ARTIS invests in what it calls the TechBio space, where technology meets healthcareRead more...
Gryga was formerly Co-Founder and CEO of FashInvest, and co-founded Liberty Venture Partners
There has been a big debate over the last few years over whether the Series A crunch is real or not.
What everyone can agree on, though, is that there are definitely more seed and early stage funds now than ever before, and more people willing to give money to young companies looking to make it big.
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.
She was formerly Co-Founder and CEO of FashInvest, which created a community of key participants to foster the development of the emerging growth companies within the sectors of Branded Goods, Retail, Fashion and Technologies related to these consumer opportunities.
Prior to Dreamit, Griffith Gryga had many years of venture capital and private equity experience with several firms; primarily Liberty Venture Partners (co-founder) and Philadelphia Ventures.
VatorNews: What is your investment philosophy or methodology?
Karen Griffith Gryga: Our fund is tightly coupled with our accelerator. Dreamit is a top-10 global accelerator with participating companies representing countries all over the world. We focus both on industry verticals, and on the characteristics of the entrepreneurs that we find determine success.
We get thousands of applications for the accelerator program and accept only 50 to 60 companies on an annual basis. The fund then focuses its investments on those companies that have the most promise, momentum and traction. The work we do in the accelerator is intrinsically hands on, and we help companies find the most appropriate product market fit, target customer, business model and customer acquisition strategies. The fund works hand in hand with the broader Dreamit team, and those entrepreneurial teams where the market opportunity shows the highest potential.
The Dreamit program is highly selective and rigorous. We choose to work with entrepreneurs with a big vision yet a core ability to execute. The Fund benefits from the de-risking that we do within the accelerator programs. We have a large diversified portfolio which reflects our broad technology base with a focus on health care, education technology and female founders.
Having said that, we do opportunistically invest outside of companies we have worked with in the accelerator and in these cases we often focus on platforms that benefit our portfolio broadly. We have only done two of those to date, though we may do more in future.
VN: What do you like to invest in? What are your categories of interest?
KGG: Historically we have had a broad tech focus. If you look at the backgrounds of our team, we are all are entrepreneurs, and we have a diversity of backgrounds in mobile, EdTech, advertising, enterprise, ecommerce and so forth. In the past couple of years we have started focusing more and more on industry specific verticals.
Where we have the most depth of experience is healthcare. We were the 2nd most active seed stage investor in healthcare in 2015. In addition, we have some experience in EdTech having previously launched 15 EdTech companies. Building on that, last year we announced the launch of our new EdTech accelerator program in partnership with Penn State, so moving forward that's another segment where we are focusing our efforts.
Both verticals represent vast market opportunities with real pain points within them, and both have opportunities on both the enterprise and the consumer side.
To date our primary focus in healthcare has been on enterprise solutions. There has been tremendous growth in healthcare IT and devices, where we focus, the past couple of years fueled by such external drivers as the Affordable Care Act as well as the core need to drive higher quality care more efficiently and effectively. If you look at both the management of the care of the patient, as well as the different tech and analytics that target specific health conditions and diseases, there is a vast open field where tech innovation is so necessary and so needed.
That need for innovation is largely the same for EdTech. There is a fundamental and compelling need to provide more effective and efficient education delivery and to do so in a personalized way. Health and Education are both fields that have long sales cycles, complex decision making, and standards and regulatory frameworks that need to be met. These are not easy segments to gain entry and traction. Through our experience, knowledge, partners and customer relationships, we not only help our companies to figure out how to drive momentum and scale but we also dramatically accelerate the time that it takes for our companies to achieve pilots and customer relationships.
VN: What would you say are the top investments you have been a part of? What stood out about those investments in particular?
KGG: That's a very difficult question to answer. It's like asking a parent which of their children is their favorite.
Dreamit started in 2008 and was operating one cycle a year. We did that after our initial launch for the first couple of years, doing 10 to 15 companies. It is only in the most recent years that we have been launching 50 to 60 a year.
For one, we invested in SeatGeek, which is, at this point, the largest mobile ticketing platform on the market. SeatGeek was part of our 2009 program and the team was at that time developing a blog recommendation technology. One of the key things we do at Dreamit is open doors for market customer conversations. We push hard on our companies to have as many diverse customer conversations as they can have in a relatively short time period. With SeatGeek, after six weeks of conversations, they said, "There's no way we'll ever monetize this." So they took a couple of days, brainstormed, and came up for idea for SeatGeek. They approached the Dreamit team and said, "We figured out we can't monetize our original idea, but we have other great idea we're excited about." We told them, "If this is an idea you're passionate about, it doesn't matter what we think. Go out and see what the broader market thinks." Six weeks later, by demo day, they had a working product and initial revenue. They've since gone on to grow exponentially, and raised roughly $100 million the in past 12 months.
That points to a key theme in Dreamit: that our entrepreneurs have a big compelling vision but focus on coupling that big vision with market feedback and drive, through scrappiness and creativity, the ability to evolve the product rapidly, until they figure out the market opportunity to hit high growth. Here was the SeatGeek team with six weeks left in Dreamit, starting from scratch and having the reserve, strength of character and execution skills to bring another solution to market quickly and effectively.
Other standouts not only have compelling solutions but showcase what we, with our partners, can do for our companies. For instance, Protenus is a healthcare data security company that was able to test and validate their algorithms in conjunction with our partner, Johns Hopkins. Imagine as a young company approaching one of the leading healthcare systems internationally and asking whether you can partner with them to validate security algorithms. Not only is there a very low probability that that partnership would ever happen, but the sales cycle on that would be at least 24 months long. Protenus developed a compelling solution, and is now in market with multiple live enterprise customers.
There are a lot of young companies in our portfolio that we're really excited about.
Biobots is a 3D printer for human tissue. Biomeme is a real time mobile DNA diagnostic device enabling on-site real-time DNA analysis. Tissue Analytics uses machine learning for the first time to give doctors the ability to analyze and treat chronic wounds in a data driven way. Until now they've relied on manual measurement taken by nurses.
Elevate is a product in the EdTech space that's out in the marketplace, and was named the Apple app of the year in 2014. It delivers tremendously compelling consumer EdTech apps, initially in language learning, but they've expanded beyond that into broad-based brain training.
Finally, Trendkite is a data analytics solution for the PR marketplace, and they are unparalleled for that segment, with a growth rate that is tremendous. These are just a few examples.
VN: What do you look for in companies that you put money in? What are the most important qualities?
KGG: Historically, we have focused the accelerator on both pre-seed and post seed companies. Even though there are two stages, there are some qualities we look for that are generally the same. Moving forward we are targeting the pre-A startups looking to bridge that funding gap and accelerate their growth in preparation for that A round.
The team is the number one component. In that team we are looking for previous entrepreneurial experience, even if was a non-scalable business they started in high school, as long as they learned some elementary entrepreneurial lessons we can build upon. We look at the composition of the team and believe that each team needs a visionary, a core execution person and some tech talent. We also look at the team to understand how they know each other, for how long and in what ways they have worked together. As you know, building a startup is an awesome undertaking and a hugely demanding work experience all at once and the core team needs to thrive in high stress situations. We also try to understand the ways in which they have validated and de-risked on their own. We call that the "scrappiness factor." The team needs to have a deep passion for what they are building and approach each opportunity and obstacle with creativity.
Then we look at the market opportunity itself: we want big, interesting market opportunities.
The third aspect that we analyze is the idea itself. In the early stage of the company we expect that significant elements of the idea are probably wrong in some fashion, so we want a large market opportunity within which to maneuver.
We also have to see if our team is a match with the company, and if we think we can really work and help them, and be hands on with them. Our relationship doesn't end when the accelerator ends, or when the investment ends but continues for the life of the company and the entrepreneur for that matter.
VN: What kind of traction do you look for in your startups? And can you be specific? Are you looking for a number of customers or order volume?
KGG: It depends on stage. If we are investing in a seed stage, we look for data points on the product market fit, and value proposition.
With post seed we are looking for companies that have an initial product market fit and value proposition but need to really develop their customer acquisition strategies, messaging and distribution channels. With our help, we expect them to hit execution velocity and an inflection point pretty quickly after the Dreamit program.
With pre-seed, the time to that inflection point is a lot longer, so we focus on the validation and de-risking of the product market fit and helping them achieve initial pilots, typically.
With Series A we want early understanding of the sales process. Even if they are still working on scaling that process, they kind of understand their product market fit, have the target customer pegged, and have developed early sales processes they are looking to refine and scale.
But the metrics also really vary depending on the opportunity set. We have no set number or criteria. It could be a consumer product. We have one company called Osmosis that is a medical EdTech company, helping med students learn and retain knowledge throughout med school and after. In the traditional med school learning environment the loss of information is astounding. Osmosis was able to get penetration into five percent of its target market without spending any marketing dollars. In that case they had truly figured out the target customer, since it was pretty clear, and they figured out how to message to those students, and convert them to try the early product.
An enterprise solution for Series A, though, might have one customer, but a healthy pipeline. We don't really look for a set revenue number, or even a set number of customers. What is appropriate for this market opportunity indicates that they have an understanding of their market fit and how to acquire customers.
VN: Given that these days a Seed round is yesterday's Series A, meaning today a company raises a $3M Seed and no one blinks. But 10 years ago, $3M was a Series A. So what are the attributes to get that Seed round? Since it's a "Seed" does it imply that a company doesn't have to be that far along?
KGG: What is on trend for each round at any point in time is a partly a product of the macroeconomic picture. Typically seed is largely angel investors, institutional angels, and perhaps a portion of the syndicate driven by crowdfunding. What is required for a seed round with this segment of investors tends to be tightly coupled with those investors feeling of overall wealth and their appetite for risk. In buoyant economic times, the requirements for a seed round can be purely a concept and in tighter economic times, the requirements can include early revenue. Today a seed round is driven by a compelling vision, some early data points on product-market fit and a core team.
VN: What are the attributes of a company getting a Series A?
KGG: At Dreamit our focus is on helping our teams #GetToA because there is a large funding gap between Seed and Series A. More companies are raising Seed rounds than ever before yet those companies achieving Series A is more concentrated. It used to be that 1 out of every 4 startup companies raised a Series A and now the metric is something like 1 out of every 10. Because of the larger number of Series Seed companies seeking a Series A, they need to exhibit a strong value proposition with their early customers, a robust sales pipeline, a core understanding of effective customer acquisition techniques and some early data points on their sales process.
Having said that, this a really fun time in the industry. With the wealth of angel investors out there, the crowdfunding options, the growth of angel investors who are former entrepreneurs themselves, there was real opportunity for Dreamit to help companies #GetToA and our focus on accelerating the acquisition of pilots, customers, and solid execution metrics can make a huge difference for companies with a promising technology and team achieve the funding that they need to build and scale a business.
In our healthcare companies, a lot of them are able to achieve the start of a pilot within four to five months, down from a typical 12 to 24 month sales process. That's the power of the accelerator.
VN: Given all the money moving into the private sector, I believe there's more money going into late-stage deals in 2015 than there was during the heyday, back in 2000, do you think we're in a bubble?
KGG: The way I've seen the market develop is that it is not the entire market that is in a bubble at once, but different segments. For a while it was social media. Some people might claim that healthcare is in a bubble, but I disagree because the market opportunity is so vast. So you have to look at an individual market segments to really answer that question.
There's definitely a difference between the West Coast and the East Coast when it comes to valuations and structure. Right now we are in a market that is very entrepreneur-friendly. Nonetheless, we focus on guiding our entrepreneurs on a disciplined fundraising approach and methodology that is based in fundamentals. We teach entrepreneurs that it's not always the best thing to raise capital at the highest valuation. It has to be tightly coupled with milestones you can achieve with that capital. It should be milestones of the business that drive valuations, rather than the amount of capital raised.
Companies have gotten into trouble when they have raised too much capital at too high a valuation. Building a company is a tricky road, and there are always stumbles along the way. Entrepreneurs that have raised too much capital at too high of a valuation can find themselves at a point where they have not achieved milestones that they need to reach in order to raise their next round of capital. We stress fundamentals at Dreamit – that you need to raise an appropriate amount to achieve the next meaningful milestone in the company’s development and buffer that amount, with some cushion capital because things always happen. Entrepreneurs need to approach their market opportunity set with a grounded thesis and approach that they are actively trying to validate and build upon. Entrepreneurs that approach the building of the business, including the process of raising capital from a milestone disciplined approach can generally raise capital whether it is a frothy environment or a constrained environment. Even in the worst of times, strong entrepreneurial teams with a strong vision and core execution can get funding.
Generally when companies raise too much capital too soon, they drive up their burn rate prior to when they should and prior to when they know enough about the fundamentals of their business. This is very dangerous and a company can burn through a lot of capital quickly before they truly understand the fundamentals of their business.
If an entrepreneur raises capital at too high of a valuation, it can limit their options in terms of future funding rounds and exits. Higher valuations raise the execution expectations, and the need for larger exits to drive returns. Let's say you raise a Series A at a $20 million valuation. That means you have to be shooting for $200 million plus exit for the round of investors. What if the market dynamics change and there comes a time when an exit opportunity makes sense, but it's only an $80 million exit opportunity? Investors aren't going to be happy. If you raise at a valuation of $6, $7, $8 million, then $80 million exit looks attractive. It's not that you shouldn't raise at a high valuation, it just has to be appropriate for the stage of the business and the opportunity.
I know of company that was a very big enterprise play. The company really changed the dynamics of enterprise and was a really exciting story, but the characteristics of this play were complex with a long sales cycle and complicated implementation needs. It required a lot of changes for the customer. They raised capital at a high valuation, and then there were delays in rolling out the solution. The customers were still working with the company on the implementation but at a slower pace than anticipated resulting in a core lack of execution. Now the company is out of capital and are facing a down round, not because the market fundamentals have changed, but because they got ahead of themselves. The valuation didn't reflect the execution to date.
VN: If we're in a bubble, how does that affect your investing?
KGG: We think about it all the time. When you're investing at an early stage the valuations are made squeezing one eye shut, and sticking your thumb out. Obviously there are comparables and general guidelines relative to the stage of the company but it is not a quantitative exercise. Valuation at the early stages is more art than science, developing a valuation you feel is appropriate given the execution, the team, the opportunity.
The thing that's interesting at early stage is that if a company does really well there's not a lot of difference between a $4 million and an $8 million valuation at the exit but a startup company is a winding road and each round valuation has implications for the next round. People love to romanticize it and think it's a straight line, but it's an up, down, left, right path. Basically, the more money an entrepreneur can raise at a lower valuation then they have more flexibility when it comes to execution. Otherwise the entrepreneur has a more constrained time period to figure things out.
One of my favorite exercises from previous my VC firms was to pull out the original business plan. In the 90s, and early 2000s, people used to write formal business plans; now it's PowerPoint focused. I used to pull out plans and compare it to what actually happened in a very successful company and it was always a belly full of laughs over what we thought was going to happen.
VN: Tell me a bit about your background. Where did you go to school? What led you to the venture capital world?
KGG: I got my Bachelors in computer science from William & Mary in Virginia, which is the second oldest college in the country. I was originally a software developer in the defense world. I spent a number of years doing software development, and I was tapped to be the head of an initiative, which was a multi-million dollar software release. I was doing very well, and then I started interviewing for higher level management positions, and I was told I couldn't interview because I was too young, which I thought was ridiculous.
So I went back to grad school, got my Masters in Computer Science from the University of Pennsylvania's engineering school and I also got a MBA from The Wharton School. At the time, I liked he marriage between my technical background and the strategy and relationship development requirements of a business development role and so I was focused on pursuing a business development role at various tech companies. However, I was approached by a couple of venture capital firms and decided to join a venture firm in the early 90s in Philadelphia. I then started Liberty Venture Partners with a partner a couple of years later and we had $150 million under management. I was with Liberty for 9 years but I realized that I had to walk the walk, and talk the talk. Noel Fenton from Trinity Ventures was one of my mentors and an individual that I admired a great deal. He had started as an operator, and I thought the best VCs I knew had been entrepreneurs so I started two companies. One grew very well, and the other one is where I learned a lot of lessons.
At that point Dreamit approached me. They were raising a fund, and it was a combination of everything I loved, being hands on with entrepreneurs, and follow-on investing. I've been with Dreamit for four years.
VN: What do you like best about being a VC? What makes you excited?
KGG: Everything. I joke that when you're a VC it's either in your blood or it's not. I get asked, "You're Chief Investment Officer, you've got two kids, how do you do it all?" I love it. For me it's not like I go to work. I am working constantly because I love it. I'm passionate about it.
I love smart entrepreneurs bringing incredible opportunities to the marketplace. I love asking forgiveness and not permission. I love non-linear thinking that addresses problems and opportunities from a different perspective. That way of life, for me and the rest of the team, we are passionate about bringing it to the marketplace. I love seeing a team groping around, helping them find a way, and seeing them take off.
Last year we launched a new program, Dreamit Athena, specifically focused on female founders. Female founders are grossly underrepresented in VC and angel portfolios. Women are half the workforce, and they are starting a third of all businesses. In addition studies have shown that when women are part of a team a company’s executive team, the company is more profitable on less capital raised. We started a conversation within Dreamit of why Female Founders aren’t getting the same access to capital. We created Dreamit Athena to address these elements and to increase the funding of female founded companies.
During the Athena program I recommended to my entrepreneurs that they subscribe to Broad Sheet -- a newsletter that covers high profile women and their successes -- to give them a broader perspective, a potential mentor base as well as insights into the broader dynamics affecting women in different industries and geographies. Four months later, one of my teams was featured in Broad Sheet. That was a really powerful experience for all of us.
I love what I do because we are helping and empowering entrepreneurs who are bringing real solutions to the marketplace, sometimes fun and sometimes lifesaving.
VN: What is the size of your current fund?
KGG: The fund is a little under $25 million.
VN: What is the investment range? How much do you put into each startup?
KGG: Our range of investments have been from $30,000 for smaller seed companies to $600,000, which was our largest single investment. The amount of capital we are able to invest in each company really depends on where that company falls in the lifecycle of the fund. The most we put into any one deal would be close to $1.5M.
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?
KGG: That's been an interesting dynamic. When we were raising fund, we were also investing out of the fund. We closed initially on a couple million dollars and were actively investing but didn't know yet the ultimate size of the fund. We started at 10 percent, now we're looking 15 percent to 20 percent of the round, depending on the size of the round.
VN: Where is the firm currently in the investing cycle of its current fund?
KGG: We are approximately about halfway through our investing.
VN: What percentage of your fund is set aside for follow-on capital?
KGG: We don't have specific follow on target. We really want to look at each of our follow on investments as its own distinct opportunity.
The hardest thing as a VC is really to apply discipline in the follow on process. It's a fine line because you want to be supportive of your companies yet have the discipline to not invest in those companies where the investment thesis isn’t playing out. But execution is not a straight line and there are going to be stumbles along the way. The challenging part is discerning between broken models and opportunities where the data points are a mix between positive and negative. As a result, we approach each follow-on round on its own merits.
VN: What series do you typically invest in? Are they typically Seed or Post Seed or Series A?
KGG: To date, the vast majority of our investment rounds have been Series Seed and Series A but we have done one Series C out of the fund.
VN: In a typical year how many startups do you invest in?
KGG: We are launching about 50 to 60 companies a year through our accelerator. We have both a traditional stipend for equity offer but have recently launched a Zero/Zero option for more mature companies where we work with the companies for our intensive hands on accelerator program for a discounted right to invest in their next round. Given our network and expertise, we are able to deliver significant value to post Seed companies as well as our traditional pre Seed companies. This year we expect to do 50% of our work with pre Seed companies and 50% of our work with post Seed Companies. So we are launching somewhere between 50 and 60 companies a year and doing follow-on investments in about 40 to 50 companies a year.
VN: Is there anything else you think I should know about you or the firm?
KGG: As I mentioned before, one of the things I'm proudest of is Dreamit Athena. In the initial cycle of five companies, four have raised follow on capital, so that's an 80 percent success rate. Generally only about 3% of venture money and about 12% of angel capital has been invested in Female Founders so our initial 80% success rate is significant. I want to roll it out and do more with female founders, and I'm personally excited to move forward.
Not to be pithy, but with Dreamit, the thing I love is that we're authentic. We care deeply about companies, and we all work our butts off. A lot of people think we're crazy, because we are always “on” and always thinking about and working with our companies, but talk to any of our alumni and they'll say we have a very personalized hands on experience. We are straight talkers and we don't pull punches. But we're the biggest fans of our entrepreneurs at the same time.
We have a great passionate team. We love what we do, and we have a significant impact on the Dreamit companies. As a result they achieve a significant amount in a short period of time and have a big impact on their target customers and markets.
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