Todd Federman
Name: Todd Federman
Current Job: Managing Director, North Coast Ventures
Favorite restaurant in town: Nighttown (just a classic)
Q: Todd, thanks for joining me today. First off, how are you dealing with the quarantine and work from home? Thanks for asking. It has been a challenging past 60 days, but I have very little to complain about. My family is healthy and holding up as we work to navigate the new normal (and the 10, 8 and 4 year old navigate home/remote schooling). That said, I miss people and I miss the social nature of what we do in engaging with entrepreneurs, startup teams and investors. I am on zoom or a phone call about half of the day, but it is not a substitute for being with other people.
Q: What are you seeing companies doing to cope during this time? We were in touch with most of our portfolio companies by the second week of March. We developed a series of weekly surveys (sharing the results with the rest of the portfolio) and offered a group zoom for the founders (I have attached the presentation which includes survey results and our recommendations). As you might imagine, there was a wide range of preparedness to operate in this new environment. Several companies hit an immediate wall due to the nature of their businesses and the customers they serve. Several companies experienced minimal disruption or even significant increases in sales due to the associated disruptions. Our typical company (B2B SaaS) is factoring in an assumption of a 25%+ miss from targeted new sales. Without mitigation, that means there will be a significant reduction of runway for most companies. The only ways to mitigate are bringing in more cash (from customers or investors) or spending less. Our companies are looking at all the options and executing based on what is possible and what is advantageous given their situation. Across the portfolio we have seen new financing rounds, extensions of recent rounds, headcount reductions, etc. to address the shortfalls and put the companies in the best possible position to be successful. The overwhelming majority of our companies have applied for and received PPP funding.
Q: How do you imagine the startup scene emerging out of this pandemic? The short answer is that I’m guessing like everyone else. The longer answer is that we have just completed the first inning of a global pandemic so there is a lot to learn. What we know is that a full return to normal will not happen until we have some or all of three things - herd immunity, a vaccine or a strong and widely available therapy. Until then, the startup scene (like everyone else) will struggle. Startups are smaller and more nimble than most so they can be more responsive to the challenges and opportunities. This is a big advantage but is balanced by the reality that startup’s customers are cutting back and investors are more cautious to deploy capital into new companies in this environment. Where pre-existing secular trends (such as the shift to telehealth) rapidly accelerate to create opportunities, startups can often be there to address the need and their investors will be supportive. For situations where market momentum is blunted, this will be about survival for many startups. That may sound negative but we love what we are seeing from many of our teams as they continue to build great companies!
Q: North Coast Ventures is on its 6th fund, can you talk about the history of the organization and where you hope to take it over the next five years? North Coast is comprised of over 250 investors across six funds that have invested in 59 startups. We currently invest out of our Seed Fund IV ($250k typical first check) and Acceleration Fund II ($500k-$1M typical first check). Both funds are primarily focused on B2B SaaS opportunities. The Seed Fund (5th largest angel fund in the country) is a member-driven fund that invests in companies that usually have an MVP with some paying customers. The Acceleration Fund is a more traditional venture fund that invests at a slightly later stage when companies have achieved product market fit and rapid growth. Our goal is pretty simple - get into the best startup opportunities and help them build great companies.
Q: What are some of the companies you have invested in and which ones are you most excited about? In our business, we expect at least half of our investments to fail (fail to provide a return). For the model to work, we need our winners to grow at 100%+. Fortunately, we have a number of strong companies that have developed significant traction. Some of our most exciting recent investments include Remesh (AI driven qualitative research software), Proformex (SaaS for life insurance industry), EmployStream (SaaS onboarding for staffing companies), and ScriptDrop (prescription delivery platform). These companies have 20-100 employees, rapidly growing 7 or 8 figure ARR and strong prospects for the future!