About Cap Table Diversity w/ amazing Carmen Alfonso Rico

For this campaign 30 𝐨𝐟 𝐄𝐮𝐫𝐨𝐩𝐞’𝐬 𝐦𝐨𝐬𝐭 𝐚𝐜𝐭𝐢𝐯𝐞 𝐟𝐞𝐦𝐚𝐥𝐞 𝐛𝐮𝐬𝐢𝐧𝐞𝐬𝐬 𝐚𝐧𝐠𝐞𝐥𝐬 gathered to share unique paths into investing, talk about current state of nation and discuss about the future of venture capital. This is to inspire even more diversity of thought in backing and building startups to solidify Europe’s contribution to global tech landscape.

Today ✨Carmen Alfonso Rico 🍫 ✨dives deeper into her path of a VC turned angel, backing killers with a heart and the art of early-stage investing. Carmen is Co-Founder of Cocoa Ventures, a European micro-VC that invests $250k-$500k checks at pre-Seed & Seed. Cocoa is both the joy of her life and the hardest thing she has ever done. Originally Carmen is from Spain but calls London home. She is lawyer and economist, previously @MorganStanley, @FelixCapital, as well as a former partner @Samaipata and @Blossom Capital. Launched a D2C brand from her living room in between (RIP). She only joined VC back in time because she thought it would make her a better founder (what she’d always wanted to be), just to discover that she is an investor at heart. Always chasing the “why” and “so what” of everything. Carmen is food explorer, book lover and exotic passport stamp collector.

Being asked about the current state and future of angel investing that is what she replied.

What is your super-power to support entrepreneurs?

EQ.  I’m a VC turned angel and support founders as their in-house VC. Being small in the cap table like an angel but having all the experience and network of a VC, I can become the founders’ trusted confidant.

What convinces you to invest in a startup?

I back killers with a heart! They are: 

• Founders who are obsessed: they have an excruciating reason for why they want to solve a specific problem, go after this market, and build this company. Starting a company is an irrational decision, one of the hardest things you can do, and so they need to be obsessed to power through. I know this from my own experience. 

• Founders with an ambition that is borderline naive but that they can execute on. There is a fine line between naive and delusional - I look for founders with huge ambition, not fully aware of all the challenges that lie ahead, but with the capacities to overcome those challenges when they come, because they will come. To assess those capacities, I look for speed of execution and speed of learning. 

• Founders with unique insights and clarity of mind: Founders who have a deep understanding of the market they are going after, the problem they are solving and who are they solving it for have a head start compared to other teams. They can execute better sooner, and are faster in figuring out where real opportunity is.

What is the biggest difference between angel investing, Cocoa and VC?

The return each need. If you want to have the opportunity to work with all the best founders from a place of full alignment of interests, being small can be quite powerful ;). I was a VC for many years. Then I started to angel invest on the side. And realized there was a gap in the market for a VC turned angel. So, Cocoa is a fund, but not a VC - we write angel checks and don’t give a damn about ownership. This allows us to be neutral, independent and fully aligned with founders. To that angel check and angel ownership stake, we bring our VC expertise and network of many years to support founders as their “in-house VC” and help them hack the system from the inside.

With that context, I think the biggest difference between angel investing/Cocoa vs. VC is a matter of the return each need. A fund will look at returns as a multiple of the size of the full fund and look for fund returners. 10x for an angel is a pretty decent result compared to what you can make in other assets. It is not the best outcome for a VC. To maximize the probability of a company being a fund returner VCs care about ownership: the size of an exit needed for a company to be a fund returner is the product of (size of the fund) / (% stake owned at exit). VC will try to own as much stake as possible at entry, to own as much as possible at exit. The larger the VC fund, the more sensitive it is to stake, as the harder it is to return the fund. In Europe today some seed funds need a 15% entry stake fully diluted. I personally believe that investment decisions driven by stake are restrictive and lead to adverse selection. Angels on the other hand are not so sensitive to stake.

Cocoa’s model is built on an obsession to have full alignment of interest with founders. Our way: not give a damn about ownership - that allows us to work with all the best founders and collaborate with other investors to create win-win situations. But we are a fund so we do look for fund returners. How we solved the conundrum: keeping Cocoa’s size very small. Going back to the equation of fund returner = (size of the fund) / (% stake owned at exit). At $17m fund size, with 1% at exit, a $1.7bn company is a fund returner. Certainly difficult, but not impossible, so we can afford being very flexible in terms of our ownership stake. 

How do you collaborate with other angels?

We collaborate, we don’t compete’ is one of Cocoa’s core principles. And it’s also one of my favourite things about investing like an angel. As we don’t care about ownership, we are totally free to work towards building win-win situations for both founders and investors. This includes connecting great founders to great investors and sharing due diligence/insights. Cocoa’s role in a round is to stay neutral and collaborative to

i) make sure founders have access to the best potential investors,  

ii) be flexible, enabling the founder to build their cap table as they wish

iii) be 24/7 there, supporting the founder emotionally as rounds are quite a ride 

I love to invest with angels and investors who are in this for the founders and are passionate about supporting them through the entire entrepreneurial journey, in the good and in the bad. Active investors, angels or funds, will have a portfolio of companies - we want each company to do well and certainly have skin in the game, but if one fails, it’s not life critical to us. On the other hand, founders only have one portfolio company and so it’s their life project. I love to work with investors who understand that and deeply care about it.

What have you learned from your anti-portfolio?

Realizing and coming to terms with the fact that none of us really knows much ;). My biggest misses come from overestimating how much I know of a market and/or fixating too much on market size. It’s humbling and probably the driver of why I love investing so much. Every call, I start from scratch, ready to learn.

Early-stage investing is a tricky art. On one hand, it’s about muscle - the more companies you see, the more you can build patterns, which help to filter and cut through noise. But you also need to be constantly ready to tear that muscle and blow that pattern, as we are looking for outliers.  Outliers won’t fit a pattern. 

Every time you meet a founder you need an open mind - every time I open Notion to take notes on a meeting, the headline says:  this could be the biggest company in the world. And I have an elephant lamp (yes, elephant lamp) on my desk at Cocoa HQ - to constantly remind me to have open eyes and big ears.

❤️🔥🍫💡🍫🔥🍫

Thank you, Carmen, for sharing your insights. My name is Julia Dous, and I am passionate about diversifying cap tables. I accomplish this through angel investing, advising VCs on talent acquisition, and running the Evangelistas, a vibrant community of +300 seasoned female angel investors backing exceptional founders with big ideas.

This campaign is our contribution for more diversity of thought in European venture capital. The 30 angels who gathered have invested into various startups (and funds) across Europe. All bring amazing super power to support founders - and a long track record. We know there are more great angels. This is to start – and inspire more women to check-writing and to building.

Stay tuned for: Sophia Bendz | Dr. Nakeema Stefflbauer, EMBA | Gloria Baeuerlein | Tatiana Jama | Deepali Nangia | Eva Spannagl | Annelie Ajami | Verena Pausder | Anne Færch Jørgensen | Georgie Smallwood | Lin Gong-Deutschmann | Martina Pfeifer | Sylvie Mutschler - v.Specht | Roxanne VARZA | Emma Tracey | Vera Elizabeth Baker | June Angelides MBE | Katja Ruhnke | Mandy Nyarko MBE | Dr. Gesa Miczaika | Raffaela Rein | Maya Ghosn Bichara | Dr Fiona Pathiraja | Noor van Boven | Rupa Ganatra Popat | Sarah Drinkwater | Susanna Campbell | Beate Fastrich | Annamaria Tartaglia | Kerstin Bock | Valentine Baudouin.