Conductive Ventures has raised a $200 million Fund III to continue to focus on investing in founders where other venture capital firms haven’t seen the potential.
You may remember our profile of the company in 2018 when it was officially launched with a $100 million venture fund. Carey Lai and Paul Yeh started the company in 2017 after Lai had been with IVP and Yeh with Kleiner Perkins.
Today, Conductive has 24 portfolio companies and prides itself that more than 50% of them are located outside the Bay Area and that two-thirds of the founders are immigrants or minorities.
From the outset, they wanted to let the founders know that they didn’t fit into the typical “Sand Hill Road model” of venture capital firms and were eager to invest in entrepreneurs who were initially unable to get financing. Therefore, these entrepreneurs were forced to be capital efficient because for some reason they didn’t have the networks or access. These turn out to be companies that have “real revenue,” Lai said.
Yeh, who came from Taiwan when he was a kid, says many of the entrepreneurs they see, who are minorities and immigrants, “are so sloppy.”
“They don’t blindly chase growth; they’re figuring out the best way to conduct A/B testing and don’t get any money until they’ve worked it out,” he added. “These entrepreneurs are not viewed by traditional companies. Often times they are just passed by with a very cursory glance as we see a lot of possibilities and potential because we understand it’s more about the crowds and how much it took them to get there. We can see how much effort they put in, as opposed to beautiful PowerPoint decks and polished stories.”
The company’s third fund will invest at the Series A and B levels and is a particularly special fund for Lai and Yeh, with Lai noting that they didn’t want to be “a fund miracle”, and as long as you don’t screw up, companies can generally raise a second fund. However, the third fund will not be established until the first fund was successful.
Of the first two funds, Conductive saw seven exits, including three IPOs from Desktop Metal, Proterra and Sprinklr, one point split with Rally and three M&A events with Oculii, Dor and TravelBank.
With all of this, Lai said the company could return a “significant amount” to its limited partners in the fourth quarter of 2021. Coincidentally, they thought it would be a good time to ask the LPs to sign up for a new fund.
Lai and Yeh expect to invest in between 15 and 20 Fund III companies and write checks, averaging between $5 million and $10 million, some of which are set aside for follow-up.
“One of the great things is that we can really look at the field we want and then decide when to swing,” said Lai. “We don’t have to swing at every pitch. I think that’s one of the biggest benefits of not raising a fund too big. Second, the types of companies we reinvest in are usually not as attractive to ‘Sand Hill Road firms’ because they are homegrown. In many ways we are playing a different game.”
Indeed, a few of Conductive’s entrepreneurs were eager to discuss what it meant to them to have the company in their main draw.
Thompson Aderinkomi, co-founder and CEO of Nice Healthcare, told me he previously worked at a healthcare technology company, worked on it for four years, and was kicked out of the company by the investors after a Series A round, which is a rather bitter taste in his mouth when it came to VCs. Then he met Lai.
“His approach was so different from the one I threw in 2012, Aderinkomi said. “Despite the fact that my industry isn’t an industry they focus heavily on, they focused on business fundamentals, and as someone with a financial background, it was refreshing to talk to them about numbers and logic.”
Aderinkomi also liked Conductive’s global approach and the fact that he could easily interact with them as a founder who came to the United States from Nigeria – “I stand out in a room full of founders,” he added.
Duke Chung, co-founder of TravelBank, said that if he started a third venture, he would definitely get it again for Lai and Yeh. The company signed a term sheet with Conductive to lead its Series C in 2020. Chung recalls that the due diligence period was at the beginning of the pandemic and that TravelBank’s operations “had slowed down significantly”.
“A lot of VCs would have walked away from our term sheet, but Conductive called me and said we’re always behind our founders in ‘good times or bad’,” he added. “They did just that to continue to support our deal as agreed, and our round was closed during the pandemic. I will always remember that about Conductive and who they are.”
US Bank then acquired TravelBank in December 2021. Chung added, “Being by our side all the time, it really inspired me and my co-founders to work hard and run our business accordingly to find our way forward, despite the headwinds of travel. People tell me: ‘Let me make this clear, you are a business travel provider and you were taken over during the pandemic?’”
Meanwhile, Steven Jiang, co-founder and CEO of hireEZ, told me that Lai, Yeh and the team were available anytime, anywhere, and even during the due diligence process, finding ways for the company to save money.
“Carey and Paul respect and trust entrepreneurs based on their business achievements rather than their connections in the VC world or their storytelling opportunities,” Jiang added. “I am an immigrant and engineer founder. It was a challenge for me to get pre-built connections and confidence with VCs. Carey found it shocking that he had never heard of us when our ARR was in the tens of millions growing over 170% year over year. Carey understood and appreciated how we did business. He made a decision so quickly while other VCs were still wondering ‘who is that guy.’”