Imagine you’re trying to predict the next unicorn.
Not in a tarot-cards-on-a-coffee-table kind of way, but with actual data—the kind that tells you which companies really have a shot.
Now imagine that instead of analyzing the company—the market, the founder, the pitch deck—you zoom out and ask a different question:
Who picked this company?
That’s the starting point for Rob Hodgkinson, the co-founder of SignalRank, a venture platform quietly reshaping how capital flows into Series B rounds. And his backstory is almost too perfect: a Cambridge history major who somehow ends up building a quantitative engine for venture capital. Because of course the guy predicting the future starts by studying the past.
Let’s break down the big ideas from our conversation—no headphones required.
The Unlikely Path: From Post-Colonial Africa to Pro Rata Math
Rob didn’t begin in spreadsheets and term sheets.
He studied post-colonial African history and found himself fascinated by a basic question:
Why do some economies take off while others stall?
That curiosity led him to the African Venture Capital Association, building what he describes as a “print-era Crunchbase” for emerging markets. It was here he caught the bug: small amounts of capital + great founders = outsized impact.
But he also got a reality check:
“You’re a history major. No one will believe you can count. Go into banking first.”
So he did. Rothschild. INSEAD. The whole traditional path.
And then something interesting happened.
The Series B Problem No One Talks About
As an operator raising capital in Europe, Rob spent a full year trying to close a Series B. Meanwhile, early-stage funds often couldn’t keep their pro rata because check sizes ballooned from six figures to eight.
It wasn’t just a funding gap.
It was a structural gap.
Seed funds saw their best companies grow, but couldn’t afford to keep backing them.
Founders raised great rounds, but with limited room to include their earliest believers.
And global investors?
They wanted access to these breakout companies but had no systematic way in.
Enter SignalRank.
The Big Insight: Bet on the Horse Trainer, Not the Horse
While everyone else is mining for signals inside the company, revenue, hiring cadence, founder pedigree—Rob and his co-founder Keith Teare asked a sharper question:
What if the best predictive signal is actually the investor?
Because in venture, there’s something called persistence:
The best VCs tend to stay the best
Great investors get into great deals earlier
Founders choose them, not the other way around
So instead of examining companies, SignalRank scores and ranks investors across seed, A, and B rounds. Think of it as tracking the “horse trainers” instead of the horses.
If a company is backed by world-class investors at multiple stages—that’s the pattern that correlates with outsized outcomes.
And here’s the twist:
The model is built to eliminate zeros, not chase heroes.
Once you cut out the losers, venture math starts working in your favor.
Why Series B Is the Goldilocks Round
Series B sits in a sweet spot:
Too early for private equity spreadsheets
Too late for early stage chaos
Big enough to show real signal
Small enough to still generate venture-scale returns
And right now, three sectors dominate the highest-quality Series Bs:
Artificial Intelligence
Defense
Fintech
Consumer? Barely a pulse.
But here’s the real kicker: Series B rounds backed by tier-one firms, from Sequoia to Lightspeed, are getting bigger and attracting more participants, not fewer. That means more access points for a systematic player like SignalRank.
A New Structure for Venture Capital
Instead of a traditional fund, SignalRank is a Delaware C-Corp—a permanent capital vehicle that plans to go public. Why?
One word: liquidity.
Venture investors love to brag about TVPI (unrealized returns), but you can’t exactly buy groceries with it. A listed vehicle lets shareholders convert paper gains into cash whenever they want.
This mirrors a broader shift: BlackRock, Apollo, Robinhood, all building products to let regular investors tap into alternatives.
Venture is becoming more like the public markets.
And SignalRank wants to be the “smart beta index” for Series B.
The Speed Advantage: Decisions in Days
Traditional VC diligence is a contact sport—weeks of calls, strategy decks, partner meetings, and hand-wringing.
SignalRank flips this.
Their diligence looks like this:
Verify the term sheet
Verify the cap table
Make sure it’s not a disguised bridge round
Confirm investor patterns match the algorithm
That’s it.
Because once world-class investors at seed, A, and B have already vetted it, the model assumes your incremental insight is marginal at best.
The result?
Deals get done in days, not months.
Seed funds love this, because now they can confidently claim their pro rata without scrambling for SPVs while the round closes without them.
So Is Traditional VC Dead?
Not at all.
Rob is clear: early-stage investing will stay deeply human. You can’t spreadsheet your way into reading founders at the idea stage.
But later-stage venture?
That’s where quant, passive strategies, and systematic algorithms are rising fast.
The future looks like:
Early stage → artisanal, high-touch, founder-first
Series B+ → data-driven, diversified, index-like
It’s the same evolution public markets saw decades ago.
What This Means for Founders and Investors
If you’re a founder:
Your cap table matters more than you think
Who backed you is now a predictive metric
Relationship pro rata still matters—don’t burn early allies
Series B is becoming algorithmic—prepare early
If you’re an investor:
Pro rata is gold
Diversification beats romantic concentration
Being in the right networks matters more than ever
Speed wins deals—but only with the right filters
And if you’re the ecosystem?
SignalRank is one of the clearest signals of where venture capital is heading:
More transparent.
More systematic.
More accessible.
And oddly enough—more human than it appears.
Because behind every algorithm is a very human question:
How do we pick the companies that will shape the future?
Rob Hodgkinson’s answer:
Start by studying who already knows how to pick them.
👂🎧 Watch, listen, and follow on your favorite platform: https://tr.ee/S2ayrbx_fL
🙏 Join the conversation on your favorite social network: https://linktr.ee/theignitepodcast
Chapters:
00:01 Meet Rob Hodgkinson & SignalRank
00:47 From History Major to Venture Capital
01:26 Early Exposure to African VC
02:30 The Banking Detour
03:28 Lessons in Risk and People
04:08 The Series B Pain Point
05:09 Europe-to-US Founder Migration
06:20 The Pro Rata Gap
07:45 Meeting His Co-Founder
08:26 Building Global Access
09:03 Legal vs. Relationship Pro Rata
10:15 The Series B Landscape
11:17 More Participants, More Access
12:15 Ranking Investors, Not Companies
13:10 Persistence and Pattern Recognition
14:44 Eliminating Zeros
16:40 People Readers vs. Scale Readers
17:34 Lessons from Fraud Patterns
18:02 Why a Delaware C-Corp
18:59 Could Seed Funds Do This?
20:33 Operational Leverage
21:10 One of the Most Active B Investors
22:12 Expense Ratios & Incentives
23:59 Liquidity Before Listing
24:48 Raising at NAV
25:37 Why LPs Avoid C-Corps
26:44 Selling Access, Not Exposure
27:21 Rise of Liquid Alternatives
27:46 Speed as an Edge
29:17 Term Sheet Red Flags
30:14 The Top 5% Sectors
31:18 Partnering With SignalRank
32:46 Just Text the Term Sheet
33:10 Check Sizes Today
34:06 Is VC Breaking or Evolving?
Transcript
Brian Bell (00:00:55): Welcome back to the Ignite podcast. Today, we’re thrilled to have Rob Hodgkinson on the mic. He’s the managing director and co-founder of SignalRank, a data-driven venture platform that ranks and invests in the world’s top 5% of Series B rounds for pro rata financing. Very cool. His career spans investment banking, growth equity, startups with a track record that includes roles at, he has an MBA from INSEAD and a history degree from Cambridge. Very cool, I was a history major as well. He’s a fascinating blend of operator and quant-driven investor. Thanks for coming on. Thanks for having me, Brian. Delighted to be here. So glad to finally sit down with you. I’d love to get your back backstory. What’s your origin story?
Rob Hodgkinson (00:01:31): Sure. I mean, as you probably hear, I’m British. Is that the accent? It’s British? That’s the accent. And I’ve been in the States for about five years. I moved during COVID. But as you said, I’m really a history major at Cambridge. And then I kind of fell in love with Bench Capital in 2005. And so I’ve kind of been pursuing this path for the last 20 years, on and off, through kind of meandering.
Brian Bell (00:01:55): Yeah, so how did studying history at Cambridge lead into VC? What’s that story?
Rob Hodgkinson (00:02:00): I studied a lot of post-colonial African history at Cambridge. I was kind of intrigued as to why African economies didn’t take off in the same way they did in the West, and particularly the role of SMBs, SMEs, as a major contributor in the economy. And so in 2005, I actually did an internship with the African Venture Capital Association, where they asked me to create effectively a pamphlet on what was happening within venture capital within Africa. So it’s basically a list of, it’s kind of a proto print-based version of Crunchbase on what was happening in the ecosystem there. And I kind of fell in love with this idea that with a small amount of capital, you can actually build a meaningful business. And that actually as a VC, as an investor, you can help support those kind of founders along the journey and be a very small part of that journey. And the advice given to me at the time was, you’re a history major. No one’s going to believe you can count. So go and join a bank. I work for a bank, do an MBA, and then you can probably get into venture capital. And broadly, I thought that was good advice. And so that’s kind of the career path that I followed. And so I joined Rothschild in 2007 on the investment banking side. And then, as I said, went on to do my MBA at INSEAD.
Brian Bell (00:03:23): Amazing. Yeah, great school. And, you know, what did you take away from those early years that, you know, still shape how you evaluate risk and capital efficiency today that try to figure out the top 5%?
Rob Hodgkinson (00:03:33): Well, I think it’s more the... I mean, it’s the same as everything, but it’s bringing the people you’re backing. And, you know, tend to call kind of banking skills useful, but at the end of the day, it comes down to the people you’re backing and, you know, their skillset and actually kind of founding and scaling businesses. Even though we are a quant-driven platform at SignalRank, there is kind of this delicious irony that We’re a quant-driven platform, but it really is built on the reputation and credibility of individuals and humans as investors.
Brian Bell (00:04:04): Yeah. So let’s just dive right into what the thesis is. What’s the backstory there? How did you come to do this? And this is a very particular niche, right? It’s Series B quant-driven financing. So tell us more about that.
Rob Hodgkinson (00:04:17): So I mean, as you said, I was at Berengia, a VC fund in the UK. And I left to join a portfolio company called TV Fair in the media space. And it took us a year to raise our Series B. And ultimately that capital, so as a UK business, we’re building kind of the equivalent of Hulu in the UK. It took us a year to raise our Series B and ultimately that money came from the US. And so I left that business and I moved to the US in 2020. And thought that, you know, that Series B gap in Europe was kind of interesting.
Brian Bell (00:04:51): Yeah, I’ve experienced this as an early stage investor, right? You can get the pre-seed seed and A done, but once you kind of go B, you kind of have to Delaware C corporate and go to US VC. Why is that?
Rob Hodgkinson (00:05:03): Well, that’s a slightly different question. I think that more and more you are seeing European founders kind of accelerate their move to the US. Our business as TV play was very much a kind of localized play in terms of, you know, the content and the audience was very much UK based. And so we were never thinking about moving to the US, but you are seeing kind of what you’re talking about is kind of the Delaware flip and founding teams and sales teams moving to the US and that is happening more and more. People who are actually, investors are actually encouraging founders to move earlier, even though the capital ecosystem is much stronger in Europe now than it was five, 10 years ago. And so the problem that I experienced is actually less of a problem today. My kind of hunch in 2020 was that there were these great companies in Europe. There could be an interesting way being sat in the US of helping us investors get access to these european companies and so i i did three or four kind of deal by deal um sbvs um helping family offices access these companies and i can see that this this idea of kind of accessing these companies at series b where i really worked with seed partners who were in these companies but had just run out of money to continue to finance that pro rata And so I basically offered to finance these seed barn as pro rata on a kind of deal by deal basis with capital coming from these family offices. And I can see that it was really a problem, um, and really an access point where you could reduce adverse selection and it was actually pretty scalable. But the problem with my structure with the deal-by-deal SPVs is that, as you know, each SPV is like herding cats. And so I was introduced through a mutual friend to a co-founder at SignalRine, Keith Teer, who he’s been an entrepreneur for four decades. He also happens to be a Brit, also happens to be in Silicon Valley. And he had Also kind of tested this idea of providing pro rata capital to seed investors. And when he was the chairman of a fund backed by a British pension fund called Legal in General. And so he’d started to build out some algorithms to identify the top 5% of Series Bs. And, you know, I had a network of seed managers who I could see had this issue around kind of pro rata financing. And so I joined Keith and the rest of the team in 2021. And so we’ve been building this for the last four years.
Brian Bell (00:07:32): Yeah, that’s really fascinating. And it is a problem for us early stage investors, right? We pre-seed and seed funds. You know, for someone like us, we write such small checks that typically our pro rata expires in the Series A conversion, right? We don’t hit the major investor thresholds. I guess I could use a side letter to try to kind of wiggle my way in. But like typically I see 250 to 500. K is the major investor threshold in like a Series A conversion. And, you know, as you get it later, right, into the Series B, you could probably speak more to this than I can, you know, the checks get larger to maintain that pro rata. And it gets harder and harder.
Rob Hodgkinson (00:08:07): Yeah, i mean, we always talk about how there are basically two types of pro rata. There’s legal pro rata where it’s, you know, documented in the investment documents. And then there’s relationship pro rata where even if you legally, you don’t have the right to continue financing that company, Because seed investors and pre-seed investors provided the capital much earlier in a company’s journey, when the risk was much higher, they tend to have a much better relationship with founders than kind of later stage investors. And so even if you legally, you don’t have the right to continue financing, if you as a seed investor turn up at the series B and say, actually, I do want to do my pro rata. In most cases, the entrepreneur will not only let you do that, but will actually be delighted that you’ll be continuing to participate and continue to support that company at the Series B. You know, assuming you have been a helpful investor, then they actually want you to continue to be engaged with the company.
Brian Bell (00:08:59): That’s why I never get the Series B pro rata. No, I’m joking. So yeah, these rounds are typically anywhere from what, 10 to 20 million, you’d say, on a Series B?
Rob Hodgkinson (00:09:08): No, well, so the median Series B across the whole ecosystem is probably $25 million. Kind of globally. Yeah. They’re roughly... 1500, 2000 series B’s a year globally. And our algorithm is, and we can get into how it works, but essentially we’re picking the top 5% of series B’s and the average series B there is about 50 million five zero. Although in this conveyor of AI. that round size is actually creeping up. And so if you look at series Bs backed by kind of the four venture majors of Lightspeed, Andreessen, General Catalyst, and Sequoia, the average is more like $75 million. And so even at series B, the round sizes can get pretty chunky.
Brian Bell (00:09:57): Yeah, and so you named some tier one BCs there. How much of the round do they typically take and how much is remaining for the other investors?
Rob Hodgkinson (00:10:07): Yeah, that’s a good question. We’ve seen the number of participants in rounds backed by those tier one investors actually doubled, which is a little surprising, right? The amount of capital raised by those four funds I mentioned has increased a lot. Even they cannot finance 100% of these 75 or $100 million rounds. And so the number of participants has gone from on average three to six in these kind of larger rounds. And that means for our model that the number of access points has actually increased. And so somewhat counterintuitively, our access has actually improved considerably such that we’re pretty confident that we’re now getting access to some of the best Series Bs globally.
Brian Bell (00:10:48): uh with our model and let’s get into how the model works you know what are what are some insights on you know you talked about round size the median is actually 25 but in the top 5 it’s more like 50 or 75 what else are you like what is your model looking at is it a momentum based or like what are the kind of the factors of the model
Rob Hodgkinson (00:11:04): yeah we we exclusively look at who’s invested and how and so we’re looking for investor patterns and behaviors and so we actually don’t really look at or we don’t look at the kind of company fundamentals at all so so there’s this uh There’s this analogy and data driven VC of, um, the horse race and do, you know, do you bat on the horse or the jockey? so do you bet on you know the market what you bet on the the kind of entrepreneur our insight is that actually you need to look an abstraction higher and look at who
Brian Bell (00:11:36): who the horse trainer is yeah like who’s placing the bets right look at look at look at the winning uh you know people who are gambling and winning on these horses not so much the horses themselves or the
Rob Hodgkinson (00:11:50): exactly so our argument is that there’s actually very little predictive power in company level data because Unicorns by definition are exceptional. And so the idea that, you know, at a hiring cadence or where the founder went to school or, you know, that kind of social media presence is going to have any predictive power. We don’t, we don’t really buy into that philosophy. Our idea is that because, because in venture capital, there’s this notion of persistence and the, the best species historically are likely to be the best VCs going forward. But actually, if you can score and rank VCs, then that actually becomes a pretty powerful model for predicting who, which companies are going to be the winners in the future. And that’s because VCs spend a lot of time with a brand building and demonstrating they have kind of network centrality such that when the next Elon Musk or Mark Zuckerberg or whoever it is comes along, then actually The best VCs know that world-class entrepreneurs pick VCs and not the other way around. So when that next entrepreneur comes through the door, you as a VC fund need to, your name and your brand needs to be kind of front and center of that entrepreneur’s mind.
Brian Bell (00:12:56): That’s pretty amazing. Yeah, and I remember when we first chatted, you pulled up your platform. and showed me my ranking as a pre-seed investor, which was pretty high. I think I was like 46 in your database. I was like patting myself in the back on the call, which is pretty cool. That means, I mean, there’s got to be, I don’t know how many pre-seed investors there are, probably thousands.
Rob Hodgkinson (00:13:16): Yeah, thousands. Yeah, exactly.
Brian Bell (00:13:18): So to be in the top, you know, 1%, you know, is pretty cool.
Rob Hodgkinson (00:13:21): There you go. Yeah, I think we take data from Crunchbase and Frequent and our platform updates every day. And so it’s over a kind of rolling period. So it’s not actually, it’s kind of fresh data every day. And that allows us to kind of rank VCs daily and then look for patterns kind of across those rounds. So our model is actually, we’re not just looking at who invested at the B. We want to make sure that you’ve been backed by world-class investors of the seed and the A and the B. And if you look for that pattern, the probability of success from series B is much higher than the market average. And so in some ways, you can think of what we’re doing as like a smart beta product for venture capital. And in terms of the algorithm itself, it’s actually a negative algorithm. What that means is that we’re very good at eliminating zeros. And when you do that, it’s the kind of Howard Marks school of thought of Oaktree that if you eliminate zeros, the portfolio kind of takes care of itself. So when we select a company, we’re not saying,
Brian Bell (00:14:18): This is why I always invest post-launch, post-revenue. Because if you have traction, everything else just takes care of itself. But if you don’t have traction, what are we even talking about here? Just how great you are and how great your idea is?
Rob Hodgkinson (00:14:31): Well, the thing is for our model, we know that you and the best pre-seed and seed investors are actually very good at reading people. That’s kind of your core skill set, right? And then Series B investors are different animals in that they are they are better at reading how to scale up companies and so we look for that blend of kind of skill set so that there’s quite an interesting like anthropological side to what we’re doing which is that it’s this combination of world-class people readers and world-class kind of company readers and yeah blend of the two because if you if you just look at series b’s and ignore the c and the a you can actually get into quite a lot of trouble. Some of the biggest frauds over the last five years, I won’t name names, but they, you know, they’re names that you know, they all raised fantastic Series B rounds. But actually, if you look at who invested in the seed and the A, they were not kind of reputable seed investors. And so we look for kind of that pattern of, being backed by world-class investors across multiple rounds.
Brian Bell (00:15:34): Yeah, that completely makes sense. And so you guys are running, it’s a fund. It’s a blind pool of capital now?
Rob Hodgkinson (00:15:39): We’re actually structured as a Delaware C Corp. So we think of ourselves more as a fintech than a fund. We basically invest from our balance sheet and it’s a permanent capital vehicle where our intention is ultimately to list this as a company with the assets kind of sitting underneath.
Brian Bell (00:15:56): That’s really interesting. What was the decision-making process in taking that path versus a traditional kind of LP tenure fund?
Rob Hodgkinson (00:16:03): Yeah, we think the biggest problem in venture capital is liquidity. And if you can have a listed vehicle that allows your investors to convert TVPI and Mike into DPI at will, we think that’s pretty compelling. And so that’s kind of the main motivation behind this structure.
Brian Bell (00:16:21): Fascinating. I wonder if I should do that for my next fund, like just do a flip the LLC to a C corp. Would it work for someone like me in a pre-seed capacity? And then that way I’m kind of creating a holding company almost of assets.
Rob Hodgkinson (00:16:34): Yeah, it’s not for the faint hearted. It’s taken us, we’ve been building this for four years. We think the logic of what we’re doing is is kind of hard to escape our access point is now working pretty effectively we we partner with about 300 seed managers saying in some months up to 70 of all series b’s globally come across our desk and then we’re investing in two to three series b’s a month so our strategy is to invest in 30 series b’s a year and you know it’s taken us longer than we expected to raise the capital because i think people wanted to see a track record, see how this can work, get comfortable with this structure. I think once you reach critical mass, there is an inevitability to this idea because every investment that you make increases that diversification and reduces the risk for every investor going forward. Our portfolio is now at 40, 4-0. So in the last two years, we’ve We are probably the second most active Series B investor globally after Andreessen.
Brian Bell (00:17:35): That’s amazing. What were some of the challenges of doing the C Corp? I mean, other than, you know, it’s kind of a first time fund and you’re trying to convince people it’s going to work. But what were some of the administrative headaches in running a C Corp kind of holding company in this manner?
Rob Hodgkinson (00:17:48): Well, it is mainly investor education and then getting the kind of legal rails or framework set up to allow you to do this. I think what’s fascinating to us is that since we set this up, we see the whole asset management industry moving in this direction, right? If you look at, you know, Larry Fink’s BlackRock, his chairman letter talks about the democratization alternatives, Robin hood have just launched Robin adventures with this, um, 1940 investment act, like kind of closed end fund. So, you know, Apollo Hamilton lane and other, other, other managers are setting up these kind of liquid semi-liquid structures to allow retail investors and wealth managers, um, to participate in venture in the private markets. And that trend has really accelerated in the last two years. And so we see ourselves as being the kind of spearhead of that trend for venture capital and focused on kind of Series Bs where for reasons we can get into, we think that Series B is kind of a Goldilocks round that delivers this nice balance of kind of risk and return for our shareholders.
Brian Bell (00:18:55): That’s really fascinating. Yeah, there’s been a lot of evergreen funds created, a lot of these kind of structures from the big asset managers so they can sell to retail investors. A really fascinating take and then How do you guys make money? You just take a management fee as the company and you’re trying to avoid double taxation as well. You’re trying to run it down to zero profits every year too, I would imagine. Or you’re probably running a loss at C Corp.
Rob Hodgkinson (00:19:20): We don’t have management fees. We have an expense ratio set by our board, which includes kind of investor representation. I mean, what we’ve built here is a model that has huge operational leverage, which is unusual in venture, right? I mean, in venture, typically, if you want to scale your AUM, you need to hire more people. You know, I think Andreessen is at above 500 people now. Whereas in our team, we’re a small team, fewer than 10 people. We don’t think we ever need more than 10 people. So we actually think we can scale down that expense ratio to ultimately our target is to get that to 50 basis points. And then on the kind of management incentive side, our incentive is in the form of equity rather than cash. And we think that actually provides much better long-term alignment with our shareholders because we are incentivized to get a compound those returns over time rather than kind of monetize through cash and like through carry.
Brian Bell (00:20:20): And so the way, if I’m on your cap table as an investor, the way I get liquidity is I do a secondary transaction and sell it to another investor, basically.
Rob Hodgkinson (00:20:28): Until you go public. Until it’s public, that’s the case, yes. And then once we’re public, the structure is somewhat similar to how Destiny, DXYZ, are structured back their funds as a you know, internally managed closed end fund. And that’s our structure. So yes, you would, if you wanted liquidity, once we’re listed, you would sell on the open market.
Brian Bell (00:20:52): That’s really fascinating. And then what about raising more capital to make more investments? So you just, you do a tender offering to LPs, you know, and current.
Rob Hodgkinson (00:21:00): Nav, yeah, that’s right.
Brian Bell (00:21:02): At the NAV, which is the net asset value. I’ll try to pull out the acronyms because we’re both finance guys. So anybody listening understands what we’re talking about. Interesting. And so, yeah, you market to market. You probably have an auditor that audits everything and says, OK, this is what it’s worth. Here’s the last mark on this or this is impaired. So we should mark it down. And so there’s some net asset value that’s marked to market to certain cadence. No, I was going to say, and then you can go raise another $100 million, but then it would, if you raise $100 million, it would dilute everybody’s share, right? That’s currently on the cap table.
Rob Hodgkinson (00:21:33): It would, but that capital comes in at your net asset value. So you’re increasing that asset value by that $100 million. So yeah, your equity ownership as a percentage goes down, but it doesn’t impact the share price for that new capital.
Brian Bell (00:21:50): Why do you think the VCs historically took the LP path versus doing the C-Corp path? Because it seems kind of interesting to do the C-Corp path.
Rob Hodgkinson (00:21:58): It’s the GPLP structure is much more tax efficient for investors and LPs who are tax exempt. And so that is a better model for those types of investors. And so those are typically not our shareholders. Our shareholders are family opposite wealth management groups.
Brian Bell (00:22:19): Interesting. So like nonprofit foundations like Yale Foundation wouldn’t find this structure appetizing because of the taxation of the C-corp.
Rob Hodgkinson (00:22:28): That’s been our experience today
Brian Bell (00:22:29): Yeah.
Rob Hodgkinson (00:22:32): and you know so if you think about what we’re selling it’s really kind of access to high quality silicon valley assets because through this systematic approach and through this pro rata model we are able to invest alongside the best investors in the world without our shareholders being kind of lps in those funds yeah what about
Brian Bell (00:22:50): the um really fascinating couldn’t could you have done i don’t even know if this exists could you have done some sort of kind of a REIT structure, or is that just only for real estate where it’s a pass-through?
Rob Hodgkinson (00:23:00): Well, you have the kind of BDC structure, which is kind of somewhat analogous to the REIT. In some ways, this is kind of somewhat akin to that structure. We like this model because it provides flexibility to do what we want.
Brian Bell (00:23:17): Yeah, that’s so fascinating. So you’ve called Speed and Access Your Edge. How do you prove and fund deals in days when traditional funds are taking weeks or months?
Rob Hodgkinson (00:23:25): yeah look i mean soon ranks an unusual investment group in the um it’s systematic we’re programmatic on entry and so we um our diligence process is really about establishing facts and verifying facts so we do want to look at the term sheets make sure it’s um you know on market terms we want to look at the financials because the biggest mistake we can make is to the back of bridge round that’s disguised as the series B. And then we also look at the cap table because we want to make sure that who we think is invested has indeed invested. So that’s the core of the diligence because we are kind of standing on the shoulders of giants in terms of only investing companies where a world-class investor has invested at the seed, the A and the B. And because on our model, those are the best investors in the world, and that there is a new lead in the Series B, what additional diligence are we going to provide that’s actually a significant value? And given that these world-class investors have already balanced across three different investment committees.
Brian Bell (00:24:32): Yeah. So let’s imagine we’re looking at the cap table and the term sheet and everything looks great as your model is saying, yep, this is a top five percenter. What are some things that you’ve seen in term sheets where you guys kind of take a step back and pause and maybe decline to participate?
Rob Hodgkinson (00:24:47): It could be things like founder secondary. It could be vesting a founder stock starting again. Well, just kind of egregious liquidation preferences. Some of the things that we look for to make sure that this is a competitive, high-quality Series B.
Brian Bell (00:25:03): So what have been some of the more surprising findings from ranking thousands of these venture rounds? Are there any repeatable patterns that you’ve seen that besides, obviously, the investors on the cap table that predict breakout success?
Rob Hodgkinson (00:25:15): Right now, there are essentially three sectors that are within that top 5% of Series Bs. It’s AI unsurprisingly defense and FinTech has come back in a big way. So, you know, we’re, we’re really not saying that many consumer facing companies raise high quality series B’s at the moment. Um, and yeah, though, you know, though, those sectors just continue to represent i’d say 80 of of the series b’s that we’re seeing so for all the vcs out there listening and i do have some vcs that listen to the podcast and they’re like leaning in this is like cool how do i how do i work with you and i don’t have a bunch of cash like what are the terms for for vcs listening so there are really two
Brian Bell (00:26:00): reasons vcs work with us and as i said we we have a network of about 300 seed investors now
Rob Hodgkinson (00:26:04): And the reason that’s grown is kind of twofold. One, we offer 20% deal by deal carry, and we offer a capital at level because our whole system is about reducing adverse selection. And we want to make sure that we can see the next kind of power or company within portfolio and you’re not just sending us deal flow that you couldn’t finance elsewhere and so 20 deal by deal carry and then secondly as we talked about already we’re able to move very quickly and that is really empowering to our seed partners because it gives them confidence that they can go back to the entrepreneur and say actually i’m good for my pro rata you’re not having to wait to fundraise an spb which as we know it can take weeks or months
Brian Bell (00:26:47): Absolutely. I’ve lost yield because of it.
Rob Hodgkinson (00:26:49): Yeah. So I should say that that ability to move quickly in some way, and also to say no quickly, is in some ways more powerful than the carry. So I actually built a software product for those seed partners to share term sheets with us. It turns out that no one actually uses it. Everyone just emails me or texts me when they have a term sheet. No NFNs, everyone is on exactly the same terms. Everyone is on a 20% deal by deal carry. And so I’d just suggest people kind of reach out to me and we can have a conversation about, you know, some of the series B’s that we could potentially help with.
Brian Bell (00:27:24): What are the kind of the range of allocations that you’d look for? What’s on the bottom end? What’s the smallest check you like to write? And what’s kind of the largest?
Rob Hodgkinson (00:27:32): Yeah, we at scale, we’d like to write 30 series B checks of $5 million each a year. That’s our kind of long-term target. The smallest check we’ve written today has been 50K. And the largest check we’ve written has been a million dollars. And I’d say the median is about 300 or 400K. And so that’s where we are today. And as we raise more capital and scale what we’re doing, then our intention is to kind of scale that check size accordingly.
Brian Bell (00:28:01): You know, given all this, I mean, do you think the whole traditional VC model is breaking down or is it just kind of evolving into more nooks and crannies of structures?
Rob Hodgkinson (00:28:11): I certainly don’t think it’s breaking down. I believe that the early stage of investing will continue to be in a artisanal, very human business. And I don’t think that’s going to change. I think you’re going to see more and more of these kind of quants like strategies and approaches and passive strategies at the later stage. I think that’s, that has already accelerated and I expect that to continue to accelerate. But I think, you know, given the very kind of human element of that early stage investing, I don’t see that changing anytime soon.
Brian Bell (00:28:41): Makes sense. Yeah, it’s hard to be quant driven in the pre-seed. Very much you are kind of sizing up the opportunity subjectively. And it’s something that, you know, when, and I tell my LPs this, you’re paying not for my, you know, spreadsheet abilities, but you’re paying for me having looked at tens of thousands of deals over a decade, right? Yeah. And just that amount of churn that goes through my mind. how many decks I look at, how many founders I meet, and just that ability, that’s what you’re really paying for. Versus like a series B or a late stage, it’s much more of a private equity, analytically driven, can we scale this company, the things we talked about?
Rob Hodgkinson (00:29:17): Yeah, ultimately, we think that the private market starts to look a lot more like the public markets. In the public markets, the index now beats 90% of active managers over a 10-year period.
Brian Bell (00:29:30): In the private markets?
Rob Hodgkinson (00:29:32): In the public markets.
Brian Bell (00:29:33): Right. Yeah. Yeah. Yeah.
Rob Hodgkinson (00:29:34): Yeah.
Brian Bell (00:29:35): And I’d say the same is probably true though. You’ve, you’ve seen the AngelList study, right? Where if you invested in every AngelList deal, you’d be in the top like quartile of VC.
Rob Hodgkinson (00:29:43): Exactly. And, and you know, so we subscribe to that philosophy. The challenge is you can’t, you can’t invest in every AngelList deal because.
Brian Bell (00:29:51): Yeah, it’s 20, 30,000 a year or whatever.
Rob Hodgkinson (00:29:53): Exactly. So our strategy is to say, well, can you eliminate, you know, the bottom 95%? So that, that’s why we say it’s kind of like a small beta.
Brian Bell (00:30:01): Yeah. It’s kind of our vision too at Team Ignite. You know, I think we’ve talked about this is there’s 20,000 pre-seed fundings every year. There’s 10,000 seed fundings. There’s 30,000. That’s the universe of what I can look at. And our strategy is at scale to get up to 300 deals of call it you know, 500K checks, which is a lot of capital. 500 million, probably a billion dollar fund with a bunch of reserves. That’s kind of the long-term vision for us because we basically want to see ourselves getting into the top 1% of those stages long-term. It’s a good goal, but something to strive for.
Rob Hodgkinson (00:30:37): Exactly. No, I think even at pre-seed, you are seeing more and more of these kind of, exactly, very similar strategies to what you’re saying. Dan Gray and Peter Walker have talked a lot about how diversification has had kind of a negative, it’s been kind of a negative word in venture, but actually when you look at the data, you’re much more likely to outperform the market
Brian Bell (00:31:01): with a kind of a spray and pray strategy. Let’s just say, let’s put it out there.
Rob Hodgkinson (00:31:05): Yeah.
Brian Bell (00:31:06): But you know what, I think what people miss from that is, you know, I say no 99.8% of the time. So how is that spray and pray? What are you even talking about?
Rob Hodgkinson (00:31:15): When it, again, when you look at the public markets, the, the active managers who can deliver alpha, you know, the Renaissance technologies of the world are charging 5 and 44. And so 5% a year.
Brian Bell (00:31:29): Yeah. Wow.
Rob Hodgkinson (00:31:30): So, so I don’t know, you know, I, and I, I think you should expect to see the same in the, in the private markets where we want to be that kind of low cost, high quality, diversified. index but there is totally a role for people who are world-class of this and we’ve done this for a long time to actually charge beyond two or three and thirty i’ve
Brian Bell (00:31:50): been thinking about this actually as i kind of scale team ignite do i need to scale two and twenty like if i have a billion dollar fund someday do i need to charge a two percent fee on that to actually go deploy the capital I don’t know if I do, right? So I’ve been thinking about, you know, the Andreessen decks recently leaked. I think they charge two and a half and 25. Well,
Rob Hodgkinson (00:32:07): I think as we talked about before, the challenge with venture is that there’s not much operational leverage. And for you to manage a billion dollar pre-seal seed fund, going to need to hire a lot of people just as you said just to churn through all those decks at least two more because i do 100 i do 100 a year now yeah i myself so i’ll have to hire at least two more people to do 300 a year that’s kind of the
Brian Bell (00:32:27): justification for the two percent management fee is that it’s a high cost business to actually go and source filter kind of quality opportunities that’s that’s beyond
Rob Hodgkinson (00:32:41): you know that’s before you get into the notion of, you know, value add and then ultimately exiting those companies too.
Brian Bell (00:32:49): How do you structure those carry share mechanics with your LPs in a C-Corp structure?
Rob Hodgkinson (00:32:52): So we, we spin up an SPV per investment and it’s in the name of our partner. So from the company’s perspective, um it is our partner financing that pro rata that’s not to say that you know we obfuscate the fact that we are financing that capital ultimately we are the signatories of that spv for regulatory reasons so the company is aware of us and knows that we exist it’s just that both the The founders and the VCs prefer if that vehicle is in their name.
Brian Bell (00:33:22): Yeah, makes sense. And how do you guys think about exits? And when do you exit a position? Do you wait for a liquidity event or do you do a secondary sale? Or how do you think about that?
Rob Hodgkinson (00:33:31): Yeah, I mean, we’re systematic on entry and we would like to be systematic on exit too. And so we have this... vision of selling each annual cohort after five years. And if you do that, that can then bring capital back onto our balance sheet, and then we can reinvest it. So you get this kind of compounding returns over time. And so that’s where we would like to get to. Our first vintage was 2023. So we’re still three years away from that. And the secondary market has developed substantially even the last five years. And we expect that to continue. So we’re constantly talking to potential secondary buyers about firing our annual cohort. So we won’t be looking to sell kind of individual positions. But we’ll be looking at like a strip set across each annual cohort.
Brian Bell (00:34:19): Interesting. Very fascinating. Well, let’s wrap it up with some wrap-up questions. It’s not rapid fire, it’s wrap-up questions. What’s one belief about venture investing you’ve completely changed your mind about in the last five years?
Rob Hodgkinson (00:34:30): I thought that AI, given the productivity gains that AI can deliver to entrepreneurs and teams, I would have thought that that would change the way that companies are financed and that we would move away from the kind of alphabet soup of C to A to B to C. The amount of capital that people would raise would change. And what we’ve seen so far, at least, is that that is not the case. And Greylock has this thesis that the old moats, the new moats, meaning, yes, you can have a small team building a product, but you still need a go-to-market strategy. And that go-to-market strategy tends to need human bodies, at least today. So that’s one reason why funding hasn’t really changed. And then secondly, ultimately fundraising for the best companies is just a function of supply and demand. So if companies can raise 10, 20,
(00:35:20): 30 million, or some of these kind of $300 million seed rounds, then they will. So actually we haven’t seen any change so far in the way that companies are funded. That has been surprising.
Brian Bell (00:35:29): That is surprising. And I think I feel like I’ve seen a lot more traction per dollar raised early on. I’m definitely seeing that. But I think there’s kind of a Jevons paradox economically in the ecosystem where like if everything gets more efficient, you expect less money raised, less people hired. But the inverse tends to be true. Just more of everything is done. More investment dollars are flowing. More hiring is happening. we just printed a 4% GDP growth and we’re at our, you know, stock market’s all time high, rates are high, unemployment’s super low. It’s a weird time, I think, economically. Pretty frothy out there, actually, especially in the late stage. If you could redesign the venture ecosystem from scratch, what would be the first rule or thing you would change?
Rob Hodgkinson (00:36:13): I mean, this is less relevant for the part of the market we’re at. But I think at a very earlier stage, the notion of investors and advisors charging startups to pitch and to pay for their services, I think is predatory.
Brian Bell (00:36:28): I’ve never seen that. That sounds crazy.
Rob Hodgkinson (00:36:31): Well, as I said, I don’t think it happens less in Silicon Valley, but outside of Silicon Valley is a practice that happens a fair amount.
Brian Bell (00:36:40): Wow. That is predatory. Yeah, I’ll listen to your pitch. 100 bucks or 500 bucks or whatever.
Rob Hodgkinson (00:36:45): Exactly.
Brian Bell (00:36:45): Wow. I’ve seen people sell their time on these platforms like, hey, meet with such and such person for $1,500.
Rob Hodgkinson (00:36:50): But even kind of egregious advisory shares practice that I think at the earliest stage, I think it’s practice that... try to stamp out.
Brian Bell (00:37:02): What is the hardest call you’ve had to make as an investor?
Rob Hodgkinson (00:37:05): Well, the beauty of our system is that actually we try to reduce human biases as much as possible. So we have these funny conversations internally where people We actually try to, we will say this sector is not a sector that I personally invest in, but the algorithm has primacy. And so the hard thing for us is actually trying to suppress our human biases and say, well, look, this company has been backed by the best investors in the world three times over. They are the best investors in the world on our model. If we don’t believe in the algorithm, no one else will. And so that is a very different way of thinking about investing than most investors.
Brian Bell (00:37:47): That totally makes sense. Last question, looking forward for the next three to five years, what are you excited about?
Rob Hodgkinson (00:37:52): I’m excited about seeing how this democratization of all scales out and how we’re going to see more of this growth of passive investing in venture. And hopefully, ultimately, that leads to better returns for our shareholders and for investors in the ecosystem. Hopefully, SignalRank can be a meaningful part of that journey. Where can folks find you?
Rob Hodgkinson (00:38:16): SignalRank.com or just hit me up on LinkedIn.
Brian Bell (00:38:20): All right, Rob. Thank you so much. I learned a lot.
Rob Hodgkinson (00:38:22): Thanks, Brian. Appreciate it.
