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Yale VC talks diversified investments in Yale alum-led startups
As entrepreneurship has become a global meme, with the title of "Founder" worn like a badge of accomplishment, there's no shortage of emerging investors on hand to fund these wide-eyed optimists.
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.
David Shapiro is Founder and Managing Partner at Blue Ivy Ventures, a private fund focused on Yale entrepreneurs. The Greater Boston Area company launched at the beginning of 2017 for the Yale community to fund fellow alumni in seed, growth and later-stage startups, and is sister to alumni funds at other schools through Alumni Ventures Group (AVG).
A Yale graduate himself, Shapiro has more than 20 years of experience in tech investing. After Yale, Shapiro got his MBA from Tuck at Dartmouth, then worked in private equity management, corporate development and entrepreneurship. Prior to founding Blue Ivy Ventures, he held leading and advisory roles at 3i, Great Point Capital and DataXu.
VatorNews: What is your investment philosophy?
David Shapiro: The investment philosophy of Blue Ivy Ventures is predicated on access and diversification. Our key value proposition is that we offer our limited partners 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 have a co-invest model, 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.
Additionally, founders and management teams are essential in successful investments. The team is so critical in driving the direction of the company. As much as any VC or board member can give advice, in the end, it is up to the management team to execute. They are living the company every day, know it better than anyone else, and have the ability to evaluate what’s going on and make the needed changes.
VN: What do you like to invest in? What are your categories of interest?
DS: Blue Ivy Ventures is purposefully diverse across sectors. We co-invest with strong lead investors, which allows us to access the very best companies in a variety of sectors and business models. We like to invest in major secular trends where technology can be a catalyst for lasting change or improvement. More specifically, we’re interested in areas where we think technology can bring about meaningful disruption and continued value creation. These include areas like Artificial Intelligence and Machine Learning, robotics, utilizing better/longitudinal data to effectuate better healthcare outcomes, blockchain technologies that will play out in many verticals (not just financial services), sustainability/renewable energy, and quantum computing.
VN: What would you say are the top investments that you have been a part of? What stood out about those investments?
DS: We are naturally very excited by all our investments thus far and are seeing fantastic companies and technologies. To name just a few in our current Blue Ivy portfolio, we have investments that range from the leading diversity recruiting software platform (Jopwell), to a consumer product that is revolutionizing the way children learn how to interact with and code computers today (Kano), to breakthrough chemistry and biosynthetics (Manus Bio), to a disruptive platform for cloud storage (Wasabi), to high-precision microlocation technology that allows humans and robots to work together safely and collaboratively (Humatics). What stands out is not just the breadth of game-changing technology and opportunity ahead of these companies, but also the amazing, visionary entrepreneurs leading the charge, all making an impact on society.
VN: What do you look for in companies that you put money in? What are the most important qualities?
DS: Blue Ivy looks to invest in companies that have three qualities: big ideas, strong teams, and those that can offer a good investment thesis playing out in major markets. The later a company’s stage, the more important the markets (and associated market dynamics) become in our analysis. We also like to invest in major secular trends where technology can be a catalyst for lasting change or improvement.
VN: What kind of traction do you look for in your startups? Are you looking for a number of customers or order volume?
DS: Specific numbers depend on the industry, stage of development, and other factors. More generally speaking, we want to see progress with actual customers in terms of both the numbers and depth of that relationship with early customers. Sticky relationships, where customers are really pleased with an offering, are critical. One of the biggest indicators of a venture’s success is its rate of improvement and acceleration, not just overall growth.
VN: How long does it take before you meet a startup and make an investment, and how do you conduct your due diligence?
DS: Our model depends on co-investing, meaning we only invest when there’s a strong lead. So, negotiations, terms, and a round are already coming together by the time we get involved. This helps streamline our process. We do conduct our own due diligence, and we benefit from our large alumni network to help in our assessments.
As for our own evaluation, it’s a fairly transparent and streamlined process, so the transaction takes place quickly—weeks instead of months. We make decisions very fast.
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?
DS: First, definitions of seed vs. a Series A are vague and somewhat fluid, often depending on the industry you’re addressing. Our definition of a seed is the stage when companies are still figuring out their business. The problem has been identified and a solution is being formulated, refined, and launched. This might take several seed rounds and time.
When the company’s solution has been tested, is getting some traction, and the company is starting to scale, more ventures are considering a Series A. While not every problem or question is resolved, the business has figured out a lot and is ready for growth. This is usually where professional institutional investors get involved.
VN: Tell me a bit about your background. What led you to the venture capital world? What do you like best about being a VC?
DS: I earned a BA in History from Yale in 1991, and an MBA from the Tuck School of Business at Dartmouth in 2000. Upon earning my degrees, I launched into a career of both investing and operating.
One of my first jobs was in the Private Equity group at GE Asset Management, where I specialized in late stage venture and growth capital opportunities. Following that position, I did something entrepreneurial and co-founded a company called Exygy, focused on GPS and wireless technology.
From there I joined the global venture and private equity firm 3i, where I was part of the team that managed all venture capital and growth equity investment activity on a ~$500 million U.S. portfolio for most of the prior decade.
In 2011 I went back into an operating role with DataXu, a marketer-aligned data and analytics company, where I served as the Senior VP Corporate Development and Business Development. In that role I headed up a team that managed all corporate and business development activity globally, including M&A strategy and activity, capital raising, investment banking and investor relations, and company strategic initiatives.
The move to Blue Ivy Ventures (in 2016) was a natural next step for me, as it merged my years of expertise across early and late stage venture capital, growth investing, and operating/entrepreneurial roles with my ties to my alma mater. With Blue Ivy, we can bring the school's entrepreneurial DNA to a global, engaged community of Yale alumni—it’s really exciting.
To really bring to life why I love being a VC, let me share a brief story. Just a few weeks ago, I was meeting with a California company that is focused on a nascent but burgeoning scientific field. They're in the vanguard of a major and multi-decade technological shift, and the company has now compiled some of the most exciting and formidable technology I have seen in all my 20+ years of investing.
As I walked out, I couldn't stop talking about the tech and thinking about the possibilities. I realized I was like a kid in a candy store—in wonder and a bit of awe at how cool and impactful everything I just saw was. That's when I also realized why I love venture investing. I get to meet, learn about, see, and—if I'm extra fortunate—help cultivate and invest in amazing new technologies and visionary entrepreneurs. It is truly inspiring.
VN: What is the size of your current fund?
DS: Our annual funds are $7-10 million.
VN: What is the typical investment range?
DS: Our check size can range from $50K to $3M, but we typically put $250K-750K as an initial investment in a company. Because Blue Ivy Ventures sometimes shares deals with our sister funds under the umbrella management of Alumni Ventures Group (AVG), we are able to cut larger checks. When we co-invest with AVG sister funds, our investment range can be quite a bit more.
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?
DS: No. We look at the valuation of a company and the state of its progress. It’s all about funding great companies and investing in them at a compelling price.
VN: Where is the firm in the investing cycle of its current fund?
DS: Blue Ivy Fund 1 is fully invested. We are raising capital for Blue Ivy Fund 2 and will be closed very soon.
VN: What percentage of your fund is set aside for follow-on capital?
DS: We typically set aside about 15% of the fund for follow-on investments. We have a “reserves light” model because we are not the lead investor in our deals. Also, we have the added benefit that follow-on participation can be part of subsequent funds.
VN: What series do you typically invest in?
DS: We invest in all rounds, from seed through very late stage. We are purposefully diverse across stage, geography, and sector. Our focus is on strong teams, traction, and a fair price. That helps ensure that we deliver a great portfolio to our investors.
VN: In a typical year, how many ventures do you invest in?
DS: We invest in about 15 to 25 deals per year.
VN: Is there anything else that you think I should know about you or the firm?
DS: Blue Ivy was created to enable Yale alums to invest together in a diversified venture capital portfolio. At our core, we are Yale alumni venture fund investing Yale alum-led companies. There are some very unique characteristics and benefits to our model:
- Alumni have an easy way to acquire ownership of a diversified venture portfolio—most individuals don't have access to these kinds of investment opportunities.
- It allows investors to “pay it forward.” Investors become part of something larger, helping support Yale’s entrepreneurial ecosystem and the next generation of Yale entrepreneurs.
- The power of our model is the huge community we’re building to source deals, refer investors and entrepreneurs, and socialize the fund.
It’s also important to note that Blue Ivy Ventures is not affiliated with or officially sanctioned by Yale. We are private and for profit, but very friendly with the university. We try to benefit the Yale entrepreneurial ecosystem overall and support alums and professors involved with or teaching about entrepreneurship and innovation.
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