Founded in 2016, Afore Capital makes pre-seed investments of between $500k and $1 millionRead more...
Laughlin founded gtrot, a social travel recommendation engine that was sold to Groupon
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.
Brittany Laughlin is a Partner at Lattice Ventures.
Laughlin served as General Manager at Union Square Ventures, an early stage venture capital firm with $1B+ under management. Some portfolio companies include Etsy, Twitter, SoundCloud, Tumblr, Lending Club, and Kickstarter. Her entrepreneurial endeavors include founding VetsinTech NYC, transitioning military veterans into technology jobs, and founded gtrot, a social travel recommendation engine sold to Groupon.
She has a BA in Marketing and International Business from NYU Stern. Laughlin writes about building great companies, venture investing, tech, and travel.
VatorNews: What is your investment philosophy or methodology?
Brittany Laughlin: I was an an entrepreneur, and I built two businesses before I started in venture capital. One of the companies was venture backed, and one of them wasn't. Then I was approached by Union Square Ventures to join their investment team and to work with their portfolio companies. There were about 43 when I started, and we ended up with around 65, so I saw companies go from two people to 4,000 people, and everything from exits to IPOs to shut downs. So my perspective, even before staring Lattice, which was over a year ago, was just on how companies can successfully scale and grow. I had done it firsthand myself as an operator, and then getting that perspective of: how does it happen from zero to IPO? I always think of investing as a very long term activity, and that really supporting the entrepreneurs at the early stages is key in order to get them to the next level of funding. From there they can go on and build bigger businesses and continue to enhance the ecosystem that way.
The philosophy at Lattice is making sure that the early stage entrepreneurs get the support, the connections, the talent, and the long-term perspective that they need to be successful over a long period of time.
VN: What do you like to invest in? What are your categories of interest?
BL: If we can empower more innovation at the edges, that is a good place to be. Technology is a very democratizing tool, so if we can use the power of Internet to better connect people to job opportunities, to economic opportunities, to collaboration opportunities, that's where the real power lies, in the underlying technology.
I spend a lot of time looking at things in labor; how do you help reduce the friction that it takes from what are specialized skill sets to be able to produce value? Marketplaces; how can you enable anyone to participate in an e-commerce-like setting so they buy or sell goods, even if they don't have a longstanding track record or reputation? Growth creation and retention, which is more in the fintech space, and what tools are accessible to everyone? There's a large population in the U.S. that doesn't have any financial relationship with any institution. They're functioning mainly on a cash basis or a short term loan type basis, so I think that there's a lot of opportunity to use the low cost of technology to enable everyone to have the opportunity to access better financial tools and more capital.
VN: What would you say are the top investments you have been a part of? What stood out about those investments in particular?
BL: I have a lot of experience working on investments at Union Square Ventures, and then with Lattice Ventures over the past year. One of the long term companies I worked with, where it was pretty incredible to see their success, was Twilio. The founder of Twilio built the business all the way through the IPO. He was always very mindful of staying focused and remaining committed to what their early plan was, which was to make it incredibly easy to use SMS, or telecommunications technology, in apps and empowering developers with those tools. It's pretty remarkable to be a founding CEO and then take it to IPO.
I was part of Twitter. I got to know them when they were pre-IPO. Lending Club was another one. Working with Kickstarter created a really great perspective on how you empower more communities that maybe would not be able to function without the type of tech that existed. Kickstarter has done an incredible amount of impact impact in the arts, simply by creating a tool that allows patrons to support the projects that they care about. That has been a really inspiring team to work with and to continue to support them as they continue that vision.
Out of the current portfolio I'm working in, one in particular is Planted. They're working in the labor space, and my business partner, Vanessa Pestritto, and I have known the founders for over three years. Susan Zheng and Connie Wong started this business at NYU undergrad; they recognized that college students getting out may not have technical skills, but they have they a lot of talent that companies are looking for. The matching process is really slow, expensive and pretty outdated so they built technology, not only to match entry level, nontechnical hires at some of the top companies, but they're actually using machine learning and data to make it even more seamless. They're taking a process that can be anywhere from 45 days plus to 10 days. Candidates are pre-screened, they are matched with companies, and then the company is making that hiring decision that quick because there's so much good data and good matching happening. We're really proud of that. It's a really smart use of technology that can bring lot of value to people who are looking for a job. That's a pretty life changing event.
Our first investment was a company called Alice Financial, and they were thinking about where there's money left on the table, especially for part time workers. They realized that pretax transit benefit are usually not utilized by part time workers but it can have a significant impact on the amount of take home pay. Simply by buying your MetroCard in advance through your payroll, instead of purchasing it with aftertax dollars, you can save a significant amount of money. Not only does the employee save money but the employer also saves money on payroll tax. They looked out there, and there were tools serving this market, but none of them focused on part time and the implementation was very clunky; it required employers to pay $115 for MetroCard upfront at the beginning of the month, which, if your paycheck is not consistent because you're working an hourly job, can be a large sum of money to outlay at the beginning of the month versus being able to pay for that MetroCard over time, throughout multiple paychecks. They recognized that having more of a lend type product, alongside the pretax benefits, was actually very easy to do with technology, it was just seeing the right company implement it and get it out to the market, which is something that they've done really well. They continue to think about other pretax dollar opportunities, like child care, parking and car expenses.
VN: What do you look for in companies that you put money in? What are the most important qualities?
BL: We are thesis driven investors. In terms of the entrepreneurs, we look for people who have some attachment to the problem. It's very often easy for an entrepreneur to get excited about an idea because they think there's an opportunity but it's hard for them to stick with that idea over time unless they feel some kind of personal connection. Either they've worked in the industry, or they have prior experience where they saw this problem first hand. We look for a kind of obsession with the problem because it's going to be a long road ahead and if they don't have that passion early on for what they're solving then it's really hard to keep them motivated as times get harder as they grow.
We look for entrepreneurs that are able to build a team, because that's such a key component: no business grows without a team. If the entrepreneur doesn't have a certain skill, they can show that there are people around the table that do. We want them to be smart, hardworking, passionate, things that are required in any entrepreneur, but those are things we specifically hone in on and make sure they have.
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?
BL: We are early stage investors, and we like to be the first institutional check in the business, so we don't have hard and fast metrics. We do look for an approach to the problem. If they have a plan then a little bit of traction is helpful, whether that's getting a new customer, or building a pipeline and having different metrics in it. We think that capital is best put to work if there’s some sort of a plan, but it doesn't necessarily have to be fully executed on in order for us to make an investment.
VN: How long does it take before you meet a startup and make an investment and how do you conduct your due diligence?
BL: My business partner and I both have pretty wide networks of operators, prior entrepreneurs and investors, so, normally, we see companies because of inbound co-investor sharing or accelerators that we've mentored for. If we're spending a lot of time in a certain category, that's usually when it's outbound. When we're tapping into companies that we think of as an area of our thesis, or if we've looked at a market and determined that there's an opportunity in a specific space, then we talk to companies operating in that space. So, it's a mix inbound and outbound. In the past year I think we've met about 1,500 early stage companies, so there's no shortage. Our goal is to be able to filter out the ones that would never be a fit, and spend time with ones that would fit into our thesis.
Once we've made that determination, of whether they fit the initial screen, then we would set up a half hour call or meeting with one partner. If that meeting goes well, usually there's a second hour long follow up meeting with both partners and then we would make a decision to go into deep diligence or not. With that deep diligence we try and be as speedy as possible. Sometimes there's a lot of moving parts, so if we're talking to different founders, customers, reference checks, any of those pieces, it can take a week. I think the fastest we’ve done is a six day turnaround from first meeting to closing and wiring money, and we've had others where the round is coming together and it takes more time, so it was actually a few months. We try to get our answer to the entrepreneurs as soon as possible on whether we're going to proceed or not.
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?
BL: That's a question we've been asking ourselves too. As seed investors, we're speaking to our companies about what they need to raise the next round.
Having come from Series A, I know that you usually get compared to market comp in some way. If you're a SaaS-based business, they're going to compare your revenue multiples to try to come up with a valuation that way. The rumored metrics for SaaS business, it used to be $100,000 MRR and now that's creeping to $200,000. I think the reason you're seeing the larger A rounds is that the businesses have a lot more traction than they did a few years ago so the bar is higher to meet those traction goals, and that's why the funding reflects that. With consumer companies, it's very much about growth and if you can show consistent growth over time, which continues to increase, that's really the value that investors are looking for. It's less about number of downloads or customers, but about growth in your specific niche.
There are still A rounds done between $2 million and $5 million. Those still exist, but you also hear about these $8 million to $15 million raises in a Series A. So, it's almost like a barbell, where you get really big ones and then you get the smaller size. I think that a little bit of what's feeding that is that now some companies raise a pre-seed round, a seed round, a seed extension, before they go raise their A. So they've actually taken on a lot more capital before they get to that next level of funding.
The hope is that companies would properly capitalize so they can find product market fit and then be able to grow. I think sometimes taking on too much money too early creates an artificial hurdle for that company where, if they don't need it, they're in a worse place than if they took less money, proved some traction, and then returned to market. They can always raise more if they had good growth versus trying to get a big lump sum at the beginning and then, only when they're out of runway, really looking hard at where their numbers are or where they're going. They can sometimes get stuck in between. Even at USV, at the Series A level, we saw some companies that were in that scenario, where they had given up a lot of equity before going onto the A, then they finally found product market fit, but then their cap table was very difficult for Series A investors to come in because the entrepreneur had very little ownership, even before they took on their A round. Scenarios like that are the warning stories for entrepreneurs of what to avoid.
VN: Tell me a bit about your background. Where did you go to school? What led you to the venture capital world?
BL: I went to NYU undergrad, but I'm originally from North Carolina. I come from a family of entrepreneurs so I always wanted to be close to entrepreneurs and people who were excited about building new ideas and businesses. Right out of undergrad, though, I went and took a corporate job at American Express Open, working with small businesses and developing new products. I got a bit of exposure to entrepreneurs then. I worked there for a few years, right during the financial downturn, so I was happy to be getting paid to learn.
I started business on the side in the travel space, and that became gtrot. That was a business at the very early stage to connect apps, recognizing all the powerful new APIs that were coming out, like the Foursquare API, and how you could leverage all of this open data to create better services in the travel space. In building that business, we were approached by a venture capitalist out of Chicago and New York to invest. I'd never been exposed to venture capital prior to that; coming from an entrepreneurial family, they had always built their businesses with revenues, so it was a new concept. With technology, though, I think it made a lot of sense to take on capital because you need some initial infrastructure that you can then grow and scale. We ended up raising $2 million total. We were approached a few times for acquisition, and then we had a great offer from Groupon to roll our product into their Getaways product, so we made the decision to sell the business. It was probably good timing on our part, just because of where things eventually went with the social travel sector.
I was figuring out what I wanted to do next, and I always had a passion for supporting veterans. My grandfather, father and brother all went to the Naval Academy, all of them had served in the military, and I've been exposed to what a great group of talented people choose to serve. When they come back it can often be confusing about where to place their talents in terms of a long term career. I saw a big opportunity in the tech sector to take some of the people that were coming back out of the military because of the drawdown of the war and help connect them to technology jobs. In the military you learn a lot of Java, which is a high demand skill set, but you're not usually exposed to much opensource technology so it seemed like a pretty short bridge to cross to learning and understanding a few open source languages to put on your resume. The company was called Incline and we were in one class of veterans, where we helped General Assembly create their first intensive Web development course in New York. This was a test bed to prove there’s really great talent; they may not have a CS degree, but they come with a lot of experience out of the military, and they're a great hire for any company looking for mature leaders who want to work in tech.
While I was doing all of that, I worked with a lot of the heads of HR in New York. A number of them turned out to be portfolio companies at Union Square Ventures and I was approached by the firm to join ther team and work on supporting entrepreneurs and their community, continuing to pursue these ideas of what does a diverse talent set look like. It seemed like a good opportunity to work across 45 companies that were growing and scaling instead of focusing on just one. I spent just over three years with Union Square Ventures. I learned the venture business from a great group of people who had a very entrepreneur friendly viewpoint that I really appreciated. That was a huge inspiration to start Lattice to be an entrepreneur friendly business, not just a competitive, "Let's take every term we can from entrepreneurs," type perspective. The mentality of, "Let's do right by the entrepreneur and we'll have long term success" was exemplified at USV and I wanted to take that to my firm.
It wasn't my initial plan to go into venture capital but I knew that I always wanted to work with multiple entrepreneurs and apply this broad, wide experience that I had of building companies, selling companies, getting to look at the operations inside these companies, and get to apply that to add value into an ecosystem. Looking at the market, which is built on the opportunity to fund meaningful businesses at the early stages, I got sick of seeing food delivery apps and the next new calendar app, when I knew this technology could be used for things that were way more powerful. That was a big incentive to say, "If these companies can get funded at the seed stage, they've never going to make it to the A, and if we're tired of seeing these businesses at the A then something has to be fixed." That was my path starting Lattice, and the initial idea on why wanted to build a new firm.
VN: What do you like best about being a VC? What makes you excited?
BL: I love talking big ideas with people, so I get to do that for a living. I think it's also this idea that a lot of my time is thinking about what happened in the past, and how that will look in the future. It's kind of like making predictions about the future and then trying find them in the present. So, we think labor is going to look like this in 10 years, how do we make sure those ideas are getting seeded today in order for that to happen?
VN: What is the size of your current fund?
BL: Just over $2 million.
VN: What is the investment range?
BL: Our typical check is between $50,000 and $100,000 and then we have reserves for follow on in order to take pro rata and potentially syndicate among our LPs for additional allocation.
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?
BL: We don't have a hard number. Getting good companies is priority number one, but we do typically cap at a $12 million valuation or lower.
VN: Where is the firm currently in the investing cycle of its current fund?
BL: We're just about halfway done.
VN: What percentage of your fund is set aside for follow-on capital?
BL: We set aside 25 percent.
VN: In a typical year how many startups do you invest in?
BL: We’ll do 10 a year, so we'll do 20 out of this fund over two years.
VN: Is there anything else you think I should know about you or the firm?
BL: The only thing that I didn't mention is that I've been spending a lot of time in the cryptocurrency and decentralized organization spaces. We invested in Coinbase at Union Square Ventures; they were one of the first VC backed coin wallets, which I think has had a big impact on the space and its development.
Lattice, as a firm, are also pretty active in that space. I have personal investments in the cryptocurrency space, but, as a fund, we're excited about infrastructure that supports decentralized systems. We think that that's the key to empowering the edges. We haven't made any investments yet in the space, but we're looking at ways to continue to support that ecosystem and invest in companies providing the infrastructure to lay the groundwork for more applications.
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