Meet Stephen Hays, founder of What If Ventures

What If Ventures invests in startups focused on mental health and addiction recovery

Venture capital used to be a cottage industry, with very few investing in tomorrow's products and services. Oh, how times have changed!

While there are more startups than ever, there's also more money chasing them. In this series, we look at the new (or relatively new) VCs in the early stages: seed and Series A.

But just who are these funds and venture capitalists that run them? What kinds of investments do they like making, and how do they see themselves in the VC landscape?

We're highlighting key members of the community to find out.

Stephen Hays is the founder of What If Ventures, a  VC fund investing primarily in early stage tech startups focused on solutions in mental health and addiction recovery. 

Previously, Hays was the Founder and Managing Partner of Deep Space Ventures, a VC fund focused early stage tech startups.  During his time at Deep Space, he led 25 early stage investments. Before starting Deep Space Ventures, he was an investment banker on Wall Street for 6+ years.  He primarily focused on helping large companies raise capital, and execute Mergers & Acquisitions.

Stephen received his undergraduate degree in Civil Engineering at West Point, and received his MBA from Vanderbilt. 

VatorNews: What is your investment philosophy or methodology? 

Stephen Hays: My philosophy is rooted in a couple of my own personal experiences. I spent the better part of a decade as an investment banker on Wall Street, and then I launched my first venture vehicle out of a family office in Dallas, Texas, and ran that. I did 25 seed deals out of that vehicle in three and a half years, and, in the middle of 2018, I ended up rehab for substance and process addiction. I struggled greatly with gambling, with acting out sexually, I had type 1 bipolar undiagnosed that I had been dealing with for years and had never been medicated. I really, honestly was at a place where I should have died and I wanted to and I tried to take my own life at one point. My family helped me get to rehab; I woke up one afternoon in a hotel room in Las Vegas and I lied to my family about where I was and they found me, saved my life and got me to rehab. 

When I got out of rehab and I had a little bit of sobriety under my belt, I wondered, “How big is this problem that I just lived through?” And it turns out it’s huge and I said, “If there’s anybody solving in this space I’d love to try to be a part of that.” Long story short, I realized there’s not a lot of capital dedicated to early stage mental health and addiction related startups, but there is a huge, huge market for those startups and there’s a lot of them coming to market right now. So, I wanted to put together a fund to go back those companies at the earliest stages.  

My mission is very, very simple: I want more money to flow into solutions for mental health and addictions problems, and that’s it. It’s just that simple. Whether that’s my money, or someone else’s money, I really don't care, I just want to see more solutions come to market because mental health is something that has been neglected in our society for so long.  

VN: What is the opportunity you see in the mental health space? How big is this market and what kinds of returns can you get? 

SH: I published an article recently that was titled Approaching 1,000 Mental Health Startups in 2020. I found just over 800 startups in this space, I found about $4.5 billion total that’s been invested. There’s a handful of exits, there’s a handful of large Series B and C rounds that have been funded, but it’s still very early, very nascent space. There’s a much broader landscape than I think most people believe, or would think that there is still, but it’s still a grind to get money deployed at the early stage. 

As far as the upside opportunity, when founders talk about market, they pitch these huge market numbers; every founder does it and if you can’t do it then you’re probably going to have a hard time raising money. But when I think about what the mental health market is, everybody has on this planet has physical health, and all of our physical health stems from the wellness of our mind, but we’ve neglected that as a species. But, now, people are starting to talk about mental health. Celebrities, politicians, we’re starting to legislate money into this space for research and for helping people. So, society is starting to turn to look at mental health the way we looked at physical health 30 or 40 years ago. Physical health wasn't really a thing, people weren’t jogging, people weren’t going to SoulCycle 30 years ago, and now if you don't have two gym memberships and have three activity groups that do marathons and long walks and physical challenges with, you’re outside of the norm. I think the same is going to happen with mental health; there’s going to be a societal shift towards destigmatization where it’s going to be cool to need help, to admit that, and to go get that help. The way it became cool to jog or join Equinox, it’s going to cool to go to therapy or see a psychiatrist or take your medication or go to rehab and join groups like AA or other recovery groups. There’s going to be a movement towards mental wellness and we are investing in that movement, of which there’s going to be a lot of different types of solutions. Some are going to be measuring and testing, some are going to be digital phenotypes, there will be some treatment methods like using psychedelics to treat depression, there’s going to be investments in telemedicine and facilities and networks of clinics and there’s going to be investments in apps and wellness features and tools. There’s so much that’s going to be built.  

There’s going to be three main ways to monetize it. One, eventually insurance companies are going to increase spending, covering these solutions because the data I’m seeing from some of the larger companies in this space is that when you treat mental health, physical health spending goes down. As the insurance companies start to get that, they’re going to put more money into mental health. Number two, consumers are willing to pay; just like you’re willing to pay for a gym membership or you’re willing to pay for new running shoes or a bicycle or Pelaton, people are willing to pay for consumer funded mental health resources. Third, I think corporations are willing to pay for their employees, because corporations are starting to realize that it’s a recruiting tool. If Starbucks, who is doing this now, pays for mental health treatment for its employees, they have a better chance of retaining that employee over their competitors. So, I think you’re going to see employers starting to pay for these services in order to keep and retain talent.  

That long, rambling jaunt that I just went down paints a picture of a huge market, a lot of opportunity, tons of demand, many places to build businesses and a lot of ways for those businesses get paid, which is why I think it makes sense, from a financial point, to invest in them right now. 

VN: What's the big macro trend you're betting on? 

SH: There are three main reasons why people don't get mental health help: stigma, cost and access. It’s a really funny dynamic: if stigma decreases, that unlocks demand for resources, but that drives up cost because now there’s more demand for the same amount of supply or resources. The cost barrier goes up as the stigma barrier goes down, so we have to build more solutions, and we have to give more access, in order to solve both stigma and cost at the same time. That’s the macro trend. So, anything we can invest in that facilitates one of those pain points, that’s where we want to be. Providing more access, reducing cost, fighting stigma, that's where we want to be with the businesses we’re investing in. Those are the macro trends that drive the entire space.

VN: What is the size of your current fund and how many investments do you typically make in a year? 

SH: I’m brand new, and I actually don’t have committed capital. I’m a syndicate, so I have now about 75 investors that have agreed to back my deals, including angels, family offices, executives in the healthcare and digital health industry. I go find a founder that I want to back, I call my syndicate, I run it through AngelList, I put the deal in front of them and they back the deal. I charge a 10 percent carry on the deal and I don’t charge any management fees.

In our first deal we wrote a $250,000 check into a Series A in this space. I’m actually starting syndication tonight on my next deal, which is a $500,000 check into a Series A stage company. The deal after that’s going to be a little bit larger check into a Series C in the space, but they’re a market leader. So, I would say my average check is going to be somewhere between $250,000 and $500,000 and I don’t intend to take committed capital but I’ve had some people to reach out to me and ask if they can put money into a committed capital pool, so I have created one but, honestly, I prefer to operate as a syndicate.

VN: What are the benefits of a syndicate? 

SH: I’m really nimble, I have a lot of very strategic limited partners or investors in my syndicate, and I get the right mission aligned investors from my syndicate list to back the deals and be there as resources that I can lean on to provide help to the founders. It’s really interesting, it’s almost like I have this Rolodex of people with money and resources, and I go get the right resources off of that list to investment in my deals and, as that founder needs to help, I can bring those resources to bear for them. So, I like doing it that way. 

AngelList does a really good job of articulating this, but the economics of running a syndicate are pretty frothy for a syndicate manager, which is why I keep my fees so low. I don’t charge 20 percent carry like a lot of people do; I think I can make plenty of money on half that. I don’t charge management fees, I want to be as frictionless and as painless as possible. If I were to run a fund, there’s more that I would have to do legally, there’s more expense for me, I’d probably have to hire a couple people and then I’d have to charge fees. I just want to make it a lot easier on my investors to just get money into this space because, again, my mission is dollars into mental health. And I can be more effective at that mission by running a syndicate right now, I believe.   

VN: What stage/series do you invest in and how much is that in dollar amount for you? 

SH: I would rather invest in seed stage companies, that’s my sweet spot. I really understand seed stage, I add the most value as an investor at the seed stage, I know how to help founders at that stage better than I do at a later stage, where I’m a co-investor with a very large fund who has more resources than me. So, I prefer seed stage.

This market is so new, there’s so much opportunity, and there’s some really marquee opportunities out there right now raising A and B and C rounds right now, and I really want to be a part of those deals. I want to help those companies in the way that I can and I want to be a part of their network and be able to leverage being a part of those deals for my future founders as well.

VN: What kind of traction does a startup need for you to invest? Do you have any specific numbers?

SH: In this space, it’s really unique. I want to see a founder who understands the lived experience that I’ve been through as an addict, and that I’ve been through as somebody who has suffered from a serious mental illness. If I see a solution that would work for me, or that I want to use, or that would have helped me avoid some of the things that I had to go through, that’s all I need to see. So, if the founder is emphatic, has either experienced or is empathetic towards what I’ve lived through, and their solution would have helped me at an early stage, that’s enough for me to get really excited. 

I love to see pilots with hospital systems and I love to see agreements with insurance companies, and I love to see even paid pilots or some subscribers or some revenue, but I think my advantage in this space is that I’m willing to invest without a lot of traction because I think my lived experience tells me will and won't work. So, that’s what I’m going to go off of for the most part at the early stage.

VN: What about when it’s something that’s a little bit later stage, like A, B or C? Is there traction at that point that you want to see?

SH: If they’re raising an A or a B or a C, there’s traction of some degree. I love revenue, I mean everyone loves to see revenue, but, for me, I want to see efficacy of the product. I want to see an insurance company show metrics that say, “My cost went down because my people used this product.” Or I want to see a pilot with a hospital system or an insurance company. I want to see something where an institution of some sort in this space has validated the clinical efficacy of the product. 

VN: What do you think about valuations? Are they something you think about when you’re investing?

SH: This is really not a popular VC answer, but I don’t care so much. I’m mission driven; my mission is simply money going into this space, money going into solutions, that’s all I want. If I have to pay up for that to happen, and as long as my investors are cool going along with it, then I’ll do it. It’s a $12 million cap on a safe at a seed stage versus an $8 million cap on a safe at a seed stage, I truly don't care. I know that it impacts the return at some decimal point if the company is a unicorn and has a great outcome, but I’m far more social impact and mission driven and I want to do what’s right for the founder. The only times I talk to founders about valuation in these deals if I see them going down a path that’s going to make it hard for them to raise future money, then I’ll push back on valuation, but I never do it from a return perspective. I was in that selfish game before, and that’s just an unhealthy place for me to be, so I’m not that worried about the valuation or the cap on a note on a seed round.

VN: What effect do those large valuations have on the founders and their ability to raise the next round? What have you seen happen to founders who go for the big valuation too early?

SH: I see a lot of founders take on vanity valuations, and what ends up happening is they aren't calculating the dilution for future rounds or for things like who can acquire you. If you take too big of a valuation early on, and then you raise a bigger valuation on top of that later, every time you take a high valuation you're reducing the number of acquirers, you’re reducing the likelihood of going public at a valuation that makes sense for the last round investor. So, while you take a little bit less dilution now at a higher valuation if you’re a founder, and I get that it’s a vanity metric and it’s cool to have a big valuation, it really can set you up for failure down the road when it comes to limiting exiting opportunities and to limiting who will invest in you.  

If you have too much money at too high of a valuation, you see it all the time, founders spend too much money on things they don’t need. Look, nobody is more capital efficient than a hungry founder, so sometimes it’s beneficial for founding team to stay a little capital hungry as long as they’re backed by investors who get the mission and who are willing to step up for them when they need a little extra capital to get to the next metric they need to hit.

VN: There are many venture funds out there today, how do you differentiate yourself to limited partners? 

SH: I do have a couple of LPs, but I haven't pitched them; they’ve just come to me and said, “Hey, I don't want to evaluate it deal by deal so here’s some money, put some of it into every deal.” So, I do have that ability but I haven't pitched that really, maybe a couple of times. 

As far as pitching syndicate members, I keep it really simple: I just say, “Listen, I have this lived experience, I went through hell, somehow survived, and now I want to put money to work in that space. If you believe in that mission and helping people with their mental health then I’d love to have you look at my deals. If you want to look at them, by the way I don't charge a management fee, I only charge 10 percent carry and I will never bill your expenses. I’m just going to show you deals and if you pass on all of them there’s no penalty, if you do them then there’s no fee, just look at the deals and get familiar with what’s going on in the space. If all you do is sign up for my email list, and you see 10 deals in the space and go, ‘I’m interested in the space now that I actually know what it is,’ and then you go invest in some founder I never heard of, I won. That’s my mission: more money came into this space.” So, that’s how I pitch it and it seems to resonate with the right people. 

VN: Venture is a two-way street, where investors also have to pitch themselves. How do you differentiate your fund to entrepreneurs?

SH: My first three deals, one of which is closed, one of which is syndicating live right now, and one of which will probably close in March, all three of them I begged the founders to let me into their deal. I came to them, they had plenty of money, I identified them as bellwether leaders, landmark leaders in the industry that I wanted to be a part of. They’re building and selling products that would help me with my specific problem that I’ve lived through, and I went to those founders and I said, “Listen, I’m trying to build something that I think will really help this industry and help this space and, honestly, being alongside you is going to help me build my brand. Would you consider letting me invest?” All three of them so far have been like, “Okay, cool, let’s have a conversation” and when I sit down with the founder I say, “Look, here's what I can do: I have a bunch of investors that will all write probably small checks, but they’re all very connected in the industry around mental health and healthcare, they will all help when asked and called upon, and I’ve lived through this myself and I’m here for you to help you with whatever you need.” 

Honestly, I didn't have a lot of value to add at first, but then as I went out in this space and started mapping it and meeting the other founders and investors, and learning about job openings at startups, and hearing from people who wanted to work at these companies, and then I launched a podcast in the mental health space, I started to build a lot of community around what I'm trying to do. Then that became the value-add. The value-add that I bring now is, I’ve got this mental health podcast, I have an audience, I can put your product in front of a lot of early adopters. Two, I’m very strategically aligned with your user base because I’ve lived through the problem. Three, I have a lot of access to talent because people are coming to me and saying, “Because you wrote that article on all the startups, do you know of jobs that I can find in this space?” To that end, I launched a job board on my firm’s website for mental health jobs and it’s open source; there’s a Google form and anybody can put a job on the page, anybody who wants to work in this industry can come on there and find a job. You can reach out to me and I can help you find companies that are hiring in this space. I don't monetize that, I don’t have any way to make money off of that, but I make a market on talent in this industry because of my reach, and I leverage that to help my companies.  

VN: What are some of the investments you’ve made that you're super excited about? Why did you want to invest in those companies?

SH: The first one is called Foresight Mental Health. I closed it a couple of weeks ago, in the middle of January. They are a series of mental health clinics. They started out positioned next to college campuses, where they were taking overflow of student mental health demand from the college clinics. They’ve since leveraged that as they grow out into the communities from the colleges and they’re building this network of clinics, which is great. They get to full utilization quickly, they’re cash flow positive within just a few months, but the purpose is really to build a network of clinics to see what digital treatments are effective. Once they have a large enough database of the different types of treatments, and how they work on different types of diagnoses, they will be in a position to know which technologies that are being built actually work, what they should build, what they should acquire, what they should license. So, really, it’s a cash flowing, brick and mortar mental health clinic business, whose cash flow is used to figure out and invest in technologies that help their patients.

The next two, I can’t really mention who they are yet but they’re both marquee names in the space, with global, tier one VC investors leading the rounds. One is a faith-based solution, and the other is a business that is focused on serious mental illness, which is mood disorders, bipolar, schizophrenia, borderline personality disorder. They’re focused on providing measurement and testing tools that help prevent catastrophic events from unfolding and getting treatment to you in your time of need based on measure and testing and calculating when you might need to be in need. So, those are the next two deals I’m really excited about, but I’ll say a lot more publicly when the term sheets are signed and the deals as syndicated.  

VN: What are some lessons you learned? What has surprised you about this space since you started investing in it? 

SH: I’m surprised at the flow of founders into this space. I thought, when I set out to map the landscape, that I’d find a couple of hundred founders. Then I found 300 or 400, and every time I found a startup it wasn’t on the list, and I was shocked. Then my list went to 500 and then 600 and 700, and it’s now over 800, and I’ve just been blown away at how many founders have said, “You know what? I’m going to solve something really personal to me. I’m going to build in the mental health space.”

It’s significant and I think a lot of what has to do with stigma reduction. Now that it’s become okay to talk about these things in our society, you’re seeing founders come out of the woodwork to build on something very personal, which is a solution to mental illness, mental health, mental wellness. I’m just shocked at the flow. I’m blown away that every day, even though I have a list of 800 plus names, every day I learn of a new one. It’s incredible what’s happening. 

VN: What excites you the most about your position as a VC?

SH: I have the opportunity to drastically impact the evolution of our species because of where I’m focused. I have the opportunity to impact the largest problem set that impacts the largest number of people on the planet, in an industry where there’s not been a lot of vulnerability and transparency because of the nature of the problem set. So, I’m sitting in a position where it’s not necessarily that being a VC is all that great, but being a VC putting money to work in a space where I’ve lived through the problem, and it’s a life or death problem, is really, really rewarding to me. 

One of the things that I tell people is, if you know anything about Alcoholics Anonymous, which I go to almost daily, there’s 12 steps in the recovery program and the twelfth step is service. It’s being a sponsor, it’s helping other people in recovery. Every group that I’m a part of, every recovery program that I’ve been through or been a part of, one of the ways you stay well is you help other people. So, I view this fund, I view being a VC in this space, as part of my twelfth step. This is part of my giving back. That’s why I’m not trying to make a bunch of money off of maintenance fees and management fees, that’s why I’m charging very little carried interest. I’m truly motivated to help people and I get to do that. I don’t know if all VCs view it that way but I know that I do; it’s deeply personal and I get the chance to try to solve something that almost killed me.  

VN: Is there anything else that you think I should know about you or the firm or your thoughts about the venture industry in general? 

SH: I ran a small fund before out of a family office, and I had a great deal going. I made a lot of money, it really was a great gig. But I was really selfish and I was approaching VC from the angle and perspective of what you would think of as a VC: I wanted to make as much money, I wanted to be in high profile deals, I wanted to tout which tier one funds I was investing next to, I wanted to be posting pictures on social media of me with the new hot founder in the Valley. I wanted to be that VC that everybody hates because I wasn't well. I had significant mental issues and illness that I was living with, I had addiction issues that would make the hair on the back of your neck stand up. That drove a lot of that desire for these things that aren’t fulfilling. 

Now, I am so lucky and so blessed and so grateful to get to take that skill set that I learned in those three or four years running my first fund, and to take all of the life lessons I’ve accumulated through going through recovery, and to point that all towards something that’s much more about helping other people than it is about making money for me, and then it feels good.

I can’t afford to employ anybody because I don’t have a management fee and I don’t have all the fancy websites and all the bells and whistles and interns and cool stuff that a lot of these big VC funds have. I do it all myself and I love it. Maybe it will change one day but right now, it’s perfect, I love it and I wouldn’t change it. It’s scrappy and it’s low budget and my website looks like a middle schooler made it, and that’s because I made it because I don't have money to pay for somebody else to do it and I don’t want to pay someone else to do it. This is a very personal thing for me, and I’m trying to primarily do good. My mission is much bigger than my profits or my fund’s success; it’s truly to get capital flowing into this space and whether I benefit from it or not is not of the utmost concern to me.