Angel Investor – FinTech – Venture Capital
Chad Fox | Angel Investor - FinTech - Venture Capital

"What I’ve figured out over time, especially in early-stage companies, it always comes down to the people. Whether that's employees, co-founders, early-stage investors or the advisors you bring on the board, making sure that all those relationships are really sound and really tight is super important."

- Chad Fox

Chad Fox on Partnerships

Talk Takeaways

Chad Fox, the Managing Partner of Fox Ventures, joins (JP) Jeffery Potvin to talk about venture capital, boards, partnerships, and how Fox Ventures is helping fintech startups.


Chad Fox is a solo venture capitalist investing in and advising the best in class early-stage FinTech companies.

He has backed over 20 companies to date, personally and through Fox Ventures AngelList syndicate, and is currently raising a fund to double down on seed-stage FinTech. A reformed lawyer, Chad’s portfolio companies rely on him as a strong advisor and he works tirelessly to support their growth.

The full #OPNAskAnAngel talk

Jeffery: Well, just like we like to do man, we like to jump right into things Chad. So, thank you very much for joining us today at Ask An Angel. And to get started, we’re going to jump right into your background. Maybe you can share a little bit about your past, where you’ve been, where you’re going, and one thing about you that no one would know.

Chad: That’s a good one. So, I have a bit of an interest into the technology ecosystem and venture capital, angel investing space. I’m Canadian from Calgary. I left Canada about 12 years go. Moved over seas and got a law degree and basically looked for an emerging market that I could go to. And, basically learned Venture from the ground up. I ended up in the Middle East, in Dubai, where I spent 7 years first as a lawyer. And then about 4 years ago, that selling 6 – minute time intervals wasn’t a very good business model and that I didn’t want to go in and operate a company in. So, I left practicing law. It took kind of all my relationships on the company side and on the investor side and started Angel Investing and putting together syndicates. And because I was a lawyer, I got access to two things. One, good real estate companies came to me and wanted support advice. And the Angel Investor Community or Family Offices basically said that I had a good deal flow and I knew how to put together transactions and put together multitude ways to invest. And so, been doing that for the last four years. And invest only in real estate fintech companies. And something that no body knows is that during COVID, my wife and I have been in four different countries. We probably traveled more than most people. And a lot of people that I do business with still think that I’m sitting in Dubai and they are going to find out today that I’m not actually.

Jeffery: Well, you change the background then.

Chad: Its okay. We can let the cat out of the bag, as they say.

Jeffery: Well only because I’d have to ask, when you were going through these four countries, did every country have a different policy? Or did you have to quarantine for fourteen days in every different country.

Chad: So, we started in Dubai and then we left and went to Europe in about August last year. We stayed a couple months in Greece for the end of the summer. And then, we went to Lebanon for Christmas to visit family. And then we came to Canada. Fortunately, when we came to Canada, it was nice because we came in on the pilot program. We didn’t do the fourteen-day quarantine. We had three days just with lots of tests. I think over that Christmas period, we tested something like 9 times in two weeks. We knew we were safe while everyone else were running out of water.

Jeffery: Whoa. That’s a lot of testing. I had no idea it was that strenuous.

Chad: I just had to test before and after every country. Not too bad.

Jeffery: That’s awesome. Well, I want to touch back on that pivotal moment where you went through and became a lawyer then you started to work through this and you decided that this is not working for me. I need to get into more of this Venture Capital Side. What was that changing moment? You mentioned you just didn’t like the 6-minute calls and the 6-minute value. You’re still utilizing that skill that you built. So what was that metamorphosis that changed in you? You know what, this is the space where I want to be. And was it a start-up that just blew your mind? Or was it the whole space you’d been in for the better part of the last 10 years.

Chad: I’ve always been in the Venture Space. I started looking at business models and I figured out that I didn’t like the business of Law. That was the first step. I guess when you start looking at that business of being a lawyer. My options were two-fold. One, I can either try to change that or I can leave the profession. What I first did, I took all of my clients, quit working at a big firm and set out on my own. What I figured very quickly from there is I was effectively picking my clients as if there were an investment because I was a solo lawyer. I had limited amount of time. I didn’t want to build a big platform. Very similar to what I do today as an Angel Investor. I had to pick the clients that I wanted to spend my time with so I was effectively making an investment. And then over time you know I kind of got to the point where I was like, okay I’m the only one that doesn’t own shares in these same companies that I’m doing these deals for and I’m helping them and building value. So, I initially okay started writing small checks. I first started doing small checks, $5000 – $10,000 maximum. But then I would also do some sweat equity so I’d give them another $15,000 or $20,000 worth of services and it went well. As the number of companies grew, I had a decision to make if I wanted a larger portfolio or stay concentrated. And then the other thing was that I was kind of spreading myself too thin so I wasn’t able to give the same best advice. So, what I figured out was the companies that I like to invest in can come to me for that quick advice. I can still be very hands-on but when we need heavy lifting on a legal investment round or heavy lifting on contracts it’s still probably a better use of everybody’s time and money to go and hire a law firm to do it. And so that’s effectively what I do now. I get access to really good early stage founders because i can actually add some value and then I help them in that seed to series to manage their legal spend, to raise capital and to make sure everything’s set up right. And I sit on the cap table and build some value and go from there. So that’s kind of where we are today.

Jeffery: Awesome! That’s a great story and a great way to jump into companies. So, while you’ve been working in these companies what kind of things do you see as things that would stand out as red flags for founders. Say, “Hey, here’s some real hot items that you should think about when you’re building a company that maybe people just overlook because they’re new.
I can’t stress that enough where you’ve seen co-founders having an issue, brea
Chad: What I’ve figured out over time, especially in early-stage companies, it always comes down to the people. Whether that’s employees, co-founders, early-stage investors or the advisors you bring on the board, making sure that all those relationships are really sound and really tight is super important. king up and causing the company to implode. You know they pick the wrong Angel Investors or don’t have that structured properly which then a VC comes in and says this is a mess and can’t really fix it. Same thing with advisors giving them too many shares not doing vesting. So, making sure that all those relationships are really tight at the beginning, I think, is something that is super important to me and something that I try and help a lot of early stage companies get right from the beginning. I always told the companies when I was a lawyer that it pays to take this seriously now because if you come to me three years down the line, I’m going to end up charging you three times as much or it’s going to be three times as painful to do that. That’s kind of the biggest thing, to have those relationships tight at the beginning.

Jeffery: Agreed and I’m sure that you’ve seen this many times and founders go through this quite often where they have to try to restructure and fix a lot of the documentation that they didn’t create. Is there again some recommendations on, three things from shareholders agreements or employee agreements that stand out? And I’m hitting your legal side because this is not a common understanding, I think that a lot of startups don’t get and I think uh utilizing your skill is pretty key to this.
Chad: I think the biggest thing is just to do it. A lot of founders try and push it down the road too far because they think it’s going to be expensive. Now, there’s so many
free or low-cost places that you can get standard documents and it’s always a good place to start. What I always tell founders is that it’s better to have something than nothing even if it’s you know with your co-founders. When you sit down, when you go, even the back of the napkin conversation where it’s like okay, ‘Here’s your step, here’s your role and here’s my role. You know we’re full-time or we’re not. We agree that we’re going to vest our shares.’ It is something that I like to use with everybody whether that’s you know founders, advisors, or early employees. So that if they do end up leaving or you have a disagreement that an early person can’t hold up the company or at least if they vested, they lose voting rights if they’re not part of the company. So, the biggest advice is always just to get it on paper. It doesn’t have to be perfect. Contracts are always a working document or a living document. They can be changed over time. There’re standards in every country of incorporation whether it’s with certain associations doing it. Some law firms offer it. There’s a ton of free resources on the internet and there’s no reason not to have it done.
Jeffery: For the for the vesting part of it and I do think this is important especially if you’re going in as a co-founder, do you look at one co-founder in a business or multiple co-founder? And then the follow-up to that is maybe you can explain more of what vesting shares means.

Chad: Yeah. So I’m of the opinion that I’m actually quite okay with uh with solo co-founders. a lot of VCS and you know investors will say they don’t love solo founders but i found a lot of the time that there’s more of a risk at the beginning of founders that don’t have a deep understanding of doing business with each other. There’s actually more of a risk than just having you know a solo person. I think I’ve seen more times where co-founders end up having a disagreement at some point that that causes problems. over a solo person that kind of has too much control. now obviously with a solo person, your biggest risk is making sure they know how to delegate and that they can bring in the top tier talent. but I’ve never kind of had a situation where I said ‘no, I want to invest in a solo Founder.’ actually if I look at some of the companies that you know I’ve invested in or some that I’ve missed with solar founders, I’ve never seen it be a really big issue. So, I’m quite comfortable either way as long as you really dig into multiple co-founders more and how do they know each other, know if their skills are complementary and know due diligence around them more than if it’s just a solo. because I know with a solo that we can build up that kind of the c suite the advisory board, the VP level so that as long as I know that they can delegate and they have few core skills then it’s quite comfortable for me. And then to the second point on vesting. Basically, you know for anybody that doesn’t know what vesting is, it’s the ability to either earn shares or claw back shares depending on how you structure it at certain either time intervals or at certain performance intervals. And so, there’s a lot of standards that you know get in the industry where it’s, ‘okay chad you’re going to join XYZ company you’re gonna get one percent of the shares and they’re going to vest over a four-year period.’ usually it’s after the first year. There’s a one-year period to make sure that everybody likes each other and then from there you get a certain amount of shares on a monthly basis or sometimes people do it where they get it on performance even up to public companies. Like Tesla, Elon shares every time he hits certain valuations and certain targets right. So, there’s a lot of different incentives you can do with shares. But what I never like to do is to give something away that isn’t earned. And it’s in how you incentivize your company is probably the most important thing to hiring, getting the right people, and to long-term success. It’s another one of those things, like I said, the relationships are so important that can make or break a company.
Jeffery: I love it. So now, we’re gonna talk more of this because I think this is really valuable and I think there’s a lot of people that overlook this until it hits them in the face and they decide why do I got to spend 20 30 grand to fix all this and it really does uh come quickly. So now you kind of have this vesting period. This is an option. What if I’m a founder and I work on this product and idea with a co-founder and we did this all together, do you recommend going in 50 50 into this business or do you recommend that one has 49 and the other one has 51? What is the best way to manage this because this is quite common and I’m curious as to what you what you recommend?
Chad: So, I usually there there’s no right or wrong answer to this. I think there’s a lot of factors that play into it. Usually what I do when we sit down is look at who’s bringing what to the table right. So, a good way to look at it is, first things first, who’s you know coming in and doing the ideation, whose idea is it that’s has some value that has some intellectual property. the second thing I always look at is how much time and sweat are you going to go and put into the company and that’s usually the first thing. now a lot of the time I always say it’s better to start off on a partnership foot and so that usually I’d say is where you kind of end up at 50 50. Now, if I’m gonna come in as you know one founder and I’ve got some money to put behind the company and the other founder doesn’t, I would almost treat that as if it was you know an initial investment into the company. So that would be the first kind of capital that came in and that’s where you know that would skew the ownership percentage so anytime someone comes and puts you know capital in, I consider it a separate investment event. That usually kind of gets everybody sorted out and that’s also where investing comes in and is important because as founders we should be investing as well so if we get six months down the track and you know all of a sudden, I choose that I’m not going to work full-time. And so, we can sit down and figure out a new kind of conversation around how that works. But I think when I speak to most founders, and I can’t ever say that I’ve been in this conversation, I’ve never had to make this decision for myself. What I’ve always seen is founders that start on an equal level will always go to bat for each other you know as far as the company comes. I’ve seen where founders have you know maybe they come in at a different time. So, one founder starts it and then another founder comes in later that you know is always going to end up very skewed and you know doesn’t have a true founder relationship but I’ve always found the best founders are the ones that own it equally and then if one of them put some capital in, then it goes up because at the end of the day they’re partners. And so, if one partner has slightly more shares then it’s not a true partnership. And I find the best founder relationships are partnership based.
Jeffery: Now that’s super valuable. And now when you put together the shareholders agreement and you’re balancing between the two because as you mentioned earlier there are founders that do break up and they do decide that they’re not going to get along. And to protect this, is there you know you mentioned different uh invested period but when you’re two founders owning 50 50, what does that look like? Do you put in shotgun clauses? Do you put in opportunities that will ensure that the ownership of the other company can take over or make someone a silent partner? What kind of options are there for founders?
Chad: yeah. So, I think a lot of it depends on timing but I think there’s two things obviously you want founders to invest their shares as well over a certain period of time. In it a lot of founders these days are actually going longer vesting periods saying I want to show that I’m committed to this company for five or six years rather than the three or four standards. So, I’m actually seeing that a fair amount where the founding team has longer vesting but then they’re doing shorter investing for employees. So, you’re getting your shares every year rather than a four-year period. With how the employment market’s going, having the ability to automatically claw back those shares is super important the other thing that we do a lot of time with founder vesting is that if they do leave before they’re vested. They lose the voting rights. And so, what that effectively does is they get the economic value from the time that they put into the company but they don’t have the ability to hold up any of the decisions that need to be made so they lose any rights to a board seat. They lose any rights to shareholder voting with the exception of certain things that can negatively affect the value of their shares. So, you can’t go and do a share split that makes their shares worth 10 of what they were just to kind of get rid of them. Things like that is the best way to do it. But they’ve added value regardless of a certain amount of time. And so, they should have the ability to do that. And then the only other thing you can do is have the right to purchase it right, good leave or bad lever clauses depending on how they exited. That would then determine the value that they would receive for those shares.
Jeffery: That’s great. When you do set up these investing periods, how is that structured to ensure that there’s two co-founders and they’ve got five to six years that they’re going to earn out. Is this earning out on new shares based on hitting targets or is this investing just in general, that the corporation owns? Let’s just say a hundred percent at this point. The founders only own 20 percent and you’re letting them vest and grow into owning 50 percent. It will take them six years to do this but that pool is being locked in just like an esop plan. Is that the idea?
Chad: Yes. So, there’s multiple, different ways to structure it and I guess it depends on the country that you’re incorporated in. I’ve done these around the world. So, in some jurisdictions, they don’t understand the treasury shares where can be issued over time. The standard is that new shares sit as part of a founder pool or similar to the esop where they’re locked in. They’re issued at various intervals and set pricing, and those are given out over time. The other way to do it is just a reverse vesting, where the founders have 100 of those shares. If they are to leave within their investing period that they agree to sell back the shares at that specific point in time, one is obviously more favorable to the founders and one is more favorable to the company and the other stakeholders. And so, it depends on how they set it up at the beginning. But, I think either works at the end of the day if a founder is leaving. There are ways that they can be called back or they just are not given those shares over time so it’s effective in both ways.
Jeffery: And with these shares that do come back in the business or the business owns, how much of this can be affected by a VC coming in later on and making investments to change up the way the terms are structured? Does that affect those shares that are in a treasury or that they are being set aside for the founders shares, or take it even further and say that they’re part of the board, and they decide to out that CEO later on? And, this comes up all the time – it’s this fear of founders that they’re going to raise funds and be outed, (we’ll talk about that in a second) but in this process, does that affect any of that control?
Chad: Well, with all of these relationships, you look at it like a long-term 10-year relationship minimum. So, you’ve got to do a lot of stuff upfront. So, when you’re an investor, they’re going to obviously see how that’s structured and come in and a lot of investors will make founders when they come in and reinvest their shares. So, you see it seed. People are making them do three or four years and then I’ll see at series A where they come in and say “okay, you take our money and you’ve got to re-vest from series A. And then, usually from there you don’t see it kind of much after that. So, yes they can come in and you know dictate those terms. Most of the time you don’t see anything until something starts going wrong. But, the most common one is to have the shares revested at various points in time. And usually, that’s up to series A. I haven’t seen it in any of the later stage stuff that I’ve invested in or worked on lately. But, most of the time up to series A you’re seeing that vesting. And, on the second point the biggest thing is you’re getting into a relationship with the investor for, let’s call it, seven to twelve years. You have to make sure who you’re doing business with. And, due diligence works both sides, right? All investors are going to come in and do due diligence on the founders and the founders should do due diligence on their investors and know who they’re working with. And, just knowing the firm isn’t enough anymore. You should know the partner, know who they’ve worked with, their style, etc. We as investors do that on the founders. We do background checks and so it should go both ways.
Jeffery: I wholeheartedly agree with that. I was on a podcast a few weeks ago and it was around an investment that you made that you weren’t happy about and I’m sure they had different terms for it. But, that’s how I’m staging it. And, my feedback was that make sure that if you’re going in on an investment, investigate the investment and the people that you’re investing with. Because sometimes, they might not be on the right board as well and they might not be on the right line that you’re going at. So, these things can be cause and effect later on.
Chad: No, absolutely I think it’s like I said, the most important thing in all of this is the relationship. So, you all have to work together and it takes everybody moving in the same direction. As soon as someone’s not moving the same direction, there’s an issue. And so, hopefully everybody’s professional enough to figure that out. But, more often than not, it’s not the market that kills these companies. The company kills itself. And so, that’s my biggest advice to all the founders. You’ve got to do homework on everybody that you’re getting into conversations with. And, it always isn’t going to go right. There’s going to be times where things go wrong or people have a change of heart, or you missed something or whatever it may be. And so, then it’s just being clear, open, and honest about it. Mistakes happen and as long as you have those strong relationships when something does go wrong, you find out very quickly who’s there. And, they’re going to find a way to help you get out of it.
Jeffery: Agreed. Now, if you take a little bit of a step back and we talk a little bit more about what we chatted to on the ESOP side, when is a good time to build this in? When should you allocate it? When you do allocate the ESOP side, should you post your first or second money in? Should it be ownership shares that are being reduced versus our founder shares versus the rest of the investors? How do you stage that and what’s the best way to allocate that so that you get the best outcome?
Chad: So, the best time to do it is as early as possible and there’s two reasons for that. One is, there’s no restructuring that needs to be done. It’s cleaning and easy at the beginning. But, what it also does is it shows your really early investors as a founder that you know what’s expected of you. And, I think an important thing for everybody to see is to understand what a venture type investor is, what their business model is, what angel investors business models are, and what you know different types of capital looks for. But, that’s why I, a lot of the time, prefer seed over pre-seed. Because, I know I get to see a little bit more of these subtle things that show how much a founder is thinking, how much you know they know about running a business, and is this something that they have thought about. If I go in earlier, at least within my experience, I end up doing a lot more of that heavy lifting. I don’t get the diligence the founders the same. But, I love when a founder comes to me and says “Hey, you know Chad I know this is the esop and it’s already done. This is what we’re going to do and this is how we’re thinking about it over a longer-term period. I’ve seen several really good companies that had built 15 percent into their esop and it was never diluted. It was always 15 regardless if the company was worth a billion dollars and that’s quite rare. And, that company is in the middle east and it’s called Kareem. They were bought by uber for three billion dollars. The people that have come out and started companies out of being able to do that had a massive ecosystem effect. But they only got that right and they were only able to do that because they did it before they brought on a lot of capital. And so, esop generally in the beginning, always comes from founder shares. Your first equity investors will always make sure that that’s done as part of the first shares coming in. You can grow it over time and you know we’ve done that a lot. Post series A, especially if the founders take an early dilution hit for some reason. So, if they take a big hit in val at one of the fundraising events, it’s one tool that we’ve used to re-incentivize them at a little bit later stage. Give them some more shares or let them do these things. But, the founder always shares at the beginning. And then, there’s top ups that have been agreed on that are professional at a later stage for certain reasons or certain hires, etc.
Jeffery: Brilliant. Okay. So, now you’ve got everything nicely structured. You’ve got esop and you’ve got founder shares. What do you look for when it comes to putting a board together? When do you recommend a board or advisors or observers? Where do you see that tying in? And with those, can you give us an idea of what that structure looks like? Why do I have to have a board? When should I have a board and what should I pay for them? Should I give them shares? What do you recommend again on this side? And not just board, but advisors, observers, and all of those people that are helping you build this company?
Chad: So, I guess the distinction to make is the two differences between the two types of boards. So, the board of directors are the people that actually make the decisions of the company and usually we’re seeing that at the first equity financing. And, what that usually is is the first vc that comes in generally wants to take a board seat to watch over their money. And so, usually what that is if that’s at seed stage, you’ll see it, let’s call it two founders and an investor. I love a really good early advisory board. I like the advisory board to rotate over time and be the advisors that you require at certain stages. Because, there’s a very big difference in your advisory board at day one versus when you’re going through the IPO process. And so, what I like to do is those advisors, they have no decision making but they’re generally very influential and very helpful. And so, someone who’s been through an IPO process may be a better time for them to come as after when you’re going for that versus on day one. And so, I like the advisory board to be as fluid as possible. And, you can switch people in and out and that should always come on day one. Founders, whether they’re solo or not, need people to support them and to help them. And so, the advisory board adds a lot of value from day one. Board of directors is when you bring take money from someone else, you have to be accountable for that money. And so, as soon as you take outside capital, usually is when you end up with a board. I don’t like really big heavy boards at the beginning because I think it takes the founders away from executing at speed. And, at the end of the day as early stage investors, we believe in their vision and we have to let them get to the stage where their company is. And then, every founder at series A says their role switches to board meetings, fundraising and I guess still steering the bigger vision. But, they become less operational. So, there is a time when that happens. In terms of compensation, I think everybody wants to give away shares to these places. Your equity at day one is the most expensive commodity that you have and so founders need to understand that and use that appropriately. I always look down the road and I’ve seen sometimes where I get into a company early enough, an advisor will have five percent and I’m like “Okay, this is crazy. What did this person do?” But it’s simply because they didn’t understand it then they did what they had to do at that time. So, I think a small amount of equity for advisors is good. I think again, it should be vested to make sure they actually sign up to come to their meetings and do what they said they were going to do – actually add value. And then, I also like to have in certain situations a call option to buy it at a certain valuation or at least a portion of it so that you’re again considering that as part of your esop. So, a good example would be :Okay, Chad’s going to come and advise this company for the first year. And for that, he wants half a percent of the company at the beginning. But, if the company raises at a 100-million-dollar valuation, Chad agrees to sell 25 percent of that back to the company at that time. So, what that does is for me, I’ve got the value for as an advisor I came in. I added value, I created equity value, and shareholder value. For the company, they have the flexibility to recycle my equity and give it to that new advisor. They’re not forcing me to sell it all. So, Ii still get to see it through to the end. But they have a bit of flexibility. So, if you can pay cash, pay cash. Because, again, that early stage equity is the most expensive that you’re going to give away. But also, over diluting yourselves to give away that or to be able to pay for that advisor may not make sense. Later down the road when you take on board of directors, I generally like the board to have less shares. You’re going to have your investor representatives. And so, they already are looking out for themselves. If you have an independent board member, they should have no shares to make them actually truly independent. And then, I’m not seeing until a later stage a board fee being paid. But, whenever you’re giving out equity, you have to be smart with it. It’s the best incentive for employees, advisors, etc. But, it’s also the most expensive thing you can give away. But, I always tell founders not to be too precious with it because having less of something really huge is better than owning a hundred percent of nothing. But if you make those mistakes early then it’s hard to claw back over time and you have less flexibility. So, it’s more about being flexible in the structure rather than just hoarding 100 percent of the shares.
Jeffery: I love it. There was a good nugget there that, we’re all great nuggets that you just shared but the one part that I liked was having that advisor sell a percentage of, I guess will be classified as esop. But, the advisory role shares that that goes into there so it does force a sale and that actually puts the value back into the company and allows for them to not eat up their equity when they are going on to that larger raise. Even though it’s a small portion, I still think that that’s a great nugget to add into the documentation.
Chad: I think that the secondary market is one of the most useful tools that the founders can use because like I said, there’s a certain group of people that are helpful to the business at certain pieces of the life cycle. So, angel investors can come across every stage. We’re seeing angel investing, you’re seeing
celebrities go in at pre-IPO and that’s still angel investing. You’ve seen people go day one back of a napkin in a coffee shop being the first investor. That goes across the entire sphere but I think what founders really need to understand is, the secondary market is their absolute best friend. What I mean by that is different people are going to be helpful to the business at different stages. At certain points it’s better you only have 100 percent of the shares. And so, at certain points, it’s actually better to get rid of certain people and have them have a liquidity event, say “Thank you very much. You got us from zero to one. We now need our shares to go from one to two”. And using that secondary market is super important and it’s great for everybody. It’s great for your advisors because one, they get to take some money off the table, the company gets to recycle those shares and reuse them for new advisors, etc. It’s great for employees. As the value of the company grows, it’s great to get rid of early investors or maybe you have a busy cap table and want to clean it up. Also, existing investors may look at it and say “Okay I need more of this company to return my fund and so they may want to buy up shares”. And so I think founders, if they really look at the secondary market, is something that a lot more could do, a much better job to better benefit both the company and the stakeholders at the various different points in time.
Jeffery: I love it. That’s a really great point and you see that a lot happening in these companies that are called ‘unicorns’ or ‘rocket ships’ that a lot of that secondary market is really jumping in in second and third markets. There’s probably ten markets jumping in and everybody’s trying to pull a piece of that company before it hits that stage where then it becomes a billion dollar company versus 400 million and whatnot. So, there is a lot of change there and they are hunting down the people that originally were in there trying to figure out how they can access and buy from those early stage investors or employees that are no longer in the company. So, there is a really huge value there that’s certainly being picked out in the market.
Chad: Yes. It’s something super interesting in emerging markets. I still use it as a business model because the exits aren’t there. So, if I go into a company at pre-seed or really early uncomfortable selling at least some of the shares at series a, series b because then I have realized some games. I’ve realized taking a profit and then I get to sleep better at night and i do this as a full-time business. So i always have liquidity. And then you’ve seen some like you said there’s some of the pre-IPO unicorns. there’s some crazy stuff that i see in this market and some of them are even saying okay i’m gonna sell you my shares but I’m going to take, we’re going to put it into an SPV and i’m going to keep the carry. So you’ll see them taking the 20 performance fee just to sell their shares into that side but you know i think if you look at some early stage investors that have done it well like Chrysaka made himself a billionaire off of one of the best kind of early stage Angels VCS. He made himself a billionaire off of doing secondaries because he went in all his winners and set up spvs and bought everybody in the companies and had the ability to go raise the capital. And, I think it’s the secondary market, if you’re smart it’s the best place. one of the best places to be and as an angel investor. it’s a great spot to operate as well because if you you don’t have the restrictions of a fund and so if you see something that you like you just go and you know you go and do it. The hard thing at those kind of later stage ones I think we’re going to see some interesting stuff in the market is how they’re priced. is it a discount to their current their last valuation? is it a premium? how do you do any of that how do you structure it? i think that’s the hardest part that that people get but until there’s some price discovery in the secondary market then it’s still going to be a very lucrative business for sure.
Jeffery: well that was amazing super informative. i probably could ask another 100 questions but we’re going to have to kind of move ourselves on a little bit here. So, i thank you for all of that absolutely. the next question I’m going to throw at you is just a quick story that might come to mind as you’ve been investing over the last few years. have you come across any real exciting heartfelt kind of moment where you thought this company isn’t going to be able to pull this off and they just somehow made it happen and they’ve taken off or they’re doing well or maybe they didn’t do so well what you thought they were going to, what it takes to be an entrepreneur and just kind of blows
your mind and you’re like wow i got to share this story.
Chad: I think every single company has their all roller coasters all the time. There’s no straight line to the top even you know you see some of the big ones. And there it’s not a you know easy road. I think that’s the one thing all entrepreneurs at least go that have done well or the one trait that they all have is they all believe in themselves to a level that is extremely high. they’re super self-confident that they have the ability to execute, but it’s never a straight line. And the way that i look it is i end up being that phone call whether usually when things are kind of going bad as well. because it’s okay let’s call chad, before we call the lawyers. So, I’ve seen a lot of times around fundraising rounds where
they may not be having any traction and it’s one conversation changes everything and it again, it’s all about putting the right people around you. so i have one of my companies. I’m up you know 85 or 90 times on this company. as a company it was one of the first ones that that I did. Their series b was taking longer just to put together COVID-19. They’re raising 50 plus million dollars and there was times where they couldn’t go to a normal bank to get that credit. So what they do, is credit the founder that he’d put the right people around. he caught one of the founders wired six million dollars to get them bridged into the next thing. but there was some sweating going on behind the scenes. saying okay what if we can’t make it to this round?! this is company that’s very successful right so
what that shows is that even in success there’s moments where you know you just have to find a way. And other companies at the early stage where it only takes one person to change things good or ba, i’ve been in some rounds where we’re like okay i don’t know if this deal is gonna just 100 follow through and this isn’t going to be put together. And then one investor falls. And then it’s just you know the momentum builds and you know it ends up being over subscribed in the next three days.
it’s just it’s funny how human nature works and I think all of the founders that i’ve worked with always. No matter they were good or bad it doesn’t matter. i mean all the ones we choose to work with i think we think are good but life, it happens and it just really is about how they how they manage that situation.
Jeffery: I like it. That’s a great story. So rapid fire questions let’s do it. All right what’s your favorite part of investing?
Chad: I love obviously working with the founders.
they’re the most brilliant people in the world. they’re taking risks that people aren’t willing to take they’re trying to build things bigger than anybody else is trying to build and they also are some of the hardest working most genuine people that you get to deal with and so for me that’s my favorite thing and the the sole reason that i do this. the rewards it’s a high risk high reward business and so like if things go really well. we’re gonna all make a bunch of money. but there’s a lot of times where it just goes to zero and so you don’t i always say you don’t ever really do venture or building these things for the money. you’re doing it for like the bigger purpose of building something interesting or being a part of something a little bit bigger. so i love the founders first and foremost. the thing that you know gets me super excited is actually getting into a deal when they’re fundraising. when i’m doing fundraising with the syndicate, when i’ve you know diligence to company and said, ‘okay i want to go do this and you know go to put it together i mean I i love the adreno lin rush that comes with with that side and that’s the best part
Jeffery: how many companies do you invest in per year?
Chad: i have 17 portfolio companies. most of those, i’d say so in the first two years of doing things i was you know a bit more concentrated a bit more hands-on so I think i did five or six and then the last.
i think i’ve done seven this year so far. so the idea is is that i will do 12 to 20 companies a year.
30 companies in a two-year period to try and build that that portfolio.
Jeffery: awesome! any specific verticals?
Chad: all fintech um or fintech adjacent. so i have a quite a wide remit there but most of the stuff that i’ve done is in kind of three areas one is kind of the open banking. api infrastructure play the second one. capital markets and how they’re being affected. includes you know blockchain digital assets, traditional trading infrastructure and wide remit. then i’ve done alternative lending. i like that space so buy now pay later. i’ve done an education platform in Indonesia. I’m doing a couple trade finance sme plays and then the other one, a fourth vertical that i love is kind of how the next generation are getting involved in financial advice. So, i’ve done a company in the middle east called baraka which is going to be robin hood built from there but for the world. and i’ve done a couple other social platforms that do embedded finance. So now, you can pay through pay on instagram or transact through these different platforms and this one that i did is you know based in LA and it’s for mentors so you could jump on and mentor startups and they can pay you through the platform etc and so it’s
not a pure fintech but they figure out how people get paid. How people have new credit scores and things like that and i’ve been quite successful in the embedded space companies that don’t look like fintech but use that vertical. and so that that’s where i’m spending all of my time. very sector focused but you know investing across the world.
Jeffery: Awesome! do you lead rounds?
Chad: i do not lead rounds i love the founders too much for that. again, i’m super founder focused. i always end up being their one of their closest advisors and so i almost feel like it’s a conflict of interest if i lead rounds. the second thing is operate a syndicate and so the we don’t know how much we’re going to invest in each deal until we go and do it and so my sweet spot is being super founder friendly working really closely with strong vcs that do lead rounds and obviously I can jump in and help but what ends up happening in most of the deals is the founders are calling me saying you know what does this term actually mean and so i end up being there so i’m always founder-focused. I don’t lead rounds. I can co-lead if you know there needs to be some reason to do it, but using the syndicate model we tend to not be in a position to do that.
Jeffery: Do you take board seats and do you have preferred terms that you if it’s prep shares safes all that.
Chad: I don’t take a board seat unless I’m asked to obviously if a founder asks me to do that. I will look at doing it. I tend to be more the advisory board. I’m usually the founders one of their closest advisors and it’s usually better for me and for the founder for me not to be on the board because obviously when you sit on the board you have a fiduciary obligation to the to the shareholders as a whole and so I can’t always back the founders if they are going against kind of that obligation and i am a you know founder first and so i tend to be a better advisory board member or that you know 3m phone call rather than a board of directors. and then in terms of that i like to see, i think you know the space has gotten where it’s so standardized now that the standard terms are there and set and there’s not a really strong reason to go outside of them unless there’s something in diligence that came up that you know needs to change it and so i also think you know when you’re early stage investing. so i like the safe versus convertible notes. i like especially at seed stage and you know this change later on but at each stage i think there’s no reason for a debt instrument in the sense that you weren’t approaching the company to provide them a loan you were approaching them to get equity at a certain stage and so I’ll use a safe side letter. on a safe too I’m not going to lie like my information rights the safes. i do miss a few of those things. i like information rights. i like um pro rata rights being able to continue to invest at the later stages. i
Like making sure that those things are there and so I’ll use a side safe and a side letter at those early stages and then just usually fairly standard terms I find as any time you’re changing things up from what’s going on into the industry is usually a red flag. either way like you know either the if the terms are too onerous, you’re kind of wondering what the vc or the investors trying to you know do or if they’re too light it’s like okay what what’s going on here but it it those kind of the sways with how the market’s going right. there’s so much money in the market right now we’re seeing you know safes with no cap no discount and just you know most favored nation to get into companies. and I used to i have 12 months ago. i would have never invested in a in a no cap safe. But now your kind of, ‘if you want into some of these hot deals and some of these companies your kind of just go with the
the flow but obviously the standard documents are there for a reason. most countries have adopted a standard set whether it’s you know in the vc associations angel groups have their standard stuff. and so I even though I’m a lawyer i tend to stick to the standard stuff unless I find something you know in diligence that needs to have additional safeties or protection put in.
Jeffery: I love it. okay we’re going to shift quickly to some personal questions. we’re almost there. we’re right at the end. Alright, so first question: what do you think is the secret sauce to investing
Chad: obviously just picking the people I think if you’re doing angel investing it all comes down to the people and it’s not just the founders it’s everybody that they have around them are able to recruit. both advisors’ team and in investors um i think the other thing when you’re investing it’s and this is something I’ve learned a lot over the last two years is is kind of the cadence and the amount that you learn through the investment process. you know i see a lot of new investors come in and they want to
just had some money left over. I didn’t go on vacation this year I want to angel invest and they come and just put it all down on the table up front. I’ve seen interesting learning for me. It was you know spreading things out over time. I think for early new investors. There’re very few companies that I’ve said no to that down the road I’ve wanted to invest in and haven’t been able to get into right most of the time. I’m still able to find a way in if I passed on something for some reason and said no. I usually find a way in so saying no more often is something but doing some due diligence you’re backing the people trust your guts on you know a lot of the stuff if something doesn’t seem right. Ask a lot of questions and there’s no bad questions. So, okay those are kind of my secrets. Not really secrets but that’s kind of what I use that works.
Jeffery: What is your favorite sports team?
Chad: Calgary slams.
Jeffery: Even though even I’m not going to say anything we can’t speak hockey today. We’re all in and I do live in Toronto at the moment and so you know we’re in a state of mourning here today. Yeah well, I don’t know Montreal seems like they got uh somehow found a leg to make it work so I’m not sure what Toronto’s problem is but we’ll uh we’ll jump into the next question. So, what is your favorite movie and what character would you play in the movie?
Chad: Oh gosh my favorite movie. I watch a lot I’ve kind of watched a lot of movies over a lot of time I don’t really have a favorite movie. There’s been a lot. I guess everybody through COVID-19 has done the whole Netflix thing and my wife and I are no different. We don’t really watch tv but we do enjoy uh a good movie. So I don’t know, I can’t pick a favorite and I don’t know who I would play if I
had to act.
Jeffery: So, all right you’ll be the first one that’s never picked a movie. You don’t have okay one star wars something
Chad: No no no no no no no, star wars. I don’t know there’s too many. I watch a new one too often and i kind of just I don’t look back. I just keep going on the new one so probably the last one that i watched and i can’t even remember what that was.
Jeffery: Okay. Awesome, awesome. Alright. Last question, what’s your superpower
Chad: Gosh that’s a good question. For me, I think I wish it was something more interesting but um i just have the ability to kind of do what it takes for the people that I’m you know doing business with and working with like founders. For me it’s super important and I’m taking this in the investing context. I guess it’s super important that when i pick a company to go with that I that i’m with them the whole time right i’m never gonna abandon that and so i have a stomach for the ups and the downs and i can some say it’s a bad thing. but you know when things are going bad i
try and figure a way out of it and there for the people that I work with because i think you know the most important thing that we have are those are kind of relationships and so i guess that’s a decent superpower I wish it was like seeing into the future
and so i wish i had that so that we could pick those companies doing what’s next now or start them now or you know i wish i had you know hindsight to put more money into bitcoin or things like that when five six years ago when we were all looking at it but I wish that was the superpower but we’re investors. we’re all trying to have that as our super power so if it’s any of my lps out there. listen to this my superpower is seeing into the future and we’re investing in that today.
Jeffery: I love it. It sounds like just from everything we’ve talked about i think one of your other superpowers might be relationships sounds like uh you value those and I think that makes a big
difference so that’s a pretty big superpower too i appreciate that. well i want to say chad thank you very much for all your time today. Fantastic! i always say i don’t take notes but it seems to be the moniker of it. I’m a writer I got to take this stuff down but i think that fantastic you shared a lot of great insights and information and I’m sure the community is going to learn from that and again thank you and the way we like to kind of end our shows is that we like to give you the last word so any comment you want to say to the investors or to the startup, um feel free to take over but again thanks for your time today
Chad: No i appreciate you having me so um for any startups. i mean you can find me on linkedin or on my website. it’s if you’re an angel investor, family office or an institutional lp you can invest with me, I’m on. I have a syndicate on angel list or we do have some small committed capital vehicles that we do. So, feel free to reach out and let’s uh let’s build some great fintechs all together.
Jeffery: i love it perfect again chad, thank you very much for that. i appreciate that. okay that was fantastic so many great things there i think that startups are really going to like and understand more about how to set your structure up of your company all these things that really do make a big difference earlier on from vesting esop boards, how to pay them all that great stuff. check it out like us share find us on all the platforms but thank you very much your time everybody.

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