Investor Spotlight: Sumeet Shah, VHS Ventures

18:29Sumeet Shah:Now, the big difference, though, between the current ratio and the quick ratio is the quick ratio also subtracts inventory. Now, it does not always mean that you're going to be able to sell off all of your inventory immediately to kind of make those cash payments, right? They may have, you know, any day sales outstanding. They might have times in terms of how many number of days it has to actually have to sell from there to actually generate that cash, like your cash conversion cycle, as it's known, how long it actually takes from something sitting in inventory to sell. And then when you get that cash in hand from here, whether it is, of course, online, it could be instant, or if it's a wholesale or retail play, right, you could deal with terms that could be things like net 30, net 60, meaning you'll get your payment in 30 days, 60 days, etc.

19:07Sumeet Shah:Now, we really look at those as a first baseline, because I also have looked at a lot of companies that, again, might have a really healthy current ratio, but they have a very serious quick ratio from there. So then I have to look deeper into how the actual cash conversion cycle and how sales data works from that angle to there. There's a bunch of other ratios that we also work through there, and I won't go into there. Admittedly, they're more proprietary. But that is also something I just really wanted to address for our diligence right now, as we, of course, do our things and we do two additional meetings after the FIT meeting, looking through financials and data.

19:38Sumeet Shah:And then if we feel comfortable after our first investment committee meeting, discussing the company from there, we will then look to the next stage where we'll open up the floor to at least three to four board members in the fund who will have individual conversations with the companies and will have their own additional feedback. Then the team member who is championing the company will put together the full investment memo and then pitch the company ultimately for our investment at the next IC meeting. The whole thing should take around six weeks, maybe four, if we're really fortunate. If we're on a schedule or a deadline for the company on its round, we'll obviously respect that and go with it.

20:09Sumeet Shah:But going back again to the way I'm thinking through this, I really want to make sure that I stress our focus on liquidity ratios and how we look through there as well. Because, again, there's a lot that can be looked really good on paper. And those numbers can tell a deeper story. But, again, have an opportunity to address the why of maybe why some founders are going through this direction, why some expenditures are existing from there. And is there an opportunity to renegotiate even some of those liabilities or some of those owings from there?

20:38Hannah Dittman:Super helpful. So just to pull it all together, the things that you're really anchoring on in your diligence process are one fit, stage, focus, all of those kind of high level topical things that are part of your mandate. And I'm sure personality fit and founder fit are a part of that as well. The P &L, obviously, you want a strong, healthy P &L pulling from revenue and understanding the story of the revenue margins and all of that as well, making sure there's not any glaring red flags of how money is being spent to operate that current business. And then you're looking at the cash position and the debt health, essentially, of the business.

21:16Hannah Dittman:It's almost like a downside protection more than it is an actual point of company strength, I would say, to make sure that there's not going to be any kind of glaring red flags where the capital you invest might go nowhere and you don't get a return on your investment. and then obviously kind of the routinely consistently meeting with the team and gaining conviction in the deal from there, from understanding the story and seeing the consistency in the founders throughout the process. Did I get that right?

21:43Sumeet Shah:Yes to all the above, but I also want to add one additional piece to it. As I was talking through earlier about the way we're thinking through it with the equity ratios and how we're looking through our diligence, I recognize there are going to be, again, a lot of whys that exist that we have to really address from here because that's all the quantitative analysis. The qualitative analysis has to intertwine with it because it really gives you opportunity to look at the bigger picture and really understand why if there is an issue or a situation that exists, if the founder can really have a good explanation, a good understanding for us of why it's existing, and maybe if we can help address and solve the situation for them as well with our resources, it doesn't just give us an opportunity of where we have as an advantage to help them, but it's the relationship that the founder investor relationship that we also look to have that just makes sense of and strengthens them from there as well.

22:30Sumeet Shah:Because look, we're spending the next three to five years, seven year stretch in the trenches with this founder once we invest with them. And it is so important to make sure that we're having a good rapport, that we're transparent, we're honest about how things are working through. And that level of just honesty and transparency just needs to happen regardless, right? I've had situations where founders have actually held information from us and we would find out at the very end in unexpected ways. And it wasn't so much that I was really angry. I was just more disappointed because it felt like a breach of trust.

23:01Sumeet Shah:We just want to make sure that we could help. And we are all in this together, again, to this point of the village mentality. All of our stakeholders are dedicated to making this firm and our companies and our portfolios succeed because then we all win. And if that chain of trust is broken in any sort of way, it is going to take time to repair it, if it is even reputable at all.

23:21Hannah Dittman:Yeah, trust is so important both ways. I think that's oftentimes compared to a marriage getting into an investor investment relationship. And what a horrible way to start a relationship if there's not that foundational level of trust there. And as an investor, you know, you're probably thinking like, oh, man, if they're not even going to be honest in a diligence process, are they going to be honest with how they're using this money? Or if something goes really wrong in the business? You know, you want to make sure that you're going to be able to come to the table and problem solve together. And no founder would want to do business with an investor who isn't honest because they're going to feel like they're going to rip off my company or incentives aren't aligned.

23:59Hannah Dittman:They don't care about me as a company or the success of my company. It goes both ways. You know, an investor wants to make sure that they're cared about from a business perspective, too. So that makes total sense. And I think it's easy maybe for founders to get anxiety or feel judged because you are being diligent, you are being evaluated. But at the same time, what will make it go nuclear is if part of that judgment process is the judgment of your character, and that can never be called into question. So definitely important to just, if you know something's a little fuzzy in your business or maybe not optimal, I think proactively getting ahead of communicating that and focusing on the why that is the case, like you're saying, making sure you're able to articulate why this number might not be so great or why this might be an issue, but you're working towards fixing it will always come across more strong than hiding it in the first place.

24:55Hannah Dittman:Investors will know where to dig. They will know where to dig.

24:58Sumeet Shah:Yeah, I mean, it's part of our job, right? Our ultimate goal is to mitigate risk for any of our investments. And we're going to do everything we can on the initial and levels of diligence to make sure that we're looking through everything. We're leaving no stone unturned. And it's going to be annoying. Some founders in general, you know, are going to just get very frustrated and annoyed. It's like, God, they're just being such assholes. I'm like, no, we're just, we have to do our job. We have to do the not fun things here so that we can enjoy the fun parts of this opportunity, right? Of this relationship.

25:26Sumeet Shah:of this just camaraderie or this partnership that exists from here, whatever worry you want to use from it, honestly.

25:32Hannah Dittman:Yeah, really, really important point there. I'd love to kind of pivot into some lessons learned from your career. You've obviously had quite a long one and seen a ton of different things. If you could tell founders or operators a couple of pieces of advice, what would they be and why?

25:48Sumeet Shah:You have an opportunity every day to be eternally curious. I think the most successful founders have that level of eternal curiosity and it applies to your work, first of life. And it gives you this opportunity then to kind of stick out of the weeds sometimes and just really look at where things are at, where things are going. And when you're able to approach it from that mentality, you really can come with incredible ideas, incredible innovations, incredible plans, again, professionally and personally. And you're going to be with that all. So it's going to be challenged. You're going to deal with jerks, literally, out there, and people who are going to really say no, right?

26:29Sumeet Shah:And I was reading a story that one of my friends in the investor world posted about a children's book where this bear had this box and they wanted to take it around and they want to show off the box. But every animal basically was questioning. It's like, oh, I don't know. It's just a box. Or it seems too big. Or it's just actually like, why is Brown and all these different questions. But his goal was to bring it to his friend Mouse because he think Mouse would like the box. He got to Mouse, showed the box, and the mouse liked this the box. This is the best box ever. Now it's a cute, silly little children's story, but it also just goes to the point where you will find a believer.

27:02Sumeet Shah:You will find people who will truly believe in your company and will believe in your product and really want to be there for it. I think the most important thing, especially for founders that you should think through, and I say this as an investor too, not every company should be backed by venture capital. There are so many other resources to raise additional funding that you're thinking through, whether it is through various debt infrastructures like bank loans and credit card debt, and some friends and family investments to like much smaller individuals themselves. And success shouldn't always have to be like tens of millions of dollars, hundreds of millions of dollars, sales for tens, hundreds, millions of dollars from there, right?

27:38Sumeet Shah:A successful company can be one, right? That makes half a million, a million dollars top line and, you know, generates a profit, maybe a 5 % profit margin and just gives you an opportunity to pay yourself a healthy salary and have great workers and pay them great and build something from that, right? And then build it to a place where you can choose wherever you go next, whether you decide to sell, where you decide to pass it down or whatnot. And that is, I think, one of the most magical things about the world of consumer is companies themselves can be successful in their own rights. And yes, as a venture investor, I'm always going be looking for those next generations of great companies that I want to grow and I want to help grow to those levels and where I truly believe they can.

28:18Sumeet Shah:But I'm also never going to try to pressure founders into it. And that should be something that should never happen. And so even that other additional piece of advice to the founder is don't cave into the pressure of, hey, I should be doing this. The market is telling me to do this or the ecosystem is telling me to do this. If it truly doesn't make sense as an opportunity to grow, then usually more often or not, it's not. It's too good to be true. It doesn't make sense. It doesn't fit into your thesis. It doesn't fit into your business model. I was literally talking to a founder this morning. She has developed this food startup that makes tempeh chips.

28:49Sumeet Shah:She is based out of Indonesia, and when they manufacture the chips, and while they've got some great West Coast sales in the United States, great partners, great collaborators, she's never really had an opportunity to like sit within the United States market and really see how the trends and things are going. and she's like, am I missing anything? Am I missing all the stuff? Like, I feel nervous about it. And I'm like, look, would it help for you to be in the action and kind of see everything on the ground? Sure, of course. But at the same time, you can also bring on fractional salespeople. Bring on a good advisor that can help boots on the ground from here.

29:20Sumeet Shah:But also, you're going to need those extra eyes and ears if you can and when you can to also think about most of it's kind of BS. It's not going to fit with you, right? And also, if you are building something that is successful in its own right, don't second guess yourself, right? And I will say this to any founder listening too. Yes, we have our incredible portfolio company founders who will always help for the benefit of the firm and the benefit of the portfolio and benefit for their futures. But if there's any founder who's listening to this and is just stuck on something and just, hey, can I sit with you for like 15 minutes and just try to work through something that's kind of blocking me?

29:53Sumeet Shah:Or should I consider going raising venture funding? Should I just consider doing this? I'm happy to do so. because also to the point is, and the final piece of advice I'll give to founders is the investor-founder relationship should never be scary. Not even just, of course, if they invest in you, but also in this ecosystem itself. So if you want to go talk to the Ben Lairs or Kirsten Greens or Sumit Shas or whatnots of the world, fine, reach out and just be genuine, be authentic. Obviously have context to it where you think that they can be helpful versus just, of course, like a true cold outreach.

30:23Sumeet Shah:It's like, hey, I think you're smart, like everything. Like you got to be smart about it. It's also where cold intros actually matter if you actually built the context to it. But that level of, it's a buzzword, but that level of authenticity, that level of just true transparent care can really take you far.

30:37Hannah Dittman:Very wise words and well said. It's so clear how much passion you have for your job, your role, and also kind of the anchor you can play in the ecosystem for other people getting where they need to go. it really does take a village sometimes and no one has full perfect knowledge in every single aspect of the business building journey. And it's nice to be able to have the human touch and be able to be approachable and to tap the people who maybe know part of the equation that you don't. And I think that really stands out as unique amongst investors. And I can definitely tell you, you have a lot of a human touch and a lot of care and empathy for founders, which is so important.

31:17Hannah Dittman:Speaking of founder questions, I'd love to pivot into a Slack question. As you know, Startup CPG has the largest Slack community in the industry with now over 35 ,000 members. I'd love to pull a question directly from our channel and have you answer it as a case study for any founder that might have a similar question. Today's question is, what should the first chat with an investor be like?

31:37Sumeet Shah:Yeah. So I'm part of that Slack group and it is incredible how infinite the wealth of resources and knowledge base exists on there. So kudos to you, kudos to Daniel and the whole crew for building it and for just continuing to grow. What should a first chat with an investor be like? It's the fit chat, not just a fit for your company, for you, for them, but ultimately if this investor, if this investment firm too, of course, makes sense for you because there's two fits that you are qualifying on there as well. One, of course, the investment firm itself, what can the firm potentially do? Let's say you really want to work with firm ABC, And you hear about, we do this, we do that, really have the opportunity to kind of learn more on how they actually help their founders, right?

32:19Sumeet Shah:It's about that fit. But there's also the side of it where if you really gel with that investor, like let's say the investment firm might not make sense, but you really gel with that investor. the wealth of partnerships that can come out of it. If they, of course, believe in you and that relationship does click, that fit really does click, you'd be surprised at what could happen. I'll give you an example. There was a company during the brand for a hundred years that we approached a very prominent investment firm, a venture capital firm that invested in female founded companies. And the firm, unfortunately, was spending more time in consumer tech.

32:51Sumeet Shah:And so they didn't really see the opportunity that they could have invested in on the firm. But one of the two partners who was a very successful consumer executive, she ran a global brand for AOL. She ran a lot of stuff for, you know, up to posts about Stuart on the media and whatnot. She really loves the company and really just saw so much potential within the founder that she ended up becoming an angel investor herself. It was great. I mean, she opened up so many doors. She opened up, you know, a door as to another angel investor who was at the time the head of QVC. And, you know, as QVC and HSN merged, she became the head of Weight Watchers or WW when it became on that end.

33:31Sumeet Shah:And we just had these great, incredible women executives who ended up coming to invest in the company itself. And it was awesome. You know, she also opened up so many other doors on like media and contact and partnerships there, too. So the first chat with the investor should be about that fit. But also just how do you gel with this person, too? Right. And not every conversation is going to get all warm and fuzzy and actually like useful for that. And it shouldn't be. It ultimately should be a conversation, not just like a chat should be a conversation from here. It shouldn't feel like an interview.

33:59Sumeet Shah:It shouldn't feel cold and rigid from there. It should ultimately be like, okay, can I see myself really being in the trenches with this person for those next three to five years in so many different ways?

34:08Hannah Dittman:Really, really helpful. Smeet, you've had such great wisdom and so many interesting nuggets and thoughts throughout this chat. for founders that might want to reach you to either follow up on questions like you mentioned, or to maybe discuss investment, what's the best way for them to reach you? And second part of my question, do you have any advice for anyone interested in consumer investing or maybe joining your team at VHS?

34:33Sumeet Shah:Yeah, best way for founders to reach me, you could definitely email me sumit at vhs.vc. It's a pretty straightforward on there. Definitely make sure if you are pinging me from this. I mentioned that you heard about me from the podcast, so I definitely want to make sure that pathway gets cleared from there. I'm pretty active on the worlds of social. I really use X and threads these days, Instagram sometimes here and there, but definitely tapping a lot more onto LinkedIn as well. So definitely a secondary level from it, but my email is always open. I definitely always will have to see where I could be helpful from that end.

35:04Sumeet Shah:On joining the consumer investing world or potentially joining VHS Ventures, we launched a fellowship program last April to build like a part-time associate platform. We may add additional opening in the next quarter or so, so by Q2, but right now fundraising is our priority to make that happen. But if there is anyone who is ever interested in learning more about the consumer investing ecosystem, or also is interested in learning more about us and just how we can get more involved, just ping me. You know, I might not be able to meet up immediately, but I'm happy definitely just to see where I can help and point you in the right direction.

35:35Sumeet Shah:Because there are just incredible consumer investors, investment firms that are always looking for good people. But also one big piece of advice I will say if anyone's looking into getting in there is there are obviously various ways to get into venture, but one I would always recommend is find an area, sector, company, space within consumer that you're just truly passionate about and find your pathway, find your platform that you really would like to talk through, whether it could be Substack, whether it could be LinkedIn, whether it could be putting together your own podcast, right? And putting together your own podcast then just really shares up from there.

36:08Sumeet Shah:You could end up like the Mike Gelbs of the world. You can end up like the 20 Minute BCs, the Harry Stebbings of the world from there. And I was an early guest on his podcast. And, you know, what was amazing to me about him was that just how genuine he really wanted to learn and learn from people from here. Now the guy has a very, very prominent venture capital firm of his own. And he was just a kid, you know, who loved Mojitos when he was working through it, but like wanted to learn from investors from that end. So anything can truly happen, guys.

36:33Hannah Dittman:Great piece of advice and so inspirational. I hope everyone's walking away from this conversation feeling like an extra pep in their step and ready to tackle their day and be curious. Sumit, thank you so much for your time and being so generous with learnings and anecdotes and answering questions. I really appreciate it. And it was an awesome chat. And we were really grateful to have you here today.

36:55Sumeet Shah:Thank you so much, Hannah. It was a pleasure chatting with you as well. Thank you for the opportunity for me to come on and just here to help where I can. Hope everybody has a wonderful weekend.

37:06Hannah Dittman:Well, friends, we've now arrived together at the end of another episode of the Startup CPG podcast, the top globally ranked podcast in CPG. And if you love this podcast, you'll love our Slack community even more. Here at Startup CPG, we're a community of brands and experts, and you should join. Sign up at StartupCPG.com. You'll then get an invite to our online Slack community of over 35 ,000 all-star CPG members, hear about amazing events near you, and all our special opportunities to get you in front of buyers, investors, brands, and more. It's a free community. So what are you waiting for? I'll catch you on the next episode, and I'll see you on the Slack.