Jennifer Fonstad and Theresia Gouw launched Aspect Ventures with their own money in February 2014—and have hardly looked back. “We closed our first investment that first week,” Fonstad says. The pair went on to make a number of investments that first year before deciding to raise funds more formally from outsiders, like a conventional venture firm, and early in 2015 announced a $150 million fund. They announced their second fund, at $181 million, this January, with limited partners who include Melinda Gates and Cisco CEO Chuck Robbins.
(Read on xonomy)
Aspect was a rare (if not the only) venture fund in Silicon Valley founded by two women, but neither partner was a newcomer to venture capital. Fonstad had spent 17 years at powerhouse firm Draper Fisher Jurvetson, where she was a managing director. Gouw, meanwhile, was a partner at another top firm, Accel Partners, where she had been for 15 years. The two had known each other before that, going back to their early career days at Bain.
Their current fund focuses mainly on Series A rounds, but also seed investments, in a number of fields, chief among them cybersecurity, digital health, and the future of work. In part, the new funding will be used to expand the team, which now numbers nine on the investment side. I recently visited Fonstad at Aspect’s headquarters, which is housed in modest second-floor digs in downtown Palo Alto. We talked about those tech areas, some newer arenas Aspect is eyeing such as artificial intelligence, voice, and blockchain—as well as issues such as international competition, diversity, potential effects of trade sanctions on startups, and the changing nature of entrepreneurs themselves. (Read on to see what Fonstad says about the diversity of entrepreneurs in her firm’s portfolio and a kind of next-gen LinkedIn, among other things.)
Following is an edited transcript of our conversation:
Xconomy: Let’s start with some background on Aspect and your focus, what you started with originally and what’s new.
Jennifer Fonstad: We have deep experience and expertise in what I’ll call enterprise software categories: SaaS [software as a service], analytics, software security, digital health—and we have a fairly robust consumer presence as well. My co-founder, Theresia, had done quite a lot in software security, both as an entrepreneur and then as an investor. And I did quite a bit myself in digital health and next-generation analytics particularly. So those were some of the core areas we started in.
We’ve developed a number of different themes since then around the future of work and how employees, employers, and individuals, will be interfacing. A good example of this: Uber drivers, who technically are not employed by Uber, are coming together to develop their own association that would then be used to buy healthcare. So, how do employers think about innovating when there is a different type of workforce and a different type of community? What types of products and services will they require—in terms of education to get their first job but also in the job? How do you find those employees? How do you recruit them? How do you compensate them?
A little over a third of the fund right now is in security software–we had our first IPO in the fall of 2017, a company called ForeScout. About 20-25 percent is in the future of work, another 20 percent in digital health. And then we have new areas that we invest both at seed and then Series A, as the categories emerge.
X: Let’s talk about some of those new areas.
JF: We’re doing quite a lot in AI now, which permeates and touches so much of each of these categories and more. But a lot of our AI work is really focused on solving a particular business problem—using data in new and novel ways to solve a business problem that you couldn’t have solved before when you didn’t have access to that data and information. We have a number of investments in that category, and also in automated vehicle software. Because there’s a number of platforms, services and software, used in managing the car from an operations perspective—everything from digital mapping to communications.
Then we have done some investing around blockchain, but not blockchain asa cryptocurrency or as an asset class, but more around blockchain as a technology. We think about using identity and identity validation in new and novel ways—that has a whole host of areas for application, everything from our financial services industry to our healthcare system.
X: When you say identity—is that for security?
JF: Well, it doesn’t have to be security. Security is one category, but there are other areas, specifically around identity and identity management. Once you validate identity, how can you use that information in new ways or deliver different services around that in a new, novel way? Take title insurance, for example. There’s an entire industry that’s grown up around the notion of validating title insurance. Well, if you can manage security around validating your identity around what you own, then you can actually eliminate that entire industry. It’s a legal process that people are trying to validate—verify who you are. And then verify that specific property, which is sitting in records right how, in every town and county around the country. That information can be all managed through blockchain.
X: How about the future of work—what is your approach to that?
JF: That’s really driven by a number of startups that have begun imagining the world beyond the W-2—and how you think about your career and the services that you’re expecting as a next-generation worker. We’ve invested in companies like The Muse, which is based in New York and is one of the top sites for millennials to use for career management. They want to identify new job opportunities, and there’s a high degree of content. Then employers use that to present themselves and their culture and the types of work that they perform. It’s effectively like the next generation LinkedIn, where you may not be looking for a job but you’re actively thinking about your career and you’re learning about what the other careers are out there. Another example is Troops.ai, which basically works within Slack to enable you to update your Salesforce system, or any other system of record, and then enables your boss to aggregate that all. So you’re running from meeting to meeting, not sitting on your laptop—you’re on your phone. You can use the typing function, but you can also speak into the phone. This type of on-the-fly system is really understanding how workers of today and tomorrow will be working and then providing tools to enable them to do their jobs more seamlessly.
X: What about digital health? That’s something you’re personally interested in.
JF: That’s right. So digital health is another area where we see mobile devices accessing and using data in new and novel ways that will really change the way we are served healthcare and think about healthcare. Modern medicine is really only about 120 years old. The first medical schools were in, like, the 1890s—and how we’ve thought about our relationship with our own medical care and our doctors, and who’s been paying for those services, has rapidly been changing.
We think about digital health as being the next catalyst to change how that works. One investment we have—Khosla Ventures is also an investor—is Vida Health. They use a coaching platform as a means of managing chronic care. But they integrate in with your data collection devices, like a Fitbit. And then you as an individual have ongoing access to content and manage your own health with the help of your coach and your medical team.
X: Are you in the camp that says doctors aren’t going to be needed? (Editor’s note: Many believe Vinod Khosla, founder of Khosla Ventures, is in this camp. But as my interview with him a few months ago indicates, it’s not quite that simple.)
JF: There’s a whole host of chronic conditions where your doctor is still a critical part of the protocol that you should be following, but doctors don’t necessarily have to be driving each day, each week. And yet having someone who cares about your health has actually been shown to be the number one driver of behavioral change. That’s where having a coach and having a medical team available through your device has proven to be most important for healthcare action.
X: As you pursue these areas, what do you feel is different from other venture firms about what Aspect brings to the table?
JF: Aspect’s a little different in that we are very focused on Series A and very much focused on classic company building. There’s a lot of folks that say they do Series A, but it tends to be a small percentage of what they do. And there’s a lot of groups that do seed, but then as they get to Series A, they’re looking for another group to take that on. So that’s our singular focus. We work very collaboratively with seed funds and seed investors as well as with the bulge bracket funds. We think that for the entrepreneur the best syndicate is a syndicate that has at least two investors coming into the round, because they get different perspectives around the table and it doubles the networks that they’re utilizing. So if we’re leading an investment, we typically want to bring in another group who we think is a good fit. And vice versa. Other groups bring us in when they’re trying to build a syndicate with a team. We don’t have sharp elbows. We’re not trying to drive to a certain amount of dollars in a company, or a certain amount of ownership. We’re much more focused on building the right syndicate so we can work collaboratively.
X: How active are you, and in what ways are you active?
JF: We’re pretty active. We’ll typically take a board seat or board observer seat, and we’ll work pretty closely with the team in everything from recruiting new team members to their next round of funding to identifying first customers to pricing models and business models. It really depends on the stage and challenges the companies are facing.
X: Everybody says they do that kind of thing. But, as I’ve experienced personally, and also heard from many entrepreneurs, that often doesn’t happen.
JF: Yeah, so there’s a couple things we do differently. One is that we always have two team members working with a company rather than just one. The purpose of that is that we each, even internally, may bring different perspectives and can help different members of the company’s management team in different ways. I might have a strong relationship with the COO, the CFO, or the CEO, and another team member might be really strong with the VP of product or VP of engineering—so we can basically double the resources we’re bringing to the company. Also, whenever there’s an issue, if one of us isn’t available, the other is always available.
The other thing is that because Theresia and I founded this really as a boutique firm, we’re much more focused on company building. Theresia and I will never be on 15, 16 boards at any given time anymore. That was in our early days. Today, we’re much more focused on spending the time with the investments we’ve made. We’re not trying to build an empire, so we can afford the time to do that and do that well.
X: What about the type of entrepreneurs you work with—has that changed? Are the people who are becoming entrepreneurs different?
JF: That’s an interesting question. I do think that the nature of innovation is much broader. I’ve been in the industry for 21 years and, I mean, there’s just a lot more innovation across a much broader set of categories, which is really exciting. Just take security software. I mentioned about a third of our portfolio is in security software. That’s because security software is a much broader and bigger category than it ever was. You’re no longer just trying to build a wall. You sort of assume that there will be a breach—so you’re trying to identify where the breach happened. And then you get into containment, monitoring containment, and eradication. The size of the market, the breadth of the problems you’re trying to solve, has gone up logarithmically.
Social media didn’t exist 15, 20 years ago. And you have a whole host of innovation around how to use your networks and your relationships. IoT [Internet of Things] in the home didn’t exist before. Voice as a category is new. So if you just look across the wide range of industries that are being innovated, the breadth is unprecedented. So you’re also seeing a lot broader set of entrepreneurs coming forward with interesting ideas.
X: One question that I know that you get asked is about diversity. There’s so much data around the business benefits of diversity of all types, not just women. Are people from more diverse backgrounds trying to become entrepreneurs? Do you see that changing?
JF: Well, I think actually when you see the breadth of innovation that we’re talking about, and new categories, you’re also seeing a lot broader set of entrepreneurs coming forward with interesting ideas. And that does touch on people with different ethnicity, different backgrounds, and experiences. Certainly for Aspect, we focus on the best innovation in the category. Having said that, about 40 percent of our portfolio has a woman entrepreneur on the founding team. About 50 percent are immigrants or children of immigrants. Over a third are different ethnic backgrounds. So we have a wide range of entrepreneurs that we’re working with because we’re seeing in some of these new and emerging categories a different type of entrepreneur. Sixty percent-plus are men, but they’re looking for a different perspective. They want a different voice around the table than they’re typically getting.
X: Do you think it’s changed for women, in particular here in the Valley?
JF: It’s continuing to change. There’s a spark of innovation that was really driving a lot of entrepreneurs starting companies, which I think in and of itself has been really exciting. And there’s actually a lot more access to capital to get a company started. So I think that’s part of it. And there’s a lot more support between and among women, to offer ideas, insights, suggestions, encouragement—as well as from a number of men who recognize that not every entrepreneur or successful entrepreneur’s going to look the same as it may have 30, 40 years ago. So I think you’re seeing a lot more change happening.
X: You’re hopeful that it’s not just a short-term change?
JF: Oh, yeah, for sure.
X: Are there are more systematic things that can really make a difference, whether for women or people from a different ethnic background—like mid-level programs to manage people or projects so that they’re ready to be successful at the next level?
JF: A lot of that happens in larger-scale companies. I thought it was interesting the research that Google did that showed that the best performances were around diverse teams, as opposed to identifying one or two rock-star individuals and then building around them. Team formation is a big part of a lot of companies here in the Valley—the more they focus on diverse team building, I think the better outcomes they’re going to see. As a result of that, you’ll have people who are used to leading in different ways and will spin out.
X: Let’s talk about international competition. Do startups have to think internationally from an earlier time, for instance? Do you see more competition coming from areas like China or Israel?
JF: Our companies are doing business in China, Europe, and around the world. So we certainly think that from day one you have to be aware of what else is happening across the globe in your category in order to be sure that you know your solution set is truly novel and driving change. But I don’t know that I’d say that I see more competition. There’s more innovation in those areas, and I think that actually accelerates more innovation in the U.S.—so I don’t view that as a negative. Maybe those companies come here to sell their products and services, so that’s an opportunity for us to work with them.
X: Do you worry about trade sanctions hitting the entrepreneurial world?
JF: It really depends on the spiral. If the administration is putting out tariffs or trying to control trade in a small, narrowly defined area, there will for sure be a reaction from China or Europe or whoever else. If that response and reaction stays in that narrowly defined area, then it won’t necessarily permeate the innovation ecosystem. But if the reactions on both sides start to tip over into broader constraints, then you could put a damper on innovation. That’s a lose, lose, lose for those respective economies and global innovation in general.
Right now it seems to be relatively contained. However, if emotions and ego get involved, all bets are off.