NGP Capital invests in growth-stage companies, with an initial check size of $10 millionRead more...
Galbut also founded A-Level Capital, a student-led venture capital firm, while at Johns Hopkins
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? In our Meet the VC series, we highlight key members of the community to find out.
Elizabeth Galbut is Founding Partner at SoGal Ventures.
Galbut is a venture capitalist and business designer. Prior to finishing business and design school, she founded A-Level Capital, the first student-led venture capital firm powered by Johns Hopkins students. Prior to graduate school, Elizabeth was a strategy & operations consultant at Deloitte Consulting focusing on large healthcare clients. Outside of her client-facing work, she contributed to business development efforts that led to over $200 million of new work.
She holds a MBA/MA Design Leadership dual-degree from Johns Hopkins University and Maryland Institute college of Art. She is also an alumnus of Georgetown University and London School of Economics.
VatorNews: What is your investment philosophy or methodology?
Elizabeth Galbut: SoGal Ventures is the first female-led millennial venture capital firm. Right now we invest in the U.S. and in Asia in technologies and brands powering how the next-generation lives, works, and stays healthy.
One major part of our thesis is what we call a “global-first" or "borderless business" strategy. That typically means that the founders themselves are either immigrants or they have international experience, and they're really thinking about how to build a global business from day one. Between my co-GP, Pocket Sun, and myself, we've lived and worked in six countries and tried our hands at learning six languages. Most of our generation is very similar: they are highly educated folks in their teens and 20s, and they're building fundamentally different businesses than the past generations of entrepreneurs. These are businesses that plan to ship globally or expand services across multiple regions from the very earliest days of their startups. From a founder perspective, having somebody on your founding team who has those international experiences, whether it's cultural and/or language, enables a startup to build the businesses of the future, because we believe that in five to ten years, business will truly be borderless.
We also really believe in diverse founding teams. When we talk about diversity we don't just mean gender: we mean diversity across the board, from professional backgrounds to educational background to, of course, race, nationality, sexual orientation. Every study has proven that diverse teams perform better, and we're true believers in that.
We started SoGal Ventures because through our global community reaching over 50,000 diverse founders and funders, we saw that the biggest problem for these founders is raising money. We're true believers that women are one of the last remaining arbitrage opportunities for investment, both in private and public markets, but we're also big believers, and this comes from my design background and education, that diverse teams are much deeper than just gender. Our fund capitalizes on this arbitrage opportunity. Our DNA is centered around investing in startups with a culture where diversity is cherished and celebrated. That means that any individual, whether it's the founder, investor or employee of the startup can achieve their fullest potential because everyone has, not just equal opportunity, but that their differences are celebrated as a value-add, rather than a value-detractor.
VN: What do you like to invest in? What are your categories of interest?
EG: We invest in how the next-generation lives, works, and stays healthy. This breaks down industry-wise into health tech, consumer tech and enterprise software. In health tech and consumer we also invest in hardware and emerging brands.
I'm a designer, and a professor of design, so all our portfolio companies have very strong design-centric approaches. What I mean by design is that every single startup we're investing in is using design to propel their business model in some way, and that's something that we help our founders a lot with. Fundamentally, we know that you need to have deep understanding of design to be solving the right problems, as well as to build superior solutions. If a startup is really lacking design, it probably wouldn't be something we’d invest in. That's the minimum bar for us, and it's something that we help our entrepreneurs get better and better at.
Design is much more than graphic design or user experience – although those are both important. It is design research, empathy, ethnographic findings, and deeply understanding your user and customer. This is really understanding who has this problem? What is the biggest pain point? What is your solution built around? I see probably 90 percent of startups get this wrong. A lot of startups will do e-mail surveys, but that's marketing research. Design research is about understanding the depth of problems and what's important to build out in a solution. That goes right at the core of a startup. Every engineering decision, every product decision, is based off of that. As you continue to improve your offering, making sure you're sticking true to that, as well as expanding upon it, is critical for a startup’s success.
I would say that startups in the U.S. are leading the world in design, but there's still enormous opportunity for design to be incredibly impactful in business in Asia, particularly in China. Design will be what differentiates businesses in Asia in the long-run.
VN: What would you say are the top investments you have been a part of? What stood out about those investments in particular?
EG: One company is called Function of Beauty. They just raised a $9.5 million Series A round from GGV. Right around the time they started, I found Function of Beauty, a custom shampoo and conditioner company, as a consumer. After I went through their onboarding process, I said, "Wow, this is it. They nailed it," and I immediately, after I got my order confirmation, got in touch and said, "Please have the CEO contact me. I want to invest."
They really hit the nail on the head with predominantly what females experience when buying hair care. Everyone has extremely different hair, scalp, preferences and climates that you live in. Typically, you have to buy a drugstore or salon solution that will fix two of your problems but not all of them, so you end up with like 20 bottles in your shower, none of them that you're happy with, all that you feel that you overpaid for. This solution was so amazing because it gives you what exactly you need and asked for, and their branding is so terrific. It's about celebrating individuality. When you look through their Instagram posts, with people using the product, you see people kissing the bottles, people saying, "I never felt confident about my hair and finally I have hydrated hair, plus my dandruff has gone away, and I can wear black again.” “I finally feel like I can be in a business setting, and not have to worry about flakes coming off my scalp." That confidence that can be created by hair products, which seems so simple, is so powerful.
Even though it appears to be consumer company, I really view it as an advanced manufacturing company. There's 12 billion different combinations, and they've figured out a way to produce one-off formulations at scale. Sales are booming and it's been an incredible company to watch grow. The founders have multiple MIT degrees, and are a perfect example of what we mean by a broadly diverse team. The CEO worked in Morocco, the Science Advisor a woman with significant beauty experience, the Head of Marketing a woman who’s killer at D2C social, and the Chief Operations Officer a Navy officer veteran, father of five, and from a very small town in Pennsylvania, where they now do their manufacturing. All of them have different education and specialties and it has just been amazing to see the team, what they've been able to build based on their differences. I could not see a team of five guys or five girls building anything even remotely at scale to what this has been. Even their brand motto, which is "celebrate individuality," demonstrates how diversity has truly fueled the company's growth.
We have another company EverlyWell, which is the lab testing platform of the future. They offer a whole suite of at-home lab tests you can have done. Everything from testing for food intolerances, hormone levels, STDs, and even testing breast milk for DHA. They ship the kits directly to you and you ship them back, and less than a week later you receive this beautiful, well-designed result that you can interpret. If necessary, they can have a doctor talk to you or you can bring the results to your normal healthcare provider.
The mission is to enable affordable and convenient lab testing. I think that's so important, especially with the current administration, with many people at risk of loosing their health insurance. Being able to test your cholesterol and lipids, or anything like that, at an affordable price is going to be so necessary moving forward.
Another investment we made is in Trustify, a network of private investigators on-demand. They've really disrupted the private investigator market. Private investigators can be used for all different sorts of things; most people think of it for catching a cheating spouse, but it can be anything from finding your birth parents to use cases of needing legal evidence during child custody battles or making sure your dog walker or nanny is not a criminal before you give them access to your house. There are also more corporate uses, business to business applications. Lawyers use private investigators all the time, as do insurance companies, for example, if someone's been injured in the workplace, an investigator can verify that they individual is actually hurt and to what extent. Just like Twilio is the text-message application layer, Trustify is the trust and safety layer to any human-powered business. With their proprietary background-check and social search technologies, would be wonderful to see a company like Uber use them for more extensive background checks on new drivers.
VN: What do you look for in companies that you put money in? What are the most important qualities?
EG: The biggest thing for me is the founder/startup fit. Starting up two funds, SoGal Ventures and A-Level Capital, I'm a founder myself. I know that the founder journey has significant ups and downs, and I really want to know: why is this the one person who should be solving this problem? Do they have the unique life experience to make them want to be doing this, and when shit totally hits the fan, is their passion going to keep them going? A lot of the time, the incentive just to make money isn't enough. We want to see their unique perspective and why they're the right fit for this particular startup.
For example, with Function of Beauty, the founder with Moroccan experience started an Argan Oil collective, which is an ingredient used in a lot of hair care products these days. He had a previous hair care company where he realized the problem was that everyone wanted these custom formulations, and he has a PhD in sustainability. Building sustainable products in the hair care space is core to who he is. Looking at his unique perspective, compared to someone who has a fashion design background trying to start a hair care company, it’s clear he has a much better founder/startup fit.
We also want to see a track record of success in whatever they've done in their lives, whether it's school, previous jobs, sports, etc. as well as tenacity and resilience. I think having a high level of tenacity, as well as knowing how to be resilient, is one of the top most valuable characteristics of a successful startup founder.
Additionally, I'm a very open and transparent person, so I really do not enjoy working with people who lie or mislead. These types of behaviors are something that would immediately make me not invest. For me, trust and loyalty are so important, and I think that goes both ways. I always encourage founders to do their own diligence on SoGal Ventures before taking a check from us. I think that's important because a founder-VC partnership often lasts longer than an American marriage, so both sides need to be confident they want to work with the other party for the long-run.
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?
EG: My background, other than health tech and design, is in economics and strategy, so I love numbers. I was a state champion mathlete growing up, so I love cutting numbers every which way.
For traction, it depends on the industry. For example, in the consumer industry, the unit economics and the cost of acquisition, as well as what they're projecting lifetime value of the customer being, is critical. Another big metric I look for is repeat purchase rate, the percentage of folks that have been doing that, if the company has been around long enough for repeats to happen.
I'd be open to investing in something pre-product, and we have at A-Level Capital, but at SoGal Ventures, we like to see some sort of traction, even if it's not revenue. We just invested in a media company called SWAAY who is revolutionizing how women are portrayed in media. Even though it's only been launched for a few months, the traction of page views, share counts, total reach, and engagement is phenomenal. In my eyes, those are all an early indicator that the company will be able to turn on the revenue side when they're ready.
Because companies now cost much less to build, there are ways to hack a minimal viable product – whether you're doing a concierge model, having a baseline service or product to get it to your customers, or you're running a crowdfunding campaign. There's all these ways to that you can now establish traction, even if you don't have your final product. I haven't seen many VCs right now giving money when it's an idea on a napkin, unless it's somebody who's a serial entrepreneur with specialized technical skillset, as there are so many easy ways to create some sort of traction metrics.
VN: How long does it take before you meet a startup and make an investment and how do you conduct your due diligence?
EG: We've so far looked at about 6,000 deals, so it's a lot. Partly that's because of our global SoGal community of entrepreneurs and investors. Many deals come from our community members and their referrals, others from events, many from cold emails or finding us on twitter, and of course investor and entrepreneur referrals. We also search out startups targeting themes or new business models we’re excited about.
The due diligence process depends greatly on where the deal comes from, but there's only two of us, so we can be very quick in our decision making. Pocket and I are always unanimous when we decide to invest in a company. Pocket lives in Singapore, so we do video chats with founders and their teams so that we can both know them before making an investment decision.
We also really aren't traditional in our approach of how we like entrepreneurs to pitch us. You won’t be asked to come in and read through your PowerPoint with me. I'm going to meet you somewhere; maybe it's walking around Central Park with my dog, and we're going to talk about your company for three hours. I like getting to know people a lot better, and we do unique things like taking them yoga classes or other untraditional activities to really get to know the founder over time. A lot of founders who I feel are strong about, but maybe are still a little early, I'll meet up with them for lunch at Shake Shack once every month or two to see how they're doing and keep track. We are constantly building these relationships and getting to know the people aspect of their business. It's a lot easier when you're walking around Central Park with your dog so say, "When was a time when you and your co-founder have fought and tell me more about that," than when looking at a PowerPoint presentation buttoned-up in an office.
Because we're young, our entrepreneurs see us as friends as well as investors. We say we’re “friend-vestors”. Therefore, making sure we work together before investing is something we test multiple times. Often, we'll start brainstorming how we can be helpful, and we'll start making some of those introductions or working with the founders on a small strategic project or initiative, to see how we all work together first.
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?
EG: No doubt that there's more money in the VC ecosystem, as well as a larger number of VC players now, so I think that's one part of it. I also see people doing a pre-seed or friends and family or an angel round, then maybe doing a seed round, and then actually doing a seed two, or seed plus round, before doing the Series A. I think it's all kind of semantics.
I also see a lot of entrepreneurs now actually not wanting to take a lot of money, or wanting to take it in a much more staged approached, because a lot of them are making revenue and are profitable earlier on in the startup’s lifecycle. They're saying, "Instead of raising a $5 million Series A, we'd rather just do another $2 million seed extension, because we don't think we need any more than that to get to fast growing scalability. I want to retain more of my company, or even we could launch another crowdfunding campaign or we could do purchase order financing." Because of the alternative financing tools now available, I've been seeing a lot of top entrepreneurs being more thoughtful about how much money they're raising and the manner in which they're raising it.
There's just so many options of financing a startup now. I invest in a lot of health tech, for example, and there's a ton of grant opportunities. A lot of my companies will apply for millions in non-dilutive grants. When you're getting grant money that's non-dilutive, there's no need to raise the same dilutive equity-based capital, unless there's something that you really need that money for. The entrepreneurs I've been investing in are smart about when and how much money they've been taking from traditional VCs.
VN: Tell me a bit about your background. Where did you go to school? What led you to the venture capital world?
EG: It was little bit out of necessity. My entire life I have experienced healthcare from all angles. It started with being born almost two months premature. I was a very sick kid and was hospitalized multiple times throughout my childhood. Additionally, my parents were both physicians, and they're frugal so they would take me around hospital or to pharma dinners instead of paying for a babysitter. When I was three, my mom was diagnosed with Multiple Sclerosis, after going temporarily blind while performing surgery. She later founded a non-profit, so I grew up volunteering to support hundreds of disabled individuals and their families.
Fast forward to after college, I joined the healthcare strategy consulting practice at Deloitte. The government was creating and announcing new health IT initiatives, and it was the wild west of hospital systems, pharma companies, and other healthcare companies trying to figure out their high-level tech strategies and health tech investment plans. It was a really interesting time to helping these clients create strategy, because digital health was emerging and so much money was being deployed to these system-wide transformations.
After consulting, I went to grad school at Johns Hopkins University and Maryland Institute College of Art for this brand-new program that's an MBA/MA in Design. My focus was designing innovative products and services in the healthcare space. I was leading an entrepreneurship club that grew rapidly because Hopkins actually has a handful of the top graduate programs in the country such as top school for education, international studies, biomedical engineering, medicine, public health, etc. But there's really not many investors in the Baltimore ecosystem who are writing the first check to startups coming out of these programs.
About a year into grad school, my dad was diagnosed with cancer. We found out that errors had been made reading his previous biopsies and he had cancer for years that had gone untreated. At the same time, my co-leader for our student entrepreneurship club was working on a startup called Proscia, developing digital pathology tools in the cloud. Non-concurrence of pathologists is pretty common, and misdiagnosis can produce devastating results. For example, non-concurrence rate can be so poor, that with certain cancers you have a better chance of flipping a coin to get the correct diagnosis. This is so important because every clinical decision is then made after the diagnosis stemming from your biopsy.
Because of my father's cancer, this startup was very near and dear to my heart. I was trying to help him raise capital, but due to the funding environment in Baltimore, he was having a very hard time. We couldn’t find him anyone wanting to take the risk of writing the first check. Back then, there were very few digital health investors. I count probably count them on less than one hand, let alone digital health investors that were investing in stuff beyond consumer, such as enterprise technology being sold to hospitals. When push came to shove, I said, "Wow, he can't graduate and go on to work somewhere else. This technology has to exist in the world, so I'm going to figure out a way to invest in it, even if nobody else will."
That led me to co-founding my first fund in grad school, A-Level Capital. It’s a student-led fund, similar to Dorm Room Fund or Rough Draft Ventures, but instead of being sponsored by a VC firm, we raised money from a couple dozen JHU alumni as limited partners. When we started A-Level, no VC firm really thought that Baltimore was that interesting, despite all of its technical talent. So we ended up raising money from a bunch of alumni as limited partners. That's the long-story of how I got started in venture capital. One of A-Level Capital’s investors and advisors is Dave McClure from 500 Startups, and that's how I ended up at Stanford’s VC executive education program. It was there where I met my SoGal Ventures business partner, Pocket. It kind of all fell into place. Looking back at my background, it's a perfect fit for me and love it every single day. My dad's now doing ok and is cancer free – for a while we were worried he would not be, but it led me to where I needed to be.
The amount of funding going toward digital health has grown exponentially since then, which is great to see since healthcare is almost a quarter of the U.S. GDP and is the most complex, fraught with problems industry there is. Any way we can bring technology to solve the healthcare industry’s issues and create more efficiencies is great. I’m glad there’s a lot more money and people devoted to investing in healthcare now because technology can totally change our healthcare system so that its accessible to all who need it.
What was great about Proscia was we were their first outside $10,000 into the company and we introduced them to their lead investor. The CEO, David West, was an undergrad student at the time, and closed his $1M seed round the same week that he graduated. He was only looking to raise about $750,000 but had over $3 million of investment interest in the end, which he scaled back to the $1 million. A-Level Capital was his first outside investor five months before his seed round, and it’s an excellent example of how the student venture capital model works. It was very validating that I could actually make a difference in helping a company go from the earliest stages to the next step.
VN: What do you like best about being a VC? What makes you excited?
EG: The best thing about being a VC is the people. All the entrepreneurs we invest in, I am so grateful that they’ve let us be part of their journey, because they are some of the most intelligent, good natured people I know. They’re all solving difficult problems that not a lot of people would sacrifice everything to do. I see them as the heroes, and being able to work with so many of them daily, I couldn’t think of anything I’d love to do more than that.
VN: What is the size of your current fund?
EG: Our target is $15 million.
VN: What is the investment range?
EG: So far, we’ve been doing mostly $100,00 and up, but for something that’s more pre-seed we’d probably do $50,000. Our sweet spot is anywhere from $50,000 to $350,000.
With follow-on funding, over the life of the company we could potentially invest over $1 million. Hopefully many of our companies continue to grow and raise subsequent rounds. With regard to growth capital, we’ll work on that problem once we get there, potentially through SPVs or raising an opportunity fund.
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?
EG: It typically ranges from 2 percent to 8 percent.
Although ownership is important, we believe investing in great companies is even more important. We look at more of where the valuation is now for the company versus their traction, and then how big we think a company like that can be. So, at times we invest in companies with a higher valuation if we can easily it on a path to $1 billion or $10 billion+, versus companies where we’re doing typically lower valuations, and we can see a clear path to $200-$500 million+ but getting to $10 billion probably isn’t going to happen in that industry. So ownership can be dependent on industry dynamics and our entry valuation. Bare minimum for us to invest is that we believe they can 10x our investment.
VN: Where is the firm currently in the investing cycle of its current fund?
EG: We’re still raising our first fund. We had our first close, and just started investing out of it, but we’re still on the fundraising trail.
With that said, our doors are open for business and we don’t mind the cold-email, so founders can send information our way at email@example.com.
VN: What percentage of your fund is set aside for follow-on capital?
EG: We’ve saved approximately 50 percent of that $15 million target for follow-on.
VN: What series do you typically invest in? Are they typically Seed or Post Seed or Series A?
EG: We invest predominantly at what we would call the pre-seed to seed plus stages.
VN: In a typical year how many startups do you invest in?
EG: Out of this fund for SoGal we’ll do about 35 to 50. Through my other fund, A-Level Capital, we’re doing 40 to 60. So far, between all the different vehicles, my business partner and I have invested in 35 companies in the past year and a half.
From SoGal, we’re doing ~10 a year, and at A-Level we’re doing 10 to 15, so that’s 20 to 25 a year personally.
VN: Is there anything else you think I should know about you or the firm?
EG: Diverse founders should check out our SoGal community and our events. Our global SoGal chapters have hosted over 220 events since inception. Go to www.iamsogal.com to check out our events, and also follow us on Facebook as we list many of our events there. Additionally, if you speak Chinese, we have a ton of very active WeChat groups that we’d love for you to be a part of!
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