20VC Top 3 Considerations When Evaluating Consumer Businesses Today 700 Meetings, 70 LPs, 2 Years, What It Takes To Raise a First Time Fund The Power of The Female Network In Action Today with Anu Duggal, Founding Partner @ Female Founders Fund

In this episode of the 20 Minute VC, host Harry Stebbings interviews Anu Duggal, the founding partner of Female Founders Fund, an early-stage fund investing in female-led tech companies. Duggal shares her journey from being a female founder herself to starting a fund addressing the lack of diversity in investors and the challenges she faced raising capital for women-focused businesses. She emphasizes the importance of a strong female network in venture capital and how it has facilitated significant investments, such as those in Winky Lux and Maven Clinic. Duggal also discusses the importance of brand building for new funds and the evolution of the VC landscape to be more inclusive of female founders and investors. She stresses the potential for high returns by investing in women-led companies and the strategic approach to fund allocation and reserve management for follow-on investments.

• Harry Stebbings welcomes listeners to the 20 Minute VC Podcast and introduces the guest, Anu Duggal.
• Anu Duggal is the founding partner at Female Founders Fund, an early-stage fund investing in female-founded technology companies.
• Female Founders Fund has invested in companies like Zola, Rent the Runway, Maven Clinic, Tala, and Rockets of Awesome.
• Anu has a background as CEO of Dunya and as a business development head at Exclusively.in.
• Thanks to Shanlyn Ma of Zola and Jacob Gibson for question suggestions.
• Harry promotes Carter's fund admin software and services, Brex corporate card, and StartEngine equity crowdfunding site.

We are back for another week in the world of the 20 minutes VC with me, Harry Stebbings and I would love to welcome you behind the scenes as we come to Christmas to see the festivities at the 20 minutes VC.

Harry Stebbings introduces the podcast and invites listeners to engage on social media.

• Anu's venture capital journey began with her experiences as a female founder.
• Recognizing the lack of diversity among investors, she saw an opportunity to create a fund focused on female founders.
• Female Founders Fund started in 2014 with $5.85 million and included investments from prominent entrepreneurs and investors.
• The fund aims to provide capital and a powerful network to support female entrepreneurs.

So my foray into the world of venture capital was very much a result of my experience as a female founder.

Anu Duggal explains her transition into venture capital was influenced by her experiences and the challenges she faced as a female entrepreneur.

• In 2013-2014, focusing exclusively on female founders was not an obvious investment thesis.
• Anu observed many qualified female founders with relevant backgrounds from major tech companies who faced challenges in securing initial funding.
• She anticipated the rise of large companies led by women addressing consumer needs and reinventing industries.
• Differentiation and building a supportive brand for female founders were key early focuses for the fund.

Sure. So exactly to your point, looking back in 2013 and 14, it was not an obvious investment thesis, but when you looked around for me, especially after our company got acquired, I started doing some angel investing in New York and got introduced to some great female founders.

Anu Duggal discusses the landscape of venture capital for female founders when she started Female Founders Fund, highlighting the non-obvious nature of the investment thesis at the time.

• Anu Duggal defines "non-obvious opportunities" as those that may not be immediately clear but have significant potential.
• These opportunities often involve female founders solving problems they've encountered as consumers or in the workplace.
• The ability to identify and invest in these opportunities is crucial for venture capital success.

So by non obvious I mean opportunities that are not immediately apparent or mainstream but have substantial potential for growth and success.

Anu Duggal clarifies what she means by "non-obvious opportunities" and emphasizes the importance of recognizing and investing in these types of ventures.## Rise of Alternate Communities

• The decline of organized religion among millennials has led to the rise of alternate communities for connection.
• These communities are both online and offline and are centered around specific interests.
• Companies like CoStar, Peanut, and Hip Sobriety in the portfolio represent investments in such community-centered businesses.
• These companies are not typical venture investments but resonate with the zeitgeist of the young, particularly female, consumer.

"We have a thesis that we've been excited about around the rise of alternate communities linked to the decline of organized religion, particularly amongst the millennial audience."

This quote explains the investment thesis that focuses on the trend of declining organized religion and the resulting rise of alternate communities, which is particularly relevant among millennials.

"So a few examples of companies in our portfolio that we've invested in that follow the thesis include CoStar, which is an astrology app, Peanut, which is a social network for modern motherhood, and Hip Sobriety, a holistic alternative for Alcoholics Anonymous."

The quote provides specific examples of companies that align with the investment thesis, highlighting the types of alternate community-focused businesses that are being funded.

• The fund looks to invest early at valuations that allow for significant returns at scale.
• Alignment with founders on building scalable, massive businesses is crucial.
• WinkyLux is an example of a non-obvious investment in the beauty industry that has healthy margins, repeat purchase behavior, and strong exit multiples.

"So we look to invest early at valuations that really allow us to generate significant returns at scale."

This quote underscores the fund's strategy of early investment with the goal of achieving high returns, emphasizing the focus on valuation and scalability.

"We think it's an exciting category for a few reasons. So healthy SaaS like margins, repeat purchase behavior and really strong exit multiples."

Anu Duggal explains the rationale behind investing in the beauty industry, highlighting the financial metrics that make it an attractive sector for venture capital investment.

• Consumer businesses can be challenging due to the potential for low exit multiples.
• High margins, repeat purchase behavior, and brand differentiation are key to successful exits.
• The attractiveness of consumer businesses to large corporations like Walmart, Amazon, P&G, Unilever, and L'Oréal is based on the potential for higher multiples.

"I think that for us, we want to see high margins, we want to see repeat purchase behavior, and we really want to see brand differentiation from an exit."

Anu Duggal emphasizes the importance of certain financial and brand metrics that the fund looks for in consumer businesses, which are indicative of a company's potential for a successful exit.

• Investing often pre-launch requires a founder with a clear brand perspective.
• Margins and Long-Term Value (LTV) or repeat purchase behavior are critical metrics.
• The fund prefers to invest in businesses that can build brand affinity and have ongoing customer relationships.

"What we're really looking for is a founder that has a very clear point of view, particularly from a brand perspective, number one."

The quote highlights the importance of a founder's vision and brand perspective as a key factor in investment decisions, especially for companies that are pre-launch.

• Venture capital is driven by the fear of missing out (FOMO), which can lead to shifts in investment trends.
• Male VCs are increasingly recognizing the potential of businesses targeting the female market.
• The success of female-founded companies like Stitch Fix has contributed to changing perspectives among male VCs.

"I think what we've seen over the past two or three years is really a strong shift that's happening in terms of how male VCs are thinking about opportunities that speak to a female market."

Anu Duggal observes a positive trend in male VCs' attitudes towards investments in female market-oriented businesses, which is a shift from previous years.

• Traditional funds backing female founders and scaling their businesses contribute to awareness.
• Hiring female partners in VC firms changes deal flow and perspectives.
• The success of female founders influences the broader VC community's openness to diverse businesses.

"I think that as you see more of the traditional Silicon Valley funds backing female founders, seeing those founders scale, there tends to be kind of an awareness that female founders can go on to build interesting businesses."

Anu Duggal suggests that the success of female founders backed by traditional VC funds is leading to greater recognition of their potential to build significant businesses, thereby enhancing diversity in the industry.## Diversity in Venture Capital

• VC funds with all-male partners often indicate a certain culture within the firm.
• Adding diversity to VC teams allows for attracting different types of deal flow.
• Investing in new categories and founders can reveal untapped potential.

"A fund with a website that's full of all men partners, that tends to really signify a certain culture within that firm."

This quote by Anu Duggal highlights the perception and implications of gender homogeneity in VC firms and suggests that diversity can lead to new opportunities.

• The female network has a significant impact on deal-making and investment opportunities.
• Female Founders Fund has invested in building this network through events and community strategy.
• Real investment dollars have been moved through introductions and deals within the female VC network.
• Examples include Winky Lux's seed round and Maven Clinic's Series B, both facilitated through female networks.

"So we really feel strongly that there's tremendous opportunity around the power of the female network as a fund."

Anu Duggal emphasizes the strategic importance of the female network in sourcing deals and moving capital within the venture ecosystem.

• Building a brand is crucial for a new fund to compete with peers.
• Female Founders Fund used events and content creation to establish their brand.
• The fund has increased its number of events over time and partnered with other funds for larger events.
• Creating content that features founders and highlights industry trends has been a key strategy.

"So I think for us it's really been about building a brand via that content and event strategy."

Anu Duggal explains how Female Founders Fund has focused on building a strong brand through events and content, crucial for standing out in the venture capital industry.

• Fundraising for the first fund was challenging due to being a first-time fund manager.
• Over 700 meetings and 70 LPs were involved in raising a $5.85 million fund over two years.
• LPs were investing in the manager's ability to access good deal flow and the vision for the fund.
• The second fund raise was still challenging but benefited from macro trends and validation from other investors.

"Unlike my experience as a founder, there's no product or deck that really shows the vision for the fund."

Anu Duggal contrasts the tangible aspects of fundraising as a founder with the intangible aspects of raising a venture fund, emphasizing the challenges of conveying vision and potential to LPs.

• The venture capital environment is competitive, with many sub-$100 million funds.
• The second fund's fundraising was aided by trends focusing on female founders and diverse managers.
• Having Lightspeed Ventures as an LP in the second fund provided validation for institutional LPs.
• Despite challenges, the macro trends favored the fundraising for the second fund.

"The recent focus over the last twelve to 18 months on female founders, on women in tech, on female fund managers, has really given us momentum with foundations and some of the newer institutions, particularly funda funds, that are looking to back more diverse managers."

Anu Duggal discusses how the increased attention on diversity within the tech industry has positively influenced the fundraising process for their second fund.## Investment Strategy and Fund Size

• Anu Duggal discusses the evolution of seed round sizes in New York from 2014 to 2018.
• The fund size has increased, allowing them to lead or co-lead in seed deals with larger check sizes.
• Collaboration with other institutional seed funds is common to fill out larger rounds.
• Anu emphasizes the importance of maintaining ownership post-dilution for potential fund returns.

"The size of seed round in New York has grown from a million in 2014 to two to two and a half million in 2018." "With a larger fund, we're now leading, co-leading or participating in seed deals with an average check size of about what we've seen with these larger two to two and a half million dollar rounds."

These quotes indicate the growth in seed round sizes in New York and the fund's strategy to participate in these larger rounds, either by leading or collaborating with others.

• Anu Duggal explains that as a smaller fund, they are more price sensitive compared to larger funds.
• They invest primarily in New York and find more favorable pricing there.
• She highlights the strategy of doubling down on Prorata to maintain ownership throughout the lifecycle of the companies they invest in.

"As a smaller fund, we're definitely more price sensitive than some of our larger fund peers." "We invest primarily in New York with 30 out of 35 of our current investments actually based here, and we definitely see more favorable pricing here in New York."

The quotes reflect the fund's approach to investment, focusing on favorable pricing and the strategic use of Prorata to maintain significant ownership.

• Anu Duggal discusses allocating at least 50% of the fund for follow-on investments.
• The fund invests more in follow-on rounds through special purpose vehicles (SPVs) than directly through the fund.
• The investment decision making process for reserve allocation involves evaluating the company's growth potential, performance against projections, and valuation.

"We've allocated at least 50% of the fund for follow on investments." "Through fpvs, we've actually invested more in follow on rounds than through the fund directly."

These quotes outline the fund's strategy for reserve allocation, emphasizing the importance of follow-on investments and the use of SPVs.

• Anu Duggal shares a personal story about overcoming health issues and the importance of appreciating basic aspects of life.
• She stresses the value of building relationships with institutional investors, especially when not actively fundraising.
• Anu believes in the potential for great returns by investing in technology companies built by women.
• She identifies time management and email management as her biggest challenges at Female Founders Fund.

"I went through a year of having bad health issues right after graduating from business school, where I wasn't able to work for over twelve months." "Important it is to spend time building relationships with institutional investors, particularly when you're not actively fundraising." "You can get great returns by investing in technology companies built by women." "Time management and email management."

These quotes provide personal insights into Anu's experiences and beliefs, as well as the operational challenges she faces within her role at Female Founders Fund.

• Anu Duggal expresses excitement about leading a pre-seed round in a company called Costar in the astrology space.
• The investment was driven by the belief that astrology is becoming a significant belief system among younger demographics.

"We led, as mentioned, a pre-seed round in a company called Costar in the astrology space."

This quote highlights the fund's recent investment in Costar and the rationale behind it, focusing on the growing trend of astrology among the youth.

• Harry Stebbings thanks Anu Duggal for her participation and looks forward to the future of Female Founders Fund.
• Anu Duggal can be found on Twitter, and Harry Stebbings invites listeners to join the 20 minutes VC community on Instagram.
• The podcast mentions Carter, Brex, and StartEngine as special products and services for startups and investors.

"What a phenomenal guest to have on the show." "If you'd like to see more from Anu, you can find her on Twitter at anU. Dougalnyc, that's at anudouglenyc." "Carter simplifies how startups and investors manage equity, fund admin, and valuations."

These quotes conclude the podcast with gratitude towards the guest and provide listeners with resources and recommendations for services beneficial to startups and investors.