Dave Anderson, founding general partner at Beat Ventures, discusses his approach to investing in tech startups targeting overlooked legacy industries. He highlights the role of AI in revolutionizing these industries, giving examples of predictive AI application in meat processing and generative AI in finance. Dave stresses the importance of building Silicon Valley networks for funding and hiring while maintaining close customer relationships for execution. Drawing from his unconventional journey into venture capital, he calls for more diversity in the industry to open up opportunities for both founders and investors.
Dave Anderson, founding general partner at Beat Ventures, discusses his approach to investing in tech startups targeting overlooked legacy industries. He highlights the role of AI in revolutionizing these industries, giving examples of predictive AI application in meat processing and generative AI in finance. Dave stresses the importance of building Silicon Valley networks for funding and hiring while maintaining close customer relationships for execution. Drawing from his unconventional journey into venture capital, he calls for more diversity in the industry to open up opportunities for both founders and investors.
In this episode, you’ll learn:
[04:40] Challenges legacy industries face in adopting new technology
[09:15] Beat Ventures’ focus on niche markets with high growth potential
[14:22] The importance of networking in Silicon Valley and proximity to customers
[19:08] How democratized technology is fostering diverse founders and investors
[21:47] Notable AI innovations transforming legacy industries
The non-profit organization Dave is passionate about: San Francisco School Board
About Dave Anderson
Dave Anderson is a Founding Partner and General Partner at Beat Ventures. Dave previously served as an Associate at Toyota AI Ventures. Prior to that, he co-founded Bamboo Detroit, the city’s first and largest co-working space for entrepreneurs, and was the director of venture services at NextEnergy, an early-stage technology incubator. An electrical engineer with experience in advanced battery systems, Dave worked with Bosch Battery Systems and General Dynamics Land Systems. He’s recognized as one of Crain Detroit Business’s 20 in their 20s and featured by Huffington Post and ABC’s 20/20. He holds an electrical engineering degree from the University of Michigan and an MBA from Harvard Business School, where he helped launch HBS Accelerate.
About Beat Ventures
Beat Ventures is a San Francisco-based VC firm investing in AI-driven companies that enhance human performance in overlooked legacy industries. Focused on pre-seed and seed stages, Beat Ventures supports startups using applied AI to complement human ingenuity, rather than replace it. The firm believes the future's most impactful companies will blend technology and human creativity to advance business and society. Its portfolio includes Volur, Stack AI, Truewind, Bitpart AI, Treehouse, Fishtail, Theo AI, Bolo AI, Poka Labs, Safe, Dropverse, and Clockwork.
Subscribe to our podcast and stay tuned for our next episode.
Even if you are not based in Silicon Valley, spend some time here building a network. So that'll be number one. Number two is the exact opposite. So they need to be where their customers are.
[00:00:17] Gopi Rangan: 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. I'm your host, Gopi Rangan. My guest today is Dave Anderson. He's the founding general partner at Beat Ventures. Beat Ventures is a Silicon Valley, San Francisco, Bay Area based venture capital firm, and Dave invests mainly in AI for overlooked legacy industries. What does that mean?
What kind of startups does he get excited about? We're going to talk to him about some specific examples of startups he's invested in, how he meets these founders, what questions he asks, how he forms conviction. Dave, welcome to The Sure Shot Entrepreneur.
[00:01:16] Dave Anderson: Thanks so much for having me, Gopi.
[00:01:18] Gopi Rangan: I'm excited to talk to you.
I want to start the conversation with who you are. You grew up in Michigan. You went to college there. You went to business school at Harvard, and you worked at large companies. You also worked at small companies. You've been a founder, and eventually you made your way to Silicon Valley where you started your own venture capital firm.
But let's start with your journey in Michigan. Where did you grow up? How was that experience?
[00:01:41] Dave Anderson: Yeah, so I grew up in the Detroit area, first in a small suburb and then I moved to Detroit when I was in my early teens. And I grew up in a very working class family. My dad was an electrician at Chrysler. My mother actually passed away when I was very young. So my dad, my sister and I moved in with my grandmother in Detroit and that's how I found my way in the city. And, um, yeah, all of the experiences that you mentioned really led me to where I am today. So, I ended up studying electrical engineering at Michigan, working as an engineer in big companies. First at General Dynamics Land Systems, and then at Bosch Battery Systems, where I did hardware and software for deploying lithium ion battery packs into EVs. And then eventually I started my own company in the prop tech space, which was a very fun experience. But having worked in large corporations and then as a founder I feel like that gives me the empathy that I need to now be an investor. So I moved out to Silicon Valley over five years ago now, after completing my MBA at Harvard. And, uh, it's been a great ride so far, COVID notwithstanding.
[00:02:52] Gopi Rangan: Why do you like venture capital? You stayed on the operating side for many years at large companies and you worked at small companies as well, but you switched to the investor side.
Why do you like venture capital so much?
[00:03:05] Dave Anderson: Yeah, it's, it's really, you know, I fell in love with it as soon as I got my first job in venture capital, which was at Toyota AI Ventures. They've since dropped AI from their name. It's not just Toyota Ventures. It was a great way for me to combine my entrepreneurial experience with the intellectual side and the engineering experience that I had.
So I see it as a part way of giving back and imparting a little bit of wisdom based on my experience to the founders that I'm investing in, but then also I get to have conversations with smart people all day, which is really fantastic. And sometimes that crosses many different industries. So, I'm able to scratch that entrepreneurial itch while still keeping the other experiences that I've had as well.
[00:03:47] Gopi Rangan: And that's the advantage of being a VC. You get to be exposed to many different problems, many different ways of building businesses, and you can experience them in parallel at the same time.
[00:03:58] Dave Anderson: And thankfully, you don't have to be an expert in any of these areas, you know. You're just able to ask questions and learn from some of the best.
[00:04:05] Gopi Rangan: Our jobs is to unleash potential in these companies by asking the right questions and kind of encouraging the founders to think slightly differently and explore some new ways and now that's a great way to keep intellectual stimulation very active. How is Beat Ventures different from other VC firms?
[00:04:25] Dave Anderson: Beat Ventures is an early-stage pre-seed and seed fund that focuses on investing in founders that are building AI for legacy overlooked industries. So, Can you
[00:04:37] Gopi Rangan: also talk about how you got started? What's the genesis of Beat Ventures?
[00:04:41] Dave Anderson: Yeah, absolutely. So why don't we rewind a little bit back to my days at Harvard.
So I was just getting introduced to the world of venture capital, and I met my co founder, Colin, who is based in New York. He used to live in Silicon Valley, but he moved out to New York last year. We were actually working on a school project together, and he was my quote unquote VC. And I was building a fake company, just working on a class project. And we love the dynamic that we had as a founder and a VC. And so we kind of talked about while we were at HBS, working together on something at some point in the future. Fast forward to when COVID hit, we were spending a lot of time together, looking at some deals he was working at another firm, and I was at Toyota ventures, as I mentioned.
We just said, you know, now is a perfect time to start a company when the world seems like it's in disarray. There's a lot of opportunity. So we got the blessing of our respective bosses and set out to build a firm.
[00:05:38] Gopi Rangan: What stage do you invest? How late is too late and how early is too early for you?
[00:05:43] Dave Anderson: Yeah. So we typically like to focus on the pre seed stage. And what that typically means is, a founder has a good idea, has started writing some code, typically has a team, you know, maybe one or two people that he or she is working with. And we like to be one of the first checks, not the only check though.
We like to see a founder that is raising 1 to 2 million dollars, typically in venture capital and has a lead investor that's taking around half the round. And the valuations based on the market conditions can vary, but for us, that's in the 6 to 10 million valuation cap range on a safe note. And what's definitely too late for us is once you have already launched or are already generating significant revenues, once you start getting into the 15, 20, 25, um, that's typically too late for us.
[00:06:34] Gopi Rangan: 15, 20, 25 million in valuation.
[00:06:37] Dave Anderson: That's right.
[00:06:38] Gopi Rangan: Okay. So let's talk about your investments in legacy industries.
[00:06:42] Dave Anderson: Yeah. So yeah, we focus on AI in legacy industries. And what that typically means is we're trying to find entrepreneurs anywhere they are across the U. S. building in industries that are traditionally old and antiquated. And these legacy industries that could mean anything from meat processing to chemical production to oil and gas. These legacy industries are traditionally characterized by a reluctance to adopt new technology, longer sales cycle and entrenched old boy networks.
But what we're realizing is that as a new generation is taking over from retiring executives, these industries are adopting AI and changing their buying behaviors. So we feel like now is the perfect time to start investing in founders that have the expertise that can create defensible moats in these industries.
[00:07:35] Gopi Rangan: A lot of these industries, like manufacturing, chemicals, pharmaceuticals, supply chain, industrial equipment, and all of these industries, they spend very little on R&D; like as a percentage of revenue, it's sometimes even zero in the top 10 companies. So they have massive technology debt. And meanwhile, startups are building these innovative solutions.
And I can see why these legacy industry companies would want to partner with startups, but perhaps also acquire some of these companies later to bring innovation into their large corporations. I can see why you're excited about this space.
[00:08:11] Dave Anderson: Yeah, definitely. We're already starting to see some of the writing on the wall for some of our companies.
These legacy companies are partnering very closely and you can see a bear hug coming. So that's definitely in the back of our mind.
[00:08:25] Gopi Rangan: Yeah, companies like McDonald's or Caterpillar and those kind of establishments are actually very active acquirers of startups as much or even more than large tech companies like Salesforce or Google acquiring startups.
Let's talk about some specific examples of companies you've invested in. How do you engage with the founder? What goes on in the first meeting? What questions do you ask them? What are you looking to learn?
[00:08:52] Dave Anderson: Yeah, absolutely. So I mentioned that my dad was an electrician and I had the opportunity to invest in a company that was building software for electricians a few years ago when we were first getting off the ground.
And it just so happens that I knew the founder, Eric Owski from high school. We actually played on the varsity basketball team together. We've maintained connections over the last two decades since we graduated. And he had an amazing background in building and selling startups. So he had built and sold two startups to LinkedIn.
And when he was starting his company Treehouse, I was one of the first calls that he made in order to invest into Treehouse. And some of the questions that we started to get to in those first meetings were how he viewed the industry as a whole, how he viewed the EV market and the growth opportunity over the next few decades, and how he was going to disrupt that industry.
And so now he's built Treehouse. They build software for electricians and they help electricians more easily install EV charging stations in their house. And they're eventually going to expand into other home electrification solutions, like with HVAC. They just raised a pretty large series A that we announced last week, $16.6 million led by Flourish Ventures. We've had the privilege of working with Eric and his team over the last three years.
[00:10:17] Gopi Rangan: It's great to see that Treehouse is doing well. Congratulations to Eric and his team.
[00:10:21] Dave Anderson: Thank you.
[00:10:23] Gopi Rangan: You've been with him since the beginning of this company. And I see that now Eric's also based out of Detroit, your hometown. It's great to see the whole story coming together. When you see founders like Eric focusing on old industries like electrification, modernizing the infrastructure, what questions do you ask them? What gives you conviction?
[00:10:44] Dave Anderson: Yeah, it all depends on that specific market and that and the founder.
We like to ask questions across many different areas. So starting with the market, you know, as I mentioned, the growth potential for that market. We will dig in on the competition and the right team makeup, what might make the product different from other products that are already in the market. We start there.
[00:11:09] Gopi Rangan: Let me ask you this controversial question. Does domain expertise matter more than fresh thinking/curiosity?
[00:11:17] Dave Anderson: Yeah, that's a great question. We try to look for domain expertise combined with a slightly different, more nuanced take on the market that they're looking to disrupt.
In some cases, the expertise matters, but it can cloud your judgment because you have so much scar tissue around building in a certain industry that it blinds you from the opportunity that exists in that industry. Whereas if you bring an outsider perspective combined with a surface level expertise in an industry, then it can lead to a lot of innovation.
[00:11:50] Gopi Rangan: That's fantastic to hear. You're not only a bold investor who goes early, you're actually open minded to hear perspectives, fresh thinking from founders who may not have deep expertise in the topic, as long as they have the profound curiosity, like you mentioned earlier, that appeals to you. How many companies do you invest in roughly in a year?
[00:12:13] Dave Anderson: We look at hundreds, but we typically only write checks into six to eight companies per year. So there's a really high bar for us writing a check.
[00:12:23] Gopi Rangan: Now you mentioned Eric who you've known for a long time and even well before he started a company. Is that typical where you've actually known the founder for a long time?
Or do you also invest in founders when you meet them for the first time?
[00:12:36] Dave Anderson: Yeah, we don't always have the luxury of knowing someone over multiple decades before we write a check. We definitely prefer to have an existing relationship with the people that we are investing into. And we have done that a number of times.
So with another one of our founders, Alex, the founder of Truewind. I had known Alex for five plus years before I had the opportunity to invest in Truewind. But as I mentioned, that's not always a luxury that we have. And so we have to be able to ask the right questions and build a quick relationship in order to gain conviction in the founder.
Because at the pre seed stage, we're often investing just in the founder before they have a really robust product. So we need conviction in that founder's ability to execute.
[00:13:16] Gopi Rangan: Yeah. At pre seed stage, you have the founder's vision and, your assessment of the market, which i s hard to really get hard data on that.
You're basically flying based on the founders story of what they expect to do and what kind of problems they want to solve. So it's really hard to do deep due diligence and it's helpful to have some existing pre existing relationships. So that will help you form conviction. What is your advice to founders?
I'm asking you from the perspective of the fact that you focus on legacy industries and you focus on founders that may be located in Silicon Valley but elsewhere in the U. S. as well. It's hard enough to build a startup, a general any tech startup. But in the area that you focus on, like the legacy industries, you know, long sales cycles selling into stodgy buyers who are slow and perhaps even averse to adopting technology, what is your advice to founders?
What are some one or two things that they could do to position themselves to become successful?
[00:14:22] Dave Anderson: So even though the founder may not be based in Silicon Valley, I think it is important to have a network in Silicon Valley, both for fundraising purposes and for hiring purposes. So they may want to move here at some point in their founder journey.
And they need to have access to engineers that are based here and the funders that are based here. So I would say, even if you are not based in Silicon Valley to spend some time here, building a network. Number two is the exact opposite. So they need to be where their customers are.
So, you know, we just funded a company in the chemical space and they're debating whether or not they want to stay here in Silicon Valley or go to a place like Chicago or even New York, where they have easier access to some of their customers in the middle of the country. So I think it's really, really important to take these customers out for a beer and spend some.
Some face time with those customers. So that might mean that you're gonna be on a plane more often than than the typical founder.
[00:15:19] Gopi Rangan: What else matters to you? The focus on the team and execution, connection in Silicon Valley with the investor network, and presence close to the customer so they can execute.
What else can founders do to make sure that they have a solid foundation in the early stages?
[00:15:37] Dave Anderson: Yeah, you know, a lot of building a startup comes down to maintaining momentum. And in order to maintain momentum you've got to piece by piece be able to build and see progress on a daily basis. So I think one thing that founders can do is to every day have some type of goal that they're trying to reach and Look to hit that target on a daily basis.
That's one thing.
[00:16:07] Gopi Rangan: That relentless focus on execution. That's what you're referring to. I build piece by piece, uh, make progress every day. It's not about developing a strategy on a slide deck. It's about getting things done.
[00:16:21] Dave Anderson: The best founders that I work with, they are able to celebrate the small wins. So again, day by day, piece by piece, they're continuing to make progress.
[00:16:31] Gopi Rangan: So you mentioned that you meet hundreds of startups, and you end up investing only in a handful. What's your most common reason to say no?
[00:16:39] Dave Anderson: That's a good question. I think I hate writing pass emails more than anything, because frankly, there are many founders that I would love to invest in, but we only have so much capital to invest. We're investing on behalf of LPs, right. So, when I write a pass email, I try to be as thorough and accurate as possible. Oftentimes, it's because it's too early or too late for us. Sometimes it's just something that we don't feel like we can get conviction in quickly enough to adhere to the round dynamics and the round timing. Sometimes we have competition concerns. So we feel like a competitor may have raised a year or two prior to the company that's getting started and competing with that company is going to be difficult. And other times it comes down to the Total Addressable Market (TAM).
So especially in legacy industries, the TAM can become a concern pretty often because there is the appropriate amount of niche that, that we like. Uh, we're okay with relatively niche markets where we feel like they can control that market and build a sizable company, but sometimes it can be too niche where TAM becomes a big concern.
[00:17:53] Gopi Rangan: Do you focus on exits? Do you have the conversation about how to exit the company, when to sell the company, what kind of acquirer would be ideal for a company like this, or is it too early to talk about that at pre-seed and seed stage for you?
[00:18:06] Dave Anderson: That's more of a conversation that we'll have internally.
And so we need to have conviction on where the potential acquirers might be. We will typically ask the question just to see where the founder's head is at, especially in the early stages, but that's not something that we're going to put a whole lot of weight into, especially at the pre seed stage, because it's just impossible to tell that early in the company's journey.
[00:18:28] Gopi Rangan: I want to ask you more of a philosophical question. Look, you grew up in a single dad household, you moved in with your grandmother, you grew up in Detroit, and you understood the electrical industry because of your dad being an electrician. These are not common traits, common, path for venture capital investors.
It's a very unusual path you've followed. As a new VC coming into the market, what is something that you'd like to change so there'll be more opportunities for people like you to create new venture capital firms and go and back founders at the earliest stages? What can the industry do differently in your opinion?
[00:19:08] Dave Anderson: That, that's such a great question. I think a lot of this industry is driven by pattern recognition. And the typical founder, even the typical GP at a fund typically follows a certain pattern. So maybe they worked at OpenAI in this environment, or Google, or, you know, name your tech company that's really hot, and the path makes a lot of sense. But for us, both my partner and I, we have very unusual circuitous paths to venture. And I think that's exactly what makes us be able to recognize those circuitous paths in others to be able to invest in them. So I would encourage the industry as a whole to think outside the box. There's going to be, especially in this world where AI is creating an opportunity for everyone; in many ways is democratizing access to technology for everyone, that the founder of yesterday is not necessarily going to match the profile of the founder of today and the future. Yeah, I think that, you know, moving forward, the industry is going to have to realize that the founder of tomorrow is going to look a lot different.
[00:20:19] Gopi Rangan: The speed of innovation is changing. It's much faster than it was before. The kind of people starting companies and the kind of companies getting started is very different compared to 20 years ago. As a result, the VC ecosystem is also changing, and there's a lot more opportunities for people like you and me to start new venture capital firms, but it's still very hard for a new VC firm to get established.
[00:20:44] Dave Anderson: Gopi,
can I ask you the same question? Yes. Yeah. What do you think the industry needs to do in order to evolve and change to recognize GPs like ourselves and the founders of the future?
[00:20:56] Gopi Rangan: Diversity. Diversity, not just to check the box on DEI, but I think there's a lot of value to be created when we back new ideas, fresh thinking in areas that existing VCs don't focus on, and that can be best done by inviting new VCs, new GPs into the ecosystem so that they can bring their network, just like how you invest in people you know really well.
Those founders would not have found the best VC like you if you didn't exist. And that I think creates a snowball effect, a flywheel effect for the entire ecosystem, the startup ecosystem, the mature capital ecosystem and the limited partner ecosystem. So I'm glad that you touched on the same theme. What technology teams are you excited about, especially given your focus on legacy industries?
[00:21:47] Dave Anderson: Yeah, broadly speaking, AI has been a focus of mine since my days at, Toyota AI Ventures. That was well before the generative AI LLMs came into focus. So back then it was all about computer vision and predictive models. I think today LLMs have changed how we view AI's role in a lot of these, legacy industries.
So at Beat Ventures , we try to balance a focus on the old school AI and the new school AI. I mentioned meat processing earlier in the conversation. Our portfolio company, Volur, is not really leveraging generative AI. They're using predictive AI models from research that came out of Princeton to help to anticipate customer demand and help their meat processing customers respond to that demand.
So, that is an example of old school AI that now is robust enough to deploy into these large companies and help to boost profits and reduce waste. On the flip side, generative AI, it can't be ignored, right? So we're funding companies like Truewind that is leveraging generative AI to revolutionize the accounting and finance industry.
So both of those trends are super interesting for us.
[00:23:03] Gopi Rangan: Very interesting. The word AI has become very, very popular, especially the past couple of years, and I see more opportunities in the future where founders are going to focus on using this technology more pervasively. It's great to see that you invest in companies like Volur that focuses on meat processing.
I see the mission of the company. They want to redefine decision making so we can maximize carcass value. That is, it's a good way to bring. far more optimization than we've ever seen without the existence of technology. We're coming towards the end of our conversation and I want to ask you about your community involvement.
Is there a non profit organization you are passionate about? Which one?
[00:23:43] Dave Anderson: Yeah, one thing that my wife and I have been focused on, especially over the last few months, as our almost two year old son is preparing to go to school, is what the San Francisco school system is going to look like when he is ready to start.
And we have a good friend who is our neighbor here in San Francisco, John Gerson, who is running for the SF school board. Um, so we've recently donated to his campaign and we encourage others to support his campaign as well. He's going to be on the ballot in a week. So, uh, I'm sure he would really appreciate your vote.
[00:24:20] Gopi Rangan: All right. Thank you very much for sharing your perspectives. Thank you for sharing real-life examples based on your investments and your advice to founders as they prepare to start companies, especially focused on legacy industries that you specialize in. I look forward to sharing your nuggets of wisdom with the world.
[00:24:38] Dave Anderson: Thanks so much, Gopi.
[00:24:42] Gopi Rangan: Thank you for listening to The Sure Shot Entrepreneur. I hope you enjoyed listening to real-life stories about early believers supporting ambitious entrepreneurs. Please subscribe to the podcast and post a review. Your comments will help other entrepreneurs find this podcast. I look forward to catching you at the next episode.