Richelle Martin tells The Savvy Entrepreneur show that she founded the Winnow Fund and got into venture capital by chance. She never planned to raise money for a venture capital fund. But with the encouragement of one of the directors of Wisconsin’s state Badger Fund of Funds, she became the first woman to create a venture capital fund in the state.
The Fund of Funds was looking for someone to help more professors and researchers within the state’s university system to take the plunge and become entrepreneurs. Wisconsin, like most states, has many people in academia creating new ideas. But the challenge is to get those ideas out into startup companies. Richelle’s background as a lawyer, her familiarity with the University of Wisconsin system, and her knowledge of intellectual property and technology transfer made her a great fit for the Winnow Fund.
The Winnow Fund provides seed money to companies (and even just ideas) in agriculture, medical devices, medical imaging, advanced manufacturing and engineering products.
Richelle shares many candid insights into the world of Venture Capital, especially as a woman partner, and offers plenty of great tips for successfully finding the right investors.
The following is a transcript of our interview, but you can go here if you’d prefer to listen!
Doris Nagel 0:42
Welcome to The Savvy Entrepreneur show. We’re broadcasting from the Greater Chicago Milwaukee area. If you are or you want to be an entrepreneur or small businessperson, this show is for you.
I’m Doris Nagel, your host for the next hour. I’m a serial entrepreneur myself, and I’ve counseled lots of startups and small businesses over the past 30 years.
This show has two goals: to provide and share helpful information resources and to inspire you as an entrepreneur. To help with that, I have guests every week on the show who are willing to share their stories and advice.
And this week’s guest is Richelle Martin, the Founder and Managing Director of the Winnow Fund, where she’s responsible for seeking new investment opportunities. Prior to starting the Fund, she was a leader at UW Madison’s Office of Industrial Partnerships. The university has an open portfolio of over 4 billion in research grants and contracts with industrial sponsors with annual awards exceeding 1 billion. Richelle obtained a BA from the University of Wisconsin Milwaukee and her law degree from the University of Wisconsin Madison.
She is a mentor for the Doyenne Group, which supports women entrepreneurs. She also serves on the board of advisors for the Emerging Tech Hub at the Wisconsin Institute for Discovery. And she’s a board member of the Justin J Watt Foundation, whose mission is to provide after-school activities and opportunities for children to become involved in athletics.
The Winnow Fund is a venture capital fund located in Madison, Wisconsin, and it focuses on creating startups based on ideas developed at universities across the state.
Richelle, thanks so much for being on the show today. Welcome to The Savvy Entrepreneur.
Richelle Martin
Thank you — so excited to be here!
Doris Nagel
Let’s start by talking about the Winnow Fund. What is it, and why did you start it?
Richelle Martin
The Winnow Fund is a smaller venture capital fund, sometimes were referred to as a micro-VC fund. Our focus is to invest in Wisconsin- based companies that are at the pre seed stage. That typically means a pre revenue company, with a newer alpha or beta type product, one that might have a small team of one or possibly two people.
We’re looking very, very early-stage companies. Our goal is to replace the family & friends rounds for these companies. So, we get in earlier than when other venture funds typically would do. And my focus is specifically on university related ideas. From my time as being a lawyer and in the research enterprise at UW Madison, I’ve noticed that there’s a lot of really great innovative things happening on campuses, but there are some difficulties in getting those off campuses and into emerging companies.
So, my goal is to help some of our inventors and our entrepreneurs accomplish this. I spent a lot of time negotiating research contracts and working with these really innovative entrepreneurs. But I think there are three significant hurdles that entrepreneurs and inventors face when it comes to starting a company. One, of course, is money.
The other two are legal. They need assistance with some of the legal aspects of creating a company and sometimes getting that intellectual property off campus. And the other has to do with personnel or finding the right leadership. When you have an inventor who’s spent his/her entire life building a lab and pursuing a specific line of research, it’s really tough for them to say I’m going to give up my tenured position and bet it all on a company that based on data has at least a 50% chance of not being successful. So, we’re also here to help entrepreneurs and inventors with those two other hurdles, in addition to funding.
Doris Nagel 5:00
I’m guessing when the invention comes from academia, and I think this is true of many entrepreneurs who are maybe more technical are more focused on the invention piece, that they’re extremely attached to their idea, but it’s hard for them to accept that they simply may not be wired up the best way to actually run a company. And I’m sure that’s a hard discussion.
Richelle Martin 6:09
I agree. In many cases, it takes a different kind of person to build a product than it does to build a company. And not everyone is successful in both of those roles, because they are very different. That’s why we encourage our inventors to partner with or to hand the reins off to someone who may have more experience on the business side of things. Because once the product is built, that’s not the end of it. And often for people in academics, the invention is the exciting part, and the rest is kind of boring for them. So, we say let us help you find someone who will take the other side of that workload for you.
Doris Nagel
Are there specific kinds of technologies or companies that you’re looking for? And are they even necessarily even actual companies — maybe some haven’t even formed a company?
Richelle Martin
We’re pretty industry agnostic. Given the size and that the Winnow Fund has a 10-year life, there are some things where we would not be able to have the impact that we want. An example of that is a pharmaceutical, where a clinical trial for might need $20 million up to hundreds of millions to do, depending on what phase you’re in. When you’re only a $10 million fund, that’s not something that would be good for our portfolio. In general, we are looking at things like agriculture, medical devices, medical imaging, advanced manufacturing and engineering products. In fact, those are the five categories that were identified by the state as being important to the Wisconsin economy when it created the Badger Fund of Funds. And the Badger Fund of Funds is my largest and lead investor. So those categories have flowed through to the Winnow Fund as our focus.
Doris Nagel 7:36
You mentioned the Badger Fund of Funds. What exactly is that? And how does that fit with what you’re doing?
Richelle Martin
A number of years ago, the State of Wisconsin set aside $25 million to encourage entrepreneurial activity in the state. Wisconsin has been lagging behind pretty much every other state in terms of the number of startups that we’re creating, and the dollars that we’re putting into those startups.
The State recognized this, and decided to do something to better support that community. They set aside $25 million and took proposals from a few different groups on how they thought that that should be managed in terms of a venture fund.
The winner was the Badger Fund of Funds. They brought to the table a partnership of individuals who had experience with venture capital, specifically in Wisconsin, as well as venture capital that had experience in managing funded funds programs in other parts of the country, and even in other countries. Sun Mountain Capital, one of the partners, has experience managing fund of funds programs like this in New Mexico and Utah, but also in Mexico.
They partnered with others who strongly believed in the Wisconsin venture capital community and had a vision where the growth could take us. They then raised an additional $10 million. The Badger Fund of Funds now is approximately a $35 million fund. They took that $35 million and put it into a handful of smaller portfolio funds, each with similar goals of investing only in Wisconsin-based companies. And those funds, like ours, focus on the earlier stages because Wisconsin was lacking a strong investment support base. Raising those first few dollars is tough – they are actually the hardest dollars to raise.
Doris Nagel 9:36
How did you get the idea to start the Winnow Fund?
Richelle Martin 10:00
If you had asked me 5 or 10 years ago if I would be managing a venture capital fund, I wouldn’t have guessed it. I certainly didn’t grow up thinking this was the direction my career would take. And based on my education and my previous careers, it wasn’t clear that this was where I was headed.
But I by chance, I met one of the managing partners of the Badger Fund at a charity event for Jazz at five. It’s an arts nonprofit based in Madison and I was volunteering. There I met Ken Johnson. We started talking, and he was interested in my background –that I was a lawyer, I had experience working with startups through my time at the law entrepreneurship clinic at UWS law school, that I knew the UW Madison community well because spent time negotiating research contracts for the university, and also through that gained a lot of experience with intellectual property and the university’s patent policy.
He found that really interesting and thought it would pair well with one of the Badger Fund’s goals, which was to support University entrepreneurs. He encouraged me to start the Winnow Fund. Without that encouragement, I can say with almost 100% certainty that I never would have started a venture capital fund. But with the support of one of the managing partners of the Badger Fund, I started the fund, and he worked with me to help me secure the initial investment from the Badger Fund.
Doris Nagel 11:26
How did you come up with the name of the fund?
Richelle Martin
When I worked at UW, I spent most of my time working in an office in Bascom. Hall. Bascom Hall is the building everyone thinks of when they think of the University in Madison – it’s iconic –it’s at the top of the hill, it’s got the columns in front. There’s also a plaque on one of the doors that has a quote that refers to “sifting and winnowing,” with the idea that the university is a place that gives people the resources to sift and winnow through ideas to reach academic truth.
I thought the idea was also applicable to venture capital, because we sift and winnow through lots of companies and ideas. You sort the good from the bad, the valuable stuff from kind of the extraneous stuff. Some might not be commercially viable ideas; some might not be great fits for what that investor is looking for. And so, you sift and winnow through a lot of different things to find those really good ideas, those good companies that you then want to support and invest in and see grow.
Doris Nagel
What a great story! And so, how do you go about sifting and winnowing through all the different ideas? I’m envisioning that finding those great ideas from academia and helping people from academia commercialize those ideas might be a little different than your typical venture fund, where, frankly, you have people banging down your door all the time. I’m guessing your job may require you to be a bit more pro-active?
Richelle Martin 13:25
You’re right. Though we do still invest in traditional early-stage companies, my focus and my passion is on drawing some of these ideas off of campuses. So, I have a mix. But there is a little more active searching when it comes to finding things on campuses, because there is usually a bigger disconnect from the product phase to the venture capital phase. People in academia are often surprised that you can go directly from that product phase to the investment phase. So, part of my job is education, through university contacts, through networking, and just maintaining good flows of communication there.
But it is interesting to go through all these ideas. When I was a student attorney at the University’s Law and Entrepreneurship Clinic, it was so easy to get wrapped up in how excited these entrepreneurs were about the potential that they had. Then I went into traditional law practice, and I no longer saw that excitement. I was doing taxes, and family law. Nobody wanted to see me seeing me because who wants to go visit a traditional lawyer? And I no longer felt I was helping people accomplish their dreams – in fact, it was quite the opposite.
I was excited to get back to working with entrepreneurs and their excitement. And now I feel like I’m back in that same kind of emotional trajectory. But now I’m realizing that it’s hard not to say yes to everyone. People come to me with so much excitement and say, “We have such a great company.” But now I need to pull back. The first thing I look at is the numbers, because my job is to generate returns for my investors. I look at comparable companies in the industry, and the market size and other factors to judge how realistic this company is being about their potential. And I need to assess if they have the ability to generate the return that I have told my investors is my goal for them.
When you look at the numbers compared to what the company is telling me, you usually get brought back down to reality. And then if the numbers look good, I try to figure out if we’re a good fit for them. I ask what impact my investment is going to have for this company. You know, some companies have great products and huge market potential, but they just need more money than I can give them.
So, it’s a lot of trying to focus on data and real numbers instead of emotion. And I think that that’s something that venture capital in general brings to the table. We don’t act, I should say, I don’t, and a lot of other venture capitalists I know don’t act, based on emotion. That makes our decision-making process a little bit easier, and a little bit easier to explain. And to apply equally across the board.
Doris Nagel
I’m guessing your job is particularly challenging in the university setting. What you’re doing sounds a little bit like a group that I belong to in Northern Illinois called Smart Health Accelerator. They go around to the various midwestern universities looking for health care ideas created in the university research setting and evaluate which of them might be worthwhile creating a company around and investing in.
What has struck me in listening to those discussions is how nebulous some of them are — how difficult it is to make a determination about what it would take to get the company started, and whether there might be market acceptance. If it’s anything like that group, your job must be difficult, because oftentimes, there’s a lot of missing information.
Whereas with most traditional venture capitalists, companies they’re evaluating are ready with their pitch deck, and they’ve got market research, they’ve got product, they probably have some sales and understand their sales cycle. But what you’re talking about is really kind of more of a blank slate, right?
Richelle Martin
Yes. And it is difficult, which is why we focus pretty heavily on the capability of the team. Once I have developed a level of comfort with the financials, the next big question is whether I think the team can pull this off. They can come to me with the best business plan I’ve ever seen. But if I don’t think the team can execute it, they’re not going to get any money from us, because that business plan becomes meaningless. And so it’s something that I tend to focus on fairly early on. I do have an investment committee, made up of five individuals who help me with the more nebulous analysis.
One of the best indicators of whether a company is going to be successful is if the founders have done it before — if they have had a startup before, and especially if they’ve had success with a previous startup. So that is something that we consider when we are looking at companies that we’re potentially going to invest in.
But you’re right — this is probably the riskiest phases of investing. The earlier you are, the riskier it is. We try hard to provide more than just funding. We want to have people around who can say, “Oh, that’s a pitfall. I’ve gone down that rabbit hole before,” or, “Here’s some things that I’ve done that have helped me solve this problem that I see that you’re having.” We’re hoping to provide more than just money because at the earliest stages, while it is riskier, you can also have a bigger impact.
Doris Nagel 20:00
I think there are a lot of misconceptions about funding, and also about some of the terms related to funding. Is there a difference between seed funding and angel funding?
Richelle Martin
There are two different categories of funding. Seed describes the timing; Angel describes the source. There are some correlations between timing and source. Angels tend to get involved earlier, they may be writing a check size of $25, to $50, to $100,000. And you typically would see that in an earlier fundraising cycle. As that company grows and gets more successful, they’ll raise later rounds, and those rounds get bigger. So, you then see bigger check sizes commonly, although not always. Sometimes they do make room for some people to come in at smaller amounts. But the other thing to think about is: if you’re writing a $50,000 check into a company that’s valued at $500,000, that’s much different for your bottom line and for your equity stake than if you’re writing a $50,000 check in a company that’s valued at $5 million.
Angels do tend to invest in the earlier stages of a company. The terminology around each stage – pre-seed, seed series, A, B — can vary depending on geographically where you’re located, what type of company you are. Pre-seed is a term that was somewhat recently developed, because seed stage financing was sometimes too big for companies. So, if a company only needed to raise $500,000, they didn’t want to call it a seed a seed round, because then everyone kind of assumed they might be raising $1 or $2 million. So, the terminology is all kind of relative. I think it just has to flow sequentially. People understand what round number of financing that you’re raising. There are articles out there about how the terminology has changed, because what was considered “seed” 10 or 15 years ago was quite different than what is considered “seed” today.
I can see why it is confusing sometimes to entrepreneurs trying to find the right funding source. But I think most entrepreneurs I’ve worked with understand if you’re going to a very large venture capital firm, and your idea isn’t incredibly disruptive with the potential to scale multiple times, they’re not going to be interested in you.
Doris Nagel
My sense is that there’s a lot of time wasted as entrepreneurs bang around looking for funding and trying to figure out if an investor is a good match or not. What advice do you have for entrepreneurs to help make sure that the funding sources they’re contacting and pitching to are a good match?
Richelle Martin 24:36
You need to know that your end goals are aligned with the investor that you’re pitching to. For example, if you are looking to build and exit a company and you want to sell your company in five years, then venture might be a good option for you. But if you are starting a restaurant that you plan to be your source of income for the next 20 years, venture is not the right fit for you.
Because a venture capitalist wants to get their money back out through some sort of liquidation event. So, the first thing is to think about what you as an entrepreneur hope to get out of your business. Is this going to be your source of income, where it’s revenue generating, and you pay yourself and you have some employees and it can go on for 30 years? Or is it something you want to build so that it’s big enough to get acquired by Microsoft or GE Healthcare or whatever company in the industry that you’re in. So, the first thing is to think about what your goals are with the company.
But beyond that, you also want to make sure that you’re a match for the requirements of that fund. I think it can be misleading if you see a $100 million fund – you might think, “Oh, I only need $500,000, they have plenty of money. So, we should give that a shot.” Realistically, that fund probably doesn’t write checks smaller than $5 million. It’s not part of their strategy. Also, administratively, if you’re a big fund and you’re writing $500,000 checks, that’s an administrative nightmare for you to keep track of companies.
I think that some people need to think a little bit deeper into the practicality of partnering with some of these funds. And it’s certainly fair, I think, if you’ve done the research and cannot find this information available on a website, or through articles, or through other sources or connections you have, and you still can’t tell what their requirements are, it’s fair for you to reach out and say, “We’re a company that’s raising, and we are wondering if we might be a good fit for your funds. Can you tell me about what your criteria are?”
Because I often get emails from companies that are outside of Wisconsin, companies that are looking to raise $5 million. In those cases, it’s very clear that they have not done any research at all on my fund. And they don’t even check kind of the easiest boxes to, to check off the easiest criteria to satisfy.
And that’s frustrating. Because if I’m getting all of these emails, and I’m a tiny fund that’s only been around for a couple of years, imagine what some of these bigger funds are getting! So, do your research, and check to make sure that you have the same goals. And then once you have the same kind of ultimate goals, make sure that your criteria match theirs.
Doris Nagel
Richelle, one of the things you’re very modest about that you didn’t talk about in your bio, was that the widow fund is really the first venture capital fund started by a woman in Wisconsin. Talk about some of the unique challenges that presented and, you know, maybe still does present for you.
Richelle Martin 28:02
It is the first fund sorted solely by a woman. But I like to give credit to other women who have been in the venture capital world before me, although maybe they did it with a team. There are people like Judy Owen, and, and Toni Sikes, and there’s women who have just been in the entrepreneurship and investment space, like Jan Eddy. But while there are women around venture capital in Wisconsin, I think what’s unique is that no woman has said, “I’m raising a fund on my own.”
You know, there are different ways funds get created. Some funds are corporate — they have funding from a business entity. And then some funds are kind of bootstrap like a startup, and they have to go out and find their own investors. And so, going out and finding my own investors is the way that the Winnow Fund got started. I didn’t fully grasp that I was the only woman to have raised her own fund before. Maybe I’m modest about it because I kind of stumbled into it! I didn’t intend to be some sort of trailblazer.
But it is very noticeable in certain rooms — the lack of women and the lack of diversity in the venture capital space. But equally interesting to me is the complete lack of intentionality about it. I don’t think anyone in this space here in Wisconsin is actively excluding women or people of color from the venture capital world.
So, I think it’s something that we need to bring more awareness to, but I don’t think that anyone is averse to making some changes there. I don’t think anyone’s ever intentionally discriminated against me, or talked over me, or ignored me in a meeting. I think that it’s just something that’s been very unusual for them, and kind of unexpected when I make an appearance in a room because they’re so used to not seeing women in a room. So, when a woman shows up, it makes everyone kind of stop and think a little bit and it’s a little weird. I think that’s the best way to describe it — it’s weird. And it’s weird for the traditional venture capital community, but it’s also weird for the new people like me.
So, it’s just something that we all have to acknowledge and accept. I just keep showing up. And then the more I show up, the less weird it gets. I feel very accepted now. Now, I don’t think that people find it weird when I come to meetings. You walk in and people know your name. And I feel like I’m very much part of that that community now. But we certainly do have some room to continue to make changes.
Doris Nagel 29:55
That that squares with my own experience. I’m not a venture capitalist, but I was in many meetings involving mergers & acquisitions & joint venture, and that certainly squares with my experience. It’s also similar to what I’ve heard from other women who are entrepreneurs are or in the venture capital world. Why do you think there are and have been traditionally so few women in the venture capital world? It’s not like women are bad at finance, right?
Richelle Martin
You’re right – in fact, the data shows that women make a lot of financial decisions in the household. And the percentage of women in venture capital on average is increasing. I think a lot of it has to do with the way that venture funds were started 20 or 30 years ago — some successful men who were retiring from their career would get together with a few other people in their network that they knew were successful. And they would put together a fund. At that time, it was more of a kind of like a hobby or an investment club.
Those grew, and if they were successful, they continued to make investments. And so, I think it’s just the way that the venture capital community started out. I don’t think women have had the same opportunity to have those discussions that men were having. We don’t get together and talk about finance over a round of golf or drinks.
Sure, there’s a lot of other things that I’m sure everyone talks about. But I think if you really looked at how often that topic comes up in groups of men versus women, you would see a definite different.
One of the things that I’m really proud of is having some women in my fund. I’ve made an effort to reach out and say to them, “You’re more than qualified to be an investor in a venture capital fund. You’re sophisticated enough in this world that you can have a role in it, you can be an investor,” whether it’s as a company founder, or as an angel, or in their own investment club with their friends.
Part of changing the culture is just letting people know that this opportunity is available to them. There are some certain qualifications that investors need to meet — the common one is called being an accredited investor, meaning you have to meet some specifications of the SEC. But once people understand that, you know, it’s kind of like there’s no further barriers other than the hurdles that they’ve seen for themselves. And so, I think it’s been really helpful to just have conversations with people, letting them know that this is something that they absolutely can be a part of.
Because of that, I do have a good number of women investors in my fund, and most of them are first time investors. It’s been interesting to see how easy it was for them to make that decision. Once you said to them, “This is an option for you, and here’s just a little bit of information that you might need to make that decision.” just changing things one brick at a time.
Doris Nagel
I’m glad to hear that change is occurring. Do you think that the historical lack of women in the investment funding world has affected how little capital then has flowed to women entrepreneurs? There are different numbers out there, but I think I saw something like 3% of all venture capital goes to women owned entrepreneurs.
Richelle Martin 33:45
You’re right about that – the number is always single digit percentages, and usually, it’s below 5%. So you know, 2.53% of venture capital in the country goes to women owned companies, I think the change needs to happen on the decision making side of the table, kind of what you just alluded to, especially if it’s a company where women are the targeted customer base, or if it’s a company that has, you know, if it’s a broader customer base, something like health care, and health care, women still make up half of the people that you’re going to be providing that service to. So, it’s important to have the viewpoint of the women that you’re targeting as customers on that decision making side of the table. And that’s the only way that I think we’re going to make long lasting significant changes. If we start balancing that out. My goal was to make sure that if an entrepreneur came to pitch to my fund for an investment that they would see themselves somehow represented, you know, on the other side of the table and so that’s why it was important to me to have at least one woman on my investment committee. Because I didn’t ever want entrepreneur to come into the room and feel like they were their own, you know, they were kind of singled out or have that feeling of being weird. Because pitching I think is stressful enough. They didn’t need that on top of it. But, you know, so now, if a company comes to pitch to my investment committee, if it’s a man or a woman who’s pitching, they’re going to see someone who kind of looks like them sitting across the table from them. And I think that that’s really important representation is important. Yeah.
Doris Nagel
Have you found that women entrepreneurs actually pitch differently to you or other venture capitalists? Is there something different about the way that they pitch that may need to change?
Richelle Martin 36:42
I think becoming an entrepreneur in general is difficult. And there’s a lot of things that maybe certain people can’t do. So, if you’re an entrepreneur, you have to be prepared to leave your job. In a lot of cases, you have to be prepared to put a significant amount of money into that company of your own money into that company. And it’s one of the things that frustrates me about the startup world. And one of the reasons why I think it’s important to be a source of funding early on is because the way that it seems to work more often than not, is right now, you only have a good idea, if you have a good idea. And you can quit your job, and you can put $100,000 into it.
But not everyone can do that. And so, I think women more often than men find themselves in that position where if you want to really kind of trace it back, women don’t earn as much as men, women sometimes have more obligations at home. And it creates a lot of smaller hurdles, that are in addition to those bigger hurdles that the general entrepreneur faces. And so, there is there are some issues with leveling the playing field. For people who want to take that first step towards being an entrepreneur, I think this also applies definitely to people of color, you know, they don’t have necessarily the same network where they can go to some friends and family, and each of them can put in $50,000 into a company. All right, I think we need to think about that the very early stages. So even before someone would expect to pitch to a venture capital group or to an angel group, you need to think even earlier on in the lifecycle of an entrepreneur in a startup company about some of the hurdles that exists for different demographics. So, I don’t think it’s necessarily that women pitch differently. But I think it’s that we just don’t see as many women entrepreneurs out there, of course, I love that I don’t feel any woman entrepreneur has any hesitation about reaching out to me, because people like talking to people that look like them, I think women would actually find it easier to approach me than to approach a lot of other venture capitalists in the community.
Doris Nagel
I find your perspective really interesting, because when I first started doing this show, my goal was to have it be about women entrepreneurs giving advice to other women entrepreneurs. And I very quickly had to change my perspective on that, because it was so difficult to consistently find those people as guests for the show. Do you find that interesting?
Richelle Martin
Yes, but I but I completely understand. And the other thing is, a lot of women, even though they may have started their own business, or they might even have, you know, an idea that they’ve been thinking of magic, they don’t consider themselves entrepreneurs. So sometimes it’s just the terminology, because entrepreneur sounds a little more serious than what some women are willing to, to kind of label themselves as. But I think they also are more hesitant. Women are more hesitant to seek outside funding. Yeah, probably because they know based on data, that the likelihood of them getting outside funding is pretty minimal. But so, I think there’s a lot of complicating factors. And it’s, it’s going to take a while before we can see significant change.
But you know, it’s as long as we’re taking steps in that direction. I think it’s a good sign. And one of the significant steps is getting more diversity on the decision-making side of the table.
Doris Nagel 40:00
Do you find that there are fewer women inventors or that women are more or less interested in taking their ideas and commercializing them in the university community?
Richelle Martin
I’ve heard this perspective from some other people in the traditional investment world. My own view is that women are not less risk averse than men — women just usually want to understand it better. And if they don’t have the resources to learn about the risk that they’re taking, I can see why it would prevent them from them taking that step.
So, I don’t think it’s a matter of women or creating for women are interested in becoming, you know, an inventor and spinning out a company or developing a product. I think that in a lot of instances, it’s just a lack of access to information and education about what that undertaking really comprises because they just want to understand what they’re getting into before they make that decision.
Doris Nagel
Talk a little bit about your investment evaluation process. What does it look like? Are there some common themes and companies that are a good fit for your fund?
Richelle Martin
What I like to see is earlier stage, typically pre revenue. The reason we look early stages is because we’re writing what, in the bigger scheme of things, is a small check size. That’s somewhere between $250,000 to $500,000, if it’s an established company. If it’s just a product, we might be initially putting into more like 25 to $100,000, if we’re really just doing proof of concept work. For those investments, we just need to reassure ourselves that this an idea that actually functions the way that we want it to. If it’s a piece of software, for example, we need to see if it can be coded the right way, then sometimes it’s a smaller earlier investment. Again, that’s more of a product phase investment. But what we look at in general is just companies to see if they can generate the return that we need, if we can have an impact on them with the check size that we’re willing to write.
And then again, the team is a really big factor. The thing is, when you’re an investor, it’s a five-to-10-year relationship that you’re engaging in with this company. So, you’d better like each other, because you’re going to be partners in this for quite a while and you want to make sure you have the same goals. You want to make sure that can communicate with each other and that you feel comfortable with the relationship that you have with them.
And I think that goes both ways. Not every company has the luxury of have an opportunity to get investment from multiple groups. But if they do, they certainly should be evaluating if they have the right kind of personality fit with the group that they’re going to take the money from.
Doris Nagel
What kinds of support and oversight do you provide to your portfolio companies? My sense is that there’s quite a range when it comes to that. Just as an example, one of my past clients got a seed money grant from something called Connecticut innovations Fund, which is a state fund, like the fund of funds, but not investing in other funds. But Connecticut innovations fund didn’t provide really much of any oversight or assistance. It just wrote a nice check. Talk about your philosophy in terms of helping in supporting and providing oversight to companies that you invest in.
Richelle Martin
As you say, that can vary widely by the group that you’re taking the investment from. Some groups write checks, and they just want to get their reports and then hopefully see the return that gets generated.
We’re not like that. We hope that by getting involved earlier, we can have more impact. For example, if we find a product that is promising, we would help create a company around it and help on the legal side. That’s where my legal background is most useful, as well as helping them manage any intellectual property concerns, especially when it comes to universities. We want to make sure that we have the appropriate agreements in place with any institution that might own the intellectual property if we need a license or if we need to make sure that there’s some assignment.
And then if we have a faculty member, you know, who’s tenured and doesn’t want to quit their job and risk it all on this company, we can reach out to our network and look for people that have helped lead companies before, and so we can help try to help them recruit the right leadership for that company. And then of course, the other big aspect being the financial support.
But then beyond that, if we’ve checked off all those boxes — we’ve created a company, we’ve gotten a CEO in place, and they’ve gotten a check from us — we like to take a board seat as an early and significant investor. We’ll work to find a board member who represents the fund that has the appropriate expertise. So, I don’t have a lot of experience with medical devices. But if we invested in a medical device company, I would look to my investor base, and then also to my broader network to find someone who the right experience to truly contribute to the success of that company. And so, there’s also that potential for us to be a little more “hands on” after the funding is provided.
Doris Nagel 45:57
What’s a day in the life of Richelle Martin look like from a fund management perspective?
Richelle Martin 46:13
We have monthly investment committee meetings, and at those meetings, we invite a company to come in and present. And that’s where we make a decision on whether we’re going to make an investment or not.
I also do quarterly updates go out to my broader investor base about the activities of the fund. My investor base also meets annually as a whole. But when we send out quarterly reports, portfolio companies do need to provide information that we then further distribute to our investors. I want to emphasize that the Winnow Fund just entered our investment phase in January of 2021. So, we’re just kicking this process off. Right now, we have one company that we have approved an investment in, and we’re doing diligence on that deal. So, we’re looking to add our first company into the portfolio.
Doris Nagel
What will the Winnow Fund look like in three to five years if you’re successful?
Richelle Martin 48:02
I have a five-year initial investment phase. Meaning, in the first five years of the fund, I can make first-time investments in companies. After the first five years, we can only make follow on investments, and so no new companies can enter our portfolio. That’s important for remaining on track for the 10-year lifetime of the fund. Our hope is we invest in a company, and it’s going to exit in three to five years. So, if I invest in a company in year five, I want to make sure that it can be positioned for exit by year nine or ten.
So, after three to five years, I hope that I have most of the companies are set in my portfolio. And once I’m done making those initial investments to establish the portfolio, I would love to raise another fund. I’d like to go out and start the fundraising process for a second fund that can support more companies.
Doris Nagel 48:29
What have you enjoyed the most so far about establishing and running the window fun?
Richelle Martin
I never knew where my career was going. And looking back, it seems rather haphazard. So, my undergrad time was spent getting bachelor’s degrees in art history, political science and psychology. And what I plan to do with any of those, I don’t know.
Doris Nagel 49:01
You’re an intellectually curious person.
Richelle Martin 49:33
It’s true. I like learning and I like learning a lot of different things. When I was in undergrad, I was a paralegal in a law firm. And I really enjoyed the work I did. That led me to go to law school and I went to law school for three years, graduated and worked in a firm for about months. But after about five months, I knew that that wasn’t what I wanted to do. So, I had gotten this degree that I didn’t think really was what I wanted to do in my life.
Then I went back to the university. I negotiated research contracts, and I got a lot of experience with intellectual property. I also learned about funding the commercialization of technologies because I worked on grant programs through the state and one through UW Madison’s Tech Transfer Office, and I started getting this new appreciation for the funding side of things.
I think, what’s really interesting is that none of that experience was wasted. None of my education, none of the experiences that I had ended up being wasted. I use things that I’ve learned every single day. But I also get to continue to learn and find out about new technologies and find out more about venture capital and new ways to engage with companies. And I still get to do some negotiation on the term sheets and delve into to IP assignments.
So, I feel like, as unintentional as my career trajectory was, it’s all sort of coming together at this point. As I joke, I said to someone the other day when we were scheduling a meeting, “Well, you’re the one with the real job. So why don’t you tell me what your schedule looks like?”
Because my job is just fun. I do this because I enjoy it. I have to remind myself that this is a real job. I take it very seriously, but I enjoy it so much that if I’m working at night or on a weekend, I don’t mind.
Doris Nagel 51:18
You know you’ve found your niche when you feel that way. May we all be so lucky! For a number of us out there who just refuse to “stay down on the farm.” I’ve often been advised to niche down — take one thing you’re interested in and stay focused on that. But I just could not do it. I’m just not wired that way. It’s great to know that there are wonderful opportunities and careers for others like me who simply can’t stay down on the proverbial farm.
Richelle, if someone is interested in learning more about the Winnow Fund, maybe as a portfolio company or maybe as an investor, what’s the best way for them to reach you?
Richelle Martin 52:33
LinkedIn is always nice, because then it gives me a chance to learn about your background, too. It’s just Richelle Martin at LinkedIn. I don’t think there’s a lot of people named Richelle out there, so I’m easy to find.
Or they can email me at richelle@winnowfund.com. If you’re an investor or might want to be an investor, another good way to connect is through the Doyenne group. Doyenne is a nonprofit group that supports entrepreneurs who identify as female and also people of color. We started up a women investor accelerator program for women who are interested in learning more about investing. As I said earlier, it’s not about being risk averse. It’s about having the right information. And we hope to provide that.
If you’re an entrepreneur, we’re looking for early-stage companies, Wisconsin based, that are looking to exit in three to five years. If you think you check those boxes, then by all means, I’d love to hear about what you’re working on via LinkedIn or email.
Doris Nagel
Thanks so much for being on the show this week. It was really great having you I enjoyed chatting.
Richelle Martin
Thank you. I enjoyed it as well.
Doris Nagel
Folks, thanks so much for listening. And thanks again, especially to our guest today, Richelle Martin, talking about seed funding and venture capital and the Winnow Fund.
You can find more helpful information and resources on my website: globalocityservices.com. There’s a library of free tools, blogs, podcasts and other resources for entrepreneurs.
I’d love to hear from you. My email is dnagel@lakesradio.org. You can email me with comments, questions, suggestions, or just to shoot the breeze. I’d love to hear from you. I promise you’ll always get an answer back.
Be sure to join me again next Saturday at 11am Central noon Eastern time.
Until then, I’m Doris Nagel, wishing you happy entrepreneuring!
[…] Click on the arrow to the left to listen to Richelle’s amazing story of how she founded the Winnow Fund and tips on what seed investors look for. Or, you can read a transcript of the interview here. […]