Differential invests in B2B data technology startups using AI and machine learningRead more...
Gupta founded Romulus Capital while an undergrad at MIT, and invests in enterprise software
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.
Krishna K. Gupta is the Founder and General Partner at Romulus Capital.
Gupta founded Romulus Capital while an undergrad with the intent of building technology businesses out of the MIT and Harvard ecosystems. Over the years, he has worked across many industries and led Romulus to regularly be the first institutional partner of seed-stage companies. He particularly enjoys partnering with companies with a B2B angle and innovative technology or science at the core of their value propositions.
Prior to Romulus, he spent time at McKinsey & Company and JPMorgan, where he helped execute billion-dollar M&A deals in technology, media, and telecom.
He received SB degrees in Materials Science and Engineering and Management Science from the Massachusetts Institute of Technology and is a graduate of Phillips Academy Andover.
VatorNews: What is your investment philosophy or methodology?
Krishna Gupta: We're an early stage investor. We started organically out of MIT a decade ago, not because I knew anything about investing or venture capital, but because I wanted to help build businesses. Our DNA is very much around building and not betting, and I think that automatically differentiates us. As part of that DNA, we like to lead and almost never follow, and so that ethos of getting in early, helping to build the foundation of the company, and then growing with it, has been a powerful way for us to differentiate.
Every venture firm claims they add value, but when I started out I realized early on how few of them actually do. From our perspective, adding value is definitely multifaceted. A big part of that is customers; we're very good at breaking down doors and reaching a lot of Fortune 100 companies. We've done that across sectors for our companies. Another part is helping them negotiate with these large customers, thinking about how to structure pilots and renewals in ways that make the most sense for the company. Beyond that, we also actively help them hire executive talent; we've helped a lot of our companies bring in roles like VP of sales or VP of engineering. A lot of VCs claim to do this, and some of the large firms do, but it's really rare at our stage. Very few VCs are actually able to help win customers, help bring in talent, help companies go raise from much larger firms. We have relationship with all the big VCs out west, and many have participated in our companies at the Series B round or later.
We're young and we're entrepreneurial. This is our baby. It’s not a second career for us, it's not a cushy job. We are trying to grow our own business. Both our focus on building, not betting, and our entrepreneurial ethos are core facets of Romulus that I expect will persist over time.
VN: What do you like to invest in? What are your categories of interest?
KG: We invest in mostly B2B companies, generally software, which generally fall into two types. The first are businesses that are solving problems for large, traditional industries such as real estate, construction, healthcare, or retail. The other general bucket are companies that have deep technologies and thus are very differentiated because they have the world's best teams working on them. These businesses might sometimes sell across industries and not be as vertically-oriented, but they are still interesting to us.
“Deep technology” is a term traditionally used to describe companies that are research-based—they’re not just creating a SaaS platform for a particular product (which generally isn't very high-tech). Think about all of the true artificial intelligence companies coming out of labs. These kinds of companies come out of deep research and are highly differentiated; their people have been working on certain ideas and technologies for years and years, and then they often sell into multiple industries as a result.
We occasionally invest in a consumer company, but the reality is that at the stage we're at today, which is mostly seed, you're basically playing roulette with consumer companies. No matter what anyone tells you, early-stage consumer company investors are really just taking bets. If you want to make multiple investments at this stage, you have to take a lot of bets, and our ethos does not align with that mentality. We don't want to take bets; we want to help build, and, at the seed stage, there's not that much you can do for consumer companies. As you go later stage, some of that changes. We are starting to think about how do we, as a firm, start playing in some of the opportunities we see in the later stages. If we end up going down that route, then maybe we will think about how to incorporate more consumer companies into our portfolio. Fundamentally, with enterprise you can engineer the growth of the business a lot better than you can on the consumer side.
Going forward, there are some other areas we want to invest in. I love the idea of emotional intelligence and how machines can learn emotion, and eventually appreciate and hopefully emulate emotion. I'm very interested in life sciences, so genomics is definitely an area of interest to me. We've been looking at genomics for a long time, but it didn't feel like there was money in it yet. As sequencing costs continue to go down, and as some of the early players figure out how to make something useful out of all the data, I think we'll see more companies in line with what people expected with precision medicine. That's an entire genre of companies that will be built. I think we're very early days in terms of what we can do with the understanding of genomics.
The concept of the “agile enterprise” is something else we're looking at. If you look at enterprises today, a lot of what they do is based on data that isn’t analyzed in real-time. Right now, the pattern is looking at annual financial statements, deciding what to do next year, crafting a plan, and then, 12 months later, beginning the process again. If enterprises can, in real time, capture sets of data that allow them to be agile, and allow them to do real time A/B testing around decisions, leaders can figure out if an initiative works, and, if it doesn't, cut it in two months and try something else. I think that's the way things are going across organizations. If startups can couple a novel way of capturing proprietary data with deep expertise in manipulating that data to create actionable insights, they can create a lot of value for the enterprise.
VN: What would you say are the top investments you have been a part of? What stood out about those investments in particular?
KG: We've got a company called Cogito, which is doing AI for voice. A lot of the currently available analytics for voice are speech to text, i.e., just analyzing the voice and transcribing the text. Cogito looks at the behavioral aspect of voice, which combines machine learning with behavioral science. They are able to tell whether people are stressed, whether people are happy, whether they should be speaking slower or faster. They are deployed in a lot of call centers and several Fortune 500 companies.
That's exciting because we've know them for years and years—we were very ahead of the game in the AI/machine learning space. Today, if you look at what's going on in AI, there's a lot of hype, even though many such companies, even in the enterprise voice space, don’t have a truly interesting product. Cogito’s success, and the feedback we're getting from the market, excites me. It's a company for which we led the first institutional round, and we really have helped them build. We've introduced them to several potential customers that have already started piloting.
We also invested in a company called EquipmentShare, which is in the construction space, and which enables contractors to use equipment collaboratively so they can increase utilization. That's a very clear play. It's collaborative consumption and the sharing economy, but for enterprise, and specifically in construction. EquipmentShare came out of Y Combinator, then we led its seed round and its Series A, and then Insight Venture Partner led its Series B. They're growing quickly out of Missouri.
Cogito was an example of a deep tech play, and EquipmentShare is an example of entrepreneurs who have both industry knowledge, having grown up in the industry they're selling to, but who also are tech-savvy in terms of how to build. They're very targeted toward the construction industry, and they've been growing quickly because their product solves a very clear problem in that vertical.
We've got another company called Humanyze, which is doing similar stuff to Cogito, but purely in what's called "people analytics." Humanyze looks at communication patterns within enterprises among employees, and they're able to extrapolate some best practices from the data they analyze. A lot of the decisions that enterprise have been making over the last many decades focus on people, but most of those decisions are intuition-based rather than data-driven. So, Humanyze comes in and brings that data that enables better, more effective decision-making within enterprises.
This is a phenomenal team, also out of MIT, and they're the world's foremost group of people who understand how to capture and manipulate people-based data and how to extricate something interesting from it. They're also working with Fortune 500 companies.
VN: What do you look for in companies that you put money in? What are the most important qualities?
KG: The team is obviously important. In a team, you want to see that they're complementary, that they're willing to listen to and acknowledge each other, that there's creative and constructive dialogue, and destruction of ideas as much as creation. At the same time, you want to see some kind of silos, where the individuals each have a specific advantage and are bringing something unique to the table based on their past experience. Often, you'll find a team where one person has a very deep technology background, while another is more operational. You might find one person who's coming from a very specific industry, and the other has a broader technology background. Those are the kinds of teams we love. We generally love people who are very in the weeds, whether that means they are highly technical, or highly specialized in a particular industry. We like that very grounded approach from an entrepreneur.
I would say that two-person teams are ideal. Single founder companies often run into problems; they're stuck with group think because they're an echo chamber, and that heightens the risk. With three-person teams, the dynamic often becomes two versus one.
Besides the team, obviously everyone looks for a big market, but from my perspective, what I really focus on is the spots on a specific “horse” that allow it to continue running faster than other horses. You might come across a company that has gotten out of the gate more quickly or has gotten a head start, but we live in an age where there's a lot of capital and a lot of transparency about what other people are doing. So you always have to expect that competitors will come after you. Why are you going to run faster down the stretch? We want to see sustainable competitive differentiation.
Sometimes an investment comes down to companies that have some deep proprietary technology, and sometimes the most intriguing ones have a very proprietary set of relationships. Sometimes it's the very complementary nature of the team. Finding somebody who grew up in the construction industry, partnering with somebody who comes from the Valley; there are only so many of those teams that can be built, that are functional, and are able to work well together. Sometimes it comes down to agility. As you observe certain teams, you can sense that they are very open to iterating quickly. We have companies that will regularly come up with ideas but then don't hesitate to say, "This is not going to work, let's crush this and try something else." That is a really important part of an entrepreneur’s DNA, and if you continue to do that you'll be able to stay abreast of what's next. Whereas if you're not like that, you often become complacent, even when you grow, which allows the hungrier competitor to catch up.
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?
KG: What a seed round is today versus was it was several years ago is different. In terms of what we look for at the seed stage regarding traction, it’s pilots and validation. Validation is often a puzzle you're piecing together; part of it is other experienced people in the industry, who see this thing and believe it is solving a core problem that hasn't been solved before. Usually it's a couple of pilots, with well-respected industry players. We also want to see an early version of the product, those types of things. I don't really assign any numbers to traction at the seed stage.
By the time you get to a Series A you have to have meaningful traction in terms of product market fit, initial customers, et cetera. If we encounter a Series A company that's raised $3 million, we expect them to have gotten further than a Series A company that raised $1 million. Historically, if you look at enterprise SaaS companies, people often used to say $1 million in ARR is where you want to be before you raise a Series A. That can still apply, but if you raised $3 million in seed, you probably want to be closer to $2 million in ARR by the time you raise a Series A.
VN: How long does it take before you meet a startup and make an investment and how do you conduct your due diligence?
KG: We find companies in a variety of places. One way is through recommendations from people we trust, but we also go out there, look at incubators, go to events, spend time on university campuses, and build relationships with people. I think a lot of that is useful in terms of finding great people and great companies.
In terms of due diligence, we’re not the overnight investor, but we're also not the investor that's going to take three months. We're out there trying to find the middle ground.
We'll spend time with the team thinking about if these founders are people we think can build a really big business. We will think through how differentiated the product is and see if the company is actually solving a real problem. We'll spend some time with existing or potential customers to make sure the product is not “a nice to have,” or that the company has only generated interest from a few people based on a relationship, or that they’re not really solving a burning pain point. We'll also do some analysis of market size, but we focus very much around team, market, and whether the team is solving the problem in a differentiated way.
VN: 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 of a seed round vs a Series A round?
KG: I'm generally in favor of raising smaller seed rounds. A couple of things happen when you raise a large seed round. From my perspective, the most destructive thing that can happen is a deterioration of company culture. At such a seminal stage in your company's history, your culture of being very lean and very maniacal about agility can all go down the drain when you have $3 million to burn instead of $1 million. That presents a dramatic change in how companies operate. Once you set that tone in a company, it's almost impossible to come back from that. It might sound trivial or intangible, but the loss in culture is the biggest, and most serious, casualty as the result of larger seed and Series A rounds.
The typical argument for raising larger rounds is the ability to do more, faster. At these stages, though, the important question is not how much to do. There are very specific problems you need to solve, and throwing money at the problem doesn't necessarily solve it; rather, agility, willingness to think outside the box, resilience—those qualities help solve problems. Larger rounds can cause a sense of complacency, though I think that larger rounds work at the Series B, when you have figured out product market fit and more money does actually help you move faster.
VN: Tell me a bit about your background. Where did you go to school? What led you to the venture capital world?
KG: I was at MIT as an undergrad. I knew nothing about venture capital, I knew nothing about investing, frankly. I came to MIT because I wanted to started a company, and I saw that my peers and I were coming up with ideas but didn't know how to build great foundations for big companies. This was back in 08 or 09, and I realized a lot of VCs at the time were turning into betting machines. It's actually gotten, in some ways, even worse as the firms have grown. Then, there really weren't people helping to build the foundations of young companies, so I really fell into it. I started when I was a junior in college, and this was at a time when young VCs were not really heard of, and neither were upstart college firms. It was great. Those are always the best times to start a company, because they allow you to operate in a world without much noise.
When I started, I didn't know where to raise capital and all that, so I reached out to a couple of people to help me do some of that. In the interim, I also signed up at McKinsey, thinking I could balance both consulting there and starting Romulus, and I quickly realized there was no way I could. I left McKinsey after six months and have been full-time at Romulus since then.
I learned venture on the fly, just like any entrepreneur. That's why I think, in some ways, that our DNA is so unique. I started this firm, and I'll always treat it like an entrepreneurial vessel. Also, I truly started from scratch—not after I’d sold a company for millions, or after I'd been a partner at some larger venture firm. I lived in a basement for two years after graduating from MIT, just like any struggling entrepreneur would. I rented out all the rooms to pay my rent, and it really came down, at some points, to my last few hundred dollars.
That, plus our eagerness to learn, really differentiates how our firm operates. When we sit across the table from entrepreneurs, they can sense that. They can sense a feeling of belonging and something that they can recognize in a way that, sometimes, is not even present when they sit across the table from a VC who used to be an entrepreneur and sold their company, but now has joined some larger firm. Those people don't really have the same hunger anymore. That hunger and that passion really does come across here.
I learned a lot of this stuff along the way, but also I would say that all of us are naturally good at certain things. One of the things I realized that I was good at was interfacing between young startups and large corporates, and helping them break the doors, run pilots etc. I think I've always been good at that. Drop me into a new place, and I will find a way to break down the doors and build a network.
VN: What do you like best about being a VC? What makes you excited?
KG: Ultimately, I enjoy learning. I get to learn so much. I have a paper on my desk right now on some interesting technology in the data center space. Every industry that comes to us, every technology, is so nascent and is basically trying not just to predict but actually to create the future. That's really exciting for me, and it keeps me sharp.
Secondly, I just love to go get shit done. I love to execute and build. This week alone, I've divided my hours between spending time with CROs and VPs of sales of some of our companies, brainstorming how to crack this customer or that customer, and I've also spent time interviewing and thinking about potential board members to bring on at certain companies. All that stuff is very exciting when you can see the fruits of your effort instantaneously, and you can see companies being built in front of you.
On the other side of the coin, you also realize how fragile companies at the early stages are. It's really, really hard to build a great company, and I’ve amassed a tremendous amount of respect for people who do it successfully. Watching great companies grow keeps you humble. It makes you realize how much there is to be learned, how much great work is going on, and how hard it is to build a great company. I love doing that.
The only thing I'll add to that is that I'm very much a people person, and being able to, for a living, go spend time and do lunch meetings with entrepreneurs, up to Fortune CEOs, and everyone in between, sounds like a dream to me, and so I'm very grateful.
VN: What is the size of your current fund?
KG: Our current fund is $80 million, and we manage close to $200 million.
VN: What is the investment range?
KG: We typically start off a seed stage deal with a few hundred thousand dollars, then add a few million in Series A. Sometimes we'll put together a vehicle, so we can put in up to $10-$15 million over the life of a company. Out of the main fund it can be $5 million or $6 million over the life of the company.
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?
KG: We don't have a typical percent. We have to look at every opportunity in isolation. As a general rule, I would say that ownership does matter to us, so we're not typically doing deals where after the Series A we own five percent of the company. That's not interesting to us. But every company and opportunity we treat on its own merits.
VN: Where is the firm currently in the investing cycle of its current fund?
KG: We're very early in the cycle. We're in year two out of a standard 10.
VN: What percentage of your fund is set aside for follow-on capital?
KG: I would say that two-thirds of the fund are set aside for follow-ons.
VN: What stage do you invest in?
KG: We're primarily seed-stage investing.
VN: In a typical year how many startups do you invest in?
KG: Out of the fund we'll probably invest in 15 to 20. In any given year, we do five or six. This past year was a little slower because we felt that valuations were too high.
VN: Is there anything else you think I should know about you or the firm?
KG: Speaking for myself, I'm a young person and we started this the old-fashioned way, by hustling from nothing. I believe a lot in the DNA of companies and firms, and if you think about young emerging firms that have had a decade of experience, but are still run by people who young and hungry, you come out with a short list. I have a math background and a material science background, and so when you combine the technical chops with the business-building focus we talked about, the ability to break down Fortune 100 doors and to help win these contracts, those are the things that resonate with the entrepreneurs we work with. That's why we're able to win the deals we win.
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