Responding to a popular request, we are now sharing transcripts of our investor podcast interviews in this new series. The following interview with Andrew Cain McClary of KdT Ventures was recorded in January 2018.
Andrew Cain McClary, Founder and Managing Partner at KdT Ventures, is a physician-turned VC. The focus of his investment is biology and related fields.
Sramana Mitra: Tell us about the fund. Tell us about what your investing focus. How big is the fund?
Andrew Cain McClary: It’s useful to start with a little bit of context on my background. I’m a physician by training. I was in the lab for the better part of 2000 to about 2010. I practiced medicine at Stanford but was introduced to entrepreneurship when there weren’t really robust measurement systems that existed for things I was measuring in the lab.
I actually funded my first company as an angel investor in 2010. That company was involved in designing both an instrument and technology to help measure certain things in the lab. At that point, I understood what venture and venture funding was about in terms of translating, what I feel are, impactful ideas and products. I went through training at Stanford. During that time, I was probably the worst resident that Stanford ever had because I was always on Sand Hill Road.
I found it more interesting to try to imagine the future than practice in the past, if you will. I worked with some very large firms in the intersection of healthcare and technology and then, more broadly, science and technology. More and more, I’m realizing that the basic building blocks of life is really just source code just like you would have electricity within computers. There’s a lot of different parallels that you can draw between science and the information technology revolution that has been happening.
I left and joined a startup because I felt fake investing in entrepreneurs and never ever having lived an entrepreneurial life. Instead of jumping straight into the deep end in investing, I joined a startup for two years. We scaled from a small number of folks to over 300 in about 18 months. I got to experience, what someone would call in Silicon Valley, hyper scale.
I left last March to start my own firm called KdT Ventures. I focus at the intersection of computation and science. That has a very broad definition and touches many different verticals. The main ones that I focus on are chemicals, agriculture, and medicine. We have all kinds of data measurement systems and tools that exist.
We have incredible compute that allows us to start to understand complex systems and redesign those systems in very meaningful and interesting ways. I have a seed fund now. KdT Ventures is a $15 million seed fund. I will do some Series A checks. I just started investing out of this first fund. We should have 15 to 20 portfolio companies.
Sramana Mitra: What sized checks do you like to write?
Andrew Cain McClary: For seed rounds, the check size will be between $300,000 and $500,000. I tend to reserve more for follow-on funding. I’ll traditionally reserve 2:1 or 3:1 for follow-on due to where capital is moving within the stack right now of investing. I want to make sure that I have enough to support those companies that need to scale at that Series A level and fight dilution.
Sramana Mitra: Define seed from your point of view. You may have read some of my writings where I have been calling out the fact that the seed ecosystem has now become extremely fragmented. It’s a very broad spectrum of companies in various different stages. Funds are starting to segment themselves into those stage-specific interests. Besides using that terminology, if you could help us understand what that means for you in terms of validation stage?
Andrew Cain McClary: The simplistic way that I try to break it down is, the pre-seed company is almost an incubation within my fund. That is perhaps two founders. Usually, it’s one. They have a fairly well-formulated idea or business plan but are really trying to build out the strategy as well as team to perform on that. I take the onus onto myself in that pre-seed stage. I’m not afraid of that.
A seed round is where there has been some early proof of concept work. I don’t function in pure technology. I’m not expecting as much revenue traction for the companies I invest in at that point in time. It’s really a scientific or technical de-risking that has to happen. You need to see some forward momentum and some very clear KPIs that are going to be defined for the Series A round. I do a lot of rounds that have gone from true seed to bridge rounds, and then the true Series A.
Those Series A rounds are getting quite large. The onus and the bar for the companies is quite high. It requires a bit of capital particularly within the technical realms that I function to get them to that true Series A.