0:00:00.0 Kurt Baker: Welcome to Master Your Finances. If you’d like to know more about venture capital and the broader investing world from the perspective of high school students, join us as we dive into this fascinating area with Akash Patel and Andrew Somers, recent graduates making waves in the finance industry. Akash, a venture analyst at 1435 Capital is adept at analyzing companies, conducting due diligence and sourcing deals. Additionally is an incoming freshman at Northwestern University studying Economics and Mathematics. Andrew, who’s going to the University of Virginia for Business with a Finance concentration, works on assessing startups, writing research reports, and deal sourcing as an analyst at the same company. Together, they’ll share insights gained during their summer experiences as they work on starting their own venture capital fund called Homeroom Fund, offering valuable advice for high schoolers interested in finance and venture capital. Tune in and learn how you can get involved and take actionable steps to explore this exciting industry.
0:01:11.5 Kurt Baker: Join us for this eye-opening discussion as we uncover the opportunities that lie ahead for ambitious high schoolers. That is awesome. I love it when I hear about high schoolers like already interested in finance. ‘Cause those of us in the financial world complain they don’t really teach a whole lot of finance in high school, from what I recall at least.
0:01:31.4 Andrew Somers: Yeah. They still don’t.
0:01:33.3 Kurt Baker: They still don’t. And it’s kind of an important aspect of real life because one of the main stressors of adults is finances. Number one reason for divorce is usually finances. And the one number one reason people get themselves in trouble in general is they just don’t simply understand economics and finance. So I think it’s fantastic you guys are starting at a young age. So wow. So how did you guys, I guess we can start with Akash here, since I guess I was told he’s a little bit older than you, Andrew, right? So we’ll have to go senior here for a second. Even though you’re the same grade age.
0:02:03.6 Andrew Somers: Yeah.
0:02:04.0 Kurt Baker: So Akash, when did you first realize that you were actually interested in finance itself?
0:02:09.1 Akash Patel: Yeah, I think throughout my upbringing I was kind of always interested in making predictions, whether it be in sports. I know with my grandfather, I would always talk… He would teach me a lot about stocks and investing, and I would kind of follow a couple of the big name companies. And then when I got to high school, I was able to take an accounting class, which was pretty interesting. And the teacher that I had there was very helpful to me. And I think that that kind of opened me up to the finance industry in the first place. And so I just kind of went into that industry, looked for some more opportunities, looked for internships. Last summer I did a internship at a local venture capital fund that opened me up to venture capital specifically. So once I did that, I became very interested in impact investing in the venture capital space in general. So heading into this summer, I knew that I wanted to do something within venture capital and private equity. And I’m very grateful for this opportunity that I have right now, which is to be a venture analyst at 1435 Capital.
0:03:06.8 Kurt Baker: Yeah. That’s awesome. We’re definitely gonna talk about that. So you, Andrew, had the same question, essentially. So what kind of triggered your interest in and why? ‘Cause this is early age for people to actually get involved in finance, which I think is awesome, again.
0:03:17.0 Andrew Somers: Yeah. So I was doing some investing in eight or ninth grade with my dad. He would teach me how to predict like car prices using statistical models. So I was like really interested in that from early on. And then eventually I just kept following down the rabbit hole, getting into more investing. I was interested in becoming like an investment banker, so I was kind of teaching myself how to do like DCF models, like reading markets, doing other kinds of like statistical modeling, like Monte Carlo simulations. But then eventually I realized it’s not as fulfilling in a way. It’s more just numbers. And I kind of wanted to work with like impact and making a difference in some capacity. So I kind of discovered venture capital and how like investing in the future, and that just was something really interesting to me. So I guess I just started looking for stuff like that at the beginning of this year and eventually found my way to 1435.
0:04:12.5 Kurt Baker: Oh, that is awesome. And I think I heard in both cases we have a grandfather and a father that both kind of like mentored you and taught you a little bit at home. So this really came more or less from the home atmosphere and they showed you, they kind of exposed you to this, which I think is really important. We as parents need to be more proactive in exposing our children to aspects of finance. So now that you’re here, you’re now at 1435 Capital, I guess my first question is, how did you get here? Were you the only ones that wanted to come this summer or was there a process you went through to get here?
0:04:42.8 Andrew Somers: Well, I would say there was pretty, there’s a pretty long process. Like, all right, the application had over 300 people apply for, so it was pretty competitive. I mean, for me it was just kind of like discovering more of what I was interested in beyond normal finance stuff, I would say, just ’cause venture capital’s really unknown to a lot of people and especially young people. So I think having the opportunity to do that is pretty special.
0:05:13.8 Akash Patel: Yeah. I think for me, the way that I kind of found my way here, I was just looking for some… I’m a high schooler and there’s not that many opportunities in the business world, so I was kind of just looking for what I could get. And I found this opportunity just online and I saw that it was a private equity venture capital internship, and I like, that was my top priority. And so filled out the application, then had to do a full report on analyzing a company, which was definitely really interesting. So I picked JP Morgan and it was very interesting to kind of dissect the business and look at it, look at the financial markets from a broad view, but also analyze that company. And then we had an interview. So it was a pretty long process, but it was definitely good to learn a lot about what we’re actually gonna be doing on the job throughout that process.
0:06:00.3 Andrew Somers: Yeah, our reports were pretty extensive. I think my report was like six or seven pages long. Yours? Same, right.
0:06:06.1 Akash Patel: Yeah, same.
0:06:06.1 Kurt Baker: Okay. So it was obviously very competitive. Only couple of you got here. I think it’s, how many interns are there here? Out of the 300?
0:06:12.6 Andrew Somers: Four.
0:06:13.0 Kurt Baker: Four of you total, right? So that’s pretty amazing, that you guys kind of made that cut already. So now that you’re here, when you first came into the venture capital world, what did you first start to learn that maybe surprised you a little bit? Like…
[overlapping conversation]
0:06:27.1 Andrew Somers: Go ahead.
0:06:28.1 Akash Patel: Yeah, so I think for me, the biggest part of venture capital I think that’s different than other types of investing is a lot of the investing is kind of qualitative. So you gotta look at the team, you gotta… So throughout the summer I’ve kind of learned being on these founder calls, you gotta assess the business, assess their metrics, but also assess how well you think the team is gonna be able to accomplish their goals and how well you think that they’re gonna be able to capture elements of the market. And that’s been definitely very eye-opening because you can analyze a lot of models, but being able to have that sense of what kind of team is fit for success is something that’s gained through a lot of experience. And I’m hoping to gain that type of experience throughout this summer and beyond.
0:07:09.3 Andrew Somers: Yeah, I second that for sure. Initially going in, I had an idea that VCU was kind of less numbers oriented, which is fine, but I guess I discovered more that it’s a lot about reading people and kind of seeing like a fit in a way. Like are these founders the right people to be taking on this problem in this market with whatever product they have? And it’s kind of like, do they have this experience behind them or the drive and those things are just hard to assess on face value. Like to get to know the person better, just to like get an idea.
0:07:41.2 Kurt Baker: Yeah. It’s interesting you guys are learning at a very young age that success is more about the person and how they’re developing than it is about all these other things around you. ‘Cause you hear about companies that are run by really good CEOs and then all of a sudden that CEO leaves for some reason and the company kind of dives.
0:07:53.9 Andrew Somers: Definitely.
0:07:54.3 Akash Patel: Yeah.
0:07:54.5 Kurt Baker: Or vice versa, that the company’s having trouble and one person comes in and you have tens of thousands of employees and somehow this one person just perpetuates through the whole process of the whole system based on their personality and how they implement strategies.
0:08:09.1 Andrew Somers: Definitely.
0:08:09.6 Akash Patel: Yeah. Absolutely.
0:08:10.4 Kurt Baker: And that goes to every level. No matter what level you have, managers learn that. Like it’s more about the person I’m hiring ’cause then I can teach them. It’s the skill sets, if I don’t have the right material to start with, it’s gonna be awfully hard to build what I’m trying to build. Now, so once you got into the process, what’d you guys start learning initially?
0:08:30.3 Akash Patel: The main things that we did initially were, we were writing investor reports on companies that we might be looking at investing or writing reports on companies to inform our investors of the fund. That was definitely good to learn business writing, because I think a lot of us were obviously, we just got out of high school, or some of us are in high school, so a lot of our writing we do is kind of like essay writing. So it was good to learn how to write in a different type of way in like a business way because it’s more straight to the point. It’s more about the facts, less, you don’t have to worry too much about flowery language, things like that. And that’s just good to learn I think, at an early age. And that’s something that I learned early on. And then the other part that we were getting into is the meeting with founders and getting on pitch events to learn about different companies and learn about the team that we could be working with.
0:09:22.2 Andrew Somers: Yeah, I would say like, definitely business writing was a big thing, just kind of transitioning from writing papers in English class to writing concise, constructive research papers, but hopping on calls with founders, you have to ask a lot of questions. And even if you think a question might be like dumb or it’s obvious, it still helps to ask because there’s other people in the room that might have the same thing.
0:09:45.3 Kurt Baker: Right.
0:09:45.3 Andrew Somers: And you could totally gloss over something that might be important a couple calls or investments down the line, so you don’t like wanna miss something. So I’d say like being overly curious and asking more questions is definitely something you should do and we’ve learned that just by hopping on tons of calls and just having a bunch of meetings.
0:10:05.2 Kurt Baker: Wow. So far, so you learn how to ask the question. So what kind of questions do you typically ask that kind of are pretty normal as far as the process goes?
0:10:17.4 Akash Patel: I think for me, the type of questions that I like to ask is kind of forward looking. How do you think you’re gonna be able to capture the market? What about your business separates you from other businesses that might be similar, or other businesses that are already established? And kind of using your questions to craft in your head how you think that this business can fare in the next couple of years. And I think that those types of questions are the best. They’re one of the types of questions, but I think those are the best for envisioning the future of the company.
0:10:47.7 Andrew Somers: Yeah, I would say a lot of it is like asking what their moat is, which is how are they gonna be able to protect against competitors, kind of like adapting or like copying their ideas in a way, and then having that existing customer base and just taking over that market that they were trying to capture. So knowing what their unique value is and what they bring that competitors can’t necessarily do is something that you definitely need to know and like figure out because if there’s not much special about them, then why would somebody pay for this new startup thing versus going to an existing company? Or why would an existing company not just take over the product or service that this new startup is doing?
0:11:30.3 Kurt Baker: Right. Absolutely. Well, we’re gonna take a quick break. You’re listening to Master Your Finances, we’ll be right back.
0:11:34.9 Kurt Baker: Welcome back. You’re listening to Master Your Finances. You’re here with Akash Patel and Andrew Somers, and we’re talking about venture capital, I think is awesome at a young age. You guys are already interested in kind of a really kind of a “high end of the market.” This is really where people like escalate to, you have business owners who create a successful business and then they have a liquidity event and they’re like, “Hey, now what am I gonna go do?” And some of them decide, “Well, I don’t really wanna run the business anymore, but I don’t mind investing money and being an “outside advisor”, and things like that. So what you guys are doing is really, really important for the economy. And I don’t know that people actually understand just how important that is. But I want to talk a little bit about like, you guys must see a lot of, I mean, I know as a… Venture capital companies, it’s a pretty low ratio of the ones that actually get through the whole process. You wanna tell us a little bit about how people come to a venture capital company, who comes to you, and then how you guys receive them on your end. So first of all, if I’m looking for money, how would I approach you and then how might you receive me based on different scenarios, if you don’t mind?
0:12:37.3 Andrew Somers: Well, there’s a bunch of different ways that we source deals or just startups reach out. There’s obviously the cold emailing that normally doesn’t go very far.
0:12:47.7 Kurt Baker: Right.
0:12:47.8 Andrew Somers: Because kind of hard to like assess a startup through an email.
0:12:51.3 Kurt Baker: Right.
0:12:51.6 Andrew Somers: But there’s a lot of pitch events that we attend where we’ll just listen to like, I don’t know, anywhere between five to 15 startups pitch and then ask questions, stuff like that. There is website applications where companies will just fill in information and then you can kind of filter and go from there. Maybe schedule a call if you’re interested. I mean, there’s any other kind of social media outreach, but for the most part it’s just like going to events just kinda like pitching your startup is probably the best way to get in contact with a VC. And then filtering and like assessing. I mean, we’ve probably seen at least 50-75 companies just in our couple months here thus far. And I mean, it’s really a lot of just like looking through the pitch deck, like trying to understand their product, like what they bring that’s unique. And then are the founders, like, do they have the ambition? Do they have the drive? Are they the right fit for this product in this market environment?
0:13:55.7 Akash Patel: And I think a lot of these events that we go to, they might be virtual or in person or any of the applications that we get, we kind of go through them, we have a form system, so based on if we’re at a pitch event, we submit a Google form, like just internally and it’s kinda rating the company, how well it fits our specific investment thesis and how well we think they can capture the market. And then once we do that, if we collectively think that we should go further with the company, we can schedule these one-on-one calls. We can request maybe if they have products, we can request some products to test them out. And then we can go through the full due diligence process which is kind of how the whole from point A to point B, how we get, from having a lot of these companies to making investments.
0:14:44.3 Kurt Baker: Okay. You just mentioned a couple things in there. So when you’re going to these events, you mentioned how it fits your investment thesis. Do you wanna explain what that is and what yours is? ‘Cause every VC entity, just like any bank or any other investor out there, it kinda has a profile of what they’re looking for. So how do you determine that and what are you guys currently kinda looking for?
0:15:08.3 Akash Patel: Yeah, so for investment thesis broadly, it’s different for every venture capital fund, as you said, it’s kind of the way that each venture capital fund differentiates itself from other venture capital funds. So, some investment theses relate to impact or sustainability, for us we invest in, we’re basically industry agnostic. We don’t really focus on life sciences or med tech. So as for sectors, we invest in consumer packaged goods, technology, financial technology, a lot of different industries. And for the 1435 side, we invest in approximately 70% later stage companies and then 30% early stage companies. So that’s kind of the spread that we go for. So when we go to these pitch events some of the funds have more narrow investment theses because we are more industry agnostic, we’re able to hear a lot more and have a lot more companies to look at.
0:16:03.9 Andrew Somers: Yeah. Like sometimes we’ll hop on calls with a chocolate startup one day and then other days it will be like this enterprise SaaS company that has a platform for managing whatever kind of consumer stuff. So it really varies, which I like about it ’cause you can go from, you can jump around from industry to industry and just like get this great perspective. But yeah, we’re pretty agnostic when we focus on industries or like a type of company.
0:16:32.0 Kurt Baker: That’s pretty fascinating ’cause most people, most entities try to niche, niche, niche, niche. I mean, like the tighter you niche the easier it is to work it. So there must be some commonalities in like what you’re looking at from either the founder standpoint or the number standpoint or the grow. I mean, there has to be some kind of central threads you’re kind of like, that you like, there’s a reason you’re in this area, right?
0:16:50.8 Andrew Somers: Yeah. I mean, I would say probably the commonalities would just be stage, like what size of the company, where’re they growing. We try to stay away from really early companies that may not even have a fully released product yet, like an MVP or something like that ’cause there’s like minimal traction. So not really a lot behind the company yet. We’re more focused on things that have been proven out a little bit.
0:17:15.4 Kurt Baker: Right. So what are kind of the benchmarks? I know all of us have watched Shark Tank where they come on and they go, have you built a product? How many have you sold? And they’re like, well, I’ve got this drawing in my pocket and I think I can make it. And they’re kind of like, I don’t think so.
[laughter]
0:17:27.7 Andrew Somers: Yeah. Well, we look for some demonstrable traction. The product that is either out on the market right now taking in sales or like they’re prototyping and they have pre-order, something like that, that’s just proving that they have customers.
0:17:41.6 Akash Patel: And Shark Tank normally ranges from, those types of investments are like pre-seed to seed investments. So they’re very early on. We focus on anywhere from seed to around series C funding, which there’s like after C we go to series A, series B and onward. So we kind of stay within that range.
0:17:57.8 Kurt Baker: You just mentioned all the levels, so for the listeners, you want to go through each one and describe what that means in your terms as a VC entity?
0:18:04.6 Akash Patel: Yeah. Sure. Yeah.
0:18:05.5 Andrew Somers: Yeah.
0:18:06.1 Akash Patel: So there’s…
0:18:08.2 Andrew Somers: There’s like angel family, friends round, which is like really early on. Basically you’re just pitching to like people you know with money or maybe some really early investors that will invest, I don’t know, maybe minimum of like a couple grand to maximum of like 50 or 75 grand.
0:18:27.8 Kurt Baker: Right.
0:18:29.5 Andrew Somers: So nothing like really crazy and then there’s like pre-seed, which is maybe you kind of have an MVP or you’re working on an early stage product. You’re early in the design phase. So you’re working on that. I mean, checks for pre-seed, they really, they change depending on what kind of company it is.
0:18:49.2 Kurt Baker: Right.
0:18:50.5 Andrew Somers: So, a company that’s building out software might not need as much funding because it’s relatively low cost, but then something else that’s an actual product might need more. So I don’t wanna say an actual check size range, but…
0:19:00.4 Kurt Baker: Right.
0:19:01.2 Andrew Somers: It can vary anywhere from maybe like 100K to, I know we’ve seen pre-seed rounds up to like 5 million.
0:19:06.0 Kurt Baker: Okay.
0:19:07.4 Andrew Somers: Right.
0:19:07.5 Akash Patel: Yeah. And then after that, once you get to the seed stage companies, they definitely have more traction, generally always have a product, something that you can, something that it’s not just an idea at that point…
0:19:18.5 Andrew Somers: It’s tangible.
0:19:20.3 Akash Patel: Yeah. And those types of companies, once again, it depends on the industry. Like we’ve seen seed rounds for like in… Like anywhere from one to around 10 million I think. It really varies at that point, because once you get to, then after seed is series A, round series B, series C, those rounds is when your company is definitely very established. And once you get later on the letters, those are some big name companies. Things like Reddit, Discord, SpaceX, like those are private companies. They’re not on the public market, but they’ve raised so many rounds of funding. So they are very established companies. So you got a pretty broad range of private companies in general.
0:19:57.9 Kurt Baker: So the series A, B and C are companies which are actually up and running, they might just need money for expansion. Like every once in a while you hear like…
0:20:03.4 Andrew Somers: Yeah, yeah. Exactly.
0:20:04.0 Kurt Baker: Elon wants to go do something, he’s like, he’s raising like $3 billion next week or whatever.
0:20:07.7 Andrew Somers: Yeah, exactly. Yeah.
[chuckle]
0:20:08.6 Kurt Baker: So now, the A, B and C, is that like per company level? Or is that just the order they go in or? How would you describe the difference between the A, B and the C other than just the order? Like they did one round, they’re doing another round. They’re doing another round.
0:20:21.5 Akash Patel: Yeah. It’s basically just order, like…
0:20:23.5 Kurt Baker: Right.
0:20:23.5 Akash Patel: It’s just you’ve raised your seed round, now you’re gonna raise your series A round. I mean, obviously the money’s going to get bigger. It should get bigger if the company is growing. But it does vary depending on companies. Like we’ve seen series, like I’m sure there’s some series B rounds that are greater for one company than a series C round that’s for another company.
0:20:42.4 Kurt Baker: Right.
0:20:43.0 Akash Patel: And it very much depends on the space you’re in, things like that.
0:20:48.1 Kurt Baker: So when you divide this, your 70, 30 things, so you’re saying like the 70 would be more on the A, B, C level and the 30 would be more on the pre-seed and the seed, right, kinda area?
0:20:57.4 Andrew Somers: Yeah. We stay away from pre-seed for the most part.
0:21:00.2 Kurt Baker: Just seed, sorry.
0:21:00.3 Andrew Somers: But mostly seed. Yeah.
0:21:00.7 Kurt Baker: So seed would be like your 30% and then the series rounds would be more like your 70%. So it’s a little bit more on the conservative side, so to speak. So you’ve got a pretty good track record at this point. Right?
0:21:12.2 Akash Patel: Yeah. Yeah, in terms of track record, we have about one point… In terms of 1435 Capital Management and also Ben Jen Holdings, we have around 1.3 billion in aggregate assets under management. That’s included 336 investments with I think 84 exits and 64 unicorns. So, approximately 60 unicorns. So a unicorn is when a company reaches a billion dollars in their valuation. So we’ve had 64 companies that we’ve invested in reach that point and we invest in 70% later stage companies. So it’s not like all these 64 companies we’re finding when they’re really, really small companies. But we’re finding them slightly later stage, but they’ll grow into those types of companies.
0:21:58.2 Kurt Baker: That’s awesome. We’re gonna take another quick break here. You’re listening to Master Your Finances. We’ll be right back.
0:22:02.6 Kurt Baker: Welcome back. You’re listening to Master Your Finances. I’m here with Akash Patel and Andrew Somers, and we’re having a lot of fun here. We’ve got these companies, they’re now, got all these unicorns, 64 at over a billion dollars, which is awesome. So you’d mentioned just before the break how there’s about 1.3 billion in assets. Now, I know venture capital companies themselves have to have the funding to reallocate into the companies they wanna go into, right? ‘Cause you have people that have money they wanna invest it, but they’re like, I don’t really want to get into this whole process you guys are going through, ’cause there’s a lot of risk in that and it’s a lot of expertise required because you’re really siphoning this down to a very, very small percentage of those companies that come in. So how does a venture capital company actually get funded typically? What have you guys seen so far?
0:22:47.5 Andrew Somers: Well, I mean, you can… I think the most common thing is that people often exit their own startups and then they wanna go and start their own VCs ’cause they still wanna be in the startup space, but just on the other side. So you see them bootstrapping a lot where they’ll just put in their own money. But for us, and I guess some other VCs, it’s kinda the same process of raising funding for a startup. It’s a bit different, but you’re still trying to get outside capital from whatever kind of investors, maybe other VCs will invest in your fund. I mean, it’s kind of funny because they, it’s like a fund of funds, but…
0:23:21.7 Kurt Baker: Right.
0:23:22.0 Andrew Somers: But they do have that. I think Sequoia Capital does some sort of fund of funds that they will invest in.
0:23:28.4 Akash Patel: Yeah. And I think it depends on the type of VC fund you have. So if it’s a more popular venture capital fund, you’re gonna get funding because of your credibility.
0:23:39.6 Kurt Baker: Right.
0:23:40.1 Akash Patel: If you’re starting a venture capital fund, you have to go to a lot of these pitch events where startups are pitching at. Sometimes there’ll be a couple funds that are pitching there. So that’s an interesting part because like Andrew mentioned, startups have to raise their money, but venture capital funds also kind of have to raise money in that same vein if they’re an earlier company or if they’re an earlier fund. And then another thing is the investors that invest in these funds are called accredited investors. So there’s specific qualifications that you have to meet in order to actually invest in these funds. So when you’re a venture capital fund, you have to look for these types of investors. It can’t just be any person.
0:24:17.5 Kurt Baker: Right. You have to be an accredited… ‘because it’s high risk, they have to really be able to withstand the hit.
0:24:21.7 Andrew Somers: Yeah.
0:24:21.9 Kurt Baker: So to speak from an income and or an asset standpoint.
0:24:25.4 Andrew Somers: Yeah. ‘Cause it does take a while to generate returns with venture capital. ‘Cause you have to wait a while for a company to develop and then to actually have revenue and then hopefully become profitable and exit in some sort of way. Like there’s this J-curve where the earlier you invest in a company, the returns are higher, but you have to hold onto it and hold onto this risk for way longer just because it’s an earlier stage. And you have to see the company through all those stages and eventually exiting it.
0:24:53.0 Kurt Baker: I mean, I constantly get these charts from people like, well, if you invested X in Netflix on this date, if you’d kept it whatever, 10 years, it’d be worth X million. Or, you know, and you’re like, but did you look at the line? It was like…
0:25:02.9 Andrew Somers: Yeah.
0:25:03.4 Kurt Baker: Like flat, flat, flat and all of a sudden, boom.
[laughter]
0:25:05.4 Andrew Somers: Yeah.
0:25:05.6 Kurt Baker: It’s like, it probably had it seven years before it actually took off for three years or something. So that’s true. And so typically when you’re coming in as a venture capitalist, you’re looking at the exit prior, right? ‘Cause people say, well, you know, the exit is really, you kind of figure out the exit and then you back into the whole field, right? So, what are you typically looking for as far as these different, is every company similar or are there different companies where you have different expectations on when you might wanna exit it? So how do you guys kinda structure that aspect of it?
0:25:37.4 Andrew Somers: Well, there are definitely different exit multiples for each, like industry and or company. Just because like a biotech company might have a lower exit than like a enterprise technology company, right? So it’s also just kind of like what’s hot on the market right now. I mean, social media stuff isn’t really as big as it was maybe like five to 10 years ago.
0:26:00.9 Kurt Baker: Right.
0:26:01.4 Andrew Somers: Versus AI stuff is huge right now. So the exit multiples are predicted to be way higher. So there’s definitely a discrepancy and just like a difference between what could exit at a higher valuation and make way more return than something else. Yeah.
0:26:18.4 Akash Patel: And another interesting part about the exits is how they’re gonna like kinda grow the company. So a lot of companies when they pitch, if they’re a little bit later, if they have some sort of traction, they’ll kinda say, we might wanna get acquired by X company, one of these big giant companies. They might say that they wanna get acquired by them or they might want to IPO in the future. There’s different ways for them to kinda grow. And that’s also something that we look at because we wanna see how realistic is their expectation of getting acquired by this big huge company.
0:26:48.3 Kurt Baker: Right. So they have something very specific in mind. Like Bio which was local here, ended up being bought by I think Dr. Pepper. And he’s off doing something else. I don’t know what he’s doing. He’s making, he’s building something else right now, but yeah. So you mentioned one that’s actually kind of hot now if you wanna talk about this at all is that AI is hot. And I’m constantly getting bombarded with AI. So how, this must be really interesting ’cause it’s like AI can write stuff and AI can do all these things. So how do you figure this one out? Because it’s literally like an exponential growth in what it’s doing, ’cause it’s like you take one AI thing and create other stuff that can create other stuff.
0:27:25.7 Andrew Somers: Yep.
0:27:25.8 Kurt Baker: It’s kinda like…
0:27:25.8 Andrew Somers: Yeah, it’s kinda tricky.
0:27:26.9 Kurt Baker: It’s a little bit mind blowing if you kinda think about it. So what are your guys’ thoughts about that.
0:27:29.9 Andrew Somers: It makes so hard to assess for sure. They’re definitely the, like a fair share of good AI companies, but I feel like with that comes, like 10 or 15, I’ll say like less impressive AI companies that like, we leverage AI to do X, Y, Z. But in practice or like when if they actually put out a product or some sort of service, it’s kind of just like this low, low grade AI model that like it gets the job done, but it’s not really like anything crazy that’s gonna exit like 25X or anything that special. It’s just kind of like a relative use kind of tool. So it’s definitely hard to assess because a lot of these AI companies are early on too, ’cause so many are coming out. I know Y Combinator is like just throwing money at AI startups and AI founders. So it’s like what is actually gonna be important in 10 years with AI is kind of hard to say.
0:28:25.8 Kurt Baker: Right.
0:28:25.9 Akash Patel: It’s really interesting when we go to these pitch competitions, one thing that was interesting to me when I first started and first attended these competitions, there were some of them where over 50% of the companies that are presenting are in some way they’re saying, as Andrew said, leveraging AI. They use these…
0:28:40.2 Andrew Somers: They love the buzzword.
0:28:41.8 Akash Patel: They like to use certain buzzwords. That because AI is proliferating and it’s so popular, they like to use that and kind of integrate it within their own startup. And it makes it hard to identify what is, as Andrew said, gonna be of use in the future. So that’s something that, so Ben, who actually owns 1435, he has background in technology. So for him it’s good because he has some more background in the area to kind of decipher which of these companies are gonna be of use in the future.
0:29:17.1 Kurt Baker: Yeah. It’s interesting ’cause I’m listening to this and I’m like literally like every company that I know of has told me they’ve integrated AI. It might be something as simple as like one of those little chat bot things that like search their database. And I’m like, well then, we had that before, they just didn’t really… [laughter]
0:29:32.7 Andrew Somers: Yeah. Like when you go on…
0:29:33.0 Kurt Baker: It’s actually not any different than what I’m used to.
0:29:35.2 Andrew Somers: You go on the site and it’s just like a chat bot on the side, like, how can we help you? I’m like, that’s not really integrating AI. That’s just a plugin.
0:29:42.5 Kurt Baker: Yeah. That’s why I kind of chuckled myself. I go, we had this like two years ago on the same system.
0:29:47.0 Andrew Somers: Yeah. Exactly.
0:29:47.4 Kurt Baker: This isn’t new but they’re now just… So people are starting to reframe like what they have because everything has to be AI oriented. And I don’t know, my experience with it so far is that it gets certain amount of the job done, but you still have to have people involved in most of this stuff. Now, maybe that’s gonna change in the next few years. They keep talking about how it’s gonna change, but it’s kind of a tricky area. So you have to really have, I guess what I’m saying is from my understanding, you really have to have expertise as to actually what’s going on. And have some, like Ben does have some technical understanding of what is real and what is just kind of like pitching something and packaging it to make it look nice.
0:30:28.9 Andrew Somers: Yeah. It’s helpful to see like what’s actually going on behind the scenes or under the hood to get like an idea of like, ’cause we’ve seen some startups pitch and they’ll just say we’re a security company with AI leveraging, I don’t know, like cybersecurity. But if you dive into the questions and ask them like, how are you different? And they’re just like, oh, we just leverage AI models. It’s like, but that doesn’t make your business necessarily special or like unique that a customer would buy your product. So it’s very tricky to kind of get an idea.
0:31:00.5 Kurt Baker: ‘Cause our industry, the big one now is everybody says, well, we’re using AI investing now. I go, we’ve had this stuff in the past. [laughter]
0:31:06.9 Andrew Somers: Yeah.
0:31:07.5 Kurt Baker: It’s like this is just the new iteration of like forecasting and back testing and all the other things we’ve done for decades. This is just like a new iteration of what we’re doing. It’s really not any different than what had been done in the past. Just higher tech, numbers. So what else are you guys seeing now? Obviously AI is the big hot button. Are there any other industries? I know you guys had some interesting investments that you guys have been involved in. I’ve been to your office, so do you wanna talk about any of these things that you can talk about without, I don’t want to, things that are already like in place that you’re allowed to talk about. Like some types of companies that have come through.
0:31:41.5 Akash Patel: I mean, some of… We can talk about some of the investments that we’ve made like in the past. So Airbnb and Moderna, I think, were the two biggest investments for 1435 as a whole and for Ben Jen Holdings. So that’s happened in, I think within the past five to 10 years. And those have been the biggest in terms of multiples. Other investments in the portfolio include things like Chime, Zoom, Dialpad, things like that. And those have been pretty successful. As for right now we have a couple, you know, we’re looking at some companies. But we can’t really say exactly what we’re working on.
0:32:20.3 Kurt Baker: Yeah. No. Don’t tell me what you’re working on because I’m not gonna mention any names that I know. ‘Cause I don’t know what status they’re at. ‘Cause I don’t wanna do anything I’m not supposed to be doing. So, yeah. So, but it’s interesting. So those were all very different, right? But it looks like some tech involved a little bit in all of the ones you just mentioned, right? There had to be…
0:32:37.4 Andrew Somers: Basically just in the broader tech industry.
0:32:40.4 Kurt Baker: So how it’s impacted, it might be consumer services, obviously Airbnb, there’s consumers coming there, but there’s a lot, basically tech platform, right?
0:32:48.2 Andrew Somers: Yeah. I mean, I think VC has pretty much just become tech investing over the years. Just ’cause like that’s what the new companies are using and that’s just what they are.
0:32:57.7 Kurt Baker: Cool. Well, it’s been awesome. We’re gonna take another quick break. You’re listening to Master Your Finances.
0:33:03.1 Kurt Baker: Welcome back. You’re listening to Master Your Finance. I’m here with Akash Patel and Andrew Somers, and we’re talking about the VC investing, which is really interesting. A lot of stuff going on these days and it sounds like a common thread is tech. AI is a big thing now. So you guys are screening that out. And you talked a lot about how the VC companies actually have funds and you talked about funds of funds and things like that. And I also understand you might have your own fund happening. Now, you guys are just leaving high school, heading into college, getting involved in VC and you’re actually working on your first fund, which is awesome. Do you want to tell me a little bit about, I guess how you got the idea, so to speak, and what exactly this is that you’re creating?
0:33:41.1 Andrew Somers: Yeah, so what we’re creating is called Homeroom Fund. And basically what we’ve realized at being VCs as high schoolers and now graduating, is that there’s really like this large lack of opportunity for high schoolers in the VC space. Like it’s hard to get internships or even shadowing experience. So Homeroom Fund is designed to kind of bridge that gap that allows high schoolers to run a fund and manage the fund and go through all the venture capital processes like due diligence, sourcing, deals, meeting with startups, kind of everything that encapsulates VC, Homeroom Fund will let high schoolers do.
0:34:20.8 Kurt Baker: So tell me how they’re gonna do that. So I’m an accredited investor, I’m gonna come to you and give it to high schoolers to invest my money?
0:34:27.4 Andrew Somers: [chuckle] Yeah. So that’s obviously a question…
0:34:29.2 Kurt Baker: You’re gonna have to get me through a couple of these hurdles here, right?
0:34:31.3 Andrew Somers: Yeah. So that’s obviously a question. We’ve got a lot, so…
0:34:33.3 Kurt Baker: Okay. Yeah, go ahead.
0:34:34.8 Andrew Somers: We have oversight from 1435 Capital. So that’s the company that…
0:34:39.5 Kurt Baker: There you go.
0:34:40.0 Andrew Somers: We’ve been working for over the summer, so Ben and Ammar Harani are very experienced within the venture capital space, within startups. So they’ve had years of experience in VC. So we’re overseen by them and all the investments that we make are gonna be basically fact-checked by them. But the whole point of the Homeroom Fund is for high schoolers to gain experience with the process and start getting investing experience this early on. So we’re investing in earlier stage companies.
0:35:11.7 Kurt Baker: How early now? How early are you gonna be?
0:35:14.8 Andrew Somers: Earlier than 1435. So we’re gonna do like seed stage, roughly.
0:35:16.3 Kurt Baker: Okay.
0:35:18.4 Andrew Somers: Maybe like more developed pre-seed to a degree.
0:35:18.5 Kurt Baker: Okay.
0:35:22.3 Andrew Somers: But mostly seed stage. Yeah.
0:35:25.1 Kurt Baker: Okay. So have you guys started this now or is this something you’re getting ready to start?
0:35:29.9 Andrew Somers: So we started it, we’re currently in the process of like getting funds and setting everything up to hopefully deploy within the next couple of months.
0:35:39.2 Kurt Baker: Okay.
0:35:40.4 Andrew Somers: Yeah, it’s been a pretty quick process in terms, like, I think we had the idea and started it maybe two or three weeks ago. We’ve just been working on making the presentations to pitch to investors, setting up the bank accounts, setting up legal stuff for the corporation itself. So basically just setting up the foundations for the fund. And then we’re beginning the process of raising capital. Actually we’re gonna be pitching in the very, very near future.
0:36:11.0 Kurt Baker: Let’s hear some of the pitch then, right? You got a whole bunch of people listening. So what would be the reason? I mean, altruists are fantastic, but they’re like, hey look, I wanna make a little money too, right? I mean, they could be passionate about the cause, which obviously that’s one thing people don’t really realize is a lot of times people get involved in entities because they’re passionate about the ’cause itself, right? Not just what they’re doing the money wise. So tell me a little bit about like who you’re gonna like target. Like how are you gonna find this people?
0:36:36.6 Andrew Somers: Well, we’re kind of targeting people or investors who really wanna support youth entrepreneurship and just like learning about business and venture capital and startups just from a really young age. Like maybe they started a company outside of college or in college and they want to give back in a way and kind of show high school kids like, okay, this is a path that you could take. You don’t have to spend five years at X company and then do this and then eventually get to VC. It’s something that you can learn about, like right from the get-go if you’re interested.
0:37:09.9 Akash Patel: And also, I think there’s definitely an opportunity to, it’s an investment at the end of the day.
0:37:13.7 Kurt Baker: Sure.
0:37:14.0 Akash Patel: To make return on your money because we’re not just some random high schoolers. We’ve had experience over the summer as venture analysts, so we’ve sat in on these calls with a bunch of founders. We’ve heard pitches from a lot of companies and we’ve had experience in the due diligence process in determining what investments we should make. But then also, obviously we have the oversight from some of the most experienced people in the VC industry. So I think that the combination of that is what makes the Homeroom Fund special amongst other venture capital funds.
0:37:43.8 Kurt Baker: Okay. So what are you gonna like target on as far as like the type of companies that you’re gonna be interested in looking at? ‘Cause you’re gonna have to go out and find these, well, it’s two streets, right? You need the investors but now you need the companies. So you’re gonna go find the investors, which I guess you could tell me a little bit about that and then tell me how you’re gonna find the actual companies that you’re gonna try to screen.
0:38:03.5 Akash Patel: Yeah. So in terms of finding investors, the same pitch competitions that startups raise capital, we can enter those pitch competitions and raise capital for our fund ourselves. Which is interesting because we’ve been hearing these pitches, but now in the near future, we’re gonna be pitching at these places. Which is a pretty cool concept. So that’s one way we can get investors. There’s other opportunities for like, the same way that you can cold email or use different types of applications to get startup funding, it’s the same thing for VC funding. So we’re kind of using our experience in what we’ve seen startups raise money and that’s how we’re gonna raise money as the venture capital fund.
0:38:44.0 Kurt Baker: Cool.
0:38:44.1 Andrew Somers: Yeah, also just talking to connections, pitching to them and just kind of leveraging our network to reach out to anybody who’d be interested. And in terms of like actually finding startups, we probably just end up going to a lot of pitch events. Maybe we’ll hold an event to find local startups who want to pitch to us, and then we can source and screen them from there.
0:39:08.1 Akash Patel: And then an interesting thing about our background, because we’re going to college, so I’m going to Northwestern University, Andrew’s going to University of Virginia, so at those colleges, there’s accelerated programs for a lot of college startups. So we can source deals from that. There’s pitch events at the colleges in order to, like, at the conclusion of a lot of different college programs, there’s demo days. So we can attend that. We can source deals through our college network. And I think that that’s an interesting thing because a lot of venture capital funds, you know, they’re not gonna be led by high school or college students. So we have that differentiator.
0:39:46.2 Kurt Baker: Okay. So you wanted to touch on, you mentioned accelerator fund. Do you wanna talk about what an accelerator program is real quickly?
0:39:51.9 Akash Patel: Yeah.
0:39:52.6 Kurt Baker: So people know.
0:39:52.9 Akash Patel: So an accelerator is basically a program that helps startups, you know, it’s in the name, accelerate their business, grow their business. It teaches them how to develop products and get their products on the market. And normally in these accelerated programs, at the end of these programs, the startups will have a pitch competition where they can network with investors, they can start the raising capital process or even get grant money from the competition itself. So those events are really great ways for startups and investors to get connected.
0:40:27.5 Andrew Somers: Yeah. There’s also different incubator programs which is kind of helping startup ideas turn into products or like early stage products basically. So I’m sure many college students have startup ideas but they don’t know what to do with it. And like, how do you start something? So they can go to these incubators and like basically start that idea and get it rolling. And so those eventually graduate to accelerators, but we can still source from the idea stage and, you know, kind of follow it. And if we get to a point where we think we might wanna invest, we could go further into due diligence with them and check it out.
0:41:02.5 Kurt Baker: That’s awesome. So you guys, you’re gonna create a fund, so typically, like how much money do you typically wanna raise as a venture capital fund? I mean, there’s just some minimum you need before you can actually actively start doing what you wanna do. Or does it really, I mean, there has to be some kind of amount that you need to start with, right?
0:41:18.2 Akash Patel: I mean, you can have, so we obviously have a goal that we want to raise, an amount, and even if we don’t reach that amount, we can still close our raising and then start deploying capital with whatever we have. So obviously we’re gonna try to reach that goal, but even if you don’t reach that goal, you can still deploy the capital with what you have and what you’ve got.
0:41:38.5 Kurt Baker: Right. So once somebody’s invested, let me touch on this real briefly. ‘Cause once you invest in the company, you’re not just the money part, it’s the expertise part. So how’s that part gonna work with your fund, Homeroom Fund?
0:41:50.3 Andrew Somers: So we’re just providing financial backing. We’re not gonna provide any kind of advising to that much degree. We’re just pretty much gonna focus on the investing side and maybe more advising side with 1435.
0:42:02.7 Kurt Baker: Gotcha. Okay. All right. So, what else can you tell us about like your venture, your project here?
0:42:09.3 Akash Patel: I mean, we’re gonna be the, I guess kind of the timeline is, the goal is to raise money within the next couple of months and kind of close our round. And once we do that, it’ll be hopefully a 6 to 12 month process of deploying our capital. So what that looks like is we hope to make an investment maybe once per month, once or twice per month into different types of companies. So throughout our time, throughout the period of deploying capital, we’ll be going to these pitch events, talking with founders, engaging in due diligence, which is when you analyze companies, when you analyze their metrics and their team, we’ll be engaging that process. And if we find a company that we’ll like, we will take steps to make that investment.
0:42:49.7 Andrew Somers: Yeah. And then beyond that, it will pretty much just be like checking up with investments, writing quarterly reports, going over like the performance, anything new that they’ve made, maybe brought to the market, things like that. Just kind of an updating investors beyond deploying all our capital. And then maybe we’ll start the second fund and start the whole process over again.
0:43:08.5 Kurt Baker: Okay. So yeah, talk to that a little bit. So once you’ve deployed the funding, I mean, what, ’cause you’re gonna be kind of silent, you’re not really offering advice. So you obviously wanna watch your investment. So how do you go through, how’s that process of actually, because these are private companies right now, so how do you know like actually how they’re doing and what’s going on and like, maybe they’re being successful. Well, what if they’re not being successful, at some point you’re like, hey, I mean, I know Elon Musk, he’s asked for like additional capital. Like, can you fund me some more? I’m running a little short this month.
[laughter]
0:43:34.9 Andrew Somers: Yeah. Well, I think it’s just, you know, having calls with founders. And just like getting updates, like performance updates and we can assess from there. I mean, they don’t need to be like that often. It will be like once a quarter. But just to get an idea of kind of where they’re at.
0:43:48.1 Akash Patel: And then once we, you know, meet with those founders, we can update our own investors on how the portfolio companies are doing. And that’s also a part of just kind of maintenance once the capital’s deployed.
0:43:57.7 Kurt Baker: Well, it’s awesome. Gentlemen, any final thoughts before we sign off here? Where do they find the fund, maybe, when it’s up and running?
0:44:05.8 Akash Patel: Yeah, we have a website, homeroomfund.com.
0:44:09.0 Kurt Baker: Okay.
0:44:09.5 Akash Patel: And a contact email, which is contact@homeroomfund.com if you want to reach, yeah.
0:44:14.9 Andrew Somers: And you can reach out if you have any questions.
0:44:16.2 Kurt Baker: Okay. All right. Obviously I don’t endorse any investment advice.
[laughter]
0:44:19.2 Akash Patel: Yes. Yes.
0:44:19.7 Kurt Baker: But yeah. So you can take a look and see what it’s all about. You’ve been listening to Master Your Finance. If you want to watch this show or any, you can subscribe at masteryourfinances.us.
