Investing in the best venture capitalists and startups

Shubhra Jain is the Head of Healthcare investments at Tarsadia Investments. She moved to US after completing her MBBS in India, to pursue a Masters in mechanical engineering at Stanford after which she completed her MBA from Wharton.

Shubhra is an incredibly sharp, reflective and humble person. I had a lot of fun talking to her about:

1. Due diligence process for startups

2. How she picks VC funds and GPs to invest in

3. Her transition from physician to investor

4. Market tailwinds in healthtech

Transcript:

shubhra pdocast audio

Rishad Usmani: [00:00:00] Hi Shira. Thanks so much for joining me today. I'm really looking forward to this. Let's, uh, start with your childhood. There are things we learned in our childhood that help us with our successes and our failures, and there are things we have to unlearn from our childhood. Talk to me about your childhood.

Rishad Usmani: What are some things you've learned that have helped you, and what are some things you've had to.

Shubhra Jain: going with the first one first. Um, I'd say I was born, um, in a family of physicians. My parents were both physicians. Yeah. And one of the big things that I learned growing up was, I was told always, repeatedly, no work is too big or too small.

Shubhra Jain: There is nothing that you can't do that is beyond your reach, so don't be intimidated. , um, by any task and opt out of it just because you think that it will be too hard or it will take too long, or you won't be able to do it. Um, but at the same time, [00:01:00] don't be ashamed to do the small stuff either. Um, you know, my parents, since they built something from ground up, they, there were times when they were doing all kind.

Shubhra Jain: Things that, uh, you wouldn't think of doing as a practicing doctor, but they never shied away from that. And that's how they raised us. Um, that whatever is needed should be done. And there is no shame in learning to do things that you may not be looking to make a profession out of it. But if they are things that need to be done, then you need to step up and do them and take pride in doing them.

Shubhra Jain: Um, I think that has really helped me in my career and life, uh, because later on, after I left the sheltered home, um, I moved to another country all by myself. I switched career paths and had a lot of time, a lot of times when I was just knocking [00:02:00] against a closed door and trying to figure things out that required some resourcefulness and creativity and, um, because I had that open-mindedness about if this is what, where I want to go, I, I should be able to do it.

Shubhra Jain: Um, and also at the same time, the willingness to do what it takes to get there, um, irrespective of whether that was what I was trying to do up until then or what. Had aspired to do. Um, but just looking at it as a necessary thing to get done in order to get to where I am going. Um, and just that mindset was really helpful in giving me the resilience and, um, the persistence to overcome those

Rishad Usmani: obstacles.

Rishad Usmani: Let's go back to, you've finished your M B s, you've, I, I imagine this is when you've moved to the states and you've landed here. And you're trying to figure out what [00:03:00] you're going to do now. Um, I did my med school in the Caribbean. Um, don't the exact same thing, but you have to do residency all over again.

Rishad Usmani: Um, for those listening, talk to me about that decision. What were you feeling and. How did you make the decision to go into venture? Coming from a clinical background? Um, venture and investing is as far as you can get from clinical practice, I would say. So talk to me about that, that decision you made and, and how do you, how did you make that decision?

Shubhra Jain: Yeah, so at the time when I made the first transition, which was. Outside of clinical medicine, just entering the world of technology and business and leaving the world of clinical practice, I didn't even know what venture capital was. Um, I had no, um, it, it wasn't done with an intention or a goal of becoming an investor.

Shubhra Jain: It was more done by the desire and the drive. Used technology [00:04:00] as a lever to create more impact. Um, so I grew up in a household of physicians. I had seen my parents see, create massive impact in their community. They started the first hospital in the city they lived in and massively impacted the healthcare ecosystem in that community, um, and continue to do so.

Shubhra Jain: But I just wanted to be able to do something at a bigger scale than touching one patient at a time. And, um, Being able to do that. Um, so I used and I thought of technology as a lever to scale that impact and to help me reach more people. And that's what the initial driver was. That's really all I knew that I wanted.

Shubhra Jain: I came here in the, to the states to learn, uh, about technology. That's what I came for, the graduate program at Stanford. and how to use it as a lever to change the world of healthcare. Um, that was the idea. That was the motivation. And then after that, it was [00:05:00] one step after another, right? Like once I landed at Stanford.

Shubhra Jain: that's where I got exposed to the Silicon Valley startup ecosystem. Uh, other people who had made career transitions on campus, uh, even some of my professors who were involved in multiple things. And this whole idea of you can only do one thing, um, was shattered and, um, that that was. liberating. Um, and that empowered me to start looking at how can I leverage what I have already learned and the skills I have gained to create more impact and to go where I want to go in terms of leveraging technology to change healthcare.

Shubhra Jain: After graduating from the program at Stanford, I joined a startup. I led product for them. They were building software service products, selling to hospitals and health systems, and that. My experience on the operating side, um, and the lesson that I took away from there was, it's not [00:06:00] enough to. a great product or to build a great technology because if there is not a good business model around it, if there's not an organization that can, um, actually get people, get, get the product to people and, uh, enable the distribution and reach consumers, then you can build anything in a lab.

Shubhra Jain: But if it can't reach people, then it won't create the impact that you desired it to have. And that was, The light bulb baha moment that led to the interest on the business side of things. Okay? This is really the lever that will unlock the potential of any technology. So how do I, um, how do I learn about that?

Shubhra Jain: And that led to the transition to business school at Wharton. where I did my mba, focused on healthcare and finance, and I did a summer internship in venture capital, uh, at a firm in Philadelphia. And that really was my first exposure to venture capital is the long answer. [00:07:00] Um, that's when I learned what venture capital means, what investing means, and uh, it was really, um, an eye-opener and, uh, I really enjoyed that internship and decided to pursue a career path on that, on that side of the.

Rishad Usmani: do you think it's better to be a generalist or a specialist as an investor? Do you think it's better to hone in one niche or to be more of a generalist and focus on recognizing founders who are experts in tho their own industries and back them? I think

Shubhra Jain: there is no straightforward answer to that. Um, it depends, unfortunately is the the cop out answer.

Shubhra Jain: But, um, it depends on the stage at which you are investing. Um, and while being a generalist may work for. Some industries it may not. For others, there are some industries that are definitely more entrenched and require more [00:08:00] specialized knowledge. Um, for you to be not able, not only be able to understand if this business is solving a real problem, what would it take for them?

Shubhra Jain: What in, from a regulatory perspective, from a policy perspective, from a business model per perspective, to really gain widespread adoption amongst their consumer base. Um, and also to help them materially post investing if you are somebody who's leading rounds and taking board seats and all of that. Um, so the, I think there is room for both.

Shubhra Jain: Um, that said, in industries like healthcare, I think it is very easy to believe in the potential of something without truly being able to estimate and de-risk the roadblocks. Um, that might lie in on the path to achieving that potential. And in order to really be able to have an insightful understanding of the [00:09:00] different roadblocks that a business may need to go through and tack, block and tackle before they can achieve their potential, there has to be somebody around the table who has that domain expertise.

Shubhra Jain: Um, Now, one way that people get around it is take help from experts or consultants and things like that. And that model has worked in more on the private equity side of the world where they will really bring in a specialized firm to do some various. , um, aspects, specific aspects of diligence and the diligence processes run for months and go very deep.

Shubhra Jain: Um, it doesn't typically work in the venture capital world because the speed of decision making on deals is just so much faster and the processes are often very competitive. Um, and to be honest, these companies are so early in their trajectory that there is very little data for us to dig into. And, um, he.

Shubhra Jain: Very often people are making bets based on their view [00:10:00] of the market, which is preformed you form your view on the market and identify the opportunity spaces before you meet a particular business. And often based on their intuition about the ability of the team to execute. Um, now all of those are great markers, but I think.

Shubhra Jain: Well in industries like healthcare, which are regulated spaces and have specific nuances in terms of who makes the decision to buy versus who's the actual user, um, is often very different. And, um, also the, the adoption and implementation of things may not be very straightforward. Um, so really it requires someone to be able to.

Shubhra Jain: have worked in that space before and come in with that understanding or be willing to do the work and go deep and often in terms of how quickly the deals move in venture capital, we just don't have the time to be able to do that [00:11:00] work, even if someone wants to. Hence I, I feel that for industries like healthcare, there's value in being specialists.

Shubhra Jain: Um, that doesn't mean you can't work with generalists because even generalists usually, one or two or three core strengths. So someone may be really good at hiring executives for a team, for their portfolio company's teams. And, um, that person may be good to work with as a co-investor or have someone on the cap table because that they can really help build a team at the early stages of the business.

Shubhra Jain: So they, they, they can come with various trends, even if it's not industry knowledge. That doesn't, I, I think there is room for both.

Rishad Usmani: Okay, that, that's a very thorough and comprehensive answer. Thanks for that, shr. Let's talk about your own diligence process. How much do you rely on structure and how much do you rely on intuition and decision making?

Rishad Usmani: And you can talk about the founders of the [00:12:00] product or whichever part of the diligence process you wanna talk about. Yeah,

Shubhra Jain: so I would say it's a mix. Um, it. and uh, I don't know if you've seen that cycle of it. It's structured, then it's messy in between, then it's structured again. And I think that's, that's what it ends up being.

Shubhra Jain: So we are very thematic in the way we invest and, uh, I would develop my view on certain market spaces, uh, in much. , uh, in advance of meeting a particular business, typically. So every year I'll pick three or four themes and just dive deep into them and try to understand where is the white space, where is the ability to build a good business in this particular space?

Shubhra Jain: And, um, . Then hopefully when I meet a particular company, I can go into that conversation with a little bit of more of an informed view [00:13:00] and ask them some questions to figure out do they fit in that white space or are they playing in a very crowded, uh, part of that market? Or, um, how much of the, how much of the quarters, five forces leverage are they going to have ver versus other competitors and market forces?

Shubhra Jain: Right. now in that same first meeting, the intuitive part of it is how does the founder come across? How does the team come across? Are they a strong team? Um, and so it's a mix of both. I'm going in with a structured view, um, on the, on the market space and trying to figure out how they fit into that. But then at the same time, , my intuition is working in the background and trying to pick up all kinds of signs and signals, um, around the team and the business.

Shubhra Jain: Right. Um, and then I think I would say after that first meeting, if they check some of the very basic boxes on the market view, then. [00:14:00] The decision is guided by intuition as to whether we want to dive deeper into diligence or not. If there was something that just seemed off about the team, the co-founder dynamic wasn't great during that presentation.

Shubhra Jain: Um, something that ticked you off, you know. . Um, then we may, we may just decide to pass, but, uh, otherwise we'll go deeper into diligence. And the diligence process, I would say is relatively structured. Um, so we'll, we'll do the usual suspects. We'll go through all of the financial analysis. We'll do a competitive analysis.

Shubhra Jain: We'll do the reference calls. Now the reference calls is the piece of diligence where. A little bit more intuition playing in, right? You're trying to read between the lines a little bit. You're trying to push people to give you the information that maybe they don't wanna come out, come right out of the gateway.

Shubhra Jain: Um, and your intuition can guide that a little bit. Um, then after we have done all of that analysis and we have the [00:15:00] structured bullets checked, again, the intuition plays a little bit more of a role because the truth is we're al always looking at many opportunities and it has to rise up to the surface in that pool of opportunities, right?

Shubhra Jain: Like, so if I can only spend time on one deal and I have four that I'm looking at, then at some level that becomes an intuitive decision in terms of this seems more exciting than the other. Um, and, um, I, I, I think. , what is intuition? Really, intuition is thousands of years of structured decision making distilled into this fuzzy power that all of us as humans have, which has been generated through our ancestors evolutionary development.

Shubhra Jain: Um, so I would say intuition is nothing but condensed, distilled, structured knowledge. and we [00:16:00] continue to build on top of that by gaining more structured knowledge and doing more analysis in our lifetimes. But it would be stupid to ignore this wealth of resource that you already have. Um, so we try to strike a fine balance between both.

Rishad Usmani: I'm in the midst of, uh, planning a pitch competition, and I'll be launching it soon. I'm figuring out the criteria to evaluate founders from my diligence team. And there are two things I'm debating. A, is the fact that we are over aligned on previous founding experience of fallacy. Uh, I think Harvard Business Visa said that's a 30% chance of more success if you have a previous successful founder.

Rishad Usmani: Is that true still or is that study too old now? And then B, does it matter how long the founders have known each? In terms of months or years. And I would love to hear your thoughts on, uh, those two things in [00:17:00] particular.

Shubhra Jain: Um, I'm gonna take the more conservative and expected answer here probably and say that both of those things do matter.

Shubhra Jain: Um, and, um, here is why, because a lot of times when you're a first time founder, it's, it's just a learning process. And, um, sometimes. Paying for their education. Um, and sometimes that's okay. It depends on their pace of learning and how quick their feedback loops are. If they learn and iterate and execute on that learning really quickly, then it can still work the first time it does many times.

Shubhra Jain: Um, but that said, the second time founder does have an advantage in terms of being able to see around the corners a little bit and skip a few. Missteps. Um, and that can be material in the trajectory of the company in terms of their ability to be a little bit more capital efficient in terms of their ability [00:18:00] to hire better in terms of their ability to choose the best investors to build a better board.

Shubhra Jain: Um, so I, I do think that it matters, um, now that. . You also, if you want to take a more nuanced approach, you have to think about why they were success the first time. Were they really the factor that led to the success? Um, or was it just plain luck, which happens a lot of times? Or was it somebody else on the founding team or, um, and.

Shubhra Jain: See how translatable that is. If that was something else other than them, then see how translatable that is to this current business and this current market opportunity, um, without like giving them too much credit for it. So I, I think you have to balance that a little bit in terms of the length of the relationship between co-founders.

Shubhra Jain: I do think it matters because trust. A weird thing, you [00:19:00] just automatically trust people and more when you've known them for a long time, which is insane. You may have spent three whole days with someone and have spent an aggregate number of hours that is a lot more than someone you've just known for 10 years, but seen them once every two years for an hour.

Shubhra Jain: but you inherently trust that person more. Um, and that's just how human brain works. Um, the other thing that happens is once you dig a little bit deeper into that, and if they have really spent the 10,000 hours or whatever together in any capacity, then hopefully they have been through some ups and downs together and that builds.

Shubhra Jain: A very strong bond and enables them to navigate those ups and downs as eventually will happen during the journey of the startup. Uh, so I do think it matters, but also the intensity of the relationship matters. Um, you can. dig in a little bit deeper by [00:20:00] asking questions like, what are some of the most difficult experiences you have had together?

Shubhra Jain: How did you navigate that? What was a time when you had a fight and how did you navigate that? Uh, what was the longest you went without talking to each other? How do you both handle conflict? So there, those are also things that matter. Length is not the only thing, but it is definitely a.

Rishad Usmani: I love this answer.

Rishad Usmani: Shuber quality over quantity. The gold is in the details. Yeah. I'll give you a scenario. You come across the perfect founder. But they're working on the completely wrong problem in the wrong industry. You can tell they're not going to be successful. Do you invest in them to maintain their relationship and have the opportunity to invest in their next company, or do you pass and try and keep a relationship with them for their next project in some other capacity?

Shubhra Jain: I personally will choose. I know the peop, there are people who do the former, but I personally will choose to pass and try to build a relationship another [00:21:00] way. Um, maybe I can still advise them, maybe I can still be resourceful for them and send them things that may be helpful to them. But I would not invest in a business that I don't believe in, even if there is a founder that I do believe in.

Shubhra Jain: Um, and I will wait for them to come around the next.

Rishad Usmani: Okay. I think that makes sense. Let's talk about markets. Venture is a game of predicting markets five to eight years from now. Predicting M and a activity, if the market's gonna be bullish, what i p o price they're gonna get. We tend to think of our successes as internal and our failures as external, whereas usually it's the opposite.

Rishad Usmani: Tailwinds drive. A considerable amount of success. Bill grossed this study in Ideal Lab that why now our market timing was the most important predictor of success for startups in early stage for the listers. This is completely different from public markets, and there are no parallels to be drawn here.

Rishad Usmani: Tell me about what [00:22:00] tailwinds are you banking on for your investments for the next five?

Shubhra Jain: So I, I, I'll answer that. But with the caveat first, I think this is generally true, but it is relatively speaking, less true for healthcare. Um, I think it's more acyclical, uh, and a little bit longer to play out, um, than some of the other more consumer facing fad industries, right? Like so. . So with that caveat, tailwinds that we are, we believe in and um, are backing, um, one big one is data sharing and interoperability.

Shubhra Jain: I think the whole healthcare industry has been talking about that for a while. And then, uh, and when meaningful use, um, mandated the implementation of electronic medical records, we created the biggest, most rich database of medical information. Sits in silos in various corners of organizations and doesn't talk to each [00:23:00] other, and there has been an increasing awareness and movement within the industry.

Shubhra Jain: Change that and to help us. all as consumers, but also various stakeholders within the healthcare business ecosystem to be able to share that data, glean insights and inform their various business models. Um, and I think that is finally happening with the Fire rule, uh, and the 21st Century Cures Act coming in LA last year.

Shubhra Jain: I, I, I think that there are, , more rules coming from a regulatory perspective and more businesses being built to, um, capture that value. Um, and also more openness from incumbents than we have seen before. Because I think the incumbents are finally starting to realize that if they don't do it, some of Stark will come and do it.

Shubhra Jain: And, um, so they wanna get in on the game finally. Um, so I think that's definitely one of the big. . We have also been talking about value-based care for generations, [00:24:00] um, now and. We now finally have the infrastructure that we need to structure value-based care contracts and to deliver care in that manner.

Shubhra Jain: Um, also forced by necessity a little bit because we spend more than any other country on healthcare. Um, 18% or something of our gdp, which is crazy given the outcomes we have. And we've just hit the ceiling on that. There is. Just, there is no slack left in the system for us to continue to provide fee for service care and keep charging for it and increase that, um, dollar amount spent on healthcare.

Shubhra Jain: And so driven by that necessity, but also enabled by this data infrastructure that we now have access to, we are seeing both existing organizations like Pair. more traditional ones, but also [00:25:00] new kinds of organizations like ACOs and risk taking providers Step Up and Tructure value-based contracts in various shapes and forms.

Shubhra Jain: And we think that that is certainly a trend that will continue. Um, one. . Other big trend that emerged during Covid was telemedicine and there is more adoption and, uh, openness of telemedicine both amongst physicians and amongst consumers. Um, we think there will be a second layer of startups that will. be able to leverage the data that we are getting from telemedicine.

Shubhra Jain: So, so far it was incredibly hard to really know what goes on in a physician patient interaction because of all the privacy laws in HIPAA and everything. And those laws are all still existent and should be. But um, I think there is just more data [00:26:00] on various things even. The traffic of those interactions, but also the details of those interactions with medical ascribing becoming more common with there being more telehealth visits.

Shubhra Jain: And there are a lot of things that don't get recorded in the E M R that that patient physician interaction is a valuable source of information and only some percent of it makes it to the ehr. With these interactions happening more virtually in their medical ascribing being more pro, uh, commonly available and used, we think that there will be this wealth of data that is created and a series of startups that can leverage that, um, to provide better care

Rishad Usmani: delivery.

Rishad Usmani: Those are all great table beans, and I completely agree. I'm banking on a hybrid home care model. Um, especially hospital at home I think will be massive as an lp. Tell me about the [00:27:00] criteria you use to invest in funds and talk to me about. If a fund came to you and say, we will structure our fund over 20 years to better align with value creation in healthcare, how would you react to that statement, Shuber?

Shubhra Jain: Um, so in terms of our criteria to invest in funds, we try to invest in funds that can be synergistic with our direct investing strategy. So just as a recap, our direct investing strategies essentially series A all the way to i p o lead or co-lead rounds, take board seats. and where high conviction investors will look to put a decent amount of money to work in a particular investment and run a pretty concentrated book.

Shubhra Jain: So we're looking to invest in funds that. are synergistic with that strategy and can be good deal flow channels for us, essentially good feeder funds for us. Um, and not in the traditional sense though, because we are not the LPs that want access to [00:28:00] co-invest in SPDs. Um, we don't do that. Uh, we will come in and lead the round of one of your portfolio companies as they're coming up for their next raise, which.

Shubhra Jain: everybody values, especially in this environment, the portfolio company is happy. They don't have to run a full process. The VC fund manager is happy we can mark up their companies and we are happy because it's a deal for a channel for us. So it's a win, win-win situation. . So what does that mean?

Shubhra Jain: Realistically? Essentially, comp funds that are focused on investing in healthcare technology companies in Pree or seed stage. Uh, we don't do therapeutics and we don't do services. So anything that has a technology component could be software or hardware. So we will do diagnostics, devices, digital health, health it.

Shubhra Jain: So if you're a seed, pre-seed focused fund investing in any of these categories, that could be a potentially a good fit.

Rishad Usmani: and are you

Shubhra Jain: looking, you asked a second part of that question.

Rishad Usmani: Yeah. The second part was, [00:29:00] um, there's something I struggle with because I feel like the, the cycle of companies in healthcare.

Rishad Usmani: To go from idea to product market fit to growth would be 20 years, which doesn't fit the traditional venture cycle of a 10 year fund return. How would you

Shubhra Jain: It's, I, I, I don't think it's 20 years for. for a healthcare technology company today. Now it was 20 years for companies like Ooma because they were the first generation of healthcare tech companies being created.

Shubhra Jain: They sort of chartered the path for what it does it look like for to have a healthcare technology company. But I think today we are, we're seeing that accelerate a decent bit. It's still not the same as technology venture capital cycles, right? Like it's not the three to five years. Yeah. , but I'd say it's coming in between five to 10 years, uh, at this point from inception to taking a company public or having a meaningful exit if you execute it right.

Shubhra Jain: And we're starting to see some [00:30:00] examples of that happen. Um, so hopefully if you really are a healthcare technology business and you're not developing a drug and you're not building a variety of clinics around the country, then um, I think it should fit somewhere in that five to 10 year time. .

Rishad Usmani: And what do you look for in gps?

Rishad Usmani: What, what do you look for in terms of, are there previous founders? Do they have a deep finance background? Um, what is the rough criteria used to evaluate them? Yes.

Shubhra Jain: So because we're investing in the seed precede focused funds, I think the finance background is not really as material or important, uh, a.

Shubhra Jain: People who are investing in those stages really are investing in companies before they've built their financial model for the first time. So, um, there's very little financial analysis that can be done. Um, but what matters is, , do they understand [00:31:00] how startups work? Specifically? Do they understand how healthcare startups work because they're a little bit different.

Shubhra Jain: Um, do they have a network to source great deals from? Do they have the reputation in the industry to be able to get in and win the right deals? Uh, cuz it's competitive out there. Um, and then do they have a measured, disciplined investment? Diligence decision process and their own judgment to be able to stay.

Shubhra Jain: Um, true to what they're promising. Their LP is to not have strategy creep or not have, um, inflated valuations just to show activity and do more deals as we saw a. Firms do in the frothy environment in 2020 and 21, right? Like, so we look for a little bit of that discipline and um, are they doing what they say they're going to do and can we trust them with [00:32:00] that?

Shubhra Jain: Um, and are, or are they going to get swayed by what others are doing and what is going on in the market? So a little bit of that is super important. Um, and then I. I think at the seed precede stages, it's about having a good intuition for both the market and the founder. Um, so do they have a good sense of where healthcare is today?

Shubhra Jain: Where is it going? what is needed in terms of startup innovation to help us cover that gap, um, and are able to find and bet on companies that are working to fill that gap. Uh, and do our view, does our view of the world there align with theirs?

Rishad Usmani: There are people who would argue for hype investing, for saying, if Andres invested around, get in, if Sequoia invested around, get in, and just the value of that brand name will.

Rishad Usmani: Start up to, and I, I don't [00:33:00] buy this completely, but to success. What are your thoughts on hype investing? Is that something you're completely against or is that a signal for success to an extent.

Shubhra Jain: Yeah, so again, it's one of those things. Healthcare is a little bit different from generalist investing here. I think the value of those brand names investing in healthcare is a little bit less, and the market recognizes that, uh, as opposed to a consumer startup or a B2B SaaS startup.

Shubhra Jain: Um, . So, so that's the first caveat. The second one is, it depends on what type of an investor you are. If you are a small fund that co-invest alongside marquee funds, and that is what your investment thesis was when you started the fund, that's what you pitched to your LPs. I will manage, uh, to get into the same deals as Sequoia, and that's my edge.

Shubhra Jain: and your LPs were happy with that, and that's why they invested in your fund, then that's great. [00:34:00] Um, but if you're not, if you went to raise the fund with the hypothesis that I will figure out what the best companies are and here is why, because I have a differentiated view on the market or I have a proprietary deal funnel, um, , when you go back to raise the next fund, it will be very apparent what strategy you actually followed.

Shubhra Jain: And if that, that's what I meant in my earlier answer about, that's something we look for, um, in terms of are you staying true to your strategy? Um, because that fosters trust over time. Um, in terms of it being a predictor of success? To some degree it is, because, let's face it, there are thousands and thousands of companies and there is already some degree of filtering that happens.

Shubhra Jain: Obviously, it is an indicator of something might be good [00:35:00] if one of these brand name firms bagged a company. They must have done their diligence. , but the, the failure rate of startups is so high that even then that's not a guarantee of success. And if you are a manager who believes that you have a differentiated viewpoint and you know something about the industry that others don't, or you think differently about something, then I would rather bet on that.

Shubhra Jain: Uh, I would rather bet on your own conviction. of what someone should be building and what you want to be backing than some other firm doing. You don't know what work they did and you don't know what reason they backed them for. Um, so that's how I would think about it. This is something I

Rishad Usmani: struggle with.

Rishad Usmani: Given the high failure rates for early straight startups, is it even possible to have high conviction or that just means you're missing something because [00:36:00] inevitably, at least half of your high conviction startups will fail? That being said, should I invest at 80% conviction or should I still keep pushing myself to find a hundred percent convict?

Shubhra Jain: Yeah. So this is a, this is a genuine dilemma of any early stage investor and, um, it's always possible to talk yourself out of any deal. Um, no matter how good the deal is, you can always find reasons why the company won't succeed and you can talk yourself out of the deal. So what you have to venture as a game.

Shubhra Jain: it's the upside versus downside is skewed. Um, you can only lose one X, but you can make a hundred x and hence you have to think about where does this go? If it goes right, so assume that it goes right and then say, , would this be a hundred x if it goes [00:37:00] right, or am I looking at a two x or a three x if it goes right.

Shubhra Jain: Um, because if you are, then that doesn't, then that doesn't satisfy the power of law for investing in venture. So you have to focus, you have to be an eternal optimist to be an entrepreneur, but also to be an early stage investor, you have to focus on. What can go right And if it goes right, where can this get me?

Shubhra Jain: Um, rather than, these are the seven things that can go wrong. Now, that doesn't mean you ignore the things that can go wrong. You should still do that analysis and figure out what are all the things that can go wrong and then you work to mitigate that.

Rishad Usmani: How deep are you going here? Depending on the vertical you're investing in, SaaS, biotech, pharma, that could mean the company has to go from $0 in a R to 500 million.

Rishad Usmani: Are you actually mapping that out? Are you seeing, you know, this is what they need to do to get to the say a hundred million [00:38:00] dollars in a R and what their path to that looks like? Because I feel like that's the way I would talk myself out of every investment. . Is that something you're doing?

Shubhra Jain: You can't do zero to a hundred because here's the problem.

Shubhra Jain: There's this value of death in between, which is achieving the product market fit. So they have to go from zero to something in order to prove first that they have built something. First of all, they have built something because a lot of products fail just in terms of technological risk of getting built.

Shubhra Jain: Second, people want that thing. And third, there are people which are often different people in healthcare who are willing to pay for that. and then they're able, so, so that's the first value, which is the product market FA value. And that goes from zero to, for lack, I don't think there is a number, but like maybe a 1 million in revenue, right?

Shubhra Jain: Like at that point you've proven that you've built something that people want and there is someone who's willing to pay for it. . Now the next question becomes the unit economics. Like, are they [00:39:00] paying for it at a, in a, at a scale that the margins are sustainable for the business and you can get to cash the positive with that.

Shubhra Jain: Um, so do you have an engine that is, has positive unit economics? Uh, and that's the second valley. Um, and so maybe from pick a number to maybe 50 million in revenue. Million, 40 million in revenue. That's the value you have to cross and get to the positive unit economics. Once you've gotten to positive unit economics, then you are the master of your own fate.

Shubhra Jain: Um, then you can scale and you're scaling with an engine that works instead of just throwing venture money into it and burning. Um, , I don't think you can map out everything, uh, in terms of zero to a hundred million in revenue. But depending on, again, what your investment mandate it is and which risks you feel comfortable taking, some people might say, we, we feel comfortable not, we don't feel comfortable taking the technology or product risk.

Shubhra Jain: So we wanna see that you have at least built a product, [00:40:00] especially true for hardware products. Um, some people say, we don't wanna take the product market fit, fit, risk. We wanna see that you have some revenue. There is somebody who's willing to pay for what you have built. Um, . And then there are people more on the growth equities side of the world who say, you need to have a positive unit.

Shubhra Jain: Economics, we need to see that you have something in EBITDA before we can invest. Um, so it depends. Most venture capital firms, I would say between like series A and series C or D would lie in that product market fit unit, economics place where they'll say, , um, depending on how early they go. We won't take the product market fitness, but we will help you figure out the journey to positive unit economics and we'll help you get there by, um, capitalizing you to get there.

Shubhra Jain: Um, so it depends on which risks you feel comfortable

Rishad Usmani: taking. Talking about unit economics. Something I have recently found is, uh, a few founders have come to me and said, as we [00:41:00] scale, our CAC will go down and will be profitable. I don't find that to be the case. Looking at these, uh, especially B2C healthcare companies like Romans and hymns, it seems like they're CAC took forever to go down.

Rishad Usmani: I haven't followed them recently, but it kind of stayed. , they were not profitable based on their cat. Have you found that to be true as well? In the B2B space?

Shubhra Jain: It will not just automatically go down, um, if you don't make any effort for it to go down. And it also depends on how much of your, um, customer acquisition is organic versus paid.

Shubhra Jain: And is that organic portion going up over time? Is there more word of mouth? , is your customer satisfaction score high? Is there a high net retention? So if all of those things add up, then yes, over time cash should go down. . Um, it also depends on what additional growth levers are you employing? Are you launching in completely new markets?

Shubhra Jain: Are you launching completely new [00:42:00] product lines, which will not have any additional leverage from the, your existing business? And in that case, it may not go down. So the answer is more nuanced than just because I have been operational for x number of years. Over time, my CAC will in a linear fashion, certainly go down.

Shubhra Jain: I, I don't think that statement is true for any

Rishad Usmani: business. , what are some mistakes gps make when they're trying to raise from you, and what advice do you have for them?

Shubhra Jain: That's an interesting one. Um, I would say one, not understanding the LP you're talking to, so any background research you can do or just even in conversation, taking the time to understand.

Shubhra Jain: what kind of an LP they are. What is their mandate? What are they? What is their motivation behind investing in funds? What kinds of managers do they like to back? What kinds of returns do they want to see? Is there any sort of strategic motivation beyond the [00:43:00] financial returns? What other value add can you provide to them or they're looking for from the relationship?

Shubhra Jain: doing your homework and getting to know your audience a little bit more. Um, instead of launching into the pitch, the first chance you get, um, can go a long way in fostering that relationship over time and also in helping you position your pitch correctly because there are a hundred things that you could say in the 30 minutes you have, but you can choose to highlight the ones that may appeal to them a little bit more if you had more information about them.

Shubhra Jain: so that's number one. Second, Understanding that it's more of a relationship business than even investing in startups. So even when we invest in companies, we like to get to know them six months to a year before we invest. We almost never just look at a deal and in four weeks we have written a check to them.

Shubhra Jain: Um, just almost never happens for us. And, um, I think there [00:44:00] are firms on the venture of capital side that will do that just because deals move fast and it's competitive. And I understand that. But on the lp. , it's extremely rare to see that. Um, firms like to get to know the GPS over time and understanding that you're going into this with a long-term goal and you're looking to build a relationship.

Shubhra Jain: Um, and having the patience and the mindset to approach conversations in that manner is really important and will go a long way. Um, and eventually you getting a check from that lp. I think the third piece that I see people missing is a lot of gps, especially the first time funds, do not pay significant attention to, or convey in a very articulate manner, their portfolio construction strategy, their follow on reserve strategy, their portfolio construction strategy, how.

Shubhra Jain: Strategy lead to them achieving [00:45:00] that they're targeting. Um, and that's something that I think a lot of people, if you have only been writing angel checks or if you weren an investor at a bigger firm and never really thought about that, but you learned how to source and pick deals, uh, , then guess what?

Shubhra Jain: You're in a different game now. You're building a firm and a fund and, um, portfolio construction, real matters. It's not just about, you can't say all the 10 deals that I'm going to pick are going to be winners. Uh, we all know they're not. Uh, and so how do you underwrite that? There are two

Rishad Usmani: different camps of fia.

Rishad Usmani: There are people who, like yourself, will invest 10% of their fund size per deal and invest in 10 deals total. But there are people who. Invest one to 2% per deal and invest in up to 50 deals, which camp is more attractive to you? Or would you look at GPS from both camps? And what are some particular [00:46:00] questions or some things you would look for in each camp?

Shubhra Jain: So we would index for to the former because we, again, our own philosophy is that we want to have a reason why we invested and it should be a high conviction bet. And we will go back. The gps who aligned with that philosophy, um, who knows something about. Some markets within healthcare, broadly speaking, that we believe is a differentiated viewpoint or they have some kind of a differentiated access to the deal flow in that space, and they're able to make bets that they believe are, have, uh, an advantaged.

Shubhra Jain: Chance of success over just any other startup, right? So we don't do this brain prey strategy, and I don't think we'll back gps that do. Um, also, very few people actually do this brain prey strategy within healthcare. I think that is more commonly done by [00:47:00] generalists, um, for a variety of reasons, which is understandable.

Shubhra Jain: But in healthcare, I think most people, uh, who start. Come from some specific sector within healthcare. Maybe they spent all their life at a payer, or they have really a lot of relationships on the life sciences side, or they have some edge, some network that they're tapping into as they're starting this fund.

Shubhra Jain: And that's what we're investing in it for, um, to get access to that part of the e.

Rishad Usmani: That is very actionable advice. She, Brett, thank you for that. One last question. What is one piece of advice you would give yourself 10 years ago?

Shubhra Jain: More patience. Um, I was always in a rush to get everything done. Um, and I think, uh, that is, Something that just comes with age and experience and having seen a few cycles played out now, um, just being a little bit more centered, [00:48:00] being a little bit more patient, taking the long-term view, continuing on your path and not getting impatient about seeing results every single day or very, very quickly, but believing in the process, enjoying the process, and, um, giving yourself.

Shubhra Jain: The time to breathe a little and to, uh, enjoy, enjoy the journey.

Rishad Usmani: That's well said. There's a strong push and venture for a very strong bias towards action, which can lead to impatient and poor decision making. And I like Adam Grant's philosophy of moderate procrastination as the best path to success.

Rishad Usmani: Thanks so much for this conversation Shuber. I had a lot of fun and we'll have to do a part two as I only asked about half the questions I have here.

Shubhra Jain: Oh, this was a pleasure. Thank you so much for shock for having me and uh, you have a great rest of the day.