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Alternative VC Tech Stack: Chisos structured finance

We’re proud to share the next in PEVCtech’s periodic series on the tech and analytics stack of investment management firms. We’re fortunate to interview William Stringer, Founder of Chisos Capital, a structured finance company. 

Q: Please give us an overview of Chisos.

Chisos is a structured finance company that provides startup and brand capital to entrepreneurs, athletes and creatives. We write $15-50k checks on CISA [Convertible Income Share Agreement] terms.

Q: What is CISA and how does it compare to other alternative VC models? 

A Convertible Income Share Agreement (CISA) combines an Income Share Agreement with a SAFE. A CISA allows a founder to utilize their future earnings as a type of collateral to receive funding today. Oftentimes our investments are in companies with little revenue or traction, making them more difficult to finance from a traditional VC/angel perspective. We also provide capital to companies that would not otherwise be VC-backable (think niche software or more service-oriented businesses). Our CISA investment structure provides downside protection to investors, making a once early, risky business, a more attractive investment opportunity.

Q:  What’s your background? How and why are you in your role today?

My background is finance, investments and operations. I’ve worked at a large investment bank and a large single family office before diving into the world of venture and startups to build Chisos Capital. My role (& company) is a reflection of my passion for enabling people to pursue their dreams combined with my background of structuring deals to achieve the goals of both the investor and the investee.

Q: Who are your closest peers, and how do you differ?

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We consider other capital sources such as credit cards, friends/family capital and angel investors to generally be our competition, although we believe the structure of our terms makes more sense for all parties involved. For the individual seeking capital, friends & family or angel capital can be very hard to come by, and traditional debt products are a poor fit for individuals without a steady income or ability to make debt payments. Our Convertible Income Share Agreement terms combine the flexibility of an income share agreement with a traditional SAFE instrument to make an extremely risky opportunity much more palatable and attractive to an investor.

Q: What are the tools you’re using for your front office: sourcing, LP relations, investing analysis, etc.? What are the strengths and weaknesses of these providers?

Sourcing tools are a mix of content creation and distribution:

  • Twitter
  • LinkedIn
  • Hubspot for emails & CRM
  • Webflow for website design
  • Some ChatGPT for content ideas and drafts
  • Airtable for tracking partnership referral relationships

For our applications and underwriting:

  • Our intake form for applications is Typeform
  • Typeform feeds into our Airtable, which manages all our applications and underwriting process
  • We use Make and Stacker for application interfaces and automations

LP relations/placement:

  • Mostly email
  • We used Securitize for investor onboarding (KYC/AML)
  • We use Docsend for deck links and data rooms
  • Used to use Zoom Webinars, now just Google Meet for LP webinars

Q: What technologies/databases have you found helpful in placing LPs?  (I wrote about this in Why Isn’t Sales As Efficient As Online Dating and Fundraising hacks for VC and private equity funds.)

Finding the relevant LPs and contact info is the first step:

  • Conferences
  • LinkedIn
  • RocketReach to find emails
  • Used FundingStack for a bit

We also have used MailerLite and Hubspot for email and update campaigns to potential LPs

Q: Why did you stop using Funding Stack?

A: They have a decent database of investors, which we reviewed, but we did not need their process management tools to run our outreach program.

Q: What tools do you find helpful for expediting due diligence?

  • Airtable and no-code automations are our bread and butter.
  • Experian for credit related info; our CISA looks at credit.
  • Calendly speeds up scheduling for pitch call 

Q: What are the tools you’re using for your middle office: tracking, risk management, etc.? What are the strengths and weaknesses of these providers?

  • Airtable for monthly check in info with the portfolio.
  • Hubspot to track communications
  • Google Sheets for various portfolio reporting
  • Meratas for servicing our Income Share Agreements (ISAs). The ISAs require monthly monitoring of an individual’s income and processing of payments when income is over a certain threshold (similar to a loan servicer).

Q: What are the tools you’re using for your back office: settlements, records maintenance, accounting, human resources, etc.? What are the strengths and weaknesses of these providers?

  • Meratas services our ISAs and provides payment and income reporting
  • Gusto runs our payroll and HR. We also utilize an HR consultant to stay on top of all things HR
  • Quickbooks is our base for accounting. We also have a fractional CFO that keeps our books and acts as a fund administrator.

Q: A huge amount of valuable data flows through your pipes.  What are you doing to capture that data and mine it? Can you share any patterns you have identified?

The capture is through Airtable mostly. We try to capture as much data on the front end as possible. We are not doing much explicit mining or analytics on that data yet. 

Q: Do you see any room to use AI to exploit your dataset? If so, what are you doing to move that forward?

Yes, absolutely. Pulling out success and failure patterns from our current and anti-portfolio. Not doing much analysis at the moment.

Q: What are your unmet technology needs?  Places in your firm where you’re seeking a solution and haven’t found an appropriate one? These may indicate room for Versatile VC to build or invest in a startup addressing that need.

The big one for fundraising is automated personalized emails. Canned emails don’t work well and personalized emails take an enormous amount of time. 

AI assisted pitch deck and pitch scoring is another. Much of our business assessment is manual and based on experience-based pattern matching. Automated pitch deck scoring would add another layer of objective scoring if done correctly.

 Q: Specifically given you’re investing in ISAs: how do you make sure founders pay back? What checks do you use?

Meratas requires a monthly check-in from the founder, and monitors a number of data sources for inaccuracies in reporting. We also reconcile payments and income reports with IRS records at the end of the year.

Q: I’m an Advisor to Hypercore.ai, a loan management system for non-bank lenders. The CEO, Daniel Liechtenstein, suggested I ask how you’re integrating data from what appear to be multiple silos into a centralized system of record.

Make (formerly Integromat) automates some of the data integration. We also do some old school .csv download and pasting

Q: What processes are you focused on improving?

Underwriting and diligence automation (see above re: pitch deck scoring)

Portfolio support resources. We will have a portfolio with thousands of founders. How can we best support a large number of founders with a small team?

Q: To your second question, I suggest see How Private Equity and Venture Capital Investors Accelerate Portfolio Company Success

I published research some time ago showing that alternative VCs tend to disproportionately back women and other underrepresented founders. What percentage of the people applying to you for capital are women/underrepresented?  What percentage of those who actually receive capital? 

Rough numbers show 65% of applicants are women/underrepresented & our funding rate matches that almost exactly at 66%. (Definitionally, this includes founders that are women, LGBTQ+ individuals and people of color, including those of African, Latin American, or Native American descent.) I wholeheartedly agree with your research and we see it in our numbers. 

Q: Many allocators and Investors who want to support diverse founders have explicitly, publicly targeted founders of a certain race or gender. However, given the recent  lawsuit by American Alliance for Equal Rights against Fearless Fund, those race-based models may become legally vulnerable.  What do you think the lawsuit implies for your model?  

I agree with your conclusion that if this legislation were to prevent or limit all race-based models, then investors looking to improve the funding disparity and allocate specifically to underrepresented founders would need to look at alternative, data-based approaches to mobilizing capital, Chisos being just one of those approaches. [See other alternative VC approaches here.] 

Q: How can the PEVCtech community be helpful to you?  

Think differently about how you can structure an early stage investment. If the equity-only check doesn’t get you to a “yes,” but you see potential and you want to find a way to invest, then try a different [alternative VC] structure. You can invest on your own, similar to Chisos, through our deal execution platform – Inspirr.

Also, follow me on Twitter/X for alt-investing banter.

 

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