Insights from an Early-Stage VC on Today’s Startup Landscape w/ Anupam Rastogi

ABOUT THIS EPISODE

Anupam Rastogi transformed his passion for building and scaling startups into a career in venture capital over a decade ago. He’s currently a Partner at Emergent Ventures, which focuses on seed and early-stage ventures, and he joins us in this episode to offer a VC-perspective into the startup ecosystem.

We discuss:

  • Emerging themes across the startup landscape
  • Finding the right startups to invest in
  • What early-stage VCs look for in a founding team
  • Remote work - the multi-hub model
  • Advice for early-stage founders

This discussion with Anupam Rastogi was taken from our show Startup Success. If you want to hear more episodes like this one, check us out on Apple Podcasts.

If you don’t use Apple Podcasts, you can find every episode here.

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Welcome to start up success, thepodcast for startup founders and investors here you'll find stories ofsuccess from others in the trenches as they work to scale some of the fastestgrowing startups in the world stories that will help you in your own journeystart up. Success starts now welcome to start up success. Today wehave ANAPO Risto with us who is a partner at emergent ventures. Emergent,focuses on seed and early stage companies and he's been in the venturespace for over a decade. So I'm very excited to talk to him. Welcome. Thank you. So much kit really apleasure to be here. Yeah, it's great to talk to you. It's always fun to get.You know an update on what's going on in the startup world, for an investorso tell us how you got in to investing in a little bit about your backgroundsure happy to talk about that. So my background is originally in computerscience from an education perspective, so it's always fond of you knowtechnology and what it can do, an innovation and started off, and youknow doing some deep research move over into a product and go to market roleswith startups, because that's the part that I really enjoyed and then movedover to venture about. You know just over a decade back and what I figuredwas I really enjoyed startups and, I think, will start up having them scale.But I wanted to do that with multiple of those at a time and be able to bringmy skill set to many companies at a time. So I saw a venture as a way ofdoing that and have been in venture for actually overa decade now and then invested across a number of different sectors may bearound three dozen investments that have been a part of and been Foston teto see a number of journeys. You know some, I pos some. You know good Emonisand, of course, some fritters as well so yeah, that's my background soundslike you've had a lot of great...

...experience with investing what kind ofsectors you mentioned, a variety of sectors which ones typically, do youfocus on yeah, so I emagine we have exclusively focused on the modernenterprise stack, typically, companies that are using yeah machine learning, data processingtechniques in a smarter way across. You know in the price in VP and what we areseeing is there's a lot of different waves, which you can talk about in moredetail if needed. But you know there's a lot of opportunity right now that wesee and just streamlining and bringing automation to the way work is done andmoving over. You know on front software to cloud moving custom developedsoftware to of the shell software. In you know, software is going deeper intoa lot of previously under digitized verticales. So those are some of theareas at a high level, but essentially across the modern enterprise and B tobe stack is baby, invest and we come in fairly early at typically across theseat. Spectrum could be anything from a prece round. You know it could be ajust a person with an idea or to proceed early, a ty prons. That's so interesting that you come inearly because, that's just you know such a different conversation with afounder at that point, any recent investment or something over the past.You know decade that you've been doing this, that you could share with us.Like you know, one of your favorites or a particular interesting one symptomsof maybe I can share a recent one of the one of the more recent ones whichalso let me pick a one. That is a space that many folks may be familiar with.So this is a company which helps TV and streaming platforms connect withcontent producers. I know you know all of us are watching. You know onservices like net flax and Amazon crime...

...and Shpoon Disney, and we know thatthere's so many different continous out there, including a lot of mainstream inno movies, everything from mainstream movies. All the way to you know someonejust sitting in the garage and creating some cool content so recently investedin a platform that helps connect its gets a platform essentially for contentproducers to be discovered by you know those that have Ota platforms andchannels and it connects as he half a million such providers of some scaleglobally, and so this company has built technology to just index all of thisdata automatically and discovering create profiles and then connect themwith content producers. So what this could mean for folks is that you knowstudios may have better ways to discover content and they may be ableto discover more efficiently across. You know, smaller larger produces ofcontent, and so this is a very recent invetment to start to start, but anentrepreneur that I have known for over ten years, so that there's also a storyin there that I looked at his prior company. We didn't end up in resting atthat time for some reason, for this entree had a successful, run there anddecided to start a you know another company, and we had an opportunity topartner on this company. What a great idea! I love, how it's you knowsupporting the arts, but it's so I never thought about that. Right, likeyou, could use technology to kind of make those matches right. That justshows some of these founders, the ideas they come up with and with covilthere's such a need for content out there right now at really yeah and withall the shift going on from Lenin TV to you know all streaming and digitoformats and the explosion that we are seeing in the introduced to be that you justsubscribe with some t channels and everyone just had one or two choices ofcable providers. But now you have all these different subscription servicesand they're all trying to license...

...different types of contented curatethat so that complexity of matching has increased beyond human skill, which iswhat this industry has been doing. So far is being just you know, people justtrying to figure out who should be connect with a D, and I think theamount of contrey and data has gone beyond what humans on their own can doso this room for technology to now assist humans and in being able to dothis, that's so interesting. What else are you seeing out there right now andstart up lands the start up ecosystem? You know as we're coming out of OVID.Finally, yeah, you know what's happening across the start up landscape.I will talk about the sector that I know more than others, which isenterprise, software and SASS, which is where we invest at emergent and there'sa lot happening. But let me pick a couple of very overarching. You knowthemes. One is the we're seeing that softer is getting consumed at scalethat we have not seen before, including from startups the propensity ofbusinesses and enterprises actually business all the way from enterprisesto presumers, which is which could be individuals running a small businessacross the board. We are seeing a significantly increased propensity tojust buy and pay for a third party software. It used to be that you know,if you take, let's say large fortune, five hundred companies twenty yearsback or even ten years back. They would build a lot of this offer custom inhouse and it would run on premise on their own servers or you know theywould have a lot of engineers. They may hire service responds to build customesoftware. A lot of that has all moved into has been moving into cloud, hostedthird pain, ses and, interestingly, while this has been going on for now.You know fifteen twenty years, it's still very early days in the journey. Alot of the you know: SASS is still a very small part of overall ID spen andjust continues to rise significant year over a year, but what we sing alsoanecdotally from our start. UPS, especially you know, it's been acontinous trend, but more pronounced...

I'LD, say in the last year. Is thedisproven ory to buy software? That brings you, know automation orresilience security or pretty much across the board, and assassin be to beof you know these large enterprises just being willing to try out and adoptthings where it makes sense for them to do, and I think that just pays wellover all for the that's why you see a lot of these start ups and then related,but different tind. I would say you know, there's a lot of opportunity. Weare seeing right now, still in many under digitized segments and industries,areas that didn't have a lot of digitization so far or automation. Forinstance, we've invested in a couple of companies that help workers such asrestaurant workers or day care, workers or others, do their jobs moreefficiently using software and hasn't previously been a lot of good softwareand automation available for those workers. Similarly, we are seeing a lotof digitatis and software coming into the logistics industry, which is alsogotten more pronounced during you know, coved. I think all of us have heardabout some of these supply chain delays and semiconducting, and you know theses, Swiz canal incident and all of those things, but but all that I thinkit just opens up the opportunity for the for start up, sat or buildingthings within the largest CS and supply chain space and bringing moredigitization it's actually one of the largest, perhaps actually, the largestindustry globally is logistics. Shipping transport between those three,if you take, that is a category and it's actually one of the most underdigitized industry is very little software historic care. So I think whatwe've seen the in terms of you know there's a few UNICORNS and tack acornsnow in that space, but that's just the tip of an ice of the iceberg, we'reseeing a lot of activity in that space of companies. That can you know,connect. You know truckers with financiers or companies that canconnect consumers with providers or with bebe. You know someone that wantsto ship something with other providers, give them visibility and so on, andthen yeah a number of other spaces...

...subsequents within that. But I thinkit's almost like you know we are fortunate to live in these times, whereyou know it's like being a painter during Ganesa or being you know, extorduring the Fourteenth Fifteenth Century, where there's theres so much to do withthere's so much activity on going so that S, that's how it feels a littlebit like that's great news for startup founders, especially you know the pointyou mentioned that these large enterprises are willing to try more ofthe you know the software and then you know you really summed it up veryeloquently about the opportunities around digitisation. You know, likethat's, there's so many opportunities there that's exciting. Are you running?I hear some tecs later stage say that they can't find enough startups to makean investment. Are You finding that are there? Are there still a lot of earlystage? I mean since your earlier in the life cycle. I'm wondering if that's youknow an issue for you guys as well. So I say you know, finding startups isnot an issue at all. I think finding one that you want to invest in. I thinkthat's where we spend a lot of our time so just to give you a sense at a form,we typically look at anywhere between six hundred and eight hundred companiesa year and we had the ability to invest in about five to six a year so aboutyou know less than a percent of those that we meet is what we invest in andit's of course, then you know Pritish what we think can be a very large. Youknow, peent venture scale outcome sector that we are excited about,something that we want to roll up our sleeves and work on personally, there'smany different fritters that go into it, but you are right, I think, there's alot of capital chasing deals and that's more true. The later you go in thespectrum once it becomes more clear that here the start up is on a greattrajectory. It's growing two three four hundred percent year er year. You knowyou hearing more and more about it at...

...that stage, there's a lot of capitalthat just chills these startups. They don't have to go out. Look for thesethis people just staring down doors to you now give money one series thatstage, but before that stage, which is we what we sometimes call the premomentum pre hype stage at that stage, what we find is that there's still alot of the funnel is pretty wide. There's alot of startups a lot more people, increasingly every year, are leavingtheir jobs or other career parts and starting companies, because they'veseen success with you know a lot of their friends or acquaintances or justreading the media of starter serving successful. So a lot of people startingcompanies, but still very readily few- can actually raise venture capitalfinancing and the reason is venture capital is terial. Looking for acertain pattern and Wentur capital is really built. It's like rocket fuel,you know, looking for those rocketships can just be hyper scalers, so somethinggrows five or ten X in five or ten years. We see they're not thatinterested. They want things that can be hundred ex thousand exponential. Youknow, of course, there's no guarantees, but there has to be some potential.Parth to being a very large outcome, so that's what we are fittering for- andyou know many other waces are frittering for, but the imbalance, Ithink, there's a lot more capital as you go later states, but there's only afew that can actually get to that part where they have such significant scaleand and so at our stage we are seeing o capital, but at the same time I thinkeven the opportunity has been increasing in tandem or perhaps evenfaster than this capital available. That just shows how important you knowfirm like yours is in that you know the stage is when you're making those earlystage investment. So you talked about things you were looking for. What aboutthe founding team? Is that important? Is that something you look at closelyas well? Absolutely that's the number one thing,especially at our stage, you know in every resew P, most species would saythat, but I think at the earlier you go.

You know the state we invest. I icallythey may not be. In most cases, revenues in many cases is not even aproduct or a customer. So what we really beading on is the team and ofcourse we have to be excited about the market and the current plans that theylay out for the product and the business. But in the end it's a lotabout the team and you know. In addition, of course, there is, you know we are looking for people thathave done great things before and have shown some. You know strong level ofsuccess in whatever they've done before, but also there's a lot of soft softerskills and software aspects that we start off for we filter pretty stronglyfor a D and basically fittering for antemes that are on a trajectory ofrapid personal growth, essentially people that can learn very fast fromtheir failures and successes and in most cases you know, people have notwhat they are looking to do for the next five or seven years. In most cases,when they're coming to us, they've not done that before, so they hive to dosignfied more than what they'veever done and that requires for them toperson they grow in significantly. You know, hire senior people across manydifferent functions. Learn a lot about many different functions if, fromtechnology background learn a lot about say, is marketing finance other thingsthey from sale, the background learn more about technology, product andother things, and then, of course, I think also one extremely importantparters things which are actually pretty hard to ascertain. But thingslike you know, especially the best Ontes, are the ones that can tea. Youknow they can break through walls and Tay through doors and just keep goingand I reading and but at the same time there's a balance of when they knowsomething is not working and try something else and finding that balance,I think, is really key to building a venture scale outcome, and so that'swhat we're trying to Federo doing those few days of weeks when we are gettingto know the team and spending time with them. We are looking to pick up on someof those qualities as well. In addition to, of course, you know getting to knowwhat the pride backgrounds and Terman...

...expertise and how deeply they'vethought to the problem and the product and the customers. I like how youtouched on the personal growth that's required on the founding team to besuccessful. I've never heard it put that way, but it's true there it'sgoing to be such a journey for them. You know that it has to be there thatability to take it on. Were you? What did you do during the pandemic? Duringthe you know, with investments and meeting founding teams? Did you do itremote, or did you try to meet as safely as possible? Or how did youapproach that yeah? We were almost weeping almostfully remote during the pandemic and, interestingly, it was our most activeyear ever in terms of new investments, and most of them have been done withoutactually beating the Ontina of the team in person, so our firm actually hasbeen remote friendly from since in section which was about four years back,almost five years back and you're bedding on or if you know, investingbehind entrees from a lot of different geographies beyond the bay area, sothat has necessarie us to be. You know remote and video conference friendlyfrom before, but, of course, for the Pan Mac that went to another level tobe did you know we made several indeserts now: We've not not met the onpreneur before and so yeah. I think it does make things harder than you knowin person spending time in person, but we try and sort of compensate for thatand find different ways to spend time, and you know multiple or multiple sortof meetings. We often introduce perspective. You KnowInvestie to prospective customers and sit through those meetings here, thoseconversations and we also connect conference with going to ponentadvisers of collaborators through those conversations and again all this couldbe over video conference as well and try and pick O cus and get to know theteams that way. But you are definitely looking forward to you- know ve,opening and being able to spend time in...

...person where we can. By the same time,I think it's given us a good templet to invest in companies that are, you knowwhere it may not be feasible to meet in person, given the sort of jester anddistances and other things, even after things open up exactly. Where do yousee? We talked about this a lot lately on the show remote work headed. Do youthink you know startup can be successful fully remote or do you thinkit's important for them to be in the same room? You know the engineeringteam or the senior leadership team at times. Where do you see that headedyeah? So you know I'm a big fan of remote work, we've been actuallywriting and speaking about mot work for the last three or five years wellbefore the panamic and but the same time. So I think, there's a you know soremote for this two ends of the spectrum. So there's fully remotecompanies where there is no in person, you know no one is meeting in person.There's no headquarters is no offices, and people could be just paced anywhere,maybe they're in the same time zone, but the in different locations. Sothat's a fully remote model, and then there was of course the more you know:High Bred in person model where you have officers and you meet in person,and so you know, there's definitely companies that have been successfulwith poor remote work and there's actually several Unicorn type companiesthat are already you know wise will leather and buffer in many others,which have done that even before pandemic. And that model, I think, willdo be a lot more companies as a personage of all startups. A lot morestartups than before are going to be all remote, and I think that can work.I've seen it work, and but it takes a certain level of skill, dedication andcommitment to do it. Well, the moment you say: Hey, we have these people inBaria, they will start meeting here and we have all the other people that areremote, who will just dialin. That makes it really tough. So if somepeople are meeting in person- and some are just always dialed in it makes itreally hard to pull that model of well, I mean it can be done, I'm sure, butthat we've seen is a Lott more tricky.

So what we think is some stars aregoing to just pick that part of being fully remote and they're going to buildall their systems and processes in that way where they are very careful aboutthis keeping everyone remote and then they, you know, there's a number oftools that have come up even within the last year, which facilitate you know:Deeper interactions, creative witty and brain storming, and some of thosethings that you can use, but then for a lot of other startups, which don't wantto go that way or find that you know it hindering sort of impersona interaction.The model we are seeing- and we are believers in- is the multi hub motel,where you could have a lot of benefits of promote work, but you could have twoor three different hubs. For example, a lot of our startups had this modelwhere they have a go to market hub in Silicon Valley, where they would havethe CE, or maybe the head of sales marketing and some of the customefacing functions based here, and they would have a lot of their tech andproduct team in a different area. Where it's. You know, you can scale your teammore than you can and Silicon Valley, for example, places like other parts ofUS could be Austin, Atlanta or Midwest, or it could be overseas like India. Sowe have many companies which have this model, and I think that model is verywell position in the new world as well, where you can get benefits of both toyour in person, interaction which is important in many settings, butespecially in areas where you are doing in a quire, more creative y, morebrainstorming or customer interaction, and also, where you're hiring, let'ssay a lot of people that are early in their careersand don't have a lot of experience. They often learn a lot when they'reworking alongside someone- that's you know been in the you know industrylonger time, so you can get best upo the words in a way by having thishybrid model. So we see that model also just taking off a lot more in this newworld, but it's a different hybrid than what some of the companies are doing,which is a hybrid of remote and in person which I think is a little bitharder than the hybrid way you have...

...this multi Hamor. I really like that. I have not heardthat term before multi Hav market model, but the way you've described it. Youknow I've heard other people talk about success. They've had that approach, butmulti have is perfect. Did you come up with that? You know this is so hard totell. We have been using that term for sometime, because our pom focus is you know we like that model, but this is so hardto tell whether you read about that somewhere or did you actually come withit, but yeah we've been actively using it. It's not a very commonly spokenabout term yet, but I think people would speak about. I think more in thecontext of startups is my belief, but it describes a hybrid approach thatyour right is much more productive for better results, because you spoke aboutsomething that I see company struggle with all the time when they do hybridand half the team is meeting and the other half is always calling in itdoesn't work it just there's. So many inherent problems with that, and so Ithink when people talk about hybrid, they have to be careful. That's why Ireally like this multi hub. That's great excellent. You mentioned the bayarea too, so lately, the past six months, everybody has, you know in themedia of the bay area, is over everybody's leaving with now you knowevery investments- and you know successful. I Pos all with remote work.The Bay area is done. Do you think that's true, or do you think the bayarea will still be? You know really important place for the startups em yeah. I think that's a great questionand you know don't have a sort of crystal ball, but I think it's a littlebit of both into the spectrums I think going back to what we are discussingearlier. I think the opportunity is just so large that the bare on its ownany way could not have you know,...

...there's not enough space, not in a realestate, not enough office space in the area to actually get into all themarket. Name, that's out there and how fast teck is growing. So I think whatthe panamic has done is accelerated. What was already happening before,which is tech? Being you know such a sort of tapping tech? It can be buriedfrom anywhere, and so this devolving of sort of this again, the area, centrictech economy into again, a multi hub. You know Protean for the country or theword where you have many different hubs, but I do think I think paria for thetime being will and is maintaining it's sort of you know. Stature or its presence inthe tech word. I think there's a lot more tubs that are coming up, whetherit's austen or Miami or Denver or Atlanta, or you know, bangle or anynumber of different places, but I think it's going to take a while for those tocatch up with the PARIA I if ever, but there doesn't have to be a catch up. SoI think what may happen is that certain places will be good for a certain. Youknow: they'll have specialized specialization in certain things, so Ithink Baria just traditionally has had all the venture capital and that don'tchange dramatically. I think other areas are seeing a lot. More forms comeup, but Varya's going to be a great place to as capital, and I think it's agreat place to build, go to market teams, because there's so many peoplethat are skilled or it's a great place of scaling in general, because there'sso many people with that experience of Skilling in any given field, a reallywant a person that scale a company- and you are very specific sector there are.You know dozens in any little sector that you pick it's going to be hard inother places. So to the extent there is a multi her approach, I think, variastay is important. If things are to go to that everyone is all remote, I thinkthen location could become totally irrelevant, but I think we are stillfar from that. That may happen. I don't know a few decades from now, but Idon't see that happening next year or...

...you know in five years that everyone isall remote. I think location is going to continue to be important because youknow people just being social beings, a lot of sort of ideation formation. Youknow, Relioni building just happens based on locations, location, and so Ithink period will continue to hold be an important place for technology andfor Skilling companies b. t t the same time. I think this going to be a lotmore now yeah. I think you're right and I like how you brought up tospecialization point to you know different markets. That may be wherethey gravitate, and it's so true about the bay area and go to market teams.You know that's hard to find elsewhere, still so any advice to early stagefounders. You know right now, especially you know, for someone who'sseen both sides of the spectrum that you could share. Yeah, I think that's you know, there's a lot going on, of course, and I think it's a you know, it said pretty often but I'llsay again that it's a great time to be an Ontina right now. I think, both fromour opportunity perspective, there's a lot of opportunities up there andthere's a lot of capital out there. So if you do want to build a large rocketship, I think this is the time to do it and for the same time, I think do itfor the right reasons. That's one recommendation. I think what alsohappens in times like these is that you also see a lot of tourists, or you know, folks that shouldn't be onPenes, necessary or maybe are not in the right mind, set to be on peneusgetting in and becoming ontire, because they're, seeing all these companiesraising all this money and growing quickly. So I think it's really take acall. If you know on Piesh Ip is a hard journey and the really sex fullcompanies often takes six eight ten years or more to really get to thatsort of scale. And- and once you start you know, I've seen this over in overtheir life only gets harder. People often assume that hey one series myvent around it's going to be easier or on Saris my you know, whatever seriesbe your growth rounds coin be easier,...

...but this is more more and more thingsyou need to manage and take care of, and you know this competition and thishiding and there is you, know, customers and once you have morecustomers, you have more things that can blow up all all of those things. Somake sure that you know that's what you want to do, and especially the venturepath. You know again, the venture capital path gets written about andtalked about a lot more, but there's many different parts to onconsarned andwe see is relevant to actually a very small subset of that which is you knowthese hyper scare companies which can go from you know zero to call it a zerohundred and five seven years, but they could be perfectly good businesseswhich don't necessarily aspire to do that and a lot of businesses I seeoften times or many business that I see fall into that category, wheresometimes they get their advice that hey. Why do you want to raise when acapital find other sources and bill a great business? But then, if you know,if you do decide to take that path, I think now is there hasn't been a bettertime to go that rout and build your company. It's so true. It's such a good time,but you're right it does get more complicated as the scale. I think a lotof entrepreneurs forget about that that you know you know, as you grow out,that problems do grow as well. So that's a good point as we wrap up. Thishas been such a great conversation. I've taken a bunch of notes. Can youshare with us a little bit more about emergent ventures just for the start,up founders, who are listening right now and what you're going to be lookingfor over the next year and will end with that? That would be great sure yeah. So we are focused on youacross the seat stages. Nothing is too early for us, so we start. You know wecan invest in our. We invest in companies which have you know founderand an idea and then all the way to precere rounds. That's where we come inand across the enterprise tech landscape, and then we tend to befairly hands on investors. We take O,...

...you know meaningful role and helpingthese companies, so we don't invest in a very high volume of companies, butreally you know a few companies where we think we can be helpful and canpartner with enterers and really getting helping them get to the nextmilestones with the next. You know, year or two, and I think the areas weexcited about our across the enterprise landscape, but you know a few areasthat some of these are tested upon, but you know undedicated industries, thingslike on a logistic stack, or even you know, software for the modern C fo.Those are a couple of areas. We are thinking a pretty deep. Look at rightnow also excited about B to be market places. Lately, you know there's a lotgoing on there, as bub buyers have seen you know, market places and theirpersonalized, but then in their work lives they have to go through thismanual process to procure things, seeing a lot of activity in there andexcited about that area, and then yeah number of you know things around isbringing automation and yeah to to work. The way work is done, call it future ofwork or call it. You know automation, but you seeing things across. You knowsales marketing, customer success in other areas where you can just helppeople do the work better by you know just processing the underlying Dita,better or picking up signals and just helping them focus on more valuate Tas.So in wrestling things across that sort of white ring as well sounds like youguys have some your ion some great industries, I like it. This has been areally excellent conversation. I thank you so much. I really enjoyed speakingwith you and we'd love to have you on the show again, as we see how this postcoid world plays out. So thank you very much. Thank you. It's been a real pleasure.Thanks for the great you know, questions and really enjoyed. Speakingwith you here, you've been listening to start upsuccess. To make sure you don't miss out on future episodes subscribe to theshow in your favorite podcast player.

Like would you hear tap the number ofstars? You think the show deserves an apple podcast for more tools andresources for your own start up. Success check out Bergland associates.Thank you so much for listening until next time.

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