Sheel Mohnot on Venture Power Laws, Follow-Ons and Emerging Markets

Sheel Mohnot began as a founder, helping start two companies that were acquired in 2012 and 2015. After the second sale, 500 Startups, an investor in his first company, invited him to mentor founders. He enjoyed the work and later started 500 Fintech.

While interviewing at investment firms, he became closer to Jake Gibson, a fellow fintech investor and NerdWallet founder. Rather than treat each other as rivals for a limited number of roles, they decided in late 2019 to start Better Tomorrow Ventures together.

Mohnot says the proceeds from selling his companies gave him financial independence and allowed him to begin angel investing. He also recounts a fellowship in India where he worked in microfinance and lived on about a dollar a day, an experience he says shaped his relatively low-spending lifestyle.

Asked what parts of his history he is moving away from and toward, he describes a conservative Indian family that valued traditional professions. He also sees a family tradition of small business and experimentation in his grandfather's ventures. These are personal reflections rather than claims about all families or entrepreneurs.

At 500 Fintech, Mohnot had to learn fundraising and fund management as well as investing. He says that for the first eighteen months he used his own money because outside investors did not commit. He describes selling stock to finance early investments, which represented a meaningful share of his resources at the time.

He says investing in more than seventy companies made the power law tangible: only a handful accounted for much of the potential fund value. He describes three companies each representing multiple fund returns at their then-current marks, with the largest representing about five times the fund. Those were valuation-based estimates, not necessarily cash returned.

He notes that the valuations reflected the unusually high 2021 market and could fall. Both he and Stebbings regret not selling more secondary shares when they had an opportunity. Mohnot says he did sell some, but less than he now thinks he should have; the conversation does not quantify his realized proceeds.

Stebbings asks whether the power law implies a fund should invest in hundreds of companies. Mohnot says an index-like approach can work, and names firms that make many small checks, but believes Better Tomorrow's hands-on fintech model requires choosing among competitors rather than backing everyone in a category.

He says Better Tomorrow aims for roughly thirty companies per fund over three years. Its first fund reserved about 50% for follow-ons and the second about 60%. Those are fund-construction intentions at the time, not a statement that every reserve would be deployed.

Mohnot says the firm often introduced portfolio founders to later investors and generally retained access to its pro rata allocation, with one partial exception. Because it wanted to support both winners and companies needing additional capital, the partners increased the planned reserve proportion.

On initial ownership, he says the first fund's average initial check was about $1 million for roughly 10%, at an average post-money valuation around $10 million. For the second fund he aimed for 10–15% ownership and estimated an average closer to 12–13%, with fintech seed prices in 2022 higher than those in its first fund.

Stebbings asks where Mohnot finds deals at those prices and whether they are lower quality. Mohnot cites four first-fund investments with initial valuations ranging from $2 million to $12.5 million and later financing valuations ranging from $300 million to $1.2 billion. These are selective company marks at the time, not realized proceeds or full fund performance.

He attributes the entry opportunities partly to finding companies outside the most crowded sourcing pools and acting as a price maker. He says founders can speak with existing portfolio companies about the firm's support before choosing whether to accept its terms. Those claims reflect his commercial interest as a fund manager.

On reserves, the partners review the fund-level allocation across initial and later checks rather than applying a fixed formula to each company. Stebbings argues that automatically taking pro rata in every middle-performing company may not be worthwhile.

Mohnot agrees he does not always take pro rata. Sometimes a promising team needs more capital to test another hypothesis even before it has fully solved the problem; in other cases the firm may spend time helping a struggling company while deciding not to add money. He says difficult companies can receive disproportionate attention.

Stebbings argues venture has become less collaborative. Mohnot disagrees, pointing to more later-stage funds accepting lower ownership percentages and making room for earlier investors, as well as seed rounds with angels and co-investors. The host offers alternative explanations: founders seeking less dilution and the growing influence of operator angels.

They discuss Series A rounds, which Mohnot says can be difficult to share but increasingly include co-leads with single-digit ownership. He also says Better Tomorrow has increased its stake in some companies across rounds, giving examples of a position rising from roughly 10% to 13% and another increasing before a Series A. These are examples, not a guarantee that ownership can always be increased.

On follow-on pricing, Mohnot says his team negotiates hard at entry. Once it remains convinced in a founder, it generally supports the founder's chosen financing and participates, even when Series A prices in the second half of the preceding year reached what he considered unusually high levels.

Stebbings asks whether an expensive round that was skipped is an obvious mistake. Mohnot mentions Pomelo but says it is too early to judge: strong founders and a large cash balance do not yet prove the outcome. He cautions that apparent early winners may not be the eventual winners.

Asked about his biggest wins, he identifies Flexport as a major personal cash return, while giving rough share-price recollections. He also describes an unnamed company acquired for $230 million after his fund invested at a $2.5 million valuation; he says limited dilution made it a strong realized fund outcome.

His largest unrealized example was Chipper Cash: he says his initial investment was at a $2.5 million valuation and a later round valued it above $2 billion. The later financing valuation is a historical paper mark, not a realized return or cash distribution, and Mohnot explicitly places it in the unrealized category.

He contrasts the $230 million exit with another company valued around $900 million in which he says a comparable initial investment was worth less because of dilution. His lesson is that a headline company valuation alone does not determine investor proceeds; the comparison includes a realized exit and a separate valuation, not two verified cash outcomes.

On misses, Mohnot says he saw Robinhood early but underestimated mobile-first retail trading because earlier free-trading products had not become similarly large. He also did not investigate Chime deeply, partly because of an earlier neobank experience at 500. He later came to think Chime had taken a different approach.

Stebbings asks how to avoid becoming cynical about an entire category after a failed example. Mohnot admits mental flexibility is hard but says he has sometimes backed a similar model again when he found a different founder. Their point is to examine the specifics rather than assume one failure settles the category.

For first-time fund managers, he identifies price discipline, portfolio construction and reserves as common difficulties. He says easy capital and very high Series A prices in the previous two years were abnormal, and warns that high entry valuations can make seed returns difficult. This is his 2022 investment assessment, not a universal valuation rule.

Asked about his own first-fund mistakes, he says he wishes Better Tomorrow had owned more of the companies it supported. He reports an average around 10% and a goal closer to 15% in the next fund. That target involves trade-offs with price, dilution and access, even though the interview does not model them in detail.

On unusually large general-partner commitments, he recalls funding early 500 Fintech investments from his own pocket. He argues that putting too much of a manager's net worth into a fund can create pressure to seek personal liquidity at a time that is not best for the fund.

He offers up to around 10% of personal net worth as a rough guide, while Stebbings argues that required commitments funded from fees can reduce money available to build the firm. Both are expressing views about incentives; the percentage is not personalized financial advice or a rule for every manager.

Stebbings worries that capital could retreat from emerging markets. Mohnot broadly agrees about the 2022 risk-off environment but distinguishes markets with more local financing, such as India, from places he considers more exposed to the loss of external capital, including Pakistan and parts of Africa.

He cites Airlift's announced shutdown in Pakistan and public challenges involving Flutterwave as examples shaping investor sentiment. These are his contemporary references, not an investigation of either company. He also says Chipper Cash is in his portfolio and believes it is relatively well positioned, while acknowledging that incremental capital can become harder to raise.

Stebbings challenges the idea that Latin America has sufficient funding across every stage, noting that local funds and global growth investors have limits. Mohnot accepts part of the objection, particularly the gap left by SoftBank's pullback, but thinks past successes may continue to attract some US capital. Both are forecasts made in 2022, not statements of current market conditions.

For founders facing tighter capital, Mohnot recommends moving toward positive free cash flow sooner. He says one portfolio company had reduced a $7 million monthly burn rate and was expected to become cash-flow positive in the following months. That is a management expectation in the interview, not proof that the milestone was reached.

Stebbings notes that teams built for rapid growth may take time to change their habits after management demands efficiency. Mohnot agrees he underestimated that lag but says some founders can make the transition quickly.

His most memorable founder meeting was with Flexport's Ryan Petersen, whom he says taught him about freight. He values founders who learn a complex industry and can explain their insights to others, and also mentions Unit's founder as an example.

In the quick-fire round, Mohnot says he prefers articles and podcasts to books, though he remembers enjoying Ender's Game. He describes willingness to try things as both a strength and a weakness, recalling an abandoned vitamin business he pursued despite little personal interest in the product.

He says the hardest part of his role is telling founders no, because a rejection can feel like a rejection of their aspirations. He would like more founders to tackle difficult problems, while acknowledging that he does not always handle a pass perfectly.

Looking five years ahead from 2022, he hopes Better Tomorrow Ventures will become a preferred partner for fintech founders worldwide and continue building its team. He also hopes to keep exploring personally. These are aspirations from the interview, not evidence that they were achieved.