noramay_cadena

Noramay Cadena — MiLA Capital

Wednesday, May 25, 2022

Founder of MiLA Capital, Noramay Cadena, talks with me about the intersection of tech and manufacturing.  Along with partners Carmen Palafox and Shaun Arora, Noramay is writing first checks ($100k-$1M) into “tech you can touch”.

Shout out to creator, collaborator Z holly and Make it in LA
 

 

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Great. Hey, today it’s just me and I’m here with Noramay Cadena, the founding partner of Mila Capital and no, David. So it’s weird. We’ll see how this goes.

Mila is a venture fund focusing on tech. You can touch. And also building community around founders who are working at the intersection of tech and manufacturing. noramay. Great to see you. I know you’ve got three degrees from M.I.T., so maybe we can talk about that.

But let me start by just making sure I get the basics of m.a upfront that we can go into some about you.

Absolutely. So Mula Capital was kicked off almost five years ago here in L.A..

We’re in a quiet pocket of the West San Fernando Valley, which to some people really feels like it’s Bakersfield. But it is a reverse commute from the west side and from downtown L.A. So light industrial manufacturing area. And we’ve been investing in tech. You can touch for the last four and a half years. We have a portfolio of just about 20 companies, precede and seed.

And at this point where we’re scaling our model, we’re moving into a little bit of a different direction, but continuing to invest and precede and seed. There are five sectors we’re really targeting and those sectors include ag tech and food, tech, automation, mobility and aerospace and health and wellness. And I may have missed from clean tech in materials. And then we have a special affinity for female founders and founders of color, although it is not our sole focus.

Great. Got it. I think I got that all. Don’t make me repeat it all. But so being weak, tell me. And physically where you are.

Where in Chatsworth. Chatsworth? Invest globally. About a third of our portfolio is Southern California based.

Got it. And you know, there’s warehouses manufacturing in Chatsworth. Do you guys take advantage of local manufacturing? You know, we do to a certain extent.

The reason we’re in in Chatsworth is because we are partnered with a global Tier 2 contract manufacturer. And so we happen to be co-located just right next door to them. It enabled us to really establish a footprint and to build out a prototype lab and a maker space. And so we did that as a community resource under the name Toolbox L.A..

So Toolbox L.A. is now at thirty five thousand square foot co-working space makerspace Events, space, biotech lab, art gallery in the middle of the San Fernando Valley where there was really a gaping hole for entrepreneurship and creatives.

Got it. And so there are a lot of companies that work permanently out of toolbox.

There are there are now nearly 200 members who are part of this part of this facility. And Sean, you want. There are three partners, Emelia Capital. So two of us actually grew up in the San Fernando Valley.

So we saw these tech ecosystems emerge in not only WFLA in downtown L.A., in Pasadena and Westlake Village in Santa Clarita. And we thought, wow, there’s nothing in the San Fernando Valley. And yet we have this four year university, Cal State Northridge with a growing entrepreneurship presence.

Well, that’s great.

I did not totally appreciate that that was there.

And so, OK, so those are some of the basics of Meola.

But give me a little bit more about just how it’s evolved or. Yeah. Yeah.

So when we kicked off in in early 2015, we really wanted to be a a full service resource to early stage companies. So we raised a proof of concept fund and we went out and advertised an accelerator program. And our idea was that we could attract precede companies from around the globe and really make them successful through a high touch dynamic sort of v.c model with mentors, with access to resources, on site, with partnerships. And so we ran a four month accelerator program model and we ended up running five different cohorts of that over the years and finally decided to sunset that model last year. So now we we are operating as a traditional early stage venture fund, writing checks between 100 K and 1 million.

What are some examples?

So one of our recent investments is a company in the food tech space. Building a device that allows them in their first phase for food service workers to test how well they’re washing their hands after, let’s say, go into the restroom.

And so they use fluorescent spectroscopy and and a food worker can put their hands under the device, flip them over, hit a button and get a pass fail. So this company had a prototype and they they wanted to evaluate their their unboxing experience and the installation of the pilot. So they came to see us and our facility.

Sean and I, you know, we we put our our pilot hats on and we unboxed and and gave our feedback throughout the whole process.

You know, from from the instructions to the packaging of the device, the number of parts, the tools, whether or not they were included. Should this have a sticker here? Should it be match? Should it be glossy? So that’s one example of a sprint.

So we did say.

So if I said the right is so if I put my hands in this, is it like seeing the bacteria on my eyes or the dirt or bacteria or like so it can detect things like coli. Fast food chain might be a typical tech scanner ’cause it’s not for me to have at my house or something.

Right. My kids. Oh, my God. I would never want to see my kids, though.

Like, how much is it cost to get something like get the prototypes built?

How do you coach people on?

How did you get their first thing built cheaply in the world? Yeah.

So we often talk about the fact that we invest in hardware, but we’re not a hardware fund. Right. And this is it’s a tricky topic. So hardware we define as anything that is tangible. It’s a tangible product. And it’s hard to really say what hardware is because it can fall under so many other verticals. It can be aerospace, it can be health tech, it can be clean tech, it can be food tech. And so these are all well recognized, respected and appealing verticals. But for some reason, hardware is not because there is this idea that that it’s going to be very capital intensive. And so, you know, some of our companies have been able to get product out and market went on very little raised.

One of our our B Corp investments was able to bring in three million in revenue on only 1 million raised, which is pretty phenomenal even for a as an early stage software company and they’re selling internationally in developing countries.

So it is it the world is changing. It’s not as capital intensive as I think. No. And so what’s a cheap way? How do I get. Like, I want to build something. I was gonna build things, but I don’t know anything about building things. How do I get started? Where do I start?

I have to come to our maker space. Yeah. So most of the most of the companies who are coming in have a proof of concept.

Now, a proof of concept is not the same as having a prototype. A proof of concept means that they have some sort of proof that the technology works. And then a prototype is, you know, a visual reflection of of this thing. And what it would actually look like, you know, in the real world. Something that enables them to test with users so they can have something like this built locally. And we help them find local manufacturers. We we also work with Zee Holly at Make it in L.A. and reach out to her network of manufacturers.

So explain the difference to me between a contract manufacturer or what I should expect there versus someone who’s maybe helping me just do a small run or someone who’s a little bit more full service.

So a big contract manufacturer will take an existing design most likely and build many of them. So, you know, often in the types of companies we invest in, we talk about going from one to many when they’re going from one or, you know, when they’re building one or 10 or 15 or 100, they need to find a supplier that is small and nimble, lower cost and able to really be a partner with them when they’re ready to scale. That’s when a contract manufacturer is the right partner.

Got it. And what criteria should I use to evaluate someone when I’m looking for before I get to the contract manufacturer, when I’m going from prototype, say, to my first 50 things?

Yeah, the previous experience. Willingness to be flexible and work with the founder and allow the founder access.

We’re really proponents of the founders being in the factory all the time if possible, or as much as they can be and really monitoring and understanding all the, you know, any of the failures or any of the hangups in the manufacturing process.

So I would say access is really important.

Where the big manufacturing hubs nowadays, I think of Mexico, U.S., obviously, China.

I mean, I don’t imagine I’m an L.A. based founder. I’m not going to China.

Yeah. So actually, L.A. is a really big manufacturing hub, the biggest in the country.

So L.A. is it is a pretty strong and popular place for founders who are building 1, 10, 15, 20, even up to 100 units. Are there certain things that are much less certain verticals are where there’s a much stronger manufacturing presence?

Like if I’m doing medtech, you know, you just know to go to these people.

You absolutely. So So-Cal Alliance, you know, puts together a really great report on Southern California and the different manufacturing clusters in the area. So they’ve they’ve labeled where medtech has a strong presence in its San Diego, but also Westlake Village, where, you know, say Amgen is they talk about electronics and we’ve kind of penciled ourselves in in the San Fernando Valley there. But they talk about aerospace in the South Bay. So there are definitely clusters in L.A. that are that are more popular than others.

Agritech, great. Well, that’s I mean, that’s a natural Segway out. I need to have you just deal a little bit of your background, which I know comes from aerospace.

Yes. So I grew up here in the San Fernando Valley. I went to where my team studied mechanical engineering, ended up at Boeing. So I worked there for three years and then I moved to Seattle to join the Boeing Commercial Airplane Division.

I worked on the triple 7 and the 787 in a variety of roles. Shopfloor supervision, engineering assembly and had a great time. Then I went back to business school because I really wanted to be a leader in operations and I thought that I would be the V.P. GM of the triple 7 program. And so that was my goal. So I went to business school, and then went back to Boeing.

Is Boeing different, better anything than like Northrop or you know, it seems it’s a little opaque to me, but it seems like they’re the big ones in L.A. and I don’t actually really know the reputation of the difference between a Boeing and a.

So, I mean, my my colleagues from Boeing at the time are all now at either Northrop or Raytheon. And so there is a lot of migration. So I I find them equivalent.

I think the difference that the Boeing difference to me was was a significantly larger commercial part of the business that I didn’t really see within Northrop and reach them.

So Boeing has like airplanes, whereas north it might be Department of Defense or is it. Okay. And so the big the big commercial presence.

So I went back to Boeing. I spent a few years there, started a nonprofit organization and really found myself leading to full time jobs.

So I had this technical career during the day and in the evenings and weekends. I had co-founded this organization with four colleagues from M.I.T. who were all first generation college grads. And so our goal was how do we get more women into STEM and particularly women of color. So this organization went out into different communities and used the power of local role models to really bring the message home.

Here’s my story. I did it. You can, too. We did a lot of coaching with parents and tried to inspire them to be more open minded about the types of careers their daughters might pick. 

And so I got to the point where I really wanted I wanted to move faster.

And I got an angel list and I was searching for my next gig when I saw a post from from Shauna rora. And Sean was talking about manufacturing in L.A. and skipping the trip to China. And I thought, what the heck is he talking about? And so I met him for coffee. And we really connected on a few key ideas. And I think I quit my job just a couple of weeks after that. And that’s where that’s where our firm was born. We shortly thereafter, once. We realize that fund raising was way harder than we thought it would be. We. We’ve brought on a third partner, Carmen Palafox.

So I’m going to need it. Yeah. As so many questions on this all he is going from Boeing to venture capital.

Right. I didn’t miss a step. Right. I know that’s a that’s a big jump. So we’re gonna ask a lot about that.

But also, I mean, if it’s not too personal, I’m I’m interested. I mean, being first. You said you’re first generation and now you have three degrees from M.I.T.

Do you feel like have you felt a lot of challenges yourself in your career because you maybe didn’t, you know, go to the same high school away, the same hoodie or like, you know.

I would say I mean, I didn’t know. I didn’t know what a what I was missing out on. Right. So I tell people that the size of my world in high school was just I mean, I was small. I didn’t know what I was capable of and I didn’t know what kind of opportunities I could I could pursue. And so I think the first half of my career was really about learning who I was testing my own capacity.

You know, I can tell you that that I was lucky and in being exposed to engineering, because at the time that that the opportunity was shared with me, I thought that if I got a job for 10 bucks an hour, I was gonna be OK.

And so I think this inspires me to really look outside the box, we talk a lot about getting founders back on the v.c rails and getting founders on the Vesely rails means, you know, doing a lot of work, you know, down behind the scenes to get a founder ready to be seen, to really be seen by someone else.

And so I love that term. You know, there’s there’s a lot of prep work to be done in terms of the founders themselves, the business to really look like what what other people might appreciate.

Right. Which is tricky. Yeah.

You don’t just want to end up with everyone, you know, khaki pants and hoodies or whatever. No, it’s a tricky one. It is. It is.

It’s a it is one of the pieces, one of the aspects of the industry that I think is changing rapidly and that I’m really excited about. And what I mean by that is, you know, FRB puts out a list of my groby sees just about every year. And they put one out recently and it lists over 1000 Microbus CS in the U.S.. So funds under $100 million. And I think that trend is is is a good thing for founders and means more options and means more opportunities for affinities, whether it’s with the partner or the investment thesis or the vertical.

Yeah. Although I think he was either you or Carmen who shared with me the percent of Latina general partners in v.c. Can you remind me? Well, I know it’s not good.

So Carmen and I recently helped kick off Latin next SABC.

So it’s an organization that we’re really we were inspired to to kick off based on black v.c and their mission to double the number of venture capital black venture capitalists by 2030.

And so the organization started with a directory and and we found that there are less than 20 Latina partners in venture in the country. So Carmen and I make up 10 percent.

It’s crazy. It’s crazy. If you think so, just wait. So you and Carmen are 10 percent of that Latina general partners in the United States, correct? I know 10 percent. Yes, you do.

Well, you do. And so, yes, it’s an opportunity.

And I think I’m part of the Kauffman Fellows program. And I think that is another that is another less than out of the program where, you know, it’s it’s pretty global, about half the classes from outside the U.S.. And what I see is the same everywhere. Right. It doesn’t matter what background.

It almost doesn’t matter what background you have. Anyone can be successful.

And it really is about the the ethic and the power of your network. And I would say, you know, it’s easier than I thought it would be and it’s harder than I thought it would be easier in that, you know, it takes process, it takes conviction and it takes hard work. And it’s harder in that fundraising is just it’s this political, nuanced game that I just underestimated.

But is it an old boys club still? I mean, fundraising.

I’m curious when you’d whether you meant fundraising for yourself or your portfolio companies fund for ourselves.

For ourselves. I actually think it’s harder for a fund manager for first time fund managers than it is for first time founders. And I don’t. Necessarily think it’s not trying to say it’s only an old boys are actually just think it is. I heard Dick Costolo say that it was really hard. He was the CEO of Twitter.

Like you. Yes. I also just think there’s a lot more funds raising money. Yeah. The good news is I think there’s 10 more entrepreneurs, too.

And so did Kauffman fellows help you get ready. Koffman helped a little bit. It didn’t quite help men in all the tangible learning. I thought it would be helpful with it really helped by creating this awesome tight knit community. I can tap into whenever I want to figure out what other firms are doing in a certain case. Have you ever done this? Do you have a sample that. So that is really where the Kaufman value came in?

I would say for people thinking about jumping into v.c. I think portfolio has a great model for for learning about v.c. Are you familiar with the portfolio platform? So it was started by Trish Costello, who coincidentally created the Kauffman Fellows program. So the idea is to bring primarily more women as L PS into the ABC ecosystem.

And so every every year they’re creating new funds that with a goal of having as many L PS as possible, which is kind of unheard of. Right. You typically want that the least number of ellipses so you can buy in for as little as $10000. You still have to be an accredited investor, but it’s a low ticket entry and you become a member of the platform for a very specific, specific fund. It can be Femm tech. It can be their new Raising America Fund, which is investing in founders of color or LGBTQ founders. And you become part of the platform. You can join in on the monthly calls and actually listen to the five leads, ask questions and due diligence on the deal. So that kind of access is pretty amazing. You know what companies are pitching. You get to review the pitch deck, you hear them pitch, you can ask questions and then you hear the team of investors deliberate.

So let me bring it back to Neila, though, which is, yes, this is about m.a.

We talk some about manufacturing? What are some other interesting things that you’re investing in right now? Yeah.

We’re looking we’re looking more at food, tech and an ag tech where we’re trying to develop further connections to our our own ag tech cluster here in California in the Central Valley. So deepening our relationships there. 

One of the other areas where we’re excited about, as is automation and we talk about automation as another way to really talk about the fourth industrial revolution or manufacturing 4.0. You can be developing software that impacts automation and you can develop hardware. You can develop processes. You can develop dashboards. And so it’s it’s an area with wide scope and wide applicability.

Interesting. I think Meredith from March Capital was saying one real challenge of automation right now is there aren’t there isn’t really a unified operating system. 

And I don’t think you need to have a standard operating system.

I mean, I see this as a when you’re on your when you’re thinking about productivity hacks, you can use Trello, you can use a song. Yes. You can use the sun. You can use whatever all these other terr all these other platforms.

So I don’t think it has to. I think decentralization when it comes to automation is actually OK.

Got it. I want to hear more about productivity hacks. But let’s just finish with me and come back to the personal stuff, which I think is interesting, but just other things I really like. You know, it’s a it’s a smaller fund, you writing smaller checks.

So how do you think about, you know, what sort of exit someone needs to have? Do you know, does does this has to be someone going for the billion dollar exit?

Yes. I hear a lot about the venture model being broken. And, you know, it is exciting to me to see new firms like revenue based firms like indeed, like Founders First Capital by Kim in San Diego, later capital and in Seattle. Right. These are all firms that are providing non-dilutive funding. That’s based on a company’s revenue. I think that is an exciting innovation in this space.

But can I digress? No, no, I don’t. That’s interesting. So like in those models, it’s non-dilutive. It’s more like a loan. Yes. Yes.They’re qualifying startups based on existing revenue. So they’re not making it’s not a risky loan. OK. So they’re saying once you reach a certain milestone of recurring revenue, we can loan you. It’s almost like it’s almost like pyo financing. Right. Because you you have the recurring revenue coming in. So it’s just another option for founders. Do you have other advice for founders that are coming to you?

So I mentioned earlier. You know, we invest in hardware, but we’re not a hardware fund. You know, one of our biggest pieces of advice is like, really be open minded when you’re targeting investors. Two of our portfolio companies had a recent round completely filled by strategic investors, strategic investors who were not prominent online about investing. And so I think, you know, we’re seeing more and more family offices investing directly, particularly on on the impact side. We’re seeing strategics making investments sometimes off the balance sheet, off balance sheets. They don’t necessarily have to have a corporate v.c structure in place. Foundations are really coming in and investing in startups. 

And even people who say they don’t invest in hardware will. Right. Peloton, that’s hardware. Right. Right. Yeah. And yet no one talks about them as hardware. Yeah. And so that is one of the biggest pieces of advice we have. Be open minded.

Got it. And another thing you said some about really latching on to your big fans.

Why don’t people latch onto there? I don’t know, because I have to remind myself to do that, too. You know, I meet so many founders who I think are just incredible and whether or not we choose to make an investment, like I have a ton of ideas about how to help them and and people I want to connect them to. And they just kind of disappear and they never come back. And I just think, wow, you know, if if you if you came to me, I would probably spend 30 minutes with you every couple of weeks brainstorming.

And so I don’t know what it is that that enables you do it yourself. Do you latch on to your fail? I try to I have to remind myself to do it. And when I do, it’s always incredible.

That’s interesting. So one part of it is it’s sort of carving out the time to be strategic. Yes.

Another part for me is like not being intimidated by the people who are my big fans, who are also people in influence. They feel I feel hesitant to take their time.

Yeah. But but think about people who come to you and ask for your advice. And how welcoming it can be. Mm hmm. Right. I mean, we all want to add value. We want to wake up in the morning and and figure out how to make someone’s day and how to look out our own and our own peace of value to someone’s life.

And so I think about that desire I have. And I believe that other people have it as well. And so when I reach out, it’s in that mindset. That’s really nice.

I usually wake up like, how am I gonna survive? Well, let me get to you.

These are the days when, you know, I’m a I’m not fighting myself to get out of bed.

We both have 2 year olds, right? Yes. I guess I like sitting on my ass. Yeah, well, this is usually a, you know, 5:36. Yeah. Oh, how can I make someone’s day better? You’re great.

Maybe I would end by saying there there are things I’m really excited about in the industry. One is, you know, this emerging trend of of new fund managers in the space. You know, I heard Carmen say something the other day, which which really illustrates some of the activities we’re involved in, some of our extracurriculars. You know, she talked about how policy can really accelerate change.

And so we’re working in California to figure out how policy can really allocate capital toward female fund managers or fund managers of color who are grossly underrepresented in the market rates of women. Women owned venture firms in the US have 4 percent of funds of assets under management. Minorities together have 4 percent. Latinos own firms managing 1 percent of capital under management in the U.S. and venture. And so these are things these are things we are passionate about and we think a lot about how how policy can help.

And that’s what I’m excited about.

 

Well, I’m going to end on a positive note. Thank you so much for coming in. Thank you. More about yourself and about me.