Jessica Karr (Coyote Ventures) - How She Went From Scientist to Investor, The Opportunity in Women’s Health, and Why She Doesn’t Invest in Beauty & Personal Care

0:00This episode is brought to you by Vobin from Carta. Vobin from Carta is the easiest way to launch and run your venture investing. They offer SPVs and fund vehicles for GPs at all stages of the journey, from your first syndicate to operating a multi-million dollar venture fund. If you're interested in investing in startups, stick around after the episode where I chat with Gabriel Shin from the Vobin from Carta team, who shares his perspective and tips about how to start investing and how Vobin from Carta can get you set up. The link to Vobin from Carta's website is in the show notes.

0:44Hey, I'm your host, Mike Gallup, and welcome to the Consumer VC podcast, where we discuss the intersection of venture capital and consumer innovation. If you're enjoying this podcast, I highly recommend checking out the newsletter at theconsumervc.com, where you'll receive all new episodes straight to your inbox, as well as a weekly recap of all the consumer deals that are happening. All continent episodes are for informational and entertainment purposes only and is not investment advice. This episode is brought to you by Vobin from Carta. Vobin from Carta is the easiest way to launch and run your venture investing.

1:19They offer SPVs and fun vehicles for GPs at all stages of the journey, from your first syndicate to operating a multi-million dollar venture fund. If you're interested in investing in startups, stick around after the episode where I chat with Gabriel Shin from the Vobin from Carta team, who shares his perspective and tips about how to start investing and how Vobin from Carta can get you set up. The link to Vobin from Carta's website is in the show notes. Our guest today is Jessica Carr, who is the general partner and founder of Coyote Ventures. Coyote Ventures is a VC fund that invests in women's health and wellness.

1:53Some of their portfolio companies include Mod, The Flex Company, and while. We discuss how she transitioned from being a scientist to investor, particular categories she's currently investing in, and also categories that she stayed away from, and how she thinks about risk. Without further ado, here's Jessica.

2:17Jessica, thank you so much for coming on the show. How are you? Hi, Mike. I'm great. How are you doing? I'm doing great. Finally, happy that we're finally able to do this. Yeah. There's always a few meetings that get chronically rescheduled, and this has been one of them. So go us for being here now. Exactly. Exactly. So I wanted to start a little bit from the very beginning. You were a scientist, right? And what was your initial attraction to investing and startups? How'd you actually get involved? Yeah, I joke that I'm a recovering biochemist. So back when I was younger, I'm originally from West Texas, had no exposure to startups there.

2:59And I thought that I would be a doctor. So my dad's a dentist. I grew up, started working in his dentist office when I was 14 years old. By the time I graduated high school, I was a dental assistant with all the licenses and everything. And was a huge nerd, loved medicine. And when I went to college, I majored in biochem, also studied philosophy for fun and started working in labs as a scientist and decided that that was something that I was surprisingly good at. And I hadn't been really going down the path of medicine as much. so I decided I was really lucky when I was a junior in college I got accepted to an Amgen Scholars Program at UC Berkeley where I worked in a lab then decided to go to grad school so I was in the PhD program at UCSD also still no exposure to startups I thought that's from there you would go into academics or pharma didn't see myself in either one so when I left the PhD program with a master's and decided to not continue on and work 80 hour weeks in the basement for the next 10 years.

4:12I took a little time off, worked at a winery, did a yoga teacher training and randomly got an email from Impossible Foods one day. It was actually called Sand Hill Foods back then. But the professor I worked under at Berkeley knew the founder of Impossible. It was exactly what I was looking for. I wanted something impactful where I could still use my science degree, but build something more tangible. And so, you know, the email, I didn't know what, you know, seed stage was, I didn't know what disruptive technology was, but I understood the goals of, you know, the mission of the company to create something that, you know, meat eaters would, would eat and place of actual meat to help mitigate climate change.

4:59Being from West Texas, where I am with my family and everybody who eats meat all the time, I could see the need. So started working there and definitely saw a company going from zero to one and now is worth several billion. And after that, I did an MBA, worked with startups for a while, and then moved over to the investing side after feeling that I had seen a lot from the inside to pick up you know, some pattern recognition and have sort of a contrarian view, especially when I was in food tech before just seeing a lot of the money pour in and just didn't really think that they knew how to do due diligence the way that I would do it.

5:41So decided to go to the investment side, worked briefly at a family office. And that's where in 2020, I started to see a ton of innovation in the women's health space, which I would say that that's definitely when steam started picking up in that world. So we became totally obsessed with the deals that I was seeing there and decided that it would be good as a standalone fund. Can we discuss specifically what you were seeing in women's health that was so powerful to you, or you thought that it was an opportunity on the investment side? Yeah. And I think there's a few things there. A lot of people that come into women's health are coming since it's such a nascent space coming in from somewhere else.

6:26And so the pattern is that usually we go through something personal and say this hasn't been innovated in a very long time. And it's been, you know, marginalized. And so like, if no one's going to do it, it's going to be me. And that was the pattern I was seeing in the founders, but also like in my personal life, went through some struggles with health and sexual wellness, and started just to personally dive in and seek solutions for myself. and that intersected exactly at the same time. Professionally, I was actually seeing deals in the space and innovations that weren't fully off to market yet.

7:02So I would say the first sort of categories that I was seeing were both on sexual wellness and fertility and definitely the fertility space has gotten the most funding so far. It's definitely like the easiest to wrap your head around in some ways is women who are like needing to have babies, essentially. And that kind of leaves open a lot that I got excited about is like taboo topics that are maybe slightly more uncomfortable to discuss, but I would see like the excitement even just going around, you know, professionally, socially, starting to bring up these, these topics of like, you know, periods and menopause and sexual wellness for women and just some really exciting sort of discussions.

7:46And I just saw how that really lit a lot of people up. So at the family office, were you also investing primarily in, in women's health? Did they understand like, it was very generalist, it was more impact focused. So I was doing deals from like municipal bonds to FinTech to health and wellness food tech. So it was a little too generalist for my own taste. And I really wanted to, you know, every time just like dive deeper in the space. And, And it was hard to do when I was doing so many deals in so many spaces and didn't feel like I could really develop a generalist thesis. I think that I just really was more attracted to really dive into a more specific area.

8:30So you go from a generalist family office, as you say, and then you want to start your own fund that focus on women's health. Can you talk a little bit about what it took to actually start the fund and being an emerging manager and how you also approach on the fundraising side and developing relationships with LPs? Yeah, I would say that it was a very fortunate time where maybe I wouldn't have been comfortable going out on my own at that time. But I started to see in a few networks I was in, connecting with some other folks that were launching funds. So I was just like, oh, I had thought maybe that was the five-year goal but then it became you know the okay it's happening right now thanks to like some some great people on my network um I was in like the Republic Venture Partner Program I remember that being like really good community for people starting funds um I mean that's not what it was for but there were some great fund managers I met through that um I then had a friend working with the VC Labs um the Founder Institute and they had just launched this like fund accelerator, they call it.

9:33So that was really helpful for just like the very beginning, like, okay, how much do I raise? How do I write my list of like the first, you know, first degree network who could become LPs, create my first, you know, pitch deck, refine my strategy. I found it very helpful for just, you know, 101 for starting a fund. You know, I think you definitely do have to have that first degree network that really believes in you and the thesis to get to the first close. So, you know, fortunately, I had that. And from there, it's definitely become, you know, a network effect of one person introduces another.

10:11Thankfully, we also have funding for Bank of America. So there's a lot of attention being drawn to, you know, the need for funding towards emerging fund managers. I think a lot of diverse fund managers are raising, you know, targeting less than we would like in an ideal world. And it also takes a lot longer, especially in this environment right now. What was the target for fund one? 10 million. 10 million. Awesome. Awesome. That's great. What typically then just thinking about how many companies do you typically see yourself investing in out of one fund? And what's what's a typical check size?

10:46Typical check size has been 100k. We're planning to up that some. So there's there's one company we're doing 200k in um and you know want to get to be doing more of the 250k um soon but yeah we've been we've done seven companies at 100k one of them we're actually re-upping another 100 and uh we're planning to do about 20 to 25 out of out of fun one and and having a small amount for for follow-on of just a few of the sort of top performing companies In the world of women's health, I know you talked about sexual wellness. You also talked about fertility. How do you see the different branches of women's health that you find interesting?

11:30And what I also think is interesting as well is just looking at your portfolio. You invest in quite a lot of consumer product companies, like physical product companies, but also software companies. And the actual outlook or what is success can look actually quite different too. How also do you think about what success is when you actually make an investment or what success should look like? Definitely. Yeah. So so our portfolio construction is to mix different industries. So one way to segment women's health overall is what's the industry category. So there's med devices, therapeutics, digital health, CPG are the top categories, but there's several other categories for our funds.

12:08Specifically, we've done consumer products and digital health. We've done one diagnostic. So we don't shy away from biotech, but we're not doing like therapeutic type biotech. So can give some examples later. We are focused right now pretty heavily on digital health. So a few things we're excited about there are like points like platforms for a point solution. So our latest investment in allama health is for gestational diabetes. So when it's pregnant, developing diabetes, they have to really highly track like blood glucose levels and everything they eat. The standard of care right now is to write everything down every day on a piece of paper several times a day.

12:48So if anything's going wrong, there's not really a way to troubleshoot it. So there's just some archaic systems, even at, you know, top hospitals, Stanford, UCSF. They're actually working with some of these hospitals right now. So that's kind of an example of a platform that's solving a specific point solution. and it's plugging in with the healthcare providers and eventually will be, you know, payer reimbursed. So that's one example in the digital health space. The other one is personalized medicine at scale. So all these opportunities to understand what's actually happening in your body. So like genetics, microbiome, hormone tests, food sensitivities, there's so many ways now you can actually, that's kind of the physical test.

13:35There's also like risk assessments, like one of ours is a breast cancer diagnostic, and that's all inputs that you put in without, you know, blood or saliva samples, like actual biomarkers. So understanding that leveraging that to to how to, you know, take action either like in the doctor's office or, you know, in what you're eating or your lifestyle. So it's a success. It does look very different from those things. We've we've done some physical products, I would say, success for those is definitely, you know, launch online, go to retail, scale at retail, scale product line. So we are really excited about some of those companies that we've invested in now.

14:17But I think just looking at the landscape of like what types of products are being innovated on, as well as, you know, the current macro environment of, you know, a little bit of pull back on a few like consumers spend categories as well as just the cost of marketing I feel like right now is a big problem so a couple reasons why we're you know not officially pausing consumer but we're not actively you know it takes a lot of a bigger sell for us to get excited about that right now. What consumer categories do you feel has paused or that you've seen has paused during during this macro climate? I think that it's not exactly a pause.

14:58I just meant for our diligence, it's a pause. There's still, I don't think there's too much that's totally stopped. But I think, you know, even like sexual wellness, you know, physical products like toys are having a little bit of trouble, a couple of companies shutting down. I think, you know, beauty is a little bit hard too. It's just like, that's pretty crowded of like straight up beauty products. So I think, yeah. And then in our companies, it's not, it's not pause, but it's like right now, a lot of companies trying to focus on profitability versus growth. It naturally has them pull back some of their marketing spend.

15:39And so that actually has a, you know, downstream effect on projections like in five years. So some companies that I thought could be, you know, worth 100 500 million in a few years have actually dialed that back by three to five bucks um and yeah we'll see if that can rebound at all but that that's a pattern i'm seeing um that that's not translating as much on the you know software and digital health side right now so so that's part of the reason why your focus now is more so on like software products or and and specifically in the digital health sector that's a main reason and also just looking at the products we have now And so we have two sexual wellness, one for women, 40 plus, so paramenopause through postmenopause, one period product and just saying like, OK, this is covering huge market sizes.

16:27And I'm not sure what other physical products would like sort of integrate into that portfolio right now where we're like, OK, we're kind of looking more holistically at like we're not going to do more than one, you know, mod, which does, you know, vibrators and condoms and other things. We're not going to do a competitor to that. So I think like saying that we were really, really proud of the ones we've done. And we're not sure like what other physical products would really fit like in the holistic picture right now. So you feel as though right now you, you, um, you kind of have exposure on the physical product side, like enough exposure where it doesn't maybe make sense right now to actually kind of keep investing in, in, in physical product companies.

17:11That's what I'm thinking. I mean, I'm open to changing my mind, but I haven't seen anything yet. We'll see. Okay. Okay. That's helpful. I mean, how else do you think about like in terms of, you know, on the success side? Because I imagine for digital health, just because of how software can scale, a success could be, you know, I mean, it could be like a billion dollar outcome or typically when you underwrite for a digital product, that's the expectation or that's the hope, right? I guess the expectation since it is outliers, probably it actually will go to zero, more than likely. But the hope is that, of course, you're underwriting because you believe, you have a belief that it can be maybe a billion dollar outcome.

17:55Whereas the physical products, typically it's a hundred million dollar or above. That is a sign of success. How do you also think that you invested in both, you invested in physical products and also digital products. How do you think as well about what success is when it comes to your actual portfolio itself? That's a good question. I think that is just so hard to predict. And like, if you have good sources for that, I mean, I've done my financial model and in some ways it feels like such a guessing game of like, okay, which company could, you know, I think like you said, some of the physical, you know, consumer products, you can look at like comps for exits and you can look at comps for like graduating to, you know, A to B and maybe exiting.

18:40you know, I guess, quote unquote, early. I think, you know, it is looking at comps, and then, you know, putting like, like extra bet on the fact that in this space, there's not a lot of competition. So you get a lot of feet, like the one I gave an example of that's like, piloting with UCSF Stanford, that's really showing like, it's, it's replacing such an archaic system that I think that the success rate is actually more likely than like a digital health that's like replacing like a version five that's replacing a version four versus us replacing, you know, something with technology, where there's not actually a lot of technology risk, it's more of an execution risk.

19:23So we're not like reinventing, or we're not inventing something new that's like a tech risk. So like an example would be like Impossible Burger had tech risk, in terms of like this burger just might not be good. It might like fail. There was technology behind it that could have like the economics could have not worked out. So that's an example where I saw like a tech risk and like also a market risk. But I think that these don't have that as much. So it is hard to say like how many I think will be outliers and how many think I will do large exits. So I try to use like reasonable comps for that and not say every company is going to succeed and everything is going to be successful.

20:08And but I hope, you know, 10X would be nice. However, that happens. Yeah, no. OK, no, no, that's helpful. I just I love kind of hearing managers, fund managers like yourselves. Like I'm so impressed with the fact that they invest in both, um, that you all invest in both consumer product companies and also software companies, just because the outcomes can look quite different. And so I'm always just kind of fascinated on what that actually looks like when you, when you, um, when you underwrite how it all kind of fits into the portfolio, since it is like kind of two different business models per se.

20:42Right. Yeah. Segment those. And, and, and like the comps, you're definitely, this definitely segmented. And I mean, yeah, the portfolio construction model could have a different, yeah, it could have like a million different scenarios. We also have one diagnostic. So we kind of have another business model within that, you know, as well in terms of digital, physical and one in the biotech space. So adding to the complexity there, looking at like how FDA plays a role, how clinical trials play a role and things like that. Could you walk us through a bit of your due diligence process and how you actually think and define what problems that actually have the size where it actually makes sense for an investment?

21:27Yeah. So our process is we actually have like I'm the full time person. I hired a few venture partners who are really amazing. They're actually not full time. So they're either most of them currently have a full time role and do Coyote on the side and they help assist with some of the diligence. So I find that that really scales our ability to to look at more deals. I would say when we receive a company I'm usually the one doing the first call sometimes the venture partners will do it first we're looking at you know like the area of women's health and that it is something that we're not already exposed to in our current portfolio I meet the founders and really understand their story of like why did they get here and like I said a lot of them have it you know in their own personal personal lives or family it's close to them is why they're, you know, launching this product or service.

22:28So understanding their why and then really looking at like, how important is the problem? I think that there's, you know, some things we see that are, this is nice to have, or this might might be a nice bonus, but we don't see it as like solving a critical problem in like humanity, basically. And then we look at like the level of innovation. So I think some of these companies are, are super innovative either on like how they're bringing forth the technology to this area or how they're looking at marketing to a sort of a blue ocean so on the marketing side mod is a good example where a lot of the sex products are targeted at you know 20 year old men if you look at like trojan and directs and things like that um and so mod kind of took a different approach and said like there's a whole you know wave of people that that doesn't appeal to so we're going to design like very high quality products like you know like good price points and really take a different approach to like you know wellness and in sexual wellness so I think that that was really innovative and then you know some like our biotech on the other hand is very innovative in terms of looking at gene panels and how that's associated with the cause of endometriosis.

23:45So I would say, yeah, it takes me a long time to understand how to explain how I'm thinking about innovation. But that's basically like setting a really high bar to looking at what's the innovation. It's not just an access play. Sometimes access is a piece of the puzzle, but there needs to be something like really innovative about it. So that's the first call. We go through a diligence process. It would take me a long time to explain all of that. But It's pretty in-depth, especially on the product and science. And then we have an investment committee. So there's three members there, again, part-time.

24:20And they make a recommendation. And we tend to agree, usually, on our final decision. So I make the final decision. After you make an investment, where do you think in terms of, I mean, obviously, you've had, you come from an incredible background being a scientist. and of course in the space. But how do you think about adding value to entrepreneurs? And also, where do you think that when you chat with CEOs, maybe the one or two things that you think they might, especially first-time CEOs, might struggle with as first-time founders? On the add value part, we are able to assist on some product and science-related goals.

25:04So not every company needs this, But one company was doing their Whole Foods application, which is like actually a pretty high bar to get products into Whole Foods. And so they were compiling this list of like in their formulations. What are some of the, you know, evidence out there that this is both safe and has high efficacy? And so we actually, myself and one of the venture partners was diving in and reading literature, like scientific papers and helping them, you know, choose the ones that we were putting in this Whole Foods application. So I was definitely laughing about that, that not very many other investors would be able to or be willing to do that.

25:50And that's a pretty specific example. But yeah, we do have both on our team as well as in our expert advisory network, a lot of science and medicine focused people. So really just seeing what the company need and who from our team can plug in, whether it is one or two calls that we figure something out. But there has been some of our expert advisors matching and they'll get compensated for something that's needed or become an advisor. So we're still building out that structure. But yeah, I definitely see sort of like expanding networks as a big theme, especially like first time CEOs, especially 100 % of our portfolio CEOs are female and 50 % on the co-founder side are BIPOC.

26:36And one struggle that comes up a lot is just like how we're focusing on growing our networks where we we don't all come from like, you know, a top university where we had, you know, buddies that we were partying with, like an MBA and things like that. So it is something that I am sensitive to. And unfortunately, in this sort of downturn and everybody being a little more cautious with their funding, I see that as the network effect definitely disproportionately harming underrepresented founders. And so I think the expert advisory network that we're building is leveraging that. But even within our network point as well, like co-investors being a really important part too.

27:22So either in the round we're in or follow on rounds, just really spending a lot of time with other investors so that when I send something, they'll pay attention and can get the companies funded. How also do you think as well about sourcing and meeting founders and looking at opportunities? Yes. I mean, sourcing is pretty hard. We are open to cold outreach, so we have the form on our website. And we try to be active in a lot of communities where we'll see deal flow. So I mean, the hard part is there's not a lot where we, you know, there's maybe a few newer things focused on women's health. But given that our thesis is pretty specific in terms of what I described on the digital health side, as well as looking for things, you know, mainly under the 15 million valuation and something we have less exposure to, I just feel like we've narrowed down what we're looking for so much that it's like when I look at the YC demo day, I can like look through the list quickly and just be like, okay, maybe that one.

28:27um you know and you know i tend to not enjoy listening to pitch events personally so you know i'm like you can look at a list again and say like okay that one might be a fit um and all like you know i can read a deck in like two minutes and then have questions for them like please do not pull up your screen and take 30 minutes to walk me through a 10 slide deck you know um the worst thing is challenging yeah i'm like i usually like have the zoom meeting and i'm like you can't share your screen sorry no it's not a it's like a crutch sometimes so um I mean I have to just be able to talk things out so sourcing is is a is definitely a lot of work to find something that that you're excited about um so just I attend a lot of events I I actually was also at South by Southwest we had a femtech salon there with some great companies and uh I think events is a nice way because even though the last deal we did Malama Health, I met them at an event and I definitely was like, I might've overlooked this one if I wouldn't have seen the founder, sat down with her.

29:38She pulled out her phone and showed me the app. Yeah, I might've fully looked that one over. What's the general pulse? Because I know that your focus is digital health. what's what's kind of the pulse do you feel is digital health right now in terms of um you know how many founders are getting funded um whether if it's an attractive opportunity or or a category for other investors yeah i think digital health has been really heating up and i think you know there's been people that have been in it for much longer that were maybe you know definitely early pioneers in that space. I think now it's heating up a lot.