Heather Hartnett, General Partner and CEO of Human Ventures, shares how she identifies ‘futurists’ to back them until the market sees their value. Heather talks about supporting early-stage entrepreneurs through ‘Humans in the Wild’ (the firm’s business incubator) and explains how valuation affects a startup’s future.
Heather Hartnett, General Partner and CEO of Human Ventures, shares how she identifies ‘futurists’ to back them until the market sees their value. Heather talks about supporting early-stage entrepreneurs through ‘Humans in the Wild’ (the firm’s business incubator) and explains how valuation affects a startup’s future.
In this episode, you’ll learn:
[3:40] Why VCs like to invest in ‘futurists’
[9:29] How ‘Humans in the Wild’ helps early-stage founders to transform raw ideas into the next big idea
[13:48] Why should founders be mindful of which firms they choose to come into their earliest rounds?
[17:33] The dangers of startup over-valuation
Non-profit organization that Heather is passionate about: David Lynch Foundation
Heather Hartnett is the General Partner and CEO of Human Ventures. Under Heather’s leadership, Human Ventures has invested in and co-built more than 30 companies, with key investments including Reserve (acquired), TheSkimm, Current, Tiny Organics and Clark (acquired).
Prior to founding Human, Heather’s venture capital career spanned across various roles at firms including Lightspeed Venture Partners, CityLight Capital, and Claremont Creek Ventures. She also led the development at David Lynch Foundation, crystalizing her professional expertise and operations with the largest family offices and sophisticated investment firms. Heather is a member of the Kauffman Fellows program and a frequent Forbes contributor on the topic of venture capital.
Human Ventures is a New York City-based venture capital firm that invests in Model Businesses with ambitious founders who are creating and building innovative technology companies that aim to make life easier and more fulfilling. The firm comprises an early-stage fund and venture studio. Its portfolio includes: Paloma Health, The Muse, Tiny Organics, Current, AmbassCo, Bikky, Day One, Hello.me, Kindred, Lupii, Spora Health, Quantime and Tia.
Coming up next week in Episode 75, we welcome a special guest, Dan Rosen, Founder and General Partner at Commerce Ventures, to talk about fintech investing, and how fintech has evolved over the last two decades.
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Heather Hartnett: We've built a platform for entrepreneurs to come and build the best fast. We've had an entrepreneurs-in-residence program from the very beginning and we lovingly call it 'Humans in the Wild', because we think that founders who are really thinking about building their next company, and they identify with this, are "out in the wild".
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. My guest today is Heather Hartnett. She's the CEO and General Partner at Human Ventures - a New York City-based venture capital firm.
Let's talk to her to find out what kind of companies she invests in. She also runs a startup studio. What does that entail? What kind of entrepreneurs does she like to support and how does she choose them? Heather, welcome to The Sure Shot Entrepreneur.
Heather Hartnett: Thank you so much for having me. I'm looking forward to this conversation.
Gopi Rangan: Yes, me too. Tell us about yourself. How did you enter the venture capital world?
Heather Hartnett: Yeah, sure. Everyone has a windy path into venture. One thing we can understand is that there's no definitive path that leads you there. And that's why it's such a fun industry and a mix of folks.
I came from a long line of entrepreneurs. So, right after graduating college in the early 2000s, I was asked by my family not what job was I going to get, but rather what value was I going to create in the world. And as an early 20-something, this deep sense of responsibility led me to start my career in philanthropy.
I was working a lot alongside some of the largest family offices in the world who were thinking about big things and were aiming to make the largest impact they could. And that really shaped the way I saw the world. Eventually, I started to see a trend that the next generation of philanthropists were actually in my mind entrepreneurs. They were building for-profit companies that were driving big change. It didn't have to be a non-profit to do so. And so that's when I found myself at an impact investment fund called City Light Capital in New York City. And that's really where I fell in love with early venture capital.
Coming from a family of entrepreneurs, there are two things that I think I've always been good at from a very early age. And it's identifying trends ahead of the market and then identifying the people who are going to usher in those trends. What other industry profession allows me to invest in people and provide them with resources before the world sees their potential? I really think only venture capital can do that. So eventually I met my co-founder, Joe Marchese. He is a successful serial entrepreneur himself, and we looked at founders in a very similar way. That's when we started Human Ventures together.
Gopi Rangan: So you were at City Lights Capital in 2013/14. And that's where you kind of laid the foundation for your career in venture capital, but you eventually came back and you started Human Ventures in 2015. As you said, venture capital is such a unique industry where we get to work with brilliant entrepreneurs who see the world differently and we tend to be the first set of believers, the early believers in the idea, and in the founding team. So it's a privilege and an honor to have that opportunity.
How is Human Ventures different from other venture capital firms? What do you look for in entrepreneurs? How do you make decisions that are different from other VC firms?
Heather Hartnett: Yeah, Human Ventures is the only fund that really identifies what we call futurists and we back them until the market sees their value. What I mean by that is I think that founders are generally living in a world that's 10 years ahead of their time. And they feel uncomfortable because the world is not in the state that they feel it should be. We look for those types of founders. They have a deep sense of understanding of the problem they're trying to solve, and they will not rest until they feel that they have changed the minds of customers and consumers and brought them into their world.
We identify founders early, we've created an environment for them to thrive and to meet peers like them and to have resources to run fast. Then we stick with them until they've got the world convinced of their vision. That's why our pre-seed investments have catalyzed billion-plus dollar companies in a relatively short amount of time...because you have to be able to pick the right people who are riding that wave and that trend.
Gopi Rangan: This is definitely a different take on venture capital. And I also noticed that you have this principle of having an attitude of gratitude. You have an early part of your career where you spent time in the non-profit world, and I'm curious to understand how you got informed about this as an important piece of the puzzle when you started building Human Ventures. Why is this attitude of gratitude important?
Heather Hartnett: Well, we originally said one of our values is going to be happiness...because, look, we're all very privileged to be in the position that we are to be starting companies, to be in a world where we can actually have command of our time. So we said, we truly want to be grateful because it's hard to be unhappy if you are grateful for what you have.
I want to work with people who have gratitude for the situation that they're in. And it has really done well for me to surround myself with people who know how to be grateful. There's a certain amount of self-awareness that it takes to be grateful.
That is one of our values at Human Ventures and I think that it does set us apart both from a cultural perspective and also who we look for in founders. But when you look at founders, our job is to pick stock in people; pick stock in the team that is going to execute. And I think the founders of the future look very different from the founders of the past.
The world looks very different, so they should be. We're looking for founders who have that awareness and capacity to understand what's coming around the bend. Our socio-economic world looks different. Our climate is changing. How consumers are consuming is changing. So you have to be someone who is very well aware of how to navigate those times. Nobody can be clairvoyant. They can't see the future. But you can be resilient and you can be a type of person who understands how to navigate challenges when inevitable, tumultuous times are going to be thrown your way.
Gopi Rangan: Can you give an example of a company that represents that value? How did you identify that in the early conversations?
Heather Hartnett: Yeah, one company that comes to mind is Tiny Organics. Tiny Organics is an organic baby food brand. They've been phenomenal in tapping into what the consumer demand has been for reliable, healthy, organic food. And the founders, Sofia and Betsy, when they were starting they really knew that in five years, most customers of their segment weren't going to want plastic in their baby's food. So they really pushed their manufacturers from the very beginning to redesign their process, to be able to have less plastic and more biodegradable containers. And they were thinking about where the mother and father who were purchasing their product were going to be in 5 or 10 years. And I think that pushes the industry. It pushes the mentality. Ever since there has been a lot that has come out about the toxins and plastic for children's food. So, just as a concrete example of a founder who really knows what they want and knows what is right. And then even if it takes a little bit more time, in the beginning, to set things up right, it, in the long run, is going to be a more sustainable business.
Gopi Rangan: There is a lot of wastage and use of plastic which is not necessary. Tiny Organics is changing that game and using sustainable solutions to make it healthy for children to consume good food. How did you engage with them in the first couple of meetings? What did you ask them? What got you excited?
Heather Hartnett: Well, the fun part about Human Ventures is we built the hard part first. We built a platform for entrepreneurs to come and build the best fast. We had an entrepreneurs-in-residence program from the very beginning and we lovingly call it 'Humans in the Wild', because we think that founders who are really thinking about building their next company, and they identify with this, are "out in the wild".
So, we allowed them [Sofia and Betsy] to come in and we started iterating on what was the big problem that they wanted to solve - really looking at the customer segmentation of the future parent and specifically the future mother. Where are they buying? What do they want for their children? How is it accessible at a price point that's accessible for all and not just kind of the coastal elites? We started looking at where there were white spaces. You can see from the beginning that the founders were determined to figure that out. There wasn't a solution in the frozen section in any grocery store that delivered that organic food. And so they started the direct consumer model. It's been unbelievable to see them weather the COVID storm. Actually, direct-to-consumer subscription for reliable organic food was really needed during the recession; the human recession, I call it (the pandemic).
Gopi Rangan: So you've built a platform so that you can attract entrepreneurs to come to you and the platform will support them incubate businesses and give them a practical way of launching the business. At what stage do you prefer the entrepreneur to come to meet you?
Heather Hartnett: The earlier the better. We have a venture studio that we built from scratch. We have now this incubator program called Humans in the Wild. For nomenclature, we'll call it a pre-seed incubator for companies that haven't taken institutional capital yet but they're really early. And then we also have a traditional venture fund. So we will see companies and invest in pre-seed seed and series A as well through the fund. We believe that that ecosystem really is the best opportunity to support founders from zero to escape velocity.
As we see the landscape of venture capital, every day there are new billion-dollar seed funds that are popping up. When capital is a commodity, how are you differentiating yourself? Really supplying value-add and a network for the founders and other founders who are building alongside them is really integral. And it's why our money is more than just money. It's the whole network they're getting behind the check that we give them.
Gopi Rangan: You get in way earlier in this process. You're not looking for a slide deck pitch and a story. In fact, you want the entrepreneurs to come to you pretty raw and not even with a fully baked idea, then you help them shape that idea. What do you look for? I'm sure that a lot of entrepreneurs want to get into the program, but how do you choose them?
Heather Hartnett: It's a good question. We look for people who have built something in the past. It doesn't have to be a tech company that's exited. I think that's a lot of the pattern recognition that people will continuously fund. It has to be somebody who has a strong network mindset, who sees the future in a unique way and will not let up until the rest of the world understands where that is. They have a deep understanding of the problem they're trying to solve. Another strong characteristic that we look for is, they have the ability to bring people along. So, you have people who are willing to jump on board with you even before you have funding. You are that charismatic in the idea that you have and you're that clear in how you're articulating your vision. And then there's also this characteristic that is a little bit more intangible and it's hard to measure, I call it the 'rapid iterator'. It's somebody who has the discipline and the drive to continuously iterate on what they're seeing and they gain conviction in their idea through that rapid iteration and how the market's responding to what they're building.
Those are the areas that we look for and we have ways to identify it. We track founders from the beginning days of when they're starting to build and we see how these play out and try to add value early even before we put money into a company. And then when those companies are ready to raise capital, we're there by their side.
Gopi Rangan: This 'Humans in the Wild' program is a 100-day program. Right? What happens in those 100 days? What do entrepreneurs get out of it?
Heather Hartnett: There are 13 weeks that take the founders through the journey. Because we have a startup studio, we've seen a process that emerges of gaining conviction in the need, and then interviewing customers, understanding how to build your first product, testing that, and iterating on it.
There is a week of self-discovery as well, which is working with a founder, coach, and residents, and you can learn more about yourself so you know how to hire your first teammates. You're reviewing milestones with a peer group. And that's really the biggest epiphany that we came to - founders will learn from other founders. Creating a network of really strong and talented founders; the whole is greater than the sum of the parts, right? It creates a very valuable network. There are alumni from that program. Now we've had four different cohorts who have gone through that program. And then it's an equity-free program. So it really is a feeder. We have invested in about 10 companies that came out of those programs. We just want to continue to build that up. We think adding value very early and adding more than just capital is extremely important for the ecosystem.
Gopi Rangan: An equity-free program is very rare to find, especially one that's well structured - very lucky for the entrepreneurs who are able to take advantage of these resources. And you've invested in 10 of these companies. You also invest in companies through your venture fund directly as well outside of this program? Right? Roughly how many companies do you invest in a year?
Heather Hartnett: We have now 53 portfolio companies over the last six years and we were launching another fund. I imagine we'll have about another 40 companies in that fund. We deployed this fund a little bit faster than we were expecting.
Gopi Rangan: That's a pretty fast pace indeed. I like asking this question. Where is the market today and where is it going?
There's a frenetic pace where companies are doing very well on one side, and then there are so many startups that struggle to raise capital on the other side. I'm still trying to figure it out and make sense out of the trends in the market. What is your view, and from the entrepreneur's perspective, what can they do to prepare in this current market?
Heather Hartnett: Oh! This is a great question. And I'd love to hear your thoughts on this as well as you are an emerging fund manager yourself.
I'm very excited about the number of smaller funds that are popping up. It's just a market dynamic. I think fund managers who are starting their own funds have more of an entrepreneurial perspective. They are filling a need that might not be filled by the larger funds. When you're seeing these large, big-name funds raise bigger and bigger funds, it gives opportunities for new entrants to come in and prove why they can add more value at the earlier stages of building for founders. So, it's a good thing that more capital's coming into the market.
I do think that the reason why we love the earliest stages is that we have an engine that builds conviction early right before the market. If you can identify trends early, you can gain conviction in the people who are trying to bring that to come to fruition before the market...because once the company starts working and once the spreadsheets and once the metrics are there, there's a ton of capital that flows in.
So who are those people who have these predictive engines that can gain conviction ahead of the market? That's where I think the biggest opportunity is.
Gopi Rangan: Yeah, this is an interesting trend indeed, and I'm excited to see where we will go into the future. One thing is clear to me. Big brands and large firms have a different game, and it is far removed from the ground realities of the seed and pre-seed stages where new VC firms operate.
Entrepreneurs choose partners, they don't choose brands when they bring new investors on board. Personal connections with the partner directly matter a lot, especially at the early status. And that's proving to be more and more true. Therefore, there are a lot more VC firms out in the market because the entrepreneurs choose those firms. Once they choose that becomes the lifeblood of the venture capital business, then those VCs are able to raise capital and build a long-term business in venture capital. I see that trend becoming more and more solid. And in the future, I expect to see many, many more VC firms.
Heather Hartnett: Yeah, I agree. I also encourage founders to really be mindful of who they choose, what firms they choose to come into their earliest rounds. It's very intoxicating if some of the big-name firms want to come in early. But you have to say as an entrepreneur, how big is their fund? Are you one of 200 portfolio companies? Are you one of a few that you're going to have much more attention put on you, so you can enjoy a thoughtful partnership? And if that's the case, then who are you letting into your company? Who are you making money for? You have that choice. A lot of founders don't feel like they do have the choice, but if the company is really working and you resonate with a partner, then you want to take capital from somebody who understands your vision.
Gopi Rangan: Yeah, you made a very interesting comment. Who are you going to generate returns for? That matters a lot. In the very early stages, especially, entrepreneurs feel like they don't have a choice. But they are working very hard, and when they are successful, the returns will be outstanding and they will care about who gets those returns. It should be someone that they care about and it should be someone whose values align with the founder's. Founders often don't really reflect on this until much later in the game, but it's important for them to start thinking about it.
What's your advice to founders on how much they should raise? Especially at the early stages where you invest, what is the right amount of capital to invest and how should they plan for it?
Heather Hartnett: Well, I think they should raise the amount of money that they need to get to that next milestone. In our industry, we have a strong nomenclature and there are trends and everyone ends up following those trends very quickly. I don't like the blanket kind of valuations that are put on these different stages.
It really doesn't matter what the term is anymore of the different stages of funding. You have to look at the metrics and you have to have a lot of discipline, in the beginning, to say: Are you still at that pre-seed stage? Do you really have a product yet? When you start to see that you have some semblance of product-market fit, then you need to know how much money you need to take to be able to get to that next level.
What I think is dangerous is when some firms can mark companies up far past what they know that the company is going to be valued at. And then the founders are going to have a really tough time backings that valuation for subsequent rounds unless they hit that.
Founders have to really think about being measured in the beginning and not take on too much capital at too high of a valuation before they understand if they have a product that's working.
Gopi Rangan: Can you give an example, like one of the recent transactions, how much did they raise and how did you help them plan for the future?
Heather Hartnett: One company that we didn't start the company from scratch, but I've known the founder since the beginning is Tia. Tia started as a chatbot for women's healthcare issues and really around asking for advice around birth control. Tia means aunt.
Carolyn and Felicity, the founders, have this idea: can you create more accessible healthcare through a chatbot? They saw this overwhelming demand or a need around women's healthcare that just wasn't being fulfilled by traditional primary care. They started to react to that and they launched an in-person clinic to be able to be almost the one point for all women's health care. Fast forward four years and they really responded to that in such a significant way that they'll now have 15 clinics this year and they raised $100m last month to be able to size up all of their clinics across the U.S.
What I'll say is that they found the torque around their product-market fit, where they might've thought that they were addressing a need in one way, but the end goal was still there: to create health care for women in a different way - investing in the whole woman. There are many different products and services that can get you there. They had to listen to that and keep launching and keep understanding what their customer was actually asking for.
Gopi Rangan: What an amazing journey for the founders! They're building a much-needed solution in the world. The aunt is usually the person that girls reach out to for help or have a question. It's a fitting name. And I always complain that girls have aunts to reach out to, boys have no one. Boys usually go to their friends who are equally clueless about the same age, it's like the blind leading the blind. Maybe we need a solution for boys as well eventually. That's an underserved market right there.
Heather Hartnett: Yeah. I think specialized healthcare, in general, has been under-researched and underserved.
Tia a good example of a founder who is pushing the envelope. You thought that healthcare was solving a problem for everyone. And then you start seeing that there are very special needs. We have another company called Spora Health, which is primary care for people of color; culturally-relevant healthcare, where there's an entire subset of the population who don't feel comfortable with going to general practitioners and so they never have. How can you create a brand and trust with a consumer that otherwise has not been exposed to healthcare?
Gopi Rangan: Yeah, that's true. Cultural habits of people, their food habits, and how they run their lifestyle change from one culture to another. And if the regular general practitioner is not well-versed in the lifestyle of that specific patient, they may lose a lot of valuable information. What's acceptable in one culture is not acceptable in the other culture.
I want to ask you a difficult question. You meet a lot of startups and you say no very often. What are some of your most common reasons to say no?
Heather Hartnett: One common reason to say no is the size of the market. A lot of founders don't realize the math behind venture capital and the calculus of the venture investor saying, "the market's not big enough for this type of company."
Sometimes that's proven wrong because you don't understand how big the market can be if the market grows with that company. But I think it's pretty obvious when you see a founder who sees the potential for the market to be huge and where that can really go. Starting from square one, they're able to say, "What's the first step in that direction? And then what's the vision for the full company?" To be able to articulate, it's never going to end up the way that you think it is. Travis Kalanick and Garrett Camp didn't know what Uber was going to end up doing. Nobody can do that, but you can envision a world where you have a big vision and your product or service can go into that. So, the first thing is the growth mindset of the founder and making sure that the industry is big enough, where you can see a world in which the world changes to be able to make that product or service even bigger.
Sometimes we say no because of valuation. We feel that the founder thinks that the company is worth a certain amount and they're just not there yet. That's a big one for us. We have to be very disciplined with valuation. Some of these big funds don't have to be because they're preserving their optionality, but with a smaller fund or when you're investing early, it means a lot because that's where you have the opportunity to get in, and that's where we play. Those are two big reasons why we would say no.
Gopi Rangan: Yeah. When I invested in Series A, Series B, the seed investors did the work to make sure the market size was big enough. And the founders were targeting a very large market, and there was an opportunity to build a very big firm. There were still risks, but when I started investing in pre-seed and seed stage, now I started meeting lots of entrepreneurs who probably didn't understand the venture capital style of business - the need for rapid growth and the need to target a very large market. Now I meet a lot of entrepreneurs. One of my first questions is to find out, is there a large market here or is this a small niche market? And that is an important question, especially at the pre-seed and seed stage. Less so at later stages, because those entrepreneurs are already filtered out.
This is incredibly valuable. You're giving specific examples from real-life experiences, examples of startups that you invested in, including situations and why you say no. This is very kind of you to share authentic stories.
I want to switch to the next part of our conversation and ask you about a non-profit organization or a community activity that you are passionate about. Which one?
Heather Hartnett: I spent a long time working closely with an organization called the David Lynch Foundation. They provide meditation and alternative modalities to medication for at-risk populations. They were one of the first organizations to really start talking about traumatic stress and the indicators of mental health, the implications of negative impact on mental health, and how meditation can help counteract that. We worked with inner-city schools and they still do with incarcerated individuals and with women and girls who have suffered from domestic violence. I really believe in the work that the David Lynch Foundation is doing to relieve that traumatic stress.
Gopi Rangan: Well, this is incredibly exciting. I'm looking forward to sharing your nuggets of wisdom with the world. Human Ventures is not only a venture capital firm. You're building a business creation platform. So I look forward to collaborating with you and hopefully investing in startups together.
Heather Hartnett: Thank you so much. I appreciate you having me on.
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.