This Lawyer-Turned-Venture-Capitalist Invests in Silver Tech – an Interview with Tracy Chadwell from 1843 Capital

Tracy Chadwell is a veteran investor with background in law, private equity and venture capital. She founded 1843 capital two years ago, with Silver-Tech being one of the fund’s areas of focus. I spoke to Tracy last week about some of their past deals, investment thesis and what opportunities the silver tsunami has to offer.
A transcript of my conversation with Tracy, edited for length and clarity, follows.

Can you tell us a little bit more about 1843 Capital? Maybe start with why you named it 1843?

Yes, 1843 serves two purposes. First and foremost, it was the year Ada Lovelace wrote the first computer program. She had written it based on a punch card system that what being used by Charles Jacquard to program the waving of his tapestries. She thought it could be a perfect application to program what Charles Babbage had invented, a counting machine. So she put the two together and was credited with writing the first computer program. So, it’s a nod to the fact that women have been in technology for really a long time but the second purpose it serves is we go to the top of every venture capitalist being a number.

And all the partners in the fund are women, right?

Yes, so my other partner is Alison Andrews Reyes and she is an engineer by training and she was a successful founder of a cybersecurity company that she scaled and built and successfully sold to Deloitte. I’m a lawyer by training but I don’t practice much anymore, I was with an investment bank on the west coast called Robertson Stevens. I was a partner of a billion-dollar growth venture capital fund, prior to starting my own fund which I started with Alison about two years ago. 

And you speak conversational Japanese and French!

I do. I speak a little Japanese because out of law school, I went to work with a Japanese law firm, and the French is just because I adore French food, I adore French people. So, I learned a little bit of French as well.

So, when did you start the fund and why?

We started the fund a couple of years ago and the reason was, I had found an incredibly interesting opportunity. When we’re looking for above-market returns, in this business, just about the only way to do it is when you find an inefficient market. I have found an inefficient market investing off my own balance sheet in women founders. They were only getting 2% of venture capital dollars at the time. They still are not really getting much more but it was a way for me naturally as a woman to access some really terrific deal flow and very competent CEOs. 

We’re longer fully exclusive to women founders with the fund. We’re open to everyone and we decided to pursue another inefficient market that we call inevitabilities. My partner has an esoteric background in cybersecurity. So, she’s able to access deals that are not necessarily to the general investing population and then for me, I discovered what is the largest market opportunity there is. Which is investing in the aging population. So, we decided to call that space Silver Tech. I like the name Silver Tech better than the name Age Tech or Elder Tech. Because I think the name Silver Tech give it the respect that it deserves. I think that this is an incredibly vibrant place. We’re still talking about people who have a lot to give. We are talking about really interesting technology that is helping people ‘live their best lives’ in what AARP calls health, wealth and self. I just prefer using the name Silver Tech.  

Let’s talk a little bit about your investment thesis. What you are looking for when you are doing due diligence on startup?  What types of companies are you excited about?

Well, I’m looking primarily in the Silver Tech space, and we call our entry point Series A. Which to us means, when a company has annual recurring of about two million dollars per year. What this does is this allows us to participate in a time when we can actually access some metrics, around the company. We can look at what their customer acquisition cost is. We can look at what those are relative to the lifetime total value of their customers. We can look at something which is incredibly important, pricing. And also, to the type of customer. Because very often seed-stage companies take a tremendous amount of time figuring out exactly who their customer is. And when enter at the Series A space by that time companies have pretty much figured out who they are selling to. And our capital is just then used to access more of those existing customers but it’s also a time when there is still a little bit of story. People are still being added to the team and this is certainly not a full team. You’re usually talking about between 10 and 25 people at this point. So, you’re adding people, you’re expanding to what you think the company culture is looking like and that is something that I find incredibly exciting. It also allows us to get in at a price point when we’ve sort of de-risked but we feel like there is a tremendous amount of upside.   

Everybody hears about the great IPOs and the really big, big sales to strategic buyers but in all honesty, 78% of venture capital backed company exits are through M&A. And that is both to financial buyers which are private equity funds and then also strategic buyers which could be other companies. And those generally are not happening all the time in the 800- or billion-dollar range.  Those are generally happening in the range of somewhere between 60 and 100 million dollars. So, we like to stay in value under that space so we can maximize our exit opportunity.

Do you feel like your background in private equity is useful when examining deals?

Yes, having a general background in all financial services has been incredibly important in that space. Because understanding how to position a company for sale is critical. You know, it’s quite easy if you have capital to write a check and get into a company. It’s incredibly difficult to get out.

Speaking of checks, what size check do you usually write for companies?

We reserve half of our fund for follow-on investments and our initial check sizes are anywhere between 500,000 to a million US dollars. 

We know that the Silver Tech or Age Tech market is extremely diverse because the aging population is obviously extremely diverse. Are there any specific verticals inside this market that you are particularly excited about or think there are interesting opportunities in?

Yes, maybe it would be useful if we talk about some paths, I went down that weren’t helpful to me. One of them seems to be the hardware and the connected devices to detect falls. It seems like that is a space, where, first of all, your cost of development and your cost of inventory and then the sales process is just very complicated. I haven’t been able to find anything in that space where someone has gotten incredible amounts of traction but we did participate in a company called IOTAS, which aggravates Internet of Things sensors and does data analytics on them for both multi-family residential managers and assisted living facilities. 

So, that one has been an incredible win for us, her growth it’s been great. But then spaces that I still find incredibly interesting not so much caregiver matching, I mean we all know that there is huge caregiver shortage in this country, but I’m very interested in education for caregivers and trying to transform people from what their existing careers are into effective caregivers but then also retention of those caregivers and making sure that they are happy in their jobs. Because the turnover in that space is a tough thing that we have to mount as well.  

There’s one company in your portfolio that I’ve been following for some time and even included them on the AgeTech Market Map, they’re called SilverNest. What made you invest in them?

We actually see 600 deals per year. Which is incredible.

Wow.

So, trying to sort through all of those is a big process but something that I like to say is, ‘You can’t find a needle in a haystack unless you look through the haystack.‘ So, it’s incredibly important to at least get a look through everything that comes to us but I have to tell you that we are thesis-driven. A lot of the deals that we end up doing are spaces that we built a thesis around it and then we go out and find the best companies in that space.

So, Wendi Burkhardt, SilverNest. This was a deal that I did on my own balance sheet. Wendy is terrific. When I met her, I thought she was just an incredible CEO and honestly getting involved in SilverNest was the way that I discovered what an exciting market opportunity this is. SilverNest is a company that matches people who have existing assets which could be a home or apartment and in order to help them to monetize that, they are matched with a roommate. This helps them from a financial perspective because we have a lot of people who are over 50 or 60 who have financial insecurity. But then also too the thing that I really like about it is it solves the loneliness problem. Who wouldn’t – if they had a 78-year-old dad – want their dad to have someone living in the house kind of keeping an eye on them? Not necessarily as a caregiver but making sure that the stove is not left on or that there is healthy food in the refrigerator. So, it’s a great thing from all sides and I’m incredibly proud to be an investor in the company. 

You should be. It’s a really good company.

You mentioned that you create a thesis then go out and find companies that fit that thesis. Can you elaborate on that process? 

Well, in terms of the aging population itself, we did a lot of research on it and just the fact that 10,000 Americans are turning 65 every day. We’re really looking at a silver tsunami happening here and we have a lack of almost everything that has to do with what happens when you age. I feel like there is still a tremendous, tremendous opportunity for technology to solve a lot of the problems in this space and to also assist with just living your best life. The first area that we built a thesis around was the slip and fall, which as you know is incredibly expensive both personally but then also to senior living facilities and assisted care facilities and that’s how we ended up with the IOTAS investment. 

I like to go talk to the customers. So, I always like to go talk to CEOs and CTOs who are in senior living facilities and time and time again it kept coming up that the one of biggest issues is transportation. So, we said, “You know, we should build a thesis around transportation and what is the best way to tackle this.” So, we ended up making two investments in this space and the first one was Hop Skip Drive. The CEO is Joanna McFarland. She’s out of Los Anglos and I had looked at senior ride companies that were stand-alone, just doing it for seniors. And one of the difficulties with it is, as you might imagine, is customer acquisition.

 So, we are seeing a tremendous uptick in terms of people over 50 or 60 having mobile devices and smartphones but getting comfortable calling an Uber or a Lyft, it’s getting there but not quite there yet. So, a lot of these companies are setting up phone services and there are basically just phone concierges used to connect with Uber or Lyft. We actually really liked what Joanna was doing because she was actually getting enterprise-level contracts with cities to drive children. So, while she had this baseline of these enterprise contracts then she was able to allow her growth on the direct to consumer side for both for the kids and for the aging. Because when you connect with the kids, you’re connecting with the parent, who is going online connecting for the child. So, then they’re online connecting for their aging parents as well who may need to get to the doctor with some extra assistance. 

Joanna has a terrific business because 90% of her drivers are women, first of all. But then also too, she does a great job in terms of the background checks, in terms of the continuous monitoring, in terms of training her drivers. So, she really has a terrific business and we decided it was a great place to invest. So, Joanna is solving the problem within sort of the suburbs and independent driving. We also came across a company called May Mobility, which is out of Ann Arbor, Michigan. And Ed Olson and Alisyn Malek are developing a driverless shuttle and it’s live in four cities at this point. We have more and more people wanting to stay in the city as they age. More and more cities are trying to become centers for aging and by having transportation opportunities, like a driverless shuttle, they are able to do that. So, that’s an exciting place to play. 

The one place where we’re struggling that I also heard was a huge issue is the amount of promiscuity that is happening within Senior Living Facilities and Assisted Living and we’re looking at different tech solutions around that and that’s a tougher one to solve than transportation for sure. 

Yeah, definitely a tougher issue. 

A lot of the time I compare the Age Tech market to the Kids Tech market, because the end-user is not the buyer and that adds another layer of complexity, meeting the needs of more than one stakeholder. 

What would you see as the gaps in Silver Tech market right now? If you’re an entrepreneur what would you go after?

Trying to find ways to increase connectivity is one way. I think we’re seeing people develop things that are television screens and obviously, we know that Amazon with Alexa and Google with Google Home are trying very hard to increase connectivity with people. 

We do see Amazon and Google and Apple and even Best Buy going after the aging market not only with acquisitions but also with funding, the Alexa fund has backed several Age-Tech startups.

One of the worst ones is elder fraud and I’d love to see more companies in the space that are trying to help with that. You know, that most of elder fraud is committed by families. We all hear the stories of a person calling on the phone saying, “You’ve won a million dollars. All you have to do is give us your credit card.” That does happen as well but generally speaking it’s more family members who are raiding bank accounts so I would love to see more solutions in that space. 

The difficulty though with elder fraud or planning for retirement, these are things that are incredibly necessary and there are definitely starting to be some technology solutions around this. One of the things though I’ve seen it’s sort of like spinach. Its something really good for us but it’s not something that most people want to think about or even do anything about. So, trying to get them to take their spinach and to use some of these tech solutions that are in place is incredibly difficult. So if someone could crack that, where they would make it fun and accessible and easy for people to do. I think that that’s a huge opportunity. 

Where do you see this market in 5-10 years, or where would you like to see it in 5-10 years?

I would love to see an increase in mental fitness and an increase in physical fitness and an increase in financial fitness. I think that there is still room for a lot of technology companies to help in all of these areas. I think that we’re going to see some incredible things. I looked at a company the other day that is called Seismic, which is really incredible, they use robotics to help people stand up, which is really exciting and helps people stand and participate in life. Because I think that so much of our physical body is connected to our mental wellness and to being able to go out and participate and to be with friends, I think is very important. So, to the extent that we have tools that can help us do that I think we going to be a much better world.

I assume you meet a lot of entrepreneurs. If I am an aspiring entrepreneur and I want to get your advice. What piece of advice would you offer me? 

Well, I think the first thing is to find a really interesting large market opportunity. Whether or not you’re going after venture capital funding.  Venture capital funding is such a small discrete part of the funding universe and you can build a fabulous company without taking any venture capital funding and many, many people do. Sometimes people build huge companies based on one small round of funding. So, the large market opportunity, one of the reasons we like that is the way that our math works. If you have a large market opportunity you are more likely to meet your targets, because you just need a small portion of the market opportunity. 

Also, we need to see you be able to scale to typical decks will end up showing that they’re getting a hundred million in sales in the next five years. Which is kind of crazy but that seems to be sort of the Silicon Valley norm. But we do need to be able to see you accelerate to at least sort of 20, 25, 30 million because that’s when you become sellable. That’s when we can see the ability to exit your company. Which unfortunately that’s not necessarily aligned with what the entrepreneur wants but that is our business because we are fiduciaries and have to return the capital to people. 

So, first and foremost, choose a large market opportunity and solve a real need. My partner Alison and I talk about inevitabilities. It’s something that has to happen because if it’s a niche it’s just a much tougher sell, especially if we start to move into a downward economy. And the last bit of advice I would like to offer, and I look for this when I’m looking for an entrepreneur, is someone who is well networked and has a basis in the opportunity they’re trying to solve. So, if you’re a microbiologist and you decide you want to solve the transportation problem, that is a tougher one for me. If you’re an Ed Olson and you’re coming out of the University of Michigan Robotics and Autonomous Driving Department, that’s a solid fit. Those are the basics. But then also find someplace that you’re following your heart because being an entrepreneur is a tough job. You know, I was an entrepreneur starting my firm and I always say that we as entrepreneurs have the luxury of working any sixteen hours a day that we please. You have to really be passionate and love it to get through the inevitable downturns but also, the long hours and the stress.

That’s really good advice, Tracy.

Thanks.

Anything else you would like to add?

Just enjoy each day and live in a place of gratitude, I find that when you start with gratitude and kindness and courage that seems to be a winning combination. 

Wonderful! And on that note, thank you so much for being here today. It was great talking to you.

Thank you I really enjoyed it.