Priya Rajan is a director with the Early Stage Practice at Silicon Valley Bank, exclusively focused on the innovation sector. She engages with founders as they start their journey to build a company, mentoring them as they dream, build and inspire to disrupt the status quo.
I sat down with Priya to find out what she looks for in an early-stage investment as well as hear about the pitfalls that she sees among many young founders.
You work with really early-stage companies. What is different about the tech startup scene today? Is it frothy? Are startups getting the investments they are looking for?
I love working with early stage companies. We define early stage as companies that are right after incorporation until their reach their first institutional round of fundraising. As a part of our University Engagement efforts at SVB, we get an unique opportunity to meet some of the next-gen founders from around the world, even prior to incorporation! Interest in entrepreneurship is on a steady upward trend and that makes me extremely optimistic as to what’s to come in the future. One of the things that constantly enthuses me is founders’ grit, passion, boldness and resilience, especially when the startup ecosystem is constantly progressing. The tech scene continues to evolve with the macro environment around us. [For example,] as we mentioned in the State of the Markets report issued by SVB recently, shifting retail trends continue to attract more capital. Along with the shift from brick-and-mortar stores to e-commerce, dominant retail players are improving their global supply chains with acquisitions of and investments in logistics companies and that creates an opportunity for new disruptors in this space. Investment into logistics companies has climbed over the last several years, with Jet.com raising more than $570 million in equity before later being acquired by Walmart in 2016. In addition, we have seen a shift in the investment landscape in the past few years, particularly at the seed/Series A stage, not to mention the increasing shift in size ($) of seed vs. Series A and emergence of pre-seed. Compared to prior years, though the dollar amount of investments at early stage have increased year over year, the number of deals have decreased. Investors are a lot more selective in the deals that they enter.
Some of the sectors that continue to remain top investment targets are healthcare, e-commerce and logistics, artificial intelligence in cybersecurity, digital health and fintech. Are we in a bubble? My answer is “probably yes.” But could it last for a while? “Yes.” Should companies be focused on this as they continue to work on their passion or solve the problem they care about? “No.”
In the pitches you take these days, are there mistakes that you see again and again? Conversely, are there hallmarks of success that you recognize right off?
Some of the most common mistakes that we see at the early stage level:
- Inability to communicate the urgency and scale of the problem;
- Too many ideas to execute in the first wave of product or service rollout, suggesting lack of clarity or focus on the vision;
- Too small of a market to create investible interest;
- Team is not uniquely positioned to solve the problem, including not able to attract the right talent to execute;
- Underestimating how awesome they are and showing a lack of self-confidence to convince investors to bet on them.
As a successful woman of color, are you starting to see any change in the diversity of founders or investors? What have you seen being done to improve the diversity of Silicon Valley and the tech industry?
At SVB, since 2014 we have asked executives in the innovation sector about gender diversity in their companies through SVB’s annual Startup Outlook survey. It’s no surprise, given all the news in recent years on the topic, that the ratio of women to men in leadership positions in tech companies is low. Our Startup Outlook 2017 generated responses from more than 900 executives: 68% had no women on their board; 53% had no women in executive positions; 25% reported having programs in place to increase the number of women in leadership positions.
We believe companies with a diverse workforce and an inclusive culture create higher-performing environments. Innovation is global and it is touching every aspect of our lives, which is creating even more need for inclusiveness of ideas and approaches. Businesses that understand how to incorporate and maximize diverse points of view will create new opportunities for themselves, as well as their employees. As a part of community engagements efforts, I work very closely with some amazing organizations, which are working to make the change happen: Astia, Kapor Capital, Women Who Code, Code 2040, Change Catalyst, Girls In Tech, USOW, Hello Alice and more. This is not a situation that will change overnight, but it’s encouraging to know that companies and individuals are taking notice and taking action.
M.R. Rangaswami is co-founder of Sand Hill Group and publisher of SandHill.com.