Welcome to Inside the Mind of a NYC VC, a new series at AlleyWatch in which we speak with New York City-based Venture Capitalists. Up first in the hot seat is Sumeet Shah, Principal at Brand Foundry Ventures (BFV). Sumeet sat down with AlleyWatch to talk about how he started in venture, BFV’s plans for growth, and why Y Combinator’s got nothing on Techstars.
If you are a NYC-based VC interested in participating in this series, please send us an email. We’d love to chat. If you are interested in sponsoring this series that showcases the leading minds in venture in NYC, we’d also love to chat. Send us a note.
Inside the Mind of a New York VC: Sumeet Shah of Brand Foundry Ventures
Bart Clareman, AlleyWatch: Tell us about your path to Brand Foundry Ventures and into venture more broadly?
Sumeet Shah, Brand Foundry Ventures: Like most young VCs I got into the venture capital industry by accident. When I graduated from Columbia in 2008 I was a biomedical engineer focused on biomechanics, and I ended up in the industry that all BMEs go into – which of course is private equity – at a private equity consulting firm called Gotham Consulting Partners.
I got the opportunity to build outside the box thinking and analytical mindsets, but what was particularly exciting was tapping into other sectors beyond Healthcare, Pharma and Biotech, which is what I had specialized in during my time as a biomedical engineer. I did a lot of work in the consumer world, working with everyone from major cosmetics companies to manufacturers of junk items to nutraceuticals businesses to juice-co packers to the guys who make the cookie cakes.
Through a mutual friend I was introduced to [Brand Foundry Founder & General Partner] Andrew Mitchell.
Andrew is an operator by background. He built three businesses in the health and beauty space, and he was running an angel shop called Zig Capital through which he invested in 30 companies, including day one investments in companies like Warby Parker, Birchbox, Harry’s and Peloton.
I met him in 2011 and we stayed in touch. Fast forward to 2013. I’d been working at Gotham for 5 years working, and I was looking for something new. Some friends were starting a mobile and app development shop called Gist Digital and needed help with business development, so I said alright and took the free fall jump.
About 4 months into it, around the end of 2013, I found I kept meeting a lot of great startups, but a lot of them were asking if I knew anyone who could help them with capital, and the only guy I knew, Andrew, I hadn’t spoken to in two years.
As it happened, Andrew reached out to me to catch up so we ended up reconnecting, and I offered to start sending him companies out of goodwill.
Around February of 2014, he offered me a full time opportunity to work with him. I was like, I just got a one-way ticket into venture capital, of course I’m going to take it!
I took it, but I learned in short order he wasn’t hiring me for Zig Capital, but rather for a brand new VC firm he and I were going to start together with me as Senior Associate and him as General Partner.
Tell us about the transition. Why did Zig Capital become Brand Foundry Ventures?
The biggest reason why Zig Capital, an angel shop, became Brand Foundry, a fully established venture capital firm, was that Andrew found he would keep getting boxed out as an angel investor, in terms of pro rata investments, even though he was such a value-add investor.
So he started raising Fund 1 in 2013 and launched it officially to the public in March 2014. Fund 1 has 17 companies in that portfolio right now, 16 publicly known and one that will be announced soon.
We have two more companies that will be funded out of our second fund, which we are currently raising, which is a $50M target. We’re targeting the next close of Fund 2 by the end of Q1 2017.
What will Brand Foundry be able to do with Fund 2 that it couldn’t do previously?
The big thing is with that fund we can write $500K-1M equity checks to lead on seed rounds.
The first fund was doing $100-250k checks where it was co-leading, if anything, on seed checks with the ultimate goal of co-leading at that level, but more importantly being there pro-rata on the Series A and potentially the Series B.
From the investor’s perspective, what is the difference between leading versus not leading? What does that signify for you?
To put it succinctly, it means putting your money where your mouth is. Our ultimate goal is to be at the forefront of seed stage-focused consumer product investments, and really being the leader when it comes to consumer products.
One point of differentiation for us is we want to be solely product focused. When you look at any of our colleagues in the space, there still is a focus for looking for tech. And that’s more than fine, but the biggest thing for us is, we come from the operational background. Andrew’s experience in beauty and what he’s done at Zig with a lot of these great consumer startups behind the scenes, combined with what I was doing on the later stage side, working with these major companies on everything from building out their packaging strategies to helping with their distribution strategies and shipment optimization – that combination of early and later stage product-focused work is very unique.
For the aspiring entrepreneur who is scanning the landscape of NYC-based VC firms, what should they know about Brand Foundry? What makes BFV unique?
The most important thing to know about us is our reputation. They should know that we’re among the leaders when it comes to investing in consumer products. Again, it’s the operational perspective behind it, but also how we’re covering each level of the investment lifecycle.
And our capabilities are expanding. Going forward, we’ll have the second fund allowing us to lead on seed checks, and we’re also fundraising for what we’re calling a “sandbox fund,” which will have two buckets of companies: the pre-seed style company, where it might be that they’re not ready for venture, but they’re doing very well in terms of traction all the way to a $15k monthly run rate and we can support them to the tune of $100-200k checks in the form of convertible notes.
The second bucket of founder is that we’ll also find some great companies that are looking for a more strategic investor, where we can open our playbook of resources through the Brand Foundry Collective, our massive resource library ranging from brand shops and agencies to customer acquisition experts and supply chain strategists that work with our current portfolio companies and fast-rising startups, or provide financing towards something specific – be it expansion opportunities or product portfolio growth or hiring a particular person or marketing budget work, just knowing that our capital, that $100-200k, can actually be a value add.
You handle deal sourcing at Brand Foundry, tell us about your process for finding and vetting entrepreneurs.
When I first started out at Brand Foundry, I was running around like a headless chicken. It was very heavy in terms of outbound. I was running around to events, and I was able to meet great founders that way and develop a network of people that would think of us when they found a certain type of company.
Nowadays it’s more toward inbound, 65% inbound, 35% outbound or thereabouts. I have a great network of people that suggest opportunities for us to look at, and increasingly we get referrals from VC colleagues and other intermediaries like accelerators, incubators, law firms, etc.
Right now we’re focusing on North America, but we’re also trying to direct some focus towards international opportunities, so I’m looking at and getting contacts in London, Berlin, Tel Aviv, Singapore, Taiwan, Japan, China – places that are very interesting and present compelling arguments for us, it’s just more about making sure we appreciate the regulatory environments in each.
The benefits behind having more of a perspective and more of an influence internationally is not just the fact we’ll find some great investment opportunities that other US investors won’t see, it’s also for our reputation around the world, both for our companies and for driving investment in our funds.
What is the number one thing an aspiring entrepreneur can do to make their business interesting to BFV?
First off, it has to be product focused. But what’s really interesting to us is seeing the key X factors that separate you from the pack. That could be something about your team itself in terms of knowledge and experience, cohesion in terms of roles, etc.
In terms of the uniqueness of the product itself, it’s what do you have for product protection, for brand protection and how you’re thinking through strategy. And also, what does the pipeline look like, which investors do you have, who’s on your advisory board.
We take a lot of pride in focusing on the doubles and triples of markets where we can invest in companies that can turn into $50-200M revenue businesses within a few years.
Here’s a question via Jono Schaffler, Head of Strategy at Rockets of Awesome, one of your portfolio companies: There’s been a lot of attention focused on the rise of disruptor DTC businesses taking on the Unilevers and P&Gs of the world – like Dollar Shave Club or, in your portfolio, LOLA.
Which categories are most susceptible to that sort of disruption in your opinion?
So if I were to take it in general, it’s products that tap into antiquated industries, whether it was Warby Parker going into the glasses market and taking on Luxottica or Dollar Shave Club and Harry’s going up against behemoths like Schick and Gillette.
Where we always see the opportunity is, in a world of impersonal behemoths, how can you build a strong brand that consistently humanly connects with its customers, both current and potential, on all the various levels?
When you look at the human touch effect and the deeper customer experience you’re seeing with the most effective consumer brand startups, companies like Allbirds or Cotopaxi – customers just feel comfortable with them. The brand does care about what they’ve bought and how they enjoyed it – and if they didn’t enjoy it, what’s the problem and how can they fix it, how can they be there?
You assisted in the creation of XRC Labs – how has the accelerator ecosystem in NYC evolved? How far away are we from having a Y Combinator equivalent in New York?
When it comes to that kind of equivalent, we have Techstars. Y Combinator is a fantastic accelerator that has built a great reputation, but I’m actually more excited to see where Techstars can go on a global level because of the fact that they’ve built an ecosystem where corporates are always excited to learn more about their companies and either work with them or utilize their technology.
The other big thing that’s happening in terms of accelerators and incubators is that there’s a brand new alliance called the NYC Innovation Collective, which aims to be a one-stop space for everything in the accelerator/incubator ecosystem when it comes to New York, and then they’ll build it out from there in other cities.
How long did it take New York to build itself into a credible startup ecosystem, and what is the lesson for other cities around the country that may aspire to cultivate a startup culture?
I think it was within four to five years that New York had gotten to a level where people recognized it as a viable contender in the startup and entrepreneurial ecosystem.
Looking at other cities, cities like Chicago or Boulder even or Atlanta or Detroit, which have strong reputations as tech hubs, it can be done within two to three years. But that’s also reliant on getting a couple of anchors in terms of corporates or major intermediaries that want to be involved, whether it’s a group like 1776 in DC, Foundry Group or TechStars in Boulder, the bigger thing is finding the right anchors, people that know they can help and want to make this hub a better place.
When you think of New York, who were the anchors here?
Union Square Ventures was a huge one with Fred Wilson. Same thing with First Round Capital. Today, WeWork is another one. On the accelerator side you have groups like ERA or DreamIt that were built from the ground up, and of course then Techstars came to town.
Question here from your colleague Andrew Mitchell: is the largest investor the most helpful investor?
The largest investor isn’t always the most helpful. We started the first fund with the purpose of being the most helpful investor. We knew at that point that we wouldn’t be the biggest fighter in the room, but we knew we had the best ammunition, we had the best network and best resources at that table.
And that is something that we’ve recognized across so many of our Fund 1 investments. We were the ones responsible for bringing in the lead investor for Cotopaxi’s Series A and we were the smallest institutional investor in that company.
In the second fund you can start to write $500k-1mm checks. In the third, fourth or fifth fund, will the check sizes grow still larger?
Our ultimate goal is to not crack $75M in average fund size, because the biggest thing for us is if we’re going to continue on a thesis of 15-20 companies, $500K-1M checks, to pro rata Series A and Series B across Seed, we don’t want to build funds that are larger than that general size.
It’s interesting to watch our colleagues raise $100M, $130M funds with seed stage focuses, and we get worried about if that becomes a common trend. Of course, to each their own, in terms of what makes sense.
In the last 5 pitches you’ve seen, is there any one thing you consistently see founders get wrong?
The biggest thing, with pitches in general, is to soak up as much guidance as you can.
There are two kinds of founders we’re always seeing: the confident founder and the arrogant founder. Confident founders believe in what they’re doing but they actually take direction. And look, we know that 90% of the advice out there won’t actually be helpful to the business, but it’s important to recognize it and be aware of it. And so I think what’s important is we consistently keep finding founders that consider information helpful.
I understand you have political ambitions – what inspired that, and what do you think someone with a VC/entrepreneurial background can accomplish?
I’ve been thinking about politics for a decade now. I’ve been wanting to get involved in everything from the local level all the way to presidency. It’s been super exciting for me.
Especially this election made me realize the party politics perspective is basically being thrown out the window, and it’s really about who can recognize their constituents, who can fight for their constituents.
I care very, very deeply, about where this country is going because it’s given my parents and me so many freedoms and it’s given so many wonderful things to its citizens, to people who seek asylum across the rest of the world. It’s something that is unparalleled across the rest of the world.
When I look at my experience across the startup ecosystem, being scrappy, being resourceful, and being able to be there for people – it’s something I think can be valuable in the political sphere.
What’s one thing that we wouldn’t know about you from reading your LinkedIn? I participated in a charity boxing event in 2016 called Haymakers for Hope. The event itself raised over $800k for cancer research!
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