Meet Cathryn Chen, General Partner at Radiate Ventures
MarketX recently launched Radiate Ventures to invest in fintech, deep tech, and vertical SaaSRead more...
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.
Parul Singh is a partner at Initialized Capital.
Singh is a product-driven founder and investor with a background in engineering, product strategy, and analytics. She spent the past five years on the investing team at Founder Collective, a tech-focused, early-stage seed fund where she covered Boston and NYC, evaluated over 3,000 companies, and spearheaded the firm’s investments in Embark Veterinary, Broadlume, Running Tide, HumanFirst, Flume Health, and HealthNote. Prior to investing, she spent close to a decade as an engineer and product manager at the NYTimes.com, Inc. and Fast Company, and she was the founder of a learning analytics company. At Initialized, Singh focuses her investing efforts on software companies, with a special interest in the areas of healthtech, SaaS, and analytics.
Parul has an undergraduate degree from Harvard College and an MBA from MIT.
(Singh will be joining Vator and UCSF Health Hub for an event in November called "Primary Care and the New Medical QB," in which we will be talking to various stakeholders in the healthcare system, including providers, patients, and startups, about the evolving role the of primary physician and what the future of healthcare will look like. Get your tickets here!)
VatorNews: What is your investment philosophy or methodology?
Parul Singh: At Initialized, we believe that software is going to touch and disrupt every space and sector. We are an early stage fund, so we're doing a range of pre-seed and seed investing. We were started by founders for founders, and we're a generalist firm that’s focusing on being the best early stage, pre-product market fit venture capital fund. So, we're right now investing out of a $230 million fund that we raised in 2020.
VN: You said you're a generalist fund, but obviously there are going to be some categories that you find exciting right now or that you think have a great opportunity. So, what would those be, both from the perspective of the firm but also you in particular?
PS: Software is the theme that runs through pretty much everything that we do. And then, for us as a fund, I mean, we were early investors in Coinbase, Instacart, Flexport, Cruise, Ro. So, when I say generalists, we've done a really broad range of investments across everything from e-commerce enablement to digital health to supply chain and logistics. It’s been really amazing to see how many different areas software touches. That's us as a firm.
For me, personally, I focus on SaaS, healthtech, and analytics, and any business with data as its core asset.
VN: Talk to me about those spaces. What's happening in those right now that makes them exciting bets?
PS: Over the past 10 years, we've seen that direct-to-consumer companies are shaking up how products get to end customers. They've opened up a whole different way of distribution and what we're really starting to see now, and what you saw with companies in our portfolio like Ro and Truepill, is that it means that consumers are able to drive decision making in healthcare in a way they never have before. Healthcare as an area is very complicated because you have this ecosystem where you have payers, healthcare providers and caregivers, and patients, but the relationships between incentives and payers and the beneficiaries are all garbled. So, payers are actually driving a lot of the decision making because they're the ones with money but it doesn't always end up being the best thing for consumers, or even the best thing for outcomes. And so, it's just really been amazing to see what's happened when we're able to give really great healthcare options and choices to consumers and see what they choose. What you're now starting to see is that insurers and payers are having to respond and pick up some of those adoptions that are being driven elsewhere in the market.
VN: We saw digital healthcare going toward the consumer before COVID, with wearables and companies like Livongo. But, especially in the last 18 months, that seems to have accelerated quite a bit, for obvious reasons. So, what have you seen since COVID hit in terms of that switch toward the consumerization of healthcare?
PS: It's definitely accelerated it. One of the things that was starting to emerge over the last five years has been that there are all of these solutions for a specific set of needs or a specific condition. So, we're investors in a company that just helps cardiac patients, or something that just looks at diabetes management, or just tracks patients that are trying to achieve weight loss. You've seen these sorts of single condition services and treatment options emerge. With COVID, where before patients had to pay for them directly and out of pocket, now you're starting to see that payers have had to, all of a sudden, approve of all these new unique startups that are offering new ways of doing it. You're starting to see innovation happen very quickly in an area where it's never happened quickly before, pretty much ever.
VN: You can look at wearables and those digital health companies as almost like preventative care, and there’s a shift in how the payers look at that. Before, they didn't really want to pay for something unless it was sick care, but now they seem to be willing to pay for things that are more preventative, where you can get ahead of potentially having that heart attack by having that digital health company that monitors your blood pressure, for example.
PS: That's another of these trends that’s absolutely fascinating right now, and very real. You have so many more sources of data on patients and you can track them on a much more granular level, whether it's your sleep or your heart rate or your glucose level in your blood. We're also really just now starting to get to this point where physicians actually have the capacity and the infrastructure to be able to use that data. We have the Apple Watch, we've had some of these wearables for a decade or more, they always only had consumer applications, but now you're starting to see healthcare companies emerging that are taking that data and they're actually feeding it into how doctors are actually treating patients. It's really like a whole new world. In our portfolio we have Bodyport and Athelas, we have a number of different companies, including a couple that you just invested in that are not yet announced, so we're seeing this in all these different treatment care areas, and it's a really, really fascinating time to be investing in healthtech.
VN: What's the big macro trend you're betting on?
PS: How data is being used to go direct-to-consumers. I know I talked about that for healthcare specifically, but you're also seeing it in all these other consumer companies and there are just really the most interesting combinations. In this next decade, we're really going to see data being used to personalize in a whole different way, whether it's taking your genetic data and prescribing medications (we just did an investment in a startup that's not yet announced that does that) or whether it's personalizing the mental health care that you get based on the type of activities you enter into a journal. These were theoretical before and now these are actual products and services that are gaining traction with users. So, we have the infrastructure to be able to do this now and it's really cool.
VN: How much do you typically invest in a company?
PS: The average size of our initial checks is $2 to $4 million.
VN: You’re doing pre-seed and seed deals, so that's pretty early on in the life of a company. Do you need to see traction at that point to make an investment? Is it too early for companies to have a certain number of users or a certain amount of revenue, or are there numbers that you want to see?
PS: We like to say that we want to invest before it's obvious, and we like to be the first check. That's what we're good at and that's our sweet spot. We were early investors in Coinbase, where we were the first to check, also in Instacart, Flexport, Cruise, and many others. So, looking for traction is not necessarily a consideration; we’ve definitely invested in a team and an idea.
VN: So, what is it about the team that you want to see? What is it about that specific founder, or that entrepreneur that makes you want to invest in them?
PS: We would be the first to say that founders and team are the first thing we look at, and we're also really obsessed with product. We look for a founder with unique insight that that founder has the ability to execute, and we look for signs that the person is exceptional, that we'd be excited to work for that founder on that idea.
VN: When you say the person is “exceptional,” can you define what that means?
PS: For me, personally, when I talk to a founder that's exceptional, there's just this spark around what they know about the area, why they have passion for building in that area, and that they've thought about all the angles. They're willing to consider different perspectives other than theirs, and they're really laser focused on a bigger vision for what they want to build. They'll also be great at communicating that vision, whether it's to customers or teammates or to investors, because it's a team sport and also we exist in an ecosystem. So, all of those things come together. It's actually pretty amazing and rare when you get all those things in one person, so that's why we feel really lucky to get to work with the founders that we work with because we really do see all of those things in them.
VN: You said that product is also really important. What do you look for in the product to make sure it's a good investment?
PS: Our team is made of designers, builders, and founders and so we're all pretty obsessed with the product. Actually, in my first job out of school I was a UX developer, two of our teammates are designers, and then two are also engineers. So, we definitely like to interact with a product, it helps us to understand if a team can build. There are probably also cases where we've seen evidence that the founder can build from something else that they've worked on. There's a lot that goes into a product that's really compelling. I mean, first, it should be addressing a need that's real and painful and needs to be worthy of solving. We also probably do tend to fall for founders who can just build unique, compelling, sticky products that people will go back to, that are thoughtful, that are well designed.
VN: Do you like to use the product first before investing?
PS: It's always a plus if we can use the product or we can try the product. Sometimes people probably have mockups or designs as well before they have a product, and we've done that in the past as well.
VN: Talk to me about the market when you invest. Does there have to be an existing market for this product, or will you invest on the bet that the market for this product will exist in the future?
PS: The really cool thing about being an early stage investor is that, a lot of times, the market does not exist yet. I can give you a handful of examples, like before Truepill, not a lot of people were receiving their medications through the mail, and before Ro, D2C telehealth was not as commonly used for different conditions. So, I guess the right answer to your question is, how do you define if there's a market for something? It's not that, necessarily, people are out there buying that thing right now but I'll spend time with potential customers for a product and try to understand their consideration framework. How important is this problem to them? What else have they tried so far? Are they willing to pay to solve this problem? How quickly would they make a decision? Also, what are they doing to solve this problem right now? And, based on those things, you can get a sense for if the market is going to be quick and something is going to jump off the shelves or, maybe, the founders need to spend a lot of time evangelizing and convincing people, educating the market, about the need. One of those cases is going to grow a lot faster than the other one, but you can still definitely validate that a market exists before consumers are out there buying that specific product.
VN: When COVID first hit, there seemed to be a lot of fear from VCs that they wouldn't be able to deploy their capital and that did not happen. Last year was actually a record year in terms of VC activity, and this year is going to be another record year. I especially think that's true in healthcare, where there are a lot of companies that saw greater interest because of COVID. So, where are valuations now compared to where they were 18 months ago? How have you seen companies, have you seen companies raising larger and larger rounds as a result? And where do you think that's going next?
PS: If you get any two VCs together right now, I guarantee that one of the topics that will come up in their conversation is how crazy valuations have been for the last six to 12 months. What we're seeing is that seed rounds valuations can be between $5 and 35 million, and that Series A rounds can be from $20 to $150 million, which is a pretty big range, and definitely not where we were a year ago. It's a very unique time in the market; we're seeing this tidal wave of big funds that are trying to invest earlier and earlier coming into the market, and it feels very sector-specific. So, it's pretty broadly across SaaS, but there are sectors that are really excitable at the moment, and founders are getting immense valuations, even on less traction than you've seen before.
It's definitely a really interesting time and investors are balancing how to advise those founders. You give up less equity in these larger rounds, and then the founders get more cash to be able to add more runway to be able to build with that, but there's also a lot of more experienced VCs, people who've been around for a decade, who are asking, “Where does this go next?” We also wonder who's going to write the next round for some of these companies. What traction do they have to achieve in order to be able to keep going? There's a really interesting question of whether valuations have just simply reset, and if multiples are higher. There's also probably some pricing sensitivity for later stage funds that are coming in and investing earlier. They're just choosing a couple of signals around which they're coming in, buying 10%, sometimes being very hands off, and it's definitely skewing the market and making it really interesting for the rest of us.
VN: What's the effect of all that on the entrepreneurs and those companies? If they're raising bigger rounds, at bigger and bigger valuations, early on, what happens when they have to raise that Series A or Series B? Does it make it more perilous for them? Obviously, when you have those big rounds with big valuations, you have to prove that you're worthy of them, and if you haven't then you wind up maybe taking it down round and that's not so great.
PS: I mean it's definitely way too early to tell, because a lot of these rounds have happened since the beginning of the year and they've been large rounds and so none of these companies has had to go out for capital again yet. We're also seeing just much more preempting of rounds, so later stage funds are approaching our companies a month or two months after their prior round and offering to preempt the next one. So, we haven't gotten to that point yet, is the answer, but I do think that what you talk about is accurate. It's going to be very binary. Like, if the company is doing well, maybe they justify another round at that price or at a higher price. If the company's not doing well, they have tougher choices. It might be inevitable that we see down rounds next year.
It's interesting because it's not even just tilting the table, it's kind of knocking the whole table over because smaller funds are not necessarily going to be able to follow some of these really large rounds. So, folks that are writing really big checks at really high valuations are definitely putting themselves in the best position to write those next checks, so they're going to own a lot of the optionality, and then we'll see what that impact that has for our founders.
VN: Sounds like it's not so great for those smaller funds, though. What do you think the impact is going to be on them?
PS: At this point I can't predict how it's going to fall out but I do know that I have a number of friends that are emerging managers and for a $40 to $75 million dollar fund, if there's an outsized Series A, you may not even be able to afford your pro rata in that next round, and so it becomes challenge existentially challenging for your fund economics. How do you maintain your ownership? There's a cascading impact. So, it's going to be really interesting to see how it plays out.
VN: There are many venture funds out there today, how do you differentiate yourself to limited partners?
PS: We don't talk about our LPs that much, but I will say that we have an amazing track record for early stage deals, so that's part of the pitch. And that our LPs like that were generalists and that we're not just focusing on one particular vertical, so it ends up being a really good match.
VN: Venture is a two-way street, where investors also have to pitch themselves. How do you differentiate your fund to entrepreneurs?
PS: We care about your passion, not your pedigree. We are tech optimists, helping founders change the world, and that we are all gritty founders, builders, and operators who’ve walked the walk. So, we offer hands-on support to our teams through product market fit and beyond. Basically, that's our pitch to founders.
VN: What are some of the investments you’ve made that you're super excited about? Why did you want to invest in those companies?
PS: I started with Initialized in June, and I have made two investments already, but they're not announced yet so I can't talk about them. Some of my portfolio companies from Founder Collective include Embark Veterinary, which was recently valued at $700 million in the last round. They are a consumer pet genetic startup, so they allow you to get a DNA test and for you to be able to understand what breed your dog is and how to prevent diseases from being passed down in dogs. So, that's one that's definitely a huge favorite.
I worked with a lot of our healthcare companies, so another one that I'll talk about that I'm proud of is a company called HumanFirst. This really goes to that trend that I was talking about with wearable devices that are collecting data: this company basically takes all the different wearable devices that are out there, and it standardizes the data that is coming out of it so that pharma companies that are doing clinical trials can use those to better monitor patients. What used to happen is that patients would go to their doctor every few weeks or every month, or even longer than that, to report their symptoms and issues, but it was largely self reported data and there were big gaps in terms of what you could see. So, imagine you had a heart attack and you were taking medication; we have the ability now to track that patient every day, every night, to be able to see the ups and downs in their health at a much more granular level. We can look at how they're impacted by different drugs. This is something that's starting with pharma companies but also, in the future, we'll see more direct-to-consumer companies, like some of the ones in the Initialized portfolio.
With Embark, the team includes two brothers, one of whom is one of the leading dog geneticists in the country and they're collecting more genetic data than any other dog genetic company on the market. He's also constantly discovering new markers, so he's able to say, “this is the gene for epilepsy,” or, “ this is the gene for blindness,” then he applies that to all the DNA they've already collected, so that information becomes more valuable over time. And then they just had all these different angles figured out. Their customers love them; they have this great community where people would go on Facebook and basically just post a picture of their dog and other people in the community would try to guess what breed it was. Then, once they got their test back, they would share the results and people would see if they've been right or wrong. So, they have this passionate community around them and they have this adorable brand, where their logo is a dog-shaped double helix. I love how geeky it is. And then they had just figured out their marketing. So, it's all these things coming together.
Then with Andy at HumanFirst, she's just brilliant. She has presented at DEFCON, she's a hacker, she was at HBS, she's consulted for the FDA. She's figured out this problem, she's had all these papers published that talk about the standardizing of devices, and she's gotten deals with 22 out of the 25 biggest pharma companies to be able to use her service. She's just very compelling and brilliant in person, so those are the things that got us excited.
VN: What are some lessons you learned?
PS: I didn’t start out as a VC; I'm a builder and a former founder and I've had about a decade of experience as an engineer and a product manager. Actually, my founding experience was founding a learning analytics company and so I definitely learned from that the best way to learn how to build is just to build and dive in and there's really no better learning curve than that.
VC, for me at the time, was very opaque, but I met my mentor at Founder Collective when I was in business school at MIT and he recruited me to the firm. I worked there part time as an associate while I was in grad school, and then I just spent the last five years as a principal there. So, I feel like I've had experience on both sides of the table now, and I hope that it makes me incredibly empathetic to the founder journey. I'm definitely very passionate about helping early stage founders. I know many of the pitfalls, because I've experienced them myself, and want to help founders build amazing businesses and navigate around those.
VN: What excites you the most about your position as VC?
PS: It's really the chance to work with our amazing, brilliant founders every day. I mean, I would do that part for free. I feel lucky that I get to do that. And, for me, being an investor is just an extension of being a builder for many years. It's my job to help my founders go faster and I really love that and find it incredibly rewarding.
VN: Is there anything else that you think I should know about you or the firm or your thoughts about the venture industry in general?
PS: I would just say that our whole team is full of builder investors, and so it was a very natural fit for me. I definitely felt like I shared a lot of values with the other investors on our team in terms of being hands on, building a relationship with our founders, and being really collaborative. And we really believe in investing in pre product market fit companies at their earliest stage, and helping them navigate those early growing pains, is where we can have the most impact. So, that's our focus and our mission.
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Joined Vator onPartner at Initialized Capital. Product-driven founder ❤️ Backing high-growth SaaS, health tech and analytics founders.