Brad Cummings has become an important figure in the Richmond startup ecosystem. He was part of the team that founded Startup Virginia and is now managing partner of Trolley Ventures, an investment fund that focuses on high-growth startups in Central Virginia.
Cummings recently spoke with Richmond Inno about his background and his role in the startup ecosystem. He also touches on the outlook for startups in the region and his investment philosophy.
Start by telling me a little bit about your background: I was at Capital One for several years. That was a long time ago. I then started a boutique consulting firm with a partner. We sold that in 2015. Since then, I have really been pretty much focused on the ecosystem in Richmond. I want to do things that will make Richmond better, because I am going to live here for the rest of my life, so I want Richmond to be as awesome as possible. Most of my time over the last six or seven years has been trying to do cool stuff and help great founders around Richmond.
You helped found Startup Virginia. How do you get involved? There were a handful of us that essentially said, “The ecosystem is really fragmented.” I am an operations guy, and I want efficiency. I want people to work together. I saw a lot of these issues plague Richmond for a long time, and we said, “Hey, what if we created this organization that could become a focal point for facilitating early stage, high-grown companies?”
You saw a need for a hub for the startup ecosystem? The original thought was it was going to be and still is an incubator. It really has four facets — the physical nature of the space, which is the least important. Second is education. How can you potentially educate these first-time founders and help them not make mistakes that they shouldn’t make? The third thing was mentors, which obviously helps with the education perspective. There are people around the region that have been there and done that. The fourth one was access to capital. For years, Richmond and the region were very much a place where you had to know somebody, say for instance, if you know Jim Ukrop [of New Richmond Ventures], you are in good shape. And by the way, Mr. Ukrop would agree with that assessment. We want to make it more egalitarian. It shouldn’t be based on who you know. It should be based on are you good and is your ability to execute good.
Hasn’t access to capital always been a challenge in mid-sized markets like Richmond? Just think about it from a business standpoint. Is it easier for me to find opportunities to invest in New York or in Richmond? There are just going to be more by definition in New York.
Isn’t that one of the reasons Trolley Ventures was created? It was essentially created as a stand-alone, early-stage venture fund to run along the angel investor. There are a bunch of folks who have the capital and the risk tolerance but don’t have the time or ability to invest in these companies. How about we hand our money to you and you guys invest on our behalf? There really wasn’t a competitor to Trolley from that perspective.
How active is Trolley? We have been making investments since we were founded in 2018. We have made 21 investments. We offer a variety of investments forms. We said from the get-go that we would make arrangements that make sense for the company. That can look like taking equity. That can look like a convertible note that is a loan that converts into equity. That can look like a revenue loan, which we did for one of the 21 companies.
You had a group of people come together to form Trolley. Who were they? There were seven folks who came together and are on the investment committee. They are uncompensated. Each of them put money in. There are the seven of us and about 50 total investors. We raised almost $6 million that we have since been putting to work. We knew from the beginning that we would have about 20 to 25 companies that we could invest in. Traditionally, you are making an initial investment and then you hold money for follow-up investments. You want to feed the winners. We are at like 21 and have funding for two or three more.
The model is pre-seed/early round, correct? I think people have different definitions of seed and pre-seed, but let’s say these are companies in the very early stage. Most of them have some revenue. There have been a couple that are pre-revenue, but we make smaller investments in those types of companies.
Have you found those types of companies in Central Virginia? There was a lot of concern at the beginning whether we would see enough good companies in Central Virginia that were early stage, high growth. You are putting some serious boxes around it. We also said no restaurants and no real estate. Is there going to be enough to even invest? We have been pleasantly surprised at the quality that we have seen over the years. And the quality over the last 12 months has been great. I think it’s a credit to Startup Virginia, and the work that they have done.
How has the changing economy impacted investing? One of the things that we hypothesized 12 months ago given the economy is that we would start to see depressed valuation for companies. There are no IPOs going on right now. Lots of companies are trading at down rounds or flat rounds. I’m talking big companies. We have not really seen a depression in the valuations of these early-stage companies. The quality remains great, and they feel like they are getting funded at pre-pandemic levels.
Do you see the economy impacting the startup ecosystem? I think there were more new companies created in 2008, 2009 than in any year ever. It was the economic downturn that people said it was the right time to take a shot at something. There is no shortage of new companies, which is exciting. The pandemic created new opportunities. It obviously created detrimental impacts but created opportunities. With the economy bumping along, it is bad for some companies and actually good for some companies.
One of your investments, O’My Foods, recently filed for bankruptcy protection. Does that impact the fund? The nature of investing means that you are going to have plenty of misses. You do the best you can in assessing the quality of the team and the quality of the product or service and you place a bet. You feel good about it at the time. There will unfortunately be some in the portfolio that face challenges. Like a personal portfolio, we created Trolley to be a balanced portfolio. You don’t want to put all your 401(k) in bonds, for example. You don’t want to put it all in tech stocks. We can place enough bets and if we are sound in our decisions and consistent in our decision-making, that we will have enough winners and ultimately we will end up making money for our investors.
Are you having fun helping to build the startup ecosystem? Anytime you can do something to help a worthwhile party make gains, it is incredibly gratifying. And by the way, we can be profitable at the same time. If you spend enough time with founders, you know we are an odd lot. We are hellbent for whatever it is that we want to do. If there is something that I or the ecosystem can do to move them forward, it’s incredibly gratifying. I would finish by saying that the word tech is sometimes all-inclusive and sometimes not inclusive. There are lots of other startups like food startups in town. Joyebells Sweet Potato Pies is going nuts right now. Things like Hatch (the commercial kitchen) does count as part of the Richmond ecosystem. There are companies like TemperPack that are a different kind of technology, but Richmond born and bred and had amazing growth. I think we are going to see more companies in the forward-looking food-tech space. Startups can come from all walks of life.
