The fund is part of investment firm SDVenturesRead more...
Chestnut Street Ventures is a Penn alum venture fund investing in Penn alum-led companies
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.
Ball most recently served as a C-suite member of The Bancorp Bank, the innovative banking solution provider for the most recognizable names in digital banking. She also filled other executive roles at PNC Bank, Chase and Capital One, and NCO Financial Systems. In addition, Gail headed the Payments Studies Group at the Richmond Fed and served as Board Member and Risk Committee Chair at Kompanion, one of Central Asia’s largest microfinance institutions. She started out at Mellon Bank in corporate development, identifying and leading M&A transactions.
She has a BS Economics, Finance and Statistics from the Wharton School of the University of Pennsylvania (‘79). She is a member of multiple entrepreneurial, venture, and financial interest groups, including Venture Capital Group, On Startups, Innovation in Payments, and Global Financial Markets.
VatorNews: What is your investment philosophy or methodology?
Gail Ball: The investment philosophy of Chestnut Street Ventures (CSV) is predicated on access and diversification. Our key value proposition is that we offer our limited partners (accredited and qualified investors with a University of Pennsylvania affiliation) access to a venture portfolio diversified across industry, geography and stage.
Since we are vertical and stage agnostic, we can select from a wide range of companies. However, we do limit our scope in that we seek an alumni connection at our portfolio companies. We also are almost exclusively a follow-on investor, meaning we only invest in capital raises that have a highly credible lead investor with deep domain expertise. As much as we assess business fundamentals, market dynamics, traction and team, we pay equal attention to the lead investor, their track record, and their ability to steer the company strategically and operationally.
VN: What do you like to invest in? What are your categories of interest?
GB: As noted above, CSV is sector agnostic, so we can consider the very best companies across all categories. We look closely at business models that seek to disintermediate large, inefficient operators and bring the customer closer to the product/service offering in either a B2B or B2C context. We also try to keep an eye on market trends and disruptive technologies such as AR/VR, Blockchain, etc. For example, we have invested in Data Aggregation platforms, Enterprise Software, Auto Tech and more.
VN: What would you say are the top investments you have been a part of? What stood out about those investments in particular?
GB: We take great pride in all of our investments. Although we are laser focused on providing access and good returns for our LP’s, we are mindful of companies that do well and do good. One of our portfolio companies that really excites me is BEGiN. It attempts to address the critical need for early childhood development as it relates to learning to read. Reading proficiently by the end of the third grade is considered a “make it or break it” benchmark. Studies show that 83% of children who are not reading on grade level by the beginning of fourth grade risk failing to graduate from high school on time, along with a host of other developmental, societal and economic issues.
BEGiN attempts to address this gap with its reading iPhone/iPad and Android applications. They produce the highest engagement in the industry by combining its Speakaboos "Love to Read" program for children two - four years old with the Homer "Learn to Read" program (via acquisition) for children four - seven years old. The BEGiN platform is extremely effective: children that use the Love to Read platform consume 50+ stories per month, and children that use the Learn to Read Program see a 74% improvement in their reading scores after just six weeks.
CSV invested in the company’s series B-1 round alongside Mattel-Fisher Price, Wellington Capital Management and Chan Zuckerberg foundation.
VN: What do you look for in companies that you put money in? What are the most important qualities?
GB: Like other VC’s, we look at a range of attributes when making investment decisions, including market dynamics, product/market fit, team, traction and exit potential. The team is a critical component as we are firm believers that a strong team ultimately will be able to “figure it out”—whether that be navigating shifts in the marketplace and/or addressing any product/service challenges as a company executes on its plans.
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?
GB: We look for strong product/market fit. In our view, this is evidenced by market adoption in absolute terms as well as rate of growth and scalability. The specific metrics we look at vary by type of business, but generally growth in revenue and strong unit economics are good indicators of adoption and scalability.
VN: How long does it take before you meet a startup and make an investment, and how do you conduct your due diligence?
GB: Our diligence process is complemented by a robust technology platform that allows us to be thorough and expedient. We can complete the full diligence review and take a prospective investment to our Investment Committee (IC) within two to three weeks of meeting a startup.
Also of note, our model depends on co-investing, meaning we only invest when there’s a strong lead. That means that negotiations and due diligence are already done by the time we get involved. We do not lead rounds, set valuations, or take Board seats. Our IC is composed of 10 – 15 experienced business leaders (generally alums) with long careers in investment and entrepreneurial ecosystems. We make decisions very quickly.
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. How has that changed where a company needs to be to get their Series A round?
GB: As companies at every stage of maturity and scale wait longer and go bigger in their capital raising, the analysis remains the same for a funder. Is the company doing the right things at the right pace, efficiently using their resources—including the capital they have raised—to have the best solution to a customer problem? If so, what type of investors will be useful in the current round (whether it is a Series A or a Series C) to support the company in scaling and growing? For Chestnut Street Ventures, we follow behind lead investors in every round, including earlier rounds such as Series A, and we evaluate the lead and where the new money is coming from.
VN: Tell me a bit about your background. Where did you go to school? What led you to the venture capital world?
GB: I’m a proud Wharton grad, which gives me great affinity for my community and goal of helping fellow Penn alums back the ventures of fellow alums. My education was a great start to my career in the world of finance. Post graduation, I spent next 35 years in financial systems and the technology field focused on corporate liquidity. In that period, I led teams in large public companies, small startups and regulatory bodies that innovated on top of infrastructure changes, regulatory and compliance changes and explosive data growth. Often this innovation took the form of M&A, divestitures and restructuring, in addition to the tech/development and operations/execution work. All of this skill building readied me for the turn I took into venture capital in 2017.
VN: What do you like best about being a VC? What makes you excited?
GB: Recently, a long-time colleague said that if he could pick the best job for me, it would have three features: people, learning and math. That’s an apt description of a VC’s skillset. I am excited every day to be delivering access to VC—an important economic engine that’s been inaccessible to many for far too long. I also find it rewarding to use the process orientation and curiosity that have always informed my work in fields where I am not an expert. That allows me to learn something every day. Finally, I’m excited to see the people and companies we come in contact with take steps on their journey to serve others with their innovative products and services.
VN: What is the size of your current fund?
GB: Our current fund is at $4 million.
VN: What is the investment range?
GB: We generally invest $200,00 to $500,000 in our portfolio companies.
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?
GB: No. We look at the valuation of a company and the state of its progress. The percentage is just the math and doesn’t matter. It’s all about funding great companies and investing in them at a compelling price.
VN: Where is the firm currently in the investing cycle of its current fund?
GB: We are close to 70 percent invested for Chestnut Street Venture’s first fund.
VN: What percentage of your fund is set aside for follow-on capital?
GB: As an annual fund, we raise and annually and deploy capital within 18 months of raise. We keep reserves to a minimum with the view that any follow-on participation can be on part of subsequent funds.
VN: What series do you typically invest in? Are they typically Seed or Post Seed or Series A?
GB: We are stage, geography, and sector agnostic and look to provide investors with diverse portfolios.
VN: In a typical year how many startups do you invest in?
GB: Between 15 to 20.
VN: Is there anything else that you think I should know about you or the firm?
GB: Chestnut Street Ventures is a community of Penn supporters who are not only interested in venture investing but in raising the overall capacity and outcomes of the University’s entrepreneurial ecosystem.
CSV’s community of alums declaring their interest in entrepreneurship and venture has grown to more than 9,000 in seven months, and we estimate it will continue to grow at the rate of about 1,000 per month. CSV invests in the health and well being of this growing community by providing tools and infrastructure for the members to engage with one another directly and by conducting meetups to foster interaction among community members. This year we have been in San Francisco, Boston, Pittsburgh and New York City.
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