😇 Angel interview #15: Gyan Kapur
"Don't start by doing direct angel investments. I would advocate getting on AngelList and backing syndicates"
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Here’s today’s edition:
🔍 Interview with Gyan Kapur, angel & co-managing partner at RTP Seed
📚 Reading corner
🔍 Interview with Gyan Kapur
Today, you’ll learn from Gyan:
The angel investor’s “circle of life” and the trough of illiquidity in year 5
How you can help founders and be value-add by calling customers for them and by helping them write their story
How start-up ideas are like jujitsu: you want to use your opponent's momentum against them
How to look at deals and then start angel investing maybe after six to nine months when you have the background to do it at a smaller check-size
Can you give a quick introduction of yourself?
My name's Gyan Kapur. I run a $30-million venture fund now. Before that, I did a mixture of venture capital and angel investing. Prior, I went to business school, worked for a startup and I worked in finance.
In some ways, I'm like a traditional venture capitalist or angel. But it's been a long winding road. I started angel investing because I had been relatively successful in finance. I ended up kind of running a reasonably-sized business at a pretty young age, it was doing about a hundred million dollars of revenue. I got paid pretty well and when I left finance, I want to get into venture capital or at least stay in startups and started angel investing because of that.
I do a lot of stuff in healthcare and then a lot of stuff in B2B software investing.
How long would you say you've been angel investing?
I made my first angel investment in early 2016. It's been five years. It's been a while at this point, but I still have no cash on cash returns, which is maybe one of the challenges with angel investing.
Can you tell me more about your first angel investment?
I was interning in VC and I was sourcing deals. I was doing it by hook or crook: you email a bunch of people, you go on every website. I liked a deal we looked at and sourced it but I couldn't convince the team to make the investment. We tried to get close but never were able to square up on terms. I was an intern and I was like "I'd like to make the investment personally".
The fund that I interned for told me to go for it. That was my first one and if I'm looking at all my angel investments, they've come through many different channels. Some have come in through my portfolio, some have come in through friends, many have come through me going outbound either thematically or finding an interesting website.
For me, there's no one deal flow source that has been the consistent winner. It's just about scuffling along to be successful.
If you don't mind sharing, what's the company you ended up investing in for your first investment?
It was this company called Vizi. It's now merged and called Arkos Health. But they do care management for healthcare. A lot of my angel investments were in healthcare because that's where I started in venture capital and in startups. I do a lot of healthcare technology investing.
You talked about your outbound strategy. How much time do you spend on outbound and do you have a methodology behind it?
I probably spend too much time because there is no key methodology. A lot of it is finding interesting people, interesting companies on whatever websites you can, and reaching out to them.
I spent a lot of time on LinkedIn, probably too much time, and Twitter. Sometimes you find somebody who sounds like they are doing something interesting and you just find a way to reach out to them. At a little bit later stage, you can look for newly formed companies or company funding announcements. Mine has really been about reaching out to people or reaching out to newly formed companies in a space where I've been trawling the space.
How many investments have you made so far since 2016?
Direct angel investments, probably 15. Now I run a fund where we made about five investments in the last 7 to 8 months.
It sounds like on average you've been doing three investments a year.
Definitely. I did more early on and than later on. I became more selective when I started to run out of money. I think every angel investor goes through this trough of illiquidity in year 5, or many do. I think many people go whole hog for a couple of years, make more investments and then go through this trough where your investments might be smaller, which is kind of what I went through last year and early this year. Finally, they start getting exits, and then the cycle renews. It's the circle of life for angel investors.
It's the circle of life for angel investors.
You're an emerging fund manager: you started your fund and you do angel investing. How do you balance both of those?
For the most part, I'm on the fund side, but we have a carve-out where I can make small angel investments into deals that I like if they're not a fit for the fund. We invest early at the fund stage. I look at everything for the fund first and if we don't get internal consensus and I'm still been interested in investing, I can then make an investment.
It sounds like there are some synergies: you've already diligence the company through the venture lens so you have the information you need to invest as an angel.
Earlier this year, I was helping out another fund as I was kind of figuring things out for this one. I kind of brought a deal to the fore, did a bunch of diligence for that fund. That fund made an offer but the offer wasn't at the right price.
As an angel, you can be a little bit more price-insensitive than an institutional investor because you're writing a smaller check and you can put in more money later on. You don't have a strategy mandate with respect to stage, you can double up or triple up in series A.
I ended up making the investment for myself. One of the dirty secrets is that a lot of fund managers make angel investments. I think as an example you look at Warmly and Mike Vernal made an angel investment.
Harry Stebbings now has a fund that basically allows him to make angel investments that is on the side of Stride VC. It's super synergistic. I really enjoy supporting entrepreneurs and working with entrepreneurs however I can, it's of value to me.
As an angel, you can be a little bit more price-insensitive than an institutional investor because you're writing a smaller check.
Definitely. Do you have an investment strategy as an angel?
There's no allocation strategy or anything like that. A lot of times I write a smaller check initially, and then I get to know the founders and I try to add value. As I build that relationship, I sometimes end up scaling up in my investment.
But sometimes the price of the deal goes up too much and then I don't scale up. That's the one conundrum there. You work with the founder, get to know them, and then want to scale up but can’t.
If you're co-investing with big funds, it's really hard to do this because they have discrete financings, but a lot of early-stage companies are always strapped for money. When they raised their first $250,000, they'd probably be happy three months later to take in a little more on the same terms because they just need the money. If you built a relationship where you both value each other I think you can do that easily.
That makes sense. You touched upon this in terms of supporting founders, but what do you think your superpower is as an angel?
I'd say it's hustle, so it's trying really hard to be helpful. I think that's true about anybody who's not a hyper connector or is not fabulously wealthy.
Otherwise, it's basically I understand business. I understand the markets and then I try to help people. That's what people get.
I'm curious, what is the biggest thing you've done to support a founder in the past?
I've introduced people to lots of downstream investors. I've introduced them to customers. I have given a ton of advice during financing processes. In one case, I supported a company out of my own bank account for a period of time while they were potentially about to go bankrupt, and then they raised a seed round [Writer note: Please don’t attempt this]. I've done a lot of different things.
Every startup is a story and every story is different. What that startup needs depends on what their story looks like.
It's not I'm consistently the protagonist in the story, it's more about saying, “Hey, what, we'll flesh out your story to get you to the next step?".
There's no formula for vetting a startup and saying " your total addressable market is $7 billion and you have a CAC to LTV of 1 to 4 and you have this metric and this metric." At the early stages, it is very much vetting a story. It's not even vetting a story, it's vetting the blueprint for a story. One of the most difficult things, but one of the most fun things about early-stage startups, is that they are idiosyncratic: you can transfer learning between them, but you have to be careful not to transfer learn too much because two things can be so different.
At the early stages, it is very much vetting a story. It's not even vetting a story, it's vetting the blueprint for a story.
Yeah. What if any effect did the pandemic have on some of the companies you support?
I'd say most of them weathered it pretty well. Some software deals that were selling to SMBs had a reasonable amount of churn early on, but I would say most people survived relatively well but part of that is because the category that I'm most invested in (healthcare). There was a one month period that was super scary. Everybody was terrified and it looked like we might be falling off a cliff.
But since then, capital markets have been super strong. If you're not a restaurant or in the travel industry, you felt the effects of this in terms of a slightly slower growth profile, but it's still been pretty okay. Then, some companies have capitalized on it, frankly, because the tailwinds are in their favor.
It's not been as bad as I expected at all. I will say that we're not through the pandemic and I think the real economy has suffered a lot more than the capital markets. I think there are some potential downstream effects and I do think that buying cycles are going to continue to be a little slower. Also because your buyers will be working from home for another 9 months and for them to coordinate a purchase takes longer.
I will say that we're not through the pandemic and I think the real economy has suffered a lot more than the capital markets.
What tools do you use for angel investing?
I use Affinity, Superhuman, LinkedIn , Twitter, AngelList, Excel. I use Google a lot and that's probably my toolkit.
You're focused on the healthcare industry. What do you recommend reading about the industry for people who want to start investing in healthcare?
Look at what's happening on the policy front. For whatever industry, if you're trying to understand as an early stage each investor, look at who's getting financed at the early stage for the last year or two. Read Axios or Strictly VC and look at all the healthcare tech financings that have happened over the last couple of years and look at what those companies do. The best way to understand early-stage startups is to look at early-stage startups and think through them.
I advocate real-world experience more than reading stuff. The other thing I would do is start forming a thesis on the space by talking to founders about their companies. When I was in business school, I tried to form this thesis and it wasn't that hard to get in touch with founders of companies and be like: "I'm interested in this space, and will you talk to me for 20, 30 minutes".
I advocate real-world experience more than reading stuff. The other thing I would do is start forming a thesis on the space by talking to founders about their companies.
That's the case, especially in healthcare. People are mission-driven. All startups are relatively mission-driven. Nobody builds a healthcare tech startup because they want to become fabulously rich. It's just a terrible space to do that. There are much easier ways to make money than create a startup in healthcare tech.
Is your approach different for B2B SaaS?
I'd say it’s similar for B2B SaaS. Most of the healthcare technology companies are B2B software companies. But I think you sometimes have to understand the macro tailwinds of any market you look at. Whether it's prosumer SaaS, healthcare tech, behavioral health, deep enterprise SaaS or enterprise infrastructure, they all have different kinds of models that are working, given what's going on. Healthcare is a $3 trillion market, there are different go-to-markets. That'll work based on where the constituents are.
That's what's so fascinating about startups in general. What worked 10 years ago is not going to work today because the entry points that make sense have changed. It's like jujitsu: you want to use your opponent's momentum against them. How do you enter in a way that you are in a blue ocean or where there's not a ton of competitors that are talking to your customer versus entering a red ocean is much harder. But the oceans are always changing and how you entered can change as a result.
That's what's so fascinating about startups in general. What worked 10 years ago is not going to work today because the entry points that make sense have changed. It's like jujitsu: you want to use your opponent's momentum against them.
The changing nature of the market is really important.
It makes it super fun because early on, it's more strategic while thinking through whether you build a tactical kind of approach to get the company to where it needs to be and also does the long-term strategy fit.
For diligence, people look at founder, product, and market. How would you rank those in order of priority for you?
The traditional answer for early-stage is founder first, then market then product.
I tend to look at them all in synergy. Every founder has glaring weaknesses from my experience. I've never seen a founder who is perfect. So but what's more does the founder fit the market and the product? Do I believe that there's a market opportunity? Do I believe that they can build a product that works?
If I kind of had to pick one, I would probably say I spend a lot of time looking at how the product fits the market opportunity.
It's not clear to me that investors are that great at assessing founders. There are organizations that have spent 20 or 30 years building a corpus of how to do this and I think even they struggle when hiring CEOs of multinational corporations based on all of this reference checking. They use micro-expressions and all this other stuff. Obviously, I care about the founder a ton but it's really hard. I can only assess them in certain dimensions.
Whereas the market opportunity and the product, and how they think about those two things and how they intersect in some ways inform me how thoughtful the founder is.
Every founder has glaring weaknesses from my experience. I've never seen a founder who is perfect. So but what's more does the founder fit the market and the product?
What's your #1 piece of advice for people who are looking to start angel investing?
Don't start by doing direct angel investments. I would advocate getting on AngelList, backing syndicates by putting $1,000 into deals or $2,000 or whatever it is that you have, and getting to know the market first because there's this rush of enthusiasm that happens when you become like a first-time angel investor. It happened for me and you get better at it every year, the same way you get better as an investor. Sequoia has this idea that it costs them $20 million to make an investor: your first $20 million investment is probably not going to be optimal.
That's fine when you're institutional but when you're an angel investor, that's your money and that's the money that'll go to your children or that you'll use to buy a house.
My #1 piece of advice is to cool it a little bit and look at a bunch of deals with people and then start angel investing maybe after six to nine months when you have the background to do it, where you understand the market is and where you have like some sort of idea of what a good deal looks like because you've looked at 10 bad deals that you didn't do and you can compare them because much of this is relative.
In the end, if you think about venture capital, there's a certain amount of capital and it's going to get deployed in 5 years because they have raised money. They're picking the best opportunities and they can hold off on investing, but they can't forever. You can wait if you are an angel.
In the end, you want to try to understand what a great opportunity looks like and that requires you to slow down.
Don't start by doing direct angel investments. I would advocate getting on AngelList, backing syndicates by putting $1,000 into deals or $2,000 or whatever it is that you have, and getting to know the market first because there's this rush of enthusiasm that happens when you become like a first-time angel investor.
I like the idea of micro-investments. Being able to think about portfolio allocation or diversification through AngelList is such an advantage because you can offer smaller check sizes.
You can offer these small checks, you can diversify, you can learn about multiple markets. It's great for an aspiring angel investor because the first step to being an angel investor is understanding what a good company looks like to you and it's very hard to do that if you've never looked at a bunch of companies before. It's about being thoughtful, systematic, and cooling your jets.
I think it's building a micro portfolio and then build a real portfolio once you feel like you're really deep in the market.
Where can people follow you or reach you?
They can go to my Twitter @KapurGyan My fund website is rtpseed.vc.
Which angel investor would you like to see interviewed for the next series? Feel free to share suggestions by responding to this email or leaving a comment.
📚 Reading corner
The Angel J curve by Brianne Kimmel
I recently went back and looked at this post and think it’s still super relevant for operators looking into getting started in angel investing. The Angel J-Curve is a guiding framework to better understand the opportunities available for operators in Silicon Valley-based on your time and revenue (social/working capital) in the ecosystem. One tip that is echoed in Gyan’s words: start with small checks. Brianne recommends $1-5 checks.
On angel investing by Luba Lesiva
Luba recently started a syndicate and has been getting a lot of questions about starting points for research and resources for first-time angel investors recently. She pooled a list of things that she has personally found informative, approachable, and fun.
The Helm is a venture fund that invests in women entrepreneurs. They’re looking for angel investors who are interested in joining an investor community. Membership to the Helm’s Investor Community provides monthly opportunities to make investments into some of the most exciting women-founded companies today. Membership officially launches on February 15, 2021. Interested members can fill out this form to apply.
Harlem Capital just launched the application for their angel program for operators to learn how to angel invest. If you're interested in investing, check it out! A 6-week training program designed to equip underrepresented tech industry operators interested in angel investing with the knowledge, network, and diverse deal flow to get started. Here is a link to apply. They will be accepting applications for the first cohort until March 1, 2021.
I’m currently exploring the e-commerce infrastructure space and also decided to write my thoughts about it. If you’re building in the space or want to discuss the space, reach out by responding to this email.
Thanks to everyone that RSVP’d to the Thursday, February 11 community event! There were more people than I expected so I’m going to cap the number to make sure that we have a more intimate setting. Do reach out if you’d like to join the next one!