If you've been following this column for the past couple of months, then you know that we've been trying to highlight some of the newer members of the VC community. But that doesn't mean we want to ignore some Silicon Valley's more experienced firms either.
This town has a deep bench of experienced firms and investors, and there is a lot to learn from those that have been around for a while.
He is Google's former director of product management. Prior to InterWest, he was an angel investor in several start-ups.
Immediately prior to joining InterWest, Keval was vice president for product at Digg. Earlier in his career, he was a co-founder of Achex, an Internet payments company acquired by First Data. Before joining Google, Keval was an investor at two venture capital firms, ONSET Ventures and Morgan Stanley VenturePartners.
Keval holds an M.B.A. from UC Berkeley, an M.S. in computer science from UC Santa Barbara and a B.E. in electrical engineering from the University of Mumbai. He is a member of the Dean's Advisory Board at UC Berkeley's Haas School of Business and also sits on the Board for the Lester Center for Entrepreneurship at UC Berkeley.
VatorNews: What do you like to invest in? What are your categories of interest?
Keval Desai: At InterWest we focus on a diversified strategy of investing in technology & healthcare companies. My personal focus is 80% consumer internet and 20% SaaS.
The firm itself is a 36 year old firm, which is currently investing from tent fund, a mid-sized fund and we are one of the few remaining in venture that are still doing diversified investments, so we do healthcare and IT under one roof.
In healthcare we invest in companies in biotech, medical devices, and healthcare IT.
On the IT side we do SaaS, cloud infrastructure, and consumer Internet, I joined the firm to develop the consumer Internet practice.
On the IT side we do SaaS, cloud infrastructure, and consumer Internet, I joined the firm to start the consumer Internet practice. InterWest didn’t have a huge history with that until I joined.
VN: What would you say are the top investments you have been a part of? What stood out about those investments in particular?
KD: On the SaaS there is Marketo, which is marketing automation company. We were the first investors, and we ended up owning quite a bit of that company for the next or seven years. InterWest partner Doug Pepper is still on the board.
Marketo led to a lot of other investment, including Spredfast, Aria Systems and Optimizely, which is an A/B testing platform for Web and mobile. I was an individual investor there before I joined and it is one of the most rapidly growing SaaS companies around today.
In mobile we invested in Flurry, the mobile analytics company that was bought by Yahoo. Flurry is the leading mobile analytics company with the largest active base of mobile devices globally. I was fortunate to be on the board when the company was acquired by Yahoo.
In consumer internet, I have focused on the reinvention of e-commerce and one company I invested in is Joyus, which was started by Sukhinder Singh Cassidy, a friend & colleague from Google. It's like QVC or the Home Shopping Network, but bringing the concept to Web and mobile. It came from the realization that a lot of people that were watching day time TV are now working or too busy, but they have mobile devices and they can watch a pretty good HD video on mobile. So they can shop from that video instead.
Also TheRealReal, which is the leading marketplace company for high end fashion consignment. They sell things that are pre-owned, but let the user know its not a fake. They are one of the fastest growing companies in e-commerce.
As for some of the companies in healthcare IT, they include Doximity, which is the largest social network of physicians. Also Welltok, a SaaS platform that is sold to corporations who then use it to incentivize healthy behavior among their employees.
VN: What do you look for in company's that you put money in? What are the most important qualities?
KD: Ultimately, we look for category leading companies. How does that come to be? We think there are three key ingredients.
The first is we look for a huge market . We want it to be a big market so at some point we can say, 'Can it be used by 100 million users and see $100 million in annualized revenue?' If it get to that milestone, and I'm talking about the size of the company itself, that company must be in a big market to get to those numbers.
Second, we look for amazing entrepreneurs. These are people who literally stand apart from the rest. We look at their previous journey. Sometimes they are repeat entrepreneurs, sometimes it is their first time, but they show leadership traits. Even if they are young, in high school or college, they have shown some example of leadership. They take initiative, have organized and accomplished something. We see this pattern in these people, that they have an entrepreneurial trait.
We believe that entrepreneurs who starts a company has to have the ability to take care of all functions. They might be engineers, but they will have to deal with customers and sales and marketing and hiring and fund raising. We want founders to be CEOs and actively support them to learn those skills, so we have to envision if they can be a complete CEO. They will have to evolve, but they have to have the ability to grow into that.
And, finally, we want to look for some differentiation. Whats we’ve seen is this question of 'Why now? Why would this company succeed now? What is the catalyst to propel them forward?' Big markets, by definition, have other players. They are usually not empty, and usually the only way to succeed is a new catalyst that somehow prevents the incumbents from taking advantages where startups can, and can then race ahead.
We've seen this with mobile first. Taxis, hotels, taking photos, shopping; all these things a smartphone was the catalyst for disrupting these industries. The cloud is another example. Wand Labs, which was started by a colleague from Google, is a messaging platform that is trying to build a Netscape for messaging. 20 years ago there were multiple browsers, all these islands on the Internet, and each one had its own gatekeeper. Then Netscape came along and said that anyone can talk to anyone else, and that opened up the Web.
Look at messaging now, with Snapchat, Line, WhatsApp. It's a bunch of islands again, and, as big as they are, they are standalone. A company that that tries to unify these islands, and make communication and e-commerce easier, could have an opportunity. Wand wouldn't exist without the existence of these messaging platforms.
We try to look for that, something that leads someone to really understand why they have chance and why they could be big.
VN: Tell me a bit about your background. Where did you go to school? What led you to the venture capital world?
KD: I have been in Silicon since 1991, so about 24 years at this point. Majority of this time was spent on the operating side as an entrepreneur. I started an online payment company in 1999 called Achex, which was sold for a profit to First Data. I worked at Google for seven years, starting in 2003, and I've also done some angel investments starting in 2009. I've now been at InterWest for the last four years.
The short version of why I decided to go into venture capital is that everything that has happened to me has been accidental. I wish I could say I had a grand plan but mostly not. In hindsight I can say I had a strategy.
The longer answer is that I tend to do things depending on who I'm getting involved with. I'm very people driven. I choose to go with thing that will lead me to great people and that will do well. I joined InterWest because of Doug Pepper, who is my partner and I love him. He's the guy that I want to do something with . The firm was also looking for partners in Consumer Internet.
I had a little bit of expose to venture capital back in 1998 when I was in business school. I got a summer fellowship to spend it at Morgan Stanley Venture Partners. I got a feel for it and had exposure when I sold my company in 2001 and ended up at Onset Ventures from 2001 to 2003. At that time, venture was dead because of the dotcom crash, and it was great time to understand what a VC does because some of the best companies arose from the ashes of the dot com bust. There are myths about how easy or difficult venture capital profession is, and what kind of people do this thing. Most people I met I ended up respecting, and I made a mental note that this could be the beginning of something interesting and could become important.
At the time I didn’t have experience, so what value could I add? I didn’t really know anything that would be helpful, so I had the opportunity to work at Google, where I had a great seven year run. I learned how to build a company at scale, and I learned not just technical but organizational lessons. A lot of people from there have gone on to other companies, and that's because of the organization design of Google. It is permeating other companies and when I left I wanted to bring those lessons to entrepreneurs.
I love all aspects of company building. I love helping them hire one or two 2 key people that change the dimension of a company. I love being early, the challenges and thrills that come with building an early stage company.
The venture world gives you variety. E-commerce, SaaS, video, I can do a variety of things in parallel. Eventually you start pattern matching, and you start seeing what's similar across companies, including business model, management styles of founders. Every company is a new experience, but you find common patterns, and you get to observe large industries through the eyes of smaller companies. You see what's happening in e-commerce in mobile, social, internationally, domestically, the supply chain, the market. It's easier to see this through the vantage point of companies.
VN: What is the size of your current fund?
KD: It is $650 million.
VN: What is the investment range? How much do you put into each startup?
KD: Our model is we put in $8 million to $10 million for the life of the company for IT. For healthcare they take longer so it is $10 million to $12 million.
Our Initial investment depends, but it is usually $3 million to $8 million. Sometimes we do seed deals that are as low as $500,000. It depends on how much the company is looking to raise.
VN: Is there a typical percent that you want of a round? For instance, do you need to get 20% or 30% of a round?
KD: We try to get as much as we can, but these days we don't get much since the market is so competitive. With early stage 20% to 25% is ideal, but we don't always get that. A lot of times we get 15%, but that's our goal.
VN: Where is the firm currently in the investing cycle of its current fund?
KD: We are coming to the tail end of the current fund. We will do maybe a couple of new investments in the remainder of this year. In general, each partner does one to two full new investments per year where we take an active role and join the board to dive into help develop the company.
VN: What percentage of your fund is set aside for follow-on capital?
KD: It all depends on the company. If you think of $8 million to $10 million being invested and they've already taken $8 million they have usually aready raised enough. But if they were very early and raise half a million, they can reserve up to $7 million.
Around one third of the fund is in reserve, but if you look at a company by company basis it's all over the map. We reserve enough to give a company runway to execute its plan.
VN: What series do you typically invest in? Are they typically Seed or Post Seed or Series A?
KD: We are based in Silicon Valley and we all live in the Bay Area, so most of our investments are in the Bay Area and are typically early stage investments, Series A/B. We also do some seed investing in consumer Internet.
VN: In a typical year how many startups do you invest in?
KD: Thinking about when we take a board seat, which is typically what we do, so excluding seed deals, which are small in number and dollars anyway, I'd say each partner averages two companies per year. I've been here four years, and I'm currently on seven boards.
We have six full time partners and one part time partner, so around 12 investments a year across all sectors,
VN: Is there anything else you think I should know about you or the firm?
KD: We are very excited about the cycles of innovation that are happening, and we are particularly proud of investing in a diverse set of entrepreneurs. As a fund we have been investing in diversity for a long time.
In my portfolio I have nine women CEOs. Of my seven board seats, four of them have women CEOs. I feel fortunate to have the support of so many diverse entrepreneurs.