20 VC Investing in Hardware and The Future of IOT with Kate Shillo, Director @ Galvanize Ventures

Summary Notes


Harry Stebbings interviews Kate Shillow, the director at Galvanize Ventures, on the 20 minutes VC podcast. Shillow's unconventional path to venture capital began with sports marketing and a surprising stint as Martha Stewart's executive assistant, where she gained experience in launching internal startups. Prior to Galvanize, she co-launched Lira Ventures (now Lira Hippo Ventures) with Ken Lira, investing in successes like Venmo and Paperless Post. Galvanize Ventures, distinct from the educational tech campuses of Galvanize, has made 48 investments in two years, focusing on early-stage companies and offering a blend of capital, educational programs, and coworking spaces to foster growth. Shillow discusses the challenges of consumer mobile investment, the excitement of hardware startups, and the long-term nature of venture capital. She envisions Galvanize becoming a brand name in tech and venture capital, with recent investments like message AI showcasing their focus on innovative tech solutions.

Summary Notes

Introduction to Kate Shillo and Galvanize Ventures

  • Harry Stebbings introduces Kate Shillo as a rising star in the VC industry and the director at Galvanize Ventures.
  • Galvanize is a seed fund and the investment arm of Galvanize, a network of tech campuses offering coworking space and educational programs.
  • Galvanize Ventures has made 48 investments in two years.
  • Kate Shillo previously worked with Ken Lira at Lira Ventures (now Lira Hippo Ventures) and was involved in investments in Venmo and Paperless Post.
  • Matamark is acknowledged for providing data and analysis for the episode.

"And today's episode we feature an individual I have spotlighted as a rising star of the VC industry, an immense talent and one to watch."

This quote introduces Kate Shillo, emphasizing her significance in the venture capital industry and setting the stage for her insights during the episode.

Kate Shillo's Early Career and Entry into Venture Capital

  • Kate Shillo describes her non-traditional path into venture capital as serendipitous, a common trend among VCs.
  • She began her career in sports marketing due to her athletic background in college.
  • Kate moved to New York City and landed a job at Martha Stewart Living Omnimedia, eventually becoming Martha Stewart's executive assistant.
  • Her experience with Martha Stewart involved launching small startups within the company, which she likens to an incubator.

"I started out working in sports marketing and I was an athlete in college, so that was sort of the thought process there."

This quote explains the initial direction of Kate's career, influenced by her personal experience as a college athlete.

"It was kind of an interesting segue into VC and startups is because she was basically doing small startups within her company."

Kate draws a parallel between her role with Martha Stewart and venture capital, showing how her early experiences were relevant to her VC career.

The Transition to Venture Capital and Technology

  • In 2007, seeking greater stimulation and growth opportunities, Kate decided to leave her position and pursue a career in technology.
  • She took a risk during a financially uncertain time, as depicted in the film "The Big Short."
  • Kate had a prior connection with Ken Lira, having met him before her tenure with Martha Stewart.
  • She reconnected with Ken Lira and joined him in his ventures, attracted by his vision and energy.

"So I quit and bought a surfboard and my parents were like, what are you doing?"

This quote captures the bold and unconventional decision Kate made to shift her career towards technology and venture capital.

"I don't know where he's going, but I'll totally follow him and this will be fun, whatever it is."

Kate expresses her trust in Ken Lira's leadership and her willingness to embrace the uncertainties of a new career path in VC.

Working with Ken Lira and the Birth of Lira Ventures

  • Kate Shillo took a significant pay cut to work with Ken Lira and explore the startup ecosystem.
  • She gained valuable experience at Betaworks, where she learned from engineers and participated in the early stages of tech startups.
  • Her role included being a human tester for non-technical aspects of products.
  • The informal strategy of taking meetings led to exposure to various startups and technologies.
  • Kate and Ken Lira's collaboration evolved into the creation of Lira Ventures.

"And they needed someone, a human to test bit ly links or whatever it was that they were working on."

Kate highlights her role in providing a non-technical perspective, which was crucial for product testing and development.

"We'll just take meetings and see who comes and hangs out, which was the most casual."

This quote reflects the open and exploratory approach that Ken Lira and Kate Shillo took, which allowed for diverse interactions and opportunities within the startup community.

Formation of the Venture Fund

  • The fund was started by individuals with no prior venture history.
  • The team approached venture funding with a fresh perspective, valuing ideas backed by analysis.
  • They established the fund as novices, which allowed for an open-minded approach to investments.

"We all really started this together as novices, which was the cool part, is that any idea was a good idea so long as you had some analysis behind it at that point."

This quote emphasizes the team's lack of prior experience in venture capital and their openness to new ideas, as long as they were well-analyzed.

Challenges in Starting a Fund

  • The founders did not have formal business education, making it difficult to understand legal and venture documents.
  • They worked long hours to comprehend the necessary legalities of starting a fund.
  • The lack of resources like the book "Venture Deals" made the process more challenging.

"I didn't go to business school. Neither did Ken or Ben. So all these documents that were coming at me, I mean, I was in the office till like two in the morning sometimes just reading some of the legal stuff, trying to make sense."

This quote highlights the struggle the founders faced due to their lack of formal business education and the intensive effort required to understand the legal aspects of starting a venture fund.

The Role of 'Venture Deals' and Industry Timing

  • "Venture Deals" is recommended as a resource for understanding venture funding.
  • The success of the Huffington Post and its sale in 2011 helped establish the founders in the New York City market.
  • The founders capitalized on a time when investments were frozen, and they were able to write small checks to startups.
  • They leveraged media connections to attract companies, especially in content, which VCs were avoiding at the time.

"The help of having the Huffington Post as a successful startup alongside. We sold that in 2011 among all this. So everything was sort of cooking at the same time."

This quote explains how the success and sale of the Huffington Post provided credibility and momentum for the fund during its formative years, coinciding with a favorable investment climate.

Key Takeaways from Building Ventures and Investments

  • Lear Ventures is known for consumer technology investments.
  • Personal use and understanding of consumer needs influenced investment decisions.
  • Investments in companies like Paperless Post were driven by practical applications in the founders' lives.
  • The New York market has evolved to integrate traditional industries with new consumer and e-commerce startups.

"Consumer technology really took off. And our fund, we understood things like Warby Parker and Birchbox and bobble bar and barkbox."

This quote reflects on the success of consumer technology investments and how personal experience with these products informed the fund's investment strategy.

Overview of Galvanize and Galvanize Ventures

  • Galvanize is a standalone company focused on continuous learning, community, curriculum, and capital.
  • Galvanize Ventures, while attached to Galvanize, operates with institutional investors and is not a corporate VC.
  • The organization aims to be a new archetype in higher education, combining education with access to technology startups and established companies.

"We're an organization focused on continuous learning. We try to help our business and other businesses grow by converging community, curriculum and capital."

This quote describes the mission of Galvanize, emphasizing its commitment to continuous learning and growth by integrating community, education, and financial resources.

Advantages and Strategy of Galvanize Ventures

  • Galvanize Ventures benefits from the resources of Galvanize, including education and space for startups.
  • The venture arm is seen as an extension of the resources and collaborative environment that was successful at betaworks and Lear Ventures.
  • Galvanize Ventures aims to apply their model across the country, particularly in growing markets where costs are lower.

"We have a huge advantage having all of these elements to a core business to provide to our startups."

This quote highlights the strategic advantage Galvanize Ventures has by offering comprehensive support to startups, which includes education, space, and capital.

Investment Focus of Galvanize Ventures

  • Galvanize Ventures is focused on early-stage investments, from pre-seed through Series A.
  • They invest in companies both within and outside Galvanize campuses.
  • The fund reserves capital for follow-on investments and aims to signal to later-stage investors about promising startups in smaller markets.

"We're early stage. So the companies that are coming through our campuses that we like to invest inside and outside of galvanize."

This quote clarifies that Galvanize Ventures is focused on early-stage companies and is open to investing in startups associated with their campuses and beyond.

Validation as a Sign of Success

  • Validation is seen as an important indicator of a venture's success or potential.
  • Galvanize's investment activities are considered a form of validation for the companies they invest in.

"It's a sign of validation, I guess, isn't it?"

This quote suggests that the speaker views investment activities as a form of validation for the companies involved.

Galvanize's Investment Pace and Strategy

  • Galvanize has made 48 investments over two years, marking a significant investment pace.
  • The strategy at Galvanize involves maintaining a diverse fund and remaining open to various investment opportunities.
  • The approach allows Galvanize to avoid limitations that would come with focusing on a single sector or stage.
  • The industry tends to define investment firms quickly, but Galvanize aims to delay this by keeping their criteria broad.
  • Despite misconceptions, Galvanize does not exclusively run a fund for female founders.

"And so Galvanize has made 48 investments in two years." "We wanted to keep a diverse fund initially, and I think that's still working for us."

These quotes outline Galvanize's aggressive investment pace and their strategy of maintaining a diverse portfolio, which has been effective for them.

The Changing Dynamics of Female Venture Capitalists

  • Female venture capitalists have increasingly started to collaborate on deals.
  • This trend is seen as positive and exciting within the industry.

"But I will say just one thing I've noticed between when I started doing this six or seven years ago till now is that I'm seeing female VCs start to collaborate quite a bit on deals with each other, which is rad."

The quote highlights the speaker's observation of a positive trend in the venture capital industry where female VCs are collaborating more frequently.

The Mobile Investment Landscape

  • Consumer mobile is acknowledged as a difficult sector due to fickle consumer behavior and challenges in customer acquisition and retention.
  • Despite difficulties, the mobile space is seen as having massive opportunities due to the ubiquity of mobile usage.
  • Galvanize has invested in both consumer and SaaS solutions for mobile.
  • The company mentioned, Keyboard, won an award and was featured in the Apple Store, exemplifying a successful investment in the mobile space.

"Consumer mobile is very difficult. Consumers are fickle." "We all stare at our phones now more than ever, so that's not going to change anytime soon."

These quotes reflect the speaker's agreement with the industry's view on the challenges of the mobile sector but also acknowledge the ongoing opportunities due to the prevalence of mobile device usage.

Passion for Different Markets

  • The speaker does not have a single market that they are most passionate about.
  • The speaker is excited about hardware, especially with the rise of IoT (Internet of Things) for home devices.
  • Early investments by Galvanize were influenced by trends in the IoT and hardware space.

"I don't think I have a single market that I feel most passionate about." "Hardware still really excites me."

The first quote indicates a broad interest in various markets, while the second quote shows a specific excitement about hardware, reflecting the speaker's diverse investment interests.

The Appeal of Hardware Investments

  • Hardware is acknowledged as challenging due to the complexities of production, distribution, and customer onboarding.
  • The patience required in hardware development aligns with the venture capital model of long-term investment.
  • Hardware allows the creation of multiple products under one company, offering exciting potential once production channels are established.
  • IoT hardware enables consumers to control their experience and receive valuable data, which is both exciting and useful.

"Hardware is hard. It's hard to go through the beginning stages of gestation where, look, we're raising money and we promise you that we're going to be able to build this product once we go through tooling and make sure we have the right manufacturer, and then everything gets delivered and then it works."

This quote outlines the challenges of investing in hardware but also hints at the rewarding nature of the process once the product is successfully delivered and operational.

Crowdfunding and Hardware Investments

  • Crowdfunding is not the primary consideration for Galvanize when investing in hardware.
  • Crowdfunding is seen as a form of advertising and validation for customer interaction rather than a critical source of capital.
  • Later-stage investors are more concerned with shipping and customer engagement metrics before committing to an investment.

"I don't think we think of it in terms of crowdfunding. I often think of crowdfunding as a bit of advertising."

The quote indicates that for the speaker, crowdfunding is secondary to other factors and is primarily viewed as a marketing tool rather than a necessary funding step.

Investment Stage and Valuation

  • Valuations at the "a stage" are often inflated due to preemptive work by companies.
  • Investors are more comfortable investing once a product is functional and data is available.
  • At this stage, investors are accustomed to analyzing data to make investment decisions.

That's like a stage, and even later. So there's a lot of companies that I've seen just teed up with these crazy valuations at the a stage because they've done all this work preemptively.

The quote emphasizes the tendency for companies to reach high valuations at the "a stage" due to extensive preparatory work, which makes it a common point for investors to commit.

The Long Game of Hardware and VC

  • Hardware and venture capital are both long-term endeavors.
  • The feedback loop in VC is long, which can be challenging for investors.
  • Success in VC can often appear sudden, but it is usually the result of many years of work.
  • The gestation period for companies can be long, with ups and downs, but the turnaround of companies can be exciting.

I'm pretty used to that gestation know this is a long game. There's a lot of ups and downs, and sometimes you see these companies completely turn it around and I think that's exciting.

Kate Shillo acknowledges the lengthy process of investment and company growth in VC, indicating that the long-term nature of the industry is familiar and the potential for dramatic turnarounds is a source of excitement.

Portfolio Management and Fund Size

  • Seed investors may get priced out after the "a stage."
  • Larger funds may prevent following on in later stages.
  • Initial checks are around $100,000, which limits participation in later stages.
  • Portfolio management involves monitoring and providing assistance when possible.

Being a seed investor, we sort of get priced out after the a. So then we're just kind of monitoring and helping where we can.

Kate Shillo describes the limitations faced by seed investors in terms of participating in later funding rounds and their role in supporting companies as they grow beyond the early stages.

Future Fundraising and Vision for Galvanize

  • There is a possibility of raising a larger fund due to the success of the current approach.
  • The combination of community, education, and venture capital offered by Galvanize is in demand.
  • The goal is to continue growing and providing these services.

Yeah, for sure. This is working. It's working out better than I think any of us expected.

The quote expresses confidence in the current business model and the positive outcomes that have exceeded expectations, suggesting a bright future for Galvanize.

Time Allocation Between Portfolio and Sourcing New Deals

  • The split of time between managing existing portfolio companies and sourcing new deals can vary.
  • As funds grow, the need to focus on the portfolio increases.
  • A rough 60/40 split is aimed for, with priority given to existing portfolio companies.

And now, as things get larger, the attention to the portfolio is certainly where I'm needed probably most.

Kate Shillo explains how her role shifts towards portfolio management as the fund and its needs grow, highlighting the importance of supporting existing investments.

Favorite Book and Misconception About VC

  • "God of Small Things" is Kate Shillo's favorite book due to its poetic writing.
  • A common misconception about VC is that it is easy, when in fact it is stressful and involves a lack of control over outcomes.

Favorite book is something I read in college called God of small things. It was just so beautifully written. I mean, it reads like poetry.

This quote reveals Kate Shillo's appreciation for literature and highlights a particular book that has made a lasting impression on her.

Use of Technology and Tools

  • Kate Shillo mentions several apps that are most used on her phone, including Sunrise Calendar, Moment app, Two Dots, Pan Wildcard, and Venmo.
  • These apps help with organization, photography, entertainment, and financial transactions.

Your phone currently slash because I'm still playing with it. I love it. Sunrise calendar moment app, which is for photos. Two dots.

The quote provides insight into the personal technology preferences of Kate Shillo, showcasing the apps she finds most useful or enjoyable in her daily life.

Influential Blogs and Visionaries in VC

  • CB Insights, Ben and Dick Navidon's, and Fred Wilson's blog are among the most read by Kate Shillo.
  • Kenny Lear is seen as a successful VC who has succeeded across various fields and is admired for his ability to foster positive working relationships.

Kenny Lear. Yeah, he's the best. I feel like everything he touches turns to gold.

This quote expresses Kate Shillo's admiration for Kenny Lear's track record and personal qualities that contribute to his success in venture capital.

Recent Investment in Message AI

  • Message AI is a platform for conversational commerce and AI messaging, allowing brands to engage with consumers on popular messaging platforms.
  • The investment was made due to the platform's potential to facilitate personal and scalable customer interactions using artificial intelligence.

We recently invested in message AI. It's a conversational commerce and AI messaging software that empowers brands to hold a personal conversation with consumers on demand and at scale across the most popular messaging platforms.

Kate Shillo explains the rationale behind the recent investment in Message AI, emphasizing the innovative approach to customer engagement through AI and messaging platforms.

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