Designed within the Cocoa Ventures VC fund to act like an angel

Most VCs want to lead rounds, grab board seats, and be in the limelight for the deals they do. Carmen Rico takes a different approach.

Today she announces the launch of Cocoa Ventures, a $17 million venture capital fund designed to not lead rounds, not arguing about bets and not hinder other investors.

Rico, a former partner at Blossom Capital and Samaipata and an early investor in Hopin, and Anthony Danon, formerly a partner at Speedinvest where he led deals to fintechs such as primer and kite, came up with the idea for a VC firm that acted more like an angel investor during last year’s tumultuous financing market.

“In 2021 everyone was raising bigger and bigger funds and Series A became so much more competitive. Such large sums were raised that everyone needed a bigger commitment [in startups]’ says Rico. “Our position is to not play that war for the stakes.”

Is it genius – or madness?

How Cocoa Ventures Invests 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 round early and then help budding founders “build the cap table they want,” Rico says.

During a round, the duo brings in other investors (much like a good angel investor might), help set up employee stock plans, and help negotiate termsheets. They’ve also helped companies set up bank accounts in the past, Rico says, and put founders in touch with other founders to do due diligence on potential investors.

After the fundraiser, Cocoa’s role will become “less proactive, more reactive,” Danon says. The duo likes personal matters: “Providing emotional support, being a founder’s first point of contact for questions like, ‘How do I make my board more effective? How do I resolve this tension with my co-founder?’”

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

Can you real don’t care about commitment?

Cocoa Ventures will be issuing checks in the amount of $150k-500k to pre-seed and seed-stage European-based startups in every industry. It will never lead deals and will not take any board seats.

And here’s the part that sounds a little crazy. “We don’t give a damn about the stakes,” Rico says. “Through not Being sensitive to property allows us to act like an angel,” Danon adds.

That sounds like lines that would send most investors running for the hills, but Rico explains the math: “With our fund, a 1% stake in a $1.7 billion company on exit, it makes a fund that With a $300 million fund and a 1% stake in a company, you need a $30 billion exit — so you’re always going to try to get the largest share possible.”

Ideally, Rico adds, Cocoa hopes to get a 1.5-2.5% stake in a startup when it first invests. Assuming a 60% dilution from seed to exit (since most startups will raise another three to five rounds, giving away about 20% equity each time), that means Cocoa can make 0.6-1% of a company have when it cashes in.

This is not surprising, says an experienced VC Sifted early on who spoke to check the model. “As a general rule of thumb, the larger the fund, the more important ownership is,” they say. Smaller Funds can get away with a more lax approach to ownership as they rely less on huge exits to return their money.

Cocoa also hopes this approach will help her close more of the very best deals early on, which they hope will pay off in the long run.

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

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

Making friends with the best founders

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

That starts with (Cocoa hopes) being a founder’s favorite investor to partner with in the early stages — but over time, the theory goes, Cocoa could earn a spot in competitive later rounds as well.

With this first fund, Rico and Danon don’t plan to move forward — in part because of the message it sends when an investor in some companies does and doesn’t in others. “We want to be this player who has no horses in the race,” says Rico.

However, they don’t rule out raising further funds or using other “cocoa vehicles” to invest in portfolio companies in later rounds. (“We have a buffer to do whatever,” adds Rico — 25% of the fund is currently set aside to write larger first checks and make follow-up investments.)

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

Cocoa Ventures LPs

Three quarters of Cocoa Ventures’ fund is raised by founders of companies such as Sennder, Flixbus, Luko, Bitpanda, Truelayer and Primer, and scale-up operators such as N26 CFO Jan Kemper.

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

“We thought, ‘Let’s not get VC funds’ [as LPs] because we can’t go for founders and tell them we have unfiltered investor insights [with those backers]Danon says. “And that makes us very flexible as a fund.”

It was a pretty quick process: they started the fundraiser 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 minimize our timeout from the market,” Rico says. Raising the fund so quickly also cut the overhead costs associated with setting up a fund, she adds — and it seems it caused a bit of FOMO, too. “We wanted to raise $15 million, got $35 million in demand, and ended up with $17 million.”

The portfolio so far

So far, Cocoa Ventures has closed six deals and committed to supporting five more startups. Only two are public: Speckle design software startup and Choice product recommendations startup. Three in climate technology, three in fintech and DeFi. Two companies have female founders and one has an ethnic minority founder. The plan is to invest in 20-25 companies per year for two years.

“We have no morals when it comes to sectors,” says Danon. “But we draw the line at the ‘cannot understand’ [sectors] — it’s important for us to build conviction.”

“We’re looking for founders who are obsessed,” Rico says. “If you don’t have an unbearable reason why you want to solve this problem, it’s very difficult [to keep going]† And we want to see ambition that is verging on naive.”

The question is whether Danon and Rico’s ambition is also borderline naive in the right way.

Amy Lewin is the editor of Sifted and co-host of The Sifted Podcast (listen further) Spotify or Apple† She tweets from @amyrlewin

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