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Oklahoma City-based Cortado Ventures invests half the fund in healthcare and life sciences
Venture capital used to be a cottage industry, with very few investing in tomorrow's products and services. Oh, how times have changed! While there are more startups than ever, there's also more money chasing them. In this series, we look at the new (or relatively new) VCs in the early stages: seed and Series A.
But just who are these funds and venture capitalists that run them? What kinds of investments do they like making, and how do they see themselves in the VC landscape?
We're highlighting key members of the community to find out.
Mike Moradi is a Venture Partner at Cortado Ventures.
Moradi is an entrepreneur having founded, led, and grown several biopharma and nanotech startups. He has been a managing, general or venture partner for several local, coastal and international venture capital funds. He was named a Young Global Leader by the World Economic Forum and is a TED member.
VatorNews: Give me the general overview of the firm, what you're all about, your methodology, your philosophy, where you fit into the ecosystem, and just your pitch about who you are.
Mike Moradi: My own background is that I'm a biochemist who dropped out of dental school to do startups. I was involved in a number of those; some failed, some succeeded, but the one that worked made nanoparticle titanium dioxide, or UV inhibition. That company was acquired by DuPont. Another one that made the transparent conductive layer in touch panel displays was acquired by a South Korean supplier to the display industry. So, I spent a lot of time working around startups as the pigeonholed startup CEO that got a little bit tired of doing that and decided, “I've spent a lot of time working around funds, consulting for funds, I've helped others raise venture capital funds,” and when the pandemic hit, my colleagues David Woods and Nathaniel Harding and I realized that this is going to be a very disruptive event for society in fundamentally different ways than the 2000 and the 2008/2009 financial crises that that I've lived through as an entrepreneur. That's when we decided to just start Cortado.
At a 50,000 foot level, Cortado Ventures invests in B2B tech in Oklahoma and the surrounding states, which include Texas, New Mexico, Arkansas, Kansas, Colorado, and Missouri. The areas that we invest in are all areas where we've personally built, grown, and exited from companies. So, that's energytech/climate, logistics, and life sciences. We've also added the future of work just because we see a lot of great companies in that space here but almost half of the portfolio tends to be in healthcare and life sciences, just because it's an expensive place to play and, being a biochemist, certainly that's the area that I spend most of my time building. I can't imagine doing anything else at this point, I absolutely love this line of work.
VN: Starting a venture firm in a pandemic, that's an interesting time to do that, but a great time because healthcare just exploded, for obvious reasons, during COVID. Did you see that coming or was that just a happy coincidence for you?
MM: Honestly, it was a little bit of both. We thought it would be transformative, but just didn't really realize how much it would be transformative. From the investor side, like many first time funds, we went out to raise a relatively small vehicle; in the Bay Area, this would be considered a micro VC, or something even smaller, but $20 million was the stretch goal. We initially set out to raise $10 million, which, in the summer, during a pandemic, and even with us taking vacations, we were able to hit that mark in about nine weeks. And then, of course, the $20 million stretch goal we hit several months thereafter. So, it was honestly a bit of a surprise that things were able to come together so quickly for a first time fund, because you often hear about funds taking 18 to 24 months to raise.
On the startup side, with people working mostly from home, with a lot of people leaving the workforce, it's presented some really interesting opportunities that even we didn't foresee. To give you an example: there are a number of people that might have been in San Diego or New York or the Bay Area who, during the pandemic, realized they didn’t need to be living there and paying these types of prices for their home. I’m aware of several that sold a home for a couple of million dollars and bought three or four homes here, one of which is a McMansion, and the rest they just rent out. So, you have all of this amazing talent that has moved to be close to parents or in-laws, which I guess you might count me in that same category; as a result, the quasi-virtual company building model that was somewhat popular before the pandemic has really thrived in places like Oklahoma City.
Within healthcare, you might be thinking to yourself, “how does that even work? You have to have a laboratory environment.” It is still true that a core team of scientists might need to be in a lab, but one of our companies just basically staggered the shift, where one group worked mostly in the morning, one group worked in the afternoon and evening. Even in that environment, people adapt and thrive and, frankly, that's really good for the venture community at large.
VN: I feel like it’s so much easier now to start a company from anywhere, especially because of what's happened in the last couple of years: you can just meet with investors via Zoom, and you don't have to be in San Francisco anymore to have a meeting with somebody. So, for companies that are based in the smaller ecosystems, now they have a better chance to thrive than they would have before the pandemic. Do you think that's true?
MM: Absolutely, and it's not exclusive to the secondary and tertiary geographies. I even have friends in Boston, one gentleman in particular raised $300 million in 90 days, all over Zoom. Whereas, in 2018, we were flying around the world together into Hong Kong and Singapore and all over Europe, raising the same type of capital. So, it's really just fundamentally changed the way that people invest. It's a very healthy thing for the ecosystem at large.
VN: You said you invest in healthcare and life sciences, so what does that mean, specifically? What are some of the verticals that you'd like to invest in? Is that B2B or B2C?
MM: It's all B2B and it's a little bit difficult for us to compete in areas that require tons of capital, and might have expertise requirements to be there, like in one of the big academic centers, and on the coasts. So, a lot of what is active here tends to be rare disease plays or digital health plays; it might be a couple of professors at a research institute in MD Anderson or Oklahoma Medical Research Foundation, and they might be collaborating with colleagues anywhere in the world. That collaboration might lead to an asset, which, of course, we would fund the seed, maybe all the way through Series A and Series B.
There's been a couple of great examples that I can point to. The standout company in our first portfolio at the moment is a group called Recuro Health, a digital health platform built by the founder and initial CEO of TelaDoc. Thinking about quasi-virtual companies: he lives in Dallas, two of the senior executives live in Minneapolis, a fourth lives in Birmingham, Alabama, and this company didn't exist in January of 2021. We co-led the seed round at a $6 million pre-money in March of that year, they finished the year with $9 million in revenue, Arch led the Series A and, without getting too ahead of ourselves, let's just say that the Series B is likely to close in the next 30 days, and it will be a very significant markup. The company will probably do $30 to $35 million in revenue this year, a phenomenal outcome in a relatively short time of basically 18 months.
And then another company that we're leading in our second fund was founded by the same gentleman who co-founded Alexion Pharmaceuticals, a company that sold for $40 million and is now based in Boston and is part of AstraZeneca. The same founding team had another $660 million exit in between. Basically, they've licensed technology to develop an intranasal COVID vaccine. Omicron BA.5 is the dominant strain now, and this group has been able to show in the clinic, in patients, that a nasal inhaler can provide better protection than an intramuscular injection, which I'm sure most readers here have had several of. The theory is that if you can get the nasal passageways to basically snot out a vaccine particle, then it doesn't even enter your system at all, which we think is the key to ending this pandemic and we're excited to back them.
VN: Why don't you do B2C? Why is B2B your focus?
MM: Honestly, it's just we just don't know enough about it. All of us have built companies that were basically selling into other large organizations. That doesn't mean we couldn't learn it, but one of the lessons I learned the hard way is that, in this line of work, one needs to focus. Other than our geographic footprint, we decided that it was important to take a few niches that we know well and use that as the basis for building a fund. All of these niches are industries where this geography has a pretty significant presence. So, it wasn't like we were starting from scratch.
VN: Obviously, there's a lot that's happened in healthcare digital health in the last couple years. Talk to me about some of those macro trends that you're betting on currently.
MM: When I graduated college in 2000, and subsequently dropped out of dental school, the way that medicine was practiced was very, very different. Most of what I learned in the late 90s in a biochemistry curriculum is obsolete these days. So, the world has moved very, very quickly into digital medicine, telehealth, however you want to describe it. I see that the next 10 to 20 years, because of all the advances that have been made in these underlying technologies and genomics and big data and machine learning, it creates a tremendous opportunity for people to cure diseases that people thought were incurable, to find better ways to reach patients that are managing chronic disease, and generally make the first real attempt at preventative medicine. Whereas 20 years ago you might go see the doctor only when you were sick, now I'm wearing a Fitbit, and there are certain insurers that are paying people for these so they stay healthy; they'll give you an Apple Watch for basically free, provided that you're able to keep active. These are things that will correlate positively with long term health and, of course, risk reduction, which the insurers are very, very keen to do. So, having these tools available and widespread is going to see just a tremendous wave of innovation, which is a great time to be an early stage investor in venture, it's a great time to be an entrepreneur. You might say I'm optimistic going forward.
VN: What's the size of your current fund? How many investments do you make a year?
MM: The first fund was $20 million, we did 27 investments out of that fund, most of which were headquartered here, but several that might have been in Boston or New York or Bentonville, Arkansas, but with a tie to the state. We do primarily two different types of checks: one is a seed or pre-seed check that might be $100,000 to $500,000, and then in the Series A, it might be $1 to $2.5 million. But, essentially, just a follow on strategy that has worked very, very well thus far; the net IRR of the fund is tracking above 30 and probably will hit above 40 in the next 30 days, so that was the first fund, the $20 million fund.
For Fund II, we were able to do a first closing within a few weeks of $20 million, and we're likely going to announce a second close here shortly to at least double that amount, and the design is to get to $80 to $100 million by the end of the year. We noticed in our first portfolio that a lot of the companies that we had invested in, frankly, we could have put additional capital in, we could have led more deals if we'd had a larger fund, and we're basically going to try to keep more or less the same basic strategy, but scaled up slightly in this new fund, with the ability to follow on and help catalyze later rounds. To put that in perspective, I spent a lot of time in the Bay Area before I moved back here and there really is not a lot of friction to finding the team that you need to put together, finding the capital, finding all of the external resources you need. But, here in Oklahoma, with an $80 million fund, we will be the largest early stage VC in the state; once you get down in the Austin territory or Denver or Chicago, obviously we won't be quite that large but here it makes a huge difference and we'd like to be that catalyst that helps companies go from that friends and family round to helping find investors on the coast as they grow. Nathaniel and I are both part of the World Economic Forum, what's called the Young Global Leaders Program, so you might say that we're trying to bring some of that Davos magic, or that Silicon Valley magic, back here to the heartland, where we're from.
VN: You mentioned that you invest at an early stage, seed up to Series B, but where do you primarily invest? Where did those first checks come in?
MM: Pre-seed; we would love to be the first institutional investor into a company. In the earliest stages, there's really not a lot of evidence to run a formal due diligence process and, for us, that basically boils down to team and product market fit, which I guess in healthcare you might think of as an unmet medical need, and some credible story to help you meet that need. In a Series A there's a lot more data points that one can build a more formal due diligence effort around. In that regard, it's almost like the early days of venture in Silicon Valley or Boston, for that matter. You might say we're a little bit behind in building that capital ecosystem in this geography, but there's no geographic lock on innovation; there's great entrepreneurs everywhere, and we just aspire to help them do amazing things.
VN: Like you said, at the pre-seed level, especially, there's not going to be any traction, no numbers, probably at that point but, when you get to that Series A, what are the numbers that you want to see? Is there a minimum ARR, minimum number of customers, that you want to see from those companies to invest?
MM: Those companies that actually have revenue and can demonstrate their run rate approaching half a million or million a year, those are the groups that you can begin to see traction towards a high growth company, where the network effects began to take hold. Those, of course, are exciting to us. In healthcare, or in life sciences, specifically, it all revolves around clinical progress. Can this drug show efficacy in patients in a phase two clinical study? It's going to vary quite a bit, but, when you're at the Series A level, most of these assets, if they're therapeutics driven, tend to have some proof of principle in a large animal model and, if we're lucky, they're starting to prepare for clinical studies. Sometimes, we'll even just run with an idea that has good rodent proof of concept. So, it varies, and then, of course, it's somewhat industry specific.
VN: There's a longer runway in healthcare, in general, than for a consumer app. Healthcare takes longer, especially if you're talking about therapeutics, which have to go through the FDA. How does that affect your investing, the fact that it's going to take longer for that company to see a return?
MM: In many respects, we still have a 10 year fund life where we would be aiming to complete our first checks by the end of the fourth year. So, in years one through two, you can take a little bit more long term risk, thinking, “Okay, well, we have a little bit more time before we have to wind down the fund.” Once you get towards the end of year four, then you're thinking, “Okay, I need some things that might have a quicker exit.” On the bright side, the ecosystem for building and selling companies in life sciences or therapeutics, in particular, is quite mature. Every year, I tend to go to the JP Morgan Healthcare Conference, I try to go to Bio in the spring and summer, and most of the large organizations in our space, big pharmas and big biotechs, tend to have a presence at both of those, so it's usually just a question of sharing data selectively with these organizations. The good news is that, when you get it right, and you're able to show that proof of principle that one would need to get a pharma involved, the acquisition multiples tend to be phenomenal in the space. If the entrepreneur decided that they wanted to take the company public instead, it used to be that you had to have great phase two data, and a strong crossover round prior to an IPO, and even though the markets are a little bit depressed in the last several months, the fact that you could now take a pre-clinical company public, which was near impossible to do for the last 20 years after the Four Horsemen disappeared, those are the sorts of things that make us excited to deploy capital in this space.
The other big factor is that, in spite of all the advances that we've made, there is still so much unmet medical need. The diseases that used to result in mortality 100 years ago were mostly infectious in nature, and we've done a phenomenal job in medicine in eradicating a lot of those diseases. Now, it's mostly non-communicable diseases minus accidents and such, those tend to be the things that will kill you. That's where I'm excited to focus my time and efforts, and we're excited to help entrepreneurs to address those needs.
VN: You mentioned product market fit and the team, so let's start with product market fit. How do you vet that? How do you determine if that exists? What's the due diligence process there?
MM: In the life sciences space, I would like to see at least some in vivo proof of concept; it could be just a rodent study that shows, “this thing looks interesting,” and that usually is enough. Of course, we can even do a smaller check just to allow somebody to run some pivotal study in whatever the relevant animal model happens to be. I want to say that, as a guy that has pets, we recognize that these animals are giving their lives and the FDA requires it before you can do anything in humans, so it's not like we're doing this because we want to, it's just because we have to.
On the other side of the fund, essentially it’s just trying to find a sufficiently large market that a company could grow into over time, with some semblance of how one might get there. Just thinking about a better way to do something that a large company does every day, we look for proof points in a prototype, or maybe the entrepreneur had five or 10 years working in supply chain in a large organization and they were frustrated by this one thing that they think they know how to solve. It’s having somebody who has lived in that environment, which I actually did, too; I was in a very large organization at the very outset of my career, and those are often the best sources of ideas. The large company would say, “this is an annoyance,” and they just work around it, but for that one employee, it was a huge frustration and they would sit up at night trying to figure out how to solve that problem. Finding a market where there's a genuine need for this product or service, with a team that understands how to operate in that space, and has good relationships, those are the sorts of things that we look for.
VN: Let's talk about the team. What do you look for in that entrepreneur or that founder or that team? What are the intangibles of that person that you want to see to make you want to invest?
MM: In addition to the comments from the last question, you find that the more time you spend with somebody, you just get a better handle on the way that they approach problems. It's important for the entrepreneurs to come in with, if possible, a warm introduction, somebody that knows us well, that knows them well but, at the same time, we have mechanisms for entrepreneurs to get in the door without that warm intro.
The things that we look for are a certain tenacity, people that obsess over this particular problem and, ideally, at least have a little bit of experience in the industry; if they've started companies that have failed, I consider that a plus. That was something I learned in the Bay Area, where the badge of failure, of crashing the F 15 as they used to say, the $20 million or $50 million plane, that's something where people will say, “Okay, well, this they at least understand what it means to to be through this startup environment, even if they failed.” It's a place where people get the second, third, fourth and fifth chances, and the end result sometimes is like Max Levchin at PayPal: I think that was his fifth company. The first four just fizzled, and that one worked. That maybe also could be called tenacity, but just these are the sorts of things that we look for you.
VN: Over the last couple of years digital health especially exploded, with a lot of companies going public, and that's completely dried up; there's actually not a single healthcare company that went public in the first half of this year, versus I think there were 25 last year. And valuations have fallen. So, what do you see happening? How is that affecting your investing? Are the valuations falling in the early stages? And what is going to happen going forward?
MM: Yes, there's definitely downward pressure on valuations and I say this because I'm also running a company where we're developing a glucose responsive insulin for diabetes, and the capital markets are not what they were a year ago. On the bright side, this is actually a key differentiator for Cortado: because we're in a relatively less competitive environment, the valuations never really gotten out of hand in the first place. I mentioned earlier the digital health opportunity, that's the stand up company in our first portfolio, the seed round valuation was $6 million, but if that company had been in the Bay Area or Boston a year ago, it would have been $30 to $50 million pre, I'm guessing, and they would have raised a lot more money, which sets the valuation expectations for the subsequent rounds. So, if you have a reasonable starting point, it gives you the opportunity to at least test your hypotheses around, does this model work? Will people buy this product or service? It gives you a little bit more time to answer those critical questions before it's time to scale. I've been involved in companies that scale prematurely, and you just waste a ton of capital. In a lot of environments, maybe that's less relevant, but now that things are depressing a little bit, all of a sudden that discipline comes back. At least for me, it's just a healthier way to approach company building, which I practice in my own startups. Having made the mistake of raising too much capital in one particular opportunity, my method is just to solve the crucial question as early as you can and if it doesn't work, we shut the company down and move on, but that's one thing that, in this geography, we've done reasonably well, it takes a more nuanced approach to the initial valuations. Of course, on the tail end of this process, the exits tend to be the same either way; TelaDoc was a great example that: during the height of the pandemic, the market cap was up to like $50 billion, that's now below $10 billion. That's a great example of a company that just had stellar growth and exited from this geography.
VN: Basically, you're saying the companies that are in the tier one markets, like San Francisco and New York, are maybe going to have a harder time going forward than the companies that are in the secondary and smaller markets, because they took so much money at those high valuations, and now they might have to take down rounds. It sounds like the companies that you invested in are not going to have to do that because they didn't take those huge valuations in the first place.
MM: There's still a ton of capital on the sidelines, so when it is time to step on the gas pedal, so to speak, to scale up, build Salesforce for the digital health companies, and other types of industries that we invest in, you can go to the coasts to find that capital. I also spend a fair amount of time in Boston, helping actually two different funds get up and running in the life sciences space. So, one of my great joys in life is knocking on all those doors of the firms that we helped raise capital, and taking our entrepreneurs in to see what you and I would consider the top tier investors in our space. Now, the downside is, a lot of those larger funds are doing mostly company creation these days. Without naming names, there's one in particular I talked to a while back, they looked at 800 companies last year and invested in zero outside companies, so it's a bit of a double edged sword, but there's still plenty of capital there for those companies that are on the right trajectory, that have the right metrics, and that's a sign of a healthy ecosystem.
VN: I feel like the downturn is a good thing. It was something that was necessary because we saw, not in health care, but in a lot of spaces, companies just taking way too much money. Companies that maybe shouldn't even have raised money in the first place, taking big valuations and that market correction needed to happen, needed to pop a little bit, so the really good companies could thrive. I don't know if you remember there was a company called Yo! All that it did was say, “yo” and it raised like $10 million. That wouldn't happen in the current market.
MM: I do actually remember that company, and in every cycle, this is a cyclical business, there are going to be a handful of those. I would say for the life sciences companies in the last 12 months, you might have seen these Series As that raised $200 plus million dollars on a half a billion pre money and, in some cases, that works out great. The flagship model I tend to love because they have these explorations that turn into prototype companies that turn into startups, and they will back them through all the way. Moderna was a great example of that: a company that got into the most unprofitable, horrible business of vaccines, which we always joke in the life sciences industry that there's really no way to make money in this space. And then, of course, this pandemic happens, and they had the most profitable drug of all time, so every now and then that model works and when it works, it works exceptionally well. But we can't do that here, there's not enough capital to pull together a few billion dollars to find out if this thing works, and so it’s slightly different, but it's the same mentality of swinging for the fences to do amazing things. I guess we all share that goal in venture: we got into this to help make better lives for people and that applies no matter where you are in this space.
VN: Tell me about your differentiation, starting with LPs. When you go and pitch your LPs, what do you say to them in terms of why you would be a good steward for their money, and why they should trust you to invest their money.
MM: When talking to our LPs, the early message was often that we had worked with them in prior companies, they invested in with us, and had provided a good return, so just working from first base, so to speak, in convincing them that they should back this new company or this new fund. We're investing in spaces where we all have built great networks, we've raised capital, we've had significant exits, so that was a big selling point. And our LPs themselves, most of them, at least for the first one, it was something like 5% institutional, 95% family offices and high net worth individuals; there were 85 or so LPs, and each of them had their own expertise. Some of them happened to be in the aerospace sector, some are in banking, so we've this built-in due diligence capacity in that regard. So, let's say a FinTech company comes to us that says, “we want to sell into the banking sector.” We pick up the phone and call three or four LPs and say, “can you take a look at this or send it to your tech people?” and, oftentimes, the startup will get a customer out of that, like a trial period or something. So, it's been actually a two way street for our LPs to dig in. And, of course, a lot of them are angel investors that like to invest direct from time to time, so they'll say, “I'm looking at this company, will you guys help me in my own efforts to figure this out?” and so it's been very fruitful. Going forward, of course, to get to a $100 million fund, it's going to take some institutional capital, so that is shifting a little bit.
One other key differentiator I should mention is that we have a partner, David Woods, who was the CEO of a company in the manufacturing equipment sector, called Ditch Witch, which makes heavy machinery for all kinds of industrial uses. He took this struggling company and tripled its revenue to nearly a half billion dollars in five years, so he's really good at the nuts and bolts of that rapid growth phase and has an executive consulting firm called Magellan, and provide that service for free to our entrepreneurs. So, let's say they want to build a Salesforce; he has people on his team that are experts in doing exactly that. Let's say that the entrepreneur has a question about effectively managing a board of directors, and what is the right governance? These are the sorts of things that are super important to build into your company before you scale and we provide this service for free, which for a very early stage fund like ours, I don't think I've ever heard of anyone else that does that. Andreessen Horowitz and other firms have a lot of operating partners that help with these types of things, but we felt it was important to build that capacity early. So, in that regard, we're well differentiated and, of course, the top decile performance that we've had in Fund I speaks well to our ability to deliver value.
VN: I was going to ask you what your differentiation is to entrepreneurs, but you sort of answered that in the previous question. Is there anything else you want to add that you feel like you offer entrepreneurs that other firms don't?
MM: Most of what we've covered already is really the breadth of our offering. Coming from the entrepreneur side of the table myself, I've been involved in probably a dozen companies, five of which I was in the startup CEO seat; I always looked for smart money, people that could write more than just a check, and that was the type of firm we aspired to build. To really dig in when we need to, and then, of course, sometimes the entrepreneurs really don't need quite as much help, so we just tried to focus on things on those groups where we can add value, helping them build syndicates. We just aspire to be a value-added part of the ecosystem, so that when they come back in five, or 10 or 15 years, we’ll be the first phone call that they make when they have another great idea.
VN: You mentioned a couple of companies at the top of the call, so you can mention those or any others, but what was it about those companies in particular that made you want to invest in them?
MM: I guess I could just briefly recap on Recuro, this was the digital health company that was started by the founding CEO of TelaDoc. In this case, we co-led the seed financing with a group in Tulsa called OLSF Ventures, Oklahoma Life Sciences Fund. The founding CFO for that company was a colleague at OLSF and we helped them get into the World Economic Forum, they were named a technology pioneer this year and joined me in Davos, which was a nice value-add that we were excited to help them secure. In addition to that, we've brought them several value-add investors along the way, and a handful of customer introductions.
For the second fund, the first investment is a group called Moat Biotechnology; this is the group that I mentioned is developing an intranasal vaccine for COVID. They licensed the technology from the Mayo Clinic, which has a great first in human data, and a clinical study that was done in Australia, and we’re excited to help them to take that through, hopefully, to exit. That particular technology is a next generation adenovirus platform, which could be used for any number of other drug delivery applications or vaccines. So, this company is also considering a universal flu vaccine; there are applications in cancer, vaccinating people against common types of cancer risks, so we’re pretty excited about that.
More broadly in the healthcare space, there was a company we've invested in called Glycologix. Most of the management team is based in Boston, but this particular technology is for patients with interstitial cystitis, which is a condition where the inner lining of the bladder tends to wear away. There are two FDA approved treatments for that disease, one of which doesn't really work very well at all, and this team, essentially, is producing a barrier coating, which we believe will be durable enough to be a functional cure for this disease. The technology was co-developed between a team of physician scientists here at the Oklahoma Medical Research Foundation, or OU Health Sciences Center, and a group in Boston. It was natural for us to be pursuing a niche disease, or rare disease, that was overlooked by a lot of the big pharma and had a great local geographic time, and the amount of capital needed to generate phase two data was relatively limited. So, it was a perfect mix of factors for us. We'll be doing a lot more of this; there's a lot of great companies that we've been following for the last couple of years, some of which were between financings, so it was a little bit difficult for us to get involved, some of which were just starting. So, we’ll track them over time and just expect great things out of Cortado in the years to come.
VN: What are some of the lessons that you've learned as a VC? You were an entrepreneur and worked for a bunch of startups and you went over to the VC side, what are some of the things maybe that surprised you, or things that you've learned in the last couple of years as a VC?
MM: One of the big ones is just the hardest thing to do is manage one's time. Just thinking about the amount of work that goes into building a startup, it's the same for building a firm. I've had to be a little bit guarded with my own time, just so that we can focus on the things that matter most: building companies that, in my case, that I'm personally running, but also making time to support those in the portfolio that are on a great trajectory. So, spending time with your winners, so to speak.
Another critical learning was that we're at the point where it's time for us to make the transition from a mostly angel/family office fund to one that might be half or maybe two thirds institutional capital. So, I have been a trustee for a very large pension system, and had been around the LP, or allocator side, of this business, so I’ve had a little bit of familiarity with the requirements, one would need just from policies and accounting and compliance. To put those in practice as a small fund with a relatively small team took a little bit of work but, thankfully, we've gotten past that and past operational due diligence with a couple of highly reputable consultants that would be very well known in the space. So, maybe one of the learnings is just, in order to make that transition, you have to be very forward looking about building the right team early on.
Then maybe a close third is, when you're in a startup, there's an incentive to keep your head down and just spend a lot of waking hours solely focused on your company, whereas, on the venture side of the table, it's a very high touch business; you're constantly having to be on the phone and sponsoring events just to be out in the community locally. In my case, I'm often at these large healthcare or biotech themed conferences. If you build a fortress of isolation around you, like you would do in a startup, for the most part, that's antithetical to what you're going to need to do to build a lasting venture firm. So, it's really challenged me to want to get out of the office and just not be quite so focused on this one thing, so it's been good.
VN: What's the part of the job that you really love the most? When you go to work every day, as venture capitalists, what really motivates you to do this?
MM: I might have alluded to this earlier, but people get into healthcare mostly for a desire to alleviate suffering, or cure some disease, or just make a lasting impact for the better. In the earlier part of my career, it was mostly in this offense material in semiconductor space and we did a lot of work with, let's just say, the defense sector, which oftentimes is the first customer for a lot of those entities. To go from that environment, to an environment where you wake up in the morning and realize that if these things work, a half a million people will have less suffering from diabetes, or the 50 million patients with this disease will be able to spend five more quality years with their family, those are the things that make me really excited to do what I do. Frankly, we just couldn't do without the entrepreneurs; we want to help them do what they do best and to provide as little friction as possible in helping them fulfill that dream. So, I am as bullish as one can be that this is the best environment to be starting companies and we can't thank you enough for allowing us to tell our story here on VatorTV.
VN: Is there anything else that you want people to know? Anything else we didn't talk about or anything else when people read this, you want to make sure they take away?
MM: Maybe just have them take a look at our website. We explicitly listed our investment criteria, and the funnel for submitting a new investment opportunity. We have a full time employee who helps us manage that top of funnel, so even in spite of my comments about a warm introduction, which always helps, if entrepreneurs meet those criteria, and want to talk to us, we're all very approachable: send us a note on LinkedIn or of course submit your company that way, and we'd love to talk to you.
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