Finding a Voice in Venture

On this episode of Access & Opportunity, we welcome investor Soraya Darabi. A former serial entrepreneur, Soraya is a founder and General Partner at TMV, an early-stage investment firm focused on the future of living well. We are also joined by Sarah Sheehan, the Co-founder and President of Bravely, a startup that remotely connects employees with certified coaches. In 2017, Soraya and TMV invested in Bravely’s seed round and the two organizations have been close partners ever since.

Soraya and Sarah share how they respectively became an investor and an entrepreneur, what Soraya saw in Sarah and her company, the key steps they took during, and after “the deal,” and how they’re each adapting to the ever-changing business landscape brought by Covid-19.

Soraya Darabi:

Venture capitalists aren't futurists, and nobody can predict markets. But if you have a gut instinct about people first and foremost, and a belief that underdogs will work harder to reap their success, then perhaps it makes sense to put your money where your mouth is and take some risk on

Carla Harris:

On this episode of Access & Opportunity, I couldn’t be happier to welcome investor Soraya Darabi. A former serial entrepreneur, Soraya is a founder and General Partner at Trail Mix Ventures, an early-stage investment firm focused on the future of living well.

We will also be joined by Sarah Sheehan, the Cofounder and COO of Bravely, a startup that remotely connects employees with certified coaches. In 2017, Soraya and Trail Mix Ventures invested in Bravely’s Seed Round and the two organizations have been close partners ever since.

In this episode, Soraya and Sarah share how they respectively became an investor and an entrepreneur, what Soraya saw in Sarah and her company, the key steps they took during, and after “the deal,” and how they’re each adapting to the ever-changing business landscape brought by Covid-19.

Come on and join me for the ride.

Harris:

This season on Access and Opportunity, we're speaking with women breaking barriers in the investment landscape and showcasing one of their portfolio companies. So, Soraya and Sarah, thank you. Thank you for being here with me today, especially now in this quarantine period that we're in.

Sarah Sheehan:

Hi, Carla.

Soraya Darabi:

Carla, thank you for having us.

Harris:

All righty. So, let's start this conversation with talking about how the two of you met.

Darabi:

I first met Sarah, through the fabulous Shan Ma. She is an entrepreneur in New York City, the founder of Zola and a friend to both Sarah and me. And Shan is one of the few women in New York City who has raised more than a Series C in terms of startup capital for her venture, Zola, which is an online wedding registry. And she said to me, "There are two former colleagues of mine from the Gilt Groupe."

Darabi:

You have to meet. They're phenomenal, starting a new company," knowing that I have recently started a venture capital fund with my partners. And I met some Sara and her business partner, Toby, for lunch. I was just blown away immediately by what they were building.

Harris:

Okay. And you were an entrepreneur yourself before you became an asset allocator better known as an investor. So tell us a little bit about that journey.

Darabi:

Happy to. I began my career in media. I worked for Condé Nast around the time of the Reddit acquisition. Actually, my first week on the job, they asked me to pen a press release, it says Wired acquires Reddit. And I noticed these three young men my age, waltzing into the office, really affable, very smart guys, but they had recently graduated from college. And I thought to myself back then at age 21, what did these guys know that I don't know.

Darabi:

They had just sold their company for the high seven figures and they were in an ownership position. They owned their own destiny. And they commanded the room. People really listened when they spoke. And so, I vowed to myself then that I would learn to be, first, a product manager and then ultimately a founder. I never thought I'd be a VC. I grew up in New York City and Minneapolis, Minnesota.

Darabi:

My father was an immigrant and a cab driver. My mother, a college professor. I really thought I’d end up in academics, which is what they wanted me to be in many ways. But after Condé Nast, I received a great job with the New York Times, with the fortunate position to place the New York Times for the first time in its history on social media platforms like Reddit. And that opened up a lot of doors for me in my career.

Darabi:

I began advising informally social media founders who went on to build what we call unicorns in the industry. And around that time at age 26, that's about 10 years ago, some venture capitalists pulled me aside and they said, "Do you recognize you have an unparalleled network?" And I said, "What are you talking about? These are just my friends." And those venture capitalists said, "Here," to their credit, "Read this. This is called a term sheet."

Darabi:

"You need to understand that you're making very powerful introductions for a young woman or young anybody. And you should understand the business that we're in." And one of those VC said, "I don't care if you're investing $5,000 of your savings, you're missing the boat here." And so, I bought the book The Business of Venture Capital. And I read everything front to back, highlighted the terms I didn't understand, and then went on my way.

Darabi:

I then co-founded two startups back to back. One we sold to Open Table and later Priceline acquired Open Table. So, that was a nice moment for us in our startup history. And at that point, with liquidity for the first time in my life, around age 28, I became a semi prolific angel investor. At that point, I noticed that a lot of my peers, so in particular, women and my friends who had diverse backgrounds, let's call them nontraditional backgrounds or founders, had a really hard time raising capital.

Darabi:

And I thought to myself, "Well, that seems crazy. These ideas are brilliant." And began investing just in the idea and share conviction in the founders alone. I learned over time that my most powerful exits would be in women or minority founders, for a lot of reasons that I'm sure will discuss later in this podcast.

Darabi:

So, my partner Marina, she and I started a fund four years ago, called TMV. It stands for Trail Mix. Ventures. That something extra founders take with them on that harrowing journey called entrepreneurship. And to date, we've now managed 30 million AUM. And we've invested in 26 companies, one of which is the fabulous Bravely, which Sarah co-founded.

Harris:

Yes. So, let's talk about that. But I want to make a point. This is a playbook point. We're always talking about the old boy's network. But you have given us two examples now of how you have met extraordinary founders through relationships. So Sarah, you can pick it up here. I want to talk a little bit about that, because that is something that I think is becoming more common now that women are more aggressively using their network and connecting those dots.

Harris:

Because that, obviously, is important to you also as an entrepreneur, because let's face it, all dollars are not created equal. And at some point, you have to be discriminating and discerning about what money you take. So, take it away, Sarah.

Sheehan:

Absolutely. So, Soraya mentioned Shan who's a mutual friend of ours. And if it wasn't for Shan, I don't know if we would have had the introductions that we did to close our first round of funding. And I was going to make this point myself, how instrumental this network of women that I had was in helping us accomplish a successful raise.

Sheehan:

And I now see it as my duty to do the same thing and pay it forward. So, whenever a female founder reaches out to me, I never ignore that outreach or those emails, because I know how difficult it can be. And it is the requirement for me at this point in my career to try and support as many of them as I can.

Harris:

So, what was it about Soraya that you saw that made you say, "Wow, I really hope she invest and she would be great to have in my cap table."?

Sheehan:

So, you know when you meet someone and you just like have that instant connection. And in this case, Soraya just got what we were trying to accomplish.

Harris:

And let's talk about what you were trying to accomplish. Let's talk about Bravely.

Sheehan:

Yeah. So, Bravely is a platform. It connects employees with professional coaches to get support in the moments that they needed the most, right? So, anyone who's had a job can relate to something coming up for them at work, where they normally would go to the people in their personal life, their significant others, their friends or turn to their colleagues to get advice or guidance on what to do.

Sheehan:

And with Bravely, what we're trying to accomplish is getting people this neutral support so that they can go forward positively with a strategy in place for addressing whatever's going on. This is not only great for the employee but it's incredibly, in the long run, it can add a ton of profitability to a company if you get your people focused on their work and not being distracted by things that tend to come up, right? And so, when we met with Soraya, her whole thesis around well-being, it's the same with employees.

Sheehan:

If you have something at work that you're not dealing with, your stress levels rise and your productivity immediately takes a hit. And with Bravely, what we're trying to do is help people get the emotional support they need. But then, also work on those strategies so that they can move forward and think about how that impacts not just them but also the organization that they're working for.

Harris:

How'd you come up with this idea? I mean, did you have a personal experience that made you say, "Boy, if everybody could just have this, it would make a big difference and it would massively increase the productivity for companies."? Where do you get the idea from?

Sheehan:

Yeah. I always talk about my father's an employment lawyer and my whole life, he was representing, primarily, women and people of color, and he brought his work home. These are conversations that we had at the dinner table every single night. And fast forward, my career actually started in human resources. I worked for companies like SiriusXM, Coach, before moving on to the Gilt Groupe, which was one of the fastest growing startups, I think, definitely that New York Times had ever seen at the time.

Sheehan:

And in that role, I was always focused on engagement and how to retain talent. But at the Gilt Groupe, I was able to do a complete career switch. I ended up launching into sales role, what was their high-end answer to Groupon, it's called Gilt City. And in that role, I eventually was promoted multiple times, ultimately, to the head of sales. And so, in that role, I was managing a lean team, but I was responsible for $65 million in revenue.

Sheehan:

And what I came to find there is how deep the connection is between performance and how much people are talking about their circumstances or coming forward to actually resolve whatever they're facing. And so, people are always asking me, "You have the hardest working team. They're so lean. Nobody leaves. And you're always hitting your numbers. How are you accomplishing this?" And I absolutely attribute it to my focus on people.

Sheehan:

And that's actually where I also met my co-founder. We both worked on Gilt City together. And he actually came up with the idea. He came to me one day, and I had served as a guiding mentor to him around all things related to work even after we had both left Gilt. And he came to me one day and said, "Why is there not a solution? If somebody wants to get a doctor to their house, they can do it." And he was, at the time, working on an urgent care app called Pager.

Sheehan:

And he said, "But why isn't there something like this when something comes up for you at work? Why can't we all have access to a Sarah that we can text or talk to in the moments that we need it?" Because it's often, even though HR wants to support their people by design, it's often really difficult for people to take that first step and go right to someone in human resources, or even to their manager. And that's why we rely on people in our personal networks.

Sheehan:

But through Bravely, now, you have your own secret weapon in terms of having a professional coach, who isn't there to commiserate with you like the people on your personal. They're there to help you take accountability and develop at the same time.

Harris:

And so, Soraya, so what did you see? I mean, Sarah obviously had a great idea. She had built a team. She clearly had HR chops. But what did you see about her that made you say, "I want to fund this."?

Darabi:

Well, in the first meeting, Sarah and her business partner, Toby just shined, they're superstars. But as an investor with my investor hat on, we look for clues when we interview founders. They think it's a normal get to know you chat. And I'm not trying to intimidate them. But in the back of our minds, we're logging certain data points that we think of us being crucial to make a sound investment. It's almost as if the due diligence clock begins the moment you sit down and shake someone's hand.

Darabi:

And Sarah, of course, is incredibly eloquent. She articulated her vision to Toby so perfectly. But I think what I first noticed was how complementary they were with one another. We look for founders that have worked together before in disparate but overlapping departments. We want a team that operates like a team. And there are certain warning signs, for instance, best friends or husbands and wives that are starting companies.

Darabi:

It's not as if those companies won't succeed. There are so many examples of companies that do with founders like that. And we've backed some of them at Trail Mix. So, I'm not going to be a hypocrite. But it is a strong preference to invest in a team that says, "Hey, we want to work together. And we were incredibly compatible for X, Y, Z reasons. We came together with a solid thesis based on our experience at our last job or our last startup.

Darabi:

It's solving a pain point that we felt, and we have the unique solution given our skill sets." And we saw that immediately was Sarah and Toby. And then, secondly, this is a space that we like to invest in. We have a thesis at Trail Mix around the future of work as it pertains to well-being. The workplace is changing dramatically. The 1099 economy is burgeoning. Quadrupling between 2014 and 2024, according to the census.

Darabi:

And then, you have corporate America that feels a little bit left behind because for the first time in corporate American history post FDR and the depression, you have Millennials and Gen Z employees entering into the workforce expecting work life flex. And that's very uncomfortable for big corporations that are not used to the new demands of a younger workforce. Simultaneously, according to Fortune Magazine, America loses about 210 billion dollars a year due to mental health.

Darabi:

Meaning, when people don't feel well in the workplace, they tend to leave work more often. And they're a little checked out of the office too. So, they're delaying their own productivity. So, this was a preexisting thesis we had a Trail Mix. And finding Sara and Toby for me, anyway, was a eureka moment. It felt like meeting my people because they were solving a problem that we had identified, mainly, due to census data.

Harris:

This was a company that had a unique solution to a problem that existed that was a big problem. So, the whole VC lens of, is this a big opportunity and a big market, you could check that box. But talk to me a little bit about how you thought about them as founders and the risks. Because one of the things that we pointed out in our last white paper is that by the time an opportunity gets to a VC's desk, an opportunity that was founded by a woman or multicultural entrepreneur, in many ways, you should think of this thing as already having been de-risked.

Harris:

Because it's so difficult for women and multicultural entrepreneurs to even get to a VC. So, is that part of your thinking as well in the lens that you look through?

Darabi:

Absolutely. It's not a data point we've been public about yet because we don't like to boast about something until we can have demonstrable results. But our first fund of 25 companies can now boast that 65% of our founders are women and, or minority led businesses. So, it is what we refer to as our conscious bias at Trail Mix Ventures.

Harris:

I love that.

Darabi:

We invest with parity in mind. It doesn't mean we have a gender lens. We're not looking to back women, women will find us as frequently as men. We have had every diverse founder find us at TMV. And we're so grateful for that. We're so happy for that. But for us, it's now become a mandate at our firm, because we realized that we are in the minority ourselves for being a venture fund that cares about diversity. So, I'm with you. It's not easy to understand this playbook.

Darabi:

I felt that certainly as a founder myself two times over. There are a lot of hurdles that you have to overcome in terms of getting access to the right network, and then knowing the script. There's a script to all of this, fundraising. But Sarah knew it. And she knew it because she was groomed, I hope you don't mind me saying this, Sarah, at Gilt Groupe, which is one of New York's most powerful startup mafia. And so, I'll let her tell you more about that.

Harris:

Yes, please. Go ahead, Sarah.

Sheehan:

It's definitely referred to as the mafia.

Harris:

I'm a huge Godfather fan. So, that great.

Sheehan:

So, I had experienced a lot of highs and lows at Gilt. It's produced quite a few entrepreneurs. Shan is one of them. And what I think we did is we took learnings from that moment in time and then applied them forward. The learnings for me were definitely around culture and building teams. I think in Shan's case, she went on to build a very successful business around product, right? But the community that was built there, oftentimes, and Soraya has heard me say this before.

Sheehan:

As a female founder, I feel like I was in an advantage because I had that community of people that came or that network that came out of Gilt, which is another reason that I feel so responsible and committed to helping other women get connected to investors because I was given that same opportunity. Kevin Ryan, who's the founder of Gilt, is an investor in our company alongside Soraya and primary. I will say that Soraya was the first commitment that we ever had.

Sheehan:

And I take a lot of pride in the fact that that was a female investor. I wish that we had more women on our cap table. But what that accomplished for us at the time as first time founders is it gave us a ton of confidence to go forward and really round out our round. You literally cannot measure what that does for a founder to have someone back you in that way, and then also make multiple introductions along the way as well.

Harris:

I have to ask this question for our listeners that are entrepreneurs in terms of giving them a playbook. How would you suggest that other female founders or multicultural founders for that matter find people like each of you? Sarah, you first.

Sheehan:

I do think that there's a lot being done right now with All Rise which I know Soraya is involved in to help connect women. In the case of reaching out to other female entrepreneurs, I'm always impressed when people have done their research on what I have accomplished, or they know that my guidance or insights can actually have an impact on what they're doing, right? They're not just throwing something at the wall and hoping it sticks.

Sheehan:

They have a deep understanding of whatever knowledge I have can be transferred to what they're doing and potentially support their efforts, right? So, if someone was launching a sports app, I probably wouldn't be the right person. But if someone was in HR tech or has, in some way, focused on wellbeing, I could be a great resource for them in terms of thinking about the investors that I know care about this or how that path looked for me.

Sheehan:

So, I think just doing your research. That sounds like very general but it's also important as you go and pitch these seasons. Soraya can talk more about this. You want to make sure that you're connecting with people or doing outreach to people that you know are going to be aligned with whatever it is that you're building.

Harris:

Okay. All right, Soraya.

Darabi:

Well, Sarah's absolutely right. It begins with doing your research. And luckily, there are more resources now in 2020 than there were when I was first a founder in 2008. And so, the first thing I'd suggest women in particular to do, let's start with women, and then we'll go into diverse founders. So, I would check out a directory online called women/vc.com. It was built by friends of mine, a woman named Sutian, who is launching a fund of funds at the moment to specifically back women emerging fund managers.

Darabi:

Because we feel the pain that female founders feel in the sense that LPs don't often have a diversity mandate either. Secondly, I would go back and read all the research that exist online for founders generally. You can find a lot of information on the Y Combinator blog. You can find The Venture Hacks Bible, which is scripture for a lot of first time founders interested in VC. You can read blogs written by very serious and prolific VCs who write about the founder experience and the dilemma fundraising.

Darabi:

For Mark Shuster, whom I'm a big fan of Upfront Ventures, to the classic VC blog by Fred Wilson, avc.com. I wish there were more well-known and well-regarded blogs written by women VCs, maybe that's something to add to the to-do list. But if I'm a founder, I'm going to start by doing my homework and reading as much material online so that when I do have that first meeting with an investor, I'm not peppering the investor with questions that are easily Googleable.

Darabi:

I'm cutting to the chase and presenting myself in a confident manner. And I'm talking to that investor about why, based on my homework, they might be interested in the product that I am uniquely building. So often, founders will say, "Oh, well, you're an investor, you should care about my, for instance, dating app, for example." "It's not really what we invest in. But come talk to us if you're rethinking the future of work, or the care economy, which encompasses healthcare and elder care and childcare."

Darabi:

"All of these industries, which are converging with technology for the first time. Then, come talk to us." So, my biggest piece of advice is do your homework, as Sarah said, but also be very thoughtful about your time with the investor once you meet with them, because it might be your only meeting with them for six months, perhaps a year. And at that point, don't overly pitch. Don't spend the whole conversation talking about yourself. It's human nature to want to respond and work with someone that is likable.

Darabi:

And in the book Never Split the Difference, the author, Voss, says that you're more likely to get a deal done if the person on the other side of the negotiation table likes you. So, actually, women are well-prepared to raise capital because we've been groomed our whole lives to be attuned to social cues. And this is an opportunity to lean into conversation, to ask questions, to create an engaging rapport, so that somebody is intrigued by what you're building and wants to dig in deeper.

Harris:

Oh, those are great, great playbook points, ladies. Thank you very much. So now, let's talk about the environment that we're in now. Obviously, it took everybody by surprise. But Sarah, I would say that your company is almost tailor-made for this environment. And let's face it, let's call the thing a thing. In this environment, there are going to be some emerging companies that will do extraordinarily well. And this experience that we're all going through, it's going to change the growth and the opportunity trajectory for them.

Harris:

And I think you're one of them. And there'll be some companies that won't do as well. So, I'll start with you, Sarah, and say, what was the moment where you said, "Oh my goodness, this is going to turbo boost the plans that we have in front of us."? And how did you start thinking about what you needed to do in order to take advantage of this opportunity? Then, I'm going to come to you, Soraya, and talk a little bit about your portfolio companies and the advice that you were giving to them around managing through this experience. Sarah.

Sheehan:

So, we're lucky because we're already inside companies like Zillow Group, Autodesk, Pinterest, we're serving tens of thousands of employees. So, the indicators for us started happening very quickly in terms of the number of sessions that we were seeing booked. There was a huge spike in volume. But there was also a huge pivot to what people wanted support around. So, typically, we're supporting people through preparing for performance reviews, how to have a tough conversation with your boss, how to give feedback if you're a manager.

Sheehan:

Now, we're seeing session after a session come in around how do I manage stress, this new normal of working from home, the difficulties surrounding that. What's happening in everyone's personal lives is now spilling into their professional lives in a way that we could have never anticipated. I talk every day about the people on my team alone. I have someone that's about to give birth to their first child and is in New York and trying to figure out where they deliver.

Sheehan:

My co-founder's husband is an Emergency Room doctor in New York City, on the front lines every day. I have people who live alone who don't have support systems now. Someone that has to cancel their wedding. These are all really personal things just on my team alone that people have to face. I'm a new mom of a five month old. I'm also homeschooling my eight year old stepdaughter. These have major implications on my own productivity and the quality of my work.

Sheehan:

And so, relating to this on a personal level, it's translating, in terms of our business, to us being able to support people in a way that we never dreamed. It's incredibly humbling for our team because people are going through it right now. They're really struggling. And we're able to meet them where they're at and really help them strengthen their resiliency so that they can get up every day and start anew. One of the things that has emerged because of COVID is the need for support for those that are being laid off. And so, we've developed a new product in the last couple of weeks around an alternative outplacement.

Sheehan:

So, if you think about typical outplacement, that is all about helping people look at their resumes and connect them with new job opportunities. Well, the market is not going to offer that at this moment. And so, what do people need who are not only being laid off, but they're being sent into one of the most challenging economic environments that we've probably ever seen. And then, they're also most likely going into self-isolation where they have to shelter at home. And so, there are all of these layers here and what people need right now is emotional support.

Sheehan:

And they need someone that's going to help them put a game plan together so that when we do come on the other side of this, they're ready to go and they've maintained it over time. And so, we've seen a lot of forward thinking companies that really care about their employees, offering this not only to the ones that stay or the existing employee populations, but the ones that are also being impacted, because they know that they're sending them out into really challenging times.

Harris:

And what does that mean for you in terms of people resources? Because I would think that as companies have this aha moment that they need to either extend the relationship they already have with you, or that they need to start a relationship with you, it means that you now have to have more people to onboard your customers to make sure that you're serving all the needs to think through the new products that you just described. So, what does that mean in terms of people resources and being able to find your own increase in team?

Sheehan:

Thankfully, we had a blueprint in place for really the center of our universe is our coaches. They are our products, so to speak, right? So, we already had hundreds of people waiting in the wings who had applied to be coaches. So, we're ramping that up quickly. And just like we're coaching other employees around how to be agile and resilient in these times, we're doing the same thing with our team.

Sheehan:

We're a lean team. But we are also committed to the mission of helping people and, in particular in this moment, that it's really just about walking our own walk here, talking our own talk and getting our team aligned in the same way that our clients are asking us to do for their employees.

Harris:

Okay. So, Soraya, what are you saying to your portfolio companies that are not like Sarah in a position to actually expand or ramp, frankly, because of COVID-19?

Darabi:

I think what we're saying is consistent to all of our founders. We're telling everyone to buckle up for a rocky ride that won't be over anytime soon as much as we all wish it would be. We began at Trail Mix by putting ourselves in founders' shoes, which is not so hard because all five of the Investment Committee members have been founders themselves before. And we said, "What would we need in this moment?" First and foremost, it's community.

Darabi:

And so, we invited our founders to a happy hour Zoom, where we brought some resources, a document prepared by our lawyers regarding how they could apply for loans if they chose to opt into them. And transparently, a couple of our founders did apply for PPP and CARES Act loans. And one founder operated with a different mindset and said, "I have enough for a year and a half. And these loans are better off in the hands of other people," which I came in to him for. But that was a nice moment, a bonding moment for our founders to talk to each other.

Darabi:

We listened. VCs don't often listen enough. And we heard what they were talking about, how they were frightened about going through, in some instances, their first downturn of their entire professional lives. And then, we try to matchmake resources that we have within our network to the founders' needs. So, one said, "I could really use a career coach in this moment." And that was a very easy solve because at Trail Mix, we offer hours of career coaching from our coach if a portfolio company is in need.

Darabi:

In other instances, we referred them to Bravely and said, "What a great resource we have within our portfolio." For us, it's really about being a value-add firm. These days' capital is a commodity. There are 1, 200 seed and Series A funds in the market right now. And so, we think of ourselves as startup founders too. We have to hustle. We have to add value. We have to respond well with leadership in a moment of crisis, because that's how we will be remembered by the companies that we've invested in.

Darabi:

And subsequently, if we are good characters, we are good actors and we abide well by our founders, but also we're responsible because we're financial stewards at the end of the day and over communicate to our LPs, that's my other client, then our founders will remember this, our LPs will remember this and deal flow in capital will be plenty. So, that's how we're thinking through COVID. It's not selfishly like how do we get people to help us in the future, but more reactive, how do we, in this moment, shine?

Harris:

But let me ask you from an investor standpoint. Are you leaning more towards making sure that you keep dry powder to invest more into the companies that you have already invested in? Or are you still as aggressive as ever looking for new opportunities?

Darabi:

As aggressive as ever. Sarah's company, Bravely, is from TMV portfolio one and where one company into TMV portfolio two, we expect there to be 20 companies over the next four years. So, we're not going to sit on the sidelines in this moment. If anything, the best businesses will be built in a downturn by founders who are scrappy, and determined and passionate about what they're creating. The people who are doing this as hobbyists, or because they think the startup lifestyle is cool, will be flushed out pretty fast.

Harris:

For sure.

Darabi:

But folks who are in it to win will come to us with ideas that are not just COVID proof, but honestly, recession proof. And they will say, "We've built a scalable model with the right margins. And we're tough and we're scrappy. And we will ride out the storm. And here's our plan for the next 18 months." And we need to see that. We need to see that founders are thinking future-forward in order to want to invest. But are we open for business? Absolutely.

Harris:

Yes. So, what are you saying to companies about how they should manage the burn? Most VCs that we've been talking to over the last three weeks have said that they're telling their founders to make sure you have enough cash through January, February of 2021. And it was almost across the board. Everybody has said that. So, the VC community is already written off 2020. They're saying, "Make sure you have enough powder to get to the first quarter of 2021."

Harris:

Because that's when they're thinking there's going to be some return to normalcy. And what I mean by that, because I don't believe that we're going to go back to the same environment, but that's usually the best time to raise capital. And that's when people will be looking for new opportunities. That's usually the best time for companies to actually think about articulating their go-forward plan and accelerating their plan in the first part of the year.

Harris:

So, what are you saying to your company's about how to manage the cash, number one? And number two, if they have to tighten the purse string, what are you telling them? People tend to be the most expensive. So, are you telling them to think about what people you can cut, or you say, cut everything else before you touch your people?

Darabi:

A lot of wonderful questions rolled up in one. So, I'll try to tackle them step by step. The first thing we're saying is to get lean and conservative, RIP the good times, as we call it. We take a hard look at the model and we've been on countless emergency board calls. I've honestly lost count. Once we get a sense of where the company is in that moment, are they in triage phase? Are they in solid and sturdy phase? Or are they actually oddly benefited from social distancing and COVID?

Darabi:

Don't get me wrong, some of our companies are. It's a weird word to use during these very trying times. But Trail Mix, we invest in education technology, our Edtech Company has seen a 508% surge in growth month over month because it's a telecommunications app connecting parents to teacher. So, of course, we invest in Telehealth. Companies like Parsley Health are thriving in this environment because people have been so concerned about their own well-being. And they can't go to the doctor's office physically.

Darabi:

So, of course, they're going to turn to online medicine for solutions. So first, we do an assessment, where is the company in the trajectory of their life? And how much cash do they have in the bank? We'll be thoughtful. We won't offer advice during those board calls. We'll say, "We're going to come back to you and give you our opinion once we've disseminated the information as a team and come up with some resources." So, we aren't just giving you off the cuff advice, but actually providing you with next steps.

Darabi:

And if we feel like the company is perhaps bloated in terms of staff, we have encouraged furloughs over layoffs. Because nobody can predict the future. I agree with you, Carla, that I don't think a year from now, we'll be back to when the S&P was at 3,400. But at the same time, I don't have the same dire outlook as some of my peers. And so, we want to make sure that our startups aren't starting from scratch. You can't let your team go. That's your most valuable asset.

Darabi:

So, to the extent that we can figure out a way to work with them. One of our companies was so clever. They had very few layoffs, but to the employees that they furloughed, they said, "We are going to retroactively give you a bonus upon our next round of financing. And we're increasing our option pool so that you can return to this company with more skin in the game for the risk that you're taking. By the way, feel free to online consult during this downturn. We won't hold that against you."

Harris:

Very clever. That's a great playbook point.

Darabi:

I thought so, too. So, that's the answer to your first question. What is the advice that we're giving to our founders? It's bespoke. It's really about providing them with a solution that's unique to their business. For some of our founders, we're saying, "You're having term sheets thrown at you." Oh, our food delivery companies, for instance, one for pets and one for a vegetarian solution home delivery.

Darabi:

My gosh, I mean, investors have never been more eager to get involved because everybody's having food delivered to their homes. Internally, we are putting more capital into reserves to your point. We have a lot of dry powder. We were incredibly fortunate that our first close took place of our second fund in late December of last year. And that we've only made one new investment. So, whoosh. I'm not going to say I predicted this and we knew it was coming.

Darabi:

Now, we have to talk to our investors first. Like I said, I have two clients. Client number one are our founders. Clients number two are our investors. So, we did personal phone calls with over 40 of them. And we said, "Here's how we're thinking about responding but we want your input, too." So, they don't feel as though we're making decisions unanimously in some dark corner. And we said to everyone, over communicating, I think, in general, is good advice for founders or [crosstalk 00:38:20].

Harris:

Yes, just being a good customer, girl. Just thinking about people as customers and how you interact with them is one of the most important things you can do. Major playbook point.

Darabi:

Right. We said what we're feeling is that valuations are going to simmer, but they haven't quite yet. So, if we fall in love with a company, we're going to invest. But we're going to also hit pause and not do a new capital call at this exact moment in time to give you and your bank account a breather. And we are going to talk to our lawyers about what terms we should put into place that protect both the founders and ourselves.

Darabi:

We came up with new term sheets and a new strategy. With our CFO, we also reconfigured our model. And we left more money for reserves, including, assuming, that more than 50% of our founders will raise a bridge round between the seed in the series A. Now, other VC firms like First Round Capital have done surveys. And the founder response is that yes, 50% of the time founders do take on bridge rounds, that is the norm.

Darabi:

And a bridge round for your listeners who don't know is when a founder takes on capital, somewhere between earliest point of infancy and total product market fit Series A. It used to be historically that you just go from seed to Series A, and cartoon birds would do your hair in the morning. But that's just not the world that we live in, especially, we're not right now. And so, long story short, we've configured our model.

Darabi:

We've received the blessing from our investors, particularly our anchor investor. And we've communicated this to the founders that are pitching us in a first phone call. We say, "Hey, I really don't want to buy up your time. But here's our playbook. If it works for you, cool. You're going after those lofty Silicon Valley valuations, we wish you the best of luck. But that's not where our head is right now."

Harris:

Outstanding. So, Soraya, you have a podcast now called Business Schooled. How can we find it?

Darabi:

Oh, thank you for asking. Yes. So, Business Schooled, just sponsored by Synchrony is now out in season two. You can find it on all podcast platforms, including Spotify and Stitcher. I listened to it on Apple. Long story short, the podcast interviews persevering founders, 50% of which are women, by the way. Thank you, who have made it past their startup days. So, our thesis is about interviewing folks who have persevered, most of the time, without raising a cent of funding outside of friends and family.

Darabi:

And we talked to them about how they made it to that five-year mark, which is a critical mark in their business, without giving up ultimately. And it reminded me, A, how tough this businesses, B, how rewarding it is, too.

Harris:

Well, I applaud you and I thank you because the more that we can get stories like those out and like the ones that you all have told today on our podcast, the more, I think, we will raise the level of awareness around the fact that it's not a supply problem. The women founders are out there. The multicultural founders are out there. And we're trying to put a playbook in the marketplace.

Harris:

For those who say they can't find them, they don't know how, here's how you do it. And I think the more we tell those stories, the greater the probability that we can close the gap that exists with women getting only 4% of VC dollars and multicultural entrepreneurs getting less than 2% depending on your source.

Darabi:

I really respond to the fact that you're doing this show. I listen and I love it because in particular, African-American women start 1,400 small businesses a day, SMBs. The most likely demographic to start a business in this country, and they are the least likely demographic to receive venture financing. And so, I think you are a role model for so many different types of founders. But in particular, we at Trail Mix are always looking for double diversity. Not just women, right? But we're looking for FLC, founders of color, to pitch us, LGBTQ founders to pitch us because we know the road's not that easy.

Harris:

Thank you. So, ladies, let's do the lightning round. This is an opportunity for our listeners to get a chance to know you a little bit more because we're going to go personal. And I'm going to ask you a series of five or six questions and you answer the first one and I'm going to start with you, Sarah. So are you ready?

Sheehan:

I'm ready.

Harris:

Okay. Reading a book or binge watching television?

Sheehan:

Right now, binge watching television.

Harris:

City or countryside?

Sheehan:

City.

Harris:

Winter or summer?

Sheehan:

Winter.

Harris:

Water or wine?

Sheehan:

Water.

Harris:

Okay. Yeah, you got a five-month old. That was an easy one. Okay.

Sheehan:

Used to be wine, Carla.

Harris:

I'm with you. I'm with you. Email or phone call?

Sheehan:

Phone call.

Harris:

Okay. And lastly, what is the one word that you would like used to describe your legacy?

Sheehan:

Kindness.

Harris:

All right. Ms. Soraya, here we go. Reading a book or binge watching television?

Darabi:

A book.

Harris:

Okay. City or countryside?

Darabi:

City. New York.

Harris:

All righty. Winter or summer?

Darabi:

Summer.

Harris:

Water or wine?

Darabi:

Wine when I'm allowed it. I'm not allowed it right now.

Harris:

Email or phone call?

Darabi:

Email.

Harris:

And what is the one word you would like used to describe your legacy?

Darabi:

Profound.

Harris:

Ah, wow. Well, ladies, I cannot thank you enough for taking some time, especially during this pandemic, to talk to our listeners and to talk to us about your amazing journeys. And to give us so many great playbook points. I thank you. Thank you. Thank you. Stay safe. And stay well.

Darabi:

Thank you so much. We're so thrilled to be here in such a big fan of yours. We really appreciate your time.

Sheehan:

Yeah. Thank you, Carla. This is wonderful.

Harris:

Thank you all for joining us for another exciting season of Access & Opportunity. While we work on season 7, check out more of our content on the Morgan Stanley Inclusive Innovation and Opportunity page at www.morganstanley.com back slash inclusive innovation. I’ll see ya next time!