How Riley got into investing

I grew up in southern New Hampshire and went to school just outside of Boston. While there, I started a company called Crash Alert. We were trying to detect and respond to car accidents—it was a product idea similar to what iPhone recently launched in one of their iOS updates. I learned a ton through that experience. And it was very cool to raise some money, build a team, and do everything that's required to get an idea off the ground. When I shut the company down, I realized having pitched to a lot of VCs that I didn't know much about that world, and they seemed to have all the answers around starting companies. So I wanted to learn more. I joined a fund in Boston called Arctaris, and was there for over three years. It was a great way to get into the industry. But I realized there's a very big difference between Series A and B investing, and Pre-seed and Seed investing. At Arctaris I’d keep meeting with founders and saying: Call me back in two years. It's just too early for us. But as someone who’d been a founder and liked working with founders at the earliest stages, I wanted to invest there. That led me to Valia, more than seven years ago. In short, I ended up in this world because I started a company that didn’t work out, and I wanted a view from the other side.

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Key opinions

* I've never felt strongly that it's only possible to build a company in certain geos. The old adage of “You have to be within a short drive of Stanford or Sand Hill Road” never resonated. I don't require founders to sit in the Bay Area, or New York, or one of those big ecosystems, though I certainly believe there are advantages to these ecosystems. The most recent investment we made was in a company based in Chicago, and I think Chicago is the right place for this business. So the lens I look through when it comes to geography is: How is location an advantage for that business and that team?

* I have nothing against successful pivots, but I’m always impressed by a company that can stay true to its mission. As a very early-stage investor, what I’m so often looking for is that visionary founder who has a perspective on what’s going to happen in the market—and three, four, or five years later, you see it happen. It can be very difficult to both articulate the future and get people to buy into your vision of it. Some of the investments I’m most fascinated with have been in founders that had a precise and accurate vision early on, and were able to stay true to their mission because the market unfolded exactly as they suspected. That’s incredible to witness, and to partner with.

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Key outlooks and predictions

* Emerging managers are struggling to raise capital. There's an enormous amount of capital still flowing into the biggest brands right now, but raising a Fund One or Fund Two is quite challenging today for very early-stage managers. And that necessarily changes the types of investors who have real capital dry powder to deploy. It also changes the landscape of who's active, who's sticking around, who's retiring, who's joining other firms. So one trend today is those dynamics—there’s a lot of movement at the firm level. My prediction is the early stage VC landscape is going to evolve significantly in the coming years. We’ll have well known seed funds that will stop raising capital, a decrease in the number of micro VCs, and an entirely new crop of funds starting in the downturn who will capitalize on these changes. 

* The way I see it, there are “have” and “have-not” categories today: Certain areas are very hot (most notably AI), and the activity, attention, and evaluation there looks like the intensity of 2020 and 2021. But then there are other areas where no matter what the founder does or how well the business executes, they can’t raise capital because their category, or theme, or business model has been written off by the investor community (consumer social, consumer fintech, emerging markets, etc.). It's interesting to see this fork in the road. I don’t resonate with those who say that the market is slow or dead or nonexistent. It's more that there are these two camps right now. And if the “haves” can tell their story well to the right people, there's enormous potential for them.

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* Leveraging software and data will become more and more common, especially for growth-stage opportunities. There are so many ways you can use data to identify companies—in terms of growth, for example, or increased transaction values. There are a lot of tools out there to surface that information for venture investors. So growth-stage investing will become even more quantitative than it is today because we have more tool kits to do that and funds are hiring more data scientists and engineers. That said, I haven’t yet seen software good enough to purely analyze a team the way a pre-seed investor might. So much occurs in getting to know a founder, their vision, their team, and the market. I have a harder time seeing software overtake the human role in those earlier stages.

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One of my key themes: healthcare

At Valia, we’ve made both B2B and B2C investments in healthcare. It’s one of the biggest industries out there—20% of GDP in the United States—and it’s one of those spaces in which most people simply have a terrible experience. Almost anytime I ask someone: The last time you interacted with the healthcare ecosystem, was it a 10-out-of-10, 5-star experience? The answer is “absolutely not.” Healthcare is a massive industry with so many problems to solve, and the impact of solving those problems is quite significant. You’re talking about improving overall quality-of-life—and about actually saving lives.So given the market-size perspective, the problem perspective, and the impact that founders can have in healthcare, it’s always been a particularly interesting space for me. We’ve invested in companies that are trying to improve the operational side of things for providers—to make the lives of medical practitioners better so they can ultimately offer better quality-of-care. We’ve invested in companies that are selling directly to patients to improve their healthcare journeys in some way. Valia has kept a wide aperture in terms of our investments, but this particular healthcare theme is one I’m very passionate about and interested in.

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Two investments I’m excited about 

Of course, I’m proud of all of our companies in some way—I know how difficult it is to build one. From the minute we invest, we want them all to succeed. But there are a handful of companies in our portfolio led by visionary founders who had a view of the future and ended up being right. There are two good examples that fit that mold that I can mention. One is a company called System.com, an AI company that’s been building in the space since 2017. System is a Public Benefit Corporation with a mission to “help the world see and solve anything, as a system.” It’s out to evolve how humans organize data and information, out of silos and into one interconnected architecture. They’ve put a huge emphasis on data transparency, and on the belief that a single information system can transform how we make decisions, allocate resources, and govern. The founder, Adam Bly, has an incredible background and has been building in a space that today is very hot—but he saw it coming years ago.

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“Some of the most special moments for an investor are when a founder foresees the future and begins building toward it—then the rest of the world catches up.”

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Another company I’m proud of is Legacy. The founder, Khaled Kteily, has been building in the male fertility space for almost six years. Most of the attention in the fertility space has been dedicated to mothers and females. Khaled believed the other side of that equation was under-invested in—it hasn’t received the same level of resources or depth of understanding. Today, you see major publications talking about this. But Legacy has been talking about sperm and male fertility for years now. Those are really special moments for an investor—when a founder foresees the future and begins building toward it, then the rest of the world catches up. These are two companies in Valia’s portfolio that have done that. 

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New tools are great—but not at the expense of finding founders

For as much as they invest in startups, a lot of venture funds don’t always have the most advanced operations. Yet I haven’t seen any data proving that just because a firm uses a new tool or operates more efficiently that they have better returns. It’s pretty incredible to watch some firms out there that are very old-school in some ways, yet consistently hit home runs and deliver great fund returns. So while we’re open, we’re not always the first firm to buy the latest tool or try the newest software, because our view is: We need to find the best founders and support them along their journey. And that requires us to stay on top of our networks and communities, and constantly engage with them. So we keep a lot of our focus there.When you know your priority is finding founders, of course, scalability becomes important. The most recent investment we’ve made is in Harmonic. In the past, outbound looked like sitting on LinkedIn and searching people, reaching out if we uncovered anything. It wasn’t very sophisticated. Our goal was to become more thorough and diligent with outbound processing. As much as we’re building our own brand, not every founder is going to passively hear about Valia. If we can get better at proactively reaching out to founders and meeting them when they’re quite early in their journeys, we’ll have the chance to meet more companies and really filter down to best-fits. We get a lot of inbound deal flow from people in our ecosystem; but when it comes to outbound, Harmonic is allowing us to scale those efforts.

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The advice I’d give to a new investor

The biggest challenge I ran into early on is I didn’t know what a good investment looked like. VC is very much an apprenticeship business. If you join a bigger fund, you have access to a lot of resources and the opportunity to build the skills that are required. But that’s just not the case at a smaller firm—they need someone to jump in and contribute right away. Someone says: Hey, look at this company and write an investment memo or build a model, but you haven’t had a training period, so it’s trial-by-fire. I’d source something that I thought was a great idea, and it would take a lot of analyzing to realize there were some major flaws to that business. “Future companies won’t look exactly like past ones, of course. But there are a lot of lessons to be gleaned from historical patterns, and there are some investors who’ve taken a more quantitative view of this.”So if I were to do things over again, I’d spend more time studying recent history to really understand what success looks like. Future companies won’t look exactly like past ones, of course. But there are a lot of lessons to be gleaned from historical patterns, and there are some investors who’ve taken a more quantitative view of this. There was some research that came out recently from Basis Set Ventures about what makes a successful founder. When you're doing pre-seed and seed investing, your decisions are so often team-based. You're trying to understand: what does a great team look like? Basis Set compiled a lot of founder data to define a successful founder persona. The data revealed there are clusters of successful founders: Some have certain sets of attributes, others have another set of attributes. I think if I’d taken the time and invested the energy early on to learn more about the quantitative aspects of the business, I could’ve sped up my process of pattern-matching to some degree. People who’ve been doing venture for 20 years have a very good sense of what they're looking for, and they know it when they see it. But when you're just starting out, it’s difficult to know what you’re seeing. So I’d have been more of a student of the industry early on, a bit more of a historian. What are the attributes of founders that started successful companies five or 10 years ago? How can you leverage that knowledge for what you're looking for today? It's not a perfect correlation; it won’t be one-to-one. But I think there are a lot of insights there.