In collaboration with the New England Venture Capital Association (NEVCA), VentureFizz is interviewing nominees for the 5th Annual NEVYs. Each week leading up to May 17th, we’ll be showcasing the rising stars and seasoned veterans of the venture capital industry who continue to put Boston on the map.
Our first interview is with Payal Agrawal Divakaran, Principal at .406 Ventures, who is nominated for the Rising Star VC category. Payal joined the firm almost two years ago, after graduating from Harvard Business School.
Nina Stepanov: Tell me about your background.
Payal Agrawal Divakaran: I’m a Boston gal, born and raised in Massachusetts for the most part. When I was born, my family was living in Winchester. Shortly afterward, we moved back to Bhopal, India for four years. I was five years old when we came back to the US, and we settled in Waltham. We then moved to Dracut when I was in junior high, and I went to junior high school and high school at the Academy of Notre Dame in Tyngsboro.
NS: How did you end up at MIT?
PAD: I participated in extracurricular programs at MIT when I was in high school. As I walked the halls and sat in the classrooms, I felt the intellectual energy in my veins. I had also grown up taking apart all of the electronics around the house and putting them back together. So, it was no surprise that going to MIT became my dream. I can still vividly remember the moment I opened my acceptance letter. Going into MIT, I knew I would study engineering and electrical engineering seemed like a natural fit.
MIT was a transformative experience for so many reasons. I learned a way to problem solve, a way to think, and the power of collaboration with those around me. I was challenged and tested for the first time in my academic career, and I had to learn to deal with the associated failures. Most important of all, I met my husband, Sanjay, at MIT. We were both on the respective soccer teams and were one of each other's first friends at MIT. We started dating during our sophomore year, and the rest is history!
NS: You studied Electrical Engineering, but your first job out of college was as an Investment Banking Analyst. Why is that?
PAD: Throughout my time at MIT, I realized that while I loved technology and understanding how to make things work. I was much better at insights about the bigger picture and how it all works. I had done several internships at the intersection of technology and business (Fidelity Electronic Business group in Boston, W.P. Carey in New York, Tata Consultancy Services in Mumbai) and found myself more interested in the business side of the companies. As an aside, I’m a huge proponent of internships and their role in helping identify one’s true interests through real-world experience.
I recognized that if I wanted to pursue a career helping technology companies with their businesses, I needed to understand finance and business deeply. I was also in college at a time when going to Wall Street was highly coveted. So, I applied to an internship at J.P. Morgan and had the opportunity to intern in the Technology, Media, and Telecom Investment Banking group in New York. I interned at the height of the financial boom in the summer of 2007, so it was no surprise that I had a fantastic experience and found it compelling enough to accept my full-time offer.
NS: Talk about the early years in your career at J.P. Morgan and Spectrum Equity Investors? Is that when you knew you wanted to be in VC?
PAD: While I interned at J.P. Morgan during the financial boom, I started full-time at J.P. Morgan at the height of the financial crisis. My first six months at J.P. Morgan were mostly experiences of people left, right, and center getting fired. There was not a lot of work to go around because clients weren’t hiring investment bankers readily during that time. I kept my head down and did the work that I was asked to do, and it paid off – when the market came back, I was put on some great client opportunities and transactions. I was the sole analyst on the teams advising Xerox on its $8.3B acquisition of Affiliated Computer Services (ACS), Visa on its $2.0B acquisition of CyberSource, and VisaNet Brazil’s $3.7B IPO, the largest IPO in Brazil at that time. I got the opportunity to pitch and work with other companies like IBM, Jabil, and more. I got my boot camp in finance and came away with an understanding of mergers and acquisitions, debt, and equity transactions.
While I learned a lot, I recognized that I was part of an advisory team that provided advice – our clients could take it or leave it. I wanted to be in a closer partnership with the technology companies I was working with, and I learned that being a private equity investor could provide that. Most of my peers were considering buyout private equity or hedge funds, but I focused solely on growth equity opportunities in the hope that I could be working with companies at a stage where that partnership was impactful to multiple parts of the company’s operations. I also wanted to return to Boston where Sanjay was in medical school.
I joined Spectrum Equity because of the opportunity to work with companies in software, information services, security, and internet but also because they had an associate sourcing model. It sounds crazy to say that I was excited to be at a firm where I would be cold-calling technology companies. But, I looked at it as an opportunity to essentially learn sales, something that I realized was an important skill that people I looked up to in finance.
I had a fantastic three years at Spectrum Equity. I sourced a deal within the first two months and we closed a $45M investment within the first six months – this was not the standard associate trajectory. I refined my sourcing skills and became better and better at the job, allowing me the opportunity to work on numerous deals with folks across the firm. I built my investing acumen during this time, an important foundation for my future career in investing.
NS: Why did you decide to attend Harvard for your MBA?
PAD: I really enjoyed Spectrum and wanted to stay at the firm or in growth equity. However, I realized that there was no upward mobility for me there; I looked above me and saw folks mostly with MBAs or of a different demographic. I was not yet thinking about venture capital, but rather about how to stay in growth equity. I was married to Sanjay by this time, and he was on his path to a flourishing medical career. I applied to a couple MBA programs in Boston and was awestruck when I got the acceptance to Harvard. I wasn’t totally bought into the value of an MBA, but it was extremely hard to say no to Harvard. I went to HBS for the stamp of approval and network, but I came out with so much more.
NS: You were a co-founder of SpotRocket, a platform that helped job-seekers find high-potential, growth-stage startups. Can you share more background on the company and what you were trying to solve?
PAD: The founding team was in our second semester at HBS, and a required part of the curriculum was to get in a group of six and start a company. Our first idea was in the wedding planning space and it was terrible! We took the feedback and pivoted to SpotRocket.
We saw that it was challenging for students to identify high potential companies to work for, and there wasn't a good website for comparing companies and really drilling down into them based on preferences. So, we built an algorithm to score 10,000+ global startups using publicly available data. We ended up creating the only site where you could slice and dice data and learn about which startups were interesting. You could say that you wanted to work in a particular geography, in a particular segment, at a company of a particular size and our website would populate the startups that matched your criteria, each with a score.
After a year of iterating on the product and business model, we realized that the space was hard to monetize and there wasn’t a path to SpotRocket becoming a large company. We started talking to a couple interested acquirers since there was real IP at the company, and simultaneously our main source of public data cut us off from the free data set as they were starting to monetize their own data. This spooked the acquirers, and the cost of the data was prohibitive for our company, so we ultimately wound it down.
SpotRocket was an extremely useful site, and I would love to see it continue on. For me, personally, the experience of being an entrepreneur was tremendous. Seeing how dynamic my own startup was got me interested in early stage investing and venture capital.
NS: You pivoted to Corporate Development at Eventbrite on the other side of the country. How did that happen?
PAD: This was not a pivot but rather an opportunity during the summer between my first and second years at HBS. I wanted to experience working and living in the Bay Area and also get operational experience. I had a unique opportunity to be one of Eventbrite’s first corporate development employees. I spent a few months helping the company to develop an M&A strategy and to navigate important foundational pieces such as creating a market landscape, housing competitive intel and setting processes for due diligence. This experience also got me more interested in venture capital, as I got to see how a heavily VC-backed company interacted with its VC investors and how that had been impactful to their growth.
NS: You’ve been at .406 Ventures for almost 2 years now. What lead you to VC and specifically at this firm?
PAD: My experiences with starting a company and working at a VC-backed company got me interested in venture capital. As an investor, I wanted to be closer to the people, technology, and market disruption and spend less time on deal structuring and financial engineering. This realization led me to recruit for venture capital in the Bay Area and in Boston. My husband, who was interviewing for cardiology fellowships in the same areas, and I decided we wanted to stay in Boston, so I set my eyes on the venture capital community here.
Throughout many of my recruiting conversations, folks would ask me if I had heard of .406 Ventures. The name came up enough times that I decided to check out the website and realized that it was a strong fit for my background and interests. The entrepreneurial DNA of the firm combined with a focus on B2B technologies resonated. I sent a cold email to Maria Cirino, one of the co-founders, and that ensued in a three month interview process after which 100 stars aligned where I was presented the opportunity to work at .406 Ventures.
I joined the firm at the raise of Fund III as the fifth investment professional on the team. Key elements in my decision to choose .406 Ventures were the sector focus on enterprise technology, the opportunity to be part of a small team, and most importantly, the people. The team consisted of prior operators and entrepreneurs who had a distinct capability to be helpful to entrepreneurs and be close to the company building. When I asked entrepreneurs and other investors, everyone had great things to say about the team at .406 – how smart, helpful, and nice they were – and it was the type of culture in which I wanted to create my venture capital identity. I truly felt like .406 Ventures had a team of investors who I could learn from and would enjoy collaborating with.
NS: You’ve been nominated for “Rising Star VC” at this year’s NEVY Awards, what would it mean for you to win it?
PAD: The nomination is a great honor, and I am humbled to be in the same group as peers and friends who I have a great deal of respect for. Winning the award would be icing on the cake. The award would be validation of the work that we’ve done in the last couple of years at .406 Ventures and my ongoing efforts to support the New England entrepreneurial community. As a Boston gal, there is no greater honor than to get hometown love.
NS: Who do you think will win Entrepreneur of the Year?
PAD: It’s hard for me not to root for the Catalant team, especially since I’ve known Pat Pettiti since our overlapping time at MIT and the other founders from HBS. They have not only built a large and growing team, but a great company culture. I have witnessed their efforts for the broader community first-hand and wish them the best of luck!
NS: Now, back to .406 Ventures. What stage of investments do you primarily target?
PAD: We are focused on Series A investments in enterprise IT companies, and our typical check size is $2M-$6M.
NS: What sectors of technology, industries, or trends are of interest to you?
PAD: .406 Ventures invests in B2B enterprise IT, with four core focus areas: healthcare IT, cybersecurity, data/analytics, and cloud infrastructure. I started at .406 as a generalist, and over time I have specialized to spending time in our healthcare IT and cloud infrastructure segments.
NS: What is the current fund that you are investing from?
PAD: We are currently investing from our third fund, a $220M fund that was raised in 2015.
NS: What are the top traits you look for in terms of investing into a company or founder?
PAD: When investing in a company, much of our interest depends on the team. At an early stage, the founding teams can make or break the venture. We are looking for teams that have passion for the problem they are solving, the right skills to execute on the solution, an ability to weather the inevitable storms, and the capability to be coached by us and collaborate with us. We also look for large market opportunities, first/best/only solutions, and hard-dollar ROI for the customer as some of the top traits of a company.
NS: What excites you about the current market in Boston?
PAD: Boston has all of the right ingredients for a vibrant and robust innovation economy. In 2016, Massachusetts was #2 behind California with regards to VC capital invested in companies in the state and by assets under management by VC firms. Talent is staying in Massachusetts in spades, and we are seeing the innovation hubs expand within and around the city. This is why .406 Ventures is based in Boston – we have a strong belief that Boston can be the best at B2B innovation.
NS: What companies in Boston, outside of your portfolio, do you find interesting?
PAD: I find companies that have become market leaders within 10 years to be the most fascinating and impactful to the ecosystem. Boston needs big company outcomes and exits, as that fuels further innovation. Not only do these companies employ thousands of people, but they create wealth for employees, foster new ideas within their employee base, and empower that talent to start their own companies. We recognize the importance of Athenahealth, for example, and while we are not consumer investors, we respect companies like TripAdvisor and Wayfair for their impact on the ecosystem. We are proud to have a few market leaders in our portfolio, companies like Health Dialog and Iora Health in healthcare and Veracode and Carbon Black in cybersecurity. I’m interested in the next wave of these market leaders across the Boston ecosystem.
NS: Who do you admire or who has been the greatest mentor for you?
PAD: At each stage of my career, I have had impactful mentors and champions that have been instrumental to my success:
J.P. Morgan – Stephen Berenson and Rick Diamond for their guidance in my early career and support for my ambitions
Spectrum Equity – Bill Collatos for his strong mentorship and belief in me
SpotRocket – Clayton Rose and Joe Fuller for their support as HBS faculty enabling me to pursue a startup
Eventbrite – Kevin Hartz for the opportunity to learn from a technology visionary
.406 Ventures – Liam Donohue and Maria Cirino for their support, apprenticeship, and strong influence on my venture capital career.
My career would also not be possible without the support of my parents, Kusum and Subhash Agrawal. I admire my parents for the incredible and hard work they did to immigrate to the Boston area from India in order to provide a better life and more opportunity for their children. We did not have much growing up, but it was the small actions that influenced my trajectory and built my confidence. Actions like my parents having the foresight to put me into a private school for academic challenge and discipline rather than skipping grades in public school even though we could not afford it, my mom being there and cheering loudly at every soccer game, my dad kicking around a soccer ball with me while I waited for the school bus, my parents driving me around to numerous extracurricular activities, and so many more examples that set me up for success. I also had two amazing and successful older sisters to look up to, Poonum and Pooja, who paved the way for me.
And of course, the biggest mentor and support in my career is my husband, Sanjay. I admire his brilliance, compassion, and work ethic – he is a fantastic physician and a rising star in his own career. And he still takes the time to listen, give me advice, be my biggest cheerleader, and be the best teammate I could ask for.
NS: Outside of your day to day work, what are your personal interests or activities?
PAD: I love playing sports including soccer, tennis, and golf. I am part of a women’s outdoor soccer league where I get to play 11 v 11 soccer with a great group of professionals. My husband is my usual tennis partner, and I love playing tennis and golf whenever I can.
If I’m not playing sports, you will find me watching Boston sports. My order of priority of Boston sports teams are the Celtics, Pats, and Red Sox. My husband and I have a rivalry going since he is a New York sports fan, so we try to attend the games in person whenever his teams are in town.
NS: What was the last concert that you went to?
PAD: I haven’t been to a concert since 2014 when I went to the San Francisco Symphony: Pixar in Concert. I tried to convince my husband to take me to the Ariana Grande concert in Boston last year, but I wasn’t successful.
NS: Are you involved in any charitable organizations?
PAD: I’m on the Board of Directors for the YMCA of Greater Boston, the first YMCA in the country. My other community involvement includes being a member of the Council of the Arts at MIT, a mentor for MIT Sandbox, a coach for the MIT Community Catalyst Leadership Program (CCLP), an Advisory Board Member for SheStarts, and a Board of Directors Member for TiE-Boston.
Nina Stepanov is a Contributor at VentureFizz. Follow her on Twitter: @ninarstepanov.
Images courtesy of Payal Agrawal Divakaran and .406 Ventures.