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Jobanputra was previously a VC at Intel Capital, and was an investment banker at Lehman Brothers
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.
Jalak Jobanputra is Founder and Managing Partner of Future\Perfect Ventures.
Jobanputra was a director at Omidyar Network managing mobile investments in emerging markets, and Senior Vice President at the New York City Investment Fund where she launched a seed tech fund and the Fintech Innovation Lab.
She was also at Intel Capital in Silicon Valley from 1999 to 2003, on the founding team of a web startup in 1997, and a tech/media/telecom investment banker at Lehman Brothers in NYC and London.
Jobanputra has served on multiple advisory boards for the White House, NYC Mayor’s Office, and the US State Department, and serves on the BOD for the Center for an Urban Future. She is a frequent contributor for CNBC, Bloomberg TV, Business Insider, Quartz Media, and Fox Business News.
VatorNews: What is your investment philosophy or methodology?
Jalak Jobanputra: When I launched the fund two years ago, I saw a few gaps in the venture landscape and, from my experience investing in tech since 1999, I saw some trends that were happening that weren't being sufficiently addressed.
One was that, as we see proliferation of devices and machines, and distributed computing architecture, we are going to have huge data analytics needs. When I launched the fund, the thesis was around what I call "interpretive intelligence," making data more useful for individuals and businesses. Around the same time, I began exploring the Bitcoin world and was intrigued by how its underlying, peer to peer infrastructure could enable new business models, similar to how we’ve seen the Internet evolve over the past 20 years. FPV was an early investor in that space, and as we move to the second fund, will continue to invest in the infrastructure, middleware and applications emerging in the blockchain space.
VN: What do you like to invest in? What are your categories of interest?
JJ: We’ve broken down our view of the future into four interconnected areas: decentralized computing, including blockchain and mesh networks; machine learning; HCI, or human-computer interaction; and marketplaces.
When I started looking at blockchain, it reminded me a lot of the Internet in the mid-90s. I started my career doing tech, telecom and media investment banking in 1994, and worked on the first wave of global wireless licenses as well as satellite broadband. Then I became an entrepreneur and then a VC. We didn't know the use cases of what the Web would be, and we're just now getting deeper into what global connectivity really means. In the 1990s into the 2000s, I took part in the transition from client server computing to web architecture. FPV is focused on the transition from Web architecture to P2P and decentralized computing. This will entail new modes of connectivity, data analytics and computing at the edges.
These are the early days of blockchain, we're building out the P2P infrastructure, so we can scale transactions on it, which will give way to apps in different domain areas, as well as conversations about what digital identity looks like. We have over a billion people in the world right now without a legal identity and over two billion without a financial identity. Technology like the blockchain can create an inclusive digital world, if it’s developed with the right intent.
It's very early days, and that's what's exciting. As a VC, it’s exciting to get in early, shape the development of a sector by support entrepreneuring. I strongly believe that we have barely begun to understand how the blockchain can impact the world and I’m thrilled that FPV has backed a diverse and brilliant group of entrepreneurs who are building the backbone of these technologies while playing a proactive role in educating the market on its potential.
VN: What would you say are the top investments you have been a part of? What stood out about those investments in particular?
JJ: I've been looking at fintech throughout my career. One of the earliest investments I made was in Yodlee, which has since IPOed, and then was acquired by Envestnet last year. They were a pioneer in the financial API space, enabling greater access to financial services on different platforms.
A company I invested in 2008, TxVia, sold to Google. Founded by serial entrepreneur Anil Agarwal, they created next generation pre-paid card processing software. I saw the growth of prepaid cards, which was happening before the 2008 crisis, but only accelerated after the crisis as credit dried up on a global basis.
Another one that did well was Financial Engines, which also IPOed. They were centered around financial management. More recently I seed funded Blockstream along with Reid Hoffman, which has gone on to raise $55 million since FPV’s initial investment. They are a leader in building out blockchain infrastructure for instantaneous transactions. Currently it takes seven minutes for confirmation on the blockchain ledger, and they are working to reduce that, which would create more use cases around the P2P transaction. It's exciting to be an investor in such a leader in this space.
Another company FPV seed funded was Abra. They won the Launch Festival last year in San Francisco and I was fortunate to be introduced to founder Bill Barhydt before they launched. They are using the blockchain back-end for remittances. Right now it’s expensive to go to current providers such as Western Union to send money from the U.S. to countries like the Philippines.Abra is also bringing teller networks in these developing countries online and onto the smartphone, making teller networks more mobile. By doing transfers on the blockchain Abra is able to charge fewer fees than current providers. That means more money in the pocket of individuals. A number of global investors including Arbor Ventures, Ratan Tata, and American Express participated in a subsequent Series A financing.
VN: What do you look for in companies that you put money in? What are the most important qualities?
JJ: First I look at the founding team. Is there really a passion for the problem that they're solving, as well the product and solution they're building? The entrepreneur is going to have to hang in there during times that may be challenging, as well as when things are doing well. I want to know that they're dedicated to the solution and understand that it's going to be a wild ride. They need articulate why it's the right product, and also why it's the right time for that solution and why they are the right team to solve this particular market gap.
They need resilience. Products change and evolve, so they also need to have an element of flexibility as they get feedback from the customer and market. It’s a fine line between this flexibility and a focus on their vision, and there’s a lot of judgment involved in that process. My preference is to spend time with the team before the investment so I can see the team handle different circumstances and I can gain confidence in their judgment.
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?
JJ: I invest at the seed level, so I go in early, but I still want to see a product built. I don't focus on number of customers, but I do want to see in the product in use, to get a feel for how people or businesses may potentially interact with the product. There are some areas I'm looking at quite early, where companies won't have a full solution; in those cases, it's important to have confidence that the team can build something out.
In more established industry sectors we look for early pilots. For example, if we invest in a sector such as real estate software, we have potential customers in our network that we can talk to and understand how the solution would fit into the current market.
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, $3 million 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?
JJ: I think the market is changing in real time right now, and we are definitely seeing a slow down. We are seeing some of these mega seed rounds start to go away, and we are going to return to smaller seed rounds. You now need a certain amount of traction to get to $2 million in funding. Series A is getting tougher to do, and we will likely see more seed extension rounds for companies getting traction, but not enough for the larger Series A investors We’ve seen Series A and B funds raise large funds over the past few months – so they have capital to invest but will require companies to be further along.
We are still subject to cycles, and this recent correction is simply the market getting back to equilibrium.
VN: What are the attributes of a company getting a Series A?
JJ: I think it depends on the sector, but they have to have scale regardless. They need to absolutely have product/market fit, and strong growth metrics month to month, so that they show they can scale quickly with more funding.
The blockchain sector is different. Some companies may be pre-revenue, or have revenue from proof of concept and pilots, however, the tech buildout is strong and we are now seeing the establishment of companies that will be industry stalwarts, and they have raised even Series A funding on this basis.
I'm also seeing a lot of non-U.S. investors in this sector, who know the pain points the space can address. Investors in China, Singapore, India. Globalization is a core theme of FPV, it's part of my DNA, and the fund's DNA and it's exciting to see investments from beyond Silicon Valley.
With traditional enterprise software, the bar is getting higher and higher. I look very closely at growth and churn metrics and Series A investors are waiting before investing, to make sure any growth is truly sustainable.
VN: Given you have experience with corporate VCs, what advice would you give entrepreneurs?
JJ: With strategic investors it's important to know why they invest, and how much buy-in the investment program has from the rest of the firm. Some strategic investors tend to be more financial, the other end are highly strategic, want to see business units involved with the investment. Co-investors, and entrepreneurs should know what their intentions and strategy are.
As far as terms, be careful of right of first refusals, board representation, since they can hamstring early business, tying them too close to the investor. Preference is multiple strategic investors in rounds, rather than one being in control. Overall I’ve seen strategic investors also be incredibly helpful to companies, so it’s a matter of who it is.
I also think you have to be careful about what you are divulging, especially in early meetings, too. Don't get too technical, too quickly.
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?
JJ: I have written about this in the past on my blog. I don't think valuations are sustainable, and I think it's been a function of money flooding the market, especially at the later stage, which then trickles down to earlier stages. In that way it has been a bubble. Not to the same extent as 2001, since the whole market is different in terms of tech usage, and we're not questioning business models around the Internet. There are real business models here, and, as investors, we have to be smart about how much money companies needs to grow and exit. We have to be careful about not pricing them too far ahead of how they are growing and keep in mind what the exits opportunities are going to be.
I've never counted on an IPO, since that's not within our control. Public markets open and close, but our job is building sustainable businesses, and filling gaps in the market so they will find a home.
VN: If we're in a bubble, how does that affect your investing?
JJ: I am fiduciary to my LPs. It's important to know what the potential is, the timing, since you do have to return money to your investors. What I do know is that a lot of it is unpredictable, so it's important to be realistic when entering each investment.
VN: Tell me a bit about your background. Where did you go to school? What led you to the venture capital world?
JJ: I went to U Penn undergrad, and did a dual degree in communications from the Annenberg School and finance from The Wharton School. I've always been interested in the intersection between media and communications and business. Then I did investment banking, focused on media and telecommunications.
When Netscape IPOed I got interested in tech and the potential of the Internet, so, after banking, I helped launch a startup called Horsesmouth in 1997, which distributed financial information online. That was my exposure to the nitty gritty of starting a company in a nascent sector. I enjoyed that experience, and we never went for venture funding and bootstrapped by a business model focused on subscriptions, while the rest of the market was turning to ad based models. This was also when I became interested in the personalization capabilities of the internet; I helped build out software that allowed us to send personalized content to our subscribers, which turned out to be a great retention tool. The company is still around, and it survived the 2001 downturn. That experience made me realize that not all companies are right for venture funding. I always discuss the pros and cons around VC funding with entrepreneurs, as it’s not right for all companies nor all entrepreneurs.
After that I went to business school at Kellogg. I knew I wanted to do venture. I liked the strategic overview that investment banking offered, but I wanted to be more hands on, working with brilliant founders, helping enable them to build businesses that matter and have an impact. So that's how I got involved in venture. I was fortunate to work at Intel Capital in Silicon Valley from 1999 to 2003, where I learned the venture craft during the biggest boom and bust in Silicon Valley. You learn more in a downturn than you do in an up market.
Being able to work with early stage founders, while simultaneously working with industries that are ripe for disruption, that's one of the reasons I started my own fund. I wanted to be thesis driven around certain areas, like new tech around blockchain, the impact on financial services and healthcare. I wanted to thematically look at what's happening in the world, and back entrepreneurs who want to create a better world utilizing technology.
I also really believe we need to have more women building their own funds, with different cultures. We need more women and more overall diversity in this sector. When you start a fund, you create a culture, and you hire folks around that culture. The entrepreneurial side of me really wanted to do that.
I've also seen the micro VC asset class emerge in the last five years, where you don't need a big mega fund to create returns, since companies need less money to start and scale. I'm also seeing acquisitions, and opportunities for exits, at smaller amounts. So you can still create returns for your LPs and have more flexibility in the stage you invest.I also feel very closely aligned with the entrepreneurs I invest in. At a small fund, there's a lot of alignment in terms of flexibility and in terms of exit opportunities.
VN: What do you like best about being a VC? What makes you excited?
JJ: I can't believe I get to do this. I feel really fortunate. If you ask me what I want to be doing 10 years from now, I want to be doing the same thing.
It's very intellectually stimulating to be around smart people who are thinking about the future. Investing in mission driven entrepreneurs, being around people who want to change the world for the better, and who are using tech to do so, makes me an optimist about the future. It allows me stay young and to to stay on top of what's new. I couldn't ask for anything better to do.
VN: What is the investment range?
JJ: Initially $250,000 to $500,000.
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?
JJ: I don't have a specific ownership target, so it really depends on the company and subsequent capital requirements. Our target is five to 10 percent. I'm happy to have smaller piece of larger round, rather than large piece of company that won’t create value.
VN: Where is the firm currently in the investing cycle of its current fund?
JJ: We have a few more investments we'll likely be making out of the current fund, but most new investments will be done out of the new fund.
VN: What percentage of your fund is set aside for follow-on capital?
JJ: We'll do pro rata on a case by case basis, so we reserve at least half the fund.
VN: What series do you typically invest in? Are they typically Seed or Post Seed or Series A?
JJ: I have done a couple of Series A investments but we're primarily a seed fund. I like to be the first institutional money. We've had some opportunities to come in post-seed, or pre-A, but the sweet spot is to do the first institutional round.
VN: In a typical year how many startups do you invest in?
JJ: Between five and seven. Some years more, some less.
VN: Is there anything else you think I should know about you or the firm?
JJ: I’m thrilled with the reception that FPV has received. Three years ago, I set out to build a fund around the thesis of decentralization and smart data, one that was global in its thinking, and diverse by its very DNA. The world has moved even more in this direction as we grow the platform in the coming years. As any entrepreneur can relate to, it’s incredibly rewarding when you build a company that captures not only your passion, but captures an opportunity in a moment in time.
So much of the value of the fund resides in the deep network we’ve built from over 20 years in the industry. We have an extended network that we can call on to help the portfolio in terms of recruiting, giving strategic advice, and business development opportunities.
Beyond that, we exist to make sure that the next generation of technology is developed by teams that understand the global and diverse times we live in and we look forward to the strong societal and financial returns our portfolio will create. In fact, we believe that the path to outsize returns, in a market where that is harder and harder to do, is by building solutions for the greatest number of people. That cannot come from one geography or one demographic.
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