Can you tell us a little bit about your career paths and how you got to this point?
Kelly: Joanna and I are both long-time operators turned investors. We’ve been in the trenches, made the tough decisions, and learned from our mistakes, both at early stage startups and one of the fastest-growing companies of our generation, Facebook. Personally, I have more than 20 years of experience working with high-growth tech companies. That includes building and leading go-to-market teams at AltaVista, Overture, and Yahoo before joining Facebook, where I built and scaled the North American Mid-Market channel to over $1 billion in revenue and led product marketing globally for ads and commerce.
And what about you, Joanna?
Joanna: I was one of the first 100 employees at Facebook and spent nine years building teams there in areas like content moderation, site integrity, and user insights. I also started Facebook’s first office in India and worked on the company’s first ecommerce effort as well as its growth strategies, stealth mobile projects, and top partnerships. After that I went on to work in COO roles at series C and series B companies.
It sounds like you both have a lot of experience working as technology leaders and operators. What led you to venture capital and to found f7?
Kelly: At different points in our careers we both had the opportunity to work as entrepreneurs in residence at venture capital firms. Through those experiences we identified two important gaps in the industry. The first was a lack of in-depth operational expertise and intuition, which is so important for helping founders scale their businesses. The second was a lack of diversity within the ecosystem, both in terms of who’s writing the checks and the founding teams those checks are going to. We saw an opportunity to help fill those gaps, so in 2018 we teamed up with five other female operators to found f7.
How did your experiences as EIRs help to shape your fund?
Joanna: A lot of it comes down to this idea of operationally derived intuition that Kelly mentioned. Every investor reviews decks from their portfolio companies. One of our big differentiators is that we don’t just review those decks, we’ve built them ourselves and prepped for those board meetings throughout our careers. More importantly, between the seven of us, we’ve built and run all of the different parts of the business that typically inform those decks & meetings. We understand firsthand what goes on in the businesses we invest in, which means we not only have a lot of empathy for founders, but we also speak the same language they do.
Our operational expertise also influences the criteria we use to pick the companies we invest in. Any company we back has to be led by a founder who is among the top one percent in the world in terms of whatever they do. They also have to have lived and breathed the problem they’re solving for customers firsthand and have created a solution so compelling that their customers would be disappointed if it were no longer available. Lastly, we look for companies that are solving big problems in unique markets and that are strong enough to adapt as the world pivots and changes.
Kelly: I’d also add that we spend a lot of time as a team trying to translate our experience into true founder value. That has included building a variety of programs and networks to make the team’s collective expertise more accessible to founders across virtually every functional area of a business. For example, we have a network of 18 C-level executives who are investors in the fund and provide coaching and functional support to our founders. We’ve also built an operator network of technicians — recruiters, designers, and engineers, among others — who can help founders move faster so that they can spend more time doing what they do best.
Plus, remember that a team of seven women founded f7. That creates a lot of network diversity and has meant that our deal flow looks a lot different than most other VCs. Sixty percent of our deal flow includes an underrepresented founder, as do 70 percent of the investments we make and 83 percent of our Series A mark ups.
What’s f7’s investment thesis and where do you typically invest?
Kelly: We’re pre-seed and seed investors and believe that periods of rapid behavioral change spur innovation, which is something we both experienced at Facebook with the rise of mobile. Our view is that we’re in another one of those periods right now as a result of the pandemic, unprecedented inflation, threats to our planet, demographic shifts, and more. We’re investing in where we’re seeing the biggest changes in behavior, which we’ve bucketed into three areas that we refer to as the future of work, access to care, and connected communities.
Joanna: Not only are these the areas where we’re seeing the biggest change in behavior coming out of Covid, they’re also important to us and where we thought we could add the most value. As we thought about where to invest, we were interested in the idea of human operations — things that can make people become better, more efficient, and more productive. People need economic opportunity, for example, which aligns with the future of work. They need to be cared for, particularly their mental and physical health. And they need the infrastructure around them to be able to focus on their work, which is where connected communities come in.
Can you tell us about some of your recent investments to help us better understand each of these focus areas?
Kelly: Sure. One that comes to mind for the future of work is a company called Forage, a fintech that’s building the Stripe of EBT or food stamp transactions. We love that they’re building a solution that benefits a large and growing market of often overlooked and underrepresented individuals who are trying to feed their families. We were one of the very first checks into the company and they have since gone on to raise a $100 million Series A.
Another great example of the future of work is a company called WorkWhile that’s tapped into the rise of the gig economy and employers’ growing need for an on-demand hourly workforce. WorkWhile has created a marketplace that brings those two groups of stakeholders together. Here again we were early investors and they have recently raised a $65 million Series A led by Reach Capital and Khosla Ventures.
In terms of healthcare, we saw two trends happening throughout the pandemic: the de-stigmatization of mental health and the rise of new, more relaxed regulations around Telehealth. Those trends led us to recently invest in a company called Diall that’s trying to meet students and Gen Z where they are early on in their mental health journey by providing them with online resources and support.
The last company I’d mention is one where both connected communities and the future of work overlap. HUSSLUP is a talent marketplace for the entertainment community. It helps media and entertainment companies find diverse and often previously undiscovered talent. In doing so, HUSSLUP democratizes access to roles and opportunities while building up an amazing community of creatives around the world.
Has the current macroeconomic environment affected your strategy and the way that you and other VCs invest?
Joanna: No, it hasn’t affected our strategy and we continue to invest at pace. We know that great companies are born out of challenging markets like this because they need to be scrappy to succeed and because people have more needs that they can address. From our perspective, we think it’s a very good time for pre-seed and seed investors like us. Not only are great companies being born, we’re confident that by the time our portfolio companies mature, the economy will be in a very different place.
Although we’re definitely seeing a slow down in valuation hype, we’ve been pretty disciplined on that front so that hasn’t impacted us too much. But we are seeing rounds take a bit longer. And companies that just raised a successful pre-seed or seed round want to raise again to extend their runway to 36 months so that they have more time to hit their milestones. We’re also seeing a lot of companies that raised at really high valuations last year open up new rounds this year at that same valuation to try to buy more runway. And we’re seeing Series A benchmarks go up. If a million in annual recurring revenue was the threshold last year, it’s $2-$3 million this year. There’s just a lot more scrutiny from investors which is why things are taking longer.
A female-led VC firm is rare. From your perspective, what challenges do women face as investors and entrepreneurs in industries that are predominantly led by men? Are we making progress on that front?
Kelly: Just four percent of VC firms are led by women and only two percent of VC funding goes to female founders. Even less goes to other underrepresented individuals. That’s pretty astounding when you consider this is an industry that values lived experiences and big markets.
Unfortunately, venture capital loves pattern matching, and the pattern over the past few decades has been predominantly male and white. We’re working to change the founder and funder archetype. And while we’re thankful to be in a position to do so, the truth is that we’ve got a long way to go. One of our biggest fears in a market like this is that while we and other founders and investors have been making progress on the diversity front, the pendulum could easily swing back. If times are tough, people might revert back to what they perceive as safe archetypes, thus erasing the progress we’ve been making.
So we feel a lot of responsibility to outperform. We want to generate top decile returns to show that diversity isn’t a gimmick or just a nice-to-have, but rather a true performance advantage. The good news is that the data we have already supports that.
What advice would you offer other investors and entrepreneurs?
Joanna: Just to try everything for yourself and not be afraid to do something different if you really have conviction. That’s how you get to diversity in thought, leadership, and people that we should all be striving for.