How Emergent Ventures Deploys a $76M Seed Fund at 10% Target Ownership Per Deal (Interview with CEO Anupam Rastogi)

Intro and Fund Overview

Nathan Latka

00:00Guys, emergent ventures AI focused most recent fund, dollars 76,000,000 fund closed in January 2021. They've made about fourteen, fifteen investments out of that already. Target a 1,500,000 check size and a 10% equity stake and usually hold 3 to 5,000,000 in that fund for their winners that are really taking off in terms of the reserve. They got two partners today looking to scale, focused on, again, those AI machine learning startups as they look to deploy money in

00:23a smart capital efficient way. Hey, folks. My guest today is Anupam Rastogi. He's a seasoned venture investor, and has later played a substantial role in over 20 successful technology investments globally ranging from early to expansion stage and several larger exits. This is a little unique for the show. We rarely have investors on, but Anupam reached out, and I said, you know what? Let's get him on. He's early stage. He's backed some similar founders that we've backed

00:44at Founderpath. So, Anupam, we're excited to have you today. How are you?

Anupam Rastogi

00:48>> Thank you for having me. Doing great. You bet. Doing great.

Nathan Latka

00:51You bet. I didn't mention this in the bio, so I should. You are now with emergent dot v c. Your you guys have sector focus on AI and machine learning tools, or how would you edit that statement?

Emergent Ventures Thesis and Focus

Anupam Rastogi

01:01>> Yeah. Emergent Ventures, we are a six year old firm, seed stage, first check. We lead seed rounds, AI led SaaS across both application and infrastructure layer, and then we partner closely with founders on building out their, you know, go to market, getting to product market fit, and then future fundraising.

Nathan Latka

01:20Yep. And help us understand sort of, I guess, last fund that you guys closed, what was the size, and what's your thesis? How many portfolio companies, that sort of thing?

Fund Size, Deal Count, and Team Structure

Anupam Rastogi

01:29>> Yeah. We are investing out of a $76,000,000 core seed fund, and we would do about 22 to 25 investments per fund. And we do the fairly concentrated approach to seed investing. And there's two of us general partners, and we invest the fund over, you know, three to five years. So that means that we only invest in two to three, deals per partner per year, which enables us to focus on, the ones that we've invested in, help

01:58>> them get to the next milestones.

Nathan Latka

02:01And how many partners are

Anupam Rastogi

02:02>> on the team today? Two of us. Two of you. Okay. General partners, and we have an operating partner. So three of us overall.

Nathan Latka

02:09Okay. So you're you're you're targeting doing something like six deals per year?

Anupam Rastogi

02:13>> That's that's right. Yeah.

Nathan Latka

02:15Okay. I always get perspective from founders, obviously, on, you know, the the drying up of equity markets. Getting your perspective would be valuable here. When I look at your guys'deal flow, that fund looks like closed on 01/01/2021, at least publicly in the press, that's what was listed. And your guys'most aggressive or most active month or quarter was back when you guys did nine deals in one quarter in 2021. How are you guys thinking about

02:40deploying capital today?

Deployment Pace and Deal Flow

Anupam Rastogi

02:42>> Yeah. You know, sometimes the public reporting and the actual events are a bit out of sync because of when companies announce these rounds. I'd say vast majority of pre seed seed investments we do don't get announced for a while. But, yeah, I'd say we've been at pretty constant five, six, seven deals per year throughout this fund, and that's what we have done. In the last six months, we've done three deals as well. And last year, we

03:07>> did six deals. So we've been right on pace. And 2021 was about the same as well. So we haven't, you know, when the market is hot, we didn't really ratchet it up too much. And then in what is perceived to be a slower market, but I'd see that, say it's a pretty thriving market, we've been maintaining a pace. It's really about, yeah, how often we meet really high quality entrepreneurs. We see about, let's say, 600 to

How Deals Are Sourced

Anupam Rastogi

03:27>> a thousand deals a year. So we invest in about 1% of those. So whenever we see a great founder, we're gonna be able to invest.

Nathan Latka

03:33That's an interesting statistic. How do you define deals seen per year? Is that a formal application by a founder, or do you count a casual email from another VC as seeing a deal per year?

Anupam Rastogi

03:43>> Yeah. I'd say the six to thousand are, of course, that includes superset of everything that passes our desk. I'd say we probably spend a meaningful time with 100 to 200 of those where, you know, we take a call and do some research and do some thinking on it and and more. So but, yeah, I'd say deal seen is a is a wide term, which includes things coming in from a number of sources. I'd say the best

04:08>> ones are usually from a common connection, often, you know, folks have their, you know, either prior bosses or colleagues or folks I work with that would know us and they would send us you know, the mutual connect would often send us a warm intro. But, yeah, we are very happy to receive cold email as well, and we receive tons of that, and then also through events and other things.

Nathan Latka

04:27Yep. And what's average check size typically?

Check Size and Follow-on Strategy

Anupam Rastogi

04:31>> Our average check size is about 1,500,000 initial check and then up to 3 to 5,000,000 over the, know, over a course of time.

Nathan Latka

04:382 to 3,000,000 over a course of time. You're talking about taking advantage of Yeah. Pro

Anupam Rastogi

04:42>> Yeah. Exactly. Yes. We can invest more once the company is on its way.

Nathan Latka

04:48Oh, what's going on there, YouTube? Good to see you guys. Now imagine this. You love watching these interviews with SaaS founders, but imagine if we took all of the valuation data out from over 2,807 interviews I've done manually. Saves you a lot of time. Well, we've done this. We've built it into the beautiful interface inside of Founderpath. Check this out. I'll show you how you can access this in a second. But you log in, you connect

05:11your Stripe account, you see your valuation real time. You can see what it changed over the past eighty eight days and even set goals for valuation this year. Now the secret evaluation is there's many different ways to value a SaaS business. So the reason you're gonna see three or four different valuations inside of your Founderpath dashboard, this is all free by the way, is because depending on who's doing the buying of your SaaS company, you're gonna

05:36get a different valuation. A VC is gonna pay a different valuation, Private equity firm is different. If you're gonna do a minority sale, that's different. And if you sell the whole business, that's a different valuation. You can see all those when I hover over here. Right? So the teal is what a VC would pay. Yellow is what private equity And red is if you sold the whole thing outright. Now what's cool about this is this is

05:58not built off random data. Again, you guys hear these interviews on YouTube. All these datas are built from real time valuation data points founder share with us on the show. So traction 1,200,000 seed round 3.7 raise. They sold 22% of their business. Go in here and filter by the event. Maybe you only wanna see companies that have sold the whole business. Well, here are a bunch that have been acquired the valuation and the multiple. Maybe you're

06:23going out right now and you're raising your seed round. We'll go in here and look at all this recent seed deals that went down, what they raised, what valuation they raised at, and what percent that they sold. There's never been a larger dataset of SaaS valuations than what you can get now inside of Founderpath. And we're thrilled to bring it to you. All right. We're gonna go back to the YouTube video here in a second. But

06:45if you wanna check this tool out, if you wanna jump in and sign up, you can check it out for free to get your valuation at this link, this link, founderpath.com/products/valuations. Or if you go to founderpath.com and hover over products, click on get your valuation here, and go ahead and sign up to give it a whirl. Again, all that valuation data live right inside the platform. I hope to see you there. Alright. Let's jump back into

07:11the interview. Do do you in in terms of taking advantage of your pro rata that you earn from your seed deals, do you invest that money out of the same 76,000,000 fund or do you have a growth fund that you've raised?

Anupam Rastogi

07:23>> Yeah. So we, can invest up to series a from, the core fund. And we do have an opportunity fund, which is for a select subset, which are scaling at, you know, for larger series a rounds and series b and series c are provided can be meaningful. So we have another fund from which we can continue investing Mhmm. In a few you know, select few.

Nathan Latka

07:43Yep. Yep. Yeah. So I I wanna teach Founder since we've got your perspective on the podcast today. You know, if we took a 1,500,000 average check size times your target in terms of life of the fund of 25 deals. Right? And it's 76,000,000 total fund. 1,500,000 times that 25 target deals uses what about 37,500,000 of the total capital. You then obviously are reserving for the three to five million pro rata we just discussed. I think a

08:12lot of founders, when they meet a VC, they don't know how to ask questions like, Hey, Mr. Or Mrs. VC, if we crush it, how much are you reserving for us in the future? What are some really smart questions you hear founders ask you in terms of how you think about deploying capital into the future?

Anupam Rastogi

08:29>> Yeah. No. That's a really good point. I think great founders are very good at the discovery questions early on. And, you know, when I meet a founder, I always give them a opportunity to ask questions. And I'd say the right yeah. Everyone should know certainly before partnering, you know, what's the reserve strategy, how many overall deals, how many deals they're doing per year, how many deals per partner per year, how many deals does a has a

08:54>> partner you know, how many boards is a partner on currently? Do they have time to spend with you? And then also, I'd say the future thing really comes into, I'd say, you know, if everything is going fantastic, then the providers don't matter as much to founders. But oftentimes, it's not very clear if things are going super fantastic or not. And there, especially in times like these, that becomes important to have someone who can continue supporting the

09:18>> company. And Mhmm. Also, I'd say seed has gotten deconstructed. So the I'd say it's very rarely the case that a company just does one seed round and then goes straight to series a. I mean, that, of course, does happen quite a lot. But in many other cases, the company end up ends up doing a seed two or a seed extension or pre series a or pre seed and seed. And, so in that second seed round as

09:38>> well, we can be pretty proactive, where we see the company has made requisite progress. And that becomes really important to keep the company going rather than having to go out to for another round before they're ready for series a.

Nathan Latka

09:50What paper are you typically sitting on? Are you doing sort of safe or priced rounds?

Anupam Rastogi

09:55>> Yeah. It's a combination of both. So we are, yeah, we're agnostic to that. We're happy to work with whatever the founder wants to as long as yeah. You know, safes are always faster and easier, so we are pretty comfortable with that. But, yeah, we do equity rounds as well.

Nathan Latka

10:09What should a founder expect to pay in terms of legal fees if you're doing a priced round?

Anupam Rastogi

10:15>> Yeah. That's a good question. Varies a lot. There's a pretty wide range. I'd say, for a 3 ish million dollar round, I would have seen everything from, you know, for a price on, you know, 10 k to 50 k. So pretty wide range. I'd say somewhere in the $20.25 k seems to be median.

Nathan Latka

10:35Yep. And how do you in terms of the the fund the the money you guys spend on your legal team to redline back and forth with the founder, does that usually come out around $10.20, 30 k, or how you know, for a 1,500,000 check, what does that look like on your end?

Anupam Rastogi

10:46>> Yeah. That's about right. Yeah.

Nathan Latka

10:48Okay. And do you pass

Anupam Rastogi

10:49>> it to know, yeah, $10.20 k or less range. Safe is, you know, lower. It's closer to the 10 or lower. And then equity round, if it gets more you know, it's a more complex round with other rights to be negotiated and other things that can get, you know, in this legal Tricky. Diligence and other things. Yeah. It gets trickier.

Nathan Latka

11:07Yeah. And so do and you obviously pass that ten, twenty five k cost off to the the founders of the deal closes. They cover the legal.

Anupam Rastogi

11:14>> Yeah. I'd say that's fairly typical of, yeah, venture rounds of that size. Yeah.

Nathan Latka

11:18Do you have a target percentage ownership you want with that initial check size?

Target Ownership and Valuation Discipline

Anupam Rastogi

11:23>> Yeah. We try and target 10% where we can, again, reflecting our lead investor status. So we are pretty happy to go and form our conviction and then often, you know, others where you have you know, there's quite a few folks that like to follow us and join rounds. But, yeah, I'd say our median ownership is in the 12% range. That's what we target.

Nathan Latka

11:42Okay. So, I mean, is it fair to say then if someone's looking for a valuation higher than 15,000,000, right, if you're writing 1.5 check to get the 10% post money, it'd be about 15,000,000. But if valuing themselves above that, they would not be a good fit for emergent because you can't hit your equity target.

Anupam Rastogi

11:55>> Let's say, yeah, we try and stay depending on the stage and type of company, we try and stay in that fifteen, twenty post range under that. But, yeah, we have you know, venture is a game of exceptions. So we do have we see an exceptional founder, exceptional team, exceptional company. We have gone above that in some cases. But, yeah, we do try to be, yeah, fairly disciplined.

Nathan Latka

12:13I love that statement. Adventure is a game of exceptions. Put some color on that. What are some recent exceptions you've analyzed?

Anupam Rastogi

12:21>> It's a you know, what I mean by that is, you know, in across the fund, you know, we are making, let's say, 22 to 25 investments. If we had one or two or three companies that were to exit for, you know, in the billions of dollars, that's what really creates returns for our own investors. So we are really gunning for that. Of course, not all 22 or 25 companies will get there or even close, But we

What Makes an Exception to Valuation Limits

Anupam Rastogi

12:44>> are in every company, we are looking for that ability of that company and the vision of the founder, which would get them to a potentially, you know, 500,000,000 to a billion type exit, 100,000,000 ARR. Let's put it that way. So so that's so if we see something where we see think the probability of that is higher, so let's say a typical company maybe has, you know, 5% probable likelihood of getting there and reinvesting. But if we

13:05>> see some company has more than that, so it's still low in absolute terms, but it's higher than the rest, then we're able to stretch. But I'd say, yeah, we rarely do that. We try and just come in super early. We're happy to form a conviction before others, before the deal is hard, before, you know, other people are able to hang their hat on, but before there's a lot of numbers and we're able to say vast majority

13:26>> with single digit, within valuation.

Nathan Latka

13:29Yep. And, Anupam, if you guys look at timelines. Right? So from an on average, from initial email to term sheet signed to DD done and final closing docs, what do you guys typically close in?

Timeline from Email to Close

Anupam Rastogi

13:41>> Yeah. Quite a wide range. Safe rounds, pretty clean. We can do it in as little as a few days, and we have done it. And then in some cases where there's complex you know, we have quite a few cross geography companies. So all our companies are US market focused, but we have quite a few companies that are building in places like India. We also have companies from places like, you know, Europe and, other places. But sometimes

14:04>> those require more work and more legal review, and sometimes they may require changing the structure, which the fund was any applying to do. And those could take, you know, few months to three months. I'd say median is probably three, four weeks.

Nathan Latka

14:16Yep. Three, four weeks. Okay. Very good. That's helpful. And then what about your source of capital? Single big LP pension fund endowment or no, you know, hundreds of, you know, smaller checks?

Anupam Rastogi

14:25>> Combination. So we have, you know, few institutions that are investors, which are bulk of the capitalists from those institutions. And then we have a bunch of individuals actually who are very well placed in the enterprise space. So a number of successful founders of companies that have had good exits and then senior executives at pretty much any enterprise company you can think of. So a lot of those folks have skin in the game, and they're also a

LP Base and Capital Sources

Anupam Rastogi

14:46>> very helpful source for our founder, you know, for our founder community in helping them navigate to product market fit and beyond. So, yeah, it's a combination of institutions, which is a of more recurring and long term and, you know, good support pillars for us and then individuals who bring a lot of operating expertise with them.

Nathan Latka

15:03What what are the negatives? So a founder listening right now talking to a potential, you know, seed lead, and they learn that that funds investors are either pension funds endowments or individual angel checks. What are the downsides to each of those kinds of groups from the founder's perspective, not from a fund's perspective?

Anupam Rastogi

15:20>> I would say, you know, I don't know if that has a very meaningful impact on the founder directly. The what could matter to founders is the fund being around and being prominent over time or not. So if the fund, let's say, makes you know, invests in your company and then it just shuts down six months later or something like that, that's probably the worst case scenario, or one of the bad case scenarios, which so I'd say

15:47>> as long as, yeah, there's you know What

Nathan Latka

15:50can a founder ask to try and deduce that from a VC fund? Obviously, VC fund is not gonna say, we're shutting down in six months. So how can a founder can try and, like, ask questions around that to get a sense?

What Founders Should Ask a VC

Anupam Rastogi

15:59>> Yeah. I think this is the same question that you asked. I think that's yeah. Some founders ask us, and I think that's a good question to ask. Who are your, you know, LPs and how do you see the future of the firm and things like that? I think that's probably relevant and a good question to ask and understand. And also, think founders often, you know, when we invest often also speak with other founders that we are

16:20>> investors in, for example. So I encourage founders to do that with, you know, any fund they're looking to work with, just reach out to your networks to other founders that the firm has invested in and what time, you know, those existing founders would probably have a sense as well of how the firm is doing and which way they're headed and how helpful they are.

Nathan Latka

16:35Last question before we wrap up. There's a lot of nondilutive players coming on in the space like Founderpath. We share a couple founders together, which we're enjoying supporting. But how does a VC like you view a nondilutive, you know, capital partner that might already be on the balance sheet like Founderpath?

Nondilutive Capital and When VC Makes Sense

Anupam Rastogi

16:50>> I think that's great. You know, to and it depends obviously on the specific platform, but the more nine nondilutive funding that a company can get, I think that can be a good source as long as the founders understand the you know, in case it's a loan or something, you know, what's what's the payback period and is the company gonna be profitable or have resources enough to pay back at that time. But outside of that, it makes

17:14>> a, you know, a ton of sense. And also, I'd say, you know, venture capital is not for everyone. I'd say, in fact, for a very small percentage of founders and companies. I'd say a lot of SaaS can be built without venture capital and should be built without venture capital. So someone could build a, you know, $30.50, $100,000,000 worth company and own maybe 90% of it between the Founder Group or more. And all power to them. I'd

17:37>> say venture capital only makes sense for a small set. And for that set, also, you know, non dilutive funding between rounds or after a round can really help enhance what they can do with the capital that they've raised in the form of equity.

Nathan Latka

17:48Anupam, on that note, let's wrap up here with the famous five, rapid fire. Number one, favorite book.

Anupam Rastogi

17:54>> I'd say if I had to pick one, I'd say Zero to One by Peter Thiel.

Nathan Latka

18:00Number two, is there a CEO you're following or studying? Can't be a portfolio company.

Anupam Rastogi

18:07>> I'd say

18:11>> I'd say, yes. Mark Penioff, you know, Salesforce has done really well through all kinds of different times. And I including recent time where they've managed to really reflect with the times and, you know, they've really we've done a lot of acquisitions really well. And, you know, when it's about growth, they've been growing. And then once we have efficiency, they've really moved the needle very fast on that.

Famous Five Rapid Fire

Nathan Latka

18:30Number three, what's your favorite online tool for, you know, let's say, analyzing software companies? Do you guys use any online tools?

Anupam Rastogi

18:38>> I'd say it has to be ChatGPD right now. I think any sector, news sector or understanding of course, the information on it is outdated, but there's a lot of other elements out there now. But that's a really useful tool to get started on researching something.

Nathan Latka

18:52Number four, how many hours of sleep

18:54do get every night?

Anupam Rastogi

18:56>> I try and aim for six and a half to seven, at least.

Nathan Latka

18:59Alright. That's good in situation. Married, single kids?

Anupam Rastogi

19:03>> Married. I have a, you know, daughter in middle school.

Nathan Latka

19:06That's great. And how old are you?

Anupam Rastogi

19:08>> I am in my, you know, early forties.

Nathan Latka

19:11Early forties. Great. Last question. Something you wish you knew when you were 20.

Anupam Rastogi

19:16>> You know, the I'd say taking good notes. It's a boring one, but it's really useful. But, you know, now there's very little that you remember from that time. But, yeah, if you're taking good notes, I think you can compound faster. So that's something I started doing maybe in my thirties. But if I started in my twenties, maybe I would have, yeah, you know, been able to learn things I learned in ten years and five.

Advice: Take Good Notes

Nathan Latka

19:39Guys, emergent ventures AI focused most recent fund, $76,000,000 fund closed in January 2021. They've made about fourteen, fifteen investments out of that already, target a 1,500,000 check size and a 10% equity stake and usually hold 3 to 5,000,000 in that fund for their winners that are really taking off in terms of the reserve. Got two partners today looking to scale, really focused on again, those AI machine learning startups as they look to deploy money in a

20:02smart capital efficient way. Anupam, thanks for taking us to the top.

Anupam Rastogi

20:06>> Thank you, Nathan.

Nathan Latka

20:07One more thing before you go. We have a brand new show every Thursday at 1PM central. It's called Shark Tank for SaaS. We call it deal or bust. One founder comes on, three hungry buyers, they try and do a deal live and the founder shares back end dashboards, their expenses, their revenue, ARPU, CAC, LTV, you name it, they share it and the buyers try and make a deal live. It is fun to watch every Thursday one

20:32p. M. Central. Additionally, remember these recorded founder interviews go live. We release them here on YouTube every day at two p. M. Central. To make sure you don't miss any of that, make sure you click the subscribe button below here on YouTube, the big red button and then click the little bell notification to make sure you get notifications when we do go live. I wouldn't want you to miss breaking news in the SaaS world, whether it's

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21:15are saying. Sign up for that at nathanlatka.com/slack. In the meantime, I'm hanging out with you here on YouTube. I'll be in the comments for the next thirty minutes. Feel free to let me know what you thought about this episode and if you enjoyed it, click the thumbs up. We get a lot of haters that are mad at how aggressive I am on these shows, but I do it so that we can all learn. We have to

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