Gautam Godhwani, Managing Partner at Good Startup, talks about the shift in consumer demand from animal protein to alternative protein. Gautam gives examples of startups that are changing the way food is consumed and shares insightful tips for entrepreneurs seeking to disrupt this sector.
Gautam Godhwani, Managing Partner at Good Startup, talks about the shift in consumer demand from animal protein to alternative protein. Gautam gives examples of startups that are changing the way food is consumed and shares insightful tips for entrepreneurs seeking to disrupt this sector.
In this episode, we discuss:
[3:33] Articulating the WHY behind your startup helps investors support you effectively
[9:13] Focus on impact: the mission behind Good Startup
[16:28] How is innovation different in industry-based sectors compared to software-focused sectors?
[19:29] Three key areas most investors will want to cover in their first meeting to determine whether they are going to invest
Non-profit that Gautam is passionate about: India Community Center
Gautam Godhwani is a veteran entrepreneur who has founded world-renowned startups including AtWeb (acquired by Netscape in 1998), SimplyHired (acquired by Recruit Holdings Co. in 2016), and Habitera. Gautam also co-founded the Indian Community Center to bring the Indian community in the San Francisco bay area closer together. Gautam worked at HP, IBM, and Microsoft before the dot-com era.
Good Startup is a Singapore-based venture capital firm investing in entrepreneurs building the next generation of alternative protein companies globally. The mission of Good Startup is to remove animals from the food system. Startups in its portfolio include Nowadays, Rebellyous Foods, JUST, Clara Foods, Motif, OMeat, TuttleTree, BREVEL, and Novel Farms.
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Gautam Godhwani: It's really hard. As an entrepreneur in a former life, you're always wondering who and how you can trust them with what.
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. Today's guest is Gautam Godhwani. He's the managing partner at Good Startup, a new venture capital firm focused on alternative protein. We'll find out what that is, and the kind of startups he looks to invest in. Gautam, welcome to The Sure Shot Entrepreneur.
Gautam Godhwani: Pleasure to be on.
Gopi Rangan: Gautam, tell us about yourself starting with your professional career. Where did it start? Give us a quick journey of your career over the years until today.
Gautam Godhwani: Sure. I started way back to give you some context, my life in Delhi but moved to the U.S. when I was nine years old. Grew up in Silicon Valley around the software industry. My education was at Berkeley in computer science. So my career began really walking around the halls of some of the large companies at the time, which were Microsoft, IBM, Hewlett Packard.
But I started my first company, just a couple of years out of school. This was in the early days of the internet and just fell in love with building startups. That has become a 20+-year journey, where I've had an opportunity to build two businesses, one non-profit, and now a fund. And in the process between my brother and I, who have worked together a lot of our careers, we've invested in between 50 and a hundred companies and funds.
Gopi Rangan: You started with your career as an entrepreneur, and you've had successful stints at it. What attracted you to become an investor?
Gautam Godhwani: My love from a professional standpoint has always been on the entrepreneurial side. I love the idea of building businesses because as I went through the entrepreneurial process, it was an opportunity to really create something out of nothing, and was very addicted to the fact that it was the steepest learning curve I'd ever been on.
As I saw some success with the exit of my first company, I started to have entrepreneurs approach me. And it was a curious thing because I wasn't even sure what I had learned. It was a really fast three years before our first company was acquired. But as I started sitting down and speaking with entrepreneurs, I found that there were parts of my journey that were very relevant for the journey that they were on.
The idea of supporting them, investing in their startups, and helping them in whatever way I could, became very attractive. You could say in a sense that I just fell into it but then saw that there was really an opportunity to make a contribution.
Gopi Rangan: Your first company was AtWeb and it was in the early days of the internet. And you went on to found SimplyHired and later Habitera.
What are some themes that you picked up that help you now as an investor? Do you look for entrepreneurs like yourself? Do you look for some qualities that resonate with you where you saw that worked well for you? How do you think about investing when you're meeting entrepreneurs?
Gautam Godhwani: Like a lot of investors, looking at a new company begins with a quality team and a quality idea. So you're sitting across from the entrepreneur and really trying to understand why they're doing what they're doing. And for me, the ‘why’ has always been much more important than the ‘what’.
I really want to understand what got this entrepreneur down this journey. That's so important because the startup experience, those years of building businesses, are so difficult. Every entrepreneur/every company has its ups and downs. And when you go through one of those downs, which you invariably will, that ‘why’ is the only thing that will save you.
So I want to get comfort that this is something that the entrepreneur wants to do more than anything else. And from there, we talk about the idea, talk about the other aspects of the business - really look at the vision and see how this might become a big company. But, for me, it begins with the ‘why’.
Gopi Rangan: ‘Why’ is a great question to ask as it hits on the topic of purpose: Why do you exist? Why is this important for you?
When you think about that topic as an entrepreneur, it's a different mindset compared to asking the question as an observer from the outside. Did you have to change your mindset? This is something that's really fascinating to me when an entrepreneur decides to move to the other side of the table and become an investor. It is a huge change in the mindset. How do you approach the questions now that you're on the other side of the table? Is there a process that you went through, now you feel like you're no longer the striker in the middle of the field, but you're an investor on the side coaching the entrepreneur?
Gautam Godhwani: Obviously, I've been an investor for a long time. But you are absolutely correct that going on the other side of the table, for me, it felt like I was doing so when I became an institutional investor - at the point where I took other people's money and said, "Let me invest this for you."
Being a guardian of other people's money is a special responsibility. So in that process, I find that one has to be a lot more process-oriented, a lot more communication-oriented. This is not only about making sure that we treat the money of the limited partners with great care, but it's also about making sure that we follow up and make sure that the LPs are aware of where we are in that process at any given time.
We are very fortunate to have some very supportive limited partners that are deeply interested not only in the work that we're doing but also in the cause behind it. And so it's been great to be able to interact with them and to invest in these companies, keeping in mind that we have to follow a more stringent diligent process. We have to be a lot more communicative than I certainly need to be if I'm just investing my own money or if I happen to believe in an entrepreneur and I'm supporting them in any way that I feel is the best thing to do.
Gopi Rangan: Do you ever feel like you need to hold back? You know exactly what needs to be done. If you are the founder or if you were the CEO of a company you would make certain decisions. You are not in those seats but you can see the problem and how it should be solved, but you have to step back and let the founders and the CEOs manage their business. And you have to hold back on your urge to jump in. Do you ever feel that?
Gautam Godhwani: In addition to investing in a number of these companies, obviously I've been on a number of boards over the years. And being an entrepreneur, there was a board of directors that I had to interact with and manage. I learned a lot of lessons about how to be a better board member, how to be a better advisor really by observing a lot of other examples and just through a lot of trial and error.
It's critical that both board members and advisors really think about their role and what it is that the entrepreneur needs. In a nutshell, I would say it's just about helping the entrepreneur in the way that they want help. As an advisor, I believe that you have to earn the right to get the call from the entrepreneur.
It's a privilege that the entrepreneur decides that you're going to be the first call that they make if they're facing a challenging problem. The idea that somehow you can go and prescribe to the entrepreneur what they need to do when they aren't looking or asking for help in that area, I don't think is very productive and it's certainly not something that I would want to do.
So a lot of what I've tried to do over the years is to offer my help and just be there and support when the entrepreneur wants that help. And in some cases they do, in other cases, they don't need my help or they have places where they can get help, which is great.
As a board member, I also think that the job of the board, in addition to governance matters, is to make sure that the right CEO is running the company. In my view, the responsibility is not to offer a range of unsolicited advice or to get involved in matters where the CEO really isn't looking for help. Candidly, over the years, I found that a lot of board members didn't have clarity about what that role needed to be. So both as a board member and as an advisor, it's critical to support the entrepreneur in the way that they want to be supported.
Gopi Rangan: You've beautifully articulated the role of a good investor. We talked about your background and I want to jump into the present and ask you about Good Startup. Can you give a description of Good Startup; what is the fund about and why do you focus on alternative protein?
Gautam Godhwani: Good Startup's mission is to remove animals from the food system. We are a venture capital firm that today runs a $30-million fund that invests in companies that are creating products around alternative proteins - substitutes for meat, seafood, dairy, and eggs (animal foods), as well as materials like leather, wool, and silk that come out of animals, as well as ancillary markets like pet foods.
We invest in companies across all stages. The early stages are our sweet spot, where we write checks of $250,000 to $500,000 for companies utilizing a range of technologies such as plant-based technologies, cell-based technologies (where you're growing the meat outside the animal), and microorganism-based technologies (things like fungi). And so we are a mission-driven fund that creates companies that ultimately remove animals from the food system, which really is about the impact side, and then of course deliver a great return to our limited partners. So, we're really sitting at this nexus behind impact and economics and technology.
Gopi Rangan: What was the genesis of this idea, the mission to remove animals from the food ecosystem? What was the inspiration?
Gautam Godhwani: My last company sold in 2016. After that, I felt like I wanted to step away and take a bit of a break. I was living in Silicon Valley at the time and was taking classes at the city college in sustainability and in Mandarin, two topics I was quite interested in.
Gopi Rangan: Sustainability and Mandarin; I'm curious to see where this story is going.
Gautam Godhwani: Yes!
And let me save you the suspense to say that I enjoyed my Mandarin classes immensely, but they were highly unproductive. That remains an aspiration.
As I was taking some time off, I received advice from a friend of mine, which really resonated with me. He said, "Now that you have some time, do me a favor and don't fill it in."
I really took that to heart and left a lot of open time. One evening I stumbled across a documentary that was focused on animal welfare and about the treatment of farm animals globally. In addition to slaughtering 60 to 70 billion land animals a year, we also killed over 1 trillion fish. The really sad part is that for a lot of both land animals and fish, particularly farm fish, there's a great deal of suffering that's involved before the slaughter even arrives.
This was the type of thing where once I looked, I just couldn't look away. And the more I looked the worse it got. So I ended up watching documentary after documentary, video after video. I went in and started to get involved with the movement. I started to attend conferences, started to read books and articles. That was around 2017. Four years later, the same is true. I can't look away. And the more I look the worse it gets. I wasn't ready for my next project at the time. But last year when I was ready for my next project, I knew that I wanted to focus on alternative proteins because ultimately the animal agriculture sector is one where there is a huge amount of demand.
The demand for animal products is going straight up into the right. In 2050 when we have a population of 10 billion people and a much larger middle-class by the percentage of our population, meat consumption will nearly double.
We have a situation where no one is out to harm the animals. Nobody got up in the morning and said that we want to harm animals. But we have gotten ourselves into a system where, simply by eating food we love, and by just eating the food that we grew up eating, there is a lot of harm coming to the planet. We all have to look in the mirror and say, "what do we do about this?" And we have technologies available so that we can offer alternatives to people so that we eat food that is not only better for us but it's also better for the planet and better for the animals.
This is a huge opportunity to be able to, as I said, improve the lives of animals, make the planet better and also eat food that is actually healthier and better for us.
Gopi Rangan: A lot of things are going into the right. The market's been hot for many years and I see that the food sector as well has a lot of innovation coming through and everything is hyper-demand mode right now.
Is it really hype or is there real demand behind these kinds of solutions like alternative proteins and removing animals out of the food chain?
Gautam Godhwani: There has been incredible innovation over the last eight to 10 years in this sector. There is no question that companies like Beyond Meat, Impossible Foods, Oatley, and a range of other companies have created some amazing food that is in demand by consumers.
But it's important to appreciate that as a sector, alternative proteins today are only about $20 billion in size. Keep in mind, this is compared to an animal agriculture sector that is approximately $2 trillion in size. So alternative proteins are roughly at about 1% of the market. Ultimately to top the mainstream consumer, we have to have products that reach both tastes and price parody, and we are some ways from there. Companies are rapidly advancing in this area. New technologies are being utilized to create a huge number of interesting new products that raise the bar again and again. I remain very optimistic that we will create products that reach taste and price parody, but it is very early.
As someone who started his first company in 1996, I very much view this as that 1995 moment for alternative proteins. We are right at the beginning of a massive transformation of the entire food system. We've been engineering food for a long time. What we've just done is using food science and ingredients. We are now engineering food using biotechnology and molecules. And in our view, that is as fundamental a change as the transistor was for the information age.
Gopi Rangan: The food industry is a few trillion dollars and it's an integral part of our everyday life. I can see why you have such a strong conviction about the future of this industry. What do you look for in startups when you meet them in this space? And how is building a business in this sector different from other industries?
Gautam Godhwani: Our investment thesis, in addition to really looking at the founders and what I talked about relative to how we feel about and what we look for in founders, we look for companies that have core technology.
When you look at where we are with alternative proteins and the aspiration to reach taste and price parody, this is not a scale problem; it is an innovation problem. And so we begin with companies that are innovating using technology.
We also look for companies that have defined a pathway to market. They don't need to be in market, but we need to be comfortable with how they will commercialize their products so that they aren't so much in a stage of research for a very long time without knowing where they will end up when it comes to market development.
We also like to see founder CEOs running their companies, and we also like to see founding teams with substantial owners. You might say that the last two perhaps are true with a lot of companies, but we actually see quite a bit of variation in this industry. We like to see companies that are operationally really buttoned up. That's just a bias, perhaps that I and my partner Jay share, because we've been building businesses for much of our lives.
In terms of how this industry is different, this idea of disruption gets a lot of attention across industries. People talk about, " we want to be disruptive in this way or that way." To a greater extent in technology, one can speak about disruption because if you create a new product, first of all the product is entirely virtual.
If you're a consumer product and you want to advertise, check Facebook or Google. If you want more computing power, you go to Amazon web services. If you want any manner of technology, you can go to a range of SAS companies and create that. People will learn about you and pass the word aggressively through social media.
Technology has a way of creating disruption because it is all digital. In the food industry, this is not the case. Food is not only not digital. It’s something that we're putting into our bodies. And it is rooted in our culture in a very fundamental way. So, the role of governments, the role of incumbents in the industry, the role of research institutions becomes much more critical. It's very important for companies in this space to find a pathway so that they can get regulatory clearance for their products. It's very important to engage incumbents who are either part of the supply chain or can help with distribution, or with manufacturing or scale-up or help expand the company across to international markets or new segments. So, thinking about the strategy much more holistically becomes much more critical in this sector compared to a sector like tech.
Gopi Rangan: I can see why this industry is different from the typical software industry.
You cannot eat ones and zeros and douse your appetite. You have to eat tangible things, and that comes from products that you can touch and feel. I want to get into more details about this, but I want to first understand at what stage do you invest. What's the typical startup you invest in; what areas, geographies do you invest in?
Gautam Godhwani: We are a multi-stage fund. Our sweet spot is early-stage companies where we typically write initial check sizes of $250,000. But as companies grow and get to mid- and late-stage, we will also invest in those companies and typically our check sizes are $500,000 there. For every dollar that we invest, we also keep a dollar in reserve so we can support the companies that are growing on an ongoing basis.
As a global multi-stage investor, we certainly are very flexible in where the company is located or what stage they're in. But we are very strictly focused on alternative proteins. We are a food and materials fund. That means plant-based, cell-based, and microorganism-based technologies.
We don't invest in insect proteins. We don't invest in all digital enablers. We don't invest in delivery services. So we actually are able to figure out if we're interested in a company fairly fast because our thesis is quite narrow. And since all we do is focus on the sector, we can move very rapidly through the diligence and investment process, if required.
Gopi Rangan: This is very helpful. You're giving practical details on what you're looking for. What questions do you ask founders in the first one or two meetings?
Gautam Godhwani: We do diligence in companies across three areas. The first is operational diligence. That is the area that we'd begin with. That is the stage where after speaking with most startups, we would typically don't move forward, unfortunately. That is a conversation in which we are learning about the founder, learning about the idea, the pathway to market, IP protection, defensibility, the organization, the cap table, and the fundraising strategy.
There's a range of questions that we go through in that initial meeting. If we are compelled to learn more, and usually it's one of the two partners in this fund that has that conversation, then we would have a second meeting. Usually, their management team comes on and both partners come and we go into greater detail about those same topics.
Often we will have follow-up questions or there'll be materials we would have looked at. Then we would go deeper into examining those materials.
Once we are comfortable on the operational side, we move on to technical diligence since we are looking at companies with core technology. My partner, Jayesh, and I are operators. We aren't from the food or biotechnology industry. So, typically that diligence is done by a member of our scientific advisory team. This comprises a number of folks that are a part of our extended team, and they usually have a background that is highly relevant since they have complementary expertise to that particular startup. They look at the diligence materials, speak with the founders or the technical team, come back and speak with us and help us to round out the diligence. So that's the technical diligence side. Once we move past that, we go to market diligence. And because of our check size, we are really agnostic about whether we lead a round or whether we participate in the round and there's another lead. But whether it's the lead of the round or in-country or in-market experts, we are then doing market diligence. This might mean references on the founders, references on the company, looking at dynamics of the markets, speaking to other investors or the leads, doing customer references, things like that. That's the range of diligence that we go through before we finalize an investment. Obviously, the final diligence looks at the documentation and the actual terms before we move forward on an investment.
Gopi Rangan: Can you give examples of one or two startups? How was your interaction with them in the first few meetings? What impressed you in those discussions?
Gautam Godhwani: Sure. Over the last quarter, we invested in a company called Nowadays.
This is a wonderful company that is at an early stage. It has two founders. What they're doing is creating a clean label plant-based chicken. Clean label means that it is an ingredient label that has fewer ingredients that are all healthier and easier to pronounce - things that you can actually understand - and also a nutrition label that is much better than what you might find in alternatives.
So, the two founders are extremely passionate. What's interesting is that they're passionate about different parts of the related space. For example, the passion might range from the animal welfare movement to creating really healthy food to actually being passionate about the culinary side of it.
So it's a mix of different areas that they're passionate about. From the moment that we spoke to the founders, it was evident that the ‘why’ for them was very strong and while that was different for the founders, it intersected at creating a plant-based product that was very healthy, that was better for animals and also better for their kids.
We really loved where that intersection occurred. It's also one of the most thoughtful teams that I had come across. They were very aware of what they had going for them and where they needed to do more work.
I have found, at least in my own startup experiences, that it's not so much what you don't know that is really dangerous because that you can typically mitigate either by going and finding folks that know something about it, learning about it, or hiring folks on the team that knows something about it. It's what you don't know you don't know that is really dangerous. And that is a process of discovery and of self-awareness, where that leads you in different directions, where you start to look at different interesting areas and say, "wow, this is either an opportunity or a risk". So we found that the team was extremely self-aware and they continuously looked for areas where they could improve.
So, while the segment that they were entering was highly competitive, and while they were at an early stage, they had managed to create a highly differentiated product. It was not surprising to me, given what I understood about the characteristics of the team. They had also designed their technology platform in a way where there was a two-step development process so that even when they outsourced a lot of the manufacturing, as startups do in the space, their IP was well-protected. They had formulated partnerships with incumbents that could help them create some of that scaling and they were paying a lot of attention to both the talent and the culture that they were bringing into the company, even at a very early stage.
We were just bowled over by the approach of the founding team and what they had accomplished in a very short time.
Gopi Rangan: This sounds like the story of passionate founders that were genuinely inspired to solve a problem and were committed to it. And you picked up on their stories early through the conversations you had with them.
What happens when entrepreneurs pitch to you and they do something that just ticks you off. You're not getting this full story the way you want it. What are some common mistakes that entrepreneurs make that make it difficult for you to understand the business?
Gautam Godhwani: The entrepreneur's journey is a challenging one because you're coming across so many constituents and you're saying so much about something you care a lot about without knowing a lot from the other side. One of the things that I try to do is to begin the conversation by introducing ourselves and talking a bit about our philosophy so that they have a sense of what we're about and what's important to us.
Our hope is that this gives the entrepreneurs some comfort that we are extremely sensitive to the entrepreneur's journey and remain very inspired by the work they do. We find that entrepreneurs sometimes aren't as forthcoming because perhaps there's a huge amount of value placed on the idea and they aren't willing to share information when the intent isn't to use that information against them. The intent is only to make a better investment. I don't want to live a life where I'm trying to steal or expose entrepreneurs' ideas. But even if I were, the idea isn't the salient part of the entrepreneurial journey. It is the execution. It is persistence. Well, I'm hopeful that entrepreneurs get some comfort from the fact that most venture capitalists are not out to do that, because from a practical perspective, even if they did, they wouldn't be in business very long.
And from an ethical perspective, I don't know how one would sleep at night doing that. So, I would urge entrepreneurs just to be open to the idea that there is the best of intentions on the other side, that there is a genuine desire to understand the business and to help.
Gopi Rangan: Yeah, sometimes entrepreneurs are very cagey about their business, the business idea, and how they want to build their products and services. It becomes difficult to form a strong conviction without knowing much. Especially first-time entrepreneurs who are not familiar with the venture capital way of doing things, they are reluctant and that doesn't help. You're right that we have to trust and good venture capital investors know how to treat this information with respect and integrity.
Gautam Godhwani: It's really hard. As an entrepreneur in a former life, you're always wondering who and how you can trust them with what. It's a very common sentiment, but my intent was only just to say that you will find that most people really want to do the right thing.
Gopi Rangan: I want to switch to the next part of our conversation and ask you about your community involvement. Is there a nonprofit organization you are passionate about?
Gautam Godhwani: Between my first and second startups, my brother and I founded a nonprofit in the San Francisco bay area. It is called India Community Center, and it is now about 20 years old. We have raised about $40 million in funding to date. Now the organization operates several facilities in the San Francisco bay area, runs about 500 community events and programs annually, including a pre-school summer camp, senior programs, a lot of health and wellness programs, and a number of community events. That was a two-year full-time journey. I and my brother set it up and have been a trustee since.
Gopi Rangan: Gautam, thank you so much for spending time with me and sharing details about your journey through entrepreneurship and now as an investor, and especially the topics that you are looking for to make a huge difference in how food is consumed. This is a very important topic, and I look forward to sharing your nuggets of wisdom with the world.
Gautam Godhwani: It's a pleasure. Thank you for having me.
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.
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