William Leonard
Welcome back to the Atlanta Startup Podcast. I’m William Leonard, your host, and investor at Valor Ventures, leading seed-stage VC firm here in Atlanta, Georgia. And today, it’s my pleasure to welcome Maggie Kenefake, Venture Partner at Royal Street Ventures to the podcast today. Maggie, thanks for joining me.
Maggie Kenefake
Oh, William, thanks for having me. I’m super excited to be here.
William Leonard
Awesome. Well, let’s dive right in. We’d love to give our listeners an overview of Royal Street Ventures. Sure.
Maggie Kenefake
We are a firm that invests in primarily seed through series A companies. We tend to invest in B2B enterprise tech. When you look at our portfolio though, you’ll see a number of different things. We have a nice group of companies in the industrial tech space, a small group of companies in the insurance space, a little bit of FinTech, really outside of enterprise tech, we’re fairly sector agnostic. And in terms of where we’re located, we’ve got an office in Park City and in Kansas City. We’re a small firm. I like to make sure people know that we are female-led. Our two managing directors, we have one male and one female, and then there are two of us that are venture partners with the firm. It makes for a really interesting dynamic. And the other thing I would tell you is in terms of what we look for, Royal Street really likes to find experienced founders that deeply understand the problem they’re trying to solve. I would say that, while we like innovative tech and we’re all for it, we’re equally as excited about perhaps less innovative tech, but applied in a really innovative way to solve a new problem. That’s I think one of the things that distinguish us as a firm. The other thing I’d say is, one of the things that impressed me when I got to know Royal Street is when you look at our portfolio, while we don’t put a big stake in the ground and sort of and go after these things in a real, concrete way, I think you’ll see a bias towards diverse founders. And the other thing you’ll see is while we are very geographically distributed in terms of our portfolio companies, there are concentrations and you will see kind of that bias for people building companies and undercapitalized markets. For us that has historically met a lot of a heavy footprint in the Midwest, intermountain west but then you’ll also see us active in places like Atlanta, in certain places in Texas, and others throughout the country.
William Leonard
No, I think that’s a great intro to the firm and awesome to see another woman-led department. I think that’s a great trend that is really coming to light here this year, hopefully across this decade. You are located in the Midwest, Kansas City firm?
Maggie Kenefake
Yeah, I’m in our Kansas City Office.
William Leonard
Awesome. Talk to us a little bit about what you’re seeing out of the Midwest. What trends, what companies, and what cycles are you seeing out there right now?
Maggie Kenefake
I’m a Kansas City native. I grew up in Kansas City, I’ve always loved pretty much within 45 minutes of where I grew up. I’m actually okay with that. I’ve always traveled a lot for work. I’ve gotten out and about here and there. But in terms of I think it’s a really exciting time in the Midwest, I think in Kansas City, in particular, we see a lot of really important pieces coming together, I think they still stand somewhat discrete. But there are a lot of the right pieces coming and I think the next 10 years will be really interesting in Kansas City. As you draw that larger circle throughout the Midwest, I think what we’re starting to see is if you look at somewhere and we talked about this a lot like a firm because my partner’s based in Park City, and if you look at where Salt Lake was 10/15 years ago, I think the Midwest and I are saying kind of drawing a larger circle around Kansas City, is trending that way, right? We’re starting to see the velocity of our exits pick up and the size of our exits grow. I think that there are some really exciting indicators around that. In terms of themes and sectors and what’s emerging, what I gravitate towards are real businesses that you can see and touch. I think you still see investors in the Midwest sort of look for those tangible, not so much that it’s capital intensive or asset-heavy, but we want to see real problems being solved usually with technology, right? I think there are some really interesting supply chain and logistics work. There’s a large company in Kansas City called Smart Warehousing that’s doing some interesting things. Royals here were fortunate to be part of a recent exit in the Kansas City metro area of BacklotCars. That was really interesting and that was a marketplace for wholesale distribution of autos. Insurtech seems to be surfacing. You know, all across the Midwest, you’re seeing a lot of growth in the insurtech space. I think there isn’t one sort of single area that’s beginning to burst but what you see is kind of a rise of a lot of different pieces.
William Leonard
Definitely. I can echo that same sentiment being here in Atlanta. We’re seeing just a plethora of companies really rise and solidify themselves as great and growing startups here within this ecosystem. I think you’re seeing a lot of companies as well, like Google and Airbnb, and Microsoft relocate headquarters out of the West, to the Midwest, Texas to southeast. I think we’re in for a treat over this next decade or two to see what companies are really going to be built and solidify themselves.
Maggie Kenefake
I think one of the things we’ve seen too, is, especially over the last year, William, and I think that’s kind of where you’re going, is geography becomes more and more fluid. What used to be the hubs of innovation, they’re always going to be really important, but you are going to see this Steve Case has been at this for a while with the rise of the rest, but you are starting to see other geographies beginning to emerge as hotbeds of innovation, which I think it’s gonna be really interesting.
William Leonard
Yeah, definitely. Diving into a little bit more about you, Maggie, you went to the University of Kansas and you studied psychology. How did you end up in venture capital? What’s that path been like?
Maggie Kenefake
I led a program that Royal Street brought to Kansas City five or six years ago called the Kansas City University Ventures Fund. I have a group of 20 students and it’s interesting. We talk a lot about different paths to venture. Mine was not as linear as some, in fact, I hope that people who want to be in this space find more linear paths, although I don’t think life is ever linear. I think it always has some curves and some serendipity to it. I went to KU. I will tell you that I started as a pre-med major, and switched to econ, found that I had to hurry up and get done in four, so I ended up with a general Liberal Arts degree, and it’s been great. A couple of years out of school, I landed at the Kauffman Foundation. Interestingly enough, this goes back into where I first heard about VC, I started on a Thursday, and on Tuesday, got on an airplane and flew to San Francisco, walked into a hotel ballroom where there were about 25-28 contemporaries. People that were my age in the room, listening to two guys in chairs at the front of the room, tell the story of what was, at the time, one of the most significant exits of the decade, and it was the Hotmail exit. And this, unfortunately, also tells you how old I am. This was really definitely before there was Yahoo, before Gmail, and really the only email exchanges to speak of that time were aol.com and Hotmail. What I didn’t understand was that the two people at the front of the room were actually both famous and infamous VCs, Tim Draper and Steve Jurvetson. The people they were talking to were a group of individuals called Kauffman Fellows. The first four years I worked at the foundation, I worked on the Kauffman Fellows Program, and got to know many of the fellows very well, sat through many learning modules where we had kind of industry leaders come in and speak. Early on, I would say I was actually enchanted and enamored, having gone full circle. I really like the world of VC. I love getting to work with founders and learn about companies, innovations, and help founders drive their businesses forward to success. That part hasn’t diminished at all. The venture has it, like any other industry, has both good sides and bad sides. I would say I’m less enchanted and enamored with venture, but I absolutely love what I do. Anyway, that was a kind of a formative piece. I think like many people, that’s where I first heard the word venture capital, and I came back to Kansas City after that very first trip. I was so excited about what I was going to be working on and what I was going to be doing. I was telling people I was working on this postgraduate fellowship in venture capital, and no one in Kansas City knew what venture capital was. No one I was related to ever heard the word venture capital. Over the next four years, as I really dove and then thought this is actually where I want to spend my time. I’d like to see my career go in this direction. What I came to learn is there were two real general paths. One was, you were kind of an exited founder. The second was, it appeared to me, at the time anyway, that you appeared to go to really fantastic schools and have the right kind of academic pedigree, but then, you had to have two things; either you were a deep specialist with a well recognized top tier MBA, think Ph.D. in nuclear physics with a Wharton MBA or something very substantive that made you deeply specialized and invaluable to certain kinds of firms, or you were a generalist that had some sort of general undergraduate/practice in business or a finance degree. You went to New York, you did your investment banking stint for a few years, went back and got a notable MBA, and then you were desirable, then you went into private equity or venture. Those to me seemed to be the most common paths at the time. When I looked around Kansas City, there was no venture. I was at a certain stage in my life where I wasn’t really going to be moving and so I decided, “Okay, I’m going to continue to work to support companies on the ecosystem.” Thank goodness there’s an organization like the Kauffman Foundation in my backyard. I can do all kinds of fantastic work at the national level so I continued to do that. I got my MBA while I was there. Fast forward a couple of years, I ended up being fortunate enough to get to lay the Women’s Entrepreneurship Strategy for Kauffman for a few years. Another piece that I think was formative that gave me that really deep passion, I guess is the best way to put it, for female founders, but also underrepresented founders of all kinds, and understanding how little adventure flows that direction. It’s really interesting, the years I worked on that was 2004-2007, the needle really hasn’t moved much yet, but I think we’re all talking about it a lot. We’re finally seeing the right kind of critical mass in terms of attention, and people in the right positions to really make change happen. I’m excited about that, too. Those were kind of my early experiences. There were a lot of detours along the way. I spent some time working for a venture-backed IT firm called RelayHealth. It was a bay area healthcare IT firm. I went to work out there and loved that experience. They were acquired by McKesson, and I was there for three or four years, and I learned a lot. I think what I learned most there was really the importance of the customer, listening to the customer, and understanding what the customer needs are. There was that experience, and then ended up kind of finding my way to venture a few years later. It was a very, very serendipitous path.
William Leonard
I think I want to unpack your experience a little bit with RelayHealth. Talk to us about how you were able to form your perspectives on the customer a little bit. What were you doing day in and day out that allowed you to really develop a sense of empathy for the customer and really truly understand being a value add to them?
Maggie Kenefake
Relay was pretty big. By the time I got there, we were over a hundred employees. We were growing really, really fast. Relay was a cloud-based EHR solution. We were constantly launching new workflows, if you will, for new areas of a health system. We sell to health systems primarily, and like anything in the tech world, once you’re in the market, the ship really has to go from being on getting that first product to market and make it really good so it launches well. To hear what the customer needs, what’s working, and not working for the customer. Our customers were major health systems and I was in a client-facing role. I was in kind of a hybrid role that straddled account management and project management. I worked with one of their largest clients, who happened to be based in my hometown, in Kansas City. And through that work, I just really understood. I got really close to the customer and really understood what they were trying to do, how they were trying to do it, how our product was helping and could help, but also where the gaps were, and where it was actually, in some places, hindering adoption, and hindering the ability to taking more time by making them actually less sufficient. I just think it’s really important to understand, the market always has the answers. You have to build with what the customer needs first. I spent three years in that role, I took on a number of different clients, always large health systems all over the country, and that you can’t get away from knowing your customer. You have to understand their needs and what you’re doing, or you’re going to miss the mark.
William Leonard
I think that’s a great insight. This is an interesting path here, right out of undergrad, you went to work at the Kauffman Foundation for a few years. You spent a stint with RelayHealth for about three or four years there, and now you’re a Venture Partner at Royal Street Ventures. Can you talk to us about how you got from really helped to where you are now?
Maggie Kenefake
I think that’s another one of those lifelong lessons is that I’ve been really fortunate to work with fantastic people my entire career. Early on when I was at the Kauffman Foundation, working on the Kauffman Fellows Program, I had a wonderful mentor. She was the woman that started the Kauffman Fellows Program. Her name is Trish Costello and she and I had always stayed in touch over the course of my career. I spent so much time in the bay area that we were spending more time than we had in probably a decade together because I was seeing her frequently on my trips out there. I think we both always wanted to work again. It was really fantastic to get to come back as a fully formed, grown-up with some life experience underneath me. She was building a very interesting firm that is really a community of micro funds that work to engage high net worth women in venture investing. Something there to kind of dive into a little bit, Trish also held a passion for female founders. Even when we overlapped at Kauffman, the data still shows that access to capital is one of the biggest barriers for female entrepreneurs and founders and all underrepresented founders. What’s interesting though, when you look at the gender issue, for the first time in written history, women control a significant portion of the wealth in this country, and yet of those high net worth women who meet that accredited investor threshold, less than one and a half percent have ever written a check to a startup and yet were incredible consumers and philanthropists. And so this was really about saying, “Wow, if access to capital is the biggest issue for underrepresented founders, and women control a considerable amount of the wealth, the half and half or better of the wealth in this country, why don’t we start to create some intersections there? And so Portfolia was the name of the firm. It was created with that theme in mind and I came in early on in Portfolia’s lifecycle and had the privilege to help push and build work side by side with her to build the first three funds and write the investment thesis for the fourth. That was just a great experience, and that really pulled me back into the venture. From there while I was doing that work and traveling out to the Bay Area frequently again, I became reimmersed in the Kansas City ecosystem. So much has changed in 10 years in the Kansas City ecosystem. When I left Kauffman, there were no venture firms here, there are I don’t know, six or seven, a half dozen or better venture firms here. They’re all early, they’re all on fund 2, fewer on fund three, but it’s just a really different landscape that the kinds of companies being built here, the kinds of services provided to those companies here have really evolved a great deal from where they were 10 years ago. It was a really exciting time to kind of get reengaged with the community and through some of those conversations that led me to have the opportunity to build a fund that was controlled by a venture development organization in town that I’d known for 20 years. They had a federal grant to build an evergreen fund that would serve a particular gap in the Kansas City ecosystem for funding for entrepreneurs kind of at the pre-seed and seed level. That kind of pulled me back to focus on Kansas City. While I was doing that work, and becoming re-engaged, getting re-acclimated and engaged in the community, I got to know better the team at Royal Street who I really admired and respected for the kind of work and the kind of investments they were doing. They actually have this great student program. I was having conversations with them about having their students help me with my locally-focused fund. Through that work, conversations unfold like they often do, and I moved over and joined their team and got really engaged with their student program, too. It’s really been a great fit. It’s just really interesting. A lot of that if there are any takeaways from there, I think it’s a lot of that is about cultivating a strong network, holding fast to the relationships that matter. You do it for all the right reasons and then there are benefits, and all the ways you hope there will be.
William Leonard
I think that’s an interesting point you just made about networking. For a lot of our listeners, maybe some of them are looking to break into venture capital. What advice surrounding networking would you provide somebody who is like yourself, at one point, fresh out of undergrad, maybe a little hesitant on what you wanted to do but venture capital came on your horizon a little bit, how would you recommend networking your way into the industry?
Maggie Kenefake
I think it’s a much more open industry now than it was 15/20 years ago. It looks as different and more diverse today, as it’s ever looked, which I think is really exciting. There are so many firms, I think I heard something like there are 1300 seed-stage firms now in the US where if you look even like five years ago, there was something like 33 or 45 or a much lower number. But VC firms are everywhere and so the opportunity to engage if you’re a student, or you’re coming out of school, just finding ways to get really engaged in your ecosystem and figure out where investors are. Perhaps there’s an angel group that would love somebody to come in and do some work for them. It lets you begin to get to know some of the individual investors in your community and a lot of those individual angels are probably also individual LPs and firms, or I think it’s about looking under rocks to figure out where they are. Engage in your local ecosystem. In Kansas City, we have a couple of business, media organizations that are constantly promoting and talking about the startups in the region. I think you have to figure out where those are in your region and start reading them, or if you’re moving to a different region, start reading those now for the region that you’re moving to just to get acclimated with who the players are and who the founders are, talk to the founders who invested in them, right? Who’s on their cap table? Those are some of the ways to just begin. It’s sort of like a ball of yarn, right? You just have to find that thread and just kind of keep pulling.
William Leonard
That’s a great insight. Similar to how I found myself into VC was really just being curious day in and day out and putting yourself out there. I think, oftentimes we’re afraid to just cold email somebody, or just have a genuine reach out via LinkedIn or something like that. The worst that somebody could say is no and that’s really not that bad. Put yourself out there and expose yourself to the ecosystem. That’s great advice that you just gave, they’re awesome. Transitioning here a little bit, as a VC, you are seeing so many pitches, I’m sure on an annual basis, but also probably on a monthly and weekly basis. But as you are really sitting in these pitches, what are some of the common traits that you’re seeing in a successful pitch and in an unsuccessful pitch? What do you wish founders would really do more of, as you’re pitching Royal Street or even just other VCs?
Maggie Kenefake
Going back to what you and I talked about earlier, of course, this varies depending on the stage of the company, but I think that earlier you are in the process, demonstrating an affinity for closeness with your customer is really paramount. At the earliest stages, it’s so easy to get wrapped up into building this product that can do these amazing things, and really sort of litmus testing and making sure that you’re meeting the customers where they are. A lot of times, they don’t need to think about all of us with our fancy smartphones, right? We don’t need all the bells and whistles, they become more fun to have as you use the phone, but what you need is feel to make calls, to see tax and that’s helpful to have your calendar there, access to your emails, but you don’t need all the other millions of things that can do. I think building the essential functionality into your product is the most important and making sure that that is closely aligned with what the market is telling you. I was listening to another venture podcast a week or so ago, and I heard a deeply experienced investor say, “The market always has the answers. The market will always give you the answers you need.” I think that’s true at every stage of your company’s life. I think that’s really important in terms of what people do on the pitch itself. Sometimes I find it to be slightly unfortunate when they spend so much time telling us about the problem that they don’t really get to the business model and the investment opportunity. I’ve actually had the experience a couple of times where I’ve said, “Hey, if we’re running short on time, I understand the problem you’re solving. It’s an important problem and I understand it, can you just take me to how you make money, who pays you, and what do they pay you?” I think that’s really important. I think being able to talk in a very clear way about the traction you have, sometimes that’s revenue, and that’s great. If it’s revenue and number of customers, and the number of paying customers, that’s great. But if you are earlier than that, then I think again, it goes back to that kind of closest with your customer. Are you doing enough customer discovery? Have you surveyed enough potential customers to find out what the real need is beyond just your understanding of it? I think that those are all really important elements.
William Leonard
I can definitely echo that. Oftentimes, founders will spend a lot of time on the problem. But we really want to learn more about the business model, traction, and pipeline. Often enough, we hear about, “Oh, there’s $3 million in the pipeline. What stage are those companies at in the pipeline? Have you spoken to a decision-maker or a check writer? Those are the types of things that we really want to learn about. Definitely great advice there. On that note, you’ve been in Kansas City for the duration of your career and you’ve spent some time in VC there as well. How have you seen fundraising at the earliest stages evolved over the last five to seven years I’d say? How are you seeing founders or how can founders capitalize on some of the evolving shifts and fundraising at the earliest stages in the Midwest?
Maggie Kenefake
I think that’s a really good question. So much is changing with fundraising and investing. There is so much money in the market right now, right? I think people sort of think, “Oh, there’s so much money in the market. Anyone with a really high-quality idea can get funded right now” There is so much money in the market, valuations, and valuation expectations are going off the charts. Having said that though, the gap between sort of pre-seed and what used to be a true seed, and sort of what used to be later seed and series A, I feel like is widening, right? There is so much money in the market, but what we’re seeing are bigger checks to more established companies. Now, that’s not always true. In some cases, you will see really big checks going to early-stage companies but I don’t think that always does those companies a service. And there is one school of thought that says, “If the money is available, take it.” You’re always fundraising. But there’s another school of thought that says, “Take smart capital when you need it, and know what you’re going to do with it. At Royal Street, we tend to really come down on that capital efficiency side. When you take that investment capital, you have to understand what that’s going to mean, how much you raise, and at what valuation. You have to understand the implications for that at the next round, right? What you don’t want to do is box yourself into an expectation of the next round, which’s going to be really difficult for you to hit in a reasonable amount of time. I think there is wisdom, and sizing your round appropriately, you gotta do what you got to do. And if you really need $20 million, by all means, go raise $20 million, or $30 million or $50 million. But understand that if you’re going to have to raise again after that, the valuation you’re going to need to be able to raise is going to be so high you have to make sure that you can get there. As a founder too, you also want to make sure that you know that your equity is preserved right that you don’t get so diluted that there’s nothing in it left for you, because you’ve raised these enormous rounds, and had to give up so much of it. How do founders take advantage of the shifts in valuations? I think it’s really back to the business fundamentals. And again, that’s one thing I’ve always really admired with Royal Street’s focus on that. What are you going to do with the money you raise? Does it drive up the value of your company? Are you creating value, and just making sure that that is a measured approach all the way through? We can all get swept away with high valuation expectations, and we can all want to raise more, but I think there’s wisdom in kind of holding the line a little bit. You want to be careful not to do it so much that you can strain the business and the opportunity, or hold the entrepreneur, the founders of the company back. It’s a measured approach, I guess, is what I’m saying.
William Leonard
I think that’s excellent advice, and a real perspective, from the investor standpoint as to what you’re seeing right now, and how it’s affecting some of these businesses who raise these large rounds and struggle to go out and raise the successive rounds. Really great insight there, Maggie. This has been an excellent conversation. I think the listeners will retrieve a lot of value and insight from a lot of the tips and the wisdom that you shared from your story and your journey into VC. I really appreciate you joining me this afternoon and hopefully, we can do this again here soon.
Maggie Kenefake
William, it’s been great. It’s been really fun to get to talk with you. I hope what I said was helpful. I certainly look forward to continuing to work with Valor and Startup Runway. You guys are doing great work and it’s really fantastic to be part of it.
William Leonard
Awesome. Thanks, Maggie for your time. Take care.
Maggie Kenefake
You’re welcome. Bye, bye.
Lisa
Thank you for listening to the Atlanta Startup Podcast. You know, we’re not just a podcast, we’re a community, and we’d love to see you at one of our digital or physical events, go to valor.VC and sign up for an event that makes sense for you. We have events for founders and the investors who back them. Another event you might enjoy is Startup Runway. The Startup Runway Foundation is a Valor organization that provides $10,000 grants to founders who are women or people of color building next-generation software products. Applications are free and we’d love to hear from you at startuprunway.org. And as always, thank you so much to the organizations that make this podcast possible. Not only Valor Ventures, but also Write2Market, a tech marketing and PR agency in Atlanta, Georgia, and the Startup Runway Foundation and Atlanta Tech Park Valley’s headquarters, and also headquarters for over 100 local entrepreneurs, building global businesses. See you next week. Please bookmark the podcast and join us.
