raj ganguly

Raj Ganguly — B Capital

Wednesday, August 10, 2022

B Capital has rapidly grown to over $6B AUM and has just announced its first early-stage fund, the $250M Ascent Fund run by a superstar team that includes Eduardo Saverin, Gabe Greenbaum, Karen Page, Karan Mohla, and Howard Morgan.

Raj says B Capital was not an overnight success but was built steadily on the conviction that there needed to be a firm that could be best in class on value-add and also global from the outset.

Today I have Raj Ganguly with me. Raj is the co-founder of B Capital, a global multistage venture fund that he built with Eduardo Saverin and Howard Morgan. B Capital has grown extremely rapidly and I believe may now be LA’s largest venture fund.  

So, let’s start with where you are now with your funds and with B Capital’s growth.

We started off as a growth fund in late 2015, early 2016. We added a venture fund that was our own money initially, and then my absolutely awesome co-founder Howard Morian decided to run it with Gabe Greenbaum and Karen Page. And so we now do venture, we do growth and the latest funds have taken us across 5 billion AUM right now. 

But I have to be honest, that’s never really been our focus, I think at the end of the day this is a pretty simple business–you try to back the best founders and be a little bit helpful to them. And we’ve now backed about 130 founders over the last five and a half years.

View More Transcript

That’s awesome. Growth. What sort of lps did you start with and how were you able to grow so quickly, I think we start off the way that we all start off. We just started off with ourselves and a bunch of our friends and we actually went out to market initially and pretty much everyone we met thought it was great and then passed on us at the same time. You know, which I think we learned a lot from.

So we now. A bunch of institutional LPs and we still have a lot of the original people who helped us get started. I think we have, been really loyal to them because they took a chance on us really from the earliest.

And can you give me a bit of the pitch or the focus?

focus is really simple. We built the firm around three key pillars. One was how tech was going global and in 20 12, 20 13. When my co-founder had Waterloo and I started talking about this, we really felt like tech was not just becoming more global, that it was tech and innovation should be global.

 Second Both of us for years have really been focused on the rise of digitization of large traditional industries. So healthcare industrials, financial technology And then third, we want it to be engaged partners. And we built um, amazing team inside of the firm which is our platform team. And really Howard has been a pioneer in this for, decades, from his time in the first round.

And that’s why we were so excited when, he started the firm with us. And then we built this partnership with the Boston consulting group, BCG, which gave our companies access to even more resources. And so our pitches has been those kind of three pillars. , I think we. Today do it better than we it six years ago when we started the firm. But we stayed pretty true to those principles.

All of them are interesting We have this partnership with BCG doesn’t tiger work with, is it Bain or McKinsey? They work with one of those is that your model is similar. Is that a totally different style?

I think there’s a lot of similarities. I think what tiger has been doing with Bain over the last couple of years, we’ve been doing with BCG for six plus years and our partnership. Is one where BCG is a long-term partner with B capital the compensation slightly different in a way that we think keeps him engaged, really long-term with our companies.

Um, But I think what tiger is doing with Bain is really phenomenal and, has a lot of similarities to what we do with BCG.

Interesting. So when I was at Google, Eric Schmidt was the CEO. And he used to talk about what models he would look at for google’s growth as we expanded beyond just search so do you do the same do you look at what has done do you look at tiger do you look at private equity as modelsI think it’s a bit of a mix. I think we look all the time at other people. I mean, it’s amazing what Andreessen’s built in such a short amount of time. I think tiger, in the last six, seven years has really just become a dominant investor. They’re in five plus percent of unicorns and you look at firms like Sequoia that have been around forever.

They’re in temporary. But that’s pretty amazing progress for firms like tiger in south bank. So think we’re learning all the time from others. but at the same time, we are really trying to build a different model.

Like our approach is we want to be a global investment firm. With value, add capabilities globally. And I think that was the difference. you know, there were a lot of firms in the valley that had value add capabilities and then the global firms they were generally more passive investors because it was really hard to be an active, engaged partner. At a global scale and at Bordeaux and I talk about this a lot, which is definitely didn’t choose to do something that was easy or simple. And frankly it’s complicated. Our model is, one where we do have partners and, we have teams on the ground and us, China, India, Indonesia, Singapore, and probably two.

And then, new markets later this year But it’s, taken a long time. I mean, We’ve been working on this for awhile and it’s funny. I think sometimes we’ll meet people and they’ll be like, oh, we just heard about B capital.

It seems like you guys have really grown fast and come out of nowhere. And we’re always like, no, we’ve been working on this for a long time.

What have been some of , the surprises or the things you’ve learned, There’s so many big things that have changed over the last couple of weeks. I I think , in 2022, our goal is really all about building a learning organization. We feel like we’ve reached a certain point of maturity and stability And now we really want to make the organizational learning organization. So we’re continuously learning from things that we’re doing and things that others are doing.

And how might that manifest.

I think just a return to the fundamentals and the basics that matter is whether your business model, , we’ll eventually make money. fine. If it doesn’t make money today, but you have a plan to make money. And how are you going to do that? Do you have sound economics? A lot of things that I think we’ve preached for a long time, but as the music started to go faster and faster over the last few years, I think everyone. You know, with guilty of, investing in, companies where the valuations were getting ahead of themselves. And you know, you’ve got to build businesses that ultimately are.

Sounds like the basics of how business works. Let’s stay on this topic of thinking. Are there certain verticals where you’re focused you’re thinking

Yeah. That’s a great question. I think fundamentally our businesses a pretty simple business. Our core is enterprise. enterprise software. It’s a space, you know, really well. It’s super competitive. There’s lots of other investors in this space that are, equally smart, if not smarter than us.

And we’re new and you know, we’re the upstarts and we have to fight hard. And when those deals, we, ideally win them because of the value add and the reputation we’ve been building. But sometimes you just have to pay up for them also, and you have to know how far you’re willing to pay up. I think there’s three big kind of verticals that over the next decade we think are going to be transformational.

 The first one is healthcare. we’ve been investing in healthcare from the beginning, but the speed and pace of bringing new drugs to market had slowed down dramatically over decades. We’ve got to speed up that innovation cycle. Second for us is financial technology. We thinkyou know, over the last five years the us has been really kind of a leader in FinTech. We think it’s becoming more global. We’re making investments in FinTech, in Brazil and north Africa. In addition to our investments in Asia and the U S Fair to say that you have more traditional approach to FinTech than a web three focus. right now. I think. The buzz about web three is probably a little bit louder than the substance around it, but it’s a space that we, you know, we’re going to start off the way that we play most spaces, which is Brent is focused on the picks and shovels.

And we want to invest in a lot of the infrastructure. That’s going to drive web three. And eventually we’ll get into some of the consumer technology too. But

it’s a huge space. as this, my third one where we don’t invest, which is climate tech, you think about the three big themes for the next decade, we think healthcare FinTech, including, , the transition to web three and decentralized finance and, just inclusivity and, FinTech and not just inclusive. For consumers, but inclusivity for small businesses because small businesses are the biggest drivers of growth in the global economy. And they generally struggle to get access to financial products. And, third climate tech, And even though in 2007, I think we went through that first kind of, you know, green energy revolution, which kind of petered out this time. It really does feel different. I think it’s a space that B capital will, thoughtfully hopefully move into over the next year.

Great. So those are the verticals. And what about check size and how are you thinking about today’s valuations? First part’s the easy one. So we, write 250,000 to a hundred million dollar checks from our venture fund. We do 250,000 to about 10 million in our growth funds. We do about 10 million to about a hundred million. And you know, in, terms of where’s the market going and how do we play the market? there’s these kind of two diametrically opposed forces right at this moment. One is that if you look at any of the industries we invest in, they are, you know, one to 5% digitized at most. And so there’s so much growth left in them. And on the other hand, we’ve gotten to this valuation point where a lot of. Great companies are not great investments. And we talk about this a lot internally at the firm which is , we’ll meet with founders who blow us away. Companies that we think are unbelievable, but then valuations, where we just think that, the risk of making the investment at this valuation really tough for us.

And we do walk away from deals all the time at companies that a year later. Twice as much, three times as much. And we’re so excited for these founders who are building these companies. But it does seem like at some point that for us as investors, we’ve got to say that, you know, this is the valuation we’re we’re comfortable with.

And at the end of the day, , we’re not the most valuation sensitive investors. We think that when you find great teams, you’ve got to be willing to pay up for them because they are worth it. And you know, that’s, the way that the world should work. And who do you see as competition nowadays? And sort of, how do you see this whole industry evolve?

it’s unbelievably competitive. And the reason is I think everyone with a large pool of capital has wanted to be in tech investing.

I mean, tech investing has grown phenomenally. You know, obviously the, big global investors from, tiger to Cotu to SoftBank, we come across them a bunch. I think that the Silicon valley firms have really transformed over the last few years. They’ve become more global. I think traditionally they had a much more franchised regional structure.

And I think they’re learning that tech is more global and that being able to collaborate across your offices around the world actually gives you a huge advantage in pattern recognition and helping your companies grow in scale. But, you know, frankly, we, compete on deals with large asset managers and mutual funds and retirement funds and family offices and Canadian pension plans.

And so it, really does feel like everyone who knows. And understands tech believes that there’s a lot of opportunity in this space since we invest in we’re excited that that’s the case, but sometimes it does feel like there’s always a new entrant in this space.

Who’s willing to pay a valuation that just doesn’t make sense. stay on that train of thought about how, you know, if there’s a bit of a correction or dramatic correction or something, you know, how do you see this sort of blurring between public market and private market investing?

The line is so fuzzy that it’s almost disappeared at this point. The line between public and private. I mean, for us every day, we focus not just on our private market investment, which is what we do, but we are constantly staying. On top of the public markets. And I think we will do that even more and more in the future. I think it’s much easier. Number one, to be a public market investor in come to the private markets and we’ve seen every public market investor do that. But you’re now starting to see private market investors get into a public market. It’s tougher to go in that direction, but you’re seeing it more and more. And I think that in five years from now, the line will just have disappeared you know, if, you’re a thematic investor like us and you’re following these spaces and you’re following these companies, We want our first bite at the apple when the founders are just thinking about their idea and then our growth fund is excited. If you want continued capital from us, we’ll fund you through the B all the way throughout the, uh, Uh, many of these companies now are growing and scaling in the public market and still need capital at that stage.

And who knows them better than the private market investors who’ve been with them. And so I think it makes a ton of sense for investors like us over time to be able to follow and support our companies, even when they go public. And I think there’s a lot of returns that could be made for our LPs by being in that space.

Yeah. I’m not surprised to hear you say that. Given, as you say, you should know these companies extremely well. But keep going and painting the vision for me of where B capital is going over the next decade or so You know, we, just got out of our first global partner meeting last month person you know, one, it was just amazing to see people in person. And I’d say, you know, two days of our leadership being together in person was worth like a year on zoom. So. And we, we talked about this and ultimately we think that, you know, there’s, a few big things for us.

In the next decade, one is we want to build a firm that’s resilient and we want to invest in companies that are resilient

because this is a cyclical business. And we’re going to go through a cycle maybe that, cycle and that, turning point have, happened over the last few weeks. too, as we want to be able to continue to follow and support our companies all the way through, including into the public markets and three. We want to tackle really big problems. And we think those problems are in primarily healthcare, financial technology and climate tech. And in 2031, when, someone’s writing a headline about us, we want to be known for companies. We invested in that solve really big problems. enterprise infrastructure, which is our core and base are going to continue to power horizontally, everything. But we need to be keenly aware of these three verticals in the next decade, because I think that this is where you know, really knowing the industries is going to matter, even if you’re a horizontal enterprise software investor. I think you’ve got to understand the industries you invest in more and more over the next decade.

So let’s layer in the macro environment on top of your vertical focus, you have employees in China and in the us. What do you think is going on with tech and geopolitics

This is so important and relevant way beyond venture capital and way beyond tech. I think just, for the world that our kids are going to grow up. Yeah. you know,, I think we all know what happens in a highly polarized world. Any of us were old enough as I am to remember the days of, you know, Soviet union. No, you know, we could live through 50, 60 years of a highly polarized world, but that it doesn’t feel great for people like I don’t want my kids. To live in a world where constantly it feels like at any time that, , something bad could really happen because there’s another country in the world that you know, has significant geopolitical differences with ours.

And so. Um, This is something I think a lot about. I think that we are currently heading in a direction of having a highly polarized world with the U S on one side and China on the other side. And the decoupling of tech that’s happening is just one piece of that. I, think as a firm, we have a significant presence in China as we do.

And, other parts of Asia as investors we’ve been prudent and we manage our exposure in China, but we also believe on the other hand that it’s one of the biggest tech markets in the world. And I do believe that as leaders in tech and as um, global business leaders, that we all have a responsibility to find channels of communication and collaboration, even with this kind of decoupling that’s happening And my hope is that this kind of 20 year trend that we’ve seen of, the friction between China and the U S that it will cool down at some point. But frankly, at this point we don’t see it changing anytime soon.

And so we’re, very focused on making sure we’re making investments. Are resilient and that can work across some of the issues we see in the short term are going to happen between China and the U S where we believe that there will continue to be increasing trade friction restrictions on technology exporting and technology investments. And frankly, we don’t see a changing until probably the next three to five.

Hmm, What do you think people need to understand, or what is misunderstood right now about what’s going on?

think there’s so many misunderstandings right now. I mean, China and the US are two of the most connected economies in the world. So the idea of, truly decoupling these two economies, I mean, we’re connected with China in a way that the us and Russia, the former Soviet union was never connected Um, And I think that is the biggest misunderstanding.

A lot of people talk about this and say, it’s going to be like the USSR and us. Well, we didn’t have the kind of trade ties and business ties with Russia that we’ve had with China for decades and decades. And that’s why I think that business leaders play such a pivotal role in this because we are the ones who are in many ways, the business community, the investment community, the tech community.

We’re a lot more than that. With our Chinese counterparts, then I think some folks in the government are and that’s been both good and bad. I think there’s been times where government has felt like the business community was pushing back and saying that, no, listen, these are vital relationships. We shouldn’t just cut ties. And I think that’s, hopefully been a positive influence. I think all of us as business leaders who do business in us and Asia or U S and China, that we, can serve as hopefully, sometimes the voice of reason when , other parts including our government are taking a bit more harsher stance without understanding how deep the business ties are between our two countries.

That’s interesting. It feels like it’s a theme that I keep seeing them sort of private enterprise in a lot and doing things that usually would have been sort of public enterprise work.

Yeah. I mean, I, Wish the answer was that more people from private enterprise would go to government. , you know, , we have a substantial presence in Singapore and St. Paul has an awesome tradition of, that happening. I think in the U S there’s a lot of great business leaders who are unfortunately determined by going into government these days.

And that’s unfortunate because I think we need great people in government.

Um, Things like, oh, Amazon sort of taken over the USBs or that sort of stuff.

The privatization of, so many industries hope, but to your point, hopefully we’re not privatizing diplomacy because the government still, I mean, that’s their realm. But I do think that business leaders play a role in, you know, we’re a small firm but we do business in the U S and China and Franklin. You know, just having 15 team members in China that we got to speak to all the time. We found. so much common ground with them. , in individual conversations that I think has changed our whole firm’s views and perspectives. I mean, I think you take something simple, like some of the regulation that happened in tech class. There is a lot of people in the media saying, oh, look, this regulation you know, this is bad for tech. I think if you look at it from a different perspective and say, listen, this is about protecting consumers, privacy, and their data. And in the end, this makes tech companies more sustainable.

Because if you protect consumers, data better, consumers will have more trust In our tech companies. So I think the longer-term perspective that we got from our team members in China was really helpful to balance out some of what we were reading, frankly, in the meeting.

Is that what a lot of China was doing? Was it by the protecting consumer data?

I think there was a big part about protecting consumer data and there was another big part about wealth inequality.

And frankly, those are both very understandable goals. I mean, frankly if we saw European regulators talking about those two things, I think that U S media would have said, that’s a great, you know, look the U S we have so much wealth inequality and consumer privacy issues. Isn’t it great that the Europeans are doing all these things to protect it, but suddenly when it was Chinese regulators doing it it became in the media, this kind of big negative.

So, how do you see your investments in these verticals? Spanning us and Asia. I think in FinTech, some of the FinTech areas that we’re focused on, small business credit being one of those big areas. It turns out that. As I mentioned, small businesses are just a huge driver of not just jobs, but economic growth. They not only struggled in the U S with getting access to credit, but they struggle everywhere in the world. And even more in places like some of the emerging markets. And we’ve got companies That are really kind of revolutionizing the way credit is given to small businesses.

And you know, they’re doing it from scratch. Like it’s not like the U S where you’ve got credit reports and other things.

like Kafka books does the accounting software for small businesses. Not because they want to be an accounting software company, but by doing the accounting software for them, they’re getting all the data on these companies. And then they can help them get access to lending products. So they had to start just way back right from the beginning, because there’s no fundamental rails of banking for small businesses in that market. And similarly, I think in China, our, biotech healthcare investments in China you know, traditionally the U S and Europe have been the leaders in biotech.

We’re investing in companies that are dual headquartered between the U S and China, and frankly talking. Some of the restrictions. We think the collaboration that’s been happening in healthcare and biotech between the U S and China, which has continued through a lot of this mess, that’s happened over the past, five, 10 years in terms of the government restrictions has really been embracing.

That’s interesting. Yeah. I might have thought that that would scare off some investors to have sort of a cross border us, China collaboration.

 I think there’s a lot of things that scares off a lot of investors, but luckily the proof’s in the pudding. And I think that we’re going to start to see great companies that have a significant presence in the U S in addition to China, because there is a lot of amazing innovation happening in China, but the us is still the global leader in biotech.

And so be Capitol must’ve had some big early wins. Maybe we talk about a few of those.

We got really lucky when we started the firm. . I When my co-founder at Bordeaux and I talking to people we really know and respect their advice was listen, this is a really simple business. be good investors, make sure your first few investments count and that, you know, don’t invest in companies initially that just don’t work out because you’re going to be known for those first early investments

And so. Our first investment was a company called ninja van and late April of 2016. It was the Southeast Asian technology enabled logistics company. They had about 5 million in revenue and they wanted to expand from Singapore pretty. Um, Simple market. it’s a city state. Be capital.

It’s been there from the beginning. Roads are great. Addresses makes sense. They want to expand from there to Indonesia, Thailand, Philippines, Markets that are just more complicated. I mean, in an HR has a thousand islands Addresses don’t mean anything. And we were like, right, like we love the founders, there unbelievably ready. They sleep in the office. They were unbelievably committed to what they’re building. And In Japan it’s gone from about 5 million of revenue to about a billion of revenue. They’re all over Southeast Asia, they’ve become this just huge last mile delivery company. They were critical during COVID when people couldn’t go out of their homes.

And I was just thinking, you know, there’s so much luck in this business. Like we. could have backed a bunch of companies initially that had a phenomenal founders who just couldn’t get there.

and couldn’t build their businesses. And I’m always grateful to those early founders who took our money in fund one, because we promised a lot in the end, we weren’t quite sure what we could deliver and hopefully we’ve delivered what we’ve promised.

So like ninja van. It’s this huge success. I didn’t realize you investment was 5 million in revenue. Was it competitive when you invested or were there a lot of investors who just didn’t see it.

Now it’s, you know, people are like, wait, logistics technology in Southeast Asia. That’s going to be your first investment. And my partner at Bordeaux was just, I mean, he was convicted. He met the team and he was like, listen, e-commerce is going to be huge here. We don’t do e-commerce. We should do picks and shovels let’s invest in everything that enables e-commerce. Which was great. We were like, okay, so we need last mile delivery. And then there was like a dozen companies that do last mile delivery. I think 10 of them that are gone today that either got acquired or went bankrupt. And it.

was the team. I’m going to run out of time. And I need to ask you about who you are. So let me just jump into that. did you grow up? was your family like? So I was born in India In a place just outside of Calcutta. And I moved to the U S when I was five with my sister and my parents. My dad took a job in New York to be nuclear reactor operator. And that. All of us to the U S so I grew up in New York. I started coding in programming as a kid. I got a 2 86 clone computer that I worked on putting together with a couple of friends. I decided I wanted to do. Long-term and gone into school with the focus on doing computer systems engineering degree. And I think. I like to say like a year in, but I feel like it was like a weekend. I figured out a week into college that everyone else and my program was just so much better than I was in coding and programming.

I finished my degree. And I came out and I still want it to code and program, even though I wasn’t that great at it. And I led product at a early FinTech company based in New York. We eventually sold it. And I think that was the end of my time in tech. And I want us to switch to investing andWhen I was at business school, my other co-founder was at Harvard also. We have to live in the same apartment building Um, Spent six years at Bain capital and came out to LA during that time, actually my wife’s from Southern California. She really wanted to be back out here And it’s been awesome to be part of the tech community here. And then we started B capital and 2013, my co-founder Eduardo, and I started investing together. we had always kind of had these relate different perspectives on investing.

He’s such an optimist. And it’s awesome because it really helps me cause I’m such a skeptic And 2015, we decided we really wanted to get serious about this and build a firm.

And we actually flew out to the mark. We had 30 minutes with Howard which went three hours and at the end of it we convinced him to join us as our third co-founder in probably. One of the best meetings in my life, and outside of office, I’ve got. Three kids. And my wife’s a professor at UCLA where she’s a child psychologist. so beyond being the skeptic, how would your wife, or how would your friends describe you?

I think I like to build stuff like um, It happens to be the business that we’re building is a business where we invest in other founders and entrepreneurs. But I love building the business And if the outcome ends up that they built huge companies , and drive returns that’s a benefit on top, but I think you?

just have to keep perspective that just being in this industry is, a privilege. And especially for someone. Like me who you know, I came from pretty humble beginnings and was born in a pretty small town halfway around the world. And the fact that I get to do this today, , I feel like is a privilege every day.

Amazing. And you had Eduardo met because you were living in the same village.

so we were in the same building when he was an undergrad and I was in business school And when I went out to Asia in 20 10, 20 11, as part of building Bain, capital Asia we reconnected out there and just really hit it off.

Little tangent. Should we talk for one second about business school? My reunion is coming up.

I’m super excited because I hear you’re going to have a reunion. I went for a day two years ago for my 15th one. Just because it was in the middle of a lot of things. And the coolest thing is at five years, everyone was still very much like, oh, here’s what I do.

10. It was like, well, here’s what I’ve done, plus like, you know, here’s my accomplishments. 15 felt like the first year where no one really cared anymore. It was just very much like, oh, so like, you know, how are your kids? Like, what are you doing? Are you happy? Just to hear people talking that happiness and other things and not just like your career progression, all of that was really cool.

But how much do you feel like your happiness is tied super closely to your career success?

I’m a little mixed on it. I have to say I love my career. But I’m also starting to think a lot about. How do I have impact in the world? beyond just my career. I truly feel like I got super lucky in life to start from where I did end up where I am, but , we need it to be less luck. In terms of getting , from a place like where I came from to where I am. And I think it’s part of what’s driven at Bordeaux and I to build affirming. We’re both first generation immigrants

I love it anything else you want to say or should we just leave it on that inspiring note

You know, I, think cities like LA serve as a model for the future of tech innovation. you know, I think the old model of everyone being in singular places like the valley, which is still a phenomenal place. But it overwhelms the infrastructure. It’s really tough for, city steps who have been frankly, I don’t think it’s aligned with the way entrepreneurs want to build their companies. And we have to prove that we can do this in a really spread out city and build a community That’s still really cohesive.

 Absolutely. And I appreciate you taking the time out of your super busy schedule to do this. And i’m so impressed and excited for you and for b capital in laThanks for having me on.