Navigating The 2023 VC Landscape Interview: Miriam Rivera, Ulu Ventures

For the next installment of this series, Brian Penick interviews Miriam Rivera: CEO, Co-founder and Managing Director of Ulu Ventures. Miriam is a JD MBA who began her career in startups before transitioning to Google Ventures as Google’s second attorney. After a successful exit, Miriam and her husband joined the Kauffman Foundation and began investing in startups, developing a methodology for optimizing returns while reducing bias in decision-making. Ulu Ventures was launched to help support talented entrepreneurs (“Ulupreneurs” as they refer), with a thesis surrounding the ideal that “diverse professional backgrounds and life experiences are better at problem-solving and create better business opportunities.”

Brian Penick: It’s obviously an interesting time given everything happening in the market. Can you offer perspective as a seasoned investor and entrepreneur, along with your historic focus?

Miriam Rivera: Well, Ulu is deploying capital and in the fundraising market, so we’re on both sides of the business. We invest almost all of our capital in the Seed stage, which is a broad category. Some companies may be pre-revenue, although most of our portfolio companies have some minimum viable product and early customer traction, but it could be in the tens of thousands to less than a couple hundred thousand in revenue. So it’s a small amount of traction. We look for the idea behind the business model: customer segments, competitive landscape, etc. We tend to focus quite a bit on the total addressable market for any company as part of our analysis, so it’s not so much about revenue or no revenue. It is about how well you can support the idea that you have a business model that can create a company that could grow to be very large. We are looking at market mapping and making predictions from the earliest days, which is one of the things that I think we do that’s a little bit unusual. We sit with founders and do the full brain dump on the whiteboard, but now it’s a digital whiteboard, as opposed to a physical whiteboard like in the pre-pandemic. What we’re trying to do is go into all those customer segments, adjacent markets, what the story could be on a company as it grows to maturity, then we’re looking at what kind of dilution we’d expect, what type of exit multiples, and coming up with a prediction today, for what we think something could be valued at in five to ten years.

Penick: Your work obviously focuses on creating impact, but would you describe Ulu as an Impact Fund?

Rivera: Ulu is not an Impact Fund––we are a traditional venture capital firm that is return-driven. We have no mandate around diversity, but 90% of our companies include a diverse founder, meaning a woman, an underrepresented minority or an immigrant. We find that most of our teams bring that kind of diversity and have unique skill sets, backgrounds and professional perspectives, all of which make them strong founders and lend their expertise to the problem they’re trying to solve. That is one of the reasons we think we can identify some exciting companies often overlooked in Silicon Valley. I also serve on the Board of Acumen Fund America, an Impact Fund that works to improve the lives of low-income Americans. It’s sad, but in America, if you’re born poor, 65% of the time, you will end up poor at the end of your life just as well, in this amazing place with all this kind of opportunity. We know that access to capital is one of those kinds of factors and how communities have historically been locked out of better zip codes, schools, etc. I also served on the Board of the Kauffman Foundation in Kansas City, where we also focused on access to capital for entrepreneurs. Although the Kauffman range of entrepreneurship is broader than tech, Ulu and Acumen Fund are both focused more on tech entrepreneurship.

Penick: Thank you for the clarification. Given the market conditions, have you had to adapt your strategy?

Our LP base is 80% institutional investors, including foundations, higher education endowments, bank holding companies, pensions and funded funds. We’ve always had some entrepreneurs in the fund as well, and we work to help educate them about how to do investing as angels so they can become emerging managers themselves someday. Because we’re investing in diverse teams, it’s essential to help to educate the capital chain. Entrepreneurs don’t realize they are the foundation of the capital chain in this country. Everyone in the world is pushing money downstream to the entrepreneur. We see ourselves as trying to create a community of “Ulupreneurs” that have success themselves and hopefully make a lot of money in their businesses. We know that when diverse people have access to capital, they reinvest in diverse communities, and we want to have those newly accredited investors in our pipeline as LPs. We haven’t even had a minimum for our entrepreneurs to invest, so we try to increase their access to investing. Institutional investors are typically in the market for multiple funding cycles. While this is a bad cycle for many institutions, the great majority appreciate that Seed investing is a very long-lived category where the payouts are a five to ten year horizon, not in one to two years.

Penick: What best advice can you offer startups in this current climate?

Rivera: This market is challenging for startups because it’s primarily based on fear and speculation. I’ve been through the 2001 Dot Com Bubble and the 2008 Great Recession, and the pandemic is not as bad as in 2001. At that time, a quarter of the tech workforce was laid off, and I knew people with advanced degrees who were in a marriage together that couldn’t find work for an entire year, so this is not that. I will say that period was also a great time of opportunity. I joined Google in 2001 when they had the advantage of a down cycle where companies have greater access to talent during that time than you would in a cycle where the big guns are paying 300k per year with gyms, fancy cafeterias, all these things that you cannot afford as a startup founder.

We focus on the advantages of accessing talent because that’s a massive part of building great products. We see a lot of companies have access to diverse teams in their home countries, whether India, Mexico, Chile or Argentina––there are real advantages in terms of being able to access talent remotely, something a lot of our portfolio companies are doing more of now. Reducing their burn rate in terms of real estate or office space is great, but it’s important for startups to actually put people together. Relationships matter, and you still have to make time for travel. Being together in real-time helps reduce unnecessary friction because how you say something in an email might give somebody the wrong way. Picking up the phone and talking to each other is also helpful. You should always be ready to raise capital, especially when times are bad. You want to have your data room fully stocked. I can’t tell you how many times I’ve seen people taking too long to get their diligence done, which ends up hurting their ability to bring in a round more timely fashion. That could be the difference between us putting in one or five million during the bust. As people get more nervous, you want to be more prepared, which would be my main advice. I still believe in solving fundamental problems, like a real customer that has a real problem, not a technology chasing a market, so starting with the customer development process and trying to figure out a problem that you are better at solving than any other person is what I think great entrepreneurs end up doing.

Penick: Great perspective; can you share thoughts for investors as well?

Rivera: I think these down cycles are actually times of great opportunity as an investor. We started Ulu during the 2008 economic crisis, but it was an excellent time to start a business as an investor. Many investors sit out these cycles, so fewer dollars are available. Yet, there are many exciting companies out there, and if somebody was overpriced, there’s a real chance to consider a down round as a good idea. It can help keep the company going, and they will potentially have an opportunity to recover over the long run.

We’re seeing many people be more reasonable relative to the last couple of years when if you gave somebody a valuation they didn’t like, it was as if you were telling them your baby is ugly. Now, I think people are just a lot more pragmatic––we’ll see people trying to identify a price that will close a round as opposed to what’s the most we could get, which is great for investors.

For people thinking about angel investing or investing in funds, it’s also a time when they have more opportunity to invest directly alongside fund managers they already support as LPs. We see much more interest in that right now, where they can access deals directly.

The majority of our LPs are not doing direct investing, or they’re not searching for short-term liquidity. They’re very long-term investors, and they’re trying to build their asset base to fund scholarships and future research, or they’re trying to fund grants perpetually, so they have a very different time horizon. For those people, the public markets have definitely created a sense that they’re overweight on privates. The reality is you should look at those two buckets together because you shouldn’t do private markets if you can’t beat the public market, which is ultimately what long-term investing at the Seed stage is all about. We believe we can generate a 2x even compared to Series A round at the Seed stage. If you want to have growth in your portfolio, you can support the mission of your organization or your pensioners––whoever is dependent on your capital––then you want to grow some portion of that and compound it over the long run. We think Seed stage investing is an amazing category for that and for supporting innovation and the future economy of this country.

Penick: Based on your expert opinion, what will happen this year? Do you believe a recession is coming? What does your prediction mean for both entrepreneurs and investors?

Rivera: My focus is on about five to ten years from now. We use the short run of the market mainly to analyze the short-term risks to our companies. We know that it will be potentially more challenging for them to raise capital, and it may be harder for them to generate revenue. But we don’t think the multiples they could experience ten years from now have fundamentally shifted from historical averages. We’re looking at trying to price fairly in this market with that future expectation that founders should be building towards. It’s not about what your valuation is today. It’s about what your valuation will hopefully be when you exit. We are still very optimistic about the long run in the US and the technology sector. The real question is, what market sectors do we need to be in for the future? You asked earlier whether or not we’re changing our focus of investing and continuing to invest in our core industries, which have been around enterprise around FinTech and EdTech. The Future of Work has been a long-run thesis because the economy is largely about people. We believe the future of the workforce is shifting so much with diversity, which will create an exciting opportunity as the country grows into accepting that 70% of Americans are not white males. There’s a lot of opportunity for us to add new products and technologies that will support our economy, and the kind of immigrant spirit that has built this country will continue to provide significant returns for everyone.

Thank you to Miriam Rivera for her time and perspective. Please stay tuned for more articles from my “Navigating The 2023 VC Landscape” series by following me on Forbes.com.

Legal Disclaimer: I am a partner at the venture capital firms LOUD Capital and Legacy Entertainment Ventures. For journalistic integrity, I have not included my perspective within my colleagues’ responses for this article to remain unbiased.