B Capital’s Rashmi Gopinath on investing, differentiation, competition, and how VC investors are trying to stand out.
Rashmi Gopinath’s career as a VC investor has been one to aspire to. With stints at Microsoft’s venture fund M12 and Intel Capital, she is currently a general partner at B Capital Group.
In her decade long career, Gopinath has invested in some of the most exciting technologies of current time — cloud, cybersecurity, devops, and AI/ML – with investments such as MongoDB to her credit.
Jumpstart caught up with Gopinath on some of her favorite investments, how she approaches investment decisions, and her thoughts on innovation within the VC industry. Responses edited for clarity and concision.
How did you get into the venture investing scene?
I wish I could tell you it was all planned and charted, it wasn’t. I started off my career in product development and engineering roles at Oracle and GE Healthcare. When I was at GE Healthcare, we were building a next-gen data interoperability and analytics platform to help solve the data fragmentation issue in healthcare. And as part of that, I was getting pulled into discussions around pricing, packaging, product launches, acquisitions… and that’s when I decided to get a business school degree to get smarter on those topics.
It was during my time at Kellogg that I got exposed to venture capital, investments, and entrepreneurship. I ended up doing a couple of internships during my time at Kellogg. One was with a growth equity fund and one was with a private equity fund. I loved the venture experience and decided to switch into VC full time post Kellogg, and that’s how I ended up at Intel Capital after I graduated. That was my first VC experience where I primarily led investments across the enterprise software space.
Since then, I went to being at Microsoft Ventures, and subsequently at B Capital about a year and a half back.
What are some of your favorite investments, and why?
It’s like asking to pick a favorite child. I would say that I typically get quite excited about large, almost like life-changing companies. It sounds like too high and too big of a vision, but for me, those kinds of missions always resonate the most.
One of the companies that I invested in back at Microsoft and then again through B Capital, is a company called Innovaccer, which is in the healthcare analytics space. For me, what resonated was the vision that the company and the founders had about making healthcare accessible to all by making data more accessible for healthcare providers and doctors to make that right decision at the point of care. When you are, for example, in a visit with a doctor, you don’t want them to be sitting behind a screen and typing away and trying to search different [data points]. You want them to spend more time with you.
What Innovaccer does is it provides this data interoperability framework where it’s pulling together data from different sources. It then creates these analytics modules that pushes that relevant data at that point where it is needed to make those clinical decisions.
Another company I would say that I’m quite excited about is one in the crypto space that we invested in last year, a company called FalconX. Crypto, as we know, is definitely getting a lot of traction over the last couple of years. But I would say, an important aspect of crypto is really the value that it can bring to the vast majority of retail investors and consumers in providing that inflationary hedge against typical fiat currencies. Where in the past gold was part of that inflationary hedge, if you take a slice of the millennial sentiment, nobody wants to buy gold anymore.
And so, what is that asset that will give you that hedge against the typical currencies. Crypto definitely seems to be it. [FalconX] provides the prime brokerage infrastructure platform. It’s almost like the AWS for crypto but it’s providing all of the core infrastructure that will help make crypto trading very easy, very seamless for institutional and retail investing.
What do you look for when meeting founders over a pitch?
The key things that we typically look for, first and foremost, is the team. It’s always interesting to really understand the true motivational factors on why are founders doing this. Each of these founders that we invest in have the ability to take very cushy jobs at large companies, make a lot more money than what they make with their startups. But it’s interesting to understand what drives them.
The startup journey is never easy, you’re going to have a lot of ups and downs. Are folks going to be tenacious and have the right level of perseverance to go through the lows, and stay up during the highs? You do want the founders to stay with the company over a long period of time so understanding those intrinsic motivational factors and drivers is important.
The second is the market opportunity. What are they going after? Is this a big enough market? Is this where we see customers having a lot of pain points? Are they solving something that’s meaningful? Is that meaningful today? Will that be meaningful three years from now? Is this market large enough so that these companies can have big meaningful successful outcomes from that?
And a third I would say is really around the differentiation — why would this company be successful, and who else is doing it. [It’s] looking at it from a competitive differentiation standpoint. If you’re running into a space where you have large incumbents, as we typically see with cloud computing, where you’ve got AWS and Azure and GCP and all the other vendors in there, why will you as a company succeed.
What company metrics do you watch out for?
In terms of the metrics, definitely growth would be number one. [We are] looking for companies that are showing like strong growth year over year, compared to the peers in that particular sector. The other thing, and I would say you will get a different response from each investor, is I do look for sustainable growth. If you’re burning 10 times to grow two times, that’s not sustainable.
Especially when the market turns, or if there is a pullback in investor enthusiasm, you’re going to be in a pretty difficult situation where you have a very high burn. And if growth slows down, then it can be pretty drastic for the company.
And that comes down to like core business operating metrics that we look for. This can be the customer acquisition cost, payback time, or net retention numbers.
How can founders distinguish themselves from the competition?
In terms of standing out, it really ties back to that question around how [quickly] can you offer something — a product, intellectual property, or go-to-market differentiation — that is going to set you apart from the other companies. You don’t have to follow the norms of what 2,000 companies before you have done. You have to figure out what’s unique to you as a company to grow and scale, and how do you really double down on your strengths to help get you there. Maybe it’s a product or an IP differentiation where what you’re doing is going to be 10 times faster or cheaper than your next competition.
[Next], I will say one of the things that the pandemic has accelerated is the amount of noise in the market. And so, how do you create a messaging that stands above that noise. Obviously, it has to be genuine, you can’t just make things up. Once you lose credibility like you’re pretty much gone.
The [third] I would say is really around how do you leverage the network. Use your existing investor base and peer network to create and build those relationships over time. As growth investors, we typically track companies anywhere from six to 18 months before we write a check into those companies. We always like to see those companies evolve and grow over time. That means that as a founder, you have to set aside some part of your time to lean in and build those relationships with the investors that you want on your target list.
It’s the same that investors do as well. We’re reaching out to founders much earlier before we are looking to make investments. It goes both ways, creating those long term relationships that will result in investments down the line.
How are VCs innovating with their investment approach?
That’s something that we think about a lot. Especially in this market which is extremely competitive on the investment side, how do we stand out, how do we create those points of differentiation for us, what defines our brand [are questions we often ask].
The point of differentiation that we bring to our companies is we have a strategic partnership with the Boston Consulting Group. If a company wants to figure out how to launch a new product or how to enter the market, we can leverage a lot of the strategic insights that BCG typically has through several decades of experience doing this for other companies.
I think one of the questions that founders should also be asking is who’s the partner at the fund who is going to be representing me as a company, and is going to be my board representative, in some cases. What expertise does that partner bring to the table? Do they understand this space? Are they going to help me through these strategic growth initiatives going forward? Are they going to be long term patient capital? [These are some questions founders need to consider].
What intrinsically drives the investor, I think is also a key question to ask. These days, it’s fairly common practice for founders to do backchannel references on funds and investors. They typically talk to our portfolio companies to get first hand feedback on the other founders’ experience in working with us. And this ties back to being genuine and credible, being good partners for our portfolio companies.
At the end of the day, I would say we’re all fortunate that the founders picked us to work with them. We then have the responsibility to deliver on the expectations. The bar is quite high for investors as well to provide value addition beyond capital. And that is something that I would say the VC community is definitely thinking long and hard about because the competition is very intense for us at the fund level.
Header image courtesy of B Capital