TOTAL RUNTIME: 35:33
Trae Nickelson: Hi there, welcome back to starting Up & Right, Conversations With A Startup CFO. I am your co-host Trae Nickelson and joining me to my right on your screen is Ryan Keating. Ryan, how are you?
Ryan Keating: Good Trae, good to see you, good to be back.
Trae: Good to see you again. Well, this is going to be a fun episode. The special guest today is a friend of both of ours, Mr. Deepak Gupta. You've worked with Deepak on and off for several years, I've known Deepak for several years. If you don't mind, just tee up Deepak with your experience with him and we'll bring him on screen to introduce himself in just a second.
Ryan: I'm excited to have Deepak today. As you mentioned, we go back 10 years or more. I originally met Deepak where he was an investor in a client that I was a CFO for and we just hit it off and then, we actually did a lot of work together. Deepak was one of our consulting CFOs for a good amount of time while he was building his role at Berkeley and Haas. He's now that general partner and managing partner for the Blue Bear Venture fund which is really exciting. I'm excited to have him on today.
Trae: Great. Well with that, let's bring Deepak on screen. Hey, Deepak - welcome to the show, man. Thanks for joining, good to see you.
Deepak Gupta: Thank you. Thank you, Trae, thank you, Ryan. Happy to be on. My name is Deepak Gupta. I'll just do a quick intro again. I'm a general partner at Blue Bear Ventures. We've been around since 2017. We've invested in about 20 deep tech companies coming from the university ecosystem. As Ryan said, Ryan and I go back a while. Actually, I was a consulting CFO for Ryan for many, many years and as well as worked with Ryan at Berkeley Haas still helping a couple of my classes at Berkeley, so that was pretty good.
Ryan: That was fun.
Trae: Yes, perfect. I remember that. I remember you gave Ryan rave reviews for the class so I guess he did okay. [chuckles]
Ryan: You were the one who gave me the review nice, thank you.
Trae: Well, Deepak one of the reasons I think it's going to be really interesting for the audience to hear from you today is just your path through starting on finance and then going into deep, deep startup financing, interim CFO, and working with models and helping with fundraising. Even helping early startups piece together their early accounting and finance and board packages, all the way to your experience then with helping students, your entrepreneurial students, and MBA students at Berkeley Haas school and now, all the way to Blue Bear Ventures where you find yourself not only funding startups but fundraising again, for your own fund.
I think your perspective is going to be very interesting here so we're excited to get started.
Deepak: Absolutely and I appreciate that. It's been quite a journey in that sense that we started back-- I can talk about Blue Bear but coming back to myself, I think the late '90s when I actually joined a startup. My background was engineering, so I started in R&D and then moved into manufacturing and then realized I was doing sales. I did sales as well as business development. I did startup for about 10 years, different startup for different startups, as well as worked at a big Fortune 100 Company for a short time.
After that, I went to business school and I think when it came to finance, post business school, I worked for a venture fund called Hercules Capital, where we did a lot of debt and equity lending. I did a lot of stuff in finance in terms of balance sheeting income statements. I remember initially getting companies and rebuilding everything from scratch, their balance sheet, their income statement, their cash flow, and I probably have done it for at least a thousand companies at Hercules.
Ryan can probably relate, your bread and butter comes in building models and really understanding models before you become a CFO. I think it was really a stomping ground for me to understand how models are made and understand what cash is going and when debt crosses cash through, what happens? It was a really good learning curve for me. From there, I actually started a bank, which was BBVA Ventures, in 2011, 2012. I was with BBVA for two years. I did a lot of investing in Big Data, as well as other kind of companies, but we were actually helped here at 500 Startups. That relationship I kind of took over at 500 Startups and started really working with CTH companies. I did that for about two years, and then slowly, I was helping Alchemist and a couple of other accelerators.
Next thing I know, I had an offer from two guys from Blackrock to say, "Why don't you leave BBVA and start your own venture fund?" I couldn't skip that opportunity, so joined them trying to raise a venture fund. Long story short, that didn't go that well, and next thing I know, I started consulting with Ryan in terms of doing some work as a CFO. Then, I also joined Berkeley Haas, which was a recommendation from somebody at 500 Startups that you know, "Deepak should be helping out both the venture experience and startup experience."
That's basically how I got into Berkeley Haas and the next thing I know, we are connected at CITRIS Foundry, which is one of the accelerators at Berkeley, and that brought me to Blue Bear Ventures. I could stop right there.
Trae: One of the things I've admired about both of you guys is your willingness to lend your time to students and young startup founders and guide them. That's part of just something it seems like you guys enjoy doing. Ryan, maybe you go first. What is it about helping young startup founders that gets you excited? Why do you do that?
Ryan: I enjoy it. I mean, I feel good being able to get in and mentor and help students. Anyhow, quite honestly, when I started out in this industry, very similar to Deepak, it was late '90s where I really started working with startups. It's really an accumulation of just things that I've seen and situations I've been able to participate in. I love being able to maybe share some of my lessons with people to help them perhaps avoid some of the mistakes or capitalize on some of the opportunities, and if I can simply regurgitate what I have learned and it's helpful to somebody else, I'm happy to do that all the time, I mean, especially, the students.
The reason I really focus my company around startups specifically is I love working with the passion of the entrepreneur and you see that and to be able to have a 30-minute conversation with a young entrepreneur and really see that you're adding value, that's something I really enjoy. Like Deepak has been able to bring me into his class in Haas, that was something I really like and even kept in touch with some of the students.
They would reach out to me directly and ask me for some input, advice, and I've just always enjoyed that. I figured I've been fortunate to create the situations or be in the situations that I have been and if I can share some of those lessons, it's something that I'm always happy to do.
Trae 2: Deepak, how about you? You've levitated or gravitated toward helping the students and especially your role there at Haas and Berkeley.
Deepak: Yes, in the past six years or seven years now, I've probably seen everything through the students, in terms of their approach, in terms of [unintelligible 00:08:36] startup, startup company, join a start-up, all the numbers and [unintelligible 00:08:41]--
Trae: They're so cute at that age, right?
Deepak: Yes, exactly. They want to see and come to the world, right?
Deepak: It's great to understand and I think, for me, that euphoria at that age is incredible, because some of these students do succeed and they do get a company off the ground as they raise seed, they get a series A. To see that process and to go through it, and to Ryan's point, to be able to say, "Oh, I remember someone a couple of years ago who went through this and this is what they did." Again, we're not getting anything out of it other than just sending the information, "This is the process we need to carry through to get it to a certain stage," that has been incredible gratitude to me personally because I feel like I'm actually giving back to the community.
Trae: Yes, very cool. I've got to think that's going to be they're young, they're ready, they're energetic, they're going to change the world, they got this idea, but they're probably a little bit intimidated about what they don't know and for you guys to, at least, lay out a path, guide them occasionally, that's going to be rewarding. Let's dig in a little deeper then, Deepak, at what's going on at Haas and the entrepreneurship MBA program there? How did they put you and you mentioned that with 500 Startups introduction. What'd you see over there? How did you become embedded there and become a central piece of that program?
Deepak: Back in 2014, actually, the funding came from one of the alumni's for me in terms of they wanted to see somebody who's their on-site mentor. All these accelerators have mentored. Using the same analogy, they wanted to see somebody who's physically there whenever students need something. It's not teaching a class or anything, it's more about one-on-one and any problem from not just fundraising or pitch deck but even talk about co-founder issues or issues dealing with trying to find accounting firms, trying to find anything, so they wanted someone physically be available.
The way they tracked me for the first six, seven months was every time I saw someone, they actually reviewed me and reviewed what kind of performance I was giving back because the alumni wanted some metrics. I probably had and I'm making this number up but I probably even met 100 students, 150 students in the first six months. All of them, not even one, gave me a negative review. It was five out of five. Not even that, some of them said my MBA is worth it because of Deepak.
That was small recomm-- The dean, actually was like, "Holy X, we should get someone like Deepak to be here all the time because that's the value that Deepak can provide to our students." I can show you reviews for the past five years. I might have one-four but majority are five. For me, that personally builds a brand and my reputation but trust as well because every time I see a student, I'm in that stage, "Oh, I need to perform or over-perform to make sure I keep my reputation."
Trae: I've seen that in you. I've seen you dig in and dig in deep. I remember well, you have astonishing memory for details and never forget somebody's story. I've seen that.
Ryan: The engineering and finance combination is brutal. It's so valuable, [chuckles] it turned out to be [unintelligible 00:12:30] you have that.
Trae: I remember way, way back when I was at school back in Texas. I did some time at Texas A&M and University of Texas. Those are especially Texas A&M, very research-heavy universities and you've got huge research going on in the department-
Deepak: [unintelligible 00:12:45]. Yes.
Trae: -and, yes. Back then though, they would develop programs to give grants to commercialize the research.
Trae: It always seemed the research was the big word there. Over the years, I've noticed now, all of these universities, now seem to have an entrepreneurship program. Even perhaps a funding alternative centered around that program to help them get started. It was a shift. I'm not sure when it happened, it probably evolved and here we are looking back on it, it seemed like it happened. What's your perspective on that? How are the universities over the past 20 years? That's fair enough, we don't go back further than that when I was in school.
Deepak: What we have seen at Berkeley and I can talk about MIT and other schools in Northeast as well in southern California. Entrepreneurship has changed a lot in the past 10 years. Before in the late '90s and even in the early 2000s, late 2000s, you saw students getting a master's, PhDs and then going towards research. Traditional routes. They want to be professors. They wanted to go work in academia, or they wanted to work at a big organization doing bench research, and publishing papers.
What we saw post-2008, 2009, and especially in 2010 and moving forward, is a lot of these master's and PhD students were like, "No, I don't want to go the traditional route anymore. I want to look," excuse me, "I want to look at entrepreneurship as a route to really figure out one of the ways I can really go towards that direction instead of traditional directions." I think the changes happened recently in the past 10 years. We don't just see that in Berkeley or in the UC Ecosystem but we see that nationwide. More so, you can see starting 2013, 2015, this word called deep tech. What is Deep tech? Deep tech can mean so many things in different places but basically, Deep tech is companies that are based in research and emerging technologies that are coming out of these universities. It could be in [unintelligible 00:15:07], it could be in climate, it could be in anything. It could be in wireless technology. We can talk about 5G. We can talk about so many different research-based companies that are coming out and that's coming out all over the country.
A lot of these students who are putting in the time into research, now they're looking at research, "How do I commercialize this? How do I make money from this?" That's the shift that's been happening in the past 10 years.
Trae: Yes. We had, 10 years ago like universities now, a pitch contest is pretty common. Rice has a big pitch contest. They all have their little entrepreneur and they actually have start-ups. These kids want to be start-up founders. They've got the ideas, they've got some great abilities and great ideas. It's just shifted. It's so fun to watch.
Ryan: Just to add to that, since we've been doing this, we've really seen the role of the universities shift as Deepak's saying. We've seen a few different flavors of how universities get involved. The furthest we moved, we've seen where universities will have alumni investment clubs where it's just connecting people from the university sharing deal flow. The university itself is not that involved more than arms-length affiliation.
Then we've seen universities that are actually putting their won endowment funds to work inside of investments, so looking to basically grow their endowments. A lot of times they will be slanted towards companies springing out of the universities but not necessarily. Then you have what Deepak is involved in which, to me, has been the biggest shift, where the universities have said, "Hey," and Deepak put it perfectly, the students there have seen his involvement as a mentor and as a guide, worth the price of admission especially if their goal is to launch a company.
Now you see the universities really getting engaged where they're giving these students which are creating start-ups a path from graduation to what comes next, through funding, through mentorship, through really fostering that creation of a startup. It's a big shift that's been really interesting to see. Part of this, and I wonder, [unintelligible 00:17:29] question to Deepak.
Part of where I saw the concern five, six, seven years ago, in talking with universities was they were really trying to figure out how to keep that graduating entrepreneur associated with the university or close to the university where before, what would happen is, people would graduate, want to be an entrepreneur so the first thing they would do is pack up their bags and head to the Bay area. They're basically maybe an alumni, that when they're successful, will give back but really, there wasn't a lot of continuity. There wasn't a lot of fostering from the universities to help facilitate this path.
I love what Blue Bear is doing and we are seeing this with other universities as well. Deepak, I'd love to hear is there a deliberate kind of intent to really-- Or is it opportunistic or both? Is it like, "Here's an opportunity for us to make some money on these brilliant ideas," or as you've seen, you're really giving back to the students and maybe giving them an opportunity that they wouldn’t otherwise have?
Deepak: Yes. Definitely, what you said in the latter resonates because we are giving back to the students and we're trying to figure out how that innovation happens and what's going on there because I think as all three of us know, in the past 20, 30 years and we've seen this, students really can do stuff at a certain age that we're even, "Oh, wow. That can be done," and we've seen that repeatedly.
We are actually one of the ones who are funding or seeding them, maybe not in money but in terms of the process. I think that's really important for these students to grow. While you both were just talking, I was thinking about University of Wisconsin. I just talked to their alumni office and they have an incredible endowment as well that has been pumping money in for the past five to 10 years. Exactly to your point, Ryan into entrepreneurs coming out of the University, and then, "How do I keep them local?" We can get them half a million dollars, a million, five-million-dollar checks but let's keep them local as long as possible. We realize that they would want to go to the East Coast and West coast eventually, but if we can grow that ecosystem in Wisconsin then we can say, "Okay, they're at a certain stage," and we do want to call investors and are they close, but we want them to come to Wisconsin. I think that's the messaging a lot of universities, what they're trying to do is create that eco-system to a certain stage before they have to go somewhere else.
Ryan: Makes a lot of sense, right. That those graduating students, trying to keep them in that community, it leads to start-up jobs which pulls in more investment money, which pulls in more students. I mean, it makes a lot of sense.
Trae: It's an upward spiral, yes. Good. Deepak, you guys, you kind of got Burkley at the center of Blue Bear Ventures but you've extended that to the entire UC system and your focus there?
Deepak: Yes, we are definitely looking at all five UCs we have for the past seven years and these are Northern California universities but for fun too, we have benched out because as you can see, the professors are not staying in the UC ecosystem, they have moved themselves. We're getting referrals from UT Austin, we get from the University of Chicago, we get from the northeast because these professors that were part of the UC ecosystem are moving. It's natural for us to rely on our network and reputation to get the deals, right. Absolutely, we're open to a lot of different universities.
Trae: You guys, you're always fundraising, Deepak and so, you are currently raising, working on your second fund for Blue Bear Ventures. What's the size of that? What are you guys excited about? What's your charter? What's your investment themes? Tell us a little bit more about Blue Bear Ventures and what you're up to lately.
Deepak: In terms of fundraising, there are a lot of funds, micro funds and these are sub $100 million funds out there. There are a lot of emerging managers. There's a lot of noise out there. We could talk about two different things. We could talk about fundraising in terms of LPs and what they're seeing but we could also talk about valuations. You know when [unintelligible 00:22:12]--
Trae: We'd like to do both, actually.
Deepak: Yes, emerging managers are putting money into companies and they're like, "Hey, another YC company. Let's do 10, 12 million-dollar evaluations." At the end of the day, it's all about returns, right? Back to Ryan's point, yes, we'd like to give back to universities but if we're taking somebody else's money, at the end of the day, and say, "Well, how are we getting that money back? What does that multiple look like?" For fund two, let's talk about evaluation first and then we can talk about LPs. I think we have realized that we need at least 7 to 10% ownership if not higher, maybe 11 to 15 in terms of pre-seed, and seed, we can probably get up to seven.
We can see that for Deep tech, these are going to be big reasons. You'll talk about 30, $40 million, and sometimes in series B, right, or series A could be 25 million. We want to make sure we participate at least a portion, about 25 to 30% in series A moving forward as well, and then we're just going to let not participate anymore. By the time there's MNA activity or IPO, we'd like to target 1 to 2% ownership and exit. That's how we're positioned, fund two but let's talk about evaluation because one is, how much money you want to put in your company, in ownership?
We are evaluation-sensitive in that sense because you have to realize when we're looking at the university ecosystem and we're one of the first checks in, but we are definitely co-investing. We're not the only institution tech that goes into a company but we can get really good valuation if we can get 3, 4, $5 million before they get into YC because a lot of our companies, five of the 20 have gotten in YC after the fact. If we can get the valuation and the matter of ownership right at the early stage, I think that really plays some value in the long run.
That's how we're trying to differentiate ourselves to LPs because you're like, "Okay, great. There are a lot of clones out there but guess what? We can get really good valuation. We know the companies for 12 to 18 months because we know the university, we know the labs, we understand what's going on, and then on top of that, we can actually help them, we have that relationship with the founders that if we want to participate in series A or series B, we have a seat on the table. We always have a seat."My series B company even right now said, "Hey, Deepak, how much do you want to put?" That's a open door that many investors can have.
Ryan: The access to early deal flow is key. I imagine your LPs, that really hits home with them. How many of the deals that you look at or even participate in are part of the first money-in, first price round, if you will, as opposed to joining later stages.
Deepak: All of them, Ryan. All of them have been co-investments or first check because we were a small fund, so our average [unintelligible 00:25:40] size is 150 to 200k. Having said that, we'll co-invest with some of the top-tier investors if they're raising a million, two million dollars for one of the checks, but moving forward, I think we'll continue that strategy. We'll just take more of the pie, initially.
Ryan: I have to imagine that these companies are pretty excited to have Blue Bear Ventures on their CAP table. I know when in the past, we've been able to bring in some universities into our company's small check amounts but the logo saying that they have these universities and invested is a real win for them.
Deepak: Absolutely. For us, we're more relying on the reputation than anything else, because I think the trust and reputation-- Right now, if you want, any potential LP could talk to any of our LPs or all 48 companies and references because if you're going to work with us, we want to be open book in that sense. That, how are we as LP or how are we to our LPs, but more importantly, how are we to our customers, which are the startup founders? What do they think about us, and what is that relationship, and how have we helped? That is more important to us than anything else.
Ryan: I'm curious, I know you spoke specifically about yourself and the ability to come in and mentor students especially in your role at Haas. From a Blue Bear Ventures perspective, what is the investment philosophy or the guidance that you give in terms of like all funds that we work with? It's not just money, it's money plus. What kind of guidance do you bring to your early-stage companies? Besides money, where does Blue Bear Ventures really get in and help?
Deepak: Working at CITRIS Foundry and the Incubator, we want to be the first call for any scientist CEO who's starting a company. That is our tag-on.
Trae: CITRIS, sorry, CITRIS Foundry?
Deepak: Yes, so citrisfoundry.org is a website which was the Incubator, started at UC Berkeley. That was started in 2013 and still going on if you want to look at that. Patrick, my partner, started that, left in 2018. If you look at the CITRIS Foundry, and that's coming back to the original story and how many companies we helped at the Foundry, there were about 48 companies that raised north of $250 million If you come back and-- I forgot the question.
Trae: Oh, yes, because I interrupted you, but Ryan's original question was, what do you guys provide on top of money? What's the team like, and what do you guys do when you dig in?
Deepak: We, for these scientist CEOs, we want to be the first call-in. When we get the call-in, we provide is basically a structure of how you want to run your company for the next 12 to 18 months. In terms of the board meetings, what are your milestones? What are your team looks like? We come in, and we've done this at CITRIS Foundry for many companies. How do you get a good team together to really get those mini-milestones to get your fundraising?
We help, from a title standpoint, but we also help where I come in, and personally, is from the finance standpoint. Really get into the numbers, and make sure from the accounting perspective as well as trying to build a company at a certain stage that we know how much cash there is, and what we're going to do in the next six to eight months, or 12 months, and what's the right time to go talk to certain VCs to raise the next round.
Ryan: That sounds so much like the role we play with our elite stage company [unintelligible 00:29:41].
Trae: Yes, that's what I was considering.
Ryan: Such a benefit to have funds that have this level of assistance, especially first money in, or early money before there's really much of any operations. It's mainly a couple of founders, have a great idea, have developed some sort of proof of concept, but there's really not a business there. To have support from a fund like you, that can come in and say, "Look, these are the things we need to do over the next 12 to 18 months to get ready for this next round, which hopefully is an up in value and an inflection point, so we've got to prepare for it." Then again, that's a lot of what we do with our clients. I really, really appreciate that message. I look for funds that do this, its' a real value add.
Trae: Yes, it sounds like Deepak's still doing some interim CFO work. Let me ask you this then, to lean on that--
Deepak: Old habits die hard.
Trae: Yes, I was about to get into some of those old habits. Some of your advice as an interim CFO to a young startup, and you've worked with many of those. Has the advice changed, now that you've added to your role, the "Venture Capital investor" hat? What were you right about, what were you wrong about five years ago?
Deepak: Yes. That's a great question, actually. One thing is, at that stage, at the first 18 months, when you don't expect anything, I understand we're funding them, but, in the point of really working with entrepreneurs, we're not taking board seats, we're not really controlling anything. We don't want to take board seats. They look at us as more of a trusted advisor. Some of the questions that they've asked, they definitely don't want to ask any other investors or they don't even want to ask-- Sometimes, it's co-founder issues. It's like, "Who should I talk to? Oh, let me just talk to Deepak, right? He'll be neutral about it."
That's the type of relationship that we're actually homing in on because that's what we want to be known at. We have companies that Patrick and Alec, my two partners, who have looked at 2013-2014. They got into Y Combinator in 2018, but they're still coming back to us, you know, in 2021. They're asking very basic questions. It might not be basic, but the point is, that's the relationship, even seven, eight years after the fact.
Trae: One of the benefits of not being on the board, I guess they feel safe coming to you. They clearly trust you, make sense.
Deepak: Exactly. I think that is a different relationship that, "Yes, we want them to do well," and board members do want it too. Don't get me wrong, everyone wants them to succeed, but sometimes they're just trapped. It might be two investors on board or something like that, and they don't feel comfortable bringing this topic up. It's like, "How should I do it?", or, "What are my options?" I think that kind of conversation, it's good to have early.
Trae: Yes. Blue Bear, how do you invest? What's the instrument? Is it a preferred priced round, or do you go the SAFE route or combinations?
Deepak: For the first 20 companies, majority of them have been safe, and we've been going with SAFE because when you do a first fund, you want to prove to LPs that you have access and that you have full investment. You're co-investing with top funds, and you're also getting into staff ups, or exits, or whatever you want to call it. This group of concepts for fund one is definitely there. I think, moving forward to fund two, I already addressed this in terms of ownership, but I think, we're probably going to continue some of the stuff that we did on fund one, in fund two.
Trae: Yes, good stuff. Deepak, your time as CFO, your time now, still advising startups. I bet you always will be advising startups. As we wrap up, our audience is, of course, startup founders, for the most part, what's on your mind today? What's the thing that you will be looking at? Give them some help, here.
Deepak: I think for the Keating audience, I will definitely tell them, keep track of your books and your numbers. Make sure you always keep all your receipts from day one, because it really will help you in terms of fundraising and just being diligent ready, right? We want to make sure, even from day one, when you're dating and talking to a lot of different VCs and trying to figure out who are the right VCs, or Angel Investors, you know how to present the data. I think that's really important.
Second thing is expenses. Control your expenses. Right now, you might not have a board, but it's still important to show that discipline to a potential investor, to say, "I know how to control my expenses, and I know where to put my money."
Trae: Well, thanks, Deepak. That was fine. Let's do this again, a few months out, we'll hopefully have some interesting stuff you can update us on Blue Bear, and how it's going over there.
Ryan: Your new fund, that'll be fun to hear about that, have you back on, be our first repeat guest. [chuckles]
Deepak: Yes. I would love that. Thank you Trae, thank you, Ryan. As always, please let me know how I can help. Thank you.
Trae: Nice. Thanks. Bye, guys. Thanks, Ryan.