Venture capital used to be a cottage industry, with very few investing in tomorrow’s products and services. Oh how times have changed. While there are more startups than ever, there’s also more money chasing them. In this series, we look at the new (or relatively new) VCs in the early stages: seed and Series A.
But just who are these funds and venture capitalists that run them? What kinds of investments do they like making, and how do they see themselves in the VC landscape?
We’re highlighting key members of the community to find out.
Jonathan Struhl is co-founder and General Partner at Indicator Ventures.
After graduating from Yeshiva University, Sy Syms School of Business, Jonathan was the Director of Marketing at Sheets Brand Energy and Sleep Strips, helping launch their national advertising campaign in over 50,000 retail locations with Serena Williams, LeBron James, Pitbull and others.
He parlayed his experience into founding Kodiak Samurai, a NY-based agency working on digital and social media marketing for brands such as Amazon’s Audible.com, Rollingstone Magazine, and Polaroid while connecting them with startups and top-tier celebrities.
VatorNews: What is your investment philosophy or methodology?
Jonathan Struhl: Indicator Ventures is an early stage venture capital firm. We’re based in New York and Boston and started in 2014.
Our mission is to make the world, specifically enterprise, more efficient. We call it “digital efficiency.” So we invest in early stage technology that’s saving a considerable amount of time and money for the end user. We measure digital efficiency by saving significant time and money for the end user.
I’m typically spending more time in emerging technology, but if we can find a company that can make the enterprise, and sometimes the lives of consumers, more efficiency, that’s something we love to dig deep in. We also look for real business models. As we’re looking at a lot of game-changing technology, it’s pretty rare to find real and sustainable business models.
As we’re scouring the world for great companies, it’s digital efficiencies, it’s real business models, it’s a path to revenue, it’s great people, and it’s sustainability.
VN: What do you like to invest in? What are your categories of interest?
JS: We do some consumer, but I would say that about 65 to 70 percent is enterprise because, as we look for those real business models, we’re typically more likely to find those in enterprise.
I think there’s a lot more disruption and efficiency needed in business than in consumer life. As a company is using different tools and, whether its utilizing the massive amounts of data we have nowadays to make better decisions or workflow tools, I believe systems should be getting a lot smarter the more we use them. How do you really have these bespoke type tools that can flex themselves and be able to customize as businesses use them? They should get better over time, and learning. As business continues to grow, and as people continue to utilize all this data, how do we invest in technologies to be able to help people make better and more efficient decisions within business? I think there’s a real opportunity for every type of tool within the enterprise to be smarter, and that’s really what I’m looking for. Whether it’s helping businesses hire better, whether it’s helping them to understand their acquisition metrics, whether it’s helping them to scale from a sales perspective, whether it’s helping them run leaner and meaner, there’s so much data that exists and the tools and the technology can leverage it to make life better, easier and smarter.
I think about a lot of different spaces that need digital efficiency and a lot of technology that I look at now, like machine learning and artificial intelligence, seem to be the best way to maximize efficiency in those industries. I don’t like to say I invest in machine learning or artificial intelligence companies; I like to say that I invest in tools that leverage those technologies to help enterprises save significant time and money .
Another reason I like enterprise is that, if you’re selling to consumers then you have to sell to millions of individuals. As you’re selling into enterprise, those contracts are bigger, they’re mostly recurring, and that gets me excited as an early stage investor. It’s easier to scale an enterprise company.
VN: What would you say are the top investments you have been a part of? What stood out about those investments in particular?
JS: It’s kind of like asking me which of my kids is the best, but I’ll give you a couple!
There’s a company that we’ve invested in call Lob. They’re creating a suite APIs for printing and mailing. The idea is: how do you send direct mail as easy as sending an email?
They’ve grown a lot since we invested, they raised a ton of money and they have some of the best customers in the world. That was a deal where you looked at it and a lot of VCs early on thought it was crazy to invest in direct mail, but it turns out that it’s a space that’s always been ripe for disruption and what Lob’s doing with its API is incredible and simple at the same time. That was definitely a great investment for us and they just closed a large Series B from some fantastic investors.
Another company that I’m on the board of is called IrisVR. I’ve spent a lot of time in virtual reality over the last three or four years looking for great companies that fit our criteria. How do you build a real business in virtual reality? How do you have something that doesn’t require a ton of capital to scale and hit their goal and what is something that people are willing to pay for now? When I looked at the space I started to hone in on architecture, engineer, construction, design and figure out how to you make those workflows easier. How do you visualize spaces in VR?
I came across IrisVR a couple of years ago and co-led their seed round. What they do is enable you to take any 3D model and instantly drag and drop it into virtual reality. They have some of the largest architecture, construction and design firms on the planet using the platform now. They just raised a great Series A led by Emergence Capital and that’s one where it’s a real company in an emerging industry. We’re thrilled to have been investors and partners with them.
Our latest investment is a company called Pienso, which means “I think” in Spanish. We have a lot of great industry experts around Indicator Ventures, and we love to surround ourselves with really smart people. We went out within our network and got a bunch of venture partners who are experts in specific verticals, who help us with a number of things. One of our partners is Birago Jones, he is our machine learning expert. He’s the President and Founder of the Alumni Association at MIT Media Lab, and spends most of his time in machine learning. He helps us vet companies, with due diligence and ongoing portfolio support. Birago ended up starting a company, Pienso, which we were proud to have helped incubate, pre-seed, and now participate in their latest seed round.
Basically what they’ve created is a self-serve, easy to use, machine learning platform. Right now the delta between the data scientists and the non-technical knowledge expert is really far apart. So, the knowledge expert who really understands the data, doesn’t know how to sift through it and make sense of it, as it’s a really technical, complicated process. What Pienso has done is create a really easy to use, sort of dummy proof, platform to be able to allow the knowledge expert, without the technical expertise, to be involved in the machine learning process. It recently launched, and they have a bunch of great partners lined up and we’re really excited to be a part of what they’ve built. They should be announcing some exciting stuff over the next couple of weeks. That was another one that was an emerging technology with a real business model that would not require a lot to scale. Keep an eye out of those guys!
VN: What do you look for in companies that you put money in? What are the most important qualities?
JS: There’s a couple of things. We want a clear path to annual recurring revenue. While pilots are great, ARR is something that we really like to look at, and making sure that there’s an easy path to scale. With a lot of emerging technology, sales cycles are really long because of education or because the huge, clunky companies are not ready to experiment and adopt the latest technology. So, showing a clear path to significant ARR is really important, not something where they’re going into the basement to continue to build for the next two years. As we look at business models, we need some sort of data that shows it’s possible to scale quickly.
Also, a lot of emerging technology companies that I look at require a ton of capital to scale, whether it’s to build their product, or build sales teams. I like companies that don’t require that much capital to scale. As a seed stage firm, that’s one of the things that I really look at: how much money does the company need to achieve their ultimate goal? If it’s too much, that’s not great for how we like to invest. Also, a lot of it has to do with making sure that the company isn’t burning too much money and is having a practical look on their actual business. Companies raise 18 months to 24 month of runway, we want to make sure we always have an eye on that. They should also have a path to at least break even, if need be, which is pretty rare when you’re playing with emerging technologies.
VN: What kind of traction do you look for in your startups? And can you be specific? Are you looking for a number of customers or order volume?
JS: It’s really different for every company. Some of the VR and AR companies that I spend time with have less traction when we’re looking at it. Usually, those types of companies really turn on the sales funnel at Series A, I would say, and seed is really more for building and proving a couple of things with the product.
Some of the machine learning and AI companies, when I’m investing I like to see pilots, and those pilots need to turn into recurring revenue. I like knowing that people will pay for the product early on and, even if it’s a discount to what the actual final price will be, the fact that someone in an enterprise is willing to pay for an emerging technology is a big sign. If I have some sort of clarity that it will convert to recurring, that, to me, is enough for me to start to dig deeper into the company.
That being said, I’ve invested in a bunch of companies that don’t have those metrics, where it’s really just about the people and core technology that we’re believing in, with the right diligence and references and knowledge of the space so that, once they are finished building their product, the world will take to it.
So, it really all depends. A lot of it, and you’ll hear this all the time, is based on the team. We have to believe the team are experts and really understand the space, and that they live the problem. If you’re an entrepreneur and you don’t live and breathe the problem, then the odds of success drop significantly.
VN: How long does it take before you meet a startup and make an investment and how do you conduct your due diligence?
JS: Every company is unique. Sometimes we’ll meet a company and we’ll be the first investor they speak to and we’ll sit with them and say, “Great, we’re in and we’ll help you put the round together.” Usually, fundraising takes three months for the average company. So, if we’re meeting them at the beginning then we’ll have more time to do due diligence and spend time with the company. Sometimes we’ll come in toward the end of a round and we won’t have much time. So it really all depends.
We do have a really extensive diligence process, especially if we’re writing a bigger check. A lot of it depends on how much data there is. If there’s enough data for us to really dig in and understand all aspects of the company, then we’ll do it. But a lot of the time, especially when we invest in really early stage companies, which can sometimes be pre-product, there’s not much data. That means there’s not much diligence we can do aside from reference calls, talking to potential customers, really spending time with the entrepreneur and developing a personal relationship. It can go anywhere from two weeks to two months; it depends on where we fit in the fundraising life cycle of the company, it depends how much data there is and how well we know the industry. It’s a really dynamic process.
VN: These days a seed round is yesterday’s Series A, meaning today a company raises a $3M seed and no one blinks. But 10 years ago, $3M was a Series A. So what are the attributes of a seed round vs a Series A round?
JS: It’s different for every industry. Where I spend most of my time, in emerging tech, it’s less about revenue to raise a good Series A, and more about other data, such as usage metrics, customer pipeline, team and core technology. Some emerging technology companies don’t have revenue even after a seed round, and even when Series A comes around. They have really incredible technology that their investors know folks will pay for and if they can get comfortable enough, they can raise a fantastic Series A. I see a lot more of the AI and ML companies raising significant Series As without any revenue. I obviously always push my companies to sell their products as quickly as possible, but it really depends on the industry.
Obviously we see a lot more companies raising bridge rounds, politely known as seed 2s, and that’s not a bad thing. We’ll participate in a lot of those. A company raises 18 months of runway, and the Series A bar, for a lot of them, has risen a lot. It’s more than $1 million ARR in some cases, so we’re happy to participate, and continue to add on in a seed 2 if we think things are going the right way and there is significant growth from seed 1 to seed 2. It’s really just sort of a bridge to continued success. We have a lot of great relationships with Series A firms; we love investing alongside some of those folks. There’s a lot of sharing deals at the seed round, knowing that, to get on an investor’s radar at the Series A, we say, “What would you like to see from this company to be comfortable participating in their Series A?” and it’s not always revenue.
The bar has gotten a lot higher, there’s been a lot more bridge rounds, and I think that’s great. That’s a great thing for the industry. I’ve been seeing a lot of companies go out of business, and that’s natural selection, that’s how it should be. Only the best companies should get funded and a lot of the angel investment is being spread around the startup ecosystem irresponsibly, so those companies are not hitting the right metrics and not raising additional capital. There are a lot of companies I see and I say, “How the hell did they get funded?” They live for 18 months because they raised 18 months of runway from a few angels that don’t understand what they are doing, and then they fail. While that’s not a fun thing, it’s an important thing for the industry because those companies that can’t reach Series A, they have a lot of talent on their teams, and the most important thing for my companies is talent. I think the talent is getting gobbled up by companies that shouldn’t exist. If you raise the Series A bar, presumably that talent will flow to good companies that deserve it.
To be clear, I think angel investing is great. I think it’s a really great thing because a lot of funds don’t touch a company until a certain point, and angel investors take the biggest risk. But it’s when angels don’t do the diligence, and don’t spend enough time, that it starts to screw things up a little bit. Angel investing is great for the ecosystem as long as it’s done right, and as long as the angel investors understand how to set the company up for success in the following rounds. I’ve seen way too many notes that were written wrong, caps that are way too high, valuations that are out of whack and that ends up making my job a lot harder down the road, but, again, I probably wouldn’t have funded whatever company that early, so the angel is taking the risk, so kudos to them.
We do everything we can to help our companies get to Series A; in fact, I think over 60 percent of our companies have raised at least a series A (and we invest in seed), so that’s a great benchmark for us. One of my favorite things to do is help companies gear up for Series A, and sit down and look through their metrics, help write decks, help storytell and really dig in and make intros to Series A firms. It’s amazing to see when one of your companies that you invested in reaches certain a level of success, where some of the biggest funds on the planet are fighting over the deal. That’s magical to see. Obviously, raising a Series A isn’t a success, but it puts you on the right path.
VN: Tell me a bit about your background. Where did you go to school? What led you to the venture capital world?
JS: I graduated from business school at Yeshiva University. I always knew I wanted to be in the entrepreneurial world. My father, my uncle, my grandfather, my whole family have been serial entrepreneurs. I’ve seen a ton of businesses come and go, some successes and some failures, but ever since I was little it’s always been about business, cool new ideas and really digging deep into them and understanding what’s right and what’s wrong. That was sort of like a hobby of mine when I was a lot younger, and it’s continued to be now. I’ve always known that I wanted to help solve problems, and not just one problem. An entrepreneur, presumably, solves one problem at a time with his company, but I wanted to spread myself and help other people solve the problems they are trying to tackle.
After I graduated from school I had a short stint in the music business. I ran marketing for a CPG company for a little bit, and then ended up starting a marketing agency, with one of my partners now, Ben Luntz. We were doing marketing for large complex brands, trying to help them navigate the early days of social media. This is when social media became this thing that every CEO knew was really important but they didn’t understand it. So, we started this agency, helping our clients identify startups that they should know about, platforms they should be on, the latest in immersive storytelling, the latest in consumer apps, and where brands should be because that’s where their potential customers are.
We spent a lot of time in the startup ecosystem helping brands identify these startups and making those connections, and then we turned around, and said, “We’re seeing some really interesting companies and lets angel invest in some of these.” We started to do that, had some successes and my third partner, Geoff Bernstein, who’s really our numbers guy, the three of us would have these ad hoc, late night investment committee meetings and write checks out of our own pocket. We turned around one day and had seven or eight great deals, an exit or two, and decided to raise a fund. We were spending a lot more time with our startups than with our brand clients, which is always an issue when you’re running an agency, and we were seeing really great startups from a different angle than most angel investors. We were starting to see them at scale, and realized we just didn’t have enough capital to capitalize on the opportunities, so we decided to raise a real fund, and we successfully raised our first fund it in 2014. It was really a natural progression into venture, and that’s how we started Indicator Ventures.
VN: What do you like best about being a VC? What makes you excited?
JS: I love sitting across the table with an entrepreneur who is brilliant, and who, presumably, is an expert in their industry and can really inspire. There’s nothing like sitting with an entrepreneur that inspires you, and really tells a great story, can pitch their idea and it sounds natural like this person was made to solve this problem. They can tell you why it needs to exist. The stars align. I never got that feeling in the marketing world.
I’ve grown a lot as an investor because I’m constantly learning and asking questions, and I love that. That’s my favorite part, just learning and meeting with incredible people. In the marketing world, when I was running my agency, it was great. There was a lot of creativity involved but being with creatives, working with large brands, from a marketing perspective, it’s a lot of fluff and I really didn’t see the ROI and the greater impact all the time, which was a little frustrating. Nowadays, there are tools where you can sort of tell what’s the ROI of your marketing campaign here or there, or you can win awards at Canne, and all that stuff, but what’s the real impact on the world? As I look at venture, I’m able to invest in people who have passion and are solving real problems and making things more efficient for the world. I’m able to use some of the ADD that I have to play across a bunch of different ideas and with a bunch of different people.
VN: What is the size of your current fund?
JS: Our first fund is a $16 million fund.
VN: What is the investment range?
JS: Our average check size is around $500,000 at this point, and we’ll go up to $1 million or $2 million throughout the life of a company.
VN: Is there a typical percent that you want of a round? For instance, do you need to get 20% or 30% of a round?
JS: It’s less about the number but I would say that we like to get anywhere between 4 percent to 10 percent of a company. If we’re leading, then closer to 10 percent; if we’re part of the round then it could be closer to 4-5 percent. It’s important to get as close to our average check size as possible. If we’re really excited about a company and we think there’s a huge opportunity, we’ll own less of it and we’ll be happy to get in. If it’s something that we feel like we can really lead this space, and get deeply involved, then we’ll take a bigger chunk and we’ll try to get closer to that 10 percent, maybe 12 percent, number.
We don’t need to lead. We have led, but we’ll co-lead. We’re open about it, and we love to collaborate with other funds. We have great relationships with other funds around the city, the East Coast and West Coast.
VN: What percentage of your fund is set aside for follow-on capital?
JS: We do follow-on, and plan on saving about $2 for every $1 we invest in seed.
VN: What series do you typically invest in? Are they typically Seed or Post Seed or Series A?
JS: We like to look at venture and have a balanced portfolio, so I think it’s important to have pre-seed, seed and some sort of Series A deals in the fund. I think it helps with risk, it helps with time spent, upside and capital allocation.
I would say most of our investments are in a true seed rounds, as in companies raising between $1 million to $3 million with a bit of early traction. That’s our core focus. We have done some pre-seed. The latest deal I just did, Pienso, was pre-seed. Those deals tend to be more network driven, so, for example, it was one of our venture partners and we really were involved from day one, incubating the company. That pre-seed deal, we were more than happy to do it. We’ve had a couple of those. And then we’ve done a couple of later stage, whether it’s seed 2 bridges or Series A. We like to look at those as, dare I say, a bit less risky, since, at that point, there’s real revenue, the company is scaling the right way, ideally the price is right and there’s just more data to really understand how the business is doing.
I think it’s important for us to have a balance between the three of those. Most of our time and focus is on seed, and our bread and butter is helping a company to get from seed to A, and we’ve done that successfully a bunch of times. Once you get past Series A, or deeper into A, that’s not where our skill set really lies. We can help you get from one to 20 or 30 employees, but once you scale beyond that, we know where we add value and we’re clear about where we can’t. We like to stay pretty much within seed, though there are outliers.
VN: In a typical year how many startups do you invest in?
JS: It comes in waves. We’re very true to ourselves and our companies, and we invest more heavily if we have bandwidth. You never want to invest in companies when we don’t have time do proper due diligence or spend time to help them grow. So there are years where we’ve done eight or nine deals, and then we’ve had to take our foot off the gas and spend time with these companies, which is what I think funds should do. So far we have 23 companies in our Fund I portfolio and we’ve been investing over the last three or so years. It ranges and a lot of it is based on how much time we can allocate to companies.
A company, once they graduate, which we define as get to a great Series A from a top tier fund, then our bandwidth is freed up a little bit. We go from proactive, which is where we are in a seed round, to reactive, which is, “let us know how we can help and we are here” Once we have more bandwidth, we’ll do more deals. It’s cyclical.
VN: Is there anything else you think I should know about you or the firm?
JS: I think its really important for everyone, especially in venture, where people have great outcomes and are trying to solve technical problems, to attach themselves to a non-profit. I was fortunate enough to donate bone marrow a couple of years ago to a woman with leukemia who was in her 40s. It was all through an organization called The Gift of Life. It’s one of the world’s largest databases for bone marrow transplants.
I’m a spokesperson, I’m a committee member, I’m a donor. I do a lot of events for them, help them raise some money, speak at some events. It’s really an incredible organization and that’s something where I spend a lot of my time trying to help grow the donor database and help them get their brand out there. It’s something where there’s obviously a natural connection to me because I was able to donate, so I’m tied to them in a lot of different ways.
Donating bone marrow is not as invasive as people think; very rare that it’s a surgery. Nowadays a lot of it is done through blood, stem cells (PBSC), so it’s really not difficult and you could save someone’s life in a pretty simple way. Just wanted to call that out. If you’re not in the database, let me know, send me an email at firstname.lastname@example.org and I can swab and put you in the database. They save a lot of lives, and I don’t believe they get the recognition that they should.