Disruptive VC: An Interview with Leila Rastegar Zegna, Co-founding Partner at Kindred Capital

Leila Rastegar Zegna is a Co-founding Partner at Kindred Capital VC, which is a leading early-stage VC based out of London that is pioneering a new way of investing, which they call equitable venture. It was founded in 2015 with £80M for their first fund. Kindred is sector agnostic and invests across Europe with a “UK first” approach, so as to be in close proximity with the startups in its portfolio. William McQuillan and Carolina Küng from Frontline Ventures connected me with Kindred so I want to say a big thank you to both of them for helping to organise this! You can read my interview with William about Frontline here.

Leila studied Maths & Philosophy at Yale University before working as a senior consultant at Bain and Company for 3 years. Following this, she proceeded into a number of start-up roles, including working with Endeavor (an organisation that supports entrepreneurs in developing countries) and the early team at Innocent Drinks here in the UK. After completing her MBA at Harvard Business School, Leila moved to Silicon Valley where she joined the founding team of GenapSys, a genomics company developing revolutionary DNA Sequencing technology. She moved to London in 2014 and set up Kindred with her co-founders in 2015.

It was brilliant discussing with Leila about Kindred Capital, her reasons for setting up Kindred and the equitable venture business model as well as her views on the VC and early-stage startup landscape, which you can read below!

About Leila and Kindred

Leila, thank you for taking the time to join me today. Could you please tell us a bit about how you came to co-founding Kindred?

Leila: The way that my partners and I came to found Kindred was that we were all company builders in our previous lives, so we all spent a fair amount of time on the operating side, and when we decided to set up Kindred, it was that same ethos of wanting to start another company. The company just happened to be a fund! Whenever you start a company, you are looking for a pain point in the market that you have the unique ability or insight to solve. The pain point that we saw was on the funding side. We combined our experiences of building companies globally and looked at the best practices in the people that invested in us.

We looked at the European landscape, specifically in the UK, and thought that actually despite the fact that the previous decade had brought a huge amount of energy and innovation on the company building side, the venture side hadn’t evolved a huge amount in that period. There were a lot of the same firms with the same people doing things in the same way. We felt there was a real opportunity to build a new and very innovative model trying to address the pain points that we saw in European venture. We decided to take some of the playbooks that we experienced as founders when we were customers of venture capital, but also use our philosophies on what a new model could look like.

How did you and your co-founders all decide that it was the right time to make Kindred?

Leila: It was a very organic process, to be honest. I grew up being quite Type A as I was always an overachiever. I always felt like I had to plan everything in my career, so I would take the honour classes at high school so I could get into the right university, then I would graduate summa cum laude so I could go to the right consulting firm or investment bank and then after that, I would leverage that to go to a great business school. I thought I had to have it all planned out. The truth is the most extraordinary and luckiest things that have happened to me in my career have happened through sheer serendipity! There was much less planning and was all to do with looking at where a window of opportunity opened. In my previous manifestation of being a hyper-planner, I would have ignored that window since it wasn’t on that critical path that I planned.

Kindred was me coming out of my previous role as a founding team member of GenapSys, which is a DNA sequencing startup based out of the valley. I have been on that journey together with the founder and CEO for about 4 years. Then, my husband was relocated to London for work so I spent about 6 months commuting back and forth between London and Silicon Valley, which is a very long commute! Not advisable! When I realised that was going to be a non-workable proposition, I started to think about what I wanted to do next.

The advice I always give people when they are thinking about what to do next is to find the best people, no matter what those people are doing. I think everything in life is about aligning yourselves with the best possible people you could find and you can never really fail because you are working with extraordinary minds and you are building something really interesting. Even if that first manifestation doesn’t work, you will go on to do fascinating things with those people.

I found three people through the serendipity of co-investing in angel investments together. Similar to you, I wanted to get tucked into the venture and startup ecosystem here locally to figure out what I wanted to do next. I really did think I wanted to start another company so I thought let me see what is out there and who are the players. I had a ton of conversations — I think I had 5 coffees a day! I met my partners through that experience of meeting with people, sharing ideas, and exchanging deal flow.

I kept seeing the three people who I co-founded Kindred with on cap tables — it felt like every time I was making an angel investment, their names came up! It was clear that we were attracted to a similar kind of founder, and yet we approached things from very different vantage points, which was interesting. We started meeting weekly for breakfast around 7.30am before work. We shared ideas and the weekly meetings became bi-weekly and then 3 times a week and we just decided that actually, could we bake this into something new and fundamentally different and institutionalise what we do together as a firm. That’s how we founded Kindred.

Kindred Capital has coined the term, “Equitable Venture”, which is a model where every founder in the portfolio of Kindred gets carry in the fund and so, become co-owners of Kindred. What was the inspiration behind this and why do you think this is important?

Leila: Coming from a place like Silicon Valley, which is an incredibly dense network, you are surrounded by others who believe they can go out and change the world. This hyper-collaborative and pay it forward type of mentality that founders have in helping other founders fuels the entire ecosystem further. In the UK, if you look at the financing environment, when we set up about 4 years ago, the vast majority of the capital was financial capital, which meant that the VC firms that were making the early stage investments had no founding experience on partnerships. Few investors had spent a mile walking in the shoes of a founder or felt the wild swings of up and down.

We felt that led to a scarcity of two key things. One was empathy of how difficult it is to build something from nothing into something. You can’t really build deep relationships with founders unless there is that credibility and shared experience. The second thing is the shared learnings from those experiences — if you yourself haven’t used the tools and tactics for building companies, then it is very difficult to give that advice to others, who are using those tools today.

When we thought about building the model for Kindred, we wanted to make sure that all four partners have had that experience before, coupled with in-depth investment experience, because we believe the pattern recognition that comes from that is very important. We wanted to make sure that there was a current set of knowledge, tools, and network. And we decided that people with all that current and relevant knowledge are founders of today. If we can spend all our time picking people who we think are the most ambitious people in this market and we can actually make them co-owners in one another’s journeys, we could give them this vested interest in each other’s success. That will be the replication of the dense network that we experienced in places like Silicon Valley, except it will be even more magnified because there is this feeling of owning each other’s success.

The idea behind equitable venture was really built on the question, “Are we better off having a fifth partner, or should we treat our founders as if they were the fifth partner?”, so we have taken 20% of our profit — of our carried interest — and we share that with every founder we invest in. What that means for us is that we have this army of 55 founders in our portfolio, who have a vested interest in Kindred’s success, and therefore in one another’s success. They are naturally in each other’s networks and they are speaking at founders dinners or conferences so they end up being this incredible magnet for strong deal flow, which is an incredible asset we have.

This also means we combat the high human capital-intensive model of practising venture capital, which doesn’t scale very well. The typical firm has a small handful of partners that get spread increasingly thin over a wider portfolio. I hope that if we are doing our job right, every time we add a company to our portfolio, that company and all of our other companies get more value rather than less. That was the concept behind equitable venture.

About the VC and Startup ecosystems

I read that you have a “UK first” methodology as this would mean that you will be in close proximity to the startups you back. How do you think that Brexit will affect your view on this?

Leila: The million dollar question! I think we have a thesis as a fund much like the companies that we invest in have a thesis. You need to have strong conviction but hold it lightly. That’s what we do with our UK first strategy — we have a strong conviction as we stand today. Six of the top 25 universities around the world are within a 100 miles from London. There’s extraordinary talent that is coming out in areas such as health, financial services, biotech, marketing and adtech. You start to see these pockets, where there is extraordinary talent that is relatively underserved versus the US. We still find there is a great opportunity to back these founders right at the beginning of their journeys.

The question with Brexit is less based around are those early stage opportunities going to start to wane because I still think people will want to go to Oxford, Cambridge and Imperial etc. There is an extraordinary base of large incumbent companies where people leave and start their own company from. The question I think is can they scale in the UK. For that, we have to be pretty flexible in terms of our remit and mandate. We are in the business of backing globally game-changing companies. For the most part, they start out in the UK when it comes to Kindred’s portfolio but we are very hands-on in helping them if and when they need to move to Silicon Valley or expand across Europe or Asia etc.

We take a local approach to when we first invest and I don’t think Brexit is changing that for the moment but we have to take a global view in terms of scaling these companies.

Kindred is one of the newest seed funds in the UK as it was set up in 2015. Since then, there has been an increase in activity amongst the early stage VC landscape with a number of new funds. What are your thoughts on this? Is this helping the industry through the increase in capital or hindering it since it might be giving rise to a lot of noise in terms of sub-par startups raising funding?

Leila: On the whole, I think it’s a great thing. Speaking as a venture capital firm, I think competition is a net positive. In every single industry, that’s when you get the best products. Having competition makes everyone in that ecosystem better. It is clearly an exciting time to be an entrepreneur. The scarcity is no longer on the side of the capital but instead on these amazing talented entrepreneurs, which is how it should be.

On the point about capital bringing noise into the startup ecosystem, I think there is some less than ideal practice that happens when you have too much money floating around. One of those things is less on the institutional side but more on the individual side. For example, EIS and SEIS are tax incentives for individuals to be investing in early-stage companies, which was great when it first launched to kickstart the ecosystem. We are at a stage now, where if you have tax incentivised capital, you might put an irrational valuation on a company because the upside is infinite and the downside is protected. All of a sudden, you see cap tables that don’t make a huge amount of sense, which is because people aren’t investing thinking about what makes a great company. They are thinking about tax-efficiency, which is a different game.

One of the big discussion points is on diversity in the startup ecosystem. What do you think of the diversity problem in the tech industry and how do you think we can overcome it?

Leila: It’s an issue that I am very pleased has risen to the forefront of conversation. I think there’s much more awareness today than even just a few years ago, and the discussion has moved away from it being ‘the right thing to do’ to it being a value driver in a business. There’s a lot of research now that shows diverse teams lead to better outcomes, whether those are operating teams or investing teams. In terms of what can be done about it, there’s a number of different initiatives that we are very supportive of. These include things like Diversity VC, Parity Partners, and female founders office hours, all of which Kindred is an active participant in.

I think the best way to progress the diversity challenge is to be the change you want to see in the world. I feel really privileged to be a female GP, and to be able to use that position of privilege to cast a light on what it means to be a GP at a firm and why it’s a fantastic job and why other great female minds should be thinking about it as a potential career path. I also think I have an added benefit of being at the top of the call sheet for a female entrepreneur. I think you should use your position of privilege and give back in terms of trying to foster diversity in the next generation.

Quick fire round

If it wasn’t for investing, what would you be doing right now?

Leila: I think I would probably be building another company. I mean that’s very much what I’m doing now with Kindred. There is something so energising about having a thesis and building something totally new and testing it and iterating on it. Every day, we are really trying to constantly evolve, constantly learn and never be satisfied with the status quo.

What do you like to do in your free time?

Leila: Hang out with my kids! I literally feel giddy to get to see them when I come back home in the evening. I have a 2.5-year-old and a 1-year-old so I like to say I have two startups at home and then a startup at Kindred and all of the startups in our portfolio, so there is never a dull day!

Thank you very much for your time, Leila. I had an incredible time understanding your philosophy behind Kindred and its business model, as well as getting your thoughts on the VC and early-stage startup ecosystem. This meeting was very insightful! Readers, I would recommend you to follow Kindred and Leila for the latest news from them.

If you work in the VC space and are really excited about the development of the startup industry, please get in touch by replying to this post, LinkedIn or Twitter!

By Abhilash Dubbaka

Abhilash Dubbaka is currently undertaking a Master’s in Computing Science at Imperial College London and is actively involved in the startup community. Previously, he worked in Investment Banking for 3 years. He is an investor with a passion for the technology sector, as well as a tech writer speaking to ambitious founders, industry leaders and venture capitalists. If you have any comments, please contact Abhilash through LinkedIn, Twitter or reply to this post.