Lightship Capital
Alexis Alston (Investor)
USA
In our short journey at Business Mocha, we realised that one of the most important concerns for startups is funding. So we wanted to speak to a VC to understand their view of pitch rounds and how startups can improve the chances of raising capital.
Today, we are joined by Alexis Alston from Lightship Capital. Lightship Capital finds, funds and educates underrepresented innovators and regions. They invest in early-stage companies based in the US and led by BIPOC, LBGTQ+, women and people with disabilities.
Read on for some unique insights into the world of funding!
make sure you're getting in front of the right people for what you're building.
Questions & Answers
Praveen
Please tell me about your background and how you got involved with a VC firm.
Alexis
I was supposed to become a scientist, and that didn’t work out. I ended up getting into private equity, working on a large-scale pharma and biotech PE. But I realised I wanted to have a closer contact with companies and be able to help mould them, whereas, on the PE side, you’re not really building anything, you are kind of moving money around and firing people. I wanted to have more of a positive impact on the companies I work with, and moved to the growth equity side in 2018. And I’ve been doing just VC primarily ever since.
Praveen
Lightship Capital targets fundraising for BIPOC, LBGTQ+, women and people with disabilities. What was the reason for this focused approach to funding?
Alexis
In the PE world, I, unfortunately, have witnessed a lot of discrimination and microaggressions towards diverse founders that came across my investment committee internally. I really saw with my own eyes as an investor, that these founders weren’t even being considered at the same standard as other founders and that used to really get under my skin. And yes, in America, less than 1% of venture capitalists are black women. As a VC, I felt it myself. And so I just really knew I had to be a part of the solution to this. There’s no reason why black female entrepreneurs, who are the fastest-growing class of business owners in the United States, are receiving the least amount of funding, right? It doesn’t make any sense and the data of all the signals that should drive you to receive investment are there for people of colour and women in the States. But they still aren’t receiving that investment.
Praveen
What do you think is the solution to increasing funding for founders in these groups, which you are supporting?
Alexis
The primary solution is creating more funders in my position. Well, there are three ways really. The first thing is that GP dollars or LP dollars need to go towards more diverse fund managers. There need to be more funds like my fund that get funded. A lot of people try to start funds like mine. Yes, and it doesn’t work out because the LP dollars aren’t there. That’s the first way to solve it. The second way is to create more spaces for check writing voices and investment committee voices of diverse funders like myself.
And the third way is to strengthen your network. A big problem with this is people source with their friends, and they source deals that go to the same country clubs and the same schools as them. This dissolves, and we just continue to perpetuate this monopoly in the industry, which is the problem. Then a lot of it is education: they have an unconscious bias when they’re looking at deals. And so it’s about how we educate funders to recognise those biases, check them and try to mitigate that. That goes back to having more diverse people in your investment team who can help you check those biases.
Praveen
For an early-stage startup, what is it that you are actually investing in?
Alexis
I’ll caveat this with saying that I invest at the Seed and Series A level.
But at the Seed and Series-A level, I’m still looking for a strong management team. And when I say strong, I don’t need you to have a PhD in whatever it is that you’re doing. But I need you to somehow be the category expert in it.
I need you to be incredibly coachable. This is a lifelong process. We’re going to be in this together for somewhere between 5-10 years, so you need to be receptive to feedback. And you need to be adaptable and flexible… because things like COVID can pop up.
The third thing that I really want is to make sure that within the team, the dynamic works, and everyone has their own set of roles or responsibilities. I mean, we sometimes see great co-founders, but they don’t work well together. Yes, that also could be a recipe for disaster. Outside of the management team, what I’m looking for is something that’s category-defining. I really want to see something that hasn’t been done before. Like right now we’re in a position where everyone is trying to come out with a telehealth platform, or some sort of like, CBD-enabled snack or some sort of like payment processing platform, and they’ve all been done. What is it that you’re doing that no one else has done before and that no one else could ever do?
Praveen
Do you generally make follow up investments in a startup? At what percentage do you go in for follow-up investments with that startup?
Alexis
Our fund is structured to do that. We’re structured to provide an initial check of up to half a million dollars. And then we have bridge financing available. We specifically baked in bridges into our structure for diverse founders, because they have to really over-perform other metrics to really get them to series A and then to Series B. So we have bridge financing available where, if we thought you had to get to $100K in MRR for Series A, let’s get you to $130K in MRR to really show you can you hit your metrics. We also have additional funding available, and the numbers vary for each company. But in general, we’re here to support a company up to about $3 million – $4 million in follow-on investment.
Praveen
What would you like to say three basic things to look for in a pitch deck?
Alexis
Give me your why. This is a huge thing. So, I run a pitch competition online on Twitch. This is a huge thing that I think no one really talks about, but I need to know why you are a founder, and why you are building this startup of all other things. I don’t want to hear that it was a big market. I want to know why you are the best fit for this and why right now.
The other thing is just to be concise and be clear. A lot of founders, I think, make these beautiful pitch decks with lots of photos. And they forget that 80% of the time, the people reading your decks won’t have your voice to back it up. So make sure that your deck is still understandable if you aren’t physically pitching. If someone just emails this to a friend, your message should still be really clear.
And the third thing I would say is always, always, always include the traction.
I think especially early stage founders don’t have the revenue metrics that they are really excited about yet. So they try to omit that. You may not have revenue right now. But you may have users or a number of pilots completed, or a number of LoI’s signed.
Praveen
What do you see as a common mistake a founder makes when they're pitching to an investor?
Alexis
Some people mistake social media following with their traction. Unless your company is a social media app, that’s not traction. And I see a lot of people rely heavily on that: we have 100,000 Instagram followers and 200,000 Twitter followers… and that doesn’t matter to me. I think it’s a wasted point in terms of your ability to build this company. Your following just means that you can hack an algorithm.
The other thing founders miss sometimes is the string from immediate next steps to the big picture. I always like to see some sort of a product timeline in my decks because some decks really just focus on the next 6 to 12 months. Then I also want to know, what’s the big picture? Like if you think this is what the company looks within 12 months? What about five years from now? What is your vision for the company? On the flip side, some do the opposite, where they give the big picture vision, like the Steve Jobs level vision of it, but don’t really tell me what steps they are taking to get there over the next couple of years. So I want to see that trajectory of actionable things in the pipeline, that will help us execute and make these milestones happen.
Praveen
What questions founders should be asking the investor?
Alexis
- Have I invested in your category before? If so, how did it turn out?
- What’s my involvement with the companies? How many hours a week or a month do I spend working with my teams?
- Do I tend to stand up for the founder like, have I ever had any, like legal disputes involving deals like
Praveen
When somebody is pitching to you, do you sometimes go – “this is definitely a unicorn.” Do you have the ‘love at first sight ‘feeling or do startup ideas grow slowly on you?
Alexis
I would say probably 75% of my deals are love at first sight deals. That’s not only an incredible pitch, but it’s clearly an incredible, transformational founder, and once again, sees the short term vision and long term vision, has the traction to support their claims, and is on the road to success. Yeah, that does happen. And that’s It’s great for everyone involved.
Praveen
What would you advise a new entrepreneur who wants to start on the journey, but they have this entrepreneurial fear about failure or about risking their security or reputation?
Alexis
I’ll address a couple of common fears. Common fear number one, are you going to fail? The answer to that is you might fail, but who cares? As an investor, if I hear that a founder has four failed startups before this one, it in no way makes me think that they’re incapable of growing this business. In fact, an experience of failure brings you so much knowledge and insight. A first-time founder doesn’t have that it’s incredibly great in terms of your ability to not make those same mistakes again, so don’t worry about failure. If you fail, you fail. We’ll be able to build upon it for the next venture.
You have the second biggest problem here. I see people get really nervous about IP. I don’t sign NDAs, and I’m not in the business of sharing your IP, I have no incentive to. And if I started to do that kind of thing, the world is small enough where people will know and I would never get deals. It just doesn’t make sense for anyone. But what I would say is if you’re concerned about that, make sure that the investors you’re talking to don’t have potential competitors in their portfolio. Like if I’m going to a pitch meeting for, you know, Peloton, I may not share the same deck if SoulCycle is in their portfolio, because there could be some interesting things they want to leverage for their portfolio company. That’s the only instance where I’d be wary of it. But to be honest, generally if they have a competitor in their portfolio, they probably won’t invest.
Praveen
Who do you think is the next hundred billion dollar company?
Alexis:
Oh, it’s definitely one of mine. I’ll tell you exactly what it is to me. It’s a company called Undock. And it’s not the only one, but it’s my current favourite. And it is the first predictive scheduling platform.
Undock a full Productivity Suite, but most of the features haven’t been revealed to the public yet. What I can say is that Undock uses machine learning to predict when both parties are more likely not only to be free, but to want to have the meeting. So it uses lots of things about whether you’re a morning person or an afternoon person. If it feels like your meetings are back to back or spread apart on different days of the week, it will predict the best times for you and everyone around the globe when your email invites you to meet. And there’s all kinds of other things coming up that will be revealed very shortly.
Praveen
Do you currently invest outside the USA?
Alexis
Unfortunately, we cannot invest outside of the US. I do have a portfolio company from an accelerator that I work with that we own. It’s in Mexico. Oh, but right now the way our bond is set up legally, we just have to be in the US.
Praveen
That's great, Alexis! There are some really insightful questions and answers. And a lot of what you have told me is quite useful for the audience and quite useful for the startup founders.
Alexis
Sure, no problem! One last random thought that I’ll just throw in here: make sure you are pitching to the right investors. If you’re pre-seed pre-revenue, don’t try to go after series A investors. Make sure that you’re pitching to investors who invest in your stage, traction level, geography, sector… take care of all of those things prior to trying and getting in front of them. Otherwise you’re wasting everyone’s time and you probably annoy them when they see it. We see a lot of like, pre-revenue, pre-seed companies that come to us that are great, but that’s just not the state in which we’re designed to invest.
So companies feel like, “Oh, I’m not getting any traction, I’m not hearing from investors.” And then the answer is because when you’re talking to the wrong ones, a lot of times, it’s not that the company isn’t great. You’re just not talking to the right people. So make sure you’re getting in front of the right people for what you’re building.
Praveen
What a great point, I think maybe some founders are following the spray and pray mentality where they are sending it out to anyone and everyone and hoping somebody will reply, and that's the wrong way of doing it.
Alexis
I always equated to dating because it’s the perfect analogy. Would you rather spray and pray and ask everybody out that you meet, or would you rather hone in on “Okay, these are the kind of people that I actually enjoy spending my time with. Let me pursue those relationships carefully.” Go slow, and see where it ends up.
Praveen
Spot on! That's very useful. Alexis, I really appreciate your time.
Alexis
Anytime! And good luck with building Business Mocha. It sounds super-important and impactful, and I look forward to seeing what happens!
