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XLA Venture: Arrowroot Capital’s Kareem El Sawy On Navigating Structured Equity

In this episode of the LA Venture podcast, Arrowroot Capital’s founding General Partner Kareem El Sawy discusses how to navigate structured equity.
Founded in 2014, Arrowroot helps enterprise software companies “that are past the VC stage not quite at [the] buyout stage” that are looking for capital to help them reach profitability. The private equity firm offers bespoke growth capital options, usually cutting checks between $10 million to $40 million. It’s now approaching $700 million in assets under management (AUM), El Sawy said.
Structured equity can assist venture capital-backed companies that have fallen off the venture path for one reason or another.
“The reality is most software companies have burned $300 million, $50 million, $10 million, $70 million—all over the place,” he said. “They're on Series G. They're on Series A. They're on Series C. They're on Series one. It's really never a straightforward path.”
Arrowroot is looking for these under-resourced “Cinderella” companies that El Sawy says exist overlooked in many venture portfolios. Arrowroot sifts through a massive pipeline to identify these companies and then offers them capital that may come with liquidation preferences, dividends, warrants or other governance that gives Arrowroot downside protection to their investment.
“A lot of our growth capital goes towards a one-time transition of some sort,” El Sawy said. “Maybe it's an old product, a new product—maybe it's an invisible transition where the market finally came.”
Unlike many private equity investors, Arrowroot is not a control investor–they often take an ownership stake of around 30% to 35%, El Sawy said. Because their term sheets are not “vanilla” term sheets, El Sawy says that their investments take some time to talk through with management. Arrowroot’s track record and references are useful for teams trying to understand how to think about what are often unique investment terms.
El Sawy says that they are seeing many more deals in their pipeline nowadays as the gap between venture capital and private equity has gotten wider. There are many companies that don’t exactly fit the model for an investment from either group and that is where Arrowroot is able to step in.
“We're the bridge,” he said. “We’re the tour guide through that bridge”.
Prior to joining Arrowroot, El Sawy was in private equity at L.A.-based OpenGate Capital. He joined founder Matthew Safaii in 2014, during Arrowroot’s first few months. Initially, he said the firm focused on providing smaller growth checks, but has grown rapidly. Arrowroot’s portfolio includes mParticle, ParkHub and SocialChorus, and it has guided companies like Evergage to big exits. Overseeing this portfolio has helped the firm gain a reputation for being able to navigate to long-term success, he said.
“We're known at this point as that kind of guide for these companies and saying, ‘Look we've done it before’,” El Sawy said. “‘We've taken it to huge exits. We're gonna do it again for you.’”
Click the link above to hear the full episode, and subscribe to LA Venture on Apple Podcasts, Stitcher, Spotify or wherever you get your podcasts.
This podcast is produced by L.A. Venture. The views and opinions expressed in the show are those of the speakers and do not necessarily reflect those of dot.LA or its newsroom.
dot.LA reporter Kristin Snyder contributed to this post.
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LA Latino/a Founders On Why Authenticity Matters in Tech
Decerry Donato is a reporter at dot.LA. Prior to that, she was an editorial fellow at the company. Decerry received her bachelor's degree in literary journalism from the University of California, Irvine. She continues to write stories to inform the community about issues or events that take place in the L.A. area. On the weekends, she can be found hiking in the Angeles National forest or sifting through racks at your local thrift store.
As one of the most diverse cities in the world, Los Angeles is home to almost 5 million people who identify as Hispanic or Latinx. Yet, many feel they still lack representation in the city’s tech space.
“I can safely say that last year’s LA tech week hosted all of the events on the west side, and very few were focused on telling Latino and Latina entrepreneurial stories,” said Valeria Martinez, investor at VamosVentures. “We wanted to change that this year.”
The event, titled “The East Side Story –– Latino/a Founders and Funders in LA,” was held at Los Angeles Cleantech Incubator (LACI) in the vibrant Arts District with participation from VamosVentures, LatinxVC, VCFamilia, Supply Change Capital, and LEEAF.
The event was centered around stories about the Latinx community told by its members. “Storytelling is the most powerful tool we have as human beings,” said restaurateur Bricia Lopez. “We are all here because of the stories that were told to us and the stories that were read to us.”
Lopez’s father migrated to Guadalajara, Mexico because he heard a story about a better life on the other side of the border. While he didn’t have the opportunity to see that “better life,” Lopez wants to share his story with the world in the hopes of inspiring others to share their stories.
“I think for many generations, we were the gatekeepers holding us back from telling our own stories,” Lopez said. “But we are now empowered to share our stories and when we talk about wanting to hear stories from us, it's because we want a mirror into the possibility of who we can become. To me that was how powerful a story is.”
With over 400 RSVPs and a packed house that ranged from founders and investors to vendors and aspiring entrepreneurs, the event brought light to a community hungry for stories they can connect and relate to.
Fanny Grande, CEO of Avenida Entertainment Group, said that on-screen stories about the Latino community are very limited. This lack of representation inspired her to start her production company that aims to empower independent creators.
“The advances of technology, social media and the new generation being very vocal about how they want to be represented gives me hope that things are going to change,” Grande said.
One way Avenida Entertainment Group champions its creators is by providing tech solutions to help fund and produce projects. At the event, Grande announced that her production company plans to launch an English-language streaming service for Latinos to provide visibility to these projects.
“A lot of our clients are so happy that not only did they get their projects made, they're going to be seen by the community who funded the project,” she said.
Patty Rodriguez, co-founder of publishing company Lil’ Libros, aims to give representation to the Latinx community by publishing bilingual children’s books.
Rodriguez said that entrepreneurship was never a part of her vocabulary while growing up. She also had no experience in publishing before she started her business, but she believed that “we belong on these platforms.” For her, the greatest moments are opening the doors for Latinx authors and seeing copies of their books at major bookstores.
“It's so beautiful to see your dreams come true and you're working every morning to see them,” she said. “It's wonderful to see them at Target, Barnes & Nobles across the country.”
Decerry Donato is a reporter at dot.LA. Prior to that, she was an editorial fellow at the company. Decerry received her bachelor's degree in literary journalism from the University of California, Irvine. She continues to write stories to inform the community about issues or events that take place in the L.A. area. On the weekends, she can be found hiking in the Angeles National forest or sifting through racks at your local thrift store.
L.A. Tech Week has brought venture capitalists, founders and entrepreneurs from around the world to the California coast. With so many tech nerds in one place, it's easy to laugh, joke and reminisce about the future of tech in SoCal.
Here's what people are saying about day three of L.A. Tech Week on social:
Who's out at #LATechWeek This Week!? 🚀
Just like always, we have the team on location & producing out-of-this-world content! 🪐
Follow @Techweek_ 👈 https://t.co/bl7MvmhVIb
— Edge of NFT 🎙 (@EdgeofNFT) June 7, 2023
Ethereal Engine blowing our minds today #LaTechWeek@Techweek_@andrewchen@KatiaAmeri@john_at_stonks@75SunnyVentures@mucker@fikavcpic.twitter.com/zfw38Fo17m
— Sean Goldfaden (@seangoldfaden) June 7, 2023
Great Tuesday at #LATechWeek - @STHoward and @houseofvc hosted an impressive set of entertainment panels that ft. @spencerrascoff and @tbiggio and others and then went to a @CrosscutVC and @75SunnyVentures party in the Palisades. Excited for @dotLA tonight! pic.twitter.com/eWKAtvQshv
— Garrett (@GRothstein1) June 7, 2023
Yesterday, the Ampera Foundation attended @lightspark's #LATechWeek meetup in LA focused on payments and lightning, and the Ethereum Chicago meetup at the @im_not_art gallery space connecting with the local crypto community. What's your favorite local crypto event? pic.twitter.com/kg7m0bIHld
— Ampera (@ampera_xyz) June 7, 2023
Excited to be helping with LA #techweek at #Google today. In partnership with #a16z and #Stonks, we have some exciting founders pitching their Ent & Gaming business demo's.#LATechWeekpic.twitter.com/J2gkE7L5fq
— Jonny Cranmer (@jonnycranmer) June 7, 2023
WOW!🔥VC panel last night w @adelajamal@jarichert44@jekerner@GarnetHeraman@joshresnick01 & Anne Feuss
We discussed community, empathy, fundraising & mental health (& more) during this challenging time
So grateful to have such a real discussion w diverse humans#LATechWeekpic.twitter.com/GtjVnRQkuu
— Roger DaSilva (@RogerDaSilva1) June 7, 2023
Such a fun throwback to the event we did in 2022 for #LATechWeek ! Thanks @seangoldfaden for the amazing video 🎉 https://t.co/SWYCXbMDJe
— Amplify.LA (@amplifyla) June 7, 2023
We hosted a packed @whitecapai happy hour in Venice with panelists from @Verizon@Microsoft@Google and @LA28 with diverse thoughts on Enterprise AI. Thanks Alex Chao, Ric Edwards, Iman Ghanizada, and Mumtaz Vauhkonen! #LATechWeekpic.twitter.com/pCXXbxDAoY
— Craig DAVIS (@CraDav) June 7, 2023
Thoroughly enjoying #LATechWeek so far, I started Day 2 of with @SlausonAndCo amazing event. Ran into so many familiar faces, met some amazing new founders then checked out their art gallery.
Then popped by @BLCKVC and @diversityvc panel on Navigating the Capital Landscape pic.twitter.com/8PKcT5Wr8u
— Tanisha (@tanisha_london) June 7, 2023
Reunion of old and new friends is LA Tech Week’s PMF 💡
The irony is that for how big LA is, people haven’t seen others for a while, because its vastness makes serendipity challenging. So this week gives the community an excuse to catch up with coworkers and even childhood and… pic.twitter.com/NS8ID8rnP5
— Wilson Kyi (@WilsonKyi) June 7, 2023
Excited for the @LatinxVCs Avanza Summit! @itsmarielasalas@MariaSalamanca@jomayra_herrera@RamiReyesVC@aguerrerovc@ambersvida@nic_detommaso@VCSerge#LatinxVC#LATechWeekpic.twitter.com/DdtYcrCzaY
— Tiq (@TiqChapa108) June 7, 2023
If you wonder how #Music,#Space,#AI come together for you in one place - join our Twittet Space 11 am PST
@https://twitter.com/i/spaces/1OwxWwQqoWDxQ CopernicSpace @spaceibles and @LadyRocketSpace ,I will share endeavors LA Tech Week how I buildnew Stage for @spaceibles… pic.twitter.com/djXDuENiWI
— Lady Rocket Eva Blaisdell (@LadyRocketSpace) June 7, 2023
What a great time for LA tech week, escape New York at the right timehttps://t.co/FEHhYgmxHU
— Christopher | Mad Oath 🆔 (@chrismadoath) June 7, 2023
Here representing Australia. Hello #latechweek it’s nice to meet you. pic.twitter.com/rDIOM7hflJ
— Christopher Bartlett (@chipershot) June 7, 2023
(1/2)
In the thick of LA Tech Week and loving it!! 🤘🤘🤘
🔥🔥Scroll for new events!!! 🔥🔥 pic.twitter.com/5n6eV81oiE
— Tech Week (@Techweek_) June 7, 2023
#LATechWeek are you ready for the @trustfundvc launch party?!!! We got a disco ball too pic.twitter.com/smIJFAKlcA
— Sophia Amoruso (@sophiaamoruso) June 7, 2023
#robstory 157/365: tonight’s “The East Side Story” event in the Arts District for #LATechWeek proves what’s possible in our LA entrepreneurial economy! It proves our opportunity to breathe life into our words about diversity & inclusion. Take note, I did!
I’m so so grateful to… pic.twitter.com/ks45MdY7BF
— Rob Ryan (@IAmRobRyan) June 7, 2023
Had a blast at LA @techweek_ last night! Huge thanks to Eddy for his amazing storytelling and the behind-the-scenes look into @goatapp’s journey to product-market fit. And of course, to all the founders, startup enthusiasts, and @firstround team for showing up to support 🙌 pic.twitter.com/93bieSkbBA
— Todd Jackson (@tjack) June 7, 2023
“Gamify the experience of consuming. Drink an ape water? Scan the code. It donates .05 to clean water.” #LATechWeek@Techweek_pic.twitter.com/ZpKbadNSh1
— Sean Goldfaden (@seangoldfaden) June 7, 2023
Moderating is easy when you have brilliant folks like @Chrisjjosephs and @brianschardt on the other side
Was great to talk @JoinAutopilot_ during #LATechWeekhttps://t.co/v9CEshahPL
— James Mumma (@JamesMumma) June 7, 2023
A beautiful, intimate networking event discussing all things Fintech with founders and innovators on Day 3 of #LATechWeek with Clocktower Ventures. 🤩 pic.twitter.com/z3SMPMoTZw
— Tech Week (@Techweek_) June 7, 2023
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LA Tech Week: Female Founders Provide Insights Into Their Startup Journeys
Decerry Donato is a reporter at dot.LA. Prior to that, she was an editorial fellow at the company. Decerry received her bachelor's degree in literary journalism from the University of California, Irvine. She continues to write stories to inform the community about issues or events that take place in the L.A. area. On the weekends, she can be found hiking in the Angeles National forest or sifting through racks at your local thrift store.
Women remain a minority among startup founders. According to Pitchbook, even though women-led startups in the United States received a record $20.8 billion in funding during the first half of 2022, U.S. companies with one or more female founders received less than 20% of total venture funding in 2022. U.S. companies solely led by female founders received less than 2% of the total funding.
The panel, titled Female Founders: Planning, Pivoting, Profiting, was moderated by NYU law professor Shivani Honwad and featured Anjali Kundra, co-founder of bar inventory software Partender; Montré Moore, co-founder of the Black-owned beauty startup AMP Beauty LA; Mia Pokriefka, co-founder and CEO of the interactive social media tool Huxly; and Sunny Wu, founder and CEO of fashion company LE ORA.
The panelists shared their advice and insights on starting and growing a business as a woman. They all acknowledged feeling pressure to not appear weak among peers, especially as a female founder. But this added weight only causes more stress that may lead to burnout.
“The mental health aspect of being a founder should not be overshadowed,” said Kundra, who realized this during the early stages of building her company with her brother..
Growing up in Silicon Valley, Kundra was surrounded by the startup culture where, “everyone is crushing it!” But she said that no one really opened up about the challenges of starting your own company. .
“Once you grow up as a founder in that environment, it's pretty toxic,” Kundra said. “I felt like I really wanted to be open and be able to go to our investors and tell them about challenges because businesses go up and down, markets go up and down and no company is perfect.”
Honwad, who advocates for women’s rights, emphasized the value of aligning yourself with people with similar values in the tech ecosystem. “[Those people] can make your life better not just from an investment and money standpoint, but also a personal standpoint, because life happens,” she said.
Moore, who unexpectedly lost one of her co-founders at AMP Beauty, said that entrepreneurs “really have to learn how to adapt to [their] circumstances.”
“She was young, healthy, vibrant and we've been sorority sisters and friends over the past decade,” she said about her co-founder Phyllicia Phillips, who passed away in February. “So it was just one of those moments where you have to take a pause.”
Moore said this experience forced her to ask for help, which many founders hesitate to do. She encouraged the audience to try and share their issues out loud with their teams because there are always people who will offer help. When Moore shared her concerns with her investors, they jumped in to support her in ways she didn’t think was possible.
Kundra said that while it is important to have a support group and listen to mentors, it is very important for entrepreneurs to follow their own thinking and pick and choose what they want to implement within their strategy. “At the end of the day, you really have to own your own decisions,” she said.
Kundra also said that while it is easy to turn to your colleagues and competitors and do what they are doing, you shouldn’t always follow them because every business is different.
“When I was in the heat of it, I kind of became [a part of] this echo chamber and that was really challenging for us,” Kundra added, “but we were able to move beyond it and figure out what worked for us [as a company] and we're still on a journey. You're always going to be figuring it out, so just know you're not alone.”
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Decerry Donato is a reporter at dot.LA. Prior to that, she was an editorial fellow at the company. Decerry received her bachelor's degree in literary journalism from the University of California, Irvine. She continues to write stories to inform the community about issues or events that take place in the L.A. area. On the weekends, she can be found hiking in the Angeles National forest or sifting through racks at your local thrift store.