The Inquisitive VC: Jalak Jobanputra — Future\Perfect Ventures
Jalak Jobanputra is the Founding Partner of Future\Perfect Ventures, an early-stage venture capital fund in NYC focused on next-generation technology such as blockchain and machine learning. Jalak has been a VC for over two decades. Before founding Future\Perfect Ventures, she was the Director of Mobile Investments at Omidyar Network, a philanthrocapitalist fund started by Pierre Omidyar, co-founder of eBay. Prior to this, she was the Senior Vice President at the New York City Investment Fund, a Principal at New Venture Partners and a member of the Intel Capital investing team.
NA: Hi Jalak, thanks so much for joining me today. To start off, I wanted to talk about your thesis at Future\Perfect Ventures and how you like to make investments?
JJ: So I launched the fund in 2014 based on a few hypotheses. One was that we were primed for the next wave of computing. I started my venture career off in 1999 in Silicon Valley, and that was the early days of the web, the internet, new platforms, and technologies and applications emerging from the internet. Before that, we had the PC and business models arising from the PC, companies like Intel and Microsoft emerging from that platform. So, I started with this notion that we were primed for something else.
The second hypothesis was that technology creation was going to become more global. Started looking at investing in early-stage, and by early-stage, I mean seed and Series A globally. Companies that may be based in the US but are targeting markets outside of the US, or global markets, or companies based outside the US that technology can be used and distributed globally, and so that was the second thesis.
The third was, I wanted to base it in NYC, I’d been out in the valley in the late ’90s, I’d been back in New York since 2004, and was really encouraged by the entrepreneurial community that I was seeing taking hold in NY. It was really accelerated post the 2008 crisis when the city really took to diversifying the economy by supporting the tech sector. We also saw a lot of financial institutions start paying attention to how they could work with startups to accelerate and create more efficiencies in their businesses.
Those were the three areas. I came across blockchain technology by going to a bitcoin conference in 2013. So, when I was looking at the thesis generation, I was already thinking about AI and IoT as part of this new wave of technology development and became really interested in blockchain technology. Bitcoin specifically for the financial implications of a currency that didn’t require intermediaries for clearing and could work across borders. As soon as I came across the concept of bitcoin, I immediately thought of mPesa [money sending app] in Kenya. I was born in Kenya, so I had been following the mPesa progression since it launched in 2007.
It contributed to Kenya’s GDP, by creating more efficiency in transfers, and offering people who didn’t have bank accounts the ability to transact without the bank account. So, I immediately thought bitcoin could be the mPesa for the rest of the world. Then also I become interested in blockchain tech and the idea of anything that could be transmitted and verified without an intermediary, supply chain, transactions, visibility, bill of lading, health care records. I saw the same applicability of this underlying technology as I saw with the internet and how it has become useful in every single sector.
Now it may sound like an obvious thesis (laughs), but in 2014 it’s not obvious to a lot of people, I think it’s been proven out more and more, especially as we look at what’s happening with the COVID crisis. We are seeing the implications of not having transparency, of not having real-time data that’s verifiable and how that can ripple through the economy and through peoples everyday lives.
NA: That is a great breakdown of how you came up with your thesis, and I see how it would have been quite an interesting thesis back in 2014. I was going to ask how you got into crypto but you covered that, just to add to it, what was your first crypto venture investment?
JJ: I made a bunch of them together in 2014 and this is out of the venture fund, so to be clear we have a venture model with Future\Perfect Ventures. We focussed on equity investments since 2014 out of the fund. 2014 investments included Blockstream, Blockchain.com, we invested in the seed round before they raised their A round. BitPesa which is now called AZA, was a 2014 investment as was our investment in Abra. A lot of companies that have been at the forefront of the sector, we invested in about the same time in 2014.
NA: I saw that you worked at Omidyar Network previously, and I wanted to get what your thoughts are on what an ideal social enterprise looks like?
JJ: That’s a great question that I don’t get asked a lot about. I went to Wharton, I should say Penn undergrad, I did a dual degree from Wharton and the Annenberg School for Communication. I was very interested in economics and finance but was also thinking even back in the mid-90s, how can we use business as a way to empower and create more opportunities for people. That’s really how I got interested in the internet when it came out, commercially, where I immediately thought of education opportunities, if we had information at our fingertips, we could educate more people without going through the traditional system and it’s very similar to why I got interested in blockchain and crypto.
For me, all investing should be social impact investing and that’s one the reasons frankly I started Future\Perfect Ventures. Because I wanted to get away from that thought of social enterprise means less profit, which is traditionally the way its. We are seeing this more and more, with the millennials, with a lot of people who have been disillusioned post-2008. There is a reason why bitcoin was created post-2008, its that the traditional institutions aren’t working for everyone and the companies that are going to be the most successful in the future are ones that can reach more consumers, more people. I don’t believe that there is a zero-sum game out there, I do think we can grow the pie through profit-making business, but there’s maybe more sharing of those profits and that’s where crypto and crypto-economic models become really interesting.
We really won’t invest in a company or an entrepreneur that doesn’t think about the positive social impact from the technology that they are creating and the companies that they are creating. We very much care about diversity on the team, we care about different points of view. It’s very much become a topic these days of discussion, frankly, the lack of diversity I think has hurt even the most successful businesses, they could have been even more successful had they taken into account some of these factors.
NA: A business I know off which, in my understanding can be an extremely commercial business but will also create a lot of impact with what they are creating, have really struggled to communicate the social enterprise angle to investors. Do you think startups like that should stay away from calling it a social enterprise and focus on it being a commercial business?
JJ: This is where I like to get away from labels in general. As an investor I am returns-driven, I have limited partners I have to return money to. I am very clear with entrepreneurs about that. What I don’t think there needs to be a disconnect on, is getting to that return and being social impact focussed. I think entrepreneurs do need to pay attention to who they’re pitching to and make sure that they are a fit with that investor. That means being able to exit and sell the company, or IPO, and be able to return capital to investors. There are different models that are emerging in terms of investing and returning capital. There are impact funds that have different return metrics than a venture fund does. I think its important to find that right fit rather than worrying about labelling. I encourage this with all entrepreneurs, don’t do blanket outreach to investors, figure out if you are a fit with those investors and whether that investor is going to be helpful to you beyond capital. It really works both ways.
NA: That’s fair. You mentioned you started the fund in 2014, can you describe the process of raising your first fund and what is some advice you would give to a first-time fund manager?
JJ: It was definitely not an easy process, especially with a thesis that was very out there. This was a time when bitcoin had gone through the Mt Gox scandal, Ethereum hadn’t ICO’d yet. So, there was really little broader knowledge about, crypto, crypto models, or if anything there was a negative connotation related to it. There was very little conversation about the underlying technology and how it could be applied to different use cases. A lot of it was really education of the market. We are since investing out of the second fund and soon to be third fund and I still think we are in the early days and there is a lot of education process, but there is a lot more information out there. There is more of a track a record.
The first fund was really raised from people who were early believers in the sector, who wanted to learn more and be a part of the growth of the sector. As you know the information flow in this sector, it’s 24/7, and then it’s global, so it’s a lot to keep on top of. So, unless you are more specialised it’s not as easy to really know where the strong investments are. A lot of the LPs came from the family office world or individuals who knew there was something there but didn’t necessarily have the bandwidth to manage a portfolio themselves in the sector. Money also came from entrepreneurs that I had invested in previously over my venture career. I started off in investment banking in media, telecom and tech, also people I worked with back then. It was very much, reaching into the network. Venture is a long term, illiquid asset class and you got to find the right investors who have that risk profile.
NA: I imagine it would have been an interesting opportunity for your LPs since at that time there weren’t a lot of crypto or blockchain focussed funds at all.
JJ: No, there was only a few of us and I think it’s great that there are more funds that are in the sector. If you believe as I do and as I have been saying for years, the opportunity is 10x the internet in terms of new business creation out of this technology, then certainly we need more capital and more funds to support that with different thesis areas. I’m really happy to see more funds in the sector, and it was unfortunate to see the short term focus of some investors in the 2017 time frame but I think all of that matures the market and matures investors.
NA: For sure, and keeping all these new funds in mind, when talking to LPs how do you make yourself stand out from all the other fund managers?
JJ: A lot of investors that have been following this space know us and have been tracking us for a while. I don’t think you can short circuit experience, the best LPs understand that. So, we certainly stand out in terms of our track record. We have a really focussed portfolio, we don’t invest in everything, we work closely with the entrepreneurs we invest in, I think that’s a differentiator. I’d say broader, and this is more relevant when you have downturns in a market, and it’s interesting how tech has been on an upswing since 2008 and the crypto market has had many crypto winters, and booms and busts in that same time period, but there are very few investors that have participated in both the crypto market as well as the broader tech market. That’s really where our biggest differentiation is, understanding how business models have evolved in the web and being able to apply that, but also know that there are going to be differences and probably acceleration in Web 3.0. That’s really why we came up with the thesis we did in 2014.
The fund is really for investors who are thinking forward and not about what is just in the market now. It’s about what’s next and trusting us to find the companies and the best entrepreneurs that will execute on that and return money.
NA: We talked about the competition that exists with a lot more crypto-focused funds, how do you get an allocation in the hot deals with all the competition now?
JJ: It’s similar to what I said about the LPs. Its the entrepreneur that has choices and are smart. Entrepreneurs are seeking out investors that can add more than just the capital, and are building out relationships. We have been very overt in our thesis and our experience in the emerging markets, and I don’t think there has been a deal or an entrepreneur that we have talked to that we have been interested in investing in that we haven’t invested in.
I tell all of them that you should make sure that your investors are adding value and if they are not then you should look elsewhere. It’s a screening mechanism for us too, to see which entrepreneurs understand that, and which ones are looking for just capital. We really see that take effect when there is a downturn when the tourists go away, and the entrepreneurs can see who is still active, who is still investing, and who stays true to their thesis instead of being distracted by external factors that may be more shorter term.
NA: Sure, I see how it’s quite similar to the LPs. I read that you were initially at Intel Capital, I wanted to ask how different are corporate VCs (CVCs) to general VCs?
JJ: I always tell entrepreneurs that CVCs can be great for a company at the right time and under the right circumstances and not all CVCs are the same. Intel, I don’t know if they were the first, but they’ve certainly been the most consistent and one of the longest standing CVCs. So, they have a strategy that they continue to invest through different market cycles and often what you see in CVC is that when markets are booming CVCs gets started, and when in a downturn when cost-cutting takes affect CVC is one of the first to go because it’s not adding value to the quarterly results. The shorter-term is what a lot of these companies become focussed on in a downturn. I would say to entrepreneurs look at what the track record is in terms of longevity of the strategy and then figure out where you fit.
Some CVCs are separately managed funds, some are very closely tied to strategic business units, so all of that needs to be taken into account. As do terms, you want to make sure that the CVC is not going to impede your ability to either raise money from say competitors of that CVC or block an acquisition down the road. So, it’s looking holistically and not just in the moment and the money that is being offered but is it going to help or impede the business longer-term under different scenarios.
When I was at Intel, we worked very closely with different business units to make sure that our portfolio companies had visibility, could work with them on product road maps. So it really can be an asset but you just want to make sure that you are not backing yourself into a corner by taking on a CVC.
NA: That is quite insightful. You have been in the venture capital space for a long time now, can you talk about how it has changed over the years?
JJ: Well yeah (laughs), there is twitter, there are podcasts, there’s the web, that exists in a way that didn’t exist when I started in VC. There is access to more information than ever before for both VCs as well as entrepreneurs, so I would say in a lot of ways the velocity of deals has certainly increased. The number of people starting companies has increased and that’s all really great. The number of funds has increased as well, I think the whole sector has grown, and VCs have had to become more nimble. I still consider myself old school in some ways, where I still want to build a relationship with the entrepreneur before investing, I won’t write a cheque unless I’ve had a fair amount of interaction with the team. With today’s tools, you can accelerate that, with Zoom, with video conferencing and I have invested globally so that’s been very much part of my diligence all along. So, we haven’t really had to adapt a whole lot in this COVID environment, but it is very different from the way we did deals in 2000.
NA: Sure, it makes sense that in the early 2000s you would probably be doing deals with entrepreneurs you are meeting in person, compared to now. In your entire career, what would you say are the top investments you have been a part of? What really stood out about them?
JJ: I have been thinking a lot back to some of the investments in the ‘99–2000 timeframe. I focused on enterprise software investing for Intel and so it was really that first wave of companies that were moving to more web-based models around supply chain management, logistics, demand management, a lot of the issues that are coming up now. In those days you moved to the web and now I think what we are seeing is that the web isn’t enough, it’s moving to more real-time, decentralised models. So, companies I invested in then, there is a company called Yodlee, which has since IPOed and also been acquired, they were the first to build APIs for the financial sector. They had started off as a single password sign in for the consumer web, and then they saw that a lot of the banks were very interested in their underlying technology, and they pivoted to more of an enterprise model.
Ariba, a well-known part of SAPs business now, but they were a B2B marketplace. Financial Engines, which IPOed, so they were the first to bring financial management online. Then more recently companies like TxVia, which was acquired by Google, it’s a very experienced team from the prepaid card processing industry, which has been very mainframe focussed previously, and they were bringing it to more of a modular model.
A lot of these companies started digitising industries where there was a lot of paper or mainframe-based activity. What we have been investing in out of Future\Perfect Ventures is, how do we take this web-based activity in a world that is more global and more distributed and how do we bring the infrastructure and applications to match that activity. We recently invested in Transparent, it was Squares first blockchain investment. We co-invested with them as well as Pantera, and they are bringing real-time payments to enterprises on the back end and to treasury management. A lot of what we are looking at now is the same evolution as what I looked at in the first wave to the web, and now it’s more of a next wave to a decentralised web.
NA: That’s a great observation, I was going to ask what is the latest publicly announced investment you have made? You mentioned it was Transparent Systems, could you expand a bit more on why you invested in the company?
JJ: There were a few factors. A very strong team, a very experienced team that is aligned with the mission of bringing more transparency and real-time payments not only to consumers, which is what a lot of investments we look at, like AZA, BitPesa, is an example of bringing it more to a consumer. This was, how do we allow enterprises and financial institutions to quickly upgrade their systems so that they can have that real-time transfer that can then flow to their customers.
It was incubated at Vulcan by Paul Allen [Microsoft Co-Founder], a really strong team working on the technical elements of the technology. This was not just a science experiment, this was a really strong technology with a team that had the ability to build partnerships and relationships to execute. It was a combination of technology and the team. We think the market is very primed when they make their upcoming announcements with their partners I think it will be very self-evident about how they are filling a gap with larger enterprises.
NA: Thanks for going into detail, it seems that the key element of why you invested was that the team is solid. Thank you so much for joining me today Jalak, it was amazing talking to you.
JJ: No problem, thanks for reaching out.