“I often think about our business no different than I would think about the customer journey of an of one of our startups… Once they're in your organization, they are using your product. Then you have to serve them with customer success tools. You have to make sure they grow and scale and they stay loyal.”
— Manan Mehta @Unshackled Ventures

Today’s guest is Manan Mehta, co-founder and General Partner @Unshackled Ventures. Manan has experience as both an investor and a founder. In this post, he talks about identifying the need to unlock immigrant founder talent, and professionalizing a leading venture capital firm to deploy capital with speed, intelligence, and discipline.

Founder talent finds its way from all across the globe. However, not all of them have the right networks and resources to go from great idea to effective implementation. That’s where Unshackled VC comes in.

Manan and the Unshackled VC team bring a high-performing approach to investing. They take the best, timeless practices of VC and make them even better!

We believe this interview will be a breath of fresh-air for founders and emerging fund manager talent!

Key Themes

Growing a venture capital firm without a traditional venture background.
The 3 things every venture investor underwrites…
Investing with conviction, speed, and discipline during extremely uncertain economic times.
Making your terms both LP-friendly and founder friendly.
Proactively engaging and aligning with your LPs.
Being transparent about your investment process to respect the founder’s time.
Pro-rata investment rights — doing the right thing by founders even if you have leverage.
Adding value to immigrant founders beyond just solving the Visa challenges.
Building a tight-knit community of high performing founder talent.

Transcript

Manan Mehta

Thanks so much, guys. It's great. It's great to be here and, you know, appreciate us doing this remotely, considering we're all dealing with some of the challenges that we're facing Covid-19. But you know, to answer your question, the founding partners of Unshackled Ventures started the firm about five years ago with a co founder named Nitin Pachisia, and the intention was very simple. Our job was to help immigrant founders succeed faster in the US. We're very fortunate to be still investing. We're on our second fund. We manage about $30 million under management today and have about 45 portfolio companies that we've invested in, and we really focus on day zero investing.

So a lot of VCs talk about, you know, investing in people. But to give you some context 60% of our commitments are pre incorporation. So we are fundamentally underwriting people, their ideas, and what they want to execute on. Typically no product, no revenue, no customers. And so there's really three things that we do at Unshackled. And that is the capital. And you know, a lot of our founders will think about us as their friends and family round. As you can imagine, immigrants don't oftentimes have access to friends and family money. And so we serve as that scalable resource.

The second thing that we do is provide stewardship, we recognize the difference between success and failure. Oftentimes not what you know, it's who you know. And so we're very fortunate to be backed by some pretty powerful families and individuals who have gone on to be successful themselves. And that allows us to provide this network of resources to our founders at day zero.

And the final thing that we do Immigration support. So, as part of our founding team, we actually brought on two immigration partners. But we've done now north of 125 immigration filings on behalf of our founders over the last four and a half years, very fortunate to still have 100% success in finding a solution for entrepreneurs.

But fundamentally, the reason why we do that is because we believe solving immigration creates no business value, therefore it's a distraction. And if your investor can help you solve a distraction, then we're doing our job. So that's what we do at Unshackled we try to amplify founders time. As I said earlier, we're here to help immigrants succeed faster at Day Zero.

Jon Low

Thank you. It's really well said and and you know, one of the things when Unshackled first started getting its name out is that it was recognized strongly for helping immigrants get their visas. But my understanding is, to your point, your value add to immigrant founder talent is so much more and and not even pre pre incorporation, but post incorporation when now they take in an idea arguably an MVP to market and get it into the hands of customers. Can you speak more to these other significant non-trivial value add that you and your team have focused on?

Manan Mehta

Yeah, you know, I often think about our business no different than I would think about the customer journey of an of one of our startups, right, the enterprise client, or a consumer, everything starts at the top of the funnel.

Once they're in your organization, they are using your product. Then you have to serve them with customer success tools. You have to make sure they grow and scale and they stay loyal. And so as a venture capitalist, our product is very similar.

So what that means is that we have to run a robust process at the top of the funnel. So the promise we make to founders is three meetings two hours or less to an investment decision. We don't follow other people, we aim to be the social signal that others follow. So we've led 80% of the rounds in our companies. That means once we start working on the immigration piece, and the portfolio customer success piece, it comes down to brass tacks, it can mean everything from helping them pitch to for their seed or series A investors. It has been things around the nature of getting them published into TechCrunch. Getting their news published.

We have made numerous intro Series A investors who have ultimately invested and ultimately we've also helped our customers and our founders plan some major customers. So one prime example is in one of our portfolio companies, we actually were responsible in making the introduction and the connection to help that company secure a three year $5 million contract prior to the series A, which then led to us making the series A intro, who then invested in the company at nearly a 15 x valuation and when we invested.

So, those are the kinds of things that I think talks about the customer journey of what we have to do. But what's really nice is as we built our playbook, and we scaled our playbook, we're now seeing our founders help each other. So what is really elegant about having a tight knit community is that immigrants want to help each other if they know who they are. So we're now leveraging this community of nearly 85 founders to now help each other. Some have failed, some are successful right now. But the bigger point is that they can share those journeys, those experiences to help immigrants succeed faster.

And on top of that, we actually have a responsibility to also scale. And so in the last three months, we've actually hired three new people to our team. Two as analysts, one is Associate, the analyst focusing on blue, the top of the funnel evaluation and portfolio support. And the associate is going to work on all the programmatic elements to scale our support for our founders, and how do we work with them so we can understand their needs around capital, customers talent, go to market strategy, so then we can actually serve as companies scale and get to later stages still be valued and trusted partner.

Arjun Arora

Thank you, thanks for sharing that.

Jon Low

Very well articulated. My understanding is you didn't come specifically from a traditional financial background. So what got you into the game? You know, what was the positive hook? What keeps you in the game?

Manan Mehta

Yeah, that's a really great question. And so you're right. I don't come from a venture background. I think that's kind of what makes Unshackled unique is that we came from the outside, we recognize the rules of the game, and then operate more efficiently within those rules. It's just like maybe the founders we back you know, they don't necessarily come from the industry, but they have a unique perspective or insight as they then can apply into an industry they want to solve a problem for and then hit the ground running.

Honestly, it comes down to the fact that we had to book the problem ourselves. Right. Both Nitin and I, the two co-founders of Unshackled, shut down our companies because of immigration or our co-founders having immigration challenges. And so that perspective forced us to ask a lot more questions. And that's when we talked to you, Arjun, and brought him on board to be an advisor, which was really valuable for us to recognize. We don't know what we don't know.

So how do we rely on people like yourselves, so that we can gain that understanding and understand the rules of the game? The funny part about it is I actually think the game is beginning right now, in situations like this. Practice is over. This is the real game. And that's why today we are effectively telling all of our founders and everyone in our community that we are going to move all our investment capital that we have remaining into investing in new businesses.

We want to invest in 20 to 30 more companies over the next 18 months. And by the way that starts today. Because we think this is when immigrants need an investor like us more than ever. We have the process, we have the operations. Again, because we're from the outside. And because we've had to learn how to establish our own conviction, we feel very confident that we can do this. But this is a big part of what I say today is today's game, yesterday we had in practice, it's time to play.

Jon Low

My understanding is to do that effectively, you'd have had to vet and be aligned with your LPs over a period of time, a long time before you have the opportunity to do what you're doing today. So that when you make calls like this, there's no internal friction about your strategy, your discipline and your commitment to make that volume of investments.

Manan Mehta

Yeah, I think a lot of it comes down to productive and consistent communication with your limited partners. End of the day, they are underwriting people, process and performance, their underwriting my ability or my team's ability to our team's ability to do such things. And so if we can communicate successfully that we are adding the right people, we have a process to scale. And our performance is in line with their expectations.

As any manager, you tend to get the benefit of the doubt and more support from your investors, in our case, our limited partners. And so we've been very proactive in communicating. In fact, we wrote a full portfolio Health Score Card about four weeks ago at the very onset of Covid-19. We looked at every portfolio company, understood where they were, how many months of runway they had left, and then made a determination on how much more we'd have to reserve in the event they needed our capital, and then what do we do with the rest?

What comes out of that conversation is a very simple one, that as people are looking for their next set of investors, Unshackled is very uniquely positioned to do this. It actually makes sense from a portfolio construction perspective as well, because we've also been very active in doing SPVs with our limited partners. So, we have done three of them. So we've made them co-investors in our portfolio companies. All of this starts to culminate into what looks like an organization or a firm that has a lot of discipline.

We have not exceeded our investment pace, in any of the past five years that we promised. We have not put good money after bad. And we've shown that we'll be very transparent with what we learn. At the risk of maybe over communicating, we've been very fortunate to earn a lot of trust. And that trust allows us to be more comfortable with taking more calculated risks, to find the next outside return from the outliers.

Jon Low

Thank you for sharing behind the scenes, because it's all well for a VC to say go on this social media Twitter handle and say we are still open, right? But it's another question to say, “Hey, can you see that process through with conviction? Have you done the work beforehand to actually play this game?” So I'm very grateful that you were transparent about that. And so then would I be incorrect in saying that your standards about your speed to conviction process about whether you're going to invest (or not), still holds true, even in light of recent events?

Manan Mehta

Nothing changes— three meetings, two hours or less, to investment. We put that process in place about nine months ago. We didn't know we would have an invisible enemy that we'd have to deal with. It wasn't part of our thought process. It was more so a thought process on how do we make sure that we're valuing the individual’s time.

The individual in this case, being the entrepreneur, nothing is more frustrating than having opaque processes with VCs. We see it as our portfolio companies raise their next round. It is absurd that the VC can't transparently tell founders what their process of evaluation looks like.

My suggestion is if you can't tell them, you don't have one, and that's your problem. And so we are very adamant about customer service. We hate wasting founders' time. We don't want them to educate us on the market, it's our job to do. Our job is to underwrite their key insight in solving a major problem. And so for us, honestly, nothing has changed. This is a situation in which, you know, we are working from home, or remotely a little bit more than we did before.

But, you know, candidly, Zoom works really well. Our process already had two steps of zoom involved in it. Now we'll have three because we can't meet the founder in person. But that's all that's changing. We can still invest at the same pace. If at a faster pace with the same check sizes, with the same diligence with the same responsibility and bring them into the same community. That is the power of helping immigrants succeed faster. It is in moments like this, that again, I say this, investors underwrite people, process and performance.

If we have those in place, we can do things like this.

Jon Low

Thanks. And for the record, for this podcast interview, you have full bragging rights. I say that because I'm going to ask another question, because I'm pretty sure you're going to be transparent about any shortcomings, failures or challenges you didn't meet. Which is why I want to give you an opportunity to share a bit of like, what were some of the key challenges or misses you had in running and getting Unshackled off the ground that that were very humbling?

Manan Mehta

Yeah, I think it's really clear for me that I think the biggest challenge that we had to go through was realizing the difference between right and wrong and having influence. So, when you're when you're negotiating or investing in entrepreneurs, relying upon legal rights or wrongs can be a very slippery slope. I

f you are early in the journey, and there's a lot more interaction that needs to happen as a company succeeds, but recognizing that if you have the right influence, and you have the right relationship, you actually don't need to fall back on right versus wrong very often. And so, in our case, that was probably one of the examples that we did not very transparent about this is we fought for pro-rata investment rights.

When one of our companies got into Y Combinator 7% dilution and our rights suggested we could do that. We fought for those rights. We were in our second year of investing. We didn't realize as capital managers or as a fund, that you know, really flexing your muscle on those rights is actually a very really poor decision and actually makes no financial difference.

So when we realize that after the fact, we have changed a lot of our strategy to make sure that those situations are either well communicated beforehand, or they don't come up ever again. But that is something where when we look back on it, we, we were so fixated on right versus wrong, versus having a great relationship and influence, which if you look at the case of a company like Lily.AI, that raised from Canaan, and it was announced 12.5MM dollar in January, we were one of two other investors that got our pro-rata rights.

And by the way, we got more than our pro-rata rights. And it wasn't because of the documentation. It was because of our relationship. And that last lesson that we learned about four years or three years ago, is why we're in this position today, which we think is a lot more productive. And so that was one of those things we had to learn by doing. And I'm really, really thankful it happened early in our careers.

Jon Low

Thanks for being transparent and sharing that. And you know, and and what was how did you manage to take that like strategy approach in that learning and communicate it transparently and get your LPs aligned? Because arguably, you have visibility, more visibility into these dynamics that influence outcomes, right, that your LPs might not have?

Jon Low

Honestly, it was in our annual letter in 2017, where we actually wrote about this mistake. So we came clean right away. We noticed within months after that, that was a big mistake. And we talked a lot of people around us and again, it was in that transparent communication, the more trust is forged.

It goes back to the same thing, right? How, as somebody, whether you're a CEO of a startup, or you're a, you're a GP at a venture fund, ultimately, you're, you're deploying somebody else's money. And what you need to earn from them is their trust, so that they let you have the latitude, even if they're a board member or not, they have a lot of latitude to, to do what your instincts allow you to do. And that's why they backed you in the first place.

But the only way that grows over time is through transparency and communication. So we are very, very big believers in this model. So much so that from our LPs, all the way down to our analysts, we share everything they need to know what's happening with portfolio companies need to know how we're thinking about investment decisions, because at the end of the day, when a founder asked for help, anyone's capable of jumping in. But that only works if they are armed with the knowledge of the background. Resharing information is a very inefficient process so we really enjoy kind of putting things into writing and to share because it allows us for way more speed. And that's my job.

Jon Low

Really well said. A Cambridge Associates report says that a lot of emerging fund managers on funds one, two and three, outperform later, more experienced funds. So, as you think about Unshackled growing and becoming a larger institutionalized fund, so to speak, how have you thought through avoiding what the numbers seem to show?

Manan Mehta

Yeah, and there's three things that we're constantly thinking about. Number one, we plan on growing our partnership internally, so we want to make sure we're generationally relevant at all times. We think that's a great way to avoid complacency. Meaning, if you can bring somebody as an analyst in over five or six years, they become a partner in the firm, I think you're actually creating a very strong culture of autonomy and conviction, that is really important to us. So that's number one.

Number two, you know, a big part of it is recognizing where arbitrage sits on shackles, arbitrage is investing early, when no one else will, and securing better economics anybody else would, when in reality, six months later, our companies are raising seed rounds with three to $4 million at a five to six x higher valuation. I will tell you this right now, those businesses are not five to six times less risky than when I invested. So, recognizing the financial arbitrage that we've created by having high conviction at Day Zero is a very good way to maintain our focus on what we do and avoid strategic drift.

The final thing comes down to portfolio construction. So, as we go out to raise our subsequent funds, we recognize, again what our uniqueness is. And that is our initial investment strategy. No one else can do what we can do from the stage all the way down to immigration, we are the only what I call full service product for immigrant entrepreneurs. And so by putting more of our capital 60 to 70% of our capital to work at those stages, and then having a smaller reserve that many seed or pre seed funds have, it just forces us to keep on being disciplined, because it's really easy to get caught up in the bright lights of series A B financing and that's when a lot of funds put good money after bad.

So if we can secure economics early, with the right portfolio construction, and the right team who wants to build their own track record, I think we're setting up ourselves to be disciplined and avoid what a lot of the a lot of other funds tend to struggle with, which is complacency, and all of a sudden living off management fees.