There’s an ongoing debate that doing good in the world means you have to sacrifice money. Collaborative Fund disagrees. They specifically fund entrepreneurs with mission-based businesses or as they say, “who are moving the world forward.” They believe that doing good is a driving force in building successful, impactful businesses. Yes, businesses that make money.
To gain insight into the world of venture capitalism, we spoke to Sophie Bakalar, who has the fun job of deciding who gets funding ($125 million invested so far!) at Collaborative Fund. We interviewed Sophie about her path to becoming a VC and her tips for social entrepreneurs looking to raise venture capital.
How did you become a VC?
Like a lot of venture capitalists, it’s been a bit of a winding road. I started in more traditional, boring finance, trading derivatives for 10 years. I worked on the trading floor throughout my college experience; I was a math major and enjoyed the quantitative element of it. But I always had this feeling that I wasn’t doing enough to help the world. I wasn’t having a positive impact on the world. I was just helping people push money around and redistribute it and it simply didn’t feel rewarding enough. I’d studied health in college and had gotten sidetracked by finance.
How were you able to eventually make the career transition out of finance?
I began to look for a way to get out of the finance world. I started to develop data visualization software for myself that took images of charts and extracted source data. It was particularly useful for management consultants who needed to reverse engineer charts to make presentations. I had no idea what I was doing it and had to learn everything from scratch. However, I began to mention it to people I knew in management consulting world and then left to focus on that full-time. I ended up selling the company last year.
Congrats! After you sold the company, what did you do?
I wondered if I could go back and use my degree to go into public health. It became clear though that I had all these years of startup and finance experience that would go to waste. My skill set was best suited to being a VC and so I started talking to people [about it.] Then I came across the Collaborative Fund website. It was such a perfect fit.
How did you get the job at Collaborative Fund?
I started stalking the founder, Craig Shapiro on Twitter and kept messaging him until he agreed to have lunch with me. [In general], people are told not to cold email but my perspective is that if I’m so passionate about an opportunity and workplace, I’ll cold email and cold tweet because it will demonstrate my passion.
Once you got the job, was it as you’d imagined?
The thing that’s most surprised me about this job is turning people down and crushing their dreams. It’s a bit demoralizing to tell people no all day. It’s so rewarding to say yes but that’s one out of every 100 companies. I hadn’t really considered how much I would be drafting rejection emails.
What kinds of businesses do you invest in?
We’re looking for a lot of packaged goods, retail, and commerce. We invest in products that have healthier ingredients and better materials; companies that are using more sustainable packaging, supply chains, and treating their employees well. Consumer products are a great way to improve people’s everyday lives.
What makes a good pitch?
The level of excitement and passion is huge. The fundraising process is exhausting (I’ve been there!) and a lot of times the entrepreneur is tired of giving the same pitch. You need to remember that the investor is also hearing lots of pitches and so if you’re not excited about it, it’s hard for us to get excited.
Don’t just talk and talk without pausing. The formal 10 minute pitch is interesting because it shows me what the entrepreneur thinks is important and wants to highlight. But you should also pause and give the investor an opportunity to ask questions.
Any particular pitches stand out to you?
I spoke to a company making intimate apparel for women post-pregnancy (the problem of leaking), which isn’t a topic that people talk about frequently. The entrepreneur brought in the products and was super honest about her experience and those of the people she knew. It was very jarring to realize that this was problem that women everywhere experience every day, yet it isn’t a problem that a man would solve. And now here is product that can easily and cheaply solve it! She is killing it, with massive returns.
Why is “doing well and doing good” sometimes at odds with each other?
There’s no shame in wanting to support yourself and wanting to make money. Without capital, it’s hard to be competitive. I believe for-profit can have a larger impact. You can create win-win scenarios: you’re creating something of value which is good for your customers and has outsize impact. There’s an upside limit to how much impact a nonprofit can make.
If you have a high end product that is helping the world but yet it expensive to purchase, it’s inaccessible to most of the population. How do you feel about that?
It’s something I wrestle about a lot. Often the way our thesis translates into products (better ingredients, etc) means that it tends to be very aspirational, organic and high priced. What excites me the most is getting those products into Walmart and CVS but it’s rare that you can do that from the get go. When the company is a startup and small, you need healthy margins so you must charge a bit of a premium to scale the business. If your vision is large scale, you need a roadmap. If the goal is to make it accessible, you can get there. However, the general wisdom is to start with your prices higher.
How does an entrepreneur know when they’re ready to take on investment?
It’s hard to say when an entrepreneur is ready to take on investment because it’s so case specific. For taking venture capital investment, a startup will typically be at an inflection point where an influx of capital can lead to outsized growth. That usually means there’s at least some evidence of “product market fit”, either through consumer testing or actual traction in the market. An increase in marketing or manpower will just accelerate that traction, versus help prove it out, which is usually best done via other sources of capital.
Also, it’s important to keep in mind that VC investment is far from the only type of capital. Entrepreneurs might be better off taking debt or using profits to grow slowly. It really depends on the company’s goals, timeline, and product. But that’s a whole other article!
What’s one piece of advice you want entrepreneurs to know?
The number one thing you can do is build out your network. Cold emailing doesn’t work as well when you’re fundraising. Investors want a personal connection to the entrepreneur they’re investing in. They want to know someone can vouch for you. So make sure you have good resources who can vouch for you.