As we continue in the Capital Allocator series, Matt sits down with Michael Basch this week, Managing Partner of Atento Capital to explore the world of seed fundraising and the regional entrepreneurial ecosystem that is developing in Northwest Arkansas and Tulsa. They begin the conversation with an overview of the angel investing collaboration between Atento Capital, the George Kaiser Foundation in Tulsa and the Walton Family Foundation in Northwest Arkansas. The goal is to create a group of very active high value angel investors across both regions that are investing in deals especially in the region but also nationally, it is known as the 412 Angel Network. They then dive into the entrepreneurial ecosystem that is growing in Northwest Arkansas and how 412 angels can help with early investment strategy. The podcast closes with a discussion on the robust entrepreneurial ecosystem in Israel that Michael experienced and Michael shares advice for those looking to get into their first business venture. 

As long as that founder is willing to fight another day through all the difficulties through all the pivots through all the things that are going to happen that he doesn't even he or she doesn't even know will happen. If they're willing to kind of, you know, push through it all irrationally, then the company might have a chance to be something big.

Excellence, professionalism, innovation, and collegiality. These are the values the Sam M. Walton College of Business explores in education, business and the lives of people we meet every day, I'm Matt Waller, Dean of the Walton College and welcome to the Be Epic podcast. For next few episodes, I will share my conversations with capital allocators in the seed, venture and private equity space. They will discuss how their capital allocation works, and provide tips to entrepreneurs on how to stand out. I have with me today, Michael Basch, who is the managing partner of Atento Capital. And he has extensive experience in venture capital, partnerships, and entrepreneurship. Michael, thank you so much for joining me today. I really appreciate it.

Thank you for having me. Excited to be here.

So, so Michael, I know that you, you're right now, of course, working with Atento Capital and Atento Capital and Tulsa, are collaborating with Northwest Arkansas and would you mind talking a little bit about that, and the seed funding initiative that's going on?

Yes. So I lead Atento Capital. We're an early stage VC based in Tulsa, Oklahoma, with an office in Northwest Arkansas as well. And and we are mainly supported by the George Kaiser Family Foundation here in Tulsa. And in q4 last year, the Walton Family Foundation reached out and the two foundations have been thinking about ways to create more of a kind of larger regional effort and, and, and kind of think through different partnerships between two regions. And one of the one of the areas that that we all kind of agreed upon was an opportunity was in becoming various early stage of funding for startups. You know, the angel investing stage in which, you know, in Tulsa, we're a little further along in the venture capital maturity of the ecosystem than Northwest Arkansas, but Northwest Arkansas has a huge asset, and the three large corporations there, and the talent that's working with those companies, and that could be quite advantageous for startups. And so, so we're together building on the 412 Angel Network, which the 412 is the highway between the 100 miles between Tulsa and Northwest Arkansas. And we're looking to kind of create a group of, you know, very active high value angel investors that are investing in deals nationally along with Atento Capital's investments, as well as looking at deals locally that they can not only invest, but hopefully add value. And who knows, one day, some of them might end up, you know, working in some of these companies or, or even starting their own company as they kind of get more exposed to entrepreneurship.

So I know that one of the challenges we face is that if you look at the percentage of people who could are basically accredited investors, the percentage of those accredited investors in our region that are actually engaged in, you know, seed funding, early stage funding is pretty low compared to the rest of the country, is that correct?

Yeah, unfortunately, I can't remember, one of us is 47th and one of us is 48th per capita, in number of like angel investors as a percentage of accredited investors. I can't remember actually think Oklahoma was behind Arkansas. And it's either way, you don't want to be in either those seats. And so, you know, the good news about being 47th and 48th out of 50, is you can only go up and we hope to kind of help with that.

That's great. Yeah, we're and of course, you and your team have been doing a lot of educating of people here in in the region. And so is there anything you any message you have for people? Let's say there's someone who's listening who is an accredited investor, and they they've never been involved in any kind of investing other than publicly traded stocks and bonds and maybe real estate. What would what would be your message to them?

A couple messages. One is I was you at one point in time, I did my first angel investment, I was probably an accredited investor from 2008. And I did my first angel investment in probably 2012, where I'd invested in real estate and public markets previously. So I know what that's like. And I know in the beginning, you're thinking to yourself, man, like, is it super hard, and how's this gonna go and have to be, you know, the E liquid, so you're going to be in this company for 10 years. And my advice would be one is invest in one that I would invest in one of two things. One is an area you understand deeply, or and that you can understand the problem that this founders trying to solve, or two someone you believe in deeply and know incredibly well, and you just kind of think this person, one way or another is going to figure it out. Because in the end, like that's probably those, you either have informational advantage on the space or on the person, and you will know on one or the other, ideally, both, you know, if you should make a bet or not. And I would also say that investment can be super small, especially nowadays, there's usually a lot of platforms etc, that you can write a $5,000 check in, and in a perfect world, you're writing multiple small checks versus one big check. And especially in the beginning, and when you invest, watch it closely read the updates, see how you can help the company get involved, like you're taking up real estate on that cap table, you'll add value for that real estate for the company, because unlike a publicly traded company, like Nike, you know, you can buy a pair of Nikes, sure, but you can't actually change the stock performance with this small company, you can introduce them to a key hire or key customer, and actually materially change the return on your own investment. And like, that is amazing, you know, from a personal education perspective, from, you know, learning, learning your learning and education as well just impact on your own return, it's quite a different experience than a publicly traded company, and you might find yourself enjoying it.

You know, and something that I think of, of course, in Northwest Arkansas, and in Tulsa, we've been trying to really stimulate the entrepreneurial ecosystem. So as people are investing in early stage companies here, say writing a check for $5,000, once they write a check, one, they can participate on the upside. But two, they also feel more of a psychological commitment to the firm. And so I'm thinking, those people are all the sudden going to be more likely to utilize their networks, their skills and capabilities. And so when you've got a lot of people doing that, in an entrepreneurial ecosystem, it increases the probability of good outcomes in that that ecosystem. Do you think that's true?

So I actually completely agree with that. And, and that's part of what's made San Francisco, New York, LA, Boston, to some extent Miami, you know, such flywheels for startups and venture because you have these exited Facebook founders and Google guys, and, and all these other folks that have like kind of continued, etc. And it has these huge network effects where all these people are now investing all these other people. And so we're trying to start that now here, because there's no actual barriers from that happening. And so as we get more and more of the local community involved have a vested interest in that, like the next generation of startups, these startups will have a better chance of success, because more people are like trying to help them succeed, versus them just having themselves in one big investor. And so I think you're exactly right in how you're thinking about it. And we're trying to create that with 412 Angels.

So let's talk about portfolio angels for a second. How can let's suppose someone's listening to this? And they think, okay, I'm, I'm willing to invest in early stage companies here. How can 412 angels help with that?

So if there's an early stage company, it's first of all, there's the one of the most interesting things for, for me in the last 10 months of working in Northwest Arkansas is realizing there's actually quite a significant amount of entrepreneurial energy already, there coming out of the university and elsewhere, and you have, you know, your Acretrader's, your Movista's, and quite a few companies that are well on their way as well as kind of your OXs and others that are very much underway. And so, so the good news is there's no shortage of opportunities to invest in companies in Northwest Arkansas. What we're looking to do in 412 angels is we meet with all the companies on the ones that we think have the best that make the most sense, in our opinion, we're going to put investment memo on the platform so you can see how we're thinking about it. And that'll help hopefully like to you have the opportunity to meet with the company yourself. You can have your own impression as well as hear why we think it's interesting. We intend to invest alongside as well. And so we'll be there to actually work with a company on our side to help further that the chance of a positive outcome with that company. And so it'll get help, you know, instead of having just just your own opinion on the investment, you'll have a second opinion that's done some kind of institutional level diligence on it, to react to so you can say, okay, here's the size of the total addressable market, or here's what the competitive landscape looks like, or, here are the potential qualifiers, which are things that like, you know, you as a new angel investor might not be able to research easily yourself that we can provide you for context. And so hopefully, it'll give you an additional level of comfort in your own convictions around the investment.

Michael, you have an interesting story. You're not from Israel, but you wound up going to Israel, which for those listening that don't know, Israel, is known as startup nation, they have an incredible entrepreneurial ecosystem in Israel. But Michael, you wound up going to Israel. And you you accomplished a lot of interesting things there. And would you mind telling us that story?

Yes. So um, so my story with Israel is Israel's played a huge role in my life since birth, really, in a variety of ways. But when I was we were selling my last company, I took a sabbatical moved to Israel in the Summer of 2014. And I had invested in Israeli tech company prior and ended up doing some consulting for them. And he asked me to come in as president and co-run it with the technical founder. And actually, that company is $16 million in revenue in a couple of years. And it made me realize, like, in doing so how you know, how robust the Israeli startup ecosystem is, since then had a very huge affinity for the startup ecosystem that's happening in Israel. And I've watched it kind of grow and blossom, have invested in it for quite some time. And actually, in 2017, I was introduced to my wife who was living in Israel. And we eventually fell in love, got married there. And then I kidnapped her to Tulsa, where we now live and have a an amazing family. But what's been so interesting to me with Israel, and really watching it is, you know Israel is very unique in that everyone joins the armed services, and they have a division of the armed services called 8200, which is their equivalent of the NSA, the intelligence and the you know, they have to be, you know, they do cyber defense and cyber offense, and they have to be better. They have to be so good at their job that they can defend Israel from attacks as well as be enough of a threat on counter attacks to discourage people from attacks. And so the talent that comes out of 8200 is so unique. It's such a unique asset to Israel, that they then go and build all of these companies. And you just have on like a per capita basis, a plethora of startups, and it used to be used to call it startup nation, because they have all these startups and all these startups will get bought by Microsoft and Amazon. But over the last few years, as its matured, they've now had IPOs, and unicorns, and decacorns, you know, like, I think Monday will bring its valued at 15 billion, but leave the 10 billion dollar plus outcomes. And this is something that's really a new phenomenon of the last like 10-15 years. And we have been investing in there me since 2013, Atento/GPFF since before then, we have a full time person there. We're very active in the Israel market. We actually are hosting the Israeli consulate from Houston in Tulsa in a couple of weeks. And we're working on a factory on a 3d printed food company from Israel and you know, out here, so we really think that there's a huge opportunity to closer connect Israel to this part of the country, which they otherwise wouldn't be thinking about. And so, so, so more to come. But we are very excited and have a huge affinity for Israel.

We used to have a study abroad to Israel. And we haven't had it the professor that used to run it is left and went to another university. But but students loved it, I think they took 20 or 30 students per summer. And it but the title of the study abroad was startup nation.

I love that-

And so they would spend their whole time meeting with early stage companies over there and learning what was going on. Very interesting.

It sounds amazing. You should bring that back.

We should. So Michael, when you're meeting an entrepreneur, and you're considering investing, what what are you thinking about, what's the most important thing you're thinking about?

So, there's many people with many ideas that want to build companies, and especially venture backable companies. And what's so interesting is you know, something like only 1% of companies that are trying to raise money, raise money. So you already 99% are never going to raise money, the ones that raise money, I think something like 70% don't work out within five years and 90% like don't have a, you know, an overly positive outcome. So you're talking about something like only 0.1% of this asset class is going to make sense. So it's really hard is my point is like, most people fail and it's really hard. So why will one entrepreneur build a company successfully or another one will not? And I think there's, there's a variety of factors that could be timing of the market, and the size of the market and the competitive landscape and regulatory, a bunch of different things. But at the core, your investment is alive, as long as that founder is still in the fight, meaning as long as that founder is willing to fight another day, through all the difficulties through all the pivots, through all the things that're going to happen that he doesn't even he or she doesn't even know will happen. If they're willing to kind of, you know, push through it all irrationally, then the company might have a chance to be something big. And so I think that the the grit and the understanding the why of why is the founder thinking about this problem? Why must they solve this problem? How does this connect to their own personal mission and purpose? And how badly do they want it and get into the core of that question is, I think the single most important thing that you can do in thinking about a person to invest in because in the beginning, you're investing in the person and the problem and not the actual idea because the idea will change many times before it reaches its end product and so so really understanding that person and their and their determination and perseverance and their grit and their why would be my number one piece of advice.

That is such a, you know, this grit is such an important characteristic in anybody no matter what they're doing, but particularly an early stage company because, you know, they're going to pivot, you know, they're going to have setbacks. And finding people that can persevere through that is, is definitely a challenge and you see it, you know, I think of so many entrepreneurs that I know that have done really well. You know, I think of April Seggebruch and Stan Zylowski at Movista, they, they really have that grit, you know, and I've seen them persevere through through all kinds of things. And I think of a long list of these people who have that kind of grit, but but most people don't. You know, and sometimes you develop it over time. Some people seem to be almost more than I know, Stan said that he when he was younger, he sold I think it was vacuum cleaners door to door one summer and and that really taught him how to be rejected and keep moving forward, though. I can't imagine doing that.

My grandfather did that post World War, he fought in World War II and came back from the GI Bill bought a house was a door to door vacuum salesman.

Is that right?

That exact job at one point yes, he taught me he taught me to sell lemonade which it was was lucrative for me at eight years old. But yeah, I have a ton of empathy. It's a huge skill set like a priceless skill set to learn.

Michael, thank you for the great work you're doing at Atento and 412 and and for trying to educate Northwest Arkansas and and the Northwest Arkansas Tulsa corridor on on these opportunities. And then thanks for taking time to visit with me. I really appreciate it.

Dean Waller, thank you for having me. I enjoyed it. It was wonderful chatting.