Conductive Ventures has raised $150 million for its second venture capital fund with a focus on enterprise software and hardware startups. But the fund may make occasional exceptions for consumer investments, as it has done in the past.
The Palo Alto, California-based fund announcement comes just three years after the founders, Carey Lai and Paul Yeh, launched their first $100 million fund. Their strategy remains to invest in capital-efficient enterprise software and hardware companies that can show early growth.
The fund focuses on advising entrepreneurs, generating returns, and serving corporate partners with a bridge to Silicon Valley innovation. By efficient, they mean that they would fund startups that raise $10 million and generate around $10 million in revenues early in a life cycle. They’re not worried that we are in a pandemic.
“Technology innovation continues unabated whether or not there’s a pandemic, whether or not there’s a financial crisis,” Lai said in an interview with VentureBeat. “You’re going to find some really incredible companies that start during bad times. A lot of those entrepreneurs tend to be the most hardened because if you’re going to leave your job right now to go be an entrepreneur, I mean, you are either insane or really committed. I think the quality of entrepreneurs dramatically improves during these uncertain times.”
Before starting Conductive, Lai previously invested at IVP and Intel Capital leading investments in Box, Gigya (acquired by SAP), Kabam (acquired by Netmarble), Nexmo (acquired by Vonage), Onefinestay (acquired by AccorHotels), and Sprinklr. Yeh has previous experience investing and operating with portfolio companies at Kleiner Perkins including Ambiq Micro, Beyond Meat, DJI, Ionic Materials, LuxVue (acquired by Apple), and Relayr (acquired by HSB-MunichRe).
Their first fund invested in 17 companies including Ambiq Micro, Blueshift, CSC Generation, Gen. G, Rally, Forte, Jackpocket, Proterra, Self, Sprinklr, Survata, and Versatile. One of its first investments, Desktop Metal (a metal 3D printing company), has announced its intention to go public via a special purpose acquisition company.
Above: Desktop Metal can 3D print metal objects.
One of the surprises from the first fund: Conductive invested in three companies founded by Kevin Chou, the former CEO of mobile game publisher Kabam. Chou is the former college roommate of Lai and Yeh. Chou went on to start blockchain gaming infrastructure firm Forte, influencer monetization firm Rally, and esports organization Gen.G. Conductive invested in all three through its first fund.
“We’re big fans of Kevin and I think what he has done is pretty spectacular,” Lai said. “With work from home, there are huge tailwinds for gaming consumption, whether it’s esports or streaming. Gen.G has nice uptake because of that and online esports.”
Yeh added, “He proved himself selling Kabam to Netmarble and we’re able to continue the journey with him with a different lens. The companies are doing quite well.”
One of the fund’s largest limited partners is Panasonic, and that relationship is helpful for firms seeking relationships in Japan, Yeh said. Conductive aims to be a bridge between Japan and Silicon Valley in that respect.
About two-thirds of the original $100 million fund has been invested, and the rest is reserved for follow-up rounds with the existing startups. That gives Yeh and Lai more time to focus on the second fund. But they decided to wait to announce the fund because there were so many other events happening during the pandemic.
“We decided to fundraise earlier and got it done at the end of November 2019,” Lai said. “The paperwork took a while and then we started investing right when we were sheltering in place. We are incredibly thankful to get the green light for the funding. We have heard that other funds trying to raise money are stuck now.”
The second fund may get to around 25 investments with slightly bigger checks than the first fund made.
Awareness of diversity issues
Above: Carey Lai and Paul Yeh take a colorblind approach to investing while trying to be aware of their own biases.
As far as the turmoil related to Black Lives Matter this summer, Lai said that the fund has focused on being colorblind and getting a financial return.
“We’ve been raised to treat people equally,” Lai said. “If you look at the CEOs in our portfolio, it is an inclusive group. We are able to fund immigrants, entrepreneurs who are women, or minorities because we are minorities ourselves. We’ve all experienced racism. I was born here and as a kid, I was told to go back where I came from. We’ve all personally experienced different levels of racism. We’re looking for people who think out of the box and I think that those people from the outside or have been treated as outsiders and know the struggle and the hustle of an entrepreneur rather than someone who’s had privilege their whole lives.”
Yeh said he is a first-generation immigrant from Taiwan. He got in a lot of fights as a kid and learned to stand up for himself. He lost a lot of fights because he was small, but the bullies stopped messing with him after he stood up for himself.
“We see really amazing qualities in outsiders in terms of their persistence,” Yeh said. “They work harder than everyone else. We look for people who are really passionate.”
Lai said it will be a good day when we don’t have to think of it being a big deal when a company has an Asian, Black, Indian, Latinx, or woman CEO.
“Our contribution to society as much as we can is to really understand what our implicit biases are and to fund great entrepreneurs, regardless of where they are or what their color is,” Lai said.
Staying away from the hype
Lai said the team isn’t trying to follow big trends or hype cycles, such as blockchain, cryptocurrency, or AI.
“When you get so much hype around something, the venture capital dollars follow and everything gets expensive,” he said. “AI definitely has some of that. There’s a joke you can get an extra $50 million in valuation by throwing AI into the pitch. The valuations get a little nutty. As things settle, you realize what is real and what’s not. We focus on early, efficient growth companies.”
The fund has avoided retail and travel, and those sectors have been hit hard. But it is looking at investing in tech companies that can help society and help with the recovery of the U.S. economy, Yeh said. Jackpocket, an online lottery company, was doing well before the pandemic with a focus on taking the lottery business to the digital realm.
“Through this COVID period, states are going to be feeling the tax revenue pain, ad lotteries are a fantastic way for states to raise tax revenue,” Lai said.
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