Join us as Swati discusses the process of investing with Gopi Rangan, an experienced investor in the insurance technology sector. We discuss the explosion of Micro VCs in recent times. Additionally, Gopi shares his process, how he sources companies, how he interacts with them, what characteristics he specifically looks for and he manages his portfolio post investment. As an early stage investor, Gopi seeks to understand how he can help the company grow and thrive.
This is Propel(x) podcast, discussion on investing in all things startups. Startup investing is highly risky. Please listen carefully to the disclosures at the end of this podcast.
Swati Chaturvedi: Hi everybody. Thank you for joining us today. This is the Propel(x) podcast, and this is Swati Chaturvedi. We have with us a guest today, Gopi Rangan, who’s an experienced investor. He works just after angel investors. I will let Gopi tell you a little bit more about himself.
Gopi Rangan: Thank you very much Swati, this is very exciting. Thank you so much for inviting me to your podcast show. I am Gopi Rangan. I’m the founder and general partner at Sure Ventures. Sure Ventures is an early stage, seed stage, pre-seed stage venture capital investment firm based in Silicon Valley. I’m the general partner and my main focus is on the Insurtech sector.
Swati Chaturvedi: Gopi, you have a long experience even prior to starting your own fund, right? And you worked with large companies, running investment funds for them. Tell us a little bit more about that experience.
Gopi Rangan: Certainly. Prior to starting Sure Ventures, I started an angel investment group for my business school in Seattle Alumni community. And that went really well. I started talking to entrepreneurs at the point of origin, almost at the time when they were beginning to start companies. That was a very fascinating time because meeting people at that stage of building a business is very fulfilling. The impact that my work has in the comments, and the advice that we give as angel investors has a huge impact on the long-term growth of the business. Prior to doing that I was with two different firms. I was with USAA corporate venture group. And prior to that, I was with the Altera corporate development team where I helped start a corporate venture division. Altera got acquired and that division is now with Intel. Between the two firms, I’ve made about 15 to 20 investments. I had a great time working with some amazing entrepreneurs. There was one IPO, a few acquisitions that came out of two portfolios. So that became the foundation for my investment career. And I’m so happy that I found myself in this space where I can work with very, very ambitious entrepreneurs and help them build their bases.
Swati Chaturvedi: That’s awesome. Thank you so much, Gopi. So what is your investment philosophy? You work at the earliest stages. What kind of companies do you invest in? What stage? What kind of entrepreneurs? Is there a philosophy behind it?
Gopi Rangan: My philosophy for investment at Sure Ventures is that I invest with a mission in mind and the mission is to enable peace of mind. So that’s a good question. You would ask, what is peace of mind? What creates peace of mind? We have peace of mind when our assets are protected and when we have a safety net that protects us from liabilities. So that’s the kind of opportunity I would look for. I look for entrepreneurs building products and solutions that create a better safety net, help us manage risk better so we can sleep better at night, wake up in the morning and take risks in a world where we can build prosperity for everybody. So that’s the focus for the fund.
Swati Chaturvedi: Okay. Understood. Thank you so much for that, Gopi. So we would classify your fund as a micro VC would we? And so tell us a little bit more. There’s this explosion of micro VC funds in the past few years. What’s your perspective on that? Why so many micro VCs, where does this go from here?
Gopi Rangan: That’s a very good question. It’s very pertinent to where we are today, especially in the past five to 10 years, we’ve seen an explosion of new micro VC funds formed. Let’s take a step back and kind of look at what is really happening. Venture capital investments are typically driven by the partner that makes the investment. It’s a business that doesn’t really scale very well. That’s how it’s been for decades. I hope that there are some changes that will happen, that can change that. But within the parameters of how this industry works, if we look at how venture capital works, the partner’s opinion about an investment opportunity drives the decision-making process. It’s really hard for any partner to make more than a set number of decisions. As a result, entrepreneurs are always looking for new investors, and when they are not able to find the right kind of investors that creates opportunities for a set of whole new wave of investors coming into the market.
In the past 10 years, when the economy was booming, a lot of the early-stage investors moved up market to bigger and bigger funds that left a space for early-stage funds. So that’s one big trend that happened. The second is that the type of entrepreneurs are also changing. There’s a lot more diversity in the kind of entrepreneurs that are coming to market, people who are building businesses. So they tend to attract people who are like them.
Although there is one aspect of the discussion that quite often comes up, that investors like to look for people who are like them, and there’s a strong bias in that decision-making process. I actually believe the entrepreneurs drive this decision. They choose investors. Some of the best entrepreneurs have a choice and they decide who their investors are. And that’s why there is a whole new crop of new venture capital investors coming into the market and they are successful. The main reason is that there’s more diversity in entrepreneurship. So these are the two major trends that I’ve seen in the past 10 years that’s driving a lot of the demand for micro VC funds.
Swati Chaturvedi: Understood. So that’s helpful. So as you know, much of our audience is angels or aspiring angels, people that are new and old to angel investing. It’s really angel investors of all stripes. One of the purposes of our podcast is to talk more about the process of investing the pros and cons and so on. So, in that direction, what is your process of investing? You’re a micro VC. Do you invest at the same stage as angel investors? Do you invest before or after? And what is the process that you follow?
Gopi Rangan: I like to invest in the first institutional round of funding. I try to shy away from using labels like pre-seed or seed or other things that seem to be changing a lot, every few years; what used to be series A is no longer series A, what used to be seed is no longer seed. So the way I look at it is when a founding team is ready to bring on institutional investors, when they’ve crossed the stage of the early parts of putting the business plan together —that’s when I get involved. Typically this is the pre-seed stage, as we define today, sometimes it could be seed stage an early stage. My preference would be to believe in entrepreneurs before the rest of the world accepts them. That’s the stage I get involved in. The process that I follow for that this is a little difficult to explain because every time I set up a process, I break the process myself. So it’s very difficult to give out a formula on this is how I work, but there are some basic questions I ask before I get excited about an investment.
The first step in that question is, is this the right team working on the right idea? Or is it the right idea in the hands of the right team? That combination of right team and right idea makes magical chemistry happen. So I always look for that first. And then the second thing that I look for is are these entrepreneurs, are they looking for a long-term business? Are they committed for the long term? Are they mission-driven? Do they have the motivation to go through ups and downs and build a scalable business for the very long term? So that’s the second question I asked myself.
And then the third and fourth questions are typically well-known. Does this target a very large market? Is there a all room for opportunity for multiple players like this to co-exist and be successful? Does the team have the right experience—mutually exclusive, collectively exhaustive set of experiences? There are a whole set of other questions that typically come through the due diligence process, but I put more weight on the first two questions, which is, the right team with the right idea And do they have long-term mission.
Swati Chaturvedi: So that’s a lot to unpack and I’m going to probe on some parts of that. So let’s go to the first part. You said that you invest at the pre-seed stage, even though we want to avoid labels. But would you say that the companies that you invest in already have revenues at that point or do they have some kind of proof of concept projects? How should we look at it from the state of the company?
Gopi Rangan: There is no one set way. It’s on a case-by-case basis. In some cases, companies have early revenue, which demonstrates that there is a need for this product in the market and customers are willing to pay. And that proof point is important to have. In some other cases, they might just have a slide deck and often the slide decks might even have a lot of typos. I have invested in a lot of companies with typos in their slide deck. So that is also okay. It depends on each of those cases. But the general theme that I’ve seen is that I invest after the angel investors invest. The first initial round of funding is from angel investors and I like to invest after that stage.
Swati Chaturvedi: Okay. So the company in your case has usually raised an angel investing round before they come to you?
Gopi Rangan: Yes.
Swati Chaturvedi: Okay. Very good. Let’s move on. Moving on from there, you talked about the process and you start by asking a series of questions. The first two being the most important, which is right team for the right idea and whether or not they’re mission-driven. And then once you have faith in the team from there follows other questions like market and other risks and so on. Before we even get there, how do you get your deals?
Gopi Rangan: There are multiple sources. Deal flow is kind of the lifeblood of a venture capital investor. So it’s kind of the secret sauce of the business. So most investors don’t reveal a lot about their deal flow. I can comment on some things about how I build that process. The experience that I have is very unusual compared to any new investor. I helped build a venture capital program from scratch. And I helped grow a venture capital program from a very small set of portfolio companies to one of the most active venture capital programs in the world at that time. So, I understand the mechanics, the schematics of how to build a venture program. And there are a lot of network effects that happen; there is a concept of ‘success breeds success’. Once you start making good investments that lead to even better investments.
So there’s a lot of this tribal knowledge that I have developed over the years, and that’s going to be very, very helpful for me. Have I put that down on paper, describe exactly what they are? I haven’t. And that’s different from every investor on how he or she behaves. But some of my main sources of deal flow are angel investors, other venture capital investors, and entrepreneurs that I’ve worked with. And I also play an active role as an advisor at many accelerators. And I’m also a professor. I teach entrepreneurship at INSEAD and a few other places like Stanford and Berkeley. So those are my main sources of deals, that’s where I look for entrepreneurs.
Swati Chaturvedi: That’s helpful. Thank you. Understood. What is your first meeting with the entrepreneur like? When do you decide to take a meeting with the entrepreneur? I’m sure you’ll get lots of pitch decks and you review them and you get intros. When do you think..do you meet every one of them or do you kind of screen them and say, “Okay, this is the guy I want to meet” or go.
Gopi Rangan: The first meeting, when I look at the history of a number of companies that I’ve met over the past couple of years, I probably meet about a few hundred entrepreneurs every year, maybe 300 to 400 entrepreneurs every year. Many of those introductions come from people that I already know and I trust and that’s important for me because they know me and they know my style; not just the transactional side of what I invest in and what is the best fit for me in terms of numbers. But they also know my personality. They understand who I am.
Many of them are my own advisors and mentors and investors in my fund. So they understand me and how I operate. So when they meet an entrepreneur, who’s a good fit for me, it is not only a good fit from a business perspective. It is also a good fit from a personality perspective. That makes a big difference. And I always take all the meetings referred to me by people whom I trust. I do take some cold calls. I get cold emails all the time. I meet entrepreneurs in various different settings and I do take those meetings, but when you’re looking at it from an entrepreneur’s perspective, where is the highest chance of success? They are probably best served if they meet someone that I already know very well. That doesn’t mean that I only invest in people I know. That’s different.
I actually believe that venture capital industry and this asset class is one of those few aspects of business where strangers are favored. This is an industry where an investor invests in an entrepreneur who he or she doesn’t know and doesn’t have a long standing relationship. That’s the beauty of this industry. And I actually admire that a lot. So most of the investments that I’ve made are an entrepreneur that I didn’t know before And I got to know them over a period of time, maybe a few days, few weeks, a few months, and then made the investment. Of course, I don’t mean to say that none of my friends should receive investments from me. I have invested in people I’ve known for a while, but this entire industry works that way; we favor entrepreneurs and we don’t expect to have known them for a long time and that’s not common to see in other aspects of it.
Swati Chaturvedi: Yeah. That’s interesting that you say that you invest in people that you haven’t known for a long time, but maybe correct me if I paraphrase this incorrectly: You may not have known them as best friends for years and years, but you probably spend a few months learning to know them or getting to know them before you make the investment, Right? Or do you just invest in complete strangers?
Gopi Rangan: Everything is possible. I have a portfolio of about 10 companies right now. One of the companies was founded by a friend I have known for 20 plus years and the other extreme, I made an investment after two meetings.
Swati Chaturvedi: Oh my, okay. Very good. Very good. That’s a great spectrum. So after you’ve met for the first time and you decide that this is something you want to learn more about. Presumably, your first two questions have been answered by them; which is whether they’re the right team for the right idea, whether they’re mission-driven. How do you determine those two things in your first few meetings?
This is a combination of art and science. There is an intuitive element here that I have developed, and it’s going to be very hard to kind of break it down into a formula. I get the feeling. I know it when it happens. I do ask a set of questions that evoke responses that are pretty standard. I asked them about how they started their journey, what inspired them to start the company, what’s the genesis and that story is actually very, very fascinating. And I love hearing that; it’s like watching a movie. It’s very entertaining and it’s very fulfilling for me to know who they are and where they come from, how they started the business. That tells a lot about the company and the entrepreneur. I asked them about how they chose the co-founders, how they came together, and the chemistry between them. This is a part where I really miss doing it now. It’s very hard to do that remotely.
I love to meet people in person and see the dynamics play out. That tells a lot more about the team and what they believe in what their values are. And I can begin to see what kind of company they might want to build. So let’s take some hypothetical examples: If I had met Mark Zuckerberg when he was building Facebook, it would come through very clearly that he’s a hacker mentality. That’s what he has now. He’s going to build a Facebook that will break things, grow at a fast pace. But if I had met Larry Page and Sergey Brin, it would come through in their conversation that they are all about organizing information and making it available to people. They’re all about fairness. The Google search bar that we get is the same search bar, whether you’re the president or prime minister of a country, or whether you are an employee at a burger joint—everybody gets the same search bar. I can imagine those types of things already. But if you look at other products and services, if you pay more, you get more if there are incentives aligned towards how you’re building the product.
Google has that perspective and that’s because it was in the hands of Larry and Sergey. Facebook has that perspective and they were able to connect the whole world into a network because he had that perspective. So that comes through in the team and I would argue that Facebook culture built Facebook products and Google’s culture built Google’ products. And I’m looking for what kind of culture is this company going to foster and does that lead to the product that they are envisioning? So that shows in the conversation and I look for that.
Swati Chaturvedi: I see. Okay. That’s interesting. Let’s move on. So what else do you look for when you do your diligence? So assume like we’ve crossed this barrier of the first few questions where you figure out the fit, how do you pursue your diligence post this?
Gopi Rangan: I look for freshness and thinking. Is this something that the world hasn’t seen before? Is this a new perspective on the problem? Has anybody else thought about it this way? I come at it from a point of view of learning. I like to think of myself as a learning machine. If at the end of the conversation, I have unlocked a perspective in my mind, I go in with an open mind learn and if I have learned something new and if I’ve come to the point of like, “Aha, that’s interesting.” That’s a big sign for me. I enjoy that process of not being the smart guy in the room and learning from people who have thought about a problem very deeply. So that’s a big trigger point. The second thing is I look for people who don’t have too much expertise. My worry is that when there is too much expertise, they may not be creative. They might hold themselves back because they already begin to think of protecting potential failures. I want the opposite. I want people with just enough experience that they are passionate and motivated to solve a problem, but not too much experience that they will hold back. So that’s where the sweet spot of innovation. And I’ve seen consistently in my experience that people with an outsider mindset coming into a new industry have much better chance of success in building revolutionary solutions that the world hasn’t seen before.
When you’re looking for marginal improvements, expertise helps a lot But when you’re looking for something fresh that will change the way an industry works or creates a whole new industry, outsider’s thinking helps a lot. And the last thing that I look for is what can I do to help them? If I cannot help them, then I shouldn’t be investing. There has to be a role for me to play actively in their journey. It’s an honor to have the opportunity, but it’s a role that also comes with responsibilities. I want to earn that spot, and if I have this spot and if I deserve the spot, then I also earn this spot to make an investment. If I cannot add value, they should get investments from someone else.
Swati Chaturvedi: Understood. And let’s say you’ve gone through this process and you decide to invest, are there specific terms you look for? And as angel investors, what should angel investors be wise to?
Gopi Rangan: Angel investors are amazing. I have hats off to them. They’re truly angels. Some of the best angels that I’ve worked with have two perspectives that they go for. One is they see, in the entrepreneur a version of themselves and they want to live life through that entrepreneur. It’s a very vicarious way of enjoying ambition—that’s one perspective I’ve seen. And the other perspective I have seen is angel investors invest in topics that they have no clue about, and that creates an opportunity for them to experiment, learn, and expose themselves to new areas that they otherwise wouldn’t get exposed to. So those types of angel investors tend to strike a chord with me really well. And I rely very heavily on their judgment and their thought process on why they made those decisions. What are they excited about? And some of the best angel investors are also very open in the risks that they have seen; risks in the market, risks in the team, risks in the product that they’ve developed, risks in the technology, risks in getting to market—they usually highlight a lot of those things.
Contrary to how an average person who doesn’t understand venture capital might think, venture capital is not a business of walking away from risk. It is actually a space where people take huge risks. It might appear from the outside that VCs keep saying no all the time. That doesn’t mean they are risk-averse. It just means that there’s a risk profile that I look for and I’m okay to accept and there are certain types of risks that are not okay for me to accept. The angel investors bring that out very easily. It’s a lot easier for me to understand what risks I am willing to accept.
Swati Chaturvedi: I see. Got it. Finally, in thinking of your relationship with the company, post-investment, one of the questions I like to ask is do you spend more time with the company, analyzing it before the investment or after, and what is it that you do with them after?
Gopi Rangan: Two questions here: The due diligence process and value add later. Let’s touch on both of those. I believe that due diligence starts way before the investment discussion starts. Due diligence starts way before the first meeting. If I start the due diligence process, after I meet the entrepreneur, I’m too late. So I need to have a prepared mindset. I need to have researched the sector. I need to have understood the nuances of a problem before I even meet an entrepreneur. And this can happen over months or even years where I have dabbled in the area, I have had personal experiences in certain topics, and then when I meet an entrepreneur that sings the story of how they’re going to build a solution for that space, all my experiences that have happened over the years, I can begin to connect. That’s my due diligence process. If I start the due diligence process, after I meet the entrepreneur, I am too late. I’m not running an M&A process like an investment banker that is not the process.
So this is about an innovation cycle that lasts seven to 10 years. We both need to come together to agree on how the world will be if everything worked out. I just need a reason to make an investment. If I get that reason out of those discussions, then I can be a good investor for the startup. That’s the due diligence process that helps. Of course, there are the standard business metrics that are helpful here, but more than any of those things, I need to have a prepared mind.
Swati Chaturvedi: Got it. Okay. And what about the value add?
Gopi Rangan: The value add is the way I look at it, investors have this honor to be a part of the journey of an entrepreneur. It’s a front-row seat to how the world is going to be in the future. You get a view of that and it’s a privilege. It is not given to a lot of people. So any investor who gets that spot needs to value that spot and needs to be able to contribute to that journey. That’s how I view it. I am not the hero. It’s the entrepreneur that’s the hero. I think of myself as a coach on the sidelines. So on any given day, I’m somewhere between a management consultant that gives strategic advice to a best friend who the entrepreneur can lean on. If it’s a day when they need to talk about, go-to-market strategy, I will help them. If it’s a day when they need to hire a VP of sales and they’ve filtered through multiple candidates and they’ve picked one top candidate and the candidate has an offer from somewhere else and they’re competing to get that candidate onboard, I might be the closure. I can credibly show the VP of sales why I invested and my conviction on the business and that makes a very convincing argument to candidates. I can also be a good friend, like on a Friday night when the founders have had a rough week, perhaps bad things happened and they just to talk to someone without an agenda. Most of my conversations don’t really have an agenda. I let the entrepreneur drive those discussions and depending on what is most valuable for them, we go there. So it’s a combination of any of these; from being a good advisor, good, good strategic consultant to being a therapist, if you will. So that’s the role that I play. That’s the value add I provide.
Swati Chaturvedi: Got it. Well, thank you so much, Gopi. This has been great. We are almost at the end of our time to 30 minutes. Thank you so much for your time and to our audience. It’s a wrap for the day. We’ll see you again in the next podcast until then this is Swati.
Gopi Rangan: Thank you very much Swati. People can contact me through my website https://www.sure.ventures. It was a pleasure talking to you.
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Content Disclaimer: Past performance is not a guarantee of future performance. The investments mentioned in this podcast (if any) are illiquid and there is no guarantee that an exit strategy will come to pass.