m in market cap
25:11 Biggest first-time startup mistakes
29:21 Getting $10k in Uber credit via paid Google ads
32:13 Investing in Flexport
36:19 Navigating hot vs underhyped rounds
43:39 Sheel’s domain auction company
53:18 How he started angel investing
54:57 Spotify acquiring his podcast “The Pitch”
59:55 Why accelerators succeed and fail
1:06:07 The Mint, BTV’s fintech-focused accelerator
1:09:56 Camp BTV in the Santa Cruz Mountains
1:11:41 Early days of NerdWallet
1:14:55 Raising $75m BTV Fund 1 with Jake to fill a gap in the market
1:18:36 Understanding Fund of Funds incentives
1:22:15 References in VC fundraising
1:24:02 $150m BTV Fund 2
1:27:13 Importance of following-on when leading rounds
Referenced:
The Mint, BTV’s fintech-focused accelerator
More on Fee Fighters
Find Sheel on X / Twitter and LinkedIn.
👉 Find on Apple, Spotify, and YouTube
Transcript - (read on Rev)
Find transcripts of all prior episodes here.
Turner Novak:
Sheel, welcome to the show.
Sheel Mohnot:
Glad to be here.
Turner Novak:
Yeah, I'm glad you're here too. I know we were talking a little bit. I'm sick right now, so I'm going to try to not talk as much as possible and it's going to be only you for the next two hours.
Sheel Mohnot:
Should I just interview myself?
Turner Novak:
Or we'll use the AI stuff. We'll swap on AI and make my voice.
Sheel Mohnot:
I like that.
Turner Novak:
So really quick for people who don't know, what is BTV, Better Tomorrow Ventures?
Sheel Mohnot:
Yeah, BTV is a pre-seed and seed stage fund investing in fintech companies and leading rounds. And when I say fintech, I want to be clear that we take a pretty broad view on fintech. So there's a lot of companies that other people don't necessarily think about as fintech that we do. As an example, vertical SaaS. We think most vertical SaaS companies ultimately will get a lot of their revenue from fintech. And actually if you look at our first ever pitch deck, we talked about that and we talked about Toast and Shopify. Now at Toast and Shopify are public companies, so we have the data and over 80% of the revenue today is financial services. So they have become fintech companies. We also think B2B marketplaces have a lot of fintech tendencies, so we invest in those kind of companies too. But generally, we take a broad view on fintech and that's what we invest in and like I said, leading precedency rounds.
Turner Novak:
Okay. And so why fintech specifically? You should have pivoted to crypto, Web3, AI. Why is fintech interesting?
Sheel Mohnot:
One, I'd say we just love this stuff, myself and Jake, the other GP. I think it starts from our backgrounds. If you connect the dots backwards, so to speak, we just happened to start fintech companies around the same time. And then it was really early in the world of fintech even being a word. And then we just really liked it. And then when it came time to decide a space to invest in, for me this was 2015, 2016, I just looked around. I had built two companies that were in the world of fintech. And I was just thinking about where is there a huge opportunity? And from a macro perspective, financial services is 20% of global GDP.
Turner Novak:
Really?
Sheel Mohnot:
And it's really like money. It's ones and zeros, so it should inherently be digital. And then from a micro perspective, it's actually not as digital as I want it to be. I recently signed up for a new credit card and they asked me to fax a form in 2024. They asked me to fax, sign wet ink, and mail or fax it to them. And there was one other hiccup I had and they were like, "Come into a branch." And so it just feels like even in 2024, this kind of shit is happening. There's a huge opportunity to build companies that make life easier for people.
Turner Novak:
And I think I saw this stat, 1% of financial services revenue is from technology fintech companies or something like that.
Sheel Mohnot:
Yeah, so there's a huge, huge opportunity in making that 1% 10%.
Turner Novak:
Hopefully 100% soon. No more faxes.
Sheel Mohnot:
Yeah, yeah, yeah, exactly. So I think that's what got us excited about fintech. And the reason it's called Better Tomorrow is actually we think that financial services disproportionately has the ability to impact people's lives and make them better. So we want to improve people's lives, make them better tomorrow. And then the other reason is we want to improve ourselves. So there's constantly things that I wish I did better. Something I did bad yesterday, I could have done a better job and I want to do a better job tomorrow.
Turner Novak:
Wow, that's great marketing, I guess, positioning.
Sheel Mohnot:
Naming is hard. We don't all have a brilliant name like Banana Capital off the top of our head that is an emoji too.
Turner Novak:
Yeah, fair. Do you guys have an emoji for Better Tomorrow?
Sheel Mohnot:
We don't have an emoji. We have actually, you can see it behind me, our logo is a sunrise over a mountain. You could actually see it on my shirt too.
Turner Novak:
Oh, yeah. Okay. That's pretty slick.
Sheel Mohnot:
It's cryptic. Who knows? Nobody probably knows that that's what it is. But when we created the logo, that's what we had in mind.
Turner Novak:
Well, better than calling it Sunrise Capital or Mountain Ventures or something. At least you guys went a little further.
Sheel Mohnot:
A little further.
Turner Novak:
Are there any areas in fintech that you think are the most interesting right now? If you were thinking like, "Okay, it's the 2024, 2025, you want to be deploying capital or trying to build things, any areas maybe you're thinking about, you've invested in recently or you think there might be something that's coming up?
Sheel Mohnot:
Yeah, I think it's actually a lot of the same stuff we've been investing in. I don't have any requests for startups at the moment.
Turner Novak:
You don't sit with a crystal ball and make proclamations into the void?
Sheel Mohnot:
No, I'm not Shamad saying that Visa and MasterCard are going bankrupt or whatever. I think a lot of the traditional fintech opportunities are still there. So one that we believe in strongly is embedded fintech. So we think a lot of the SMB software, like Toast and Shopify, will ultimately be driven by financial services, and we want to invest in companies that help get them there. So we've invested in companies like Unit that's banking as a service, Salsa that's payroll as a service and Layer that's accounting as a service, all three of which sell into Toast and Toast-like companies. That's one thesis.
Another broad thesis we have is the world of accounting. So there's an accountant shortage in this country. The stats are pretty crazy, but basically a lot of universities, since the time that I graduated college, there's been a steady decline in universities offering the major. Nobody wants to study accounting anymore. I think, in part, it just became a very uncool thing to study.
Turner Novak:
And it sucks too. Did you take any accounting classes in college?
Sheel Mohnot:
I did, and it sucks, but it's actually important. It's important in my world today. I think understanding the nuances of an income statement and balance sheet and quality of revenue, some of that's strategic finance, but all of that accounting stuff is actually pretty useful, but nobody wants to learn that stuff anymore, it feels like.
So there's this shortage of accountants, and so the average age of an accountant has crept up and up, and so they're all retiring in the coming 5 to 10 years. And so the shortage that exists today is actually going to get a lot worse, and we think it's the perfect opportunity for technology to step in and solve that problem. So we identified this problem a couple of years ago. We've invested in three companies behind this thesis and actually might do more. So the companies we've invested in are Layer, which we talked about, which is accounting as a service. So they sell into vertical SaaS companies. So imagine you're Toast, you're a restaurant owner that uses Toast, a lot of the data that you need to do your accounting is actually already embedded in that vertical software.
Turner Novak:
In the sales system. That is all the...
Sheel Mohnot:
It's a lot of the information need. It's like your vertical ERP. You have your customer data, when they swipe, it's all there. You have your employees, when they come into work, how much you pay them, it's all in that system already. And so rather than exporting that data from that system to another system and then manually doing work, Layer automates that process and does it for you and ultimately will be replacing that entry level bookkeeper by doing that work.
Turner Novak:
So maybe basic question.
Sheel Mohnot:
Yeah.
Turner Novak:
Why doesn't Toast just make the accounting stuff themselves? That seems pretty straightforward, right?
Sheel Mohnot:
Yeah, it's a great question. So Toast might be at a scale where they could theoretically do something like that on their own, but accounting is not trivial to build. If you think about it, you're building an entirely new product, QuickBooks, and then some, and it's not like that's a really easy product to build. It's a very complicated product to build. Toast has learned their lesson and to build payroll, they actually acquired a company to do so. And then I believe it took them actually two years post acquiring that company to integrate it in. So I think they realized these products are not trivial to build even if you buy a company, and it's better to work with a company and integrate in. And so they already are partnering with our portfolio companies.
And actually one interesting thing is the founder of Layer, one of the founders, Justin, actually came from Square and the idea for this business came while he was at Square wanting to build this and then looking for a solution that existed outside, realizing there wasn't a solution where he could use an embedded solution. And then he decided to build it, decided to leave Square and build it.
Turner Novak:
Interesting. So another question then. There's probably a lot of people listening to this that are in a similar position, working somewhere, find a problem and they think, "Oh, I'm going to start a fintech company." Is there anything that you see people get wrong when they, maybe they're new to FinTech or they've never started a company before, common pitfalls where you see they were lending in the wrong way, compliance, are there any pitfalls, common traps?
Sheel Mohnot:
Well, yeah, compliance is super important and is a superpower if used correctly, especially if you're building something embedded for somebody else. That other party really wants to make sure... They want to integrate your product and they want to test it out, but they really don't want to get in trouble for doing so. So I think starting with great compliance is really important. I think a lot of first timers in fintech really get timelines wrong. It always takes a lot longer to get started than you think. And every integration, especially with the bank, just takes so much longer. A first time fintech founder might say, "Oh yeah, I had this great conversation with the bank. They think we can get started and launch in three months." And then nine months later they're like, "Yeah, we're going to be live in three months." And it's still-
Turner Novak:
Another nine months later.
Sheel Mohnot:
Another nine months later. So I think people have been around the block a little bit or have investors or mentors who have been around the block a bit can be more realistic on timeline and can actually shortcut that stuff. I think that's one of the things where we can be super helpful as an investor and why you might want to take money from seed or pre-seed from somebody who's done it before.
For example, on the bank piece, it's gotten a lot harder to get a bank partnership than it was a few years ago for a variety of reasons, regulatory and otherwise, but there are a lot of banks who work with a bunch of our portfolio companies already and while they're not adding net new partnerships, they are willing to add partnerships through us because we're a trusted party that already works with them. And so we can shortcut that timeline a little bit. If you went and approached them, they might say, "It's not going to happen until the second half of 2025." But if we went and said, "Hey, you're already working with three of our other portfolio companies. We have a great relationship. Could you sneak these guys in in February?" And they might be willing to do so.
Turner Novak:
Interesting. And you guys have a lot of, maybe not a lot, but some of your investors in BTV or actually other financial services companies like banks, insurance, et cetera, stuff like that.
Sheel Mohnot:
Yeah, we have some. We don't have a whole lot of strategic investors, but we have a couple of insurance companies and a bank that have invested in BTV and they have been great partners to our portfolio.
Turner Novak:
Thinking about just fintech stuff, you've been doing it for a long time. You mentioned you've built a couple companies. I thought it'd be interesting, because we've actually never talked about this before, some of the companies that you've built in fintech. So going back to the very first one, it was called FeeFighters. How did that come about and what was it?
Sheel Mohnot:
So it was really my friend Sean Harper, who's now the CEO of Kin, which is an awesome homeowners' insurance company, super successful business, hundreds of millions of revenue. He and I worked together at BCG, the consulting firm, and he was leaving to start this company. He had previously started a satellite radio company that sold hardware for satellite radios, like XM and Sirius at the time.
Turner Novak:
Was this early 2000s?
Sheel Mohnot:
Yeah, 2006, 7, probably 8, 9.
Turner Novak:
So this was like heyday because smartphones weren't really a thing.
Sheel Mohnot:
Yeah, that's right, that's right. And so he built that company and then realized that he'd been getting ripped off on credit card processing.
Turner Novak:
Oh, interesting. Oh, selling them.
Sheel Mohnot:
Which a lot of people do get ripped off on credit card processing.
Turner Novak:
Really? How do you get ripped off?
Sheel Mohnot:
If you wanted to accept credit cards on your website, you would go to your local bank or there's something called an ISO, independent sales organization, where everybody has some random cousin who sells credit card processing.
Turner Novak:
Wait, still? Or this was back in the day?
Sheel Mohnot:
Even now, a lot of people do. And so if you're a restaurant... And now it's different because of Toast. So Stripe and others like Stripe really have made it a lot easier in the past decade, but I'm talking 15 years ago. And so you would just go to your local bank or go to one of these independent sales organizations or talk to people and be like, "Who do you use for credit card processing?" And then you'd get this deal and the deal you got, it would claim a particular price and you'd be like, "Oh, yeah, this is what I'm paying." And then actually there'd be all these bullshit fees, so you end up paying a lot more. And the margins that these independent sales agents made were astronomical and they would increase your fees every year, and it was bullshit.
Turner Novak:
So what percentage of revenue would you pay in credit card processing fees if you sold something for 100 bucks?
Sheel Mohnot:
We saw people who were paying like 7% on credit card processing and they thought they were paying 3%.
Turner Novak:
How does that happen?
Sheel Mohnot:
They have this number in their head of what they're paying and they just make their assumptions based off of that. And then you get the monthly update and it's so hard to read and there's so many embedded fees in there that you just see... You would think it'd be simple. You see the amount that you collect and you put that against what you thought you should collect. But a lot of people did not do that math. People didn't realize it was something that you could negotiate. People just thought, "I pay what I pay. That's Visa and MasterCard." But actually, there are a bunch of middlemen in the way that make, in some cases, most of the money. So we set out to build a company that made it easier and cheaper to accept credit cards. So V1 of FeeFighters was a marketplace for credit card payments. So you come give us a few pieces of information about your business and then the processors bid down for your business. And so you end up paying a really low fee and the margins get super compressed.
Turner Novak:
So this is instead of me going to a broker who's just like, "Oh, yep, we're going with this. This is the person we're doing," you insert competition, which drives down prices?
Sheel Mohnot:
Drives down prices, and prices went down very significantly. So I think the average margin that people were making before they came to us was 150 basis points. They were losing to this fee. And with us, they were paying 20 basis points. There's a major creation of surplus for the merchant. So we started that business and it was pretty successful.
But then we decided, okay... We initially thought that our customers were going to be mom and pop merchants, your main street restaurant, hotel, dentist office, that kind of thing. And then what we found out was actually a lot of our customers were online businesses. And online businesses, they had to not only get a merchant account, which they could get from us, they also had to use something called a payment gateway, which is... So the merchant account is the flow of money and the payment gateway is a flow of data. And so you actually needed both. And so we decided, "Okay, let's build our own payment gateway." And so we built a payment gateway and merged the merchant account and payment gateway into one. And by the way, this is actually what Stripe is, is a merchant account and payment gateway in one.
Turner Novak:
So you were building and Stripe without knowing what Stripe is today?
Sheel Mohnot:
Yeah, that's right. And interestingly enough, Stripe, in their early days, and they've told us this since John and Patrick were reading our blog religiously, were using our product. And so we built what we called Samurai, which was a fixed price, basically early version of Stripe. And we'd raised only a seed round $1.6 million. And then we started to raise a Aeries A, but during this time, we got an acquisition offer from Groupon. We were based in Chicago. Groupon, at the time, was this high-flying company. It's hard to think about it now as this, but it was considered the fastest growing company or whatever.
Turner Novak:
It was like the ramp or the open AI of that time. I'm not saying that the same thing is going to happen to these, but I think maybe those are slightly better businesses. I don't know. But Groupon, they had gone public, right, or not yet?
Sheel Mohnot:
They'd just gone public. At the time we were talking to them, they had gone public and it was a $20 billion company, which is crazy. I think now it's a few hundred million dollars company. Anyway, we got this acquisition offer. They were in Chicago. We were in Chicago. We had some limitations in that Josh and Sean, the CTO and CEO, didn't want to move to California. And I think if they did, we would have had a lot more options. But they wanted to stay in Chicago. And so we had this offer from Groupon. We ended up taking the offer. And look, in hindsight, we didn't become Stripe, who knows if we would've anyway. It ended up being pretty good for us financially. It got me into angel investing. And this is in 2012, it was a great time to be an angel investor. I started investing in companies. I wanted to help companies avoid the mistakes that I made, and it worked out well. I angel invested. That led to me being a full-time investor, and it's been awesome.
Turner Novak:
I think one thing you mentioned was Groupon stock price, they had $600 million in market cap the day it was announced or something. What is that like?
Sheel Mohnot:
It was wild. So Groupon, it's hard to think about an equivalent company because the equivalent company today would not be public, but it was a super hot company that had just gone public. Everyone was following the news. It was on Hacker News every day, whatever was going on at Groupon.
Turner Novak:
Really?
Sheel Mohnot:
So top of mind. And of course there were haters, who were right. And so the day we got acquired, they announced it and the stock just skyrocketed because... So Groupon's core product was this couponing business, and we were a entirely new business line, which was merchant products, so building new products for merchants. So our product was a payments product. We ultimately acquired a point of sale company that was called Breadcrumb, that became... That then they spun out.
Turner Novak:
So the thinking was they're acquiring all these merchants to try to give deals to consumers, but they weren't really monetizing the merchants. And you were giving them an opportunity to make more money.
Sheel Mohnot:
Exactly. So make a lot more money off of the same merchant base. And so the stock loved that and skyrocketed in value that day before. And then roughly a year after we got acquired, Andrew Mason, who was the CEO resigned, got fired in a [inaudible 00:25:06] battle, and then that was kind of the beginning of the end.
Turner Novak:
Well, you mentioned there's things you wish you did differently for your first startup or your first company that you wanted to help other founders avoid. Interested in that, but also what was it like the process of getting acquired? Anything that surprised you? Just someone who's never been through an acquisition before might like to hear before getting into a process.
Sheel Mohnot:
Yeah, it's a lot of negotiation. The initial offer was total crap. And the way that they approached us, we didn't really know originally that it was going to be an acquisition conversation.
Turner Novak:
Oh, was it related to the fundraising?
Sheel Mohnot:
Yeah. We thought, okay, maybe there'll be investors in our series A, maybe... We went into it thinking, let's just talk to them about becoming customers. And then we had a really good conversation. We had no idea they were going to make an acquisition offer. And then when they did, then you want to build heat on the deal, so you want to get other potential acquirers involved. I think we could have done a way better job of that than we did. We did do some. We spoke to Square, Google. Square was really a young company at the time, so it didn't really make much sense for them. But we spoke to a bunch of other folks and then ultimately the Groupon offer was better. Look, at the end of the day, we probably could have done better financially somewhere else, but given that the other team members didn't want to leave Chicago, I think it was a great outcome.
Turner Novak:
That's fair. And you mentioned some other big mistakes that you made that you like helping people avoid. Anything that comes to mind as just biggest mistakes, just broadly building the company?
Sheel Mohnot:
I think there's a lot more knowledge about how to build a company today than there was back then, which was now 14 years ago, 15 years ago. It feels crazy. I think we didn't know content marketing. We had to figure out on our own like LTV to CAC, content marketing, what these things meant, how to quantitatively market, what we should pay to acquire a customer. We were figuring all these things out and now I think there's a well-shown playbook for it, and I think we did a good job at it, but I think we could have done a better job at it, who to take on as investors, all that kind of stuff.
Turner Novak:
That makes sense. I guess the thinking when you tell me you were acquiring small mom and pop as customers generally pretty small LTV on those, and it's like what's the math of how cheaply and quickly do you need to acquire those to make a viable business? And it has to be pretty freaking fast with customers that are that small.
Sheel Mohnot:
Absolutely. Yeah, totally. And so that was a lesson. I think that business it could have... So the original business I think was an okay business, would've been a really good non-venture back business. And then the business we got into when we built the payment gateway and everything would... I mean obviously Stripe was an amazing business, so would've been a great business and it's easy to... I think other people in my position have looked back and said, "Oh, we could have been Stripe," but I don't feel that way. There's no regret in my mind about how things ended up.
Turner Novak:
Yeah, well it feels like their customers are developers, that's startups, quick adoption, but even on the enterprise side, and a lot of those startups became enterprises. I know Shopify, Uber, DoorDash, all big customers, massive multi $100 billion public companies now within 20 years. That's pretty good.
Sheel Mohnot:
It is sort of the API game, right? People start building on you when they're small and they continue building on you when they're big. And then of course in payments, the margin profile changes substantially.
Turner Novak:
One interesting story related to Ryan Petersen and Flexport, you're an investor, but I know you guys did something pretty interesting. It might've been somewhere around this time with Uber referral codes. That's probably one of the craziest stories I've ever heard. What was that exactly?
Sheel Mohnot:
He'd get us in trouble, but it's been so long that it's probably fine.
Turner Novak:
I think you already got in trouble for it, didn't you?
Sheel Mohnot:
Yeah, that's true. I did get in trouble for it. So I don't even remember exactly where I met Ryan, at some party or something, but we were both doing this thing where... And it was a fun idea. You could advertise on Google AdWords for your Uber promo code. It was like SHIELD05, enter SHIELD05. And at the time a lot of people were signing up for Uber for the first time, and you would get some amount of money in Uber credits if they use your promo code. I think the rough... And the amount of money you got fluctuated wildly based on what numbers they wanted to hit in customer acquisition. But I think for a time you would get 50 or even $100 if somebody signed up using... $100 in Uber credit if somebody signed up using your code. And using AdWords, we were buying customers, users of Uber for 10 to $15.
So it was a huge ROI for us to have somebody to market to use SHIELD05 code and then we'd get $100. And so we did this enough where actually I had over $10,000 in credit in my account, and it was just sitting there and I was like, okay, I don't know how long this is going to last, but while it exists... I spent $1,000 or something to get that $10,000 of Uber value. And then ultimately what happened was I was in India and had some payments issue and I unfortunately complained into Uber customer service that my account wasn't working because of some issue in India. And they looked at my account and were like, "Why do you have so many Uber credits?" And then they looked into it and they canceled my account. So I actually had to start a new Uber account from scratch.
Turner Novak:
Oh wow. And you just lost all the credits?
Sheel Mohnot:
I did. I think I still netted out positively because I hadn't... I'd spent less than I would've for that equivalent amount of Uber, but I think Ryan was doing the same thing and we kind of bonded over that in the early days. Just being a hacky user, you kind of learn how to use AdWords and you make some money and he's been a great... He's obviously a great entrepreneur and I think some of that hackiness is really important when you start a company.
Turner Novak:
And you did end up investing in Flexport, I think right around when he started the company, right?
Sheel Mohnot:
Yeah, right when he started actually, I think I tried to invest before he did YC, but he didn't take any money. And then I invested during his YC batch and it's obviously been really good, been awesome to watch him build that company. And I think the thesis there was global trade is a huge opportunity and very broken if you've ever imported or exported something like you've seen that. And I had some experience doing that. When I was much younger I had a headphone company and so had some experience importing goods from China and I knew there were a lot of things, a lot of ways for that to be made easier with technology. And then I felt like Ryan was the right guy to do it. He'd built a previous company in imports, actually two previous companies in imports and just had the right amount of scrappiness. So it was a big idea with I thought an outstanding founder and so was happy that he went after it and was happy to be part of the journey.
Turner Novak:
Was it kind of obvious at the time? I know sometimes there's hot seed rounds, less hot YC rounds. What was it?
Sheel Mohnot:
It wasn't super hot at the time. I don't think it would've been the hottest deal in YC, but I think at the time it was a $10 million cap, which was pretty high for YC, but I don't think it was the round you had to get in in that batch.
Turner Novak:
Yeah, it feels like there's usually... I feel like the latest is... The different thresholds is they have 15 million, 20 and 25 million. Then maybe there's a little bit above 25 where it's like the 25 million and above is clear KPIs, clear traction, everyone wants in. The 20 is like there's a little bit of uncertainty. The founders are really good, maybe there's something there. And then the 15 is just like YC doesn't really know how to think of this thing, but you can't sell too much of it to mess up the math. So just like 15 million posts is what we're doing.
Sheel Mohnot:
I think the interesting thing is a lot of the best companies in YC over the last many years have actually been pivots of something else or something where it wasn't obvious at the beginning. At the Mint we had Christina, the CEO of Vanta, she was an awesome interview by the way, and Vanta which is a SOC 2 compliance software. She said in 2018 when she started the business, she estimated the entire market for SOC 2 compliance to be $100 million.
Turner Novak:
They have more revenue than that today.
Sheel Mohnot:
They have more what she estimated the entire market to be. So it was hard for her to raise money. If you look at the investors, it's not like your who's who of investors. And then over the next few years, she built an amazing business, I think was already profitable. And then Sequoia threw a bunch of money at a great price and the businesses continued to scale from there. So that was not obvious. And then if you look at Whatnot, I think it was an e-commerce site for Funko Pop toys. A lot of these companies were not necessarily what they became. So it's hard to know which ones are successful at YC Demo Day.
Turner Novak:
Yeah, I remember meeting Grant, it was five months after he launched the live-streaming and he was kind of, I forget exactly how the conversation went, but it was basically like we've grown over 100% a month since we launched live-streaming. And I was like, "That's pretty crazy." I was also super skeptical about live-streaming at the time because it was like the consumer category that people couldn't shut up about. And so I think that kind of blinded me. I have this weird thing if something's too hot, I kind of have an allergic reaction to it, which is maybe good, but also I think has probably hurt me at times too. I'm trying to, personally as an investor, I'm trying to navigate the best of both worlds of that because usually if something is too hot, there's too much excitement, sometimes there's some cracks that people overlook. But I mean all the greatest technologies all get super overhyped and there's a reason. So it's hard.
Sheel Mohnot:
It's a tough one for me. I think about this a lot too. And in FinTech, especially in the crazy times of 2020 and 2021, every single company we invested in had four or five well-funded competitors and they were all doing roughly the same thing.
Turner Novak:
How did you rationalize that? Did you think we're going to win? Did you think there's going to be multiple winners in this space? Did you ever walk away from categories because of that?
Sheel Mohnot:
I walked away in a bunch of categories. And so in some cases when we invested, we invested before we saw all the others and then we saw others and then who knows what we would've invested in? I think in enough of the companies we got the winner right, or in some cases... Actually in one case, we invested in a company that was kind of like peering along for a long time and then their competition just died. They decided not to continue it. Our company hadn't grown revenue in a year. And then a year ago, we actually wrote it down on our quarterly update. We said, this company hasn't grown revenue, and I think they had eight months of runway or something. So we were like, okay, we're going to write this company down. And then this year, 2024, they went from 1 million of revenue to ending the year at 6 million of revenue profitably. And it's in part because their competitors went away and in part because they figured out some things on the business. So I think that's been good.
But to answer your question, there are a bunch of categories we just skipped entirely. One was Plaid for payroll. We met a bunch of companies around the same time building that, and several of them have ended up being successful. SOC 2 compliance, I actually met Vanta, not during the seed, so it was past the time that we would invest, but I met Vanta and thought this is really good business. And then I met Drata, [inaudible 00:38:43], Secureframe and thought these could be good businesses, but it's hard to know if the overall market is big enough to support this and maybe it makes more sense to invest at the series A or later once you know who the winner is going to be. So I don't know, it's a tough one. The nice thing about FinTech being a little bit out of favor now is there are a lot fewer competitors to each of our companies now.
Turner Novak:
But it's kind of coming back, isn't?
Sheel Mohnot:
It is coming back, which is good and bad I think. So it was super, super overhyped in 2021 where everything we invested in, somebody else would come in a few months later with a higher... With a three to, in some case... In one crazy case, a 20x markup over where we invested in four months.
Turner Novak:
Wow. And not much had changed. I'm assuming the company maybe grew a little bit.
Sheel Mohnot:
Grew a little bit, but not... Certainly not worth almost 20x markup.
Turner Novak:
And was it just like, why... Do you know... If you had to go back and think about it and say, do you know why there were so much hype in FinTech around that time?
Sheel Mohnot:
Yeah, I think low interest rate environment. I think some of the companies were selling into other FinTech companies so it kind of builds upon itself. And I think the ultimate belief is accurate, which is there remains a lot of opportunities to improve the infrastructure of financial services. I think the low interest rate environment caused people to put a lot of money into it. And so it was overhyped in 2021 and then 2022, 2023, it was a severe overcorrection and you had public companies trading below their series A price. And then what you've seen in 2024 is those companies have done really well. And yeah, they were overhyped in 2021, but they were... If you invested in a basket of FinTech companies in '22 and 2023, you've done really, really well. And the same is true in the private markets.
I think we're seeing now investors, a lot of the generalist funds who are all in on FinTech went out... You could actually look at their Twitter bios. People have said, they said FinTech investor that you see. They stopped being FinTech investor on their Twitter bio and then now they're reaching out to me being like, "Hey, what have you got in your portfolio?" And I was like, "I thought you told me a year or two years ago that you were all in on SAS." And they're like, "Yeah, we're looking at FinTech again," which is fine. It's totally a rational thing. It's just kind of funny.
Turner Novak:
Yeah, I mean it's probably [inaudible 00:41:30] good for you where it's easier for you to generate returns for your investors when there's less excitement for a space, as long as it's not too long. If we go a decade, no FinTech, none of your companies will raise follow on rounds, which is generally you're going to probably need to raise capital to keep building. But it's probably nice from a... What's happening now from a fall on perspective is you got some nice very healthy entry points and then other people are probably funding the follow on giving, so you don't have to do it necessarily. And you can keep investing at lower prices earlier on.
Sheel Mohnot:
Yeah, exactly. Actually, one of the companies that we invested in last year [inaudible 00:42:14] round is actually raising their series A today or announcing their series A today, and it's a $34 million round. So that kind of exciting series A has not happened in our portfolio for a little while.
Turner Novak:
Sounds like it was like a weekly occurrence in '21.
Sheel Mohnot:
Exactly. So we're back, baby. And it's interesting, I think it's easy to look at that and say, okay, we're overhyped. But actually I think if you look at our companies that had raised at those crazy prices, actually a lot of them did grow into that valuation. So while that round in particular maybe should have been priced lower, the companies did grow into that valuation. The next round for most of the cases was higher.
Turner Novak:
And if you just look generally speaking at the quality of a financial services business or payments companies like Visa is, I don't know where it ranks in biggest companies in the world, but it's on the list.
Sheel Mohnot:
It's one of the biggest companies in the world. It's an incredible business.
Turner Novak:
Great margins. So kind of continuing the thread on Ryan and Flexport, when I asked him about this, he said you got to have him talk about his auction company that he used to run. So this is what you did after FeeFighters after... Or you got into angel investing, you did another company. What was it? Can you just talk about it a little bit?
Sheel Mohnot:
Okay. So the company was called Innovative Auctions, and it's a really fun story. It's like an economics business, auction business. What happened was there's something called a TLD, top level domain. So obviously there's .com, there's .net, .gov, .org, these were kind of the original ones from 30, 40 years ago. And .com ended up becoming the standard and .com is .commerce. This all came out of the Department of Commerce, and that's how it came out of the US government, Department of Commerce. And that's how it became .com. And that became the default because .gov was for the government, .net was for networking, and then .org came later and it was for non-profits. And so .com became the standard. And it's kind of interesting, a lot of people who bought early .coms made a ton of money just investing in internet real estate in the 90s.
Turner Novak:
Yep. They're like the original NFTs.
Sheel Mohnot:
Yeah. It's a digital good. It's a digital good, that's right. And then ICANN, which is the governing body internet, Internet Corporation for Assigned Names and Numbers, it came out of the Department of Commerce, became an international intergovernmental organization, non-profit. They are the ones who allow you to do new ones. So the two letter codes, we can talk about that, those are all countries you may know. So .vc is actually Saint Vincent and the Grenadines, .ai is Anguilla, .co is Columbia. So people may or may not know that, but in 2012, 2013, ICANN said you can apply for your own dot whatever, and you have to pay $185,000 to apply. But if you apply and you're the only one who applies, and assuming you do all the paperwork right, you get it. But if multiple parties apply, then we have to figure out who's going to get it. So Turner, if you could apply for a dot anything, what would you apply for?
Turner Novak:
Is this from a personal, a money?
Sheel Mohnot:
Money making. Because think about it, if you own .com, you're earning 10 bucks per .com registration.
Turner Novak:
Okay. So I want a super, super common category. Man, I don't even know. What are the most common websites? Probably a store or something.
Sheel Mohnot:
So that's a really good way to think about it. Where are the most common websites or where are the most common domain endings already? And yes, store and blog are two really good ones, and they're actually two of the highest priced ones. So those are great ones. So let's just say .blog. So if you wanted to own .blog, you had to pay $185,000 to ICANN to apply for it. And then ICANN one day in 2013 revealed, sorry Turner, you are not the only one that applied for .blog, Sheel and Ryan also applied for .blog. So then you had to figure out, okay, who's going to get .blog? ICANN said, why don't you guys figure it out amongst yourselves? And when two of you have withdrawn, the third one gets it. And in .blog, I think it wasn't like Sheel, Ryan and Turner, it was like Google, Amazon, a billionaire who lives in the Cayman Islands, this venture-backed company that raised $150 million.
It was like these random hodgepodge of people including multi-billion dollar public companies. And so we went to these folks, me and my co-founders... So one of my co-founders is actually a PhD in auction theory, and my other co-founder is a good friend of mine, Ulrich. So we went to these companies and said, "How are you going to settle this?" And we said, "Why don't we help you settle it with this transparent and fair auction?" The way our auction worked is we do what's called an ascending clock auction. What that means is every X number of minutes the price increases and it's a second price auction, meaning you don't pay what you bid, you pay what the next person was willing to pay. And that's just good auction theory.
Turner Novak:
Oh really? Why is that good auction theory?
Sheel Mohnot:
Because it means that you're willing to bid your highest bid. So that's how eBay works, if you think about it. You don't pay what you're willing to pay. You pay what the next highest person was willing to pay. And for that reason, you feel comfortable. Let's say I'm bidding on this mug. I'm willing to pay $20 for this mug, but I don't necessarily want to bid $20 because I think I'm against you, and I think you're only going to be willing to bid $10. So I'm going to bid $10.01.
But that's not optimal. What's optimal is if I bid $20, that way I win it even if you bid $10.20. I would have lost it if I bid $10.01. I don't have to think about what your willingness to bid is. So let's use this auction of .blog and it's me, you and Ryan Petersen who are all bidding. So think about it. Think about it this way, Turner. You can charge whatever you want, sort of, for .blog, and there might be a lot of registrations. There might be millions of blogs out there that might register for .blog. So what is your willingness to pay for .blog?
Turner Novak:
10 bucks, roughly.
Sheel Mohnot:
You could make more actually in this case. So .com is heavily regulated what they can charge. For these new ones, it was less regulated, so you can charge a lot more if you want. And you could also do premium names. So for .com, every .com charges the same amount. For .blog, you could create something like turner.blog and you could charge $1,000 for it, and you could charge $1,000 for the renewal for it. So there's all these premium names allowed now.
Turner Novak:
Interesting. So there's probably some game theory almost in just what you think you'll be able to charge for the domain over time?
Sheel Mohnot:
It's really like a company, and you're valuing it based on this discounted cashflow of the futures revenue for this company.
Turner Novak:
Interesting. I don't know, I haven't really thought of this, a million bucks maybe for it, I guess.
Sheel Mohnot:
So I think, if I remember correctly, .blog sold in the tens of millions. But let's say your willingness to pay is a million. Because the way to think about it, let's say you sold it for 20 bucks and you got 100,000 registrations, that's $2 million of revenue per year, and it probably increases over time. So your willingness to pay is a million bucks. Let's say that Ryan's willingness to pay is 6 million bucks, and my willingness to pay is 9 million bucks. So the way the auction works is every 20 minutes the bidding goes up. And let's say you fall out at the 1 million, Ryan falls out at, what'd I say, 6 million. So after 6 million, even though I was willing to pay 9 million, the bidding stops at 6 million, and I pay $6 million.
But then there's a question, where does the money go? Who gets that 6 million bucks? And that was the really interesting thing about our auction that we created was we created a mechanism by which you could settle any dispute where people own something equally. So the 6 million gets equally split between you and Ryan when I buy the name for 6 million bucks. So you, as a loser of the name, actually get $3 million for being the loser of the name.
And it was a really cool idea. And if you think about it, it's a really fair way to split anything. So if the three of us were in an equal joint venture on a business and ultimately only one of us could own it in the future, that would be the right way to settle it. And so we created this idea and this mechanism to do it, and we charged 4% for being the market maker here. So in this $6 million outcome, we would make $240,000 for bringing everyone together for the software that we created, for the escrow service that we created. And it ended up being an awesome business for us that we ran for a few years. And ultimately we settled over 150 of these auctions. And it was a cool little business that we ran for a couple of years.
Turner Novak:
And it started with domain?
Sheel Mohnot:
It was principally for domains. And then we thought about other businesses that we could go after using the same technology and market making, which was we had this idea that we could do oil drilling rights in Mexico. The government had split up these rights into squares, and different companies had different rights, but they might be drilling into the same oil. So we had a bunch of other ideas. Ultimately, my co-founder ran with some of those ideas, and I ended up becoming a venture capitalist. So I sold the business, and my co-founder ended up running the business.
Turner Novak:
You sold him your portion of the business, you said?
Sheel Mohnot:
We sold the business, but he still runs the company from that acquirer.
Turner Novak:
Got it. That makes sense. And then from there you're like, "I want to be a VC. I want to get into investing." How did you first get into angel investing? If I'm listening to this, I'm never invested in a startup before. Sounds interesting. How did you approach it?
Sheel Mohnot:
So after the first exit from FeeFighters, I had a little bit of money, and I had really enjoyed the process of observing venture capitalists that we'd pitched back in the day.
Turner Novak:
That's a hot take. You enjoyed them?
Sheel Mohnot:
Yeah, I enjoyed it. And I saw them, and I was like, in my mind I was like, "Oh, those guys are the smart ones. They know everything. I don't know what I'm doing," which it was true at the time. It's still true. And I was like, "Maybe I could do their job." And so I started doing some angel investing, found that I really liked it and decided, let me just help founders at the earliest stages.
The other big change in my life was I had moved from Chicago to San Francisco in 2012 after we got acquired. So I was new to a city where all this cool stuff was happening, and I had a little bit of money that I could start investing in companies. So basically me and my roommate at the time were like, "Let's meet a bunch of companies and give them small amounts of money." And it ended up working out really well. And from there, after the auction company, I had a lot more capital to invest, and I said, "What should I do here?" So I actually started this podcast called The Pitch.
Turner Novak:
The rational first thing to do is start a podcast.
Sheel Mohnot:
So to be fair, this is in 2015. It's before the big wave of venture capitalist podcasts. Now there's so many of them, including great ones like The Peel. But so what happened was I was sick one day, or actually I was sick for a week, and I was sitting at home watching TV. And I was watching Shark Tank, and I was like, "This is entertaining, but totally not real. What if I created the Shark Tank but actually have Silicon Valley style startups on it?" So that was the impetus for The Pitch, and I was like, "What if I just hit record on some of these folks that I'm meeting?" And that was how we started in 2015. I found this guy, Josh Muccio, who'd started some other podcast, it was actually a podcast built on Product Hunt. He was reviewing every product on Product Hunt. And I was like, "Oh, he seems to know what he's doing, at least has edited a nice podcast."
So I brought him on board, and then we started this podcast. And one of the first emails I sent was to Gimlet Media. They had this startup podcast, and I was like, "Oh, you should look at our podcast." And then a year and a half later, they ended up emailing us saying, "Hey, we have been following your podcast. We think it would make a great addition to our team." And so they acquired our podcast to be part of the startup podcast, and then we had a lot more resources, and then Gimlet got acquired by Spotify, and then we had even more resources. And then it wasn't doing that well for Spotify, so they killed it at the beginning of the pandemic.
Turner Novak:
Oh, Wow. But wait, isn't it-
Sheel Mohnot:
Josh bought it out from Spotify, and so he's running it again.
Turner Novak:
I was going to say I definitely listened to an episode that was recent.
Sheel Mohnot:
He's doing it again. He revived it.
Turner Novak:
What did you get out of the podcast? Was it beneficial? It sounds like you did it for a while.
Sheel Mohnot:
I did it for a while. I think at the time I was an angel investor looking to build a brand in Silicon Valley. And if I'm honest, I think the problem with the podcast is people who are willing to be on a podcast for those sums of money are not always going to be great companies. We did have some great companies on there, companies that went on to be successful, but the majority of companies would say no, or say, "Our round is happening so quickly, I can't make time to be in a studio and pitch you."
So it ended up being a lot of the listeners. We had a pretty good listener base, but it ended up being a lot of wantrepreneurs or folks who just were not great founders in many cases. So it led to a lot of deal flow. I'm not sure it led to really high quality deal flow. And then it did help me, it really helped me build a brand, initial brand as an investor. And then now it's been so long I don't think anybody thinks of me as The Pitch podcast guy, but certainly a while ago, it was part of my brand.
Turner Novak:
That makes sense. It is something I've run into when doing this show is you try to get somebody who's currently the hottest thing come in, talk about specifically what they're doing. It's like if you've really got a secret that you're building around, do you want to go on and share it to the world? I guess the dirty secret is you see all these founders that are well known, they're going on the podcast circuit, they're probably fundraising, or there's a reason that they're out promoting, or they're trying to recruit people. They don't just come on and spill their guts and tell you everything. Sometimes people will. I think I've tried to do my best at that. A lot of times it's like hosting a tea, or whatever. It's like, "I'll tell you all about the thing 10 years ago. We'll take you inside, tell you what really happened." So that can be helpful.
Sheel Mohnot:
Those are super interesting, but it's a lot less relevant. For The Mint, we have a lot of awesome people come and speak like Ryan Petersen, Drew Houston, like Eric from Ramp, a lot of fantastic founders. But what I found is a lot of their stories are awesome, but it was so long ago that it's not really as relevant as some of the best talks are by people who are a series B or series C funded company, who they're telling a story of five years ago or four years ago. And those are great.
Turner Novak:
Well, speaking of The Mint, you just mentioned, it's an accelerator that you guys run inside of BTV. Can you talk about it real quick?
Sheel Mohnot:
So we call it our pre-seed program. And the idea is when we started 500 FinTech, so 500 FinTech was an accelerator that I ran 2016 to 2018, ended up being super successful.
Turner Novak:
Well, yeah, I guess so you joined 500-
Sheel Mohnot:
I joined 500 Startups, and then I started this fintech accelerator.
Turner Novak:
Was this while you were doing The Pitch? Were they like, "Hey, you seem pretty good. Come work with us?"
Sheel Mohnot:
It didn't start because of The Pitch. It was while I was doing The Pitch though. It started because they had invested in FeeFighters, and then I kept in touch with them, and then they asked me to come on board. I said, "Sure." I like helping companies at the earliest stages. I was investing my own capital anyway. They said, "You can invest your own capital alongside us at 500 Startups." So I said, "Sure, let me invest my own money alongside 500 Startups." So what we would do is any company that I chose to invest in, we would split the deal, where I would put up half the money and they would put up half the money. And then that grew into a fund, and then I ran this accelerator. And we had five batches of the accelerator during which we had 39 companies of which three became unicorns. And one more is a soonicorn, actually just raised around at a very close to unicorn price.
Turner Novak:
So do we want to say four? Is that ...?
Sheel Mohnot:
Let's just say three, but I think it will ultimately be four. So if it's three, that's seven-point-something percent. If it's four, that's 10-point-something percent. So a pretty high percentage of these companies that we invested in at a two-and-a-half million dollars valuation ended up becoming unicorns.
Turner Novak:
That's pretty good.
Sheel Mohnot:
It's pretty good.
Turner Novak:
For the people following at home, that's not an easy feat, the entry price or the number of unicorns.
Sheel Mohnot:
So I was like, "This is a tremendous amount of work, but clearly we're onto something." And by the way, still so many years later, I'm super close to each of those founders. And actually all of those unicorn founders are LPs in our fund now. So I was like, "This accelerator thing, people think it's a bad idea, but I have all this data. I've done it before and I've seen the power of it."
Turner Novak:
So what is the thinking that it doesn't work?
Sheel Mohnot:
I think a lot of LPs have told us accelerators don't work other than YC.
Turner Novak:
Why don't they work?
Sheel Mohnot:
I think there is real concern about an adverse selection risk. Why would somebody go to your accelerator over YC? And I think that is very true of a generalist accelerator, but it's not true of a specialist accelerator. And so what we realized and what's true of our companies now in The Mint is the vast majority of them were not looking for accelerator. It's really like we led their pre-seed round, and we led their pre-seed round through this program that we have standardized. And so our program is we invest 500K for 10%, and they get to work with us very closely for three months. We work in the same office. We bring in a bunch of experts in design, tech and go-to-market. And then we spend a lot of time with the companies, help them raise their round if they want to raise their round and all that kind of stuff.
And it's gone really well. From what I can tell, it's going better than the equivalent time in my 500 Startups days. So at that time, 7% of the companies ended up becoming unicorns. I expect it to be similar in this new batch of companies. And it's really fun for us. We get to work really closely with these companies. We have a different relationship with them than anyone else because they work out of our office, and it's just a real camaraderie situation that we have with them. So we were excited to start it. And actually when we started BTV, we knew that some sort of accelerator type program would be a part of what we did. And then the pandemic hit, so we weren't able to do it, and then we finally did it in 2023.
And so we're three batches in, we choose six to eight companies per batch, and we've done three batches in San Francisco. We're doing the next cohort in New York, and it starts in March. And that's a pretty exciting one. We love San Francisco and the ecosystem here, but for fintech, New York actually outpaces San Francisco in early stage fintech funding. And we have a lot of companies in New York. We actually have more companies in New York than we do in San Francisco. So we said, "We should do the accelerator, we should do a cohort in New York." And we have actually half our investing team is also in New York, and I'm going to move to New York to run this accelerator. So it's going to be great. So we started in March, and we're looking for six to eight companies to work really closely with and expect that one of those companies is going to become a unicorn, which is pretty exciting to think about.
Turner Novak:
That's awesome. And I think generally when I come across an accelerator, my general thinking is, ah, I don't know about this. I think I've gone to every single one of The Mint demo days, and every founder, every pitch, I'm like, "Oh, it was actually a pretty good idea. It seems like a pretty good founder." That's generally not my takeaway for the accelerators. I feel like it's very high quality. So I've always been a fan.
Sheel Mohnot:
And actually, so you asked a little bit about the differences with YC.
Turner Novak:
Well, I remember one of the group chats that we're in. There was some debate back and forth of, could you actually still make an accelerator? So how did you guys think about just designing this whole thing?
Sheel Mohnot:
So I was really lucky that I had the experience from 500 Startups, so I knew what they did, what they did wrong. For me, one of the things I really wanted to do was have it be in person. So we have a dedicated space where founders come and work from. And what that does is it helps them get really close to us. So anything that's real time like, "I've got a customer, I need to send them a contract," they just tap me on the shoulder, and we can just chat about it and whiteboard. And first of all, I love doing that. I think it ends up being super helpful. And so many years later, actually it happens all the time, where somebody in one of these now unicorn companies, when I'm meeting up with them, they'll tell me, "I remember this from the time that we talked about X topic in 2016."
And I'm like, "Man, I have no recollection of that. I'm really happy that you took what I said seriously, but I don't even know if I knew what I was talking about." But no, I think that sort of stuff ends up being super helpful, and then they end up learning from each other so much. Actually, we've had companies from the early days of our accelerator acquire other companies in their cohort. We have one of the unicorns ended up acquiring one of the other companies in the same cohort. And it was a company that they sat across from while they were in an accelerator.
Turner Novak:
So it wasn't like it was a shotgun acquisition. It was just like, "Oh, we've known each other for five years. Well, just come work here."
Sheel Mohnot:
Exactly. Exactly. And then, so one interesting thing is most of our founders actually did not apply to YC. So it's not like we're competing with YC in that way. They were looking for early stage funding and liked the idea of working with people who had been founders before, run successful companies and are specialists in fintech. And they thought, we can shortcut our time to market. We can learn from experts. We can get a bunch of resources. One of the things I talked about was a bank partnership. One of our companies in this most recent cohort, they were having trouble getting a bank partnership. And then after working with us, a bank said, "If you're a BTV company, we will work with you." And that was a huge unlock that it's possible they wouldn't have been able to get it at all if they weren't working with us.
So that has worked really well. And so we have these fintech companies, and most of them, like I said, were not looking for an accelerator. Actually, Paul Graham and I had some chatter about this, and he looked in the data. And so our companies, the ones that became unicorns, so let's say the four, the three unicorns plus the fourth soonicorn, of those, actually only one of them had also applied to YC.
Turner Novak:
Oh, wow.
Sheel Mohnot:
So it's not really like we're competing with YC. I think they're great at what they do. We just have something that's totally different. And we think about it as our pre-seed program, and as an advantage of us leading your pre-seed round, you get to participate in this program.
Turner Novak:
It sounds like you've wrapped the value add bullshit that everyone talks about just into this. Instead of just like, "Oh, I'll connect you with the other founders in the portfolio," it's like no, you will get connected. You will sit with them, you'll meet them. And maybe it's a more organic, more fleshed out, thoughtful version of here's all the things we can do, but just everyone just comes and works together, and it's just there.
Sheel Mohnot:
And so we're really big believers of the benefits of our portfolio and spending time with each other. So the other thing we do is we have a camp every year, which is a few days. We go into the Santa Cruz mountains, and there's a lot of team building stuff, so it's a lot of fun. And then there's also work stuff. We have coaches talking about co-founder conflict. We have go-to-market experts, head-of-talent type of folks there. But the best thing that comes out of it is our companies end up working together so closely, which I really like. And they learn from each other. They share knowledge. And I think it's particularly valuable for our portfolio because we are fintech focused. So many learnings from one company apply to other companies in our portfolio.
Turner Novak:
Going back to that group chat discussion, I think my takeaway from it was the verticalized accelerators can work because there's maybe more synthesis in learnings, and you're not going to compete with YC, the biggest top of funnel, the biggest network, but you actually might have a bigger network in fintech than YC does. So it actually might be beneficial. And to your point, I guess you have obviously convinced some people that it's worth doing that wouldn't have done it otherwise.
Sheel Mohnot:
It's been great. So we do it twice a year, like I said, six to eight companies. And I think we're going to do one cohort in New York, one cohort in San Francisco, but we'll see how it ends up. Just trying this one cohort in New York now.
Turner Novak:
It seems like it'll probably work.
Sheel Mohnot:
I think it's going to be awesome.
Turner Novak:
And you mentioned Jake, your co-founder of BTV. He also started a fintech company. How did you guys get to start knowing each other?
Sheel Mohnot:
So the company he started was NerdWallet. It's now a public company. I've been a fan of NerdWallet from afar for a very long time. Actually, one interesting tidbit is there was a newspaper article, some media article that mentioned both me and Jake back in 2010, way before we knew each other because our company Feefighters had a lot of similarities to NerdWallet.
Turner Novak:
And you were probably the B2B version, the corporate version of.
Sheel Mohnot:
That's exactly right. So while they helped you get a credit card for consumers, we helped the merchants get credit card processing. There were some big changes in the world, like the Durbin Amendment, which we don't have to go into now, in 2010. And there was an article that actually referenced both of us, co-founders of whatever, various companies. I knew of NerdWallet and had been an admirer. Their story is interesting. They didn't raise any venture capital money to start with, and then they did a huge, they only ever did one round of funding.
Turner Novak:
Because it's basically affiliate fees is how they make money, which is, no VC is interested in that, right?
Sheel Mohnot:
Yeah, that's what they thought, and then they never needed the money. They were basically putting their own savings into it, I think for a year and a half. It was just Jake and Tim. And then a couple of things started to go right, and they started, basically Google had a change in their algorithm. It's a really fun conversation, but Google had a change in their algorithm. They started making a bunch of money, and then they started hiring a team, and then they didn't need any money. They were able to grow organically. And then I think they only did one round of funding and I think it was $64 million.
They were like, "Call it Series A round," but they had already had a ton of revenue at them.
Turner Novak:
That's almost like a Series A today, or maybe it's like a 2021 Series A.
Sheel Mohnot:
Wild. And it went well. Jake at some point had been wearing all these different hats of the company and he said, "We need to professionalize." Hired a bunch of people to replace him and went off, and was doing a bunch of angel investing, investing his own capital, and then investing for some others as well.
I met him in 2016 when I was running 500 Fintech and I said, "Hey, why don't you join me for a bit?"
And so he originally came on part-time one day a week, and then it became more and more. He became my defacto partner in the fund where he would help me. He helped me raise the fund, he helped me deploy the fund. And then in 2019, we were both being recruited by other multi-stage funds to be a FinTech GP.
At some point, we looked at each other and said, "I think it might make sense for us to do something on our own. I think we're too entrepreneurial to go into somebody else's fund. Let's just do our own thing." We felt like there was a gap in the market. What we really wanted to do was seed and help companies at the earliest stages, and so we started BTV.
Turner Novak:
What was the gap in the market? It was just early, early stage first check.
Sheel Mohnot:
Yeah, so what we found was at 500 Fintech, we would give them 150K and that wasn't really enough money and then we'd spend a ton of cycles helping them raise more money. It ended up being like what we wanted to help them do was build their business, and instead what we ended up helping them do was raise more money. There were not other investors who were lead investors focused on Fintech who we could send people to. Not many investors at the seed stage had a founder background or the right kind of background who wanted to step up and lead rounds.
We said, "Okay, we can fill this gap in the market by leading rounds of Fintech companies." We can control how much money we invest, get the right ownership, and build a solid franchise in Fintech.
Turner Novak:
If I'm listening to this, I'm like, "Oh, I am thinking about starting my first fund," getting a fund one, how do you actually raise a fund one? What was the real process?
Sheel Mohnot:
It took forever. So the first, there's what we call fund zero, which is 500 Fintech. That was really hard.
Turner Novak:
Did you raise individual funds?
Sheel Mohnot:
Yeah, so 500 Fintech was a specific fund. It actually wasn't that tied to 500 startups. We got no money from 500 startups for 500 Fintech. 500 Fintech, I raised it myself, but when I started, I just started investing and I was putting my own money into the fund. I put a lot of my own money into the fund to get started. I was basically pretending like I had a fund for the first 18 months with my own money.
And I was like, "Yeah, we're investing from 500 Fintech." Little did they know that 500 Fintech was Sheel Mohnot's bank account, putting money to a 500 Fintech entity that would then send money to you.
Turner Novak:
So it was like there's probably fees and legal complications of.
Sheel Mohnot:
Yeah, it was inefficient, but it was what I had to do to get started. I did that, and then ultimately was able to raise the fund, thankfully. Or maybe not thankfully, because maybe if it had been my own money, that fund ended up being a banger. And if it had been my own money all the while, that would've been pretty sweet.
Turner Novak:
Who do you usually find for those first, the first wave of LPs when you're just, there's maybe not quite enough proof points or track record yet. What do you recommend for people?
Sheel Mohnot:
We ended up going after, so at that point I had met enough people in the world of Fintech where I was going after some Fintech founders who had had success. Some of those folks ended up coming in, founders of some very successful companies. And then I just went through the world of Fintech, pitching everyone I knew. It ended up being a lot of friends for that early capital.
And then using that, I was able to say, "Hey, look, all these successful people are investing in this fund."
And then I went to some fund of funds and got a little bit of fund of funds capital in that first fund. The second fund, which is BTV 1, the first BTV fund. We started out with all those investors, the individuals who were in BTV 0, 500 Fintech. And then at that point, we had a better story for institutional investors, which was we're leading rounds, which is what a lot of fund of funds want to see.
Turner Novak:
Why is that so important? Why is leading a big deal?
Sheel Mohnot:
They want to see big ownership because if you think about what a fund of funds does, they are spreading risk. They're picking a bunch of managers and investing a small amount. They're owning a small amount of every manager to get access to ultimate end companies, and they want to own some portion of that end company. And so by investing in us, if they might own 1% of some great company, and that will be awesome for them.
Turner Novak:
They have 10% of your fund, and then your fund owns 10% of a company, so they own effectively 1% of this awesome company that you bought super early.
Sheel Mohnot:
But if we only own 2%, then they only own 0.2% and then it's like, "Oh, we have some exposure, but it's not really that much."
Turner Novak:
Yeah. I've actually heard people describe it as some fund of funds, they look for managers who their individual, an individual portfolio company can not only return the fund or return to the fund of fund also. I mean, that's hard to do.
Sheel Mohnot:
You're really hard to do. But it happens. Those are, yeah, call it generational companies definitely do that, which is amazing.
Turner Novak:
It's basically low entry point, high ownership to the point where you come in at 5 million post, 10 million post, the company exits for $20 billion and you owned 8% of it at exit. It was whatever percentage of the fund, which was whatever percentage of the fund of fund so it's like they had a $200 million fund of fund and your position returned 200 million to the fund of fund.
Sheel Mohnot:
Exactly. And actually, there've been a bunch of these. I saw ServiceTitan just IPO'd, I know that was in Mucker Capital, and I think it was part of their accelerator, the MuckerLab.
Turner Novak:
Oh, so that was single digit entry point valuation, yeah.
Sheel Mohnot:
I think very low single digit entry point. They also had Honey, which was a $4 billion exit. So that was their accelerator that was like everybody was saying, "Okay, you're only getting the rejects from YC."
Meanwhile, they've had these huge outcomes and I think you're going to see that from others, including us hopefully.
Turner Novak:
Any other advice that you find yourself giving people often when they're raising their first fund?
Sheel Mohnot:
Another is if you find a institutional investor, I would say I just have other folks that trust you. Your co-investors, just have them send a note. I do this all the time for folks that we've with. If they're meeting with one of our LPs, I will proactively send them a note saying, "I've worked with so-and-so on this deal. They're on the board, they're an awesome board member. I love working with them. I would personally invest my own money." I would tell anybody to take money from Banana Capital.
Turner Novak:
Wait, are you making this up or is this actually a reference?
Sheel Mohnot:
Actually true, people have asked me about you, but you could use me for something like that. If you're pitching somebody and we are friends, I'm an investor in your fund, we've co-invested, I could say I've seen the value that Turner adds. That opens up a conversation I can have with that LP, and that can be super helpful to you when you're raising.
Turner Novak:
So does this happen often? I mean, I know that it does, but how often does this happen where they're going to go to all the co-investors, try to get the reference check? What's the extent of all this? Do you think?
Sheel Mohnot:
It happens all the time. I would say every couple of weeks, an LP is hitting me up for reference on another investor.
Turner Novak:
Interesting. And then what do you think, how do you set yourself up to be successful with those references as the GP raising?
Sheel Mohnot:
Yeah, so I think for us, references were huge. We were somewhat, the LPs didn't really know us, so they did a ton of references. I think one of our LPs did 30 references in our portfolio on us, and they actually said they weren't going into it, they weren't sure about us because they hadn't historically done sector-specific funds. They started doing the work and then they just kept doing more and more work.
And in my mind I was like, "Did you really learn anything in the 15th through 30th call that you did?" That sounds like a lot of time to spend referencing one fund.
But they did it, and then they ended up coming in and they actually, they said it was some of the best founder references they've ever received and so that was super, super helpful for us. They said they've referenced hundreds of funds, and they said it was top three founder references they've ever received.
Turner Novak:
Wow. That's a big seal of approval.
Sheel Mohnot:
It was amazing for us to hear. And also, it was cool. Even areas, we asked where can we improve and we actually got some areas where we can improve like in how we help founders connect with each other, some stuff like that. They shared their notes with other LPs.
Other LPs felt like they didn't have to do as much referencing because this fund that they like and respect did 30 references and shared their notes. They were like, "Okay, we don't have to do our own 30 references and spend a bunch of time with founders," and that's great because we hate taking any founder's time away from building their companies. So that was super helpful and something I'd really recommend.
Turner Novak:
Yeah, okay, that makes sense. And then when it came to fund two, so your first fund, was it 75 million?
Sheel Mohnot:
Yeah, BTV 1 was 75 million. 500 Fintech was 15 million. BTV 1 was 75 million. BTV 2, we doubled in size, it was 150 million.
Turner Novak:
And fund one, did you do '19, was '19 when you raised it ish?
Sheel Mohnot:
Yeah. Yes. We raised it in at the end of 2019. So our first check was I think the end of December 2019. So really, it was a 2020 fund. Our first check was actually Unit, which I know you've had Itai on here.
Turner Novak:
That was a good first check.
Sheel Mohnot:
It was an awesome first check. It went from, we led the seed at a 12 and a half million post. Two and a half years later, they raised it to $1.2 billion valuation, so it was a good one for us.
Turner Novak:
And they've grown it.
Sheel Mohnot:
They've grown.
Turner Novak:
A decent amount into that.
Sheel Mohnot:
Yeah.
Turner Novak:
That's awesome. So then fund two, you raised in 20, the end of '21, beginning of '22? I'm trying to remember.
Sheel Mohnot:
December 2021.
Turner Novak:
Oh, man. So that was the most liquid moments of the market, right?
Sheel Mohnot:
It was a very fortunate and lucky time to raise. We had our LP meeting in October, and we told LPs we're going to raise in Q1. And at that time, we felt like, LPs were like, "Okay, we're ready to sign, we're ready."
And some LPs who had written us a $1 million check in fund one were like, "We're going to do 10 in fund two."
We're like, "Oh, shit. All right, well, let's come up with some documents that you can sign so we don't lose this momentum."
We came up with these documents, and then we raised fund two really quickly and that was awesome. Obviously, it's nice to have the validation that you can raise a fund really quickly. It was also a moment in time in which the LPs weren't doing as much diligence as they're doing now, for better or for worse. And that goes both ways is one thing I've learned.
We raised a lot of money very quickly. I think at that time, if we wanted to raise twice the size of fund, we probably could have. What I realized is some of those, because it happened so quickly, it ended up not being the folks that if we had done our homework on them we would've taken. And nothing bad, it's just like we ended up getting some new fund of funds in there who then struggled to raise their follow-on fund, so then can't come into our new fund versus if we had done more endowments who wanted to invest but just take longer to, they have an investment committee and all this other stuff, that would've been a better long-term partner, which now we are doing, we're raising fund three and we're setting ourselves up for success with more long-term committed capital.
Turner Novak:
Yeah, I got hit by that with my fund two that I first closed the middle of '22, whereas I called them cotton candy commitments, where is people who told me they were in and then when I did the close, which I probably didn't do fast enough, that was my big learning is I should have just... People commit in February of '22, the end of '21, I should have just had them sign. And then when I tried to do it the summer of '22, it was a lot of those types. It was fund of funds I had to raise. A couple crossover funds had told me they were in that stopped doing fund investing. So then one thing you've mentioned though is the importance of being able to follow on. It sounds like you increased the fund size, you were able to follow on a little bit more. How do you think about following on, and is it important?
Sheel Mohnot:
Yeah, following on is super important. We lead almost every one of the companies that we invest in. Not everyone, but for the vast majority. And so I think people expect the lead investor to follow on, but we don't always do it. We've had a lot of difficult conversations about not following on into a company.
One thing that's been great is in every case that we didn't follow on, we ended up having a great relationship with the founder. Maybe immediately, it was a really tough pill to swallow for founders, but over time they said, "Oh, wow, you were upfront and honest with us about how you thought the business was going, and you helped us even though you didn't follow on with your capital, you followed on with your time." And they said that they appreciated that.
And it ended up in some cases, we told them like, "Look, you're a very talented person. Maybe you should be doing something different with your time. It's okay. Don't return the money to us."
Some of our hypotheses when we started this business just didn't play out the way we had hoped, and that's okay. So we don't always follow on. In many cases we do, our fund is set up with a one-to-one reserve ratio. For every first check we write, for every dollar we write, we have another dollar that's available to follow on. What that means is we concentrate capital into maybe our top 20% of investments, and follow on heavier into the series and in some cases into the Series B.
Turner Novak:
Does that hurt returns though? Shouldn't you just invest more early on?
Sheel Mohnot:
Yeah, it's a great question, and it's really hard to have the counterfactual. The reason for that is, as a lead investor, would you be able to be a lead investor if you didn't follow on into deals? Maybe not. Maybe people would say, "Oh, this guy doesn't follow on. I'm not going to take their money at the lead."
We don't actually have the right data to tell us what makes sense. For us so far, if I look at my 500 Fintech data, if I look at the companies I've followed on into, I should have gone heavier in follow ons actually.
Turner Novak:
Really? Okay. Well, I think it's definitely something, it's the very best Series A companies, the very best Series A, they're probably 100X, right? Should you have done Stripe's Series A or should you have done a new random know pre-seed? I don't know. Probably you should have probably just invested more in Stripe or Anduril or Ramp, whatever.
Sheel Mohnot:
So this is an outliers business, right? And so concentrating your capital into your winners just really makes sense.
Turner Novak:
Yeah. I think also being able to follow on. I have a couple portfolio companies where they had shitty times raising a follow on round, and then they raise a really good Series A or whatever. So it's like you get another chance to invest a little bit more, get a good price in the good companies before other people realize it's obvious. I think that's another place it might make sense too.
Sheel Mohnot:
Yeah, absolutely.
Turner Novak:
Yeah. Where can people find you, by the way? I think we'll throw some links in the show notes, but we've got The Mint, we've got the BTV website. You're big on Twitter.
Sheel Mohnot:
Yeah, I think any of those three are probably good. My Twitter is @pitdesi, P-I-T-D-E-S-I. BTV.vc, the mint.vc, our websites. Easy to find.
Turner Novak:
Amazing. Well, this was a lot of fun. Thanks for taking the time to chat.
Sheel Mohnot:
Thanks, Turner. I feel like we could have chatted another hour if we had to.
Turner Novak:
Maybe round two at some point.
Sheel Mohnot:
I'm super down. It's fun.
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