Sam Hodges took his first startup all the way to IPO, after raising $370M in funding for it. His latest venture has already raised $160M to help other founders reduce risk.
On the Dealmakers Show Hodges shared his experience of taking his first company full cycle. We talked about fundraising, working through startup challenges, and how to pick your cofounders.
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Learning The Craft
Sam Hodges says he is proud to be from the West Coast of the United States. He spent his time growing up in both California and Oregon.
It was a very academic household. A lot of value was put on learning. His parents were engineers and scientists. The types of gifts you got in the Hodges house for your birthday were microscopes. He even saw his father try to launch his own company.
Coming out of high school Sam found he had a deep intellectual interest in how things worked, and why they worked the way they did.
An uncle of his had been a senior researcher with John Hopkins, and a prominent neuroscientist. Sam was very interested in cognitive science. Though also economics and politics, and how they all came together. He ended up studying at Brown.
However, an internship between his junior and senior year completely changed his professional trajectory. He had landed at a management consulting firm. It introduced him to business, and influenced him so much that he decided to detour from the path of going onto get his Ph.D.
In consulting he learned a new set of applications for problem solving. He learned about go-to market plans, products, decision making frameworks, and pattern recognition. This gave him the itch to pursue business even further.
This took him into another part of the startup ecosystem, with a role at a venture capital firm and growth equity fund. He would be investing in the very early days of fintech and insurtech, and got introduced to the secondary market.
Working with some top entrepreneurs in the space, he learned more about insurtech, and building marketplaces.
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Finding The Idea
Next Sam decided to go back to school and pursue his MBA at Stanford. A place where he could even further connect with the startup and venture capital ecosystem.
By his second year at Stanford he says he was mostly focused on finding the right business idea, and meeting potential cofounders. Through a series of conversations with his classmate Alex, he found that.
Alex had started a gym franchise. Sam had already been an investor in that business. In spite of the fact that the company had good collateral, and the founders had good credit, and were willing to provide personal guarantees, they just couldn’t find a source for a business loan.
Sam found this a little crazy, as he had seen venture capital and private equity funds plowing tens of millions of dollars into far riskier ventures.
So, they decided to create a solution themselves.
This became Funding Circle. A speciality small business lender.
They ended up merging two businesses into this. One from the US, and one in the UK. It seemed much easier to raise money to start up their own lender, than to just go get a small business loan for the existing business.
In 2015 Funding Circle grew by 368%. Everything was sailing along. Then 2016 hit, and crises popped up on all fronts, at the same time. Public companies in the space were going bankrupt, debt markets dried up as investors became bearish on the space, and more.
Despite all of this Funding Circle managed to raise $370M in equity before taking the company public.
Storytelling is everything which is something that Sam Hodges was able to master. Being able to capture the essence of what you are doing in 15 to 20 slides is the key. For a winning deck, take a look at the pitch deck template created by Silicon Valley legend, Peter Thiel (see it here) where the most critical slides are highlighted.
After that brutal year, Sam said he was exhausted. His health was being impacted, and he had a lot more gray hair.
Once he stabilized the business he stepped back to being an advisor to the company, and board member.
Starting From Scratch Again
Hodges took several months to decompress. He worked on his health, spent lots of time with his family, and cleared his head.
Of course, retirement really rarely lasts more than six months for real entrepreneurs. No matter how much they may have exited their previous ventures with.
He was faced with the decision to be an operator or an entrepreneur. Operating, going into or staying with a mature company. Likely helping to fix all the problems predecessors made. Or founding something of his own again, and building from the ground up. He was ready to start from scratch again.
Sam continued his conversations with previous investor backers from Ribbit Capital and Silicon Valley Bank (SVB), as well as his co-founder Travis Hedge (who was at SVB at the time). They came together on two beliefs. Firstly, that technology and analytics could be used to build superior commercial insurance products and services. Then, secondly, that fast growth tech companies needed an insurance provider of their own. Each had witnessed this problem and need, first hand, on different sides of the market.
So, they came together to create Sam’s latest venture, Vouch.
Vouch is a commercial insurance company focusing on venture backed startups. They’ve already raised $160M in equity capital and have taken up a significant share of an enormous and young market.
Listen in to the full podcast episode to find out more, including:
- Enabling startups to transfer risk through insurance
- Why they went to Y Combinator, despite having so much experience
- The important things you need to successfully raise capital for your company
- Sam’s two top pieces of advice before starting a company