Welcome back to Inside the Mind of an NYC VC, a highly acclaimed series at AlleyWatch in which we speak with New York City-based Venture Capitalists. In the hot seat this time is Spencer Krug of RiverPark Ventures, an early-stage NYC venture firm led by Andy Appelbaum, Cofounder of Seamless. Launched in 2014, RiverPark Ventures is the stand-alone venture investing arm of RiverPark Capital, an investment firm with over $3B in assets under management. RiverPark Ventures has made investments in over 50 companies including Via, Ordermark, SquareFoot, Viyet (exit), Petal, Ollie, Narvar, KeyMe, and FlyCleaners.
Spencer joined us to discuss his start in venture, RiverPark’s investment thesis, investment themes in the market, poignant insights for founders to successfully navigate the funding process, and much, much more…
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
Reza Chowdhury, AlleyWatch: Please tell us a little bit about your background and how you started in venture.
Spencer Krug, RiverPark Ventures: I consider myself a natural-born entrepreneur. When I was younger, I was really into sneakers. I always wanted the newest pair of Jordans or Lebrons. But I had no money. So on my 11th birthday, my parents bought me the original Lebron Nike Air Zoom Generation. Once the next new shoes hit the market, I started to sell my old shoes to afford the new ones. I was extremely active on eBay and other trading communities. Over time, I expanded into sporting goods, baseball cards and sports jerseys. All of my profits through high school actually provided me with my spending money in college.
Early in my freshman year at Indiana University, I joined a startup called CampusProtein, a marketplace for sports nutrition supplements that offered same day delivery on college campuses. It was an amazing opportunity for me to combine my passion for fitness and entrepreneurship so early on. I was also one of the first team members at the startup, so it provided me with unique insight into the excitement and challenges of starting a business from scratch, which even helps me in my current role. I worked at CampusProtein for five years while in school, and my close friends still run the business today. I’m proud to say that I contributed to the beginnings of a flourishing business with a presence on over two hundred campuses across the country.
After business school, I joined LEK Consulting where I worked with private equity firms on strategy due diligence engagements. I loved the idea of engaging with leading firms making investment decisions and immersing myself in different industries. While I enjoyed my work helping firms, the investment side always seemed more exciting to me.
As I started to seek out opportunities for investment roles, a mentor of mine introduced me to Andy Appelbaum, Managing Partner of RiverPark Ventures. I was excited to learn about the business, his experience and see if he had any advice for a young entrepreneur. I didn’t know if he was looking to hire someone at the time, but I treated the meeting like a job interview. I did my due diligence on the firm, researched the RiverPark Ventures portfolio and developed a well thought out investment thesis of my own. The meeting couldn’t have gone any better. It was one of those moments where we both knew I was meant to be part of RiverPark Ventures.
Please tell us more about RiverPark Ventures.
RiverPark Ventures is an early stage venture capital fund which primarily focuses on Seed and Series A investments. We are the “VC arm” of RiverPark Capital, a $3+ billion assets under management multi-strategy investment firm.
We have a deep expertise in marketplaces and platforms, but we invest across a variety of different industries. Across our funds, we have invested in some incredibly successful companies including Via, Spindrift, Invision, Narvar, Katerra, Slice, KeyMe, Clear, and Cargo.
What does being a part of RiverPark Capital mean for founders in terms of resources and strategically?
We have a pretty unique arrangement which I believe gives us and our portfolio companies a significant competitive advantage. Our offices are housed within RiverPark Capital and the partners at RiverPark were some of the first investors in our venture fund.
Having the RiverPark Capital portfolio managers and analysts at our disposal has been a huge asset for diligence, platform support for portfolio companies, fund operations, and facilitating strategic conversations for sales, partnerships, and eventually M&A. Many of our portfolio managers have been covering industries for decades and have C-level relationships at leading public companies.
If we are looking at an early stage business in a certain industry, it is likely that one of our portfolio managers or analysts covered the incumbents in the space. They provide priceless insight and often sit in on early pitch meetings with us. We are also able to get relevant experts on the phone quickly through their longstanding relationships.
Who are RiverPark Ventures Limited Partners (LPs)?
Our LP base consists of institutional investors, family offices, current and former CEOs and executives, celebrities, and financial industry leaders. We are strategic about the type of capital we take on. Our LPs have been a significant source of deal flow for us and have given us access to some of our best investments. They have also been valuable advisors to our portfolio companies.
What’s it like to work with Andy Appelbaum?
Andy has been an incredible mentor and I am forever grateful to him for providing me with this incredible opportunity. Before going into venture capital, Andy was a serial entrepreneur with five successful exits. The two most well-known companies he cofounded are Seamless (online ordering/delivery platform) and Domino Media Group (print and e-commerce home décor business). Since then, he has built an unbelievably successful angel portfolio. Andy has a world-class track record, and getting the chance to work with and learn from him feels like a once in a lifetime opportunity.
Andy is a conviction-driven investor who has a unique ability to pick visionary founders. In meetings, he quickly deconstructs business models and is able to ask the most critical questions. I have sat in over 1,000 meetings with Andy and I consistently learn something new from him. Andy is an expert storyteller and can captivate an audience. He can relate to anyone and is universally loved by founders and co-investors. Andy also knows everyone! He has an incredibly large network and he is eager to open up his Rolodex for others.
Most importantly, Andy is a genuinely great person with the best sense of humor. I am excited to go to work every morning to work with him.
Is there a specific investment thesis that RiverPark deploys? Where is the firm’s sweet spot?
While we are a generalist fund, we look for innovative products and services in large markets that address significant pain points. We like disruptive business models that eliminate intermediaries and shorten value chains. We favor marketplace opportunities. Specifically, we look for businesses that utilize existing infrastructure, excess capacity and create a transactional annuity. We gravitate towards companies that can create powerful network effects. We prefer businesses that leverage a technology advantage and create a natural barrier to entry. We encourage a disciplined commitment to milestones and we appreciate capital efficient companies.
While we are a generalist fund, we look for innovative products and services in large markets that address significant pain points. We like disruptive business models that eliminate intermediaries and shorten value chains. We favor marketplace opportunities. Specifically, we look for businesses that utilize existing infrastructure, excess capacity and create a transactional annuity. We gravitate towards companies that can create powerful network effects. We prefer businesses that leverage a technology advantage and create a natural barrier to entry. We encourage a disciplined commitment to milestones and we appreciate capital efficient companies.
We focus on businesses that are still in the early stage but with a proven model and that are generating preliminary revenue. Therefore most of our investments are made at the “institutional” seed stage or Series A. We believe this is the time when the risk and reward matrices converge.
What do you focus on a day-to-day basis?
My role is quite broad and dynamic. I work on sourcing new investment opportunities, researching new markets, developing investment theses, conducting due diligence on investments, and running our venture funds operations alongside our operations team and CFO. A few nights each week, I attend industry events to continue developing professionally and learning about trends in the market.
You also built and designed the firm’s website from scratch. What was that process like?
Early in my tenure at RiverPark, the only web presence we had was on CrunchBase. I convinced Andy and our team that we needed a website to help build out our brand and continue to grow into a leading early-stage investing institution in New York. The team agreed, but no one had the bandwidth to go into full-fledged web development mode. So, I stepped up.
I spent weeks looking at other venture capital websites and took notes of what I believed to be best practices. I subsequently started building out all the content that we wanted to include on our site. The website took a couple of months to build, but we are really pleased with how it came out! I still actively manage the site and add new content.
What are you excited about right now, from an investment standpoint?
There are a few industries and trends I am super excited about right now. The first is real estate technology, commonly referred to as Proptech. Real Estate is a multi-trillion dollar industry that makes up over 13% of the U.S. GDP, but is decades behind the technology curve. The industry has seen significant shifts in recent years as tech-enabled players have emerged to compete with some of the sectors’ largest incumbents. These newcomers have been able to gain significant market share from incumbent operators who have not historically made investments in technology and, in some cases, have opposed adoption altogether for fear of negative implications on their bottom line. Real Estate developers are beginning to see that technology needs to be a core pillar of their business to stay competitive in today’s marketplace.
We also have a proclivity to invest in companies using artificial intelligence (AI) and machine learning (ML) to create a competitive advantage. There are many industries including healthcare, lending, accounting, e-commerce, logistics, social media, advertising, and sales to name a few where we are starting to see this kind of technology become more mainstream, and soon to be table stakes. AI/ML tech has become an important part of our everyday lives. For example, more than 80% of the tv shows people watch on Netflix are discovered through the platform’s recommendation system. Netflix uses machine learning algorithms to find shows and movies that are likely to interest its base of customers. We believe AI/ML technology will be at the forefront of most industries.
The food and food technology industry is going through a radical transformation. People are eating new ingredients like matcha, collagen, bone broth and diet trends like vegan and paleo are taking off. There is sure to be a few brands built around functional ingredients and diet behavior. We have invested in some of them. In food tech, we are excited about the future of online ordering and the delivery category more broadly, as well as robotics and restaurant operations software.
How does your background as a CPA come into play in your role?
My CPA background has been extremely beneficial. Many of the companies we meet at the Seed and Series A stages do not have finance teams in place. As part of our pitch to founders, we offer our help with the accounting and finance function. I have created models for companies and walked them through financial analyses. On a few occasions, this has helped us gain access to oversubscribed deals.
What do you need to see from teams, both qualitatively and quantitatively, in order to invest?
We are extremely founder-focused. We look for visionary founders who have a unique vantage point in their industries. Founders that spend years operating in a space and know every nuanced pain point are frequently the ones that come up with the best solutions. In young founders, we look for a similar expertise that has been quickly developed and honed. We look for founders that are excellent communicators. Recruiting top talent to join an early stage startup and give up a safe and lucrative role can be difficult so it is important that founders are able to sell the vision. Further, being a founder who is receptive to feedback and can keep all stakeholders motivated is equally important. Most importantly, we look for founders who can simultaneously put their heads down and execute but who are also self-aware enough to know when to recalibrate. Building a great startup often requires lots of readjustments. Not many entrepreneurs are able to balance these seemingly conflicting characteristics.
When evaluating the business holistically, we look for significant differentiation. We look at this in a number of different ways, including: 1) product differentiation through features, performance, quality, and durability; 2) service differentiation, which includes customer service and support, ease of ordering, training, installation; 3) distribution channels like retail, wholesalers, and direct to consumer; 4) brand and marketing strategy; and 5) price point. We like products and services where it is easy to see the differentiation relative to existing competitors. As part of this evaluation process, we’ll ask entrepreneurs to connect us with early customers of the product/service.
Quantitatively, we like to see some evidence of product market fit. We usually get involved between $500K and $2MM in ARR, but we won’t necessarily rule anything out.
What metrics do entrepreneurs overlook or not place enough emphasis on that are important to consider when you are evaluating investment merit of a business?
Most entrepreneurs are laser-focused on how they can grow their revenue and subscriber base but frequently spend less time thinking about how customers transition from initial purchase to lifelong brand evangelists. We often focus a lot of our efforts on the lifetime value of a customer and ask companies what measures they are taking to ensure a positive customer experience. When making a purchase, customers generally have multiple touchpoints including phone calls, online chats, demos, and the interaction with the product. The key to great businesses and long-term customers is the ability to optimize that customer journey and make it a seamless experience.
While less measurable, entrepreneurs often do not discuss company culture in pitch meetings. I believe that the main reason companies with great business models and the opportunity for clear market dominance fail is because the concept of culture is an afterthought. Creating an environment that is mission-driven and setting goals early on can set a company up for long-term success. A strong company culture attracts and retains top talent by allowing people to feel valued and aligned with what the company is building. We probe our entrepreneurs on this topic when we are evaluating opportunities.
What can entrepreneurs do to ensure that the relationship between the firm and companies is fruitful post investment?
Entrepreneurs should keep a regular cadence with their investors. This will differ by company, but generally an in-depth update each month is appropriate. We are always excited to open up our network for our companies and are willing to go to great lengths to help. Entrepreneurs should not be afraid to ask for introductions that could be beneficial to the business. When entrepreneurs are experiencing challenges, we always ask them to be transparent. Like in any strong relationship, communication is the best chance for success.
Quick Hits:
Who do you admire in the startup world and why?
I am a huge fan of Danny Meyer, Founder & CEO of Union Square Hospitality Group and Shake Shack.
Meyer has transformed the restaurant industry: raising wages, eliminating tipping and establishing an environment where employees and customers alike share a goal for a great overall experience. Meyer has built some of New York city’s most iconic restaurants and along the way he raised a $200 mm+ venture capital fund. Everyone I know that has met Danny speaks incredibly highly of him. Danny, if you are reading this, let’s grab a coffee at Daily Provisions!
What’s the last book you read?
The Mailroom: Hollywood History from the Bottom Up by David Rensin. The book showcases the incredible stories of Hollywood agents, producers and actors who started in the mailroom and went on to become leading figures in the Entertainment business.
What’s your favorite restaurant in the city?
I am going to go with Raoul’s. It was one of the first restaurants Andy took me to when I started at RiverPark. Raoul’s has an incredible steak au poivre with fries and the scallops are to die for. It also has a unique ambiance and an old-school feel that you do not really get in traditional NYC restaurants. Definitely a hidden gem. My second favorite would have to be Danny Meyer’s world-renowned (and first restaurant) Union Square Café.
What is your favorite podcast?
I love How I Built This by Guy Raz. Guy interviews some of the most well-known entrepreneurs in the world and takes you on a journey from their childhood to how they’ve built massive businesses. Some of my favorite episodes include: Joe Gebbia (Founder of Airbnb), Herb Kelleher (founder of Southwest Airlines), Jenn Hyman (founder of Rent the Runway) and Tariq Farid (founder of Edible Arrangements).
What’s your ideal fall day in NYC?
First, I would like to wake up early to go for a run along the West Side Highway. I would get a nice brunch with my girlfriend at La Bonbonniere, our favorite hole-in-the-wall gem of a café in the West Village. Then, I would get together with a bunch of friends to watch some football. And of course root for my New York Giants!
