Welcome back to Inside the Mind of an NYC VC, a highly acclaimed series at AlleyWatch in which we speak with leading New York City-based Venture Capitalists. In the hot seat this time is Ishan Sinha, Investor at Point72 Ventures, the venture investment arm of Steve Cohen‘s Point72 Asset Management. Launched in 2016, Point72 Ventures is focused on initial investments in Series A and B rounds for fintech, AI and ML, and cybersecurity and enterprise companies. Sinha joined the firm from the Point72’s hedge fund arm and spends most of his time on fintech investments both domestic and global, working with portfolio companies like Acorns, Vestwell, Credijusto, and Nav.
Sinha was kind enough to join us in our offices in Soho to provide some insight into his accidental path to venture from the banking and hedge fund worlds, both the similarities and differences between public markets investment and venture, the investment process at Point72, his love for heavy metal, and much, much more…
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Reza Chowdhury, AlleyWatch: Please tell us a little bit about background and how/why you started in venture.
Ishan Sinha, Point72 Ventures: Like a lot of people that end up in venture capital, I kind of stumbled into the industry.
I had an international upbringing, having grown up in 6 countries across 3 continents. My dad is a serial entrepreneur whose work had him launching regional businesses across the world. Eventually, we settled in the US, and I ended up going to Yale.
After college, I started my career at a small, niche team in the Investment Banking Division at Goldman Sachs called the Structured Equity Group. The team was comprised of quants and former lawyers who could leverage their skill sets to solve all sorts of crazy, unconventional problems for companies. Think John Malone-style financial engineering. I got the chance to help solve problems for some of the biggest technology companies in the world.
During this time, though, I realized I wanted to take a step back and critically analyze businesses and markets more holistically. I got connected to a portfolio manager at Point72 and subsequently joined the firm’s hedge fund training program where I worked as a research analyst covering public technology and financial services companies. About a year into my time at the firm, I met the partners at the then brand new Point72 Ventures. I was immediately drawn to the opportunity – having grown up in an entrepreneurial household, I jumped at the chance to work closely with people building businesses. I was particularly excited to work with Matthew Granade, Managing Partner of Point72 Ventures – he cofounded Domino Data Lab and currently also runs Point72’s Market Intelligence Business, overseeing the fund’s data strategy. I was excited to apply some of my more quantitative learnings from my time as a hedge fund analyst to venture investing.
I joined the Ventures team full time in 2017 as the first investment associate. I’ve since worked on over 20 investments in the two and a half years that I’ve been here. My primary focus is investing in financial technology that helps small businesses and consumers. Within the U.S., I’ve been lucky enough to work with companies like Acorns, Nav, and Vestwell. Given my background, I also have a particular interest in international and emerging markets and have been able to invest in startups across Latin America, the Middle East, and Australia. Outside of fintech, I’ve worked on more opportunistic consumer-facing investments in the music streaming, fitness, and e-sports industries.
Tell us more about Point72 Ventures.
Point72 Ventures is the independent, early-stage investment arm of Steve Cohen’s hedge fund, Point72 Asset Management. We’re a global firm led by a diverse set of domain experts focused on a few different sectors – financial technology, artificial intelligence and machine learning, and enterprise technologies and cybersecurity.
When I started on the team, there were 4 investors in total– we now have over 20 people working across multiple offices in New York and the Bay Area. It’s been pretty incredible to watch it grow. I almost feel like I joined a startup myself.
How has the transition been from hedge fund investing to startup investing? What is different and what’s the same?
It’s been interesting to say the least. There are overarching similarities – at the end of the day, you’re still analyzing companies and trying to ascertain whether they’re worth investing in. And much like the folks at Point72’s hedge fund, we at the venture fund are very focused on our process. We try to be as efficient and structured as possible.
That said, there are things that make venture investing a totally different ball game from public markets investing. For one, especially in earlier-stage venture, you can’t rely as much on data and hard numbers to drive your investment decisions. For me, this took some getting used to. Being able to think more abstractly about a product or a market was a muscle I had to build.
Having high emotional intelligence is also an incredibly important part of being a venture capitalist. You need to be able to gauge a founder’s ability to deal with roadblocks and adversity off of a handful of meetings. Ultimately, we’re trying to back great entrepreneurs above everything else.
And finally, in this seat, I get to actually help build businesses. I sit on a few boards and generally remain involved with our portfolio companies after investing. Good venture investors don’t stand on the sidelines. They’re actively involved in shaping the future of the companies they invest in.
Is there a specific investment thesis that the Point72 Ventures financial technology team deploys? Where is the firm’s sweet spot?
Our approach is what I’d call “demand-driven.” As opposed to the conveyer belt model, where venture capitalists rely on inbound dealflow, we aim to be more proactive in our idea generation and company outreach. We start by spending a lot of time thinking about problems out there in the world. We’ll visit different countries and study the frictions in peoples’ everyday lives. We’ll talk to incumbent financial institutions and corporates and ask them what their biggest technology needs are – our fintech team, in fact, has a pretty big focus on selling enabling technology and infrastructure to incumbent financial services providers. Once we have a grasp on what these problems are, we’ll then go out and find the startups developing solutions that address them.
Our approach is what I’d call “demand-driven.” As opposed to the conveyer belt model, where venture capitalists rely on inbound dealflow, we aim to be more proactive in our idea generation and company outreach. We start by spending a lot of time thinking about problems out there in the world. We’ll visit different countries and study the frictions in peoples’ everyday lives. We’ll talk to incumbent financial institutions and corporates and ask them what their biggest technology needs are – our fintech team, in fact, has a pretty big focus on selling enabling technology and infrastructure to incumbent financial services providers. Once we have a grasp on what these problems are, we’ll then go out and find the startups developing solutions that address them.
In terms of sweet spot, we primarily write our initial checks into the Series A and B rounds, where we can either lead or be a major participant in the deal. From a value-add standpoint, we spend most of our time working with portfolio companies on go-to-market strategy and business development. We believe that’s particularly critical at the Series A and B stages, where a company has some degree of product/market fit and is really focused on scaling its customer base and processes.
You look work on the firm’s international investments – and you’re a third culture kid, having grown up all over the world, including in India, Germany, and Japan. Did that experience plant a seed to look abroad for investment opportunities?
I think my upbringing as a nomad of sorts helps me connect with regional entrepreneurs and investors more easily than most other US-based venture capitalists. I was born in New Delhi, but spent my childhood living all over the world due to my dad’s job. It was a pretty amazing experience as a kid. I got the opportunity to explore many different cultures at a young age, and I built an appreciation for how big and diverse the world was.
One of the first deals I worked on at Point72 Ventures was Ualá, a digital banking solution for underbanked consumers in Latin America. After that, I became fascinated with the region – a few months later we invested in a company in Brazil, and just recently closed another deal in Mexico. We’ve also made investments in the Middle East and Australia and look forward to investing in other geographies in the future. In particular, I’d like to spend more time exploring the startup ecosystems in South and Southeast Asia.
When looking at opportunities internationally versus companies in the US, is there anything different in your evaluation process?
We still take the same thematic, demand-driven approach. We do a lot of work to figure out what the key problems are in these markets, and then look for companies solving those problems. Our team approaches investing in international markets with the same amount of rigor – we always travel to whatever region we’re interested in, build relationships with local experts, and spent solid, quality time with the founders that we back. For example, I just got back from a trip to Manila, where I hopped on a last-minute flight to spend a couple of days doing on-site diligence on a startup.
When looking outside the US, we do often have to take into account macroeconomic risks – luckily, I’m able to leverage my fundamental and macroeconomic research experience to help us navigate some of those discussions. At the end of the day, you need to take a structural, long-term view on the growth prospects of these emerging market economies.
What are you excited about right now from an investment standpoint?
I was born in India, where there are 43 million small businesses that employ 40% of the country’s workforce. If you’ve ever visited New Delhi, you’ll see that local economies and communities are built around these small businesses. The same holds true for the 300+ million small businesses around the world. That said, the failure rate of small businesses is incredibly high. And the number one cause of failure is lack of access to capital.
Financial institutions haven’t historically given capital to small businesses because these tend to be informal businesses with low overall transparency on financial health. It makes sense – after all, how can you lend money to someone when you don’t even know how much money they make? It’s estimated that this credit gap alone exceeds $2 trillion.
I’m excited about the fact that this is now, for the first time, a solvable problem. I think back to Square, a company I covered as a hedge fund analyst a few years ago. They were early innovators in solving this problem here in the United States. Their core point-of-sale product allows small business owners to attach a little device to their mobile phones to accept card payments. It goes deeper than that, though. There’s a large amount of data being generated here that Square has direct insight into. Daily sales, inventory levels, customer loyalty, geolocation – really, anything that could be valuable for assessing the health of a business. As a result, Square was able to launch a very successful lending business to a segment of the market that was once thought to be “unbankable” – all off the back of this data exhaust.
If you look closely enough, innovative data sets like this are being created all around the world. For example, a handful of countries in Latin America have mandated small business owners to upload digital receipts for every single transaction they do. Suddenly, if you can build a sophisticated tool that can collect, clean, and analyze these data sources, you’ve created an engine to help bridge this massive credit gap. And, like Square, there are plenty of startups around the world in the early innings of building these tools out via advancements in data science and machine learning. If you can combine this with an efficient way of reaching a ton of small businesses, well then, you’ve got a winning business model.
I’m spending time searching the world for these opportunities. We recently announced an investment in Credijusto, a small business lender in Mexico City that’s doing exactly this. David Poritz and Allan Apoj, the company’s two cofounders, are innovating by making sense of disparate data sets to determine a small business’s creditworthiness. They’re seeing incredibly successful results. We’re humbled to be a part of this journey with them.
What do you think founders should prioritize that they currently aren’t?
I’ve always been impressed with CEOs that can articulate a clear path towards healthy unit economics. As a venture investor, I don’t expect you to have it figured out immediately. But I want to hear that you are really thinking through and analyzing all the drivers that matter. In light of the recent wave of lackluster IPO performances, I think this is especially important.
I also think CEOs should be very deliberate when it comes to their cap tables. For example, even though you’re deferring the initial valuation conversation, founders should be very aware of how dilutive convertible notes can be in the long run. Grab your lawyer or maybe a friend that works in venture and have them lay out what your ownership could look like under different scenarios – it might surprise you.
What is one thing every founder should be prepared for before walking into a meeting with a potential investor?
I really appreciate when founders are self-aware. I don’t expect you to know everything in the world, and I’m always impressed when a founder asks for help before it’s too late.
Turning the tables, what makes a good venture capitalist?
Spend the time to think critically about each business you dive in to. Each company you look at will have idiosyncrasies, and to apply the same LTV-to-CAC formula to each of them doesn’t adequately capture the investment opportunity. You need to step back, be creative, and think about the business as if you were running it.
Who do you admire in the startup world and why?
I’ve always admired Mary Meeker. She joined Kleiner Perkins from a role in the world of the public markets and was able to beautifully apply her ability to analyze stocks to venture investing. Her internet trends report is always an exciting read. This year’s report had a great section on technology growth in Latin America. I’m excited to see what she does with her new venture fund Bond.
When you put on your headphones and need to get head down in something, what are you listening to?
I’ve been playing guitar since I was in the 6th grade – and I don’t typically open with this, but I’m a huge metalhead. Anything with a beautiful guitar melody gets me in the zone. These days I’ve been listening to an up-and-coming guitarist named Nick Johnston.
What’s the last book you read?
I just finished “Cherry” by Nico Walker. Walker, a war veteran, is currently serving time for robbing multiple banks – this is his roman à clef.
What’s your favorite restaurant in the city?
My favorite restaurant in the city was Fatty Crab, a Malaysian restaurant that used to be on the corner of Hudson and Horatio before shutting down a few years ago. The owner, Zak Pelaccio, opened up an equally amazing restaurant in Hudson called Backbar. If you’re looking for a food-inspired day trek outside of NYC, check it out.
