This VC explains why she's sticking to small checks even as $100 million rounds become the norm in Silicon Valley
- When Shruti Gandhi started Array Ventures in 2015 she had two principles in mind: Invest early, and help founders.
- While the world of venture capital is full of $100 million checks and billion-dollar valuations, Gandhi prefers to fund seed stage rounds in the $500,000 to $1 million range.
- The former IBM engineer has a decade of experience on the technical side of things, so she knows when a product is ready to move a market forward.
- It's this technical expertise that makes it so Gandhi and Array can get in early - and still bring in big returns.
In a world where startups see a growing number of zeros at the ends of checks - and, thus, at the end of their private-market valuations, Shruti Gandhi's approach to venture capital may seem downright miserly.
Gandhi, who launched her fund Array Ventures in 2015, prefers to write checks to early-stage startups in the $500,000 to $1 million range. In many cases, the companies she invests in don't even have a developed product.
"We call it the agitated workforce," Gandhi said of her ideal founder. "They're working at a company and they have very strong expertise but they're agitated that the tools they are using that are not making them efficient."
When they can't find a better tool, they decide to build it themselves, Gandhi said, and that's where she steps in.
Gandhi will often get cut in on deals on the recommendation of angel investors or VCs at larger firms who plan to write a check, but don't have the time or resources to give the kind of mentorship that can help grow a very young company.
"It started three years ago with the idea that many funds are becoming large and there is no one at the earlier stages helping founders," Gandhi said. "When I had my company, I didn't think VCs wanted to give you time of day unless you had figured your stuff out."
In response, Array tends to be very hands-on. Gandhi prides herself on helping founders build their networks and make early sales. Array even runs a boot camp with its founders to spread more knowledge, more quickly.
When things go well, Gandhi said she feels like a member of the founding team, tasked with helping startups grow from $1 million in annual recurring revenue to $100 million.
"We like to act like we're their first business development hire," Gandhi said. "You get to be part of the founding team."
It helps if you understand the product on a technical level
Gandhi knows a lot about building products - which is part of why she enjoys getting her hands dirty with startups.
An engineer by training, Gandhi spent nine years working at IBM before founding a company called Penseev, which aggregated data from social networks to create visual timelines of peoples' lives.
Not every venture capitalist has a technical background, so they don't always have the best grounding to assess new technology. That means it's that much harder for innovative new tech to stand out. By the time those investors have come around, it's usually later in the lifecycle, after the company already has some traction.
But in the early days, Gandhi said, it's much more valuable to know whether a product can disrupt existing competition. This is particularly valuable when it comes to her own specialty, which she calls "deep tech" - engineering innovations in fields like artificial intelligence and machine learning.
Understanding what's happening on a technical level means she can invest in a startup before most other investors would consider it worth their time.
"That's what differentiates a technical engineer fund manager from a generalist investor: We know the in and outs of AI and machine learning," Gandhi said.
It also means Array can get deals done quickly. While some venture firms can take months to approve an investment, Gandhi said she's seen deals get done in a weekend, though it's usually at least a few weeks, she says.
"Small funds have an agility. If they are focused, they already have a point of view. And they don't have to go through the complicated partner dynamics," Gandhi said.
Array has already seen two exits
Though the firm is just three years old, Array has made 34 investments into these tech-oriented startups, including blockchain, robotics and AI. Of those, the firm has already seen two exits.
One of those exits was Simility, a fraud protection and risk management platform that Gandhi invested in at the time of its 2015 seed round. At the end of June, PayPal acquired Simility for $120 million - more than double the $52.75 million valuation it got during its December 2017 Series A.
Another, the office task management platform Hivy, got acquired by Managed By Q, an office operations platform, in September 2017 for an undisclosed sum.
Enterprise tech has been especially lucrative in recent years, as a boom in IPOs and M&A have brought huge returns to investors in companies like MuleSoft, which sold to Salesforce for $6.5 billion, and Dropbox. which went public at a $9.2 billion valuation.
But if you get in early enough, Gandhi said, it doesn't take a mega-exit for a firm to return money to its investors.
"Enterprise founders are more focused on solving problems than thinking through valuations, so if you're helpful to founders, I find them to be more generous and long-view oriented," Gandhi said.