Jan. 23, 2021

496 - Gaurav Jain, GP at Afore Capital

496 - Gaurav Jain, GP at Afore Capital

Gaurav Jain is a GP at Afore Capital. Afore Capital is a $124M venture fund focused on investing in Pre-Seed.

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Gaurav Jain is a GP at Afore Capital. Afore Capital is a $124M venture fund focused on investing in Pre-Seed.




All right, how's it going, everyone. Welcome to another episode of forward-thinking investors, where we talk to investors about market's founders and how they broke into venture to them. Very excited to be talking to Gaurav Jain, who is a co-founder and managing partner of the Afore Capital. Welcome to the show.

How's it go? I am good. Thank you so much for having me. Yeah, excited to have you on, on learning and all about how you think about venture. I think for my first question, it's the same one I always ask. Cause I'm always curious you know, venture is this kind of opaque and random thing in some ways I'm curious for you, how did you find yourself, you know, breaking into venture and how how'd you make your way here?

Sure. Yeah, I think it was random is definitely the right word to use because. Frankly, growing up, you know, people ask you, what do you want to be? And, you know, for me, it was actually to be a commercial pilot. So I didn't know anything about venture. I guess it sort of was exposed to entrepreneurship, but my dad was running a small business in India.

But you know, of course not venture backed. And that was sort of not a thing. Growing up in, in, in India. But I, you know, I went to undergrad and we moved to Canada and undergrad for software engineering. My aspiration in life was to be an engineer at Microsoft because that was the cool company in the early two thousands to be at went to university of Waterloo up in Canada.

Did internships at companies like Amazon and. And what's now called Blackberry used to called research in motion back then. Anyway, I ended up starting a company at a tech company, you know, and sitting in Blackberry's backyard. You know, we were very enamored by what was happening in the smartphone space.

So we started a company and through that actually was my first exposure to venture. As a venture backed founder, right? You needed some money to hire engineers to get the business off the ground. So we raised, I guess it would be called a pre-seed today, but it used to be called an angel round of 600,000 in 2008.

Really interesting time to start a company to say the least you know, the market's obviously melted in the fall of 2008. We somehow squeezed through and raised a series eight early Oh nine. And that brought me to the Android team. As a product manager, I joined the platform when we had less than a million total users was in for a couple of years, left from, we were getting about a million new users a day, and then I left to go to business school.

And that's when I started thinking about, you know, what do I want to do next? I started a company I've been a PM and sort of you know, for early stage products and, and venture kind of was something in the back of my mind having been a venture backed founders. So I basically took them on an internship at this fund called founder collective.

And just to see it as an experiment, is this something I enjoy? And I really fell in love. I fell in love with early stage investing, working with many founders who are, you know, you have the honor of meeting and helping as they kind of go and go after the mission and their vision. So that's sort of how I ended up in venture about nine years ago.

And haven't looked back since. So, so right now your you have a fund, you have affirm. Can you kind of walk me through what, when you started that, how did you decide to make some of the decisions you make? What I mean by that is, you know, what stage is it at? Is it like, you know, a series B C is it pre-seed seed how'd you decide that kind of walk me through how you decided to end up starting your fund and how you decided to structure it.

Yeah. You know, and look, there was no sort of White boarding session to say, okay, like let's do a market map and figure out where we think the opportunity is. And let's go after that. You know, we, we sort of almost quote unquote fell into it. Right. And that's sort of what we look for in founders.

We back as well, right. Is sort of that authenticity. Right. I don't want to back founders necessarily to say, Hey look, we did like a half a day, white boarding sessions. And we like read a bunch of tech crunch posts. I'm like, here's a problem we, we read about and we're going to go after. Right. It can work sometimes, but most times you almost want to like organically and up with that idea because you've been doing something else.

And you saw this adjacency, or you saw this opportunity or you saw this gap. Right? So in my case you know, as I mentioned, I joined his fund founder collective, which was focused on seed stage investments at February of 2012. I was there for four and a half years. Right. And, and like had an incredible journey there to learn venture from who I figured some of the best in the business had the opportunity to, you know, do seed investments in companies like air table or cruise automation or Firebase and a bunch of other ones.

And over time, what I saw was the shift, right? The shift in what seed and definition of seed, right. Where, when I started in early 2012 seed rounds were this million, $2 million rounds. Companies are very early. Certainly pre-product market fit. In most cases, pre traction, by the time 2015, 2016 rolls around, you know, I found myself in a lot of other seed funds in the same place.

They would tell the same founders that they would have back to 2012 or 2010 and saying like, look, I like what you're doing. I like your background. Right. You are too early for a seed round, go raise an angel, friends and family around half a million million bucks, build a product, get some traction. And then we can underwrite a two to $5 million seed round.

And sometimes the founders would turn around and be like, hold on, let me get this right. So I need money to get the traction, but I need traction to get the money. Like, how do I solve this? You know? Catch 22 and I don't have rich family or friends to just, again, a bankroll need to like get there. And that's sort of where the light bulb goes off.

Right. And you're like, hold on a second. I think there's an opportunity to back these incredible founders, even a stage earlier than what seed funds are doing. And it was starting to be called pre-seed and the Meech sort of just ran with that. And we raised our first $47 million funded in 2016. Would that, would that thesis that.

You know, on the ground, we are seeing founders that are having a tough time raising their first round of capital. It may not be obvious in the data yet, but we certainly see it anecdotally and be kind of ran with that vision. And, you know, four and a half years later, it certainly has become a thing. And like everybody recognizes that there's a pre-seed round that happens before seed was certainly wasn't the case.

And, you know, look, it was hard to raise our first rent first fund for that reason because not a lot of people delete that there was a real problem here, but we saw it. And as founders we ran with it. So, you know, and as one of these founders that was in this situation, you know, in the last year or two, like I, you know, I can speak for all the founders in that situation.

We appreciate, you know, you starting the fund to fund it. You know, the earlier stage founders, I'm curious for you as you. As you kind of go on in your day to day as you look at opportunities as you meet founders do you kind of find yourself being more founder driven or, or market driven or thesis driven, or how do you kind of, kind of find the balance between those two and how do you think about looking at opportunities through, through those lines?

Totally. And that there's no one right way to practice venture, right? Everybody has their own strategy for us. It's very much founder driven and people driven and not so much market or thesis driven. Right. So we, we almost, we say to founders like, look, we will look for founders that can point us to opportunities, right.

And say, Hey, because of my previous experience, I saw something. And then of course, it's our job to diligence status to say, do we believe that to be true? But we don't get too caught up with that. We tried to really diligence with the next 12 to 18 months may look like for this company, but not the next five, 10 years, because frankly.

And this is my opinion, my experience like some of the best companies, even the founders, can't quite grasp how big this opportunity can be or how this company will evolve over time. But take an extreme example. If you look at the Uber right seed round deck, right? My previous fund founder collective invested in before my time.

So I can't take no credit, but if you look at the deck, right, it talks about the market. Opportunity for Uber being $4.2 billion. And by the way, usually founders exaggerate right. The market size. So you can imagine the founders probably thought the market size was like a billion dollars. Uber does something like 60, $70 billion and top line revenue.

Right. So like you see it'll be and be as the same exact same thing. Right. And the Airbnb. I was one of the founders shared this story where like the first deck said the Tam was like 30 million. And then somebody told him like, inter no, like VCs don't like AMS, like as an millions. They like bees and billions, that just changed 30 billion to 3 billion.

Of course today, you know, Airbnb is worth close to a hundred billion. So like even the founders can't quite fully quantify how big the opportunity is. So obviously somebody like me who is like it. More an observer and not, you know, the, in, in the, in the Senator, in the eye of the storm, obviously can't quite understand that.

So, so we don't try to like put too much cadence that would instead we look for, okay, are these very strong founders and really understand, at least in the, in the short to medium term, you know, what is that problem they're solving? Do they understand the customer's pain point really well? Do they understand the market dynamics?

Can they break through, can they wedge into the market? And then do they have the ability to ask the right questions to, to, to take the, you know, synthesize the data and look for adjacent opportunities? Right? So if you look at Uber, they executed a black car market really, really well, and then said, hold on, why don't we just stop at black card?

Let's also do taxis. And then they detected that I called them. Why don't we just have a taxi? We can make anybody. A taxi driver. If you have a car, you can drive people around, Oh, hold on. Why do we stop there? Now we can do food delivery. And you just, you sort of keep finding these new adjacencies. And that's what really, we look to underwrite at that stage because we're coming in so early.

You know, these, you companies usually have no traction certainly no product market fit. So you really try to understand is this the right team to back and are they in the right zip code to eventually find something interesting? And in the, you mentioned a couple of times their team, you know, are they exceptional founders?

Can you kind of walk me through, let's say, you know, someone knocks out, not literally, but you know, how about that? Actually someone knocks on your door, it's like the dream founding team or the dream, the dream founder. What, what kind of attributes do you look for in a In this team, you know, if you're betting so early are there certain kind of characteristics that you're looking for, or as that occurred zero six that you're trying to like, you know, like, you know, not bring in so almost bad character Rick's characteristics of an early-stage team.

Totally. And I just want to make sure I clarify when you say dream team, like. There is no dream team on paper. Right? I think some investors may think, Oh, because you went to this school because he worked at this company, like we actually like don't, you know, give too much weight to that. But instead to us, a dream team is when you spend time with them, you feel just like this.

Energy and excitement, right. To just back them and be in business with that. Right. Because the, they understand that what they're trying to build, understand, as I mentioned, the first 12 to 18 months and what it's going to take to get this company to first base, right. Not to, you know, second, third, fourth base, but just to first base and the emphasis, energy and passion, and this like inpatients are like, Action and results and they just want to move fast and like get stuff done.

And that's, that to me is a dream team. And you know, when we tend to avoid or, you know, certainly it look, we only focused on a very small part of like, you know, a broader like entrepreneurial ecosystem. So again, I don't want to prompt you. Paint, you know, broad strokes that, Oh, if you're starting a restaurant or like a bar, like, you know, of course that's not a kind of found a way back, but there's nothing wrong with that.

Right. But we back founders typically going after software ideas that are, you know, exhibit, if it works in these non-linear kind of outcomes where within 10 years you can go from zero to a hundred billion dollars in value creation. And for those kinds of. You know, founders, like you, you know, it's a certain type of person.

And when we try to avoid, you know, founders where there's just slow to move or they don't, again, not authentic. They feel like there's a problem here because of some report they read, but they don't really, they didn't. You know, quote unquote, grow up, you know, in that, in that problem set or don't really empathize with the customer too much.

You know, we also look for folks that have at least one of the founders is technical, right? Cause the, the two main components that we look for at our stage is can they build a product. And can they distribute the product right? Product and distribution are two key, ideally to us, a full founding team or two founders, one really, really good.

I go to market commercial and has strong commercial instincts and understands how to, like, if it's an enterprise or B2B product, how to close deals. And if it's a B2C it growth marketer or something, something along those lines. And then the second person being sort of that CTO type and like at least.

You know, it can get the first few versions of product out there can iterate really rapidly and, and, and, and, and hopefully be a magnet for talent and technical talent. As a company starts to scale. And kind of going in another direction, you mentioned, you know, very focused on founders, but you know, I think all investors, including I'm not an investor, but you know, I think all people love markets and things that are happening in the world and, you know, things that are interesting to them.

W what is happening right now in, in the world, it was like interesting to you, either as an investor or just as like a person are there certain trends or markets or technologies that are being worked on that just kind of picky, peak your interest, even if it's outside of like an investment lens.

Totally. Yeah. Look, there's an incredible amount of activity right. Happening in the broader tech ecosystem because, and it's driven by a bunch of different trends. Right? You see the trends around, obviously what AWS has done in the last 10, 15 years with the cost of computing, you know, coin. Close to zero, which has made, you know, start a creation super cheap.

Or now you see like with AI and kind of what's happening there. And, and, and, you know, of course we're talking 2020. I mean, this is going to be a year, you know, once, hopefully once in a generation. And I think for tech has had major ramifications, right? I think. What the post pandemic you know kind of work looks like is going to be very different, whether you are in the information economy and able to work from home and distributed remote work, or if you're none of the information economy, but you know how, you know, companies like door dash or Airbnb enable new types of businesses or which you see in like the creator economy.

Right. I think it is really interesting as well, where anybody can become an influencer or a journalist or whatever or this, this podcast. Right. So I think there's a lot of interesting trends. And I think if anything, 2020 has accelerated that. Right. Certainly for, for tech. So there's a bunch of stuff we're, we're certainly following closely.

Right. You know, one of the, one of the use cases I think a lot about is you know, like zoom, for example, is a great software built for. The  world where we used to do like B2B meetings, right. Or business meetings. Right. But most of the work was done kind of, you know, under one roof, but now with the distributed workforce.

And I think that's gonna, that's here to stay or a hybrid workforce where you work from home three days, four days a week and come into the office one day a week. I think that new types of software that will be created. Right to enable that. And I think that's a really interesting space for us, you know?

Yeah. You see in healthcare as well. Right. I think that's a really interesting, broader vertical, and you see a lot of tech adoption. We invested in this company where. It's called health node, where patients, before they come in and can you know, can get sort of enter symptoms and why they're coming in as a full triage kind of treated walk into.

So like when the patient or the doctor sees you, he, or she gets a preread of like why the patient is in. So you don't have to fill out those forms. Right. Sitting in the, in the, in the reception, which I absolutely hate doing. But what's interesting. There is that the reason that is accelerating is because.

Because of contact lists, right? Clinics are saying cash, and we don't want people to be, you know, use the same pen or filling out a form. So let's adopt a software so they can do it from the comfort of their home, which, you know, if it wasn't for COVID may or may not have, may not have, have happened. So you see this across the board, you know, we have another investment that come to go modern health, which is in the mental health space.

And. You know, a lot of us, including myself, it's just been a tough, you know, mentally tough year. Right. And being isolated, but she was not designed to do. And they've seen a lot of adoption because of that. So anyway, I can go on and on, cause like, honestly, there's opportunities everywhere you look. And as I mentioned, like we're very much reactive, not proactive.

So we look for founders that can point us to opportunities. Even if I found an interesting opportunity, if I can find an incredible team to go after it. It's not going to work. Right. You know, climate tech is another interesting one, right? I think with, with the, with the by administration administration coming in and with some of the stuff that he has done, I think there'll be an acceleration in sort of regulation and interest around that, which I think is great for for our world.

Broadly speaking. So we invest in the company of Sinai. That's helping companies. Decarbonize. Right? You hear Amazon, Microsoft, you know, Dow chemicals, all of these companies have said by 20, 30, 20, 40, 20, 50, they want to be carbon neutral. Well, how do you actually get there? Right. So like they, they building a software to essentially help you model and analyze that.

So anyway, I can go on and on, but there's, if you're a founder, I, and especially in a software founder that I don't think there's been a better time to be building a company. It's like, everywhere you look. There's an opportunity. And the cost to experiment and learn has gotten so low that you can get through ideas like at rapid clip, right?

20 years ago, if you were starting the company, you wouldn't know if it's going to work or not until you've burned millions of dollars and you know, months and years of your life. But now within, within weeks, you can get to a customer and you can see if it's going to work. If they're going to pay, and if it's not working, you find something else.

So let's say you got, you know, all these potentially first-time founders, they see what's happening in they're building companies and they're already to raise capital. What is one thing for my last question? What is one thing that you wish more first time founders or heck just founders. New about raising capital or about talking to VCs that if they did know they would be better off you know, they would raise more capital to raise capital period.

Do you kind of have any thoughts on, on tips for the first time fundraisers out? Yeah. Yeah. Yeah. I have lots of tips on that, partially because I've been on the other side as well, having raised venture capital and frankly, there's a lot of stuff I wish I knew. When I was a founder that now I being on the other side being sort of as part of the game, like you, you, you pick up in no particular order, I, I, you know, one of the, one of the first things that come to mind is especially early stages, it's a lot of a storytelling.

Right. And because like, as I mentioned, like, I don't know exactly how the market's gonna evolve. I don't know how, you know, what other ideas you may find. What I'm really trying to understand is like, is this the founder I want to back. Right. It's so much of that is qualitative and not quantitative.

Right. So you really think about why, how you would get the other person on the other side, just so excited and energized about like what you're building and being able to demonstrate like the youth. You've thought through to like second, third, fourth degree of detail. Right? So when they ask you questions, cause the way I try to get that comfort is by asking a lot of questions, I can go deep and like I love founders.

It can go really, really deep with me. Right. And you can tell, they've been thinking a lot about this and they really have a very. You know almost like muscle memory about like how, how this, this market or this, this product operates. So I think that's, that's, that's one you know, the second one is like, look, I think venture capital is a means to an end.

It's not an end in and of itself. I think a lot of founders get caught up in the vanity of like, Oh, my friend raised this much and it was on tech crunch and blah, blah, blah. Look. It's it's it's it's, it's just it's just one of many components that need to go right for your business to be built. And frankly, my opinion, the best revenue or money coming into your company is customer revenue, not venture.

Right? So if you can, if you can get customer revenue early on. I think that's, you know, selling part of the company to do so. And then B, when you're ready to raise venture, like a company looks a lot more attractive, cause like you've now have clear, willingness to pay and you understand kind of the problem you're trying to solve.

And, and I think you should only raise money when you think it's can accelerate right. Your business. Right. It, it, it it's like, you're almost like the train is moving and now with some like fuel, I can move it faster, but it shouldn't be a prerequisite. Right. What I hate to hear is like, well, you know, I will quit my job.

Once I raise venture or if I can raise venture, well, that's not great. Like, I want to see the, your conviction is ahead of like my conviction. Right? You have to believe in yourself first, before I believe in you. Right. So I think, I think that's, that's another one. The thing is, is, is really important. The other thing I'd say is like you know, you can understand, like these journeys are long, right.

To build a great company. Like Airbnb probably started with suppose nicer than 10. It's like 10, 11 years later. Now they're finally, you know, IPO and which, by the way, it's like. One of the fastest growing companies. Right? So like a lot of other companies started. Prior to them and they're still around and like point being like, it's going to take a long time, right.

Massive company. And you can't fire your investors. Right. I think an average marriage in America at our last, like what seven years or something, and like company your managers with your, with your investors longer until like, you've got to, you've got to think things through, like, you're selling a part of the company who you're bringing on the cap table.

Are these people you want, you know, with you for the next 10 plus years and hopefully multiple companies, right? I mean, there are many examples where. I backed a founder at seed. And they, they exited the business and they invested in our fund as an LP. And then we invested in the next business, like that's sort of the kind of relationship we look for.

And, and he was a foundership should look for that as well. So, you know, be thoughtful about, you know, who you're taking money from, do back channel references on those investors, right? Just like reference checking you, you should reference check them and make sure they are. Supportive not only on the way up, but also when things are, things are Rocky.

Anyway, those are probably the three things that come to mind right away. And with like blog posts and stuff, there's a bunch of these like people and founders share stories. So like definitely do your, do your do your part, do your research before, before you take money. For my last question.

Let's say someone is super interested in what you're, what you're saying. They think you're cool. You know, they want to learn more about your, your firm. What's your website. Do you have a blog? Like, do you have a Twitter? If someone wants to just like connect, you know, on some level, how can they do that on the internet for you?

Yeah, totally. We're very accessible. So obviously our website is a Ford F O R e.com. B C, which will give you a sense at a high level, kind of what we look for and will be what our ethos is. It has a, has a set of our portfolio companies to give you a sense of the stuff you've invested in the past.

Again, feud history is no, no press on the future. You know, we are always open to new ideas and interesting spaces. And then our, my personal Twitter is G Jane G as in. George J as in Jack a I N Apple, India, Nancy. So you can find me on Twitter or just, you know, reach out to me over email. Just my first name, G a U R a v@afore.vc.

Ideally look to get a warm intro now because I want to make it hard to connect because I was able to get as many founders as possible. It just helps me. If somebody makes a warm intro to get color. On the founder, because between my co-founder and IVC or 3000 new companies a year, we can only invest in 10.

So I'm constantly looking for signals on like what's, you know, kind of companies or founders we want to back. So anybody who can kind of who's knows you far better than I do, or I will get to know you in the next few weeks, it would be due diligence. Anybody can, that can act color helps. But if there is no connection, please do reach out to me directly.

I read every email, every patient that comes through, I may not be able to respond, but I can promise you I've read that deck. And if it's a fit, I will reach back out to you and would love to look. All right. Well, thanks for coming onto the podcast. I really appreciate it. Thank you for having me.