Case Studies

Overview

Collab was founded in 2019 by Managing Partners Jewel Burks, Justin Dawkins, and Barry Givens who bring a complementary mix of entrepreneurial, operating, and technical backgrounds. Jewel was the CEO and founder of Partpic, a computer vision startup that made it easier to find industrial parts; she sold it to Amazon in late 2016 before becoming the U.S. Head of Google for Startups. Barry founded and developed Monsieur, an automated bartender startup, before licensing his IP and leading Techstars as the managing director for its social impact accelerator. Justin is a 20-year software developer and co-founder of Goodie Nation, the entrepreneur development program focused on social good.

In May 2021, they successfully closed their oversubscribed first fund at $51M with the support of 99 LPs, including the Mellon Foundation, Capital Access Lab, Goldman Sachs, Mailchimp, Bank of America, Google, Apple, Foot Locker, PayPal, and Carta Ventures.

Investment Strategy

Collab makes early-stage investments in Black-owned companies in the US. Collab creates growth opportunities for its companies by connecting founders to growth partners with industry expertise or social capital. The team seeks companies that have a viable path to annual revenues above $1M within one year of their investment and $10M within three years at 40%+ profit margins. The fund will invest in 50 companies over its five-year investment period with an initial check size of $500K to $1M with the remaining 30% of the fund reserved for follow-on checks of up to $2M. Collab is targeting a 30% gross IRR and 3.0 gross MOIC for the fund.

Collab aims to close the market gap for Black founders who lack the assets to receive traditional lending, lack access to personal, friends and family capital, and do not fit into the traditional VC investment criteria. Their mission is to create, grow, and sustain wealth in the Black community by investing in and building technology-enabled companies through the development of connections between Black innovators, investors, and influencers.

Collab invests in the top 25 American cities with a high concentration of Black entrepreneurs and a low concentration of risk capital. Their target city list includes Atlanta, Charlotte, Chicago, DC, Detroit, Houston, Miami, New Orleans, St. Louis, and other cities that fall outside of the most venture funded regions such as the Bay Area, NYC, and Boston.

Collab backs technology-enabled products and services across the following three themes: future of work, future of learning, and future of care. They selected these as themes of interest based on where they believed the team and influencers can make the most impact. However, Collab will also consider companies that may not perfectly fit into these categories. They will not invest in biotechnology, cannabis and tobacco, cryptocurrency and tokens, food and beverage, gambling, liquor and spirits, professional services agencies, and real estate industries.

SPACE

Collab created a novel profit share funding approach called the “Shared Profits and Collaborative Endorsement” (SPACE) agreement that they wished existed when they were raising capital as founders. Collab believes the “binary construction of venture leaves too much value on the table and has the potential to destroy businesses that would otherwise be solid, ‘calm’ businesses.” They want to increase the odds of success for their founders by offering optionality and flexibility baked into the SPACE agreement for their fundraising journey. The traditional VC model expects at least 80% of their portfolio companies to fail and a couple 10x+ outcomes to generate 3x+ returns for LPs, but Collab wants the majority of their portfolio to become “sustainable, profitable businesses with tens of millions in annual revenue and double-digit year-over-year growth—businesses that create jobs in predominantly Black communities and that founders can pass down to their children.” Collab expects to generate venture-like returns with a more founder-friendly, resilient portfolio construction approach with self-liquidating, profit share instruments.

Pre-investment, Collab works with founders to agree on key success metrics and then identifies a team of influencers, advisors, and service providers to work with the founders. Post-investment, the manager executes on its growth plans to add customers while focusing on profitability.

For their SPACE term sheet, Collab makes investments structured with a profit share and an equity target. Collab starts the 20% to 25% profit share at the predetermined revenue target that produces enough profit to sustain the optimal late-stage operational structure. Collab reserves the right to defer profit share payments and will do that when they believe the money would be better used going back into the business.

Collab also targets a 10% to 15% equity stake, agreed upon with companies pre-investment, to protect their upside for potential exits like acquisitions and IPOs. Companies have the option to redeem or buy back up to 10% of the equity target as the companies return multiples to the fund. For example, if a company has returned 3x the initial investment via profit share payments, it can redeem 3% of the total 15% equity target.

For each SPACE deal, Collab uses a SPV to make an investment into the portfolio company. They cap the growth partner equity stake at one-third of each SPV’s ownership in a portfolio company. For example, if Collab has 15% equity in a company, then growth partners can receive up to 5% equity and up to one-third of Collab’s profit share rights in the company.

Collab’s target SPV structure typically looks like the following:

• 10% to 12% Collab equity target: The fund will provide all of the capital for each investment with an initial check size of $500K to $1M with reserves up to $2M.

• 1% to 3% Growth Partner equity target: The Growth Partner(s) will be selected and compensated based on their ability to help the company grow efficiently and rapidly. These partners will commit to specific actions as corporate partners, industry advisors, industry experts, and/or social influencers. The percentage of equity per partner will be determined by factors such as decision-making power, depth of influence on the company’s target audience, and time commitment available. Collab manages a performance-based vesting schedule with the Growth Partners.

Here are two SPACE deal examples:

VC Pathway: Collab invests $500K for a 10% target ownership in Company A. They work with the business over the course of a year and see that it is growing 30% month-over-month and is attracting attention of Series A investors. After the first year, Collab determines the business needs more money to continue to grow marketing spend and add more team members. This is a perfect case to continue on the venture path, and in this case they will help the founders raise the next round and then convert into 10% ownership before dilution. In this deal example, Collab operates similarly to a traditional pre-seed VC.

Profit Share Pathway: Collab invests $500K for a 10% target ownership in Company B. They work with the business over the course of the year and see that it is growing steadily, but at 10% month-over-month. The founder is able to keep costs low, and the company’s Growth Partner has helped them crack the code on organic growth methods. As Collab learns more about the industry the business is operating in, they see that the opportunity is more narrow than originally thought, and instead of the $30B TAM originally forecast, the market opportunity is more likely less than $1B. Collab and the founder come to a collective decision that it doesn’t make sense to raise another round of funding, but instead they should focus on continuing to grow revenue and increase profitability.

Under this scenario, Collab begins a profit share at the point the business is sustainably profitable, meaning it can pay its employees at full salaries and has built up the proper infrastructure. The profit share allows Collab to generate returns on its investment and allows for the founder to redeem his or her equity. For every multiple on investment returned, Collab’s equity target goes down by 1 percentage point, until reaching an agreed upon ownership floor across an agreed upon period of time.

Track Record

Collab Fund I (2020, $51M) – Collab has invested $15M+ in 24 portfolio companies and made three follow-on investments through June 2022. Collab has made 10 SPACE deals out of the 27 total investments with the remaining deals structured as SAFEs, convertible notes, or equity.

Portfolio companies include (six out of 11 are SPACE deals):

• BrightUp (Boston) is an emotionally intelligent financial wellness benefit provider that believes that how people feel about themselves affects how they treat themselves – particularly when finances are involved. They provide a full suite of financial wellness tools, rooted in an uplifting mobile experience. BrightUp’s flagship offering is a low cost Loan that is repaid through paycheck deductions.
• Boost (Oakland, CA + Detroit, MI) is the Quickbooks for Gen Z side-hustlers. Boost is a platform that combines personal finance, SMB accounting, and business management in a brand-forward, mobile-first experience designed for a fast-growing, yet underserved Gen Z market.
• FanFest (NYC) is a platform for creators to host live shows with fans from their website where they can invite anyone, sell anything, and stream anywhere.
• Hairbrella (Atlanta) is a reinvented rain hat that combines fashion and function to keep hair dry and style protected no matter the elements.
• Healthy Hip Hop (Atlanta) is a platform that infuses technology, music, literacy, and cultural competency to improve student-learning environments and increase classroom engagement.
• Jax Rideshare Rentals (Atlanta) is a car rental platform that services rideshare gig workers. By providing tailored benefits and increased flexibility, Jax takes an innovative approach to car rentals and is poised to fill a major gap in the nearly $500B gig economy market.
• Music Tech Works (Atlanta) is a B2B SaaS and machine learning company solving the challenge of music licensing in content creation across film, TV, and social media.
• Please Assist Me (Washington, DC) is an all-in-one home management service for apartment complexes.
• Revry (Los Angeles) is the premier streaming network for the world’s LGBTQ+ community.
• Safer Management (Dallas) is a software company that accurately tracks student attendance data with the power of AI and Machine Learning. Safer’s mission is to provide schools, districts, and states with an accurate and complete picture of student attendance data.
• Stack Influence (Miami) is a micro-influencer platform that facilitates user-generated promotional marketing campaigns. Their community of over 50K managed micro influencers are compensated with only products that match their profile and interests.

Fund Structure

• Management Company: Collab Capital, LLC (Georgia LLC)
• GP Vehicle: Collab GM, LLC (Georgia LLC)
• Fund: Collab Fund I, LLC (Georgia LLC)
• Fund Type: 506(b)
• SPACE SPVs: Each Collab SPACE investment is done through a separate LLC (SPV) managed by the fund. Each member of the SPV is given a percentage of the new Collab SPV based on dollar commitments. Once payouts begin, the company will pay into the respective Collab SPV and then those proceeds will be distributed pro-rata to the members of that Collab SPV. The Collab Fund I portion will deposit into the dividend pool for the LPs of the fund. The fund manager will make quarterly distributions to LPs. Follow-on investments are made through the same Collab SPV.
• GPs: Jewel Burks, Barry Givens, and Justin Dawkins

Fund Terms

• Fund Size: $51M
• GP Commitment: 2% of fund size
• Investment Period: 5 years
• Fund Life: 10 years with up to 3 one-year extensions
• Management Fee: 2% of committed capital
• Carried Interest: 20%
• Preferred Return: 8%
• Key Persons: Jewel Burks, Barry Givens, and Justin Dawkins