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The Role of Venture Capital with Medha Agarwal of Redpoint Ventures

In the early stages of a fintech/payments company investors and venture capital firms are seeking to understand why “now’ is the right time for a company to disrupt and impact a space. In this episode we spent some time with Medha Agarwal, Partner at RedPoint Ventures exploring the role of venture capital in the seed and growth phases of start-ups.

Payments & Fintech Insights In This Episode

  • What VCs are looking for in early stage investments.
  • The evolution of the founders role as a company grows.
  • A look at the hot topics that pique the interest of VC’s dedicated to Fintech.
  • Understanding how to determine the “why now” that lays the groundwork for a strong relationship between companies and VC firms.
  • And so much more!

Featured on the Show

Episode Transcript

Heather: Hey, everyone. Welcome back to PayPod. I’m your host, Heather Bodie, and today we’re gonna be talking about investing in entrepreneurs who are creating new markets and redefining existing ones. Joining me today, is Medha Agarwal, Partner in Redpoint Ventures, a firm that’s focused on startups across the seed, early, and growth phases. Medha, welcome to the show.

Medha: Hey, Heather, thank you so much for having me. I’m excited to be here.

Heather: Absolutely. So, before we turn our hyperfocus to Redpoint Ventures, I’d love to just get us started by talking about you. Tell us a little bit about yourself. How did you get into venture capital? What did life look like before Redpoint Ventures?

Medha: Yeah, for sure. So, I got into venture via the founder route. So, I was a founder based in New York and my first exposure to VC was actually fundraising. And I was really intrigued and interested in what folks in venture sitting on the other side of the table for me were doing and how they saw it, and so decided to make the switch after my founder career, and haven’t looked back. And I feel very lucky to be doing what I do, and grateful to be doing what I do.

Heather: In my past life I worked for a digital marketing agency. We ran a coworking space that focused on tech startups. So, we sort of functioned like an incubator. And I loved sharing space with founders and their teams, and getting a glimpse into those early days of a startup. I’d love to hear about your early days as a founder, and then a little bit about what you look for working with Redpoint Ventures when you’re identifying new projects to invest in.

Medha: Yeah. So, let me start with the latter question first. We, at Redpoint, are looking to invest starting from the earliest stages. So, we’re looking for amazing people who are really passionate about an idea or a space. And that founder market fit is really, really important. We’re looking…being an entrepreneur is really hard, I think it might be the hardest job there is. And I am in constant awe of the founders that I’m lucky enough to work with.

And so, the biggest thing we’re looking for is founders that are passionate that will run through walls and do whatever it takes to bring their ideas to fruition, and that really understand and are passionate about the space that they’re going after. Because being an entrepreneur is a marathon. There’s a lot of ups and downs.

Hopefully, for some, it’s up into the right all the time, but, definitely, it wasn’t the case for me. There were a lot of ups and downs, and to being passionate enough and excited about enough to weather those. And then being an entrepreneur, a lot of it is sales. And in the early days, it’s convincing early customers or potential customers to take a bet on you, really, and the company. But really they’re making a bet on you because they’re gonna be some of the earliest customers and they’re taking a leap of faith.

And a lot of that comes from the trust that they have in the founder and the early team. And then it’s selling early employees to dream the dream and to join them on this to build and be a part of something, make them believe that they’re gonna be a part of something that’s gonna be really big one day.

So, that’s a lot of what we’re looking for and then the other thing that I spend a lot of time in understanding is the market. Why is this a big market? Why is there an opportunity for a new company or player to disrupt an existing market? And one of the questions we spend a lot of time on is why now?

There’s a lot of markets that are really inefficient and there’s a lot of opportunity, but not all of them are ready for something new. And so, understanding why is now the right time for this company to be able to make a big difference in the space.

Heather: As a founder yourself, and as you just mentioned having these ups and downs, experiencing those lonely arduous days that are true of, I think every founder experience. I don’t feel like I’ve talked to a single Fintech founder who was, like, “The idea was great. The team was great. The funding was easy, and we took off.” It seems to be the path for all startups that grit is an unnecessary personality trait.

But I can’t help but sort of explore the trope of the bullheaded, passionate founder. This person who really won’t take no for an answer, but then ends up in, like, a turn and burn with their team, for example. Do you work closely with your founders to sort of develop those team building and team management components of the Fintech startup as well?

Medha: Yeah. I’ve seen some founders do that. But a lot of founders, I think many of the ones I work with have been on the other side before, part of the reason that they are so passionate about the problem or market and felt like they had to go solve it, is that they had experienced that pain point perhaps as a customer, perhaps as an operator at a company where they were trying to solve this problem, whatever it is.

And so, they experienced being on the other side and being managed or working in a team, and are trying to build a good culture and place where their employees are excited to be there every day to work towards a problem, to be collaborative. And we kind of talked about it earlier, right, it’s really hard to hire amazing people and convince them to get on board in the earlier stages.

I think sometimes the amount of work and the timelines can conflict with that goal. But I think one of the reasons being an entrepreneur is so hard but also so rewarding is that the job continues to change. It’s almost like a completely different role every few quarters or every couple of years.

The job of the founder, when it’s two people, one person. Then it’s 10, 20, 100, 1,000, what one is spending your time on looks very different. And the focus priorities of the company are very different, or at least they should be. And so one of the ways that I see myself adding value and being helpful to our founders is helping them make that leap in each of the phases of the business, whether maybe they do it naturally.

But perhaps it’s just helping them pick their heads up and see kinda, “Wow, look at how far we’ve come. And maybe I was kind of approving all of the expenses. I was in all of the product reviews, and now the company is 100 people and there are other people that are kind of empowered to do that. And I can kind of elevate myself and focus on other things in the business,” is one of the areas where we try and be helpful to our founders.

Heather: Yeah. Because as trivial as it sounds, those transitional moments can be incredibly, emotionally difficult. You have these days and days of wanting so badly to be able to delegate and to have a larger team, and to offload some of those things. And then there’s the reality of actually offloading them and not seeing them as intimately on a day-to-day basis. And that can be, while it’s a relief, it simultaneously can be pretty vulnerable for founders.

Medha: Yeah, totally. And it requires a high degree of trust with your team.

Heather: Unbelievably so. And the knowledge that it’s not going to be seamless, the trust that you can weather the transitional ups and downs as well of bringing somebody up to speed on board in a role that is offloading some of your tasks. That’s really fascinating.

I haven’t heard anyone talk about it quite like that, how the founder’s role, like, quite literally the job description shifts every 6 to 12 months. I’m really fascinated by that. So, what are some themes you’re seeing right now in Fintech? What is currently existing in your VC portfolio, what are some hot topics?

Medha: I’m really fascinated and have been diving deep for the last few quarters into the theme of Fintech infrastructure. I’m really excited about this new class of companies that we’re calling kind of enabling infrastructure that are enabling companies, both Fintech and non-Fintech, to provide financial services more cheaply, faster, and with fewer kind of bodies.

And so, the reason behind that is Fintech has grown so much as a category. And yet if you talk to anyone and imagine a lot of your listeners are this way that are in this universe, it’s still very time-consuming, very expensive. And it takes a lot of people to get a Fintech company off the ground or to get any sort of financial services offering off the ground.

And then after that Herculean effort, it takes just as much Time Dollars, and people to keep the wheels running on the bus. And as a believer in the being very bullish long-term Fintech, I believe that just the way with cloud infrastructure, Fintech is gonna kind of head in a similar direction where there are going to be more and more providers and platforms that reduce that barrier and complexity across many of the different operations and requirements that many Fintech companies have to…or other companies that wanna offer financial services have to endure.

So, banking as a service provider or BaaS, we’ve seen a lot of interesting innovation that have just completely changed exponentially the cost and the time to launch banking products. We’ve seen in another sub-feed related to that, we’re really excited about the idea of embedded Fintech, the idea that there’s a lot of different companies that on the surface maybe don’t look like a Fintech company, but really when you kind of look under the hood, a lot of their revenue and LTB is driven by financial services.

Companies that enable a SaaS company or a marketplace that’s core competency is at Fintech to launch products the way a ServiceTitan or Shopify, or a lot of these other companies that have been really successful during this at scale akin to earlier in their life cycle and earlier in their journey, before they have tens or hundreds of millions of dollars, just spend on hiring the people and building the tech and the processes to do that.

Heather: In my early days, I was in financial services. I started my career and the absolute archaic nature of those legacy systems shocked me then. And that was 15 years ago. So, I’ve chatted with a series of guests on this podcast who are disrupting that financial services space with technology in a way that they’re just climbing an enormous mountain of integrating with old systems. And also, like you said, it’s a big lift to get it started and to keep it going but it is inevitable.

It is absolutely inevitable that financial services is going to evolve and be enormously bolstered by Fintech, and specifically, I’m glad you brought it up, embedded Fintech. I’m most fascinated by that, the underlying components of many different industries, that is really, like, the groundwork of it is some sort of financial service of a Fintech platform.

So, I’m a total nerd for that stuff. I cannot wait to see how much simpler it will be even 5, 10 years from now from a compliant standpoint, banking service providers, all of that. So, I’m excited about the same things you’re excited about.

Medha: That’s awesome. Yeah. And I think we’ve started to see an early wave of companies starting to do this. And the value that they’ve already provided is so immense. And I’m excited to see kind of the next waves that build upon their shoulders and that next level of complexity, and what comes out of that.

I think it’s gonna continue reinforcing even more FinTech innovation being built on top of it, the way we did with neobanks. And we’ve seen a whole slate of banking products that have been built on the backs of these BaaS providers.

Heather: So I’m feeling curious. What does the conclusion of a VC relationship look like with one of these startups? When do you know for the runway your time together has completed, and what does that look like?

Medha: We’re long-term investors. We often take board seats with our portfolio companies. And so when a founder makes the decision to work with Redpoint and vice versa, we’re really in it for the long haul. So, the most common outcomes are either the company gets acquired, it goes public, or it shuts down. And we’re generally involved until any of those things happen and often beyond.

And that’s kind of our official role as a board member. But I think through these many year-long relationships that are very…and seen a lot together, we often become really good friends and get to know each other really well. And so my hope would be regardless of what the outcome is with any of the companies I’m involved with, that we’re friends and continue to be connected in some way long after our formal relationship ends.

Heather: I love that. I’m so grateful that you expressed that because I found myself even just sort of following the visual journey of what it means to get that yes from venture capital when you’ve got this big idea, you know, seeing that sort of mutual agreement that they see you, they believe you, as a founder, they trust in you and they’re ready to invest in you.

So, knowing that those relationships have such substantial roots by the end are just really satisfying to hear. So to close us out, what is the one piece of advice that you would give a founder who is seeking this long-term style venture capital investment?

Medha: Yeah, it’s a great question. The most important thing that I tried to do when I was a founder after having done it wrong the first time with my first company, just because I didn’t know what to optimize for, the second time around I think what I tried to do, and I urge founders in my portfolio…and those are not, you know, when they’re going on to raise their next rounds financing to do this, too, is to take their time and really get to know each of the investors that they are meeting with, particularly the person who’s gonna lead and be on their board.

Because when they…of all the options that they have, whoever they pick, it’s not just capital. It’s someone who’s gonna sit on your board. It’s a long-term relationship. And so, feeling that you’re aligned in their vision for the company, their vision for the company, and yours is aligned that you like each other and, you know, would enjoy the airport test, and have sitting in the airport for many hours together.

And if you think that they’re…you know, and feel comfortable that they’re good people because there are going to be ups and downs like we talked about, and it’s not just how folks behave in the good times, but it’s also in the hard times that really makes the difference.

Heather: Absolutely. Thank you, Medha, so much for joining us today. If folks wanna get in touch with you or learn more about Redpoint Ventures, where can they find you?

Medha: Thanks for asking. So, they can find me on Twitter, at LinkedIn, or they can send me an email, just find me on redpoint.com.

Heather: Perfect. Thanks so much for joining us today.

Medha: Awesome. Thanks for your time.

Industry Spotlight

Redpoint Ventures

Since 1999, Redpoint Ventures has partnered with visionary founders to create new markets and redefine existing ones. The firm invests in startups across the seed, early and growth phases. Redpoint has backed over 465 companies with 140 IPOs and M+As, including 2U, HomeAway, Heroku, Netflix, PureStorage, Twilio and Zendesk, and incubated market disruptors like Android. In total, the firm manages $4 billion across multiple funds. Redpoint is based in Menlo Park and has offices in San Francisco, Beijing and Shanghai.