Triangle Tweener Talks

00:00:04 - Announcer
Welcome to Tweener Madness, the high stakes startup showdown where eight promising companies go head to head for a $25,000 investment prize from the Triangle Tweener Fund. But before the competition kicks off, let's meet the people making the tough calls, the judges. In this special meet the Judges episode, we're sitting down with the investors and industry leaders who will be asking the hard hitting questions, evaluating the startups and ultimately deciding who moves forward in this bracket sty competition. Each round, three judges will vote on which startups advance leading up to the finals in early April where one company will take home the top prize from the judges. You'll hear about their backgrounds, what they look for in a winning startup, and maybe even get a little inside scoop on their decision making process. So if you're a founder looking for investment, an entrepreneur curious about what investors really want, or just someone who loves a good business battle, you are in the right place. Let's meet the judges. Here's your host, Scott Wingo.

00:01:06 - Scot Wingo
Hey Toby, thanks for joining us today and thanks for being on the selection committee for Tweener Madness.

00:01:13 - Tobi Walter
Thank you for having me. I'm very excited about it.

00:01:16 - Scot Wingo
Yeah, yeah, it's going to be fun. So it's going to be a March Madness style kind of competition with some startups pitching and it's going to be fun to kind of see who we get and how the different selection committee members react to the different pitches.

00:01:32 - Tobi Walter
Metaphor or something.

00:01:35 - Scot Wingo
You've been here, you've been here long enough that I know you know what that is now. Yeah. So you can't play the new card for like 15 years at this point or however long it's been. So. Yeah, so that's a, that's actually a good intro. You don't sound like you have a North Carolina accent. Let's, let's walk through where you're from, how you got here and I know you have an entrepreneurial background. Let's talk about that and then we'll jump into the investment side.

00:02:02 - Tobi Walter
Sounds good. Yeah. So for whatever reason, after 15, almost 16 years out here now, I guess at least I don't get a southern accent. We'll see if the next 15 years will do the trick or if this is what I'm stuck with for the rest of my life. But I grew up in Germany, went to school over there, went to business school route. I remember graduating from business school, people said, are you going to do consulting or investment banking? Those were the only two options. It seemed like back then I picked investment banking. Set in Morgan Stanley's M and A department for a year. And it took me apparently that long to figure out that there had to be something more than the world to do than filling out the same Excel sheet and the same cubicle over and over. So I got bitten by the entrepreneurship bug Back in 2006 I joined three guys in Berlin, Germany that were just starting basically The German Facebook 2006, the very early days of social networking. We were crazy lucky in market timing in that we were the first social network in continental Europe with a little bit going on in the UK and then of course a little bit in the US with Facebook and we contact in Russia and China, had their first social network and the like. Anyways, fell in love with entrepreneurship there. That fast paced, constant roller coaster every day. That German startup sold very quickly after a couple years and I reconnected with a dookie Taylor Mingus, who's also still in the area here. And he said, do you remember this idea I told you about Last summer he worked with us at a German startup while he did a Duke in Berlin program. And he said I think I'm going to go ahead and do it. Why don't you come over here and we'll do it together. So that was my cue to pack two bags back in 2008, 2009 and said why not live in the States for a couple years? And then life happened. So ran this company, shoeboxed together with Taylor for about 10 years, sold in 2018 to a Texas based private equity fund and Shoebox quickly was a fintech company. We digitized receipts, bills and invoices and kind of paper financial documents set sold in 2018 and took a year off after that and then joined my now partners Tim and David at Co Founders Capital to try and invest in more early stage B2B software ventures.

00:04:29 - Scot Wingo
Yeah, I remember like really early hearing you guys at Shoeboxed and there was a, there's an element where you were going to build a social network off the receipts so so people would scan in their receipts, then you could like build their network from there. I don't know if you guys ever were able to execute on that. I think you went some other directions but like you went more fintech than social network. But I remember it being like a really kind of clever. You guys did like a lot of clever stuff in there that was really neat.

00:04:53 - Tobi Walter
Yeah, there were, I would say the first two years were a lot of pivots. Social shopping was one of the big ones early on in that networking idea and for a long Long time thought was that we see sold very interesting pieces of data. They're the only document that tells what people are buying or what they own. And so, you know, you think about use cases and especially us coming out of the social networking startup, I think that the thing we all realized there was it's not new things that we're doing with technology or in online businesses. We're just replicating things that are already happening and we're making them easier for people. So one of the thoughts was, you know, you might have this idea of show me a pair of jeans that a lot of investment bankers in New York are wearing, but nobody at Duke has yet. So there was, there were some fun experiments in shopping stereotypes and what we could tell of people based on their receipts, but it didn't really fly. At the end of the day there was this thing called SaaS that we discovered where it was frankly an eye opening moment to us. In 2008, there was, there were some people that said if you could do X, Y and Z for me, I would pay you for that. And we went, wait, you can do online businesses that are not just based on advertising revenue. That's pretty cool if somebody would actually pay you to use your website. We later learned that that's called SaaS.

00:06:23 - Scot Wingo
Yep.

00:06:24 - Tobi Walter
And I think it's become a pretty big thing.

00:06:26 - Scot Wingo
Yeah, yeah. Early days of SaaS, it's too bad you didn't have all the receipt data now because some LLM would buy it for trillions of dollars. So you were too early. You guys were way. Well, we don't have receipts anymore either, so maybe, maybe your timing was actually pretty good.

00:06:41 - Tobi Walter
But that was interesting. Like we dug around a lot on what is that data worth. We had hedge funds that were interested in trying to figure out how much Go go in air is charging now and would do that based on receipt data and the like. So yeah, we, we always thought we had very interesting data, but there weren't a lot of people that were paying for it, except for some of the folks. I mean, even back in the day on OCR training and regular expressions, you know, before a lot of ML and whatnot that were trying to buy some of these data sets. And we also had individual inquiries where somebody needed to fill out an expense report but lost that receipt. And they basically said, could you give me a receipt for $50 from Uber in New York? I can just submit it. So we thought for a while about if we sell individual receipts to people. We also had, I think the best T shirt idea we ever had was a shoebox shirt that would say we know what you bought last summer. But that is I guess a little too sketchy, a little too scary.

00:07:43 - Scot Wingo
So you went to the dark side on the investing side in 2018 and joined co founders and I think they were on Fund 2 at that point. Is that right? Yeah. And that was around a $30 million fund. Yeah. And then you know, the career path.

00:08:03 - Tobi Walter
At VC maybe a testament to, to the area, this network here. So the, my general counsel at Shoeboxed, Glenn Kaplan, still my, my favorite attorney in the world. While we were going through the exit at Shoeboxed, he was the one who said hey, you probably haven't met these guys because when they started their fund you had already raised your series A at Shoeboxed. But I remember his line was David and Tim tend to see almost every B2B SaaS field in North Carolina. They sometimes need CEOs, CFOs, advisors, board members. I think I should connect you if you want to stay in the B2B SaaS space in North Carolina. That might be a really good connection. So he made the initial connection and while I really wanted to take a year off before I do anything, we kept chatting over that year and it really became came to to be a fit on the, on the fun side of things.

00:09:02 - Scot Wingo
Very cool. And then so give us the, the quick pitch for co founders capital. Like what do you guys invest in? What's the sweet spot? What are some categories you don't invest in?

00:09:12 - Tobi Walter
Yeah, absolutely. So I would still describe co founders as a fund made up of all former entrepreneurs. And I think that does something right. So we have all ran B2B SaaS ventures and at times multiple times over. And we really wanted to give more capital to the early stage entrepreneurs, especially in our geography here. David I think put it so fittingly when he started the fund in 2015 where he said, I think it's ridiculous that we make our founders in North Carolina raise their pre seed or even their seed rounds a 20k angel check at a time. There isn't a good institution that kind of gives out 500k, 750k maybe million dollar checks early on. And so what that does is that people have to pick out these individual angels. And in his mind that's how we lost a lot of companies in this area to the Bay Area, Boston, New York, because Dugo Unc grad might show up there and the VC might hand them a million dollar check just on the idea on a napkin. Right. So that's what we stay true to today. So co founders. It's a very early stage B2B software investor. We tend to like it a bit better when companies are at revenues. For pre revenue companies we would say that we likely need to know a market intricately well. So chances are that either one of us would have had to run a company in that space before or we have a lot of our investors maybe out of a specific area. But then we would typically fund companies say somewhere between 50k and half a million, maybe up to a million annual revenues. We tend to write million million and a half checks up front. So that's most often the seed round. We lead those rounds most often. So it's typical that maybe somebody might raise a two million dollar round just having had, you know, their first revenues and those are the ones that we typically lead. We like to be very active investors. So what we look forward to is entrepreneurs that you know, want a sounding board of, of former entrepreneurs. We are very clear cut that we will not make management decisions. We're here to advise and recommend. But we tell our CEOs look, you have a team of former B2B software entrepreneurs so chances are we can help you be it in hiring and selling and pricing and raising your next round or whatever it may be. It's up to you how you use us. Right? We're here, we can spend our time on you. We like working hard and if we can make anything happen with you even, even better. So that's what we try to do.

00:11:45 - Scot Wingo
Yeah. And implied in kind of leading a seed round is it's usually a price round and you're going to take a board seat and be pretty involved in the company which is. And being local really helps a lot. Right. Because you can just you know, have that face to face meeting a lot of times where Zoom. I find Zoom is just like really hard to coach an entrepreneur through and just like not as impactful as one on one kind of interactions.

00:12:07 - Tobi Walter
I think that's true. It's funny we are still sticking to this geographic thesis even post pandemic and post a much more hybrid or virtual work environment. And we certainly have companies where one co founder might be New York, the other one is in Durham or the like. But with that said we still see advantages to being local. It's on the one hand what you said, you know, in person conversations certainly have something to them. The networks we have are most local and I think there's always a different push on helping somebody who is local. So here we can introduce our entrepreneurs typically A lot more to other entrepreneurs in their vertical or in their field. We have better customer connections out here and can go around with somebody and try to find the first three to five customers and actually join them on sales calls and do that locally here. So I think there's a lot to be said for or continuing to do things locally.

00:13:06 - Scot Wingo
Yeah. And then you know, so, so David kind of answered for the firm already but like for, for Toby. So the deals you have kind of and I don't know how it works at your firm like the ones you got behind and sponsored and are on the board and it may be too early because this venture game is a long term game. But what, what's been your, your biggest exit or wins that you've had?

00:13:28 - Tobi Walter
Yeah. So on the firm in general, we had a couple very good outcomes above the element 451 was the most recent one just a month ago in Raleigh and massive outcome that was one of our fund two deals. A couple years before that we had the same with Second Nature, the former Filter Easy in fund one. So those are certainly the ones that make headlines. It's interesting however to again, I think there is a lot to this idea of former entrepreneurs and how we tend to think alike. I think there was a lot of work lick between Tim, David and myself when we started chatting earlier on and we had the same confusions why investors might not do this or that or we found maybe this or that ridiculous of how other VCs acted or the like. One bigger area was I always took issue with investors calling 30 million or 50 million exit a mediocre failure. My mind, I mean certainly if you raise 30 million bucks out for 30 million, that might not be a great outcome. If you can create a 30 or 50 million exit based on 1, 2, 3, 4 million in funding, it seems like that's true value creation and something that should make everybody's dreams come true. So what we try to do here is go absolutely not at the unicorn or bust. Right. Not just the power law of venture capital and not just the going to write 50 checks. And as long as one of them is a unicorn, I'll probably be okay. We look at it very individualized and so we look at businesses too that some people might call not on a venture fundable scale. And we'll go back to entrepreneurs at that point and say well look, based on your market, based on your go to market, whatever it may be, our expectation is that you're probably going to get to 5,6 million revenue, but maybe not a ton more in the next four or five years. So let's think about that. If that's the case, you might exit for this and for us to make our returns, we might need to own 30% of your business. Now that's a hefty ask and it's up to you whether you do that or not. But I still think these can be figured out that way. And so the reason I bring this up is while these big assets are the ones that make the news, we've had outcomes that were significantly smaller in purchase price where we as the fund made the same return than those 200 million and top outcomes. So I still, yeah, I still like the idea of I'm going to do a portfolio and 80% of them will go bankrupt. Our venture partners still tell us every now and then you can save them all, but somehow we're still trying to make every single one a down. You.

00:16:13 - Scot Wingo
Yeah, yeah. And it's also, you know, a lot of the one theory is you look at irr, which is got a time element too, right. Like so a, you know, a monster return after 15 years may not actually be a short return for 3 years for a 30 minute exit because of the time factor which is, which is, you know, the future value of a dollar is a real thing and important. How about some, some investors keep an anti portfolio which is a list of companies they could have invested in but, but you know, either missed it by timing or said no and they probably should have said yes. Do you have any of those that kind of linger with you?

00:16:50 - Tobi Walter
Not that linger, I think for a long time. I think there were certainly some where you think back and you say yeah, we should have offered a bigger valuation here so that somebody, that not somebody else got the term sheet or you know, would have loved to work with somebody there.

00:17:06 - Tobi Walter
But I would say it's, it's, it's less so for us because we still try to be at a pretty high deal pace doing maybe five, six or so investments a year. And frankly, and now after a little over five years in the seat, I think I've gotten humble enough to say when we pick an investment, we don't know if that's a zero or big win, but we'll know in 10 years, might have a fee. But we're so often wrong about our picks too that I think the thing that's interesting is if something gets away, we still think about it as a. Oh, I mean there's nothing to say that it wouldn't work out. Right. So I can make the bet Somewhere else too.

00:17:45 - Tobi Walter
We're still going to deploy the capital somewhere else. But with that said, there were certainly ones that looked super cool and super interesting. We might have gotten too late. The one I remember locally was Social Institute Laura, now I forgot her last name, but we got in that, I think pretty late as she was raising and she was just wrapping it up. I loved everything about that business, which was teaching kids how to use social media, basically doing that in. In a really cool way our kids actually enjoy doing. So. Yeah, I've seen overall some really good missions where I would have loved to support them and sometimes maybe they didn't fit in the fund because it's a bit more B2C ish than the B2B stuff that we told our investors we would do or it's a little bit too late or too early stage.

00:18:35 - Tobi Walter
So there's certainly a lot of others that I cheer from the sidelines for. But we also tend to say in a very genuine way, we still go back to saying, well, we're always happy to meet with any entrepreneur that's local around here to see if we can help. Chances that we also invest in that company are slim because we make five to six investments a year.

00:18:56 - Tobi Walter
We see about 1300, 1400 companies a year. So literally 99.5% of the time, we won't invest in somebody. But the thought for us is kind of on two parts, why we still love meeting with entrepreneurs. On the one hand, we would all say we couldn't have started or ran our companies if it wouldn't have been for a lot of free help and advice. I remember walking into the Channel Advisor offices with Taylor during shoebox days, taking the great Scott Wingo's brain on what should we do here and there. I remember during those times I told a lot of people, entrepreneurs are weird. Literally everybody who are reaching out to and saying, can I pick your brain? Can I buy you a coffee? Everybody says yes for no apparent reason whatsoever.

00:19:40 - Tobi Walter
There's nothing in it for them. So there's certainly a right kind of pay it forward. And I think we'll subscribe to the idea of entrepreneurship as a team sport. This is a very collaborative area, I think too. And there's certainly this idea of, right, we all help each other and what goes around comes around. The other part, however, that we would all say is since we are a geographically focused investor, whatever happens in this ecosystem is important to us, no matter if it's in our fund or not.

00:20:09 - Tobi Walter
When we go out and raise funds, we hear things like, oh, North Carolina doesn't do unicorns, which isn't quite right or people will go and be like, nah, I can't invest in southeast funds. They haven't made returns in the past or things like that. So in a very genuine way, if Social Institute makes a great exit here, it brings North Carolina on the map. And with that, us, and with that attracts more entrepreneurs here, gives us more deal flow for future and the like. And the way we look at it with a very long term lens, I think it's really about, you know, the more we can build in this ecosystem, the better for all of us.

00:20:47 - Scot Wingo
Awesome. Well, we appreciate that mindset you guys have and I see it every day. You guys are constantly, you know, if there's something too early or something that we can help with, you guys are always open to, to partnering and, and you know, a lot of people say stuff like that. You guys actually do it. We appreciate it. So we're going to enjoy seeing you as a selection committee member in the Tweener Madness. Thanks for giving us the background on you and we'll see you when we get into the contest.

00:21:14 - Tobi Walter
Thank you very much. I look forward to it.

00:21:20 - Announcer
That's, that's a wrap on this meet the judges episode. Now you know the minds behind the decisions, the investors and industry leaders who will be putting these startups to the test. As Tweener Madness kicks off, they'll be asking the tough questions, making the tough calls, and deciding who advances in the bracket, all leading up to the finals in early April. Make sure you're subscribed so you don't miss a single matchup. And if you want to follow along with all things Tweener Madness and the Triangle startup seen, head on over to tweenertimes.com also, if you're thinking about launching your own podcast or want to bring professional production to your brand, check out earfluence.com the competition is about to begin and we'll see you soon in the next episode.