Sramana Mitra: Do you want to do another one?
Shripriya Mahesh: One of our most recent investments is a company called Mati. They allow identity verification. Filip is the founder. He has been an immigrant for a long part of his life. He grew up in Europe. When he was a child, he wandered off to the UK and told his parents that he wasn’t coming back because he wanted to study. He moved to the US and came to college here in the US.
He has dealt with being an immigrant and some of us who have come here as immigrants know that you need to establish a credit card and identity. There is a lot that you have to do before you can be a fully functioning human being in society. Filip is now enabling identity verification in the developing world. They started in Mexico.
There are a lot of countries where data is buried in inaccessible databases or paper records. They are digitizing that and enabling both verification and transactions based on the verification to give people agency. This was a bet that identity verification was going to be hugely important in the years to come as well as on the founder who is an incredible person.
This is a company that has just grown like a weed since we met him. We encouraged Filip to move to an ARR model versus just a one-time revenue model. How do you charge people? How do you encourage people who want to grow with you to come back and find a real product market fit? He already had signs of product-market fit, but was missing that concreteness. That’s another one that fits into our thesis that we invested in.
Sramana Mitra: My next question is a trend question. Each investor looks at the world with a certain lens – a certain investment thesis. You have projected to the world that this is your investment thesis and this is the kind of deals that you want to see within your deal flow. What trends are you seeing? What trends were you seeing before COVID and how has that shifted?
Shripriya Mahesh: We believe deeply in building a community authentically. We developed a thesis called product-led communities where they form around solving hard problems whether it’s mediation or learning.
If you have a community with you, it helps you build a moat and it helps customers achieve their goals. We are seeing a lot more companies emerge in the community space. We think that this is very interesting. We saw it before COVID and we are seeing that accelerate since COVID because that’s something that you can do online. You can do it regardless of where you are.
Another trend that we have seen even before COVID was valuation markets. We thought about what would happen when COVID hit. We wrote a thoughtful letter to our LPs and we were completely wrong. We thought that prices would come down and people would batten down the hatches and plan for the long term.
For certain markets, the price hasn’t gone crazy. The multiples are 50x, 100x, and 200x in certain places. I think that’s hard for investors, but it’s much harder for entrepreneurs because if you raise at that valuation, what’s going to happen at the next round? There’s going to be a reckoning either in the next round or the round after.
Some entrepreneurs say that they won’t have to raise again, but that isn’t true. If you pull in your plans from 12 months to 24 months, it’s not really true that you don’t have to raise again. I worry for first-time entrepreneurs who will get burned by this.
Our philosophy is bite-sized chunks. Take as much capital as you need for the next 24 months. Look at your metrics, take another bite, wait 24 months, and take it slow and steady. I have a lot of worries for multi-million dollar rounds when the company has no revenue and maybe hasn’t even found a product-market fit.
I don’t blame the entrepreneurs at all. If money is being thrown at you, it’s very hard to resist. I think it’s the VC’s job to be responsible. I don’t think that we are doing the right thing by these many entrepreneurs. Of course, we should give them money and support them, but this momentum investing has gone through a fever pitch. It’s an amazing and difficult world to navigate right now.