Your Next Move - Put Your Money Where Your Mouth Is

Episode Date: September 4, 2024

Being a business owner means having to innovate constantly and navigate change. So Inc., in partnership with Capital One Business, wants to help you figure out Your Next Move. Join Anu Duggal, founding partner of Female Founders Fund, the first early-stage fund for female-founded companies. Duggal will share how she plays an instrumental role not only in investing in female founders, raising seed capital with more than $4 billion in enterprise value, but also shifting the VC industry as a whole to make more investments in female-founded companies. Hear her talk about her personal and professional achievements in this industry, and how to get funding for your early-stage business. Discover ways to think differently about how you lead and grow your business.

With the VentureX Business Card from Capital One, you earn unlimited double miles on every purchase. And with no preset spending limit, your purchasing power adapts to meet your business needs. Capital One, what's in your wallet? Find out more at capitalone.com slash VentureXBusiness. Terms and conditions apply. I'm Sarah Lynch, and you are listening to Your Next Move,

audio edition, produced by Inc. and Capital One Business. Today's episode comes from the Your Next Move vault and is a conversation between Tom Foster, editor-at-large at Inc., and Anu Dugal, the founder of the Female Founders Fund. Its mission? To invest in female founders. In their conversation, they discuss Anu's background in venture capital, the twists and turns that led her to create the Female Founders Fund, and what it takes to get a successful business off the ground.

Here is Tom's conversation with Anu Dougal. Enjoy. Anu, welcome. Thank you so much for being here. Thanks so much for having me. I want to talk for just a moment about your background. Before you started Female Founders Fund, my understanding is that you were a founder of a venture capital backed company yourself. Can you talk to us just a little bit about what about that experience

led you to see the opportunity to do what you're doing now? Sure. So my background prior to starting Female Founders Fund was I co-founded an e-commerce company in India called Exclusively In. Think of it as guilt for Indian products. So taking Indian retail brands and making them accessible outside of India. It was an incredible experience. You know, all the ups and downs of tech entrepreneurship. I would say one of the key takeaways for me from that experience was really around the fundraising journey and the fact that almost everybody we met throughout that journey was male. And, you know, when we looked around at our team, our executive

leadership, our customer base, we were really primarily female. So it just didn't add up for me. And so just kind of looking into the numbers I saw, this was clearly reflective of a larger issue, which was the fact that less than 2% of venture capital went to companies started by women. And a majority of partners at venture capital funds were also primarily white men. And so again, looking at other industries, whether investment banking, financial services, there had just been so much of a push towards driving gender equality. And it became pretty clear that that hadn't happened in venture capital. And so that was really kind of a nugget that I took away from that journey, which eventually inspired me to start Female Founders Fund. Can you talk about what some of the other

hurdles were that you experienced, not just in finding investment, but were finding talent, for instance, what were all the sort of follow-on effects of that inequality that you experienced? So, I mean, I think generally speaking as a CEO or as a leader, you know, you really have three key roles. You know, one is to set the vision. The second is to hire great people. And the third is to make sure you have money in the bank at all times and to constantly be thinking about that. And so, you know, when you think about the use of your time, you know, when it becomes more difficult or challenging to raise capital, it means that you are taking away from the other areas where, you know, as a leader, you should be spending your time. And so I think ultimately the biggest, I don't want to say sacrifice,

but the biggest result of the fact that it is difficult to raise capital as a female founder is really the impact on your time. And time that could be spent, obviously, building the business, scaling faster, all the things that leaders are looking to accomplish. So as you started Female Founders Fund, how did you want to change the process for female founders in how they would interact with potential investors? What about the, not just the existence of your fund, but the actual process? What about that was sort of on your radar? Going back to the industry as a whole, you know, investors are really driven by fear of missing out, particularly on, you know, great returns. And so I knew that, you know, in order to make an impact, you had to be able to demonstrate that investors are truly missing out on great returns. So I think from a fund perspective, the idea was

obviously to be able to invest in really great companies, but then in addition to that, also to build an ecosystem, which enable kind of more traditional VCs to actually interact with female founders, to get on their radar, to, you know, start becoming part of their deal flow. In addition to kind of looking at the founders we were backing and seeing that, you know, this is a true investment opportunity that investors should be taking seriously. One of the questions that came up numerous times was asking about the kinds of support that Female Founders Fund and other companies, other funds like Female Founders Fund that have arisen in the past few years. What kind of support do you offer

for the entrepreneurs that you work with? Sure, that's a great question. So as a fund, we're very small. We have a team of five, three people on the investing team, two people on the operating team. And I would say, you know, the three areas that we tend to lean in the most

for our founders is really focused on where their majority of their time is being spent. So number one, working with founders to kind of fill out their round after we make an investment. So connecting them with other great women if they're looking for more diversity in their cap tables, and then sitting down with them and helping them think through who are potential investors for your next round of funding and making introductions so that they get to know those investors and helping them

think through what are the metrics that, you know, are important to think about as, you know, you start planning for that next round of financing, working with them on their pitch deck, their practice, their practice pitch, and then back channeling throughout the fundraising process. So I would say, you know, fundraising is one core piece of it, as well as, you know, we put on between 30 to 40 events a year. And I think those events, you know, touch on topics like PR, like hiring, a bunch of different areas where founders are looking for help or advice.

And I would say that's another aspect of what we do, which I think founders really appreciate. I think, let me ask you about those events. Are those events for your portfolio companies, executives of your portfolios exclusively? Or is that also for the wider community of- No, it's for our founders. Founders out there.

It's for our founders. Your portfolio. Got it, got it. I ask because I'm curious. As I said, over the last few years, there have been a number of companies, a number of funds that have arisen following the model that created with Female Founders Fund. And I'm curious to what extent that has created sort of a wider community, not just among investors who are focused on companies with female founders, but among female founders themselves? And to what extent has a community arisen and people sort of sharing their learnings and sort of benefiting from one another's experience? You know, when I started the fund and started working on it in 2012,

you know, if you went to a tech event in New York, there was really no diversity. And I think as a female founder or a founder of color, it was very difficult to kind of find your squad, a group of others who, you know, you could kind of much more diversity you see at tech events, how many more initiatives have launched to really encourage female founders, founders of color to network and to really get integrated into the ecosystem. To what extent are there certain industries that have sort of indexed higher for female founders? And is that changing? Do you find that there are sort of certain concentrations of industries that you invest in more and, you know, whether that is the environment or sort of on purpose on your part? Yeah, I would say we actually put out a piece on the fact that, during the pandemic, one industry in particular that female founders, I think they punched above their weight class in is digital health. If you look at companies like Maven Clinic, KindBody,

Tia, Real, Tempest, these are great examples of companies led by women where they identified really an opportunity to serve the customer better and to build a product or a service that really put those customers' needs first. You mentioned a moment ago that female founders fund, I think you said, you know, we are a small fund. We have five employees. You're working on your second fund now, which is, I want to say, $25 million fund.

How does that stack up against both other funds focused on female founders and sort of the wider world of venture capital funds focused on the wider audience? Can you give us a sense of the context of that? Yeah. So, I mean, I think it's been incredible to see, you know, the rise of more funds with this focus, particularly in the past few years. I would say for us, we're one of the larger funds that has the capacity to lead, co-lead seed deals and really take kind of a lead position in terms of ownership in the category. When you think about growth, going from 5.85 to 25 is obviously a big jump. So we just continue to be thoughtful around how we scale over time.

So from 5 to 25, yes, absolutely. That's a huge jump. To what extent do you see that number potentially making a similar large leap when you presumably go out and raise Fund 3? I'm curious just to what extent you're sort of unlocking the ability or the willingness for folks to invest in your fund. To what extent is pool of money that is willing to go into investing in female-founded companies

increasing? You know, I would say it's increasing, not exponentially, but, you know, it's definitely on the radar of a lot of limited partners at large institutions. Goldman Sachs came out with a great initiative a few years back, launched with GS to invest in female founders and female fund managers. So I would say there's definitely more awareness. At least one of your companies, Eloquii, was acquired by Walmart. Have there been other significant exits? And can you just talk a little bit about that? How is that going so far? What is the performance of your portfolio companies looking like so far? Eloquii was our first exit in 2018. And that was a great indicator, again, of the fact that, you know, there is money to be made investing in female founders. I would say from a performance perspective,

both Fund 1 and Fund 2 are doing very well. If you look at Fund 1, the portfolio kind of value drivers include Maven Clinic, Tala, Zola, and BentoBox. And all of those have raised significant amounts of capital, are valued at over $100 million. And fund two, we also have some great winners. Billy's obviously a great example of a potential exit, which was unfortunately blocked by the FTC. Other companies that I think are really driving performance include CoStar, Violette, Real, Tempest. So I would say we're definitely in a strong position as it relates to performance. Okay, I want to jump back into a couple of audience questions. A question that, again, popped up several times. I'll read you. Do you fund pre-revenue startups?

If so, what are some of the criteria you look at and how can one connect with your fund? Versions of that question have popped up multiple times from folks who are watching today. How does a pre-revenue company who needs some investment engage with a fund like yours? So there are two ways. Hello at Female Founders Fund ways, hello at Female Founders

Fund or a new at Female Founders Fund. And we do invest in pre-revenue. You do invest in pre-revenue. Can you talk a little bit about what some of the criteria you look for in pre-revenue companies and what might make them viable candidates? Yeah, I mean, I would say there's no hard and set rules. We're really looking to invest in great founders, you know, with big vision, relevant backgrounds, and early signs of traction. So just it varies from industry to industry. At what point should you ask for funding? When, you know, the most important thing you can do as a founder is really to try to find product market fit. For some founders, that involves raising a small round of friends and family capital. For some founders, you know, you could go direct to kind of institutional capital. I would say it's hard to kind of provide a specific answer to that question, which I know is hard. I would love to know just sort of from

your journey, can you talk about a moment, maybe identify the one moment in your career that changed the trajectory of your business? I don't think there's a specific moment in time. You know, I think being able to close the first fund was a huge effort, two years, over 700 meetings. And I think that being able to kind of get not only to 5 million, which was the goal, but to 5.85 million and to really prove that there was support for this work at a point when the concept of female founders didn't really exist, was a huge validator. And then second, I would say, you know, the Eloquii exit was definitely one that, again, huge validator for the fact that, you know, we were on the right track. Yeah, just validating the thesis, not only to yourselves, I imagine, but externally as a huge

proof point that you can hold up for others. Yeah. Yeah. So I'd love to talk a little bit about, you know, so here we are in summer of 2021 coming out of a pretty absurd year and a half, an unprecedented year and a half. I'm curious how the pandemic changed how you work. I mean, did it change the ways that you are able to engage with the community of founders out there? I imagine it could have had negative, but maybe also some positive effects. It might have in certain ways opened up avenues for you to connect with founders that you might work with. Can you talk a little bit about how that changed over the past year and a half? So I would say, you know, the biggest learning and the biggest positive that came out of it for us was the fact that, you know, we are now comfortable with making investments without meeting a founder face to face.

You know, there's obviously inherent benefits to that IRL meeting and to kind of understanding someone's body language and that kind of in-person experience. But I think, you know, throughout the pandemic, we were forced to really get comfortable with getting to know people through Zoom. And I think that kind of opened up our eyes to the fact that this is a different method, which can be successful. And, you know, I think for us, we're still kind of adjusting and figuring out what our plans will be for the fall. But I think

it was a great lesson in the fact that, you know, you can figure out a way to accomplish, you know, what our main objective is, which is investing in great founders without needing to necessarily meet them in person, which is a big deal, something we've never done before. Have you seen any evidence of people becoming more entrepreneurial in this moment? That we've all seen the stats and the stories about people quitting their jobs, people, you know, sort of looking for fulfillment in ways that maybe they realized they weren't getting in their existing arrangement. Has that played out, you know, in any way that you have seen where people are saying,

you know what, I'm going to go start this thing that I always wanted to start? I wouldn't say it's necessarily led to more entrepreneurship. At least when I look at our deal flow, there's not an exponential increase in it. I think what's more interesting to note is the types of companies people are building are really addressing some of the pain points that have come out of the past year. So again, going back to digital health, you know, the opportunities in healthcare that have obviously been revealed, you know, I think obviously people are spending a lot more time at home and so better solutions to kind of the at-home work experience from a software perspective. And then I think the creator economy,

which to a certain degree does, you know, result in more entrepreneurship. But I think, you know, that's something that was already happening pre-pandemic. So tools and ways in which, you know, creators can really have a livelihood working from home. We're going to take a quick break and be back with more from Tom and Anu.

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Just imagine where the VentureX business card from Capital One can take your business. Capital One, what's in your wallet? Terms and conditions apply. Find out more at CapitalOne.com slash VentureXBusiness. As your company has helped sort of open up opportunity for female-founded companies and helped prove out the thesis that female-founded companies are a great investment, to what extent have you seen the wider investment community sort of engage in kind with female-founded companies and themselves invest more with female-founded companies and themselves invest more in female-founded companies? So, I mean, I think there are a couple ways to answer

that question. The first would be, you know, really recognizing that diversity is important, not just at the seed stage, but at later stages as well. And, you know, I know when starting the fund, there were very few women at the partner level at any fund in the Valley, in New York. And I think that there has definitely been a huge initiative to kind of change that and to make sure that there are different points of view around the table. So, you know, I think every fund now has at least one, if not two, female partners, which I think is a great sign. I think other than that, it's been a really exciting year for female founders. You had the Bumble IPO earlier this year.

You also saw 23andMe go public. Another company, Figs, which is clothing for doctors and nurses go public. So just the momentum behind some of these companies that have been built by women has been incredibly encouraging. There was also a moment in the past couple of years where multiple high-profile female founders and leaders of high-profile startups, female leaders of high-profile startups, female leaders of high-profile startups,

Steph Corey at Away, Ty Haney at Outdoor Voices, Audrey Gellman at The Wing, ran into some trouble in the press, and several of them lost their jobs, lost their companies. Was that a trend, or did that just sort of happen

and looked like a trend? Was there something there? Are women, are female founders being held to a different standard somehow? So I definitely think that female founders are held to a different standard. I think they're, generally speaking, are a lot more expectations because there are so few of them. And so I think there's more scrutiny. And as a result of that, you see what some of these companies and founders experienced in the last 18 months. I think it's also important when you look at these founders and these companies, think about how do you of these founders when you have reporters that are kind of following you for 18 months or two years trying to find that takedown story?

So I think it's very hard. And I think the media has, unfortunately, while they have also recognized the achievements of these founders, they've also been very quick to find ways to bring them down. Is that something that you work with your portfolio companies on? You mentioned early on that these events you hold for your community, PR was one of the things you mentioned that you work with them on. Can you talk a little bit about that? I mean, what are some interesting tips and strategies that you talk about with your portfolio companies about how to manage that process? I wouldn't say we have specific tips around this. I think it's more about how do you tell your story in a way that's authentic? And how do you build a brand that, you know, particularly if it's a consumer facing brand that really resonates and has a specific point of view? In terms of cases where, you know, founders are kind of struggling with media or press,

we're not the experts in that. I would say, you know, we definitely have a couple of PR firms that we highly recommend that have done a great job in the past. That number you mentioned early on, we've all, I think, heard versions of this number that 2% or 2 point something percent of venture capital dollars

have gone to female founded companies. How much has that number changed? I believe the original number was the 2% number was from some years ago, some seven or eight years ago. What does that number look like today? How much traction are you getting in that regard? Yeah, so I think the number has gone up to 3%. I think the pandemic had a somewhat negative impact on it. So don't have the exact percentage right now. But I think that, you know, we still have a long way to go. And I think the industry is now aware of this. And I think some of the successes I mentioned earlier are a great validator, again, of the fact

that putting money behind backing these founders can have a great outcome. It's fascinating because I've also seen numbers that say that women are actually more prolific founders of companies, perhaps not historically the type of venture capital-backed hyper-growth companies, but are actually more prolific entrepreneurs than men. Is that something that you have seen and something that you're sort of trying to tap into and convert into fast growth entrepreneurship? I wouldn't necessarily say that's a trend that's relevant for us per se. What we're seeing is more kind of second or third generation entrepreneurship.

So founders that have worked at large tech companies. Now here in New York, we have the Rent the Runways, you have Glossier, you have a bunch of other companies, Warby Parker, that have achieved success. And you have those employees that have been part of that growth story and they understand the skills and really what it takes to build a company. So we've seen a lot of that, which has been really exciting. I want to go back to a few viewer questions. What are some key takeaways

for fundraising as a social enterprise? So from a fundraising perspective, couple tips. So one would be, be able to explain how and why you as a founder are uniquely situated to solve this problem or this opportunity. I would say second, really know your numbers. So a lot of founders kind of underestimate how important those underlying unit economics and financials are. And I think it's

incredibly important to understand what are the levers that can really drive your business. And then third, market validation. So I think understanding, you know, why is it that your product or service is needed? And, you know, whether it's customer surveys, whether it's putting out a small beta, I think all of those can be incredibly important as part of that fundraising story. Companies that have been around for 10 plus years,

can they still be considered early stage and seek the kind of seed capital you're talking about? So I would say as a seed investor, you know, the one thing that we want to make sure we have alignment on with the founders or the companies that we're backing is that there is this expectation of growth. So, you know, we're looking for you to double, triple your business, you know, year over year, and also be aligned in terms of, you know, the exit opportunities. As a fund, we also have investors. And so we've promised them certain returns. And so I think for a founder, if you feel like you're at the point where, you know, you're seeing exponential growth and you want to hire a team and really double, triple revenue, those are the types of businesses that seed investors and VCs like Female Founders Fund are looking for.

Is it possible for somebody who's got a company that's been around for a certain number of years that presumably has not been growing that way, and maybe the vision has changed or evolved, and suddenly the opportunity opens itself that that kind of growth could be a possibility. Does the fact that that company has been around for so long, can that sort of become a, maybe not a disqualifying event, but a pretty big hurdle to get over? No, I think it's all about how you tell the story. You know, it could be a company, for example, pre-pandemic that was growing slowly and all of a sudden their products are in high demand. And as long as you can tell that story and show that you see a trajectory of growth,

I don't think it's a negative. To what extent have you seen changes in the wider landscape of leadership roles for women in corporate America and how that has affected women's willingness and ability to go into entrepreneurship from those kind of other corporate leadership roles? It's a good question. We definitely, I would say looking at our portfolio, have backed kind of a mix of founders. So, you know, some who've come from large tech companies, some who are kind of first-time entrepreneurs. I think they're definitely, as a result of seeing more female founders achieve success, I think it's inspired a lot of women who work at corporate companies

to think about taking that leap, which I think is great. Again, we don't really interact that much with corporate America. So my vantage point and my perspective is more based on the founders that we meet with and the founders in our network. you'll raise another round of institutional capital, the Series A. And so, you know, when we work with them and kind of guide them and advise them, the idea is within each industry, whether it's healthcare, direct-to-consumer, enterprise, there are certain metrics that you need to hit to get to that next round of financing. And so just kind of working with them

to get there. And, you know, sometimes there could be a bridge round in between if you aren't able to get to those metrics. But that's the advice that we tend to give to our founders. You've used the term diversity a number of times in this conversation. Your fund is Female Founders Fund. We've been talking about female entrepreneurship primarily in this conversation. But I'm curious to what extent you think about your mission

as broader than that and as seeking diversity in entrepreneurship and in fast growth entrepreneurship, particularly in the broader sense, whether that's diversity around ethnicity or sexual orientation or geography or any number of other metrics. Is that something that is embedded in your mission as well? I would say, you know, again, our primary focus is really moving that 2% versus 98% gap, which is already a big one. As a fund, we are very committed to also racial diversity. So every year we release our stats around diversity. Black women, Latinx women, women who are LGBTQ, we're very open with those numbers in an effort to really encourage others to do the same. One of the things that comes up quite often in these conversations is in speaking with somebody with your track record, how do you sort of get it all done? Can you talk a little bit about just sort of your daily routine

and what it is that you do that sort of allows you to get the most out of every workday? In terms of efficiency, starting the day remotely, you know, we do a team touch base for about 10, 15 minutes every morning. And that I have found to be incredibly helpful just in terms of making sure everyone's priorities are aligned. So we all have a bunch of projects that we're working on or initiatives. And, you know, it's important to make sure everyone's on the same page in terms of for this day or this week, this absolutely needs to happen. And I found that to be a really good tool to ensure that, you know, things get done. Quite frankly, for me personally, you know, it's pretty basic, a to-do list, which I check off or I work on every morning before starting work and making

sure that those top three things, you know, every day I'm able to kind of get through. Another thing that I found to be helpful just in terms of getting more movement in your day is taking calls while walking. And also, you know, now that we have a little bit more flexibility, you know, walking meetings, I find a really nice way to kind of get more movement in your day while also getting work done. I love the idea of walking meetings and I keep hearing people talk about walking meetings and I would love to do that. But my habit is that I'm taking lots of notes when I'm in a meeting. How do you do that? Are there tools you use to make sure that you are sort of keeping track of what is being accomplished in a walking meeting? with very concise follow-up, whether it's with a founder or, you know, an investor in terms of, you know,

what are my to-dos and what are their to-dos and kind of sending them a quick email after that has been really effective for me. If you could tell other business owners your one key to success, what would that be? So we have a motto at work, which I use a lot. And I think our team has also adapted to a certain degree, which is gentle persistence.

So never really taking no for an answer and finding a way to not aggressively, but politely and gently persist because I think 50% of success is really about just showing up. And I found that to be very helpful for us. Do you work with founders outside the US. So we've made a couple of investments outside of the US, but our focus is really United States.

Is there a similar movement occurring in other parts of the world to sort of open up funding avenues for fast growth female entrepreneurs? I think there are a few funds in the UK and Europe. I don't have their names off the top of my head, but I think if you Google, there are a couple of them that have come up. Is the discrepancy similarly stark in other parts of the world?

I believe so, if not worse. If not worse. I want to thank you so much for your being here today. Thanks for the generosity with your time and your insight. That's all for this episode of Your Next Move. Our producer is Matt Toder. Editing and sound design by Nick Torres. Executive producer is Josh Christensen.

If you haven't already, subscribe to Your Next Move on Apple Podcasts, Spotify, or wherever you listen. Your Next Move is a production of Inc. and Capital One Business.