Cocoa Ventures’ Venture Capital Fund is Designed to Be an Angel

Most venture capitalists want to lead the rounds, take board seats, and shine a light on the deals they make. Carmen Rico is taking a different approach.

Today announces the launch of Cocoa Ventures, a $17 million VC fund designed for not lead rounds, not arguing about bets and not Get in the way of other investors.

Rico, a former partner at Blossom Capital and Samaipata and an early investor in Hopin, and Anthony Danon, who was a former partner at Speedinvest where he led fintech deals such as primer And waveflyer I came up with the idea of ​​setting up a venture capital firm that would act as an angel investor during the quick funding market last year.

“In 2021, everyone was raising bigger and bigger money, and Series A was more competitive. So much money was raised that everyone needed bigger stakes. [in startups]Rico says. “Our thesis is not Play that war for the stakes.”

Is he genius or crazy?

How to invest Cocoa Ventures like an angel

The big idea of ​​Cocoa Ventures is to compete with other investors – by not competing with them. The plan is to get into a run early, then help the early stage founders “build the rooftop table they want,” says Rico.

During the tour, the duo brings in other investors (such as the good angel investor), helps prepare employee stock ownership plans and assists with term sheet negotiations. They’ve also helped companies set up bank accounts in the past, Rico says, and have connected founders with other founders to do their due diligence on potential investors.

After fundraising, Cocoa’s role becomes “less active and more interactive,” Dannon says. The duo is important on personal matters: “Providing emotional support, being the founder’s first port of call to ask questions like, ‘How do I make my board of directors more effective?'” How can I resolve this tension with the co-founder? “

“We want to be the people the founder comes to to practice how to tell the company that they’re firing someone on the leadership team,” Rico adds. So far, even the founder is friendly.

can you Is that true Don’t care about risks?

Cocoa Ventures will write angel-sized checks ranging from $150,000 to $500,000 in pre-seed and seed-stage European startups in any sector. It will not lead to deals and will not take seats on the board of directors.

And this is the thing that sounds crazy. “We don’t care about the risks,” says Rico. “by not Because we are sensitive to ownership, we can act like owners,” adds Danon.

Those lines look like they would make most investors run for the hills, but Rico explains the math: “With our fund, having a 1% stake in a $1.7 billion company at exit makes it a return for the money. With a $300 million fund and a 1% stake In a company, you need a $30 billion exit — so you will always try to get as much equity as possible.”

Ideally, Rico adds, Cocoa hopes to have a 1.5-2.5% stake in a startup when it first invests. Assuming a 60% dilution from Incorporation to Exit (since most startups will continue to raise three to five more rounds, giving away about 20% of capital each time), then Cocoa can expect to get 0.6- 1% of a business when it cashes in.

That’s not too crazy, says someone experienced in early stage VC Sifted who spoke to him to check out the model. “As a general rule, the larger the fund, the more important the ownership,” they say. small boxes Could you Steer clear of a more permissive approach to ownership, as they are less dependent on massive exits to “return” their money.

Cocoa also hopes this approach will help it get into more early-stage deals, which they hope will pay off in the long run.

“We see a lot of what’s great in Europe,” says Rico. “And we didn’t want to be excluded from a deal because our minimum stake was too high.”

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

Make friends with the best founders

Cocoa Ventures’ long game is to be the investor of choice for many of Europe’s top founders.

It starts with Cocoa being the founder’s favorite investor to work with in the early stages — but over time, the theory goes, Cocoa could earn a spot in the competitive later stage rounds.

With this first fund, Rico and Danone don’t plan to follow through — in part because of the message it sends when an investor pursues some business but not others. “We want to be that player who has no horses to race,” Rico says.

However, they do not rule out raising more funds or using other “cocoa compounds” in the future to invest in portfolio companies in the later stage rounds. (We’ve got a reserve to do anything, adds Rico – 25% of the fund is currently dedicated to writing larger first checks and making subsequent investments.)

Rico and Danon also hope that by being on the side of the founders, the founders will bring them a great deal of flow. So far, Cocoa founders and operators have brought in two deals they’ve invested in — and they’ve also introduced the duo to some entrepreneurs who haven’t taken the full stride yet. “We’re talking to several founders who are still in their jobs,” Rico says.

Cocoa Ventures’ LPs

Three-quarters of Cocoa Ventures’ fund was raised from founders such as Snender, Flixbus, Luko, Bitpanda, Truelayer, Primer and scaling operators such as N26 CFO Jan Kemper.

20% of the fund comes from three stable funds – Reference Capital, Aldea and Nomad – while Cocoa has deliberately avoided raising funds from other VCs.

“We thought, let’s not get venture capital money [as LPs] Because we can’t stand in front of the founders and tell them that we have unfiltered visions for investors [with those backers]”,” says Danon. “And that allows us to be very flexible as a fund.”

It was a pretty quick process: They started fundraising in October and closed the fund, which was built on AngelList, on Christmas Eve. “Last year the market was on fire, and we wanted to reduce our time out of the market,” says Rico. She adds that raising money so quickly has also helped reduce the overhead that comes with creating one — and seems to also create a bit of a fear of chaos. “We wanted to raise $15 million, we asked for $35 million and settled on $17 million in the end.”

wallet so far

So far, Cocoa Ventures has made six deals and committed to supporting five other startups. Only two are publicly available: the Speckle design program startup and the Choice product startup recommendation. Three of them are in climate technology, and three are in fintech and DeFi. There are two established companies and one of them is an ethnic minority founder. The plan is to invest in 20-25 companies per year over two years.

“We don’t have ethics when it comes to sectors,” Danon says. But we draw the line at ‘I can’t understand’ [sectors] – It is important for us to build conviction.”

“We’re looking for obsessive founders,” says Rico. “If you do not have a painful reason for wanting to solve this problem, it is very difficult [to keep going]. And we want to see ambition that is borderline naive.”

The question is whether Danone and Rico’s ambition is too naive in the right way, too.

Amy Lewin is the Sifted Editor and co-host of The Sifted Podcast (Listen to spotify or apple). She tweets from Tweet embed