Conductive Ventures raised a $200 million Fund III to continue its focus on investing in founders where other venture capital firms did not see the potential.
You may remember our company profile in 2018 when it was officially launched with a $100 million enterprise fund. Carey Lai and Paul Yeh started the firm in 2017 after Lai was with IVP and Yeh with Kleiner Perkins.
Today, Conductive has 24 portfolio companies, boasting that more than 50% of them are based outside the Bay Area and two-thirds of the founders are immigrants or minorities.
From the beginning, the couple wanted the founders to know that they did not fit the typical “Sand Hill Road model” of venture capital firms and that they were eager to invest in entrepreneurs who were initially unable to obtain financing. So these entrepreneurs were forced to be capital efficient because they didn’t have the networks or the access for whatever reason. These turn out to be companies that have “real income,” Lai said.
Yeh, who came from Taiwan as a child, says many of the entrepreneurs they see as minorities and immigrants “are so rudimentary.”
“They’re not blindly chasing growth; they are figuring out the best way to A/B test and only make money after something has been resolved,” she added. “These entrepreneurs are not looked at by traditional firms. A lot of times they just pass them by with a very cursory glance, while we see a lot of possibilities and potential because we understand that it’s more about the hustle and how long it took them to get there. We can see the effort they put in compared to the beautiful PowerPoint presentations and polished storytelling.”
The firm’s third fund will invest at the Series A and B levels and is particularly special to Lai and Yeh, with Lai noting that they did not want to be a “one-fund wonder,” and as long as they did not make a mistake, the companies they can usually raise a second fund. However, the third bottom only occurs if the first bottom was successful.
Of the first two funds, Conductive saw seven exits, including three IPOs from Desktop Metal, Proterra, and Sprinklr, a one-off distribution with Rally, and three M&A events with Oculii, Dor, and TravelBank.
With all of that, Lai said the company was able to return a “significant amount of cash” to its limited partners in the fourth quarter of 2021. Coincidentally, that’s when they thought it would be a good time to ask LPs to sign up for a new bottom.
Lai and Yeh expect to invest in 15 to 20 Fund III companies and write checks, on average, between $5 million and $10 million, with some set aside for follow-up.
“One of the great things is that we can actually see the pitch we want and then decide when to swing it,” Lai said. “We don’t have to swing every pitch. I think that’s one of the biggest benefits of not raising too big a fund. Second, the types of companies we re-invest in are typically not as attractive to ‘Sand Hill Road companies’ because they have their own fund. In many respects, we are playing a different game.”
In fact, some of Conductive’s entrepreneurs were eager to discuss what having the company on their capitalization table meant to them.
Thompson Aderinkomi, co-founder and CEO of Nice Healthcare, told me that he had previously been at a health technology company, spent four years working there, and after a Series A round, investors pushed him out of the company, which left a pretty bitter taste in his mouth when it came to VCs. He then he met Lai.
“His approach was very different from the ones I presented in 2012,” Aderinkomi said. “Even though my industry is not one they focus on very much, they focused on business fundamentals and as someone with a finance background, it was refreshing to talk numbers and logic with them.”
Aderinkomi also liked Conductive’s global focus and the fact that he could easily relate to 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 company, he would definitely put it in front of Lai and Yeh again. 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 start of the pandemic, and TravelBank’s business had “slowed down substantially.”
“A lot of venture capitalists would have walked away from our term sheet, but Conductive called me and said that in ‘good times or bad,’ we always support our founders,” he added. “They did exactly that to continue to support our deal as agreed, and our round was closed during the pandemic. I will always remember that about Conductor and who they are.”
US Bank then acquired TravelBank in December 2021. Chung added, “Because they were with us at all times, it really inspired me and my co-founders to work hard and pivot our business accordingly to find our way forward, despite travel headwinds. People say to me ‘Let me get this straight, are you a business travel provider and did you get acquired during the pandemic?’”
Meanwhile, Steven Jiang, co-founder and CEO of HireEZ, told me that Lai, Yeh, and the team were available for anything, anytime, and even during the due diligence process, they found ways for the company to save money.
“Carey and Paul respect and trust entrepreneurs based on their business performance rather than their connections in the VC world or their ability to tell stories,” Jiang added. “I am an immigrant and a founding engineer. It was challenging for me to get pre-built connections and trust VCs. Carey found it shocking that he never heard from us while our ARR has been in the tens of millions with over 170% growth year over year. Carey understood and appreciated the way we run the business. He made up his mind so quickly while other venture capitalists were still wondering ‘who is that guy’”.