20 VC Are Unicorns Necessary To Make Big Returns and The Series A Crunch with Sumeet Shah @ Brand Foundry Ventures

Summary Notes


In the final pre-Christmas episode of "20 minutes VC," host Harry Stebbings interviews Sumit Shah from Brand Foundry Ventures, a firm known for investments in Warby Parker, Birchbox, and Contently. Sumit shares his unconventional journey into venture capital from a background in biomedical engineering and private equity, highlighting the importance of understanding different industries. He discusses the strategy of Brand Foundry Ventures, focusing on seed and pre-seed investments in product-based startups, and addresses the series A crunch, emphasizing the need for sustainable business models over the pursuit of unicorns. Sumit also touches on the value of diversity in startups, noting the success of female-led companies, and the unique strengths of the New York venture ecosystem compared to Silicon Valley. Lastly, he advises startups on leveraging investor relationships and teases a new investment in the eco-friendly women's sanitary product space with Lola.

Summary Notes

Introduction to the 20 Minute VC Podcast Episode

  • Host Harry Stebbings announces the final episode before Christmas.
  • There will be no Founders Friday episode due to Christmas Day falling on a Friday.
  • Regular podcast schedule will resume on Monday, December 28th.
  • Sumeet Shah from Brand Foundry Ventures is the guest for this episode.
  • Brand Foundry Ventures has investments in Warby Parker, Birchbox, and Contently.
  • Sumeet Shah has a background in sourcing and managing new opportunities at Brand Foundry.
  • Special Christmas giveaway mentioned: Loyalty Bay offers a free ebook on conversion rate optimization.
  • Matamark provided data and analysis for the episode.

This is the 20 minutes VC with your host Harry Stebbings and this will be the final episode before Christmas.

This quote introduces the episode and the host, Harry Stebbings, while also mentioning the upcoming holiday scheduling.

Sumeet Shah's Background and Entry into Venture Capital

  • Sumeet Shah joined the VC industry by accident after graduating from Columbia University in 2008.
  • His background is in biomedical engineering with a focus on biomechanics.
  • Shah's first industry experience was in private equity with Gotham Consulting Partners.
  • He was attracted to the diverse industry exposure and the interesting nature of private equity.
  • Shah transitioned from project work to business development within Gotham Consulting Partners.
  • He met Andrew Mitchell, his current boss at Brand Foundry, through a mutual friend.
  • Shah moved to the startup world with Gist Digital before being offered a job in venture capital by Andrew Mitchell.
  • Brand Foundry Ventures opened for business on March 1, 2014, and has a portfolio of 13 companies.

Sure. So I got into the industry by pure accident.

Sumeet Shah explains how his career in venture capital began unintentionally, setting the stage for his current role at Brand Foundry Ventures.

Brand Foundry Ventures' Investment Focus

  • Brand Foundry Ventures is active primarily in seed rounds, occasionally in pre-seed rounds.
  • They support startups requiring funds for launch, such as the fashion platform 19th Amendment.
  • The firm's focus is on early-stage investing, particularly in product-based companies.

We focus on seed rounds every now and then, a pre-seed round.

This quote specifies the investment stages that Brand Foundry Ventures targets, highlighting their role in early-stage funding.

The Series A Crunch Concern

  • Sumeet Shah expresses concern about the Series A crunch, particularly for tech and software startups.
  • He respects Sarah Lacey's analysis but does not always agree with it.
  • There is an observable trend of product-based startups raising significant seed funding.
  • Factors such as repeat entrepreneurs and the need for substantial initial capital contribute to larger seed rounds.
  • Shah is less worried about the Series A crunch for product-based companies due to increasing investor interest.
  • Overall, there is concern about the amount of money in the market and rising valuations.

It definitely concerns me, and I definitely just want to say I do have the ultimate respect for Sarah Lacey, even though I don't always agree with her.

Sumeet Shah acknowledges the issue of the Series A crunch, showing respect for Sarah Lacey's analysis while also providing his perspective on the matter.

Collaboration with Crowdfunding Platforms

  • Sumeet Shah works closely with rewards-based crowdfunding platforms and has invested in one.
  • They aim to facilitate great companies through platforms like Kickstarter and Indiegogo.
  • These platforms are used as additional marketing tools and for resource utilization.
  • Rewards-based crowdfunding is not seen as competition, whereas equity-based platforms might be more so.
  • Equity crowdfunding platforms like SeedInvest and AngelList are valued for their vetting processes, which alleviate some of the due diligence workload for investors.

"Just as an FYI, we've invested in a crowdfunding platform. So Indiegogo and Kickstarter, the bigger thing for us actually is we want to work alongside them to help really facilitate great companies to come through."

This quote highlights the collaborative approach taken by Sumeet Shah and his firm towards rewards-based crowdfunding platforms, indicating a partnership rather than competition.

"On the rewards. Based on equity based crowdfunding, I would definitely say it's a little bit more of competition, but again, we would love to work alongside them."

Sumeet Shah acknowledges a competitive aspect with equity crowdfunding but still expresses a desire to collaborate, reflecting a nuanced view of the crowdfunding landscape.

Investment Timing Relative to Crowdfunding

  • Due diligence for investments focuses on people, product, and pipeline.
  • Investments can occur pre-launch if the company meets due diligence criteria.
  • Comparing investment stages to clinical trials, investments might happen around stage two or three.
  • The decision to invest before or after a crowdfunding campaign is case by case.

"It's a case by case basis. I mean, the way that we do a lot of our due diligence is really focusing on people, product and pipeline."

This quote emphasizes the importance of a thorough due diligence process that focuses on key aspects of a startup before deciding on the timing of an investment.

Advice for Startups in the First 100 Days

  • Team cohesion is paramount.
  • Startups should define clear roles: marketer, operator, and technician.
  • The importance of each role varies depending on the startup's focus.
  • Cohesiveness, respect for opinions, and understanding limitations are crucial for a team.
  • Startups should never hesitate to seek advice from VCs, who are eager to provide feedback.

"You have to make sure, above everything else, that your team is just so cohesive and solid."

This quote stresses the importance of a strong, cohesive team as a foundation for startup success.

"Never ever be afraid to ask for advice. VCs. We love doling out advice. We love doling out feedback, like quick fire feedback."

Sumeet Shah encourages startups to actively seek advice from VCs, highlighting their willingness to assist and the potential benefits of such engagement.

Understanding and Investing in Teams

  • Due diligence typically takes two to four weeks.
  • Understanding the business and the founders' backgrounds is crucial.
  • Startups should be transparent, as information is publicly accessible on the internet.
  • Founders should be aware of their work style and its presentation to seed investors.

"I mean, our due diligence takes an average of two to four weeks, depending on our past relationship with the co-founders or with the entrepreneurs running the show."

This quote indicates the timeframe for due diligence and the importance of understanding the business and its leaders.

Perspective on Unicorn Investments

  • Sumeet Shah's firm focuses on "doubles and triples" rather than solely seeking unicorns.
  • The venture capital industry's reality includes a fiduciary duty to investors.
  • The goal is to make a strong return for investors, even though the desire to help startups is significant.

"Now, it's funny when you mentioned, know, again, ultimate respect to Eileen and cowboy ventures, but the bigger thing is we focus a lot on doubles and triples."

Sumeet Shah acknowledges the different investment strategies, emphasizing a balanced approach rather than chasing only high-valuation companies.

"Because the ultimate ugly reality about venture capital is no matter how good of a job a venture capital firm can do, in terms of helping startups, bringing advice, making introductions, growing the business and whatnot, we have a fiduciary duty to our investors."

This quote reflects the dual responsibilities of venture capitalists: supporting startups and fulfilling their fiduciary duty to their investors.

Venture Capital Approach and Building Sustainable Businesses

  • Focus on creating strong, sustainable businesses rather than relying solely on unicorns.
  • New York venture capital tends to prioritize sustainable companies that can be acquired or become significant parts of the economy.
  • Sustainable businesses are often valued between $250 million and $750 million, offering good exit opportunities.
  • Building consistent "doubles and triples" can lead to finding a unicorn.
  • Andrew's old firm had six companies valued over $100 million, two over half a billion, and one at $1.2 billion (Warby Parker).

"The way that Andrew and I focused with brand foundry and the way Andrew worked with Zig Capital was to really work hard and build out strong, sustainable businesses."

This quote emphasizes the strategy of building strong, sustainable businesses as a focus for successful venture capital investment, as practiced by Andrew and Sumeet Shah at Brand Foundry and Zig Capital.

"I truly believe that by building those doubles and triples, and over time building your reputation of handling those doubles and triples, you're going to find the unicorn yourself."

Sumeet Shah conveys his belief that consistently successful, moderate-scale investments lead to a reputation that may eventually lead to discovering a highly valuable unicorn company.

Value Addition by Venture Capitalists to Startups

  • Startups should not see it as a weakness to seek help from their investors.
  • Investors can provide significant assistance and are morally obligated to be helpful.
  • Founders should step back from specific problems and seek their investors' broader perspective.
  • Brand Foundry aims to be approachable and supportive to both current portfolio companies and potential investments.
  • Investors have a responsibility to support the hard work and dedication of startup founders.

"We are going to do everything we possibly can to help, to be as helpful, to be as approachable to our founders."

Sumeet Shah stresses the commitment of their venture capital firm to support and provide resources to their founders, highlighting the importance of an investor's role in a startup's success.

"We have a moral obligation to be as helpful and as approachable as we can to startups and to our startup founders, because they're putting their lives, they're putting their blood, their sweat, their tears, their livelihoods into these things."

This quote underlines the ethical responsibility of investors to be actively involved and supportive, recognizing the personal investment founders make in their startups.

East vs. West Coast Startup Ecosystems

  • New York's startup ecosystem focuses on building sustainable businesses with clear revenue streams and traction.
  • Silicon Valley has a "dollar in a dream" mentality, necessary for funding big ideas.
  • Silicon Valley faces significant issues, such as the underrepresentation of women in tech.
  • Brand Foundry actively invests in female-led startups, which often demonstrate methodical thinking and attention to detail.
  • Silicon Valley and New York ecosystems are both essential as they complement each other.
  • Failure in Silicon Valley tends to have a localized impact, shielding broader public investors.

"New York really focuses on building sustainable businesses."

Sumeet Shah contrasts New York's emphasis on sustainability in business with Silicon Valley's pursuit of big, ambitious ideas.

"Silicon Valley and New York need to exist. They absolutely need to exist because they feed each other."

The quote highlights the symbiotic relationship between the two coasts' startup ecosystems, each contributing to the other's success and growth.

"We invest a lot in women at brand Foundry too. Seven out of 13 companies are female founder led."

Sumeet Shah describes Brand Foundry's investment strategy, which includes a focus on female-led startups, implying their success and importance in the startup landscape.

Women in Tech and Venture Capital

  • Silicon Valley has significant problems with the representation of women in tech.
  • Brand Foundry invests in female-led companies, which often outperform in product startups.
  • Female founders like Meredith Perry (Ubeam) and Billy Whitehouse (Wearable Experiment) are highlighted for their success.
  • The struggle of female founders to raise venture funding is acknowledged and critiqued.
  • The coexistence of New York and Silicon Valley ecosystems is vital for diverse startups to thrive.

"Women in tech is a black eye I think is an understatement in the world of startups and venture capital."

Sumeet Shah expresses frustration with the lack of women in tech and venture capital, indicating it as a significant issue within the industry.

"I just keep seeing a lot of great product startups that are female founder led that are doing very well."

This quote reflects Shah's observation of the success of female-led startups, suggesting a trend of strong performance by women in the startup sector.

Most Read Blog or Newsletter

  • Sumeet Shah's most-read blog or newsletter is a close tie between Term Sheet by Dan Primack and Strictly VC by Connie Loizos.
  • Sumeet has long-standing relationships with both Dan and Connie, dating back to their time at PE Hub.
  • Term Sheet by Dan Primack is considered a staple in the industry.

"Oh man, it's probably close between Term Sheet by Dan Primack or Strictly VC by Connie Loizos."

This quote highlights Sumeet Shah's preference for industry staples Term Sheet and Strictly VC, indicating their importance and influence in the venture capital space.

Bullishness on Sphero

  • Sphero has been successful due to a few products that achieved significant retail presence.
  • Sumeet is excited about Sphero's ability to leverage opportunities, such as the one provided by Bob Iger.
  • Sphero's success is also a reflection of the broader business and product development environment in Boulder, Colorado.
  • Boulder is home to several successful startups and has a strong focus on building solid businesses.

"What really gets me excited about Sparrow is they took the ball that Bob Iger gave them, I mean, pun intended, I guess, and ran with it."

This quote explains Sumeet's excitement for Sphero, emphasizing their ability to capitalize on opportunities, particularly the one given by Bob Iger, which helped propel the company forward.

"Sparrow and Boulder as a whole is continuing to keep growing."

Sumeet's observation on the growth of Sphero and Boulder's startup ecosystem suggests a positive outlook for the region's future in business and innovation.

Net-a-Porter's Future Without Founder

  • Net-a-Porter's merger with Yoox is seen as a strategic move, combining the strengths of both companies.
  • Despite founder Natalie Massenet's departure, Sumeet believes Net-a-Porter will continue to succeed.
  • The future of Net-a-Porter may depend on the retention of key personnel following the departure of the founder.

"I think Netaporte will still do okay because it's also, you got to think about all the lieutenants that people have come through now."

This quote expresses Sumeet's confidence in Net-a-Porter's future success due to the strong team and the strategic merger, even without the founder.

Favorite Book

  • Sumeet's favorite book is "Things a Little Birdie Told Me" by Biz Stone, co-founder of Twitter.
  • The book offers insights into Biz Stone's approach to business and the story of Twitter's growth.
  • Sumeet appreciates Biz Stone's business strategies and style, as well as his innovative thinking.

"Things a little birdie told me was very interesting because you also learn about the way that Biz Stone thinks about building businesses."

This quote conveys Sumeet's admiration for Biz Stone's thought process in business and the value found in his book, which goes beyond the story of Twitter to include business strategies.

Most Recent Investment

  • Sumeet cannot disclose the most recent investment as it is not public.
  • The most recent investment he can mention is in a company called Lola, a subscription service for women's sanitary products.
  • Lola was chosen due to strong leadership and the potential for environmental impact.
  • The investment decision was influenced by the founders' intelligence and the company's positioning in the market.
  • Noteworthy investors in Lola include Box Group, Vayner, and Carly Kloss.

"It is a subscription service for tampons and for women's sanitary products."

This quote summarizes the business model of Lola, highlighting its focus on a subscription service for women's sanitary products.

"The FDA does not require the women's sanitary product companies to list the ingredients and products inside of tampons."

Sumeet Shah points out a significant health and environmental concern addressed by Lola, which makes the company's mission and products stand out in the market.

Contact Information and Show Appreciation

  • Sumeet Shah encourages listeners to reach out to him via Twitter (@pe_feeds) or email (sumeet@brandfoundryvc.com).
  • Harry Stebbings thanks Sumeet for participating in the show and provides contact details for the podcast and newsletter.
  • The show ends with a mention of Loyalty Bay's free ebook on conversion rate optimization and a Christmas greeting.

"Easiest way to actually capture me is on Twitter. The handle is pe feeds, but p e underscore feeds."

This quote provides Sumeet Shah's preferred method of contact, indicating his openness to communication and engagement with the audience.

"Do not forget to sign up to our newsletter on www. Dot the twentyminutevc.com."

Harry Stebbings encourages listeners to engage with the podcast's content beyond the show, highlighting the importance of continued interaction and resource sharing.

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