I’ve been in and around tech for more years than I dare to admit.
As such, I’ve seen my share of companies that imploded. Once, I was on the periphery of a company that sort of made it. Yet I was unprepared for this current opportunity.
My point is, had you told me a year or two ago that I’d be interviewing a female executive from a New Jersey venture capital firm, my reaction would have been more than a raised eyebrow. But as it happens, this is exactly what I’m doing. Today, we’ll learn a little about Newark Venture Partners (NVP). Then we’ll discuss the impact of NVP on New Jersey and gain some insights into how they’re changing the game in venture capital (VC) investment.
2018 – a banner year for venture capital
First, let’s set some context. Last year was a champagne-popping year for venture capital. More money was raised last year than in any prior year. In fact, $132B was raised in the USA alone. And 2018 closed with the largest deals ever transacted. These mega deals of $100M or more are often referred to as “supergiant” rounds. And there were more financing events recorded for private tech companies last year than in the last couple of years combined. As such, 2018 set multiple records.
Overall, around 34,000 deals closed in 2018. US startups continue to secure the greatest proportion of investment money. Comparatively, China and ROW (rest of world) trail far behind. To get a sense for the dollar volumes, over $91B was invested globally in Q4-2018 alone. Not surprisingly, the bulk of those funds are invested in tech startups. By the way, based on the numbers thus far into 2019, those records may be broken again soon.
Women in tech
Perhaps one of the most sobering statistics is that less than 2.2% of that VC money went to female entrepreneurs in 2018. To begin with, female founders secured a total of $2.8B. Incidentally, that money was spread across a whopping 488 teams. Although the dollar amounts are up versus prior years, the overall percentage has been stalled for the last few.
In contrast, all-male teams secured 76% of the total VC pie last year. Comparing average deal sizes highlights this gap. Male founders typically secure average deal sizes that are about 3x greater than their female counterparts: $17.3M versus $5.9M.
Consequently, fewer than 10% of decision-makers at VC firms are female. Also, women of color are all but absent. And 74% of all VC firms do not have any female executives at all. However, things appear to be changing as Silicon Valley VC firms recently added 36 women as partners.
An interview with a female venture capitalist
You can imagine my delight when I was asked to interview Joanne Lin, principal of Newark Venture Partners. Here, I had the opportunity to get her unique perspective on investing. Besides, we were also going to discuss how she, and the refreshingly colorful team at NVP, are changing the VC game and bringing something fresh to New Jersey.
The path to venture capitalism
Grit Daily: Thanks for taking some time with us today, Joanne. Most financiers follow a pretty linear path which typically leads to Wall Street. Your path wasn’t quite as linear. Can you tell us how you got into this investment role?
Joanne Lin: I joined NVP about two years ago and left Wall Street to move to Newark. That’s not exactly a common move. I interned with J.P.Morgan Chase in compliance education and credit risk management through a full scholarship at Barnard College. I then completed my Masters in Childhood Education at Hunter College. That program brought me back to the Queen’s borough where I grew up.
There, I helped fifth grade students with special needs through “Teach for America.” I knew that I could make a difference and the hands-on classroom experience reinforced that belief. However, doing so one child, or one class with 30 children at a time, didn’t scale so I changed my path.
GD: You’re clearly a self-starter and entrepreneurial, what did you do next?
JL: I returned to JPM. There, I actively managed a $5B portfolio with 20 corporations. Along the way, I co-founded Locus Labs to make digital assets more accessible to a broader community. Later, I joined University Ventures, a private equity firm in global education. Then, I met some of the team from NVP one fateful day at a NJ hackerspace. And that changed everything.
On the topic of “fit”
GD: What makes you a good fit for a VC role? And how did you know that this is what you wanted to do?
JL: Successful investors bring diverse backgrounds to the table. That breadth is important from a personal fit perspective, but so are two other critical success factors. One, we need to have an ears-open and relationships-driven approach to investing. And two, we must be deeply curious, fearless and motivated to learn about new things.
GD: What about the professional fit?
JL: From a professional fit perspective, each engagement must be approached as a potential long-term relationship. We must forge solid relationships with the founders based on trust. To do so, we have to recognize that a startup is a founder’s ‘baby.’ And, those founders are understandably going to be protective. This mindset enables us to get through long and sometimes difficult discussions. Without trust and open dialogue, neither of us will be successful. We have to mesh well with the founders and ultimately be able to make those tough decisions as a Board member.
Newark Venture Partners is different
GD: leaving the city for Newark is a bigger move than switching gears from credit risk management to venture capital investment, so there must be something special about NVP?
JL: Newark has a rich and complicated history in manufacturing. To being with, it’s gritty. Next, Newark companies stand out with their strong work ethic and a get-your-hands-dirty mindset. As an investor, we probe to assess if the founders are deeply committed to doing everything that they can to make us, them and their customers successful. Therefore being based in Newark gives us a unique perspective and opportunity that the Big 3 (Boston, NYC, and San Francisco) don’t have.
GD: How is NVP different?
JL: First, we’re backed by Audible by Amazon, Prudential, Horizon Health, and several other leaders. Second, our portfolio has a good depth. For example, we have some notables including Bowtie an A.I.-informed customer appointment scheduler which was just acquired by MindBody. And we’re closely watching 1Huddle, an emerging leader in gamification. Third, and perhaps most importantly, we take a bottom-line approach.
GD: Do you think your approach is paying off?
JL: Early indicators suggest that our fund is generating some good returns. However, investing does take time. Usually many years pass before we know if we’ve made the right selections. Although our location may be surprising to some, we’re only 20 min outside of Manhattan. Besides, we’re adjacent to EWR which is one of the world’s largest airports. And the train ride to Boston, Philadelphia or Washington D.C. is manageable as a day-trip so we are indeed, well located.
The advice entrepreneurs are looking for
GD: Most of the entrepreneurs that I know are seeking a silver bullet. Some want black and white instructions that highlight go versus no-go paths and signs. What do you tell them?
JL: I get asked this question more often than any other. All entrepreneurs want to know what VCs look for. To begin with, we look for passion. Why are you doing it? Are you doing it to cash-out? Or was your business inspired by personal experience which drove you to put the effort in to launch your startup? The other three critical success factors are judgment, team, and timing.
GD: Tell me more about those three critical success factors.
JL: One, we want to know if you can make good decisions. And we’re going to explore if you will be able to push through the stressful issues. Two, we assess whether or not you have assembled the right team for your business. Three, we analyze if the market has an appetite for your product. Although people cite location, location, location, it’s really more about timing. You may have the best idea but the world isn’t ready for it yet.
GD: You’ve likely seen hundreds of startups pitch. Are there any success signs that you look for?
JL: Sales cycles are long for most companies, especially when you’re just starting out. So we look for unique go-to-market strategies which leverage B2B alliances and other approaches that can help get your product on the market sooner. These strategies include channel partnerships or B2C freemium strategies. Both can help build awareness, attract early adopters and become Trojan Horses. Hence, these external strategies can open doors to businesses who would be prospective buyers of your product.
GD: Which area are you currently most keen on investing in?
JL: Today, I am interested in health-tech solutions. In particular, I am seeking solutions that aim to more deeply understand social determinants of health and their role in disease and recovery.
Trends in venture capital investment
GD: How has VC changed over the last few years? Are there any key trends that you’ve noticed?
JL: The Big 3 markets pull in around 75% of all VC dollars. However, an emerging trend is that investors are beginning to look beyond the Big 3. For example, Revolution’s Steve Case employs a “rise above the rest” approach which is making headlines. Consequently, people are beginning to seek out innovative companies in unexpected locations with unique offerings that standout.
GD: Do you think this is a blip or will this trend to look beyond the Big 3 continue?
JL: I believe that this trend will continue as entrepreneurs establish their operations outside of the Big 3 markets. Drivers such as labor and real estate costs heavily influence this trend. Interesting businesses are popping up all over the country from the mid-West to Detroit to Newark. And the mold is changing. We’re now seeing greater diversity in the founding teams with ideas that go far beyond the expected or me-too concepts.
A message for women
GD: Since you’re one of only a few female investors, and you’re a woman of color, do you have a message for other aspiring female investors?Joanne Lin opens up on Newark Venture Partners’ investment thesis.
JL: No doubt about it, mid-career shifts can be challenging. Getting married, moving to New Jersey, having a baby and being promoted to principal along the way certainly added complexity. Women need to know that this space is changing. Ignore the stats! Come forward if you’re passionate about supporting innovative companies who are trying to change the world. Female VC investors are genuinely interested and highly supportive of creating networks that promote each other’s success. Diversity of thought, gender, and color bring richness to any organization.
GD: This has been a real pleasure talking to you and gaining some insights into your professional and personal path that brought you to NVP. Do you have any parting comments that you’d like to share?
JL: Keep your eyes on NVP! We are driving change in venture capital, catalyzing a vibrant tech ecosystem in Newark with our world-class Accelerator Labs and setting a course for exciting things to come.