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Weekend Wisdom: VC Debunked & Demystified | Traditional VC vs. Corporate VC | Tripp Shriner

This is the transcript of the second episode of MEDICI Studio's new video interview series "Weekend Wisdom: VCs Debunked & Demystified." Tripp Shriner, Founding Partner at Point72 Ventures, answers questions about traditional and corporate VCs. This webinar was moderated by Aditya Khurjekar, Founder and CEO of MEDICI.

Aditya Khurjekar: Let me welcome Tripp Shriner and all of you to the Weekend Wisdom series here. It’s a fantastic Memorial Day weekend here in the US. Tripp, thank you for doing this on a Saturday. We appreciate it.

Tripp Shriner: It's my pleasure, thanks for having me.

AK: I'm going to jump right in. This is something for which you've all chosen to take some time out of your Saturday, so thanks again. We are also broadcasting this on YouTube, LinkedIn, and Twitter. This video is also being recorded so you can also enjoy it later on MEDICI Studio. The goal here is really to ask a few easy questions of our VC friends in the industry and learn something from them and become a little wiser over the weekend. Let me start with this, Tripp. You’re probably used to being pitched by founders and startups all the time. Give me your pitch. Tell me about yourself. Have you ever been asked to pitch your fund? Have you practiced your own pitch to the other side? Could I ask you to pitch Point 72? 

TS: The short answer is I do it all the time. I don't know if you've noticed, but there's a lot of venture capital money out there, so we're now increasingly in the business of selling our money to entrepreneurs we want to work with. As far as the pitch goes: Point 72 Asset Management is a global asset management firm. It's been around for a number of decades. Historically, the focus has been on a variety of hedge fund strategies, but about four and a half years ago, senior management decided that they would leverage the expertise and platform that they have to go formally into the venture capital business. Given that they're an asset management firm, financial services was a logical place to start, and I was lucky enough to come over with my partner Pete to help start up the business. Pete and I had worked together at JP Morgan as part of their strategic investments group.

Over the past four years, we've built a globally focused early-stage FinTech fund. The firm has a number of other areas of interest, including AI, machine learning, and enterprise. But as far as our group goes, we are early-stage focused, so for most people, that means seed to Series B—as I mentioned earlier globally, focused within the US And Europe, where the predominance of our activity is. We're fundamentally focused on financial technology. What I mean by that, as opposed to just FinTech, is the underlying infrastructure enabling technologies that are selling into financial services participants to help them manufacture their products, better service their customers, or improve their operations. As we've built up the business with that focus in mind, we've tried to develop a model that's very customer-centric and what I mean by that is, we spend a disproportionate amount of our time, not necessarily talking to startups, but rather talking to prospective buyers within the financial services industry—banks, asset managers, large FinTech technology companies—to really understand what's on their minds: what trends they're seeing, what their pain points are, what type of technology, and innovation that they want to be seeing. For us, that helps us on a number of different fronts. It helps us really understand what trends are driving the industry and what types of themes may be interesting from an investable standpoint. It certainly helps us in due diligence, the ability to call prospective customers and understand their appetite for a given technology. I think, most importantly, it also helps us as we support our portfolio companies. 

If we have a good sense of who cares about what or what pain points need to be addressed, it really helps us get our portfolio companies in the right doors in the right places, given that customer focus. So that's been something that we've built out over the past couple of years.

AK: I think it is important for both investors and the founders to be able to stand out. And you know we heard from Matt Harris last week, and it is truly about a meeting of the minds between the investor and the founder. As you look at your specialty here at Point 72 Ventures, obviously, you come with your experience doing something similar, but in a different context at JP Morgan. We wanted to go a little bit deeper on that: is there really a big difference between corporate VC and what you practice today. How would you kind of characterize the differences and similarities in your previous life and your current life?

TS: If I were to just generalize that to the overall funding ecosystem for FinTech, we've always thought of it as two ends. On the one hand, you have strategics or corporate venture groups. They bring a lot of pros and a lot of cons. As far as the pros go, when you're sitting down with a corporate group or a strategic investment group, more often than not, they are domain experts; there's less in the way of education, and you're pretty quickly able to get to a conversation that leans more toward strategy and a thoughtful discussion, as opposed to simply education. And obviously, with a lot of the corporate venture arms, depending upon their model, with an investment, comes some strategic relationship. For an early-stage company that offers a variety of benefits; it could be distribution, or it could be the customer, it could be brand and referenceability. Those are all great things that we saw during our time in the corporate venture part of the market, but there are cons, probably unsurprisingly, with a lot of financial services institutions that are moving into this space or have been in the space. They are subject to things that have historically plagued financial institutions. A lot of decision-making, longer processes—things like that could be a challenge for where you're in your company when both speed and time are of the essence. On the other end of the spectrum, we saw a lot of more traditional, generalist venture capitalists who are also participating in this market, and I would almost flip the pros and cons relative to the strategics.

They can move quickly. They can provide neutral strategic guidance. They are good at being venture capitalists and board members, but more often than not, they're not domain experts, so whether it's pre-investment or post. I think founders have to spend a lot of time educating those types of groups as we thought about our model. It was always with the mindset that we would sit in the middle. We would take pieces of what was good about the strategic side of things—domain expertise, the ability to add strategic value but try to look and feel like a venture capital fund, be able to move quickly, and have a financial orientation to our participation with anyone.

AK: Is there clear guidance here for founders raising money? For example, “don't spend your time with this type of investor at this stage in your fundraising.” Is there a clear set of guidelines? Maybe for a very early stage: “don't spend your time with strategics, because that's when you need someone like a Point 72 more; when you are in your A, B, or C, then think about strategy, because then they'll help you.” Is that a general rule you would say?

TS: Yeah, I would say there is certainly a list of questions to ask as opposed to strict guidelines. I mean, as I look across the portfolio companies that I'm active with, a vast majority of them, even those at the early stage, do have some strategic investor, whether it be customers or potential partners or others. But if I were to just point to one key question to ask: what's your understanding of the nature of the relationship?; what I mean by that is: what is that strategic capital going to unlock? Does it accelerate a commercial relationship? And if so, who are the sponsors involved? What are the intentions on the investment side of the house from that strategy? Do they view this as something that is more passive where they want to be helpful? Do they want to be more active on the board? I think there are certainly to your point, a number of considerations depending upon the stage, but certainly for those of the earlier stage. The thing you want to be certain of is you know exactly what you're getting into as it relates to the relationship both with the commercial and investing sides of those organizations. 

AK: Is there an example from all the investments that you've made both in your corporate VC role and your current role where you felt like: “This is a decision I'm making purely based on my gut.? I'm taking a big risk in my decision here of making the investment. I know that something doesn't smell right, but I know this is the right thing to do.” Have you ever done that?

TS: So as an organization that prides itself on fundamentally rigorous work around investing, we don't do a lot in the way of gut-feel investing, but what we do is have a very clear sense going into the investment of what the risks are, what the unknowns are, and about what the hair is around a given investment. In some instances, that could be improvements that may need to be made in the product; in some instances, that could be additions that need to be made in the team. 

That's something that we try to be very transparent with portfolio companies about immediately at the point of investment, if anything, to create alignment. They know how we're feeling about their company, and I think, as importantly, to get aligned on how we're going to be helping them. So with any early-stage business, there are a lot of unknowns and a lot of gaps. I think you just need to be aware of what those are, and you need to be communicative with a founding team about what you believe them to be.

AK: And I think the last thing is definitely important: transparency from both sides. I feel it probably goes a long way: like expecting the founder to share with you how they look at the business, their growth KPIs, their projections, their markets, and so on. Your sharing with them what you consider the right metrics for success for investment—that probably helps both parties understand. Is that two-way transparency something that you believe in? 

TS: I mean, that is a central tenet of what we do as investors. It's something that we focus on because of the issues that we've seen it create when the transparency, communication, and alignment aren’t there. Practically, we sit down with portfolio companies to review our investment memo with them effectively and say, “This is our view on your business. What do you agree with? What do you disagree with? Let’s agree that there's alignment.” Over time, I’ve seen a number of businesses where either a. the founder doesn't have a good sense of what his or her investors think about the business and b. there hasn't been a real discussion between the founder and the investor on what the founder’s expectations are for those investors. That’s kind of the classic derogatory, “How can we be helpful?” thing. I think part of the challenge with that is the conversation obviously often doesn't go beyond “How can we be helpful?”

I think it's important to create alignment upfront from a founder’s perspective: what you want that portfolio company to be doing with you, and we go so far as to create discrete projects around those types of things: KPIs associated with them and reporting back to the founders on how we're actually dealing with them. 

AK: Let us hone in on the stage of investing that you focus on, which is the early stage. Isn't that the hardest stage to invest in? Because you don't have as many metrics or numbers about the business to go by. Have you chosen the hardest part of the VC cycle here?

TS: We probably have, but the approach that we take is: from a top-down perspective, is this company solving a pain point that we are seeing in the market? Are we hearing from customers that this is something that there's a demand for out there? That gives us comfort around going in on an earlier stage where you don't have those proof points. From a bottom-up perspective, we typically try to see two key things from a business perspective. The first one is some sense of referenceability. Have we seen an instance where they are with a customer? Have they evidenced their ROI to that customer? Secondly, is there some degree of repeatability? Not necessarily whether they have a sales machine in place and if we are going to be able to see if it will start to unfold. But more do we believe that that first thing that they did with that first customer is something they will be doing with other customers? Now, if you kind of step back, that's a relatively scant number of data points, but I think it gets us comfortable as we work with a portfolio company to be able to accelerate some of those things. 

AK: I want to add one more dimension to that. A lot of our audience is in emerging markets, but it’s a pretty broad term. You said that you invest globally. Are you seeing less or more opportunities in emerging markets versus the US and Western Europe? Any particular thoughts on Africa, where we believe it is still fairly early? Any thoughts on emerging markets as it relates to your early-stage investment focus? 

TS: Yes. As I mentioned earlier, in the US and Europe, we tend to focus on the financial technology side of things and our overarching belief there is that people are generally well served or well served enough from incumbent financial services providers where we tend not to invest in new types of financial service providers, rather technology providers that can help incumbents improve. As we go to other markets, that’s not necessarily the case. We see very large populations of underserved customers, whether they are consumers or small businesses. In those markets, I think there's a tremendous opportunity, both as it relates to a new generation of digital financial services providers, as well as new financial technology providers who are helping to develop new infrastructure and new technologies to power that ecosystem. Over the past several years, we've made a number of investments in Latin America. That's an area where we found opportunities both on the financial technology and financial services side. More recently, I've made a few investments in Asia and believe there's a lot of opportunities there. I actually started my investing career focused on a number of developing markets, but among them was Africa. That's a bit near and dear to my heart as far as the opportunity goes. With the infrastructure that you have in place largely driven by mobile penetration, there's an ability, and you've seen this in a lot of instances to leapfrog what you're seeing in developing markets as far as the consumption of financial services goes. 

AK: Have you gotten tired of the M-Pesa case study yet? 

TS: I think I got tired of it about five years ago! I don't know where I am with it now. 

AK: I think that was obviously ahead of its time, but it's amazing how it still comes up after so many years. I think the challenge has been that there is no such thing as Africa. What worked in Kenya doesn't mean it's going to work in Tanzania. I think that is true of pretty much any continent except for North America: you can't just say it’s going to work in Latin America. There's no such thing! Let’s talk about the Point 72 family as a whole. You alluded to that as having that data-driven DNA kind of built into the larger organization. How much data-driven VC investing are you able to practice in your early-stage investing? Is this possible?

TS: I think it's a challenge, to be honest with you. You just don't have enough proof points out there. I think what you can do is generate signals out in the market, as to what type of demand exists from what type of products. That’s actually a key tenet of sorts of our customer-driven model. But I think it's very challenging, particularly on the enterprise side where we focus, to be able to look at data and say yes, that one's going to win. I think as you get to later stages, that becomes something that is more feasible. But I think you can be rigorous and analytical of the work that you do at an early stage, but I'm not sure that the data-driven strategy is quite there yet.

However, I do think there's a really attractive opportunity to utilize data in early-stage venture capital. And why am I kind of talking out of both sides of my mouth? I think there are a lot of underutilized data assets that are out there that can help in particular portfolio companies once you've invested in them. If you take our portfolio, for example, we have 30 companies, a majority of whom are at a similar stage, selling to assist a similar customer base and dealing with similar challenges. There's a lot of collective knowledge to be taking advantage of: understanding sales cycles and the right people to meet at the right places. From that perspective, I do think that there's a critical role that data can play in helping a lot of early-stage companies succeed. I'm just probably more skeptical of its ability to then drive investment decisions.

AK: Speaking of sales, I know that you've built your team with that mindset. “How can we offer more than money to founders?” Let's talk about that. I remember when I was in a role like that, I would have VCs pitching to me on behalf of the founders because I worked for a large enterprise. At some point, it's like “Shouldn't the founder be the one giving me that sales pitch? Why are you doing it?” Do you find yourself doing that sales job for a founder of a portfolio company, and is it a good thing? Is it a bad thing? Does it happen often?

TS: It does. For us, though, we very much try to avoid the notion of going to a prospective customer and saying, “Here's my toolbox of portfolio companies, which tool would you like to select?” We don't think that's really useful to anyone involved in that discussion. But what we do believe is valuable is being engaged in the ecosystem, understanding what their priorities are. So, rather than having to call up a prospective customer and say: “Hey, I've got these five companies. Which one do you want to meet,” We can say, “We spoke two months ago, and you identified this as a potential pain point? We know of a few companies out there. They could be our portfolio company, or they could not. Would you like to meet any of them? Because we think they could address the thing that you were talking about a few months ago.” We try to make that a natural part of the conversation.

As it relates to our broader business development support and getting people in the right doors at the right places is one part of it, and I think that's useful. But for a lot of early-stage companies that in and of itself isn't going to be a determinant of success. What we found is that it's one thing to get in the door, but then you have to know how to position your product appropriately and really articulate a value proposition to the right person. So we've brought in a member of our team to focus specifically on that. Once you then get in the door, that's great, but if you're not ready to actually scale with that customer, as we like to say, you're not “bank-ready,” that's another challenge. So we've brought in someone within our organization to help support people on that. Our overall thought on the talent that we've hired and the way in which we support companies is for most businesses we deal with, the most critical thing is getting those early customers and starting to scale with them. So our efforts are tailored pretty exclusively toward that. 

AK: As you've gone from founding Point 72 ventures now a little over four years ago and as you’ve gone from being a founding partner at the firm to now having a team with some good, critical mass and some fantastic talent, how have you seen that process? Has that changed what you do personally at the firm? Just give me a sense of four years ago versus today. 

TS: We've always thought of our business as an operating business focused on supporting early-stage founders, and so with that startup mindset, we've kind of followed a fairly typical startup evolution. When we started, it was Pete, myself, and one of our other founding team members in a room. We were doing basically everything from diligence to portfolio support to building CRMs, you name it. Over time, we identified the biggest gaps in our skillset as it relates to being able to impact founders. So every time we've identified a gap, we’ve said, “Let's bring in someone who's much better at that one thing than we are and then let them do that thing.”

I could use a representative example of Adam Carson, who you know as the former head of digital strategy and partnerships at Chase. He knows more about the digital part of banking than any of us and, more importantly. He knows how startups can deal with an organization of that size, how they can position their product, and how they can get through a sales process. When we were first going, I would provide input on that, but having not lived directly through it, we ultimately decided: “why don't we bring in someone who we can let do the thing that they do best with all of our portfolio companies?” As we've identified gaps, we've whittled away the number of day-to-day requirements that we have. I think that's been to the benefit of our portfolio companies.

AK: Thanks for that. I feel like this is the kind of stuff that doesn't get talked about much. Because when founders look at you as a VC, it’s almost like the VC is on a pedestal. They have to pitch, and you are the judge who has to make a decision. But I think the reality is a bit more nuanced than that. I think the approach that you are taking—calling yourselves operating partners in the business—I think that is a very high-touch approach to investing which, in my mind, is a big leap. Do you have advice or anything that you would like to share with people who are listening to this, especially in the early stage, founder community, and especially in these very difficult, strange, and different times that we live in? Are there any thoughts that you would like to share?

TS: That’s a great question. The thing I've been thinking about quite a bit lately is we don't know what's going to happen in the near term here. I think we just have to all get comfortable with the fact that we're not going to know anything over the next several months. Our advice to founders—and my advice to founders out there—just know that that's the case. But for the types of businesses that we invest in—as tragic as this pandemic has been and is—I think it's an accelerant for the financial services industry. It's sort of a gradual-then-sudden moment. I think, coming out of this, people are going to realize that a lot of the status quo is no longer acceptable, whether it's how you serve your customers or how you operate your business. I think, generally, that's going to move the financial services industry forward as it relates to technology. And for founders out there, particularly those who are focused on the enterprise FinTech side of things, I think it's going to be a great opportunity for them. My advice is to stay calm for now. I think there's some compelling light at the end of the tunnel.

AK: I can almost see that poster: “Keep Calm and Stay Innovative.”

TS: Yeah, exactly!

AK: Tripp, thank you so much. I really appreciate all your thoughts. Thanks for taking the time on the weekend. Thank you for answering the questions without any prep. We were able to have a great conversation! Tripp Shriner, everybody, from Point 72 ventures. Thank you.

TS: Thank you for inviting me, Aditya.

AK: I want to end with just a quick pitch for what we are doing during COVID 19. We have set up a COVID 19 fund in partnership with Mayshad, which is a US-based 501C3 organization, to be able to make contributions to solo volunteers and small organizations who are spending time, resources, and their energy on the ground to help people who are affected by COVID 19. Head to goMEDICI.com/donate, and you can learn about the fund on that page. You can make a donation, and you can actually make a difference. No contribution is too small. We are hoping that we are able to help the many, many folks around the world—especially in the markets where we play and the communities that are affected—by sharing some of the luxuries that we have in this ecosystem that we live in and sharing a little bit of that with people who don't even have hope. So please visit goMEDICI.com/donate. Once again, thank you, everyone, for joining us here today. This is MEDICI Inner Circle Live.

Watch the full interview here.

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