Fintech OG Sheel Mohnot on Lessons from Investing in Flexport and ChipperCash and Missing Robinhood and Chime, Why Overly Large GP Commits are Dangerous, Biggest Mistakes Managers Make with Fund I and Emerging Markets; Which Survive? | 20VC with Harry Stebbings

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Intro

  • Sheel Mohnot (@pitdesi) is a Co-Founder and General Partner at Better Tomorrow Ventures, a $225M venture fund for pre-seed and seed-stage fintech companies around the globe
  • Even if you’re not a multi-million dollar angel investor like Sheel, his lessons are applicable to the everyday person trying to invest in good companies
  • Host: Harry Stebbings (@HarryStebbings)

Sheel’s Indian Heritage

  • Sheel grew up in India spending $1/day – was working in microfinance and decided to live exactly like his borrowers
    • “There are very few monetary things that make me happy, I just don’t need any material things to be happy” – Sheel Mohnot
  • We’re all a function of our histories, what parts do you rebel against, and which parts do take ownership of?
    • Sheel’s rebellion: Even as a successful angel investor, his Indian mother still wishes he was a doctor
    • Sheel’s ownership: Business experimentation has always run in his family

The Power Law & Venture Capital

  • Beginning a venture fund is no walk in the park
    • How do convince investors to give you money with no track record?
  • Power Law: only a handful of your investments will truly be meaningful (pulling that 100x winner)
    • “You can read about the power law, but actually seeing it for me was a big game-changer” – Sheel Mohnot
    • Smaller exits (3x or 5x return) just don’t move the needle as much
  • Harry believes venture firms are very “sharp elbowed” and not willing to collaborate in today’s environment
    • Sheel disagrees – his fund is very collaborative

Lessons from Angel Investing and How to Spot Good Businesses

  • If you fish in the same pond as everyone else, then things may get priced-up
  • There’s a difference between a price taker and price maker – use your reputation to get the entry price you want
  • Be price disciplined and don’t overpay in booming markets – “You can’t invest in a seed company at a $50 million valuation and expect to make money” – Sheel Mohnot
  • Invest in capital-efficient businesses for better outcomes – “Businesses that constantly need venture capital dollars to acquire customers just aren’t as good businesses” – Sheel Mohnot
  • Angel investors can grow and protect their ownership when they are more hands-on and have a high follow-on rate
  • Retain mental plasticity – certain business models work for some companies but don’t work for others, the right founder can change everything
  • The companies that are winning early (receiving lots of early funding) are not always the long-term winners
  • When you have too large of a GP (general partner) commit, you begin to make decisions that favor yourself rather than what’s right for the fund/business – 10% of net worth seems like a good balance

Biggest Winners & Misses

  • Biggest winner: Flexport ($0.15/share –> $25.50/share)
  • Biggest unrealized winner: ChipperCash ($2.5 million valuation –> $2.0 billion)
  • Biggest miss: Robinhood (didn’t see the potential it had to bring in a new class of traders by being mobile-first)
  • Another big miss: Chime (didn’t see the potential of neo-banking in the United States)

Predictions for Emerging/Frontier Markets

  • Harry is worried about emerging markets – “I think in the macro, we are going to see complete retrenchment away from emerging markets (SE Asia, Latin America, Pakistan, Australia, etc.)”
    • Sheel agrees on the broad sentiment – You go further out on the risk curve toward emerging/frontier markets when there’s a lot of capital. But as interest rates rise, the risk is being reduced and money is being brought closer to home.
    • BUT—many of these markets now have developed homegrown local funds that can sustain growth, even without international capital
  • Advice to companies in emerging markets: get free cash flow positive as soon as possible
    • You can’t burn cash forever

Rapidfire Questions

  • Most memorable first meeting with a founder?
    • Ryan Peterson at Flexport
    • “My favorite founders all love learning, and they love learning something and then teaching me about it” – Sheel Mohnot
  • What’s Sheel’s favorite book?
    • Sheel doesn’t read, there’s too much fluff in books. He prefers long-form articles or podcasts.
    • But if he had to say one, it would be Ender’s Game by Orson Scott Card
  • What’s Sheel’s biggest strength and greatness weakness?
    • Strength – willing to try anything and not afraid of failure
    • Weakness – willingness to try anything can lead you to some stupid decisions
  • Biggest problem in venture today?
  • “There aren’t enough people solving hard problems” – Sheel Mohnot
20VC with Harry Stebbings : , , ,
Notes By Drew Waterstreet

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