Shruti Gandhi, founder of Array Ventures, describes her investment process in detail. Using specific examples of first meetings with founders, she explains what she likes to see in early stage startups.
Shruti Gandhi, founder of Array Ventures, describes her investment process in detail. Using specific examples of first meetings with founders, she explains what she likes to see in early stage startups.
The Sure Shot Entrepreneur
Shruti Gandhi - Tell the story of “why” to excite your investors
Shruti Gandhi: [00:00:00] But if it's a first-time founder working on a category that not everyone knows about, I think what I find really valuable is founders being able to build on their story a little bit. It's easy for me to say I worked on this and I need X amount of dollars for it and so forth. But actually more compelling stories or pitches are where the founders say, why they're solving that problem and why they're excited about it.
Gopi Rangan: [00:00:29] You are listening to the Sure Shot Entrepreneur, a podcast for founders with ambitious ideas. Venture capital investors and other early believers tell you relatable, insightful, and authentic stories to help you realize your vision.
Welcome to the Sure Shot Entrepreneur. Shruti Gandhi is the founder and managing partner at Array Ventures, an early stage venture capital firm based in the Silicon Valley. Shruti, welcome to the Sure Shot Entrepreneur.
Shruti Gandhi: [00:01:04] Thank you so much for having me Gopi.
Gopi Rangan: [00:01:06] Tell us about yourself, Shruti.
Shruti Gandhi: [00:01:08] I'm Shruti. I run a fund called Array Ventures. A little bit about me is I was an engineer for a decade, became a founder, and then I started my journey in venture almost a decade ago now in the 2011- 2012 timeframe. Since then I've worked across various kinds of firms, corporate venture, institutional firm and other models as well. But about 4 - 5 years ago, I started our fund Array Ventures focused on enterprise early stage investing.
Gopi Rangan: [00:01:43] How did you frame your investment philosophy and how is it different from other firms?
Shruti Gandhi: [00:01:48] Yeah, it's a good point. So about when I was starting out our firm, I realized that while there are many investors in the market at various stages there are very few real first check investors, especially in the enterprise world. Firms are generalist investors, but they don't have a deep understanding on how to evaluate enterprise companies at the pre-seed stage. So that is how we started out wanting to solve for that problem and happy to share more about how exactly we do that. But that's what kind of led us to start Array Ventures.
Gopi Rangan: [00:02:28] Tell me more about the philosophy. I totally understand the, especially with enterprise infrastructure and those kinds of startups that are much larger firms at the earliest stages, it's quite challenging. How did you decide to focus on this and the team and the kind of themes that you invest in?
Shruti Gandhi: [00:02:44] Well, that was easy, more just my background is in enterprise. And I'd worked on enterprise products and tools also as an engineer, but I think it's more the idea of how do you invest in these companies without traction and understanding that these enterprise companies actually have a real J-curve where it takes a long time to build a company. Go to market comes in much later. So that's basically, what you need to understand at the stages we invest in. And then you're right, there are many firms that the later stages like series A onwards, and they look at numbers and tractions to get to the point of, making that decision. But at the stages we invest in usually it's just founders and idea, and anything more beyond that is more like a icing on the cake for us as an investor.
Gopi Rangan: [00:03:37] So what stages is the right sweet spot for you? If there's something that's too early for you, or is this, when does it get too late for you?
Shruti Gandhi: [00:03:46] Good question. Yeah, the earliest is as early as founders thinking about starting something and we've often lead, the rounds for any other investors participated. We, often in some cases, founders didn't even have a bank account or hadn't even formed the company. So we helped them through all of that as well.
Once late is anything beyond series A would be late for us. We'll do some series checks where we don't lead, but we follow a firm I worked with in the past. And, we, and they, and the founders all believe that there's still value a firm like ours can add. But usually we focus on pre-seed stage. We tend to not really focus a lot on the seed stage because we think that oftentimes, pre seed investors already formed a real good bond with that, but that firm and, our value add could be minimal at that point. So we want to focus on high value add and anything we think, we can't add value in would not be a good fit for us.
Gopi Rangan: [00:04:54] So you prefer to go in as early as possible. Sometimes even when entrepreneurs haven't form that idea fully, and they're still at their current job and they're going to leave soon from that stage on up to a point where they might have something, maybe a slide deck, perhaps even some angel funding, but when it gets to a point where it's series A and they have hundreds of thousands of dollars of recurring revenue that might be too late for you. Is that a good characterization?
Shruti Gandhi: [00:05:21] We do anything up to series A as well. Okay.
Gopi Rangan: [00:05:24] Including series A?
Shruti Gandhi: [00:05:26] Yes. So again, it's a method of terminology, but I I'd like to say we'd like to do first round of fundings. Sometimes those funding end up being series A because they're larger, but that's the whole idea of, well, we don't really go and do anything beyond that.
Gopi Rangan: [00:05:43] I know Series A was supposed to be the first round of funding. And that's why it was called Series A. Added so many different labels to it. Then Series A is sometimes the fourth or fifth round of funding.
Shruti Gandhi: [00:05:55] Yeah, I know we have a company called Productive and they raised 8 milion first round. So they called it a series A, but they had a deck by that point when we invested and Excel led the round.
So we were the other investor in the company and the company at that stage. But as I said, but it would not be called a breezy, but it's definitely the stage we're talking about, just being formed and, and they think we could still add value.
Gopi Rangan: [00:06:20] What do you look for at that stage at this stage? What is this the most comfortable spot for you?
Shruti Gandhi: [00:06:29] Oh, definitely. The first check in is the only comfortable spot for me. Anything beyond that is opportunistic . So for us, a founder solving problems in an area that they are very familiar with and also being able to kind of talk about how they came about working on that problem. If they have any customers, that's great. Or if we can bring them any customers, that's great as well. So that's, that's the most ideal spot when you call it angel usually we also invest, with the angels. So as I said, when I see early truly means early and often in many cases.
Gopi Rangan: [00:07:10] That could be the angel or precede or seed, or even as long as it's the first time.
Shruti Gandhi: [00:07:17] Exactly. That's why I don't actually call it pre-seed or seed or anything from, I just call it first round formation check, but then it gets complicated anyway.
Gopi Rangan: [00:07:27] So you mentioned founder with an idea that they are passionate about. Can we double click and maybe there are others, the things that you look for, what are some specific things that you get excited about when you see in the first meeting?
Shruti Gandhi: [00:07:39] Yeah, I think, I get excited when founders have, well, first of all, good excitement about their own problems that they're solving. Experience, if they've worked in that space and they're aware of, of it that's even better. And just, the market itself has to be somewhat that we're looking to invest in while they can be, while everyone's looking for big markets for us, that's good. But we're also looking for something that is more unique and more enterprise, which, more enterprise the better.
And what I mean by that is. If it's cloud infrastructure security, all of that, it's great. We do what facet across the stack. So it doesn't just have to be the application there. But if it's an application layer focused on particular industry vertical, we were excited about those as well. As long as we have not invested in that vertical in the past, do a way with a wide competition, obviously.
Gopi Rangan: [00:08:38] It's Interesting that you say that you're looking for something unique and the market size is not that important. It's always great to have a big market size, but even if the market size is not well defined, the problem is more interesting to you.
Shruti Gandhi: [00:08:52] Yeah. If you end up investing, I don't mean by market size is not important, but what I mean is smart founders figured out a way to expand their markets.
If the market is just startups or something, I'm not investing right. But what I mean by is if you're doing something in , let's say the manufacturer during vertical, one of our companies, Overview, focused on manufacturing vertical, but they're focused on a small niche for manufacturing - we're open to investing there knowing that the overall manufacturing industries, large and the founders are also smart enough to go from that industry into an adjacent other manufacturing industry. So that's what I mean by that, but yeah, we're open to that instead of just saying, I'm going to go, just go transform the entire manufacturing industry.
Gopi Rangan: [00:09:42] So, this is a great starting point. So what happens after that, in the next few meetings?
What kind of, when you first meet the entrepreneur, you see that there's a, a problem that they're solving and you've seen that there's potential for this to scale. How do you spend the next few meetings before you form a strong conviction about investment?
Shruti Gandhi: [00:10:02] Yeah, we meet co-founders. They meet the other team members, if possible. We also then involve other customers that are in our network to see if we can, understand if one, we can help them down the road as that's what I keep talking about. The value-add part. Oftentimes, even from our first meeting when we're diligencing, if we're actually serious about the company.
And even if we have not made a decision about an investment, we'll still introduce the founders to a potential customer that, we think they should be investing it, investing their time in, and the intro is valuable both ways for the founder and the customer. So we will spend a bunch of time doing actual customer diligence. And that's what usually takes a chunk of our time before we make a decision.
Gopi Rangan: [00:10:52] So what I'm hearing is that the value-added starts even before the investment closes in many cases.
Shruti Gandhi: [00:10:57] Yes, because, and that is actually I tell founders you're seeing me at work already. Right. Because while there's a lot of checks out there, I find very few investors actually start adding value right away. So that's what the kind of firm we're aspiring to build. And that's what we do.
Gopi Rangan: [00:11:15] How long does the process take from start to closing an investment? What, from an entrepreneur's perspective, what should they expect?
Shruti Gandhi: [00:11:23] Usually, anywhere a couple of weeks, we've invested in one meeting. We try not to do that, but it doesn't take us that long to decide, we've invested over a weekend. Our last investment actually was over a Memorial day weekend where we met the founders on a Friday. And by Monday we told them we were investing.
Gopi Rangan: [00:11:47] That is fast indeed. Yes, it's a, it's difficult to form conviction overnight like that.
Shruti Gandhi: [00:11:54] Well, I think it's usually it happens if the areas that you're investing in well, which is in this case, it was a security investment. So it's something we know pretty well. We've had an exit, well a couple of exits. It's been one of the recent ones was in a company called Simility that was acquired by PayPal, it's a fraud detection company. I've invested in other companies in the category. And my first job as an engineer was also in the security space. So security, software developers. So. that that happens oftentimes as, as I'm sure companies come to you in a particular InsureTech space, I'm sure what, what you're looking for, and I'm sure you're able to figure out an investment that you are excited about right away.
Gopi Rangan: [00:12:38] That's true. Yeah. A prepared mind is a lot easier to help us in decision making. We can make quick decisions when we are not well-prepared. In hindsight, I find myself spending time, researching and learning about it. And that takes some time. But when I've already done all the work and, it's an area that I've looked at in the past, it's a lot faster to make those decisions. It happens sometimes, but not always.
Shruti Gandhi: [00:13:02] Exactly.
Gopi Rangan: [00:13:03] Can you pick an example of a startup kind of show the journey of how you met them and how the conversation progress and what you discovered along the way?
Shruti Gandhi: [00:13:14] Yeah , one of our recent investments is in a company called Uniform. They are in the jam stack space and they, are a company that helps enterprises adopt this methodology called jam stack that helps first and foremost with faster websites, but also better personalization.
Gopi Rangan: [00:13:37] Can you give a quick description of jam stack?
Shruti Gandhi: [00:13:42] Yeah, jam stack sense for JavaScript, API and markup. It's basically the new way to build websites and ads for faster performance and security and much lower cost, it's a new methodology in the marketing stack. It's up and coming and folks that companies like Netlify, Contentful, especially Netlify, made this category popular and the company I've invested in called Uniform also works for these companies to be their enterprise partner.
So one of our really close co-investor, we've invested in them with them a few times introduced us to that company. So it's like, a company that, Gopi, you'd be introducing to us for example, or vice versa, right? Like if I would introduce a company to you and they introduce the company to us, because it was not in their sweet spot, but they kind of wanted to invest in the company.
So we decided to look at the category, even though I've done investments in data marketing stack and enterprise a lot, this is a new and emerging category, as I said. So for us, we also had to kind of get up to speed with it. The great thing was one of the founders are one of the most leading experts in the space.
So they actually helped us form a point of view in, in addition to doing the diligence. So, and for us, we're able to in parallel connect them with a bunch of customers as well during the process and partners. So it kind of worked both ways. The founders knew we are technical, but we may not know specifically by jam stack .
That is okay, sometimes when it's in your category. So because very few people, investors are actually well versed with it. In fact, very few engineers are so well versed with it. So that's what we did. We got up to speed. It took about a month, as he said in an area that you don't know that much about.
Sometimes it takes a little bit longer and you have to prepare your mind as you called it. We took a month and, we won that deal against a bunch of other investors and, we, we're now, helping them get to the next stage, basically.
Gopi Rangan: [00:16:00] What are some things that the startups do to make it easy for you and maybe in this case, are there things that the entrepreneurs did that made the process easy for you?
Shruti Gandhi: [00:16:11] Well, that's a great question. Oftentimes, founders, it depends on the kind of company and, how early and how proven the founders are. So not everyone has to do this, but if it's a first time founder working on a category that not everyone knows about. I think what I find really valuable is founders being able to build on their story a little bit.
It's easy for me to say, I worked on this and you need X amount of dollars for it and so forth, but actually a more compelling stories or pitches are where the founders say, why they're solving that problem and why they're excited about it. Obviously, the thought around them , one sharing their journey as to how many people they think they have talked to before they got to that conviction of building this company. Second, how fast they think they can grow.
These kinds of thoughtful things that if the founders communicate that to you, shows that, they've done the work. Even if the work is a little far off, sometimes, it will guarantee a second meeting from me because I know the founders are taking the time and the effort to do, do the base work.
And now all of us are as aware of the execution risk that exists. So the company, so now it's all about figuring out if the execution risks is existing in the company or not based on all the other checklists we have to kind of follow through. But generally where I get excited about follow-up meetings and then investing in a founder, if one they're passionate and two, there is like a real story as to how they got to the point of building the company where they, where they're at.
Gopi Rangan: [00:17:50] So you look for the why, which is like, can you, do you have a deep rooted, Thesis on why this problem needs to be targeted and why this kind of solution is the right approach. And when entrepreneurs have thought through it, you can and have a deeper conversation with them. Have second level, third level conversations with them. I mean, they haven't really thought about it, then it becomes quite superficial and it's very hard for you to go deep in those topics.
Shruti Gandhi: [00:18:15] Well, I find it's very hard for me to realize that a founder, that hasn't thought about why in a deep way is going to be able to just start a company with all the challenges that come around, not having thought about the why.
Gopi Rangan: [00:18:30] Yeah. I say that, a lot of my investments founders had typos in their slide deck, theirs, their presentations are not very polished, but the one hour meeting was fascinating. And at the end of it, my eyes opened up to something totally new that I never thought of. Those are much more interesting. It looks like that's kind of what you're referring too.
Shruti Gandhi: [00:18:51] Exactly. You're more articulate than I am Gopi.
Gopi Rangan: [00:18:54] I'm learning as a, this is a, I've seen this. This is one of the reasons why I started this podcast, that some of the best venture capital investors, that we are not in the business of articulating things to the world. We are in the other side, but on the buy side, which means that we evaluate things and help entrepreneurs.
And we are much, better advisors. So it's perfectly okay if we have our style of doing things and it's actually nice that your voice comes out in the way you describe it. How many startups do you typically invest in or how often do you invest?
Shruti Gandhi: [00:19:29] Good question. We invest on average 9 to 10 startups a year. So we are two startups in this year, so we have long ways to go.
Gopi Rangan: [00:19:37] And this is your second fund, right?
Shruti Gandhi: [00:19:39] Yeah.
Gopi Rangan: [00:19:40] What is the typical size of investment that you make?
Shruti Gandhi: [00:19:43] We'll make half a million to a million dollar checks depending on the round size. And we lead, or we call lead or follow either, either works for us.
Gopi Rangan: [00:19:53] Do you have a preference for geography, which location in the US, outside the US, or even within the US?
Shruti Gandhi: [00:19:59] We like companies that are focused on either the US or the global markets, but they can be based anywhere. They have to just be a Delaware entity.
Gopi Rangan: [00:20:08] So, this is very interesting. You've shared quite a bit, the message that you said that really sticks with me is the why. Like, if someone has deeply thought about it, it shows in the conversation when, when an entrepreneur has, is very passionate about it, and when they're committed to what they're building. I want to switch to the last section, which is about community involvement. How are you involved in the community, especially in the startup ecosystem and in the venture capital sector, and what do you do to improve it?
Shruti Gandhi: [00:20:38] Great question. I'm deeply passionate about, investing in what I generally bucket as underrepresented founders. So I say that someone like me when they're given the power to make decisions and capital. we will invest in people that don't just fit the quote on quote normal pattern people are talking about and founders.
So for us, we're an enterprise fund. And while our big focus have not been focusing on underrepresented founders so far, we still have about quarter of our founders as women. And over 50% of our founders are immigrants from all sorts of countries. So I think we have, launched a program last week.
That is focused on another bucket of underrepresented founders, which is Black and Latinx founders, and having really given it much thought I've realized that being a woman personally, I've seen a lot of challenges around fundraising personally, as a fund manager, but also from other women founders, I work closely with.
The next step is even is, is even more important, which is having the Black and Hispanic founders and increasing their numbers in the startup ecosystem. So we've launched about a million dollars that we want to allocate to these founders. And we've also launched office hours that we think, we're hoping that we can find founders through these office hours that we can fund. We want to put our money where our mouth is, and that's what I've been mostly involved in, recently.
Gopi Rangan: [00:22:27] There is a lot of bias in the venture capital industry, both on the investment side that are very few women, and there are very few people of color as investors. And on the other side on the entrepreneurs, there are a lot of people with idea, great ideas, but they don't get the support if they are not in the preferred categories. And especially if there are far fewer women getting funded and fewer Black and Latinx founders getting funded as well. So I'm glad to see that you're emphasizing on this and trying to make changes happen.
Thank you so much for sharing your stories. I hope to find opportunities for us to collaborate more.
Shruti Gandhi: [00:23:06] Yeah, I know I'm looking forward to it, Gopi.
Gopi Rangan: [00:23:09] Thank you. Thank you for listening to the Sure Shot Entrepreneur. I hope you enjoyed listening to real life stories about early believers, supporting ambitious entrepreneurs.
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