From Idea to Impact: Creating a $20 Million Fund During Crisis w/ Mike Moradi, Cortado Ventures

SCS (Intro):

Wow, wow, wow. This week's episode is something. So this is coming about a year later and was filmed when I was last with Cortado Ventures at the 2023 Mid-Continent Summit and I had the chance to speak with Mike Moradi, one of the other GPs of Cortado Ventures, also the co-founder and also a portfolio company CEO, the CEO of Sensulin, where the company Sensulin is developing a glucose responsive insulin which will drastically reduce the number of injections diabetes patients will have to take.

Now, our conversation is wide ranging from how he first got the entrepreneurial bug, which landed him a $10 million exit at 25 years old, to then leading $10 million in six weeks for Cortado’s fund one. And what's broken in America's health care system? Mike Moradi, general partner at Cortado Ventures and CEO of Sensulin, live from Oklahoma City. Let's go.

Mike Moradi:

My father is originally from Tehran. My mother is from Central Texas. So, in some ways, a child of many cultures. And, it turned out that my father was teaching at a university, in where I was born. And he was born in Iran in 1943 when things were very, very prosperous.

It was the wealthiest country in the Middle East at the time, and was of course educated in the United States. And when we moved back, he realized very quickly that it was not the same country that he grew up in, things were going south in a hurry.

So they basically camped out outside of the embassy to get my certificate of birth abroad. And we were on the next flight out. We spent a bit of time in Denton, Texas, outside of Dallas, but mostly grew up in the far northeast corner of Oklahoma in a town called Bartlesville.

The town is famous for two things, at least industrially. One and the most known is that it's the former headquarters of Phillips Petroleum, which is where my father worked as a surfactant chemist for many years. And the other is that it is the birthplace of several venture capital funds of funds, which I didn't even know existed, even though it was happening in, in the town that I grew up in.

Knights Bridge Advisers is one of the top decile VC funds of funds. That's in many, many of the biggest names in Silicon Valley, Boston, LA, and Spur Capital also kind of grew out of that ecosystem. And I think in some ways maybe I was predestined to be in venture on both sides of the table.

SCS:

How was it like growing up for you? As a child of two nations in some way coming to America in the mid-continent.

Mike Moradi:

Honestly, my parents gave us common American names that the design was just that they wanted us to be regular American kids.

I guess at times maybe you felt like a little bit of an outsider 'cause of your background. And for the most part, people were very welcoming. Now I should say that, when you grow up in a town like that, there are geologists, engineers,  people from all over the world.

Lots of my best friends were from Malaysia, KL specifically, Singapore, like all over Europe, you name it. In that way, I guess we were all a little bit, all children of many cultures, but also get to know some of our friends that were Native American, African American and just, so I don't know that I really felt like an outsider most of the time.

SCS:

Well, so you grew up with diversity and now in many ways, you've built a diverse team here at Cortado and are investing into diverse teams. And that has been really part and parcel.

If I think you're just expectation, right, of this is how it should be.

Mike Moradi:

In many ways. No, I agree. In fact, we were thrilled to be able to sign your pledge. Now even before we signed it though, we were way above the industry averages on backing diverse entrepreneurs. I think last I looked, it was 71% of our companies have at least one diverse founder.

At the firm level, we're something like, I guess 80% diverse. And the reason honestly is just, I saw it happen. I grew up in a very corporate town where the R&D department, where my father worked, there's people from absolutely everywhere on earth and that was actually a huge strength for an innovative organization. It's something that's near and near my heart.

SCS:

So let me ask you this. one of my observations is as we get out of the main state, so Nathaniel and I were talking about this, 75% of venture capital goes to three states in America, California, New York, Massachusetts, right?

And 25% of the rest of the country. And interestingly, as I'm looking at diversity numbers, it is interestingly more diverse in places like the Mid-continent, why do you think that is?

Mike Moradi:

It's hard to say, but I think, at least the current, diversity that I've seen in a lot of companies we're backing and some of that is actually due to the pandemic. I probably meet at least two or three people every month that were in New York or LA or London, and decided that they wanted to move here.

To be close to aging parents, or perhaps they sold their home that they were paying $10 K a month to live in New York and decided I can work from anywhere. Why am I doing this? And they came out here and buy mansions and then had extra dollars left to travel or buy a second, third homes to rent out.

Secondly, just historically, these big city clusters, tend to drive a lot of immigration generally. We are surrounded by a number of international universities and I think naturally a lot of those people gravitate towards tech.

SCS:

But do you think there's any part of which culture plays into this diversity that we're seeing outside of the usual suspects?

Mike Moradi:

I was in the Bay Area for several years building a semiconductor company. And, well it was actually a UCLA spinoff that we moved up to Menlo Park, and in Oklahoma City we will never be San Francisco Bay Area.

And I think that's a good thing. We witnessed firsthand how quickly things can come together in that culture in terms of the capital, the team, the external advisors, and just the kind of, the get after it attitude that has sort of driven,  what is, I think the greatest technology hub the world.

Now, having said that, in places like Oklahoma, I actually spent a bit of time in, in Boston and getting to know what I think is arguably the best life sciences cluster, on earth. We're trying to bring some of those practices, to bear here within Cortado and some of the companies that I'm involved with.

To answer your question, there's not really any sort of geographic lock on innovation. Like I could probably rattle off 10 or 12 gigantic companies that started in places like Oklahoma City or Omaha or you name it. And they might've ended up in New York at some point in their life.

But,  I think there's a certain grittiness that people have here. We don't have as much access to capital, so we're forced to focus on things like actually generating a profit, meeting regulatory milestones with a reasonable amount of capital. And there's a certain kind of cleverness that one needs to, to do when you have very, very limited resources.

Now, I would say that was not a problem when I was in the Bay Area, at least at the time. you raise an $18 million C round and the guy after me burns through that in 18 months. So just very, very different mentality on growth. I see that as a strength for people that are outside of the major tech hubs.

And once you get to certain milestones, whether it's regulatory for life sciences or the one $10, $100 million ARR or run rates that, you can basically go to either coast or international to find the capital you need. So we see ourselves as sort of a catalyst, to helping local companies meet those initial thresholds, reduce whatever the white hot risks are in their companies, and ultimately go on to do amazing things.

SCS:

So you started actually wanting to be a dentist but dropped out. Tell us this story about how this actually happened and why dentistry of all things.

Mike Moradi:

I think there's a certain immigrant mentality that you have to have at least one doctor in the family. And I come from a long line of nerds, which I say this lovingly.

My oldest brother is sort of computer science nerd. My middle brother is mathematics finance nerd, and I'm of course a biotech nerd. I thought I wanted to go to dental school and I graduated with a degree in biochemistry, of course. Ended up scoring very well on the dental admissions test, or that as they say, ended up getting into Temple, which at the time was sort of one of the most modern schools.

But more importantly, there was one professor that was an expert in dental informatics, which as a techie at heart, it sort of naturally gravitated towards that. I got in, I had actually the acceptance letter still hanging on my wall. And I would say it was the hardest decision I ever had to make at the time.

And it probably took my parents a good three or four years to forgive me for that one. But turned out to be the right move. The other thing that was happening in the background is that I met my wife, summer between undergraduate and leaving for dental school. So that of course played a huge part.

At the end of the day, it was a huge risk, a leap of faith, so to speak. And that first company failed miserably.

SCS:

What was the first company?

Mike Moradi:

So we had a carbon nanomaterial company that, at the time I was enamoured with the properties of this material, a hundred times stronger than steel, one sixth of the weight.

And I thought, well, that's a no brainer. I can go build a company around that. And it was very humbling lesson, 12 months later when I basically had nothing to show for it other than some debt and just had to shut it down.

Thankfully the next one worked, which made nanoparticle titanium dioxide. Which is a fancy way of saying that the active ingredient in sunscreens, automotive coatings, things that can be damaged by the sun.

SCS:

So like the SPF protector essentially.

Mike Moradi:

Precisely. And we took a very small production unit, scaled it up to many, many orders of magnitude, and ultimately sold that company to DuPont.

Which at age 25, when you do a deal like that, I think it was even a huge deal, but I got really excited and thought I was the next Bill Gates.

SCS:

How much was that exit?

Mike Moradi:

All told it was about 10 million.

SCS:

For 25 not bad at all?

Mike Moradi:

Yeah. For a company that basically raised about $250K in equity and the rest was grants. I only had a small chunk of that but I proceeded to take pretty much everything I made and put it into the next company. I didn't pay myself for three and a half years, which is a huge mistake of course, and that one failed.

A lesson and easy come, easy go, which is, pretty common story among entrepreneurs that decided to do this for a living.

SCS:

Yeah. So you are ultimately a serial entrepreneur, now an investor.

When you think about your different companies, what made the second one really succeed? What was different about the way you approached it?

Mike Moradi:

I realized very quickly that, I'm not going to be the person with the technical background necessary to make these things work. So the key was working with a scientist that had been in the industry for many, many years and essentially moving over to the other side of the table to be sort of the business guy but also one that was capable of telling a technical story to investors, to partners, to customers.

Once we had that sort of underlying scientific expertise from people that are well-regarded with many publications and patents, I realized, okay, this recipe works. And I've basically been repeating that ever since.

SCS:

Right. And so now you are onto number?

Mike Moradi:

Arguably number six or seven where I've been in the driver's seat. And probably 15 or 16 where I've been involved somehow.

SCS:

So you've been in entrepreneurship, true and true. What do you think is your superpower in the work that you do?

Mike Moradi:

In the early years, it was an undying optimism coupled with very high risk tolerance, I think. Maybe today, I've been through a number of these different companies in different roles. And I would say some combination of just big picture, strategic thinking, and then also now having a proper network in the industries in which I play.

Therefore I can pick up the phone and nobody's more than two phone calls away. And having deep relationships with people, doesn't mean they're gonna come running if I ask for a favor or try to work with somebody.

But, now I just feel like the world is our oyster and yeah, we can really do some amazing things with, these are the resources that we have.

SCS:

Yeah. So from an SPF protector, and I'm gonna read this here 'cause I wrote, I did research on this nano particle titanium dioxide for UV protection.

You went on to address diabetes and insulin. How do you pick these ideas on what to work on?

Mike Moradi:

Well, the company after that was the California entity that I referenced earlier, that made the transparent conductive layer for touch panel displays. So that actually was another carbon net entity company that was acquired by a South Korean entity.

To answer your question, I made this pivot into the life sciences mostly due to a family curse with type two diabetes. And I used the curse, the word curse jokingly. In my immediate family, three of our family movers are type two diabetic, including two that are insulin dependent, which are both of my parents.

On my dad's side, all of the aunts and uncles are type two diabetic and the Hispanic side, I think it's seven or eight out of the 12 siblings are type two. So I realized very quickly, okay, this is a huge problem and kind of scoured the earth looking for, to learn as much as I could, as quickly as I could and realize that there's really not a lot of innovation in this space.

Arguably there's been one FDA approved drug of significance in the last 20, 25 years in diabetes. So that led me to think about, okay, I need to start working on finding better solutions for this disease and its complications given that there are 500 million patients worldwide. which maybe 1% of that is type one, the other is type two.

SCS:

And just for the audience. What is the difference between type one and type two?

Mike Moradi:

So type one is typically diagnosed in children. This is the disease where essentially the body attacks the eyelet cells and the pancreas rendering the patient unable to make their own insulin.

So essentially they need an average of six injections per day or patients die. Until about 1922, the only treatment was to give you just enough food that you didn't starve to death. The average patient lived 11 months.

SCS:

11 months. Wow.

Mike Moradi:

Horrible, horrible disease. In fact, one of the greatest moments in medicine, is when Dr. Banting, in Toronto, isolated this hormone insulin from canines. And you were in hospital ward with a number of children that basically were near comatose and he's walking around injecting these children and one by one they start to kind of wake up and just get up and move around.

It's a great moment in medicine and our hope is that, Sensulin, which is developing a glucose responsive insulin, will be perhaps the third wave of innovation for insulin. And that glucose responsiveness means if the average patient starts their day, when they slow release insulin in the morning, every time they have a meal or snack, they need a rapid acting insulin injection.

So an average of six per day, which we hope we can make one per day.

SCS:

So today, these patients need six shots into their body every day.

Mike Moradi:

Yeah. And maybe 15, 20% of patients in the US are on an insulin this would still be a safer form of insulin that would reduce the risk of ending up in the ER, which is actually half the cost of treating diabetes, is the one time per year on average that a type one patient ends up in the emergency room or urgent care, which we think that we can reduce that risk significantly as well.

SCS:

And so what's the secret here with what you've developed at Sensulin, how are you able to do that in one dose versus incumbent way?

Mike Moradi:

Yeah, it's really just clever chemistry. Our team of scientists, our former amylin scientists, it was basically the big type two diabetes company in San Diego until it was acquired in 2012.

And essentially what we're doing is encapsulating insulin inside of a liposome. And these are the same types of carriers that were used in every Covid vaccine. so very, very widely used and very safe. And the secret sauce, if you will, is that we cross-link or glue the liposomes together with a linker that, dissolves in the presence of sugar.

So if you can imagine, the patient would inject this as they would any other form of insulin, and it will have a certain baseline release rate, And every time the patient eats or drinks anything containing sugar. It takes about 10 to 15 minutes for that sugar to work.

Its pain in the skin where it begins to sort of dissolve the glue between these liposomes, therefore releasing more insulin after a meal, which is when you need it, and keep this as key. When the blood sugar returns to a normal level, you have less interaction between sugar and the glue, and then the release rate kind of returns to the baseline.

Of course, we still have to prove this in the clinic. but if we can do so, of course that would be just tremendous for patients, whether they're type one or type two.

SCS:

So what stage are you in?

Mike Moradi:

So we're preclinical. We are right at that point where we think we have the final formulation and just a little bit more testing, I think, to actually validate that.

It's been a long time in the making, but we feel like we're gearing up for our first clinical study sometime next year.

SCS:

So what's the long time in the making? How long have you been working on this?

Mike Moradi:

At the end of 2014 was when we formed labs and brought in the initial team. Like many things in the life sciences world, it just takes a long time (SCS: And a lot of investment.)

If you know the game Whack-a-Mole where you hit the mole and then another one pops up, the R&D is kind of like that, where you fix one problem and then you realize 10 others “we have other issues”.

We see the light at the end of the tunnel and it feels,  good to finally be at this stage. But obviously we still have a lot of work to do.

SCS:

And so your role as CEO is mostly now focused on bringing in the right capital. What's challenging about the work that you're doing at Sensulin?

Mike Moradi:

It's a little bit easier to raise capital if you're doing anything in oncology. Or rare disease, or anything that's like super cutting edge cell therapy, gene therapy. If you're working on a disease like diabetes, a lot of traditional venture funds, at least the highly sophisticated life sciences funds, they're a little bit afraid of putting money into diabetes because of the cost of a phase three study, which can be over a billion dollars, a billion dollars just for one phase three.

SCS:

And phase three is, remind me, what does that mean?

Mike Moradi:

So phase one is safety only. Typically a small number of patients that are not, patients with the disease that you have, they're healthy volunteers, you’re just trying to show that the drug does not adversely affect patients, right?

If you can clear that, you go into a phase two, which in our case will be type one diabetes patients, and we're looking for a signal of efficacy, or in other words, does this drug actually work in the patients that we're trying to treat? And if the answer to that question is yes, then we would move into a larger phase three study.

You'll have many, many more patients, tens of thousands in our case, across the globe, looking to ensure statistical significance that the drug works, that you don't run into side effects in certain patient populations. The last Novo Nordisk insulin that went through the clinic, they paid $1.2 billion for the phase three.

So yeah. In other words, that's a huge impediment if you're a small fund looking to back something. So I think the reality is that unless you plan to take the company public, you're probably looking at partnering with one of the large pharmaceutical companies and there's maybe, I guess three or four that have specific interest in diabetes, and I suspect that will likely be the path for us, given that the IPO window is sort of closed at the moment.

SCS:

So market conditions are not favorable. And you're developing something that's gonna take a lot more investment, a lot more time. How are you thinking about this?

Mike Moradi:

Thinking back to my days of being a fresh graduate, I don't really worry too much about the implications of the broader market.

For me it's about solving a real problem and the better that we can do that. I'm sure, the rewards for patients and for our investors will come on the back end. So I would say, one has to be an optimist in this line of work. And we've done quite well in prior companies by just sort of riding it out, trying to meet small milestones on a day-to-day basis.

And if you string it together enough of those and you don't run out of capital like we've done a few times, then typically you can get to a meeting meaningful milestone that somebody will eventually purchase the company.

SCS:

You've got a very interesting lens having worked on a few different challenges, maybe the different companies. Tell us a little bit more about where life sciences is today.

Mike Moradi:

So I would say today is the single most exciting time I've ever seen, for anybody working in the life sciences. I graduated in 2000, when they were just beginning to sequence the human genome, I think in 1998 was when they first sequenced the human chromosome.

And I would say 90% of what I learned is basically obsolete. When you have, the convergence of tools in the life sciences, proteomics, genomics, coming together with the massive computational power that has been developed over the last 20, 30 years. People are beginning to think about diseases in fundamentally different ways.

And when you can do that, you can also find better ways to sort of target new drugs. And so I believe the next 20, 30 years will be at true renaissance in the life sciences. Diseases that people think are currently incurable and we're going to find ways to tackle. And I would maybe make a bold prediction that, today, the oldest person alive, maybe a hundred twenty two, a hundred twenty three years old.

I think we're gonna break that barrier pretty soon. And more importantly, we're gonna be living healthier lives as we age.

SCS:

And so quality of life is gonna improve. Yet there consequences for some of these trends, right? Then you need to figure out how to, I mean, the pensions these days are under tremendous pressure and you're in the world of investing ss well.

How do you think, a lot of these trends are going to from longer lifespans, better innovations that will change the dynamics of how we live as a society. AI as a hot new thing that everybody's talking about being implemented in healthcare, life sciences.

If there's anything you're concerned about in the way that we're moving forward, what would it be?

Mike Moradi:

I'm of course very concerned and you're absolutely correct that there will be consequences if people are living longer, healthier lives.

I was actually a trustee for a very large pension, here with about $13 billion in assets. And the hot button issue at the time I was on the board was, moving from a defined benefit plan to defined contribution plan. Which of course a lot of people were very upset about.

But the reality was that, all of our pensioners were living longer and healthier lives for the most part. We had a target return of 8%, which was increasingly hard to meet at the time that I was on the board. So if we did nothing, we would be essentially insolvent within a certain period of time.

And so they had to make some adjustments. For me, I have no expectation that social security will be around when I retire. So obviously I'm trying to do our best to save up. it's going to cause a lot of change the societies will have to adapt.

SCS:

So there's a lot of change that's happening in undercurrent of innovation that has consequences. Beyond that, with AI in being integrated in healthcare, we've seen a ton of companies really do well in this space, and it's opening up a lot of opportunities. What are you excited by?

Mike Moradi:

Generally, I've seen a lot of business models in healthcare where the tools that are being generated help physicians augment their daily work, being able to spend time on things that humans are really good at. Dealing directly with patients, I guess people always talk about the bedside manner.

I'm hoping that these tools are used to allow, enable physicians to spend more time with patients, counseling 'em, and just kind of helping them, better understand their conditions and general wellness. But I also recognize that, the practice of healthcare in this country is effectively broken.

So it's going to require quite a bit of new thinking in order to get to your point where not only is care accessible and affordable, but that it ends being accretive as opposed to be used as a tool to increase profits.

That's one of the things that I'm worried about, about this new advent of AI within healthcare, but of course more broadly as well.

SCS:

Yeah. So why is healthcare broken in America?

Mike Moradi:

Well, that's probably, it's a big topic, but a multi-hour interview. A variety of factors. I think one of the bigger ones was when they decoupled the payers  from the people that were eventually receiving care.

Once they sort of break that cycle, which I think in some ways the HMO wave in the eighties and nineties, was pretty much the point when people really stepped on the gas and prices went crazy. And I wish I could tell you the solution 'cause it's really hard to walk that back at this stage.

It's frustrating that, we're the wealthiest country in the history of the planet and yet we have a hard time doing very basic things and in healthcare.

SCS:

And as an entrepreneur working the space, you see, that's an experience that's in many ways.

Mike Moradi:

Yeah. It's an inefficient market in a time of great disruption, is a perfect time to be a startup entrepreneur in healthcare. But these are massive challenges that it's gonna take sort of a Manhattan project, I think, to fix.

They're kind of like the world coming together after Covid and within basically, I guess six months, we had the vaccines in people's arms, and I hope we can retain some of that urgency or for other matters in healthcare.

SCS:

Yeah. So, you know what this points to, I mean, I know this is a whole different topic altogether that we could spend some time on, but it is top of mind because we just had a chat with James Rogers as well.

We talked about one of the challenges that he faced in building his and scaling his business was, He didn't understand the incentive structures between,  different stakeholders. And that's essentially what you're talking about because you're now a serial entrepreneur.

A veteran entrepreneur in many ways, what have you seen to be the way in which entrepreneurs who are fighting some of these battles of systems that may not work in the long run because of how it's been built in terms of the incentive structure, and reflecting on healthcare as a case study for that. How have you seen entrepreneurs succeed despite of this?

Mike Moradi:

Well, first and foremost, I would say I'm a huge James Rogers fan, fellow biochemist that decided to take a different path in the traditional career path. He certainly was onto something with that statement. Incentives drive behavior, period. And if you can find ways to use technology or, some novel combination of existing products and services to create a wedge, setting up the right structures to enable your teams to attack those marketplaces.

That's been kind of a hallmark of the companies that I've been involved with, essentially finding people that are working with patients on a day-to-day basis. And they'll tell you all the problems with the way healthcare is practiced in this country. And if you can get that kind of feedback from the frontline physicians, and then maybe find a novel way to attack the problems that they face, you can build great businesses around that.

And life sciences is gonna require five to 10 years and $20 to $30 million to actually show that it works, and get it through the Food and Drug Administration. If one just broadly thinks about, the way that we structure the incentives in this country, I think the marketplace for building and selling life sciences companies is quite mature.

So that's actually one of the things that I eager to get into in the sense that the early part of my career was in the sort of nano materials and semiconductor space. So I guess to your question about incentives, that kind of led me down this pathway where it's a little bit more mature of an ecosystem and just easier to, at least, to build companies to find the capital that you need and ultimately find the right partners to take them forward.

SCS:

The interesting thing about life sciences is the feedback loop. It's so long, right? It takes years.

I mean, James, it's what, more than 10 years that he's been working on this to get to the stage and still has a lot more to go to get to, as we discovered, his initial why. He had to go almost around it to get back to the why of actually helping emerging markets solve for hunger and poverty and things like that.

What is your advice to entrepreneurs who are working through what's not a B2B SaaS company that you can flip immediately within a short period of time?

Mike Moradi:  

Solve big problems. It's gonna be just as hard to solve an incremental problem as it is to do something big like what James is doing.

Honestly, I think it'll be easier to find and motivate talent, the employees of your company, much easier to get them excited. So, dream big, expand what is possible. And ultimately, change the world.

SCS:

Are there any specific tactical strategies that you learned, mistakes that you made in this sort of journey as an entrepreneur?

Mike Moradi:

I would say broadly, my method in a lot of these companies is to be the sort of the clock maker, which meaning to build an organization that can function even if I'm not around as often. I think the same applies here within Cortado. And so just getting the right people that are much, much better at these different parts of the organization to focus and incentivize them properly.

And if you can do that well and keep the right team together for the right period of time, with the right kind of milestones and structures in place, you might find that the impossible is really just a few steps along the way. And we're hoping to do that many, many times over here within Cortado.

SCS:

This is a great segue to Cortado. And interestingly you are a portfolio company CEO within Cortado, and you have also set up Cortado, essentially. Tell us a little bit about why Cortado, why now?

Mike Moradi:

I'd spent a bunch of time in the Bay area, three and a half, four years, and also was in Boston for a time doing the mass challenge in 2013. So kind of got to experience both flavors of entrepreneurship as practiced in the United States.

We always found the capital we needed in those places. Now, it turns out that Nathaniel Harding and I would get together every tax day and usually lament the fact that we had to write a check to the IRS and commiserate, on his rooftop.

It often turned into a conversation around, well, I'm raising capital for this. You're raising capital for that. Why don't we trade notes on who's putting money into these types of organizations? One day I think, I don't remember who said it, but it was like, man, I wish there was a venture fund here. So we didn't have to go out and do all this travel whenever we needed to raise capital.

And then the next year was, man, somebody should start a venture fund here. That's like a glaring opportunity that nobody's addressed. And then I guess 2019, was the time that, he was kind of moving back from his obligations at his prior company.

I was kind of in a transitory spot, given another project I was working on was beginning to taper off and we decided, all right, let's do this. So the week after Thanksgiving in 2019, we shook hands and thought, all right, let's give this a go and see if we can make it fly. And then the world fell apart.

I think everybody remembers the kind of lonely days in the early part of the pandemic when grocery stores shelves were empty and, just people were wearing masks.

SCS:

And yet you persisted and set up the first fund, which had a $10 million target, I believe, but oversubscribed.

Mike Moradi:

Yeah, it took us a bit of time to put together the slide deck and formed the entities, and in fact I was in a coffee shop drinking Cortado and trying to figure out like, when are we gonna name this company?

And realized very quickly that the domain was available, the trademark was available and we just ran with it. But that was around, I guess maybe March,  just as things were beginning to get a little bit bad. And as you said, we raised $10 million in six weeks.

The following 10 took a little bit longer, but it was astounding to me that we were able to do that over the summer or late spring during a pandemic. And honestly I think we were a little bit lucky in the sense that people who typically would write checks into things like this, they would be gone for the summer. They'd be out vacationing or buying cars and boats and stuff and yeah, they were all stuck at home.

SCS:

And why do you hit it off so quickly and that it all came together?

Mike Moradi:

Well, in times of great disruption, there's always room in the market for people trying to do innovative things. So I think it was some combination of just seizing the moment.

Yeah, in a time when people were honestly very unsettled, maybe panicking in some ways, and just trying to offer a meaningful solution to a real problem. The one that I described earlier that just, there weren't really very many people doing this type of venture capital in this part of the country.

And that experiment is succeeding. The first fund is performing exceptionally well in the top 10% of all funds in our vintage, the fact that we're essentially getting an A, that was a bit of a surprise, but the right kind of surprise.

SCS:

Yeah. And what does it take, I mean, because we've had Nathaniel on and you talked to us a little bit about the day to day of investing and how you're thinking about things. I'm curious to know from your perspective of how did you put this fund together?

You have an idea, you call a couple of people, but a lot of VCs that I speak to, they always underestimate how hard it is to actually be a fund manager. They expect the investing, which is probably what they've done before, but actually becoming a fund manager is harder than they expect.

Mike Moradi:

I would agree with that, and Nathaniel and I have both been angel investors in other companies and very, very different to do that than it is to operate a venture capital fund. And we're very process driven.

So I had been a trustee for a very large pension as I had mentioned earlier. I was very familiar with kind of the operational guidelines that big funds use to at least instill confidence with investors the typical compliance and other processes that they use.

And because of that, we were very focused on building that organization from day one. And it's taken three years to build kind of the core team that we now have in place. And of course get everybody up to I mentioned earlier kind of the process of being a sort of a clock maker to try to build an entity that can exist whether Nathaniel's traveling somewhere, whether I'm traveling somewhere. 

And we think very methodically about our deal pipeline, about investor communications, all the things that one needs to do in order to be a proper high functioning fund, that can at least meet the needs of our clients, which in this case are a combination of our limited partners, our investors.

As well as our entrepreneurs who, at the end of the day, our track record is our portfolio. So if we can do that well and support our entrepreneurs, help them do amazing things, then yeah, we will have succeeded.

SCS:

And specifically, if you think about one or two strategies that actually differentiate what makes a good fund. I mean, you now have experiences working with multiple funds. What do you think that is?

Mike Moradi: 

I had been a partner in a previous fund that we raised. I'd helped other venture capital funds raise capital, do spinoffs and other kind of company creation efforts.

And just by virtue of being a prolific spender of venture capital from the other side of the table, I kind of felt like I knew enough about the industry to give it a run. And it took, I guess, four different iterations of Cortado to actually make it work. I guess the fourth time, of course was when Nathaniel got involved and things kind of clicked.

Broadly thinking about, how does one start a fund? It’s really not that different than starting a company in some ways, in the sense that you have a lot of the same pressures finding the right team, putting together a plan, and getting to an initial closing to be able to go out and begin making investments.

But in other ways it's much, much harder. I used to think it was hard to raise money for a company and then I tried to do that for fund and realized, oh man, this is like way harder.

SCS:

Why is that?

Mike Moradi:

Well, just dealing with a much larger investor base and fund one, we had 85, 86 LPs, it's imperative that you find ways to be a good communicator when you have that many investors.

And then, it's a very, very different ball game than just building one company at a time. But at the same time, Cortado does a little bit of company creation as well. I'm not too far from where I started, which it's actually quite fun for me to be sort of the mentor this time as opposed to the protege or mentee.

I think it's one of the best parts of this job is to work with bright young people and help them build amazing companies. Create livelihoods for scientists and engineers and accountants and I love that.

SCS:

So you said there were four iterations to get to this point. So I think you did mention it was something like 10 years of thinking through before this actually  got to the Cortado that it is today.

What were the mistakes that you made in those iterations that you see fund managers making as well?

Mike Moradi:

We often say that for the early stage investments that Cortado makes, it's usually team and product market fit are the two most important criteria. Team being by far more important than, product market fit.

And the same applies for a venture fund. It just has to be the right mix of people with the right skill sets to be able to put together a first time thought. 'cause it's difficult. Most of the funds that are household names went through the same trials and tribulations when they were just getting started.

I can't tell you how many times an LP has asked me the same two questions around team and track record. And when you're starting out, you have no track record. Maybe you were a good angel investor, maybe you had a couple hundred x exits. They don't care. They say, well, your team hasn't worked together before.

You've never invested other people's capital before. You've never been subject to any kind of operational due diligence from a big manager or consultant like Cambridge Advisors. So having heard that many, many times, I guess,  somebody who's willing to tell you how ugly your baby is, you know that,  that's good feedback.

Yeah. And the same applied when I was building startups. I oftentimes wanted to know exactly where's the bar we need to meet, and then I'll come back in three or five years when we finally can meet that bar. When I was building companies, the hope was that it was four to six months. But the reality is that in fund land, you're not gonna have like a meaningful track record typically until your third fund. And that's when you can start getting the attention of the big well-known LPs out there.

SCS:

Yeah. So how did you then get your early supporters? What made them say yes when the baby was still very ugly?

Mike Moradi:

Good question. a lot of it was the fact that it was friends and family. We went to everybody that we knew, and maybe I should say David Woods had actually done some of the pre-work for us, and before we started Cortado, he, I think, was trying to put together like an angel syndicate of sorts.

He knew a lot of wealthy people that liked to do startup investing and he was getting asked by lots of entrepreneurs to put money into those companies and he realized, okay, well, I'm not an expert in FinTech or InsureTech or healthcare, but I know 30 or 40 people that are.

In these spaces that can probably help me vet these deals. So we kind of started cultivating this little network of friends and that was really the backbone of Cortado just trying to get together the initial capital to form a fund. And in the last five years, the state has gone from, I think, $60 million AUM and organized capital to over $300 million, which actually I think may be closer to $350, maybe $400 at this point.

And we've been a big part of that, along with our friends in Tulsa, Attento Capital and OSF Ventures and a bunch of others. So it's been kind of fun to have people to co-invest with. The other thing I love about venture here is that it's not as cutthroat as it was when I was on the coast.

People would sort of undercut each other to get into the right deal and they were all chasing the same 10 CEOs or the same 10 serial entrepreneur professors, which I don't think it needs to be that way. It's at least for now, very collegial here in Oklahoma. And our hope is that it will stay that way, as the industry continues to grow.

SCS:

And speaking of being collegial, you are in some way a very interesting, profile in which you're a portfolio company and CEO and also a GP on this fund with Cortado. How does that work out?

Mike Moradi:

If I could answer that in a slightly different way, I might just say it's a bit of a burden to manage just 'cause you're trying to do two very different things.

But the reality is that, being a portfolio company CEO makes you a better investor. Sitting on outside board seats makes you a better investor or you having non-profit interest makes you better corporate CEO. So I feel like,  having the ability to see the same issues from multiple sides, has been a great strength.

Having all of those different pieces in place helps you build a better network. You and I are both part of this World Economic Forum cohort, which it's probably would've been one of the single most impactful things for me in the companies I've been involved with.

So very, very proud to wear the YGL banner. I think just having a well-rounded, nature range. Much like David Epstein and his Range book. That has been tremendously helpful to me in my career.

SCS:

So for you, I mean, this is a question and maybe can be both. Can it be both? Do you see yourself more as a founder or a funder?

Mike Moradi:

I would hope Founder but at the same time Cortado, just, it's a slightly different seat but the same table, so to speak. So, I like that. The way I look at it, I've spent 20, 25 years building this most amazing network between semiconductors, life sciences, and if there's some 25, 35 year old entrepreneur trying to go out and build a life sciences company, if I can pick up the phone and get them into like the right three conferences or in front of the right, three CEOs of the right, three companies.

And I love doing that. I think that's been a huge strength for our portfolio. Like even our best performing company in fund one, Recuro Health. We took them to Davos with us in May of last year and they were awarded the technology Pioneer designation, which was a nice bump for them.

And it's just been thrilling to kind of be part of that ride. 'cause I come from the world of  life science is where you really never turn a profit. It's all, everything's driven by regulatory milestones. And to see a company like Recuro go from zero to $40 million in revenue in 24 months, you could actually sell stuff and, and make money in this time work. So that was thrilling and hoping to do that many, many more times.

SCS:

Good, many, many more times.

And we're excited to see where your path continues to take you. But now we've come to the exciting segment of Billion Dollar Moves, Billion Dollar Questions. So quick question. And the first thing that comes to mind. You ready?

Alright. The biggest issue that we're not spending enough attention on today?

Mike Moradi:

Climate change.

SCS:

Climate change. A personal flaw you're working on?

Mike Moradi:

Time management.

SCS:

Not investment advice, but favourite investing hack or tip?

Mike Moradi:

LinkedIn.

SCS:

What still keeps you up at night.

Mike Moradi:

Making sure that we perform while trying to do many, many different things at the same time.

SCS:

A moment you felt truly like giving up?

Mike Moradi:

Honestly, the several times that ran out of money, had to basically start all over.

SCS:

So what's your biggest insecurity?

Mike Moradi:

Not meeting expectations.

SCS:

What would you tell your younger self?

Mike Moradi:

Calm down. It'll all be fine.

SCS:

And finally, what do you think your legacy would be?

Mike Moradi:

I should hope it is allowing people with debilitating disease to have a longer and healthier life. And if we can do this at scale in a fund to revolutionize industries that frankly need it, we're in a part of the country that just, there's brilliant science but just not a lot of translational capital.

My hope is that we can create a livelihood for our best and brightest and help them do world changing things in their own way.

SCS:

Well, Mike, thank you so much for your time. We could go on for hours, but we will do that over drinks. And I need to catch my flight,

Mike Moradi:

It was all good. You're amazing at this.