Breaking into venture capital is not easy. Starting a brand new VC fund?
Potential limited partners (entities that invest in VC firms) judge a firm on the past performance of the firm’s previous funds. The life of a fund is nominally ten years, which means the verdict on how well a firm’s current fund has performed takes at least a decade to be assessed. Given that only a small number of VC firms maintain stellar investment performances over time, it’s difficult to stand out and attract limited partners to invest in your firm without a pristine track record already established.
Therefore, starting a new VC firm (since one lacks a track record) is challenging for anyone. Even more so for women, since they are underrepresented in the venture capital industry.
However, female-led firms such as Forerunner Ventures and Female Founders Fund have had recent successes. The former has had notable investments in Dollar Shave Club (bought by Unilever for $1 billion) and Jet.com (acquired by Walmart for $3.3 billion), while the latter has just closed their second $27M early-stage fund.
These achievements by female investors helped spur the All Raise movement, an initiative started in 2017 by “34 senior female investors from institutionally backed venture capital firms based in Silicon Valley, Los Angeles, New York and Boston.” Their goal is to improve “the success of women in the venture-backed tech ecosystem” and “build a more accessible community that reflects the diversity of the world.”
Preeti Sampat and Jaida Yang have been involved in venture capital and are ready to take their work to the next level. The two are unfazed by the endless, arduous path ahead of them in starting and maintaining an enduring venture capital firm. These two MBA students from the MIT Sloan School of Management have come up with a novel way to enhance the current offerings of the venture capital ecosystem. Sampat and Yang are working together as founders of Infinite Road, their venture capital firm that seeks to bridge the geographical and diversity gaps in the current early-stage investing ecosystem.
According to All Raise, “9% of decision-makers at US-based venture capital firms are women” and “15% of US venture dollars in 2017 went to teams with a female founder.” Geography wise, venture capital remains highly localized. Richard Florida of CityLab shows that in 2016, $23 billion, “more than a third of the national total” venture capital investment, occurred only in San Francisco.
Sampat and Yang didn’t see these statistics simply as problems in venture capital but as opportunities to enhance the ecosystem for all founders to raise money and build long-lasting companies.
November 17, 2017. Sampat and Yang meet after a long day of classes for dinner at Life Alive, a trendy, organic food restaurant. The two take time to eat and reflect on their individual journeys to MIT’s Sloan School of Management.
Sampat, 30, completed her undergraduate degree in Computer Science but got her first job in consulting, focusing on mergers and acquisition activity and transactions. She then transitioned to Flipkart, an Indian electronic e-commerce company, as an early employee. Sampat was one of the senior managers in the startup’s Lifestyle category for a couple of years. She had now experienced entrepreneurship but wanted to see the other side of the startup ecosystem in the form of venture capital, leading her to apply and enroll in the Sloan MBA program to facilitate the transition in 2016. Sampat interned with Bessemer Venture Partners during her first summer at Sloan. Her positive experience at Bessemer and encouragement from Sathya N.S., her close confidant, motivated her further involvement in venture capital.
Unlike Sampat, Yang, 27, started out in the finance industry. She finished her undergraduate studies at Cornell in 2013 and worked for JPMorgan in their derivatives business from 2013 to early 2016. From her work at the bulge bracket bank, she discovered increased venture capital activity in China. Wanting to see where this movement of dollars and talent was going, she went to Beijing to work at Marathon Venture Partners, an international VC firm focused on early and growth stage investing in healthcare and FinTech. She had a great time at MVP and heavily relied on the advice of her trusted adviser, Changhong Yang, on navigating the venture capital ecosystem. Yang came to Sloan to further develop a global perspective of venture capital and explore entrepreneurship in emerging technologies.
Their conversation led them to consider aspects of venture capital that could be enhanced: helping entrepreneurs expand into international markets, facilitating the knowledge transfers of best practices in foreign commerce and providing domain expertise in the U.S. Also, Sampat and Yang believe they could structure their investment process to be agnostic to academic pedigree, geography, gender, race and ethnicity, to ensure they find the best and most diverse set of founders possible.
Their dinner discussion set the foundation of starting Infinite Road, their venture capital firm. The first half of the firm’s name references the Infinite Corridor of MIT, and the second half pays homage to the Silk Road, one of the first trade corridors connecting different regions and cultures of the world.
The duo, who are both still in school, has already made undisclosed investments in two New York startups.
Infinite Road will invest their first fund in twenty to twenty-five startups. The two funders expect to invest $250,000 to $1 million in each portfolio company, ranging from consumer-focused to FinTech startups. Infinite Road will primarily invest in pre-seed and seed rounds. Investing in these funding stages gives the firm flexibility in participating in priced or non-priced fundraising rounds.
Some founders prefer a non-priced round, a fundraising stage where a valuation of the startup is not determined, which allows them to focus more on establishing their revenue model and financial statements. Without the demands that come with a valuation, entrepreneurs can focus on developing a better product-market fit. A better product fit leads to more stable revenue models, which determines a more accurate and fair valuation for both Infinite Road and its portfolio companies. In addition, the firm’s portfolio companies can explore international markets (if they are U.S.-based) and see how their product is valued outside of the U.S. The VC firm’s international network of advisors and limited partners will help entrepreneurs navigate foreign markets.
These particular areas of focus for the firm enable Sampat and Yang to “polish hidden gems” within the startup world that is regularly overlooked. Infinite Road’s funding model is designed for follow-on investments in three ways: reserved capital, raising future funds and special purpose vehicles to invest in internal rounds for their portfolio companies that need additional monetary support. These options give Infinite Road greater flexibility in meeting founders’ needs.
Sampat and Yang believe that because as individuals, they share similar characteristics of their portfolio companies’ customers, such as a preference for online shopping and flexible working conditions in the gig economy. In addition, the two having relevant domain expertise uniquely positions them to give high-quality feedback and guidance to the founders that partner with their firm.
The two founders believe that by creating bridges between the West and East Coasts and the U.S. and Asia, they can better position their portfolio companies to succeed in their intended markets, both domestically and internationally.
There isn’t a better time for individuals like Sampat and Yang to found their own venture capital firm given the advent of the All Raise movement and its support for female funders and founders.
With Infinite Road, these two female funders can ensure to raise all entrepreneurs to greater heights within the venture ecosystem.
This post first appeared on Forbes.