In this episode Caroline Duffy, Investor in AI Fund explains how she thinks AI field was affected by the COVID-19 and how founders in this field should approach fundraising now.
Caroline's Twitter: https://twitter.com/C_lineinthecity
AI Fund: https://aifund.ai/
Directory for founders and investors sign up sheet - Confluence: https://docs.google.com/forms/d/e/1FAIpQLScUSNhob52rG66tbD_18d7-H6TtdMspX0bGy4Y9MhTPqXDHZA/viewform?usp=sf_link
Sounds great thanks so much for having me as you mentioned, I am an early stage venture capital,
investor and company builder at a firm called fund,
as the name suggests focuses on investments in artificial intelligence.
I've been working in tech here in Silicon Valley for close to a decade now first in management consulting, working, with Fortune, five, hundred and software and Internet companies primarily an enterprise SAS.
So think SAP, Microsoft, Cisco and the way and spent some time in the retail industry.
As well, for several years working with large global companies, I wanted to go smaller and go earlier stage.
So, I went back to school, got my MBA at Stanford where I was active in the entrepreneurial and investing ecosystem across the University, and really fell in love with the early stage of the building and company formation.
So, I was a scout for and and worked at Kelly on Venture Partners before ultimately coming to fund. And that was the first employee after the partners here.
Today I fund joined just before we officially launched in February, twenty, eighteen, and have been here since.
So a little bit of background I can share about the fund and then happy to to dive into details. I fund is a one hundred and seventy five million dollar early stage, venture, capital fund and startup studio.
It was founded by Dr Andrew and we're backed by other VC. So supply Greylock NDA and SoftBank among others. We are a bit different in that.
The majority of the capital that we deploy is to companies that we built from the ground up within the startup studio.
So, many of the companies in our portfolio or ones that we incorporated and helps to create and then funded from first check to to Series A, and beyond.
Nice that's a really that's a mild I really love venture venture CEO backed by funds. I think that should work. Great and we'll see best of luck here. First she'll want to discuss your investments in other companies.
So, not those that you built yourself within the venture Celia, but those that you find outside of it. So, how do you where do you find those and at which stage do generally invest in those? So we'll do is to invest in Pre seed a seed stage or to invest later on.
We still invest very early for external companies seed preceed, first check in.
Sometimes we're talking with teams that may or may not have a deck or haven't fully incorporated yet. So we still like to engage with founding teams very early.
Even if it's an external investment, and for those, in terms of where they come from it, it varies. I would say.
The vast majority of those come through the ecosystem or network.
So it's someone that we've worked with before or know of their work in, in the ecosystem from a technical perspective and or someone with a deep subject matter expertise who.
May or may not have the same technical grounding within,
but have a really unique insight into a particular space and uni,
connections in a particular space that when combined with the technical work that we can help support can be really special.
Right? So, let's talk a little more about the AI and which fields to invest in. So, I became like, a large, large, large fields.
Do you focus on any specific part of it or do just are you like a generalist investor in a field?
We are generalist investors within and we also look broadly at a number of different industries. I would say much of andrew's background and some of his.
His work academically was in deep learning and so we certainly do quite a bit from a deep learning perspective and applications there and then lately has spent a lot of time
And but we have a pretty broad mandate for for working with companies throughout the ecosystem and,
and large umbrella that's grown over the last several years.
Alright. Now, let's move on to the topic that's training. Now, the fundraising. So, what do you think was the reaction off start ups that are focusing in fields after it happened?
Dummy hits was it did come up better after that been dynamic, or wasn't actual damaged by? Yeah, I, I do think that companies.
Suffered, you know, early on from kind of just a macro confusion around what was going to happen and maybe some initial.
Initial hesitancy by investors to invest in those first couple of weeks, or months of the pandemic but as we've gotten further out,
I see companies doing really well,
and within the pandemic,
because there is more need for the technology in a lot of cases than ever before. So one use case.
For example, is with detection in terms of social distancing.
So that's something where a lot of companies, whether or not they were doing it before, or have kind of pivoted into it but using computer vision for understanding.
How many people are in a particular location how well, they are distance between one another has been valuable on.
On both the consumer and enterprise side. Really? Because I think it it does a lot within manufacturing and industrials when companies are trying to get people back to work. They'll want to get them back to work safely that can be a value.
And then also, in, in context where you're thinking about a store or an arena, or something like that, where you're gonna have customers in a space. So we've seen that.
Become much more popular, I think similarly, combinations of, and robotics in areas again where there may be limits to.
How many people can be in a certain location,
or how they can interact and so there's been more focused on investing in robotic and solutions to maintain work across a number of different industries,
the lack or or absence of human workers to them do some of the work that requires in person interaction so within hospitals,
how can you use robots to more effectively be serving medication and and that sort of thing. Right,
I feel it's still super,
Super diverse and I think my question is not really for as well,
because the field in general it was well,
in a good way in a bad way both I think it's balancing each each other out,
and it's basically staying the same throughout the whole thing,
I want to move on to the venture studio that you are backing by the fund.
So there are there are many venture studios and basically each Ventures do has its own mile. So, in business model, right? How does your specifically work?
So, for example, the venture studio that work at the makeup studio, we focus on external projects. We'll bring them onto our venture studio and then we let them go with you. Not really build anything within ourselves. How do you do this?
How do you build companies from within yourself?
So we focus on the spaces and unfortunately the areas that we are excited about upfront,
it starts with a lot of research and investigation across a number of different industries.
Sometimes those ideas come internally from folks on the team. Sometimes it's conversations with partners who identify key pain points, or needs that. We think.
Or solution may be able to effectively addressed and then we'll spend quite a bit of time, early on and testing and validating hypotheses around those spaces.
So doing customer needs finding, and a lot of prototyping validation on both the business and the technical side.
And then, at a certain point, if we have conviction around the space, we will look for a founder and residence or multiple multiple founders in residents to come and join that project.
At that point we'll incorporate the company and provide preceed funding.
And then have the founding team, and those founders and residents come in and continue to build and experiment with that company.
And within that space, refine what the product or solution is and go from there. And then hopefully, we can continue to invest at seed a. and beyond for those companies that.
Sixteen nice, and you have plenty of capital to do that. So, I believe this is gonna work so nice job there, but I'm curious how many.
So, it sounds like it's a lot of work and personally it's a lot of work to grow companies basically, from the ground up yourself as a company. That's the only other companies. So, I'm curious how many of those do you test?
Let's say per core let's make it easier. How many per year how many ideas per year do tests per year.
Well, working backwards, we historically have had four or so companies that make it past that early stage annually. And so.
at least double,
if not multiple,
multiple times of that for in a given year to to get down to those for solid companies that are on a good trajectory for continued growth.
We want to keep the quality standard very high. And so we try to Ideate and then be thoughtful and rigorous about the companies and, or the ideas that we decide to ultimately cut.
Nice. Nice. And here, based on my previous experience, actually interviewed few Ventures to use on
my podcast and based on the results from those interviews, people don't realize venture studios.
So let's go back to the more something that might be applicable to my listeners. And let's talk about, it's actually fund raising for fields.
So for example, my previous interview that I just released this morning was about, obviously, I obviously, the company's focused on and what would be your recommendation to those guys.
just some background on them,
they're doing data analytics that's all understood on the technical side,
but basically ray's already two rounds,
seed and seed and I believe are preparing to raise a third round.
What would you recommend them doing right now?
without knowing more about the company,
I could give,
maybe just a couple of points that often come up for us with companies that are companies and going to fundraising,
continue to grow.
I think one thing is just have a really clear and well articulated data strategy and that's from the earliest stage.
This is important,
if a company has raised multiple rounds having a track record of of testing that data strategy,
and then building one that they think is both successful and then ultimately,
scalable is particularly important.
I would say going beyond the technical is important as well. So having an amazing feature is fantastic or making games from a technical perspective, but it's really not enough.
We see as a tool, but not as a company in and of itself. And so there needs to be broader, understand the product, the solution, how it's meaningfully different.
And I think a lot particularly of technical teams that I see and work with.
Helping them to refine really what that is and what that meaningful use cases is really important. And
I think a follow onto that is a clear and narrow customer target or a hypothesis one. It sounds like for this company.
If they've had multiple rounds,
they should have that,
within it is particularly valuable to narrow what that first customer set is,
have a really specific use case and be Chad because from both the technical perspective and a business perspective,
that's gonna be important to build out and be able to initially scale and demonstrate traction and then once they have that an understanding of the technical robustness of the solution,
and how applicable it is outside of that narrow use case, will will be valuable for them moving forward.
So great advice. And I want to move on and talk about more general advice about beach. So, what do you think are three must have points in the pitch deck.
So, when you're looking at the companies that you want to fund externally, what are the three major points that you're looking at?
You know, I think that it really it, it would line up pretty well with what I just mentioned in that having that.
Clear narrow, early customer target, or that hypothesis of one is critically important.
It's always a red flag when a company is coming in and trying to do too much all at once, you know, build a platform from scratch at first and so having narrow or target.
And a beach hut is particularly important, I would say, similarly, you know, having a really good understanding of go to market. I think that's even more important. Now that we're in a pandemic.
Is you know, on the enterprise side not just what?
That data strategy,
what are the go to market channels going to be that will will work well, and so having that in the,
the pitch deck is critically important.
And when picking to.
Folks who don't know the space well, or it's a new problem.
I think what's important and often can be over looks is a crystallization of what the problem is and make that real and visceral of what the problem and pinpoint is that they're solving
Don't forget that before jumping into the solution and why it's great and better than what's out there.
Hello? Yes. Yeah. Oh, wait, you didn't share the last question to ask. No, I didn't, I think, to mute my microphone. My bad my bad I'll cut that part out.
Hopefully, my question was, do you think that your, you know, this list of three must have points on the beach deck changed since the current of ours hit? We're not really. So, it was it changed by the fact that to grow viruses here.
I don't it's changed much. Now. I would say, maybe one that I would add it has changed is just be really forthcoming about.
The pandemic and coded,
and the impact that that's has had on your business,
what you anticipate the future effects will be,
and then what you and and the company have done to mitigate challenges or capitalize on opportunities that have arisen due to the pandemic.
Right, right? Yeah, that's a really good point. I think that's that's really important to, to, to stay focused on the, on your old thing, and not even mention current hovers, unless you're really affected by it.
So, good point here and moving on to one of the probably standard questions that as pretty much every speaker of mine, which is your advice to those early stage founders, trying to raise money right now during to spend.
I mean, we already discussed the case of obviously I, but what about those who just have their idea and have some sort of technical thing going on? But no traction what would you recommend them?
For that environment, what I would say is.
Try as much as possible to be lean and scrappy.
if you have something technical,
that is potentially interesting,
depending on on the industry,
try to stay lean it and find customers or proof of concept customers,
and you get a lot of additional data and feedback on what you're building.
If you are looking to fundraise. And you feel like you need funds to move forward I would recommend. I still think there are plenty of angels and early.
preceed funds that are willing to and excited to invest during the pandemic. So focused on on those,
and maybe raising less to then prove out what you need to build and and getting traction there,
and then later on raising a larger round where the evaluations maybe better,
or you may be able to get a larger check.
So, it really depends on where the product is, where you're trying to play. But I do think there are plenty of opportunity still to raise that earliest funding. If you're just getting started.
I would say if you have the benefit of time.
For for raising,
or want to in the future start building relationships now,
I think that's always been valuable,
but is even more so in the pandemic,
it can take longer for investors to get to a level of comfort or familiarity with a founding team and so,
if you're able to build a relationship over time,
provide more touch points,
then it's a little bit less uncertainty for the investor.
And we'll make it easier despite the pandemic to be confident in you and and what you're building and still want to invest.
I would also say, you know, be thoughtful about who you reach out to really look at investors who know your space or no. The adjacent space as well and be proactive and trying to reach out to them first.
You know, again,
I think a comfort level with the space is really valuable at a time when there is so much uncertainties the more that you can de risk for investors,
despite the circumstances will help a lot. And then I would say,
to the extent that you can,
if it's a company that's already raised,
or even just raised from angels,
don't be afraid to reach out to them for,
for help as well in getting connected to, to the right people.
But first and foremost try and build and test what you can in, in a pretty lean and scrappy way. And I think that will set you up. Well, for funding now or funding later.
Right, right Yep. Great advice. And here I want to touch on to something that you just said which is reaching out first. What's your recommendation?
That what do you think is the best way to reach out if you do not really have a warm introduction to a person if you don't have a warm intro?
I think one of the best ways to do it is Twitter.
Honestly, I think people across the different avenues of email, LinkedIn, Twitter for Cole to reach out.
Twitter has a a much higher hit rate that I've seen for myself. And then for other investors as well. What?
I would say if you're doing a cold reach out is to be B pithy.
So don't make it too long, but make a a compelling pitch early on it.
And in a concise way about what you're trying to build, and I would also say that you can make it clear that you're not necessarily trying to raise yet.
And that will help to put it in perspective. So, relationship building, if you're asking for advice on the space, or want to share about what you're building.
At the time, I think that's an easier way to engage for initial conversations then it is to send someone a pitch deck and say we're using right now. Let me know if you're interested or not. All right.
So we're reaching out and being thoughtful in the message. That you communicate being clear about what you're building and why it's exciting, but then also why you want to engage initially is is really important. Right?
That's actually great advice. I'm personally not the biggest fan of Twitter, but I've heard tons and tons of great things about it. So I'm slowly, but surely trying to get myself on it.
So we're moving on to the last question of today's episode, which is a call to action. So, what's the one specific thing that you would like the least hard to do as soon as the episode is over?
Well, I would say first and foremost, if the listeners or anything like me, and they've been spending way too much time looking at a computer screen.
I would say stand up and stretch, get get your body moving,
but in all seriousness,
I would say,
go online and check out some of the fun videos around three, which was released back in June but is getting a lot of hype.
Now, it's a new language model.
With some pretty exciting, a new applications for, for language creation and generation so it's some fun threads on online and on Twitter to see what the future of will be. Right.
That's actually even I've heard of that. Never. I haven't actually check it out yet. Bill. Definitely. Will after this one, but my personal call to action would be go to the description of this episode. First of all.
I'm going to leave the link to funds in it. So you can check it out. And also, I will leave caroline's, Twitter link and that. So, if she wants to reach out to her, definitely do it on Twitter. Okay.
And one more thing I recently discovered a tool called confluence. It's a directory with tons and tons of coal information. There is like media.
Least there is a, a W member's self confluence. So, leave the link to a pretty interesting so definitely check it out. And at this point, we'll wrap it up. Thanks a lot Caroline for coming up.
And for sharing your knowledge in field. It was really interesting episodes and good timing because the most recent episode it was about as well. So thank you for that. Thank you for coming up today. Thanks. So, enjoyed it.