Inside Cocoa Ventures’ VC fund, aiming to act like an angel

Most VCs want to get ahead in funding rounds, get board seats, and get the spotlight on the deals they do. Carmen Rico takes a different approach.

Today, she announced the launch of Cocoa Ventures, a $17 million venture capital fund aimed at no lead round, no arguing bets and no hinder other investors.

Rico is a former partner at Blossom Capital and Samaipata, and an early investor in Hopin, and Anthony Danon is a former partner at Speedinvest, where he led deals on fintechs such as primer and wayfarer, In an exciting funding market last year, he floated the idea of ​​building a venture capital firm more like an angel investor.

“Everyone is raising more and more money in 2021, and Series A rounds are getting more competitive. So much money raised that everyone needs a bigger stake [in startups],” Rico said. “Our paper is no Fight this war for the stakes. ”

Genius – or madness?

How Cocoa Ventures invests like an angel

Cocoa Ventures’ big idea is to compete with other investors — not against them. The plan, Rico said, is to get into the round early and then help early-stage founders “build the cap they want.”

During a funding round, the pair would bring in other investors (like good angel investors), help develop an employee stock ownership plan and assist with term sheet negotiations. They have also helped companies set up bank accounts in the past and connected founders with other founders to conduct due diligence on potential investors, Rico said.

After the fundraiser, Cocoa’s role “became less active and more passive,” Danon said. Both take it personally: “Providing emotional support, being the founder’s first stop for questions like, ‘How can I make my board more effective? How do I resolve this tension with my co-founders?’

Rico added, “We want to be the kind of guys that founders rehearse how to tell the company they’re firing someone on the leadership team.” So far, founder friendly.

Can you real Don’t care about the stakes?

Cocoa Ventures will write angel-sized checks of $150,000 to $500,000 for pre-seed and seed stage European startups in any industry. It will never dominate deals or take board seats.

This is where it sounds a little crazy. “We don’t care about shares at all,” Rico said. “go through no Sensitive to ownership, we can act like angels,” Danon added.

These sound like routes that will leave most investors scrambling, but Rico explains the math: “With our fund, having a 1% stake in a $1.7 billion company at exit makes it a fund returner “With a $300 million fund and a 1% stake in a company, you need a $30 billion exit — so you always try to get as many shares as possible.”

Ideally, Cocoa would like to take a 1.5-2.5% stake in a startup on its first investment, Rico added. Assuming a 60% dilution from seed to exit (given that most startups will go on to raise three to five rounds, giving up about 20% stake each time), this means Cocoa expects to own 0.6-1% of the business it cashes in .

It’s not too crazy that a seasoned early VC Sifted had a conversation with a seasoned early VC Sifted to do a sensory inspection of the model. “As a general rule of thumb, the larger the fund, the more important the ownership,” they said.smaller fund were able Take a more lenient approach to ownership as they are less reliant on mass exits to “return” their money.

Cocoa also hopes this approach will help it get more of the best early-stage deals, which they hope will pay off over the long term.

“We saw a lot of great things in Europe,” Rico said. “And we don’t want to be left out of the deal because our minimum stake is too high.”

So far, the strategy has resulted in Cocoa Ventures co-investing with 20VC, Seedcamp, Frontline, Accel, Index, Northzone and Change Ventures.

Make friends with the best founders

Cocoa Ventures’ long-term goal is to be the investor of choice for many of Europe’s best founders.

This starts (Cocoa hopes) being the founder’s favorite investor to work with in the early stages – but over time, the theory goes, Cocoa could also win a spot in the competitive later stages over time .

With the first fund, Rico and Danon don’t plan to follow up — in part because of the message it sends when investors focus on certain businesses and not others. “We want to be players who don’t have horses in the game,” Rico said.

However, they did not rule out raising further capital or using other “cocoa tools” to invest in portfolio companies at a later stage. (“We have the buffer to do anything,” Rico adds — 25% of the fund is currently used to write larger first checks and make follow-on investments.)

Rico and Danon also hope that by standing on the side of the founders, the founders can bring them huge transaction traffic. So far, the founders and operators have brought Cocoa two of the deals they’ve invested in — and they’ve also introduced the duo to some entrepreneurs who haven’t quite taken the plunge. “We talked to a lot of founders who are still working,” Rico said.

Limited Partner at Cocoa Ventures

Three-quarters of Cocoa Ventures’ funding comes from founders such as Sennder, Flixbus, Luko, Bitpanda, Truelayer and Primer, as well as scale operators such as N26 CFO Jan Kemper.

Twenty percent of the funding comes from three anchor funds — Reference Capital, Aldea and Nomad — and Cocoa has deliberately avoided raising capital from other VCs.

“We thought, ‘Let’s not get VC funds [as LPs] Because we can’t walk up to founders and tell them we have unfiltered investor insights [with those backers]’,” Danon said. “It makes us very flexible as a fund. ”

It was a very quick process: they started fundraising in October and closed their AngelList-based fund on Christmas Eve. “The market was on fire last year, and we wanted to minimize the time to get out of the market,” Rico said. Raising money so quickly also helps reduce the overhead of setting up a fund, she added — and it appears it has sparked some FOMO as well. “We wanted to raise $15 million, got a $35 million demand, and ended up with $17 million.”

Portfolio to date

Cocoa Ventures has closed six deals so far and has pledged to back five more startups. Only two are public: design software startup Specle and product recommendation startup Choice. Three are in climate tech and three are in fintech and DeFi. Two companies were founded by women, and one was founded by a minority. The plan is to invest in 20-25 companies per year for two years.

“We have no ethics when it comes to industry,” Danon said. “But we draw the line at ‘incomprehensible’ [sectors] – Building beliefs is important to us. ”

“We’re looking for obsessive founders,” Rico said. “If you don’t have an excruciating reason to fix it, it’s hard [to keep going]. We want to see an ambition that borders on naive. ”

The question is whether Danon and Rico’s ambitions are also childish in the right way.

Amy Lewin is the editor of Sifted and co-host of The Sifted Podcast (listen to Spotify or apple).her tweet from @amyrlewin

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