Inside Cocoa Ventures’ venture capital fund designed to act like an angel

Most VCs want to lead rounds, get seats on the board, and be the center of attention for the deals they make. Carmen Rico is taking a different approach.

Today announces the launch of Cocoa Ventures, a $17 million venture capital fund designed to not lead Rounds, not discuss gambling and not get in the way of other investors.

Rico, a former partner at Blossom Capital and Samaipata and an early investor in Hopin, and Anthony Danon, a former partner at Speedinvest, where he led deals in fintechs such as Primer Y traveler, He came up with the idea for a venture capital firm that acted more like an angel investor during last year’s heady funding market.

“In 2021, everyone was raising bigger and bigger funds, and Series A was getting a lot more competitive. Such large sums were being raised that everyone needed bigger bets. [in startups]”, says Rico. “Our thesis is not play that war for stakes.

Is it genius or madness?

How Cocoa Ventures is investing like an angel

The big idea of ​​Cocoa Ventures is to compete with other investors, not by competing with them. The plan is to get into a round early and then help early-stage founders “build the cap table they want,” says Rico.

During a round, the duo bring in other investors (just like a good angel investor would), help set up employee stock ownership plans, and assist with term sheet negotiations. They’ve also helped companies open bank accounts in the past, Rico says, and matched founders with other founders to do due diligence with potential investors.

After the fundraiser, Cocoa’s role “becomes less proactive, more reactive,” says Danon. The duo is big on the personal stuff: “Offering emotional support, being a founder’s first port of call for questions like, ‘How can I make my board more effective? How do I resolve this tension with my co-founder?’”

Adds Rico, “We want to be the people a founder goes to to rehearse how to tell the company that they’re firing someone from the leadership team.” So far, so friendly with the founder.

May Really Don’t mind the bets?

Cocoa Ventures will write angel sized checks of $150k-500k on pre-seed and seed stage European based startups in any sector. He will never lead deals and will not hold board positions.

And here’s the part that sounds a little crazy. “We don’t give a fuck about the bet,” says Rico. “For not being sensitive to the property, we can act like an angel”, adds Danon.

Those sound like lines that would send most investors running for the hills, but Rico explains the math: “With our fund, having a 1% stake in a $1.7 billion company at exit makes you a return of funds. With a fund of $300 million and a 1% stake in a company, you need an outflow of $30 billion, so you will always try to get as big a stake as possible.”

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

This isn’t too crazy, says an experienced early-stage VC Sifted spoke to to check the point of the model. “As a general rule, the larger the fund, the more important the property,” he says. smaller backgrounds may get away with a looser approach to ownership, because they are less reliant on large exits to “pay back” their funds.

Cocoa also hopes this approach will help it get more of the best early-stage deals, which they hope will pay off in the long run.

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

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

Making friends with the best founders

The long road ahead for Cocoa Ventures is to become the investor of choice for many of Europe’s best founders.

That starts with (Cocoa hopes) being a founder’s favorite investor to work with in the early stages, but over time it could also, the theory goes, earn Cocoa a spot in the competitive later-stage rounds.

With this first fund, Rico and Danon don’t plan to continue, in part because of the message it sends when an investor stays in some businesses but not others. “We want to be that player who doesn’t have any horses in the race,” says Rico.

However, they do not rule out raising more funds or using other “cocoa vehicles” in the future to invest in portfolio companies in later-stage rounds. (“We have a cushion to do whatever it takes,” Rico adds: 25% of the fund is currently set aside for writing larger first checks and making follow-up investments.)

Rico and Danon also hope that by siding with the founders, the founders will bring them a great flow of business. So far, the founders and operators have brought Cocoa two of the deals they’ve invested in, and they’ve also introduced the duo to some entrepreneurs who haven’t fully taken the plunge yet. “We talked to a lot of founders who are still in their jobs,” says Rico.

Cocoa Ventures LP

Three-quarters of the Cocoa Ventures fund has been raised from founders of companies such as Sennder, Flixbus, Luko, Bitpanda, Truelayer and Primer, and scale operators such as N26 CFO Jan Kemper.

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

“We thought, ‘Let’s not get venture capital funding [as LPs] because we can’t go in front of the founders and tell them that we have unfiltered investor information [with those backers]’” Danon says. “And that allows us to be very flexible as a fund.”

It was a fairly quick process: they started fundraising in October and closed the fund, which was created on AngelList, on Christmas Eve. “Last year the market was on fire and we wanted to minimize our time away from the market,” says Rico. Raising the fund so quickly also helped reduce the overhead of creating one, he adds, and it seems to have induced a bit of FOMO as well. “We wanted to raise $15 million, we got a $35 million lawsuit, and we ended up with $17 million.”

The portfolio so far

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

“We have no morals when it comes to sectors,” says Danon. “But we draw the line at ‘I can’t understand’ [sectors] — it is important for us to generate conviction.”

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

The question is whether Danon and Rico’s ambition also borders on naivety in the right sense.

Amy Lewin is the editor of Sifted and co-host of The Sifted Podcast (listen on Spotify either Apple). She tweets from @amyrlewin

Add Comment