The Solo GP Playbook: Zal Bilimoria on Fundraising, Portfolio Strategy, and Founder Relationships

0:08Welcome back to another episode of Venture Unlocked, the podcast that takes you behind the scenes of the business of venture capital. I'm your host, Samir Khadji, and today our guest is Zal Bilimoria, co-founder of Refactor Capital. The firm recently closed its fourth fund at$50 million to invest in biotech, climate, and hard tech startups. Zal started his career in product management roles at companies such as Microsoft, Google, Netflix, and LinkedIn, and eventually went to the venture side as a partner at Andreessen Horowitz, where he played a role in launching their first bio fund in 2015. In this week's show, we talk about Zal's transition from product management roles to venture capital, his time at Andreessen Horowitz, and his journey as a solo GP and the number of learnings he's had in building an institutional seed firm.

0:54Let's dive in now. Samir Khadji is the CEO and co-founder of Allocate. Allocate and Venture Unlocked are independent of each other. Any statements or references made by Samir or his guests regarding third-party investments or securities are solely their views and opinions and are not intended as investment advice or an endorsement of such parties or securities by Samir, his guests, or Allocate. Allocate or its clients may maintain relationships with or investment positions in guests, third parties, or securities mentioned in this podcast. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions.

1:34Zal, it's good seeing you, man. It's so great to have you on the show. Thanks for having me, Samir. It's going to be a lot of fun. You and I were talking a little bit before. We've known each other since you started the firm. Now, almost 10 years ago, it's hard to believe it's been nearly a decade. But I think a good place to start is how you got into venture capital and really kind of going back into being a product manager at these big shops. And then what led into going on the other side of the table and actually investing in companies? I was born and raised in Indiana, about one hour from Chicago.

2:03My parents moved from India like 50 years ago. My dad was a metallurgical engineer. And so a bunch of the steel mills are located at the south end of Lake Michigan, right by Chicago. And so that's where my dad worked for 25 years. But we also had a computer business on the side, a family owned computer business where we built and sold computers. This was back in the late 80s and 90s. And we sold them to people's homes, doctor's offices, companies, school systems. And so, you know, I was conscripted child labor from probably age seven onwards, believe it or not. And so I was building computers in my dad's basement, getting into hardware, software, coding at a very young age.

2:36And so great memories. And many thanks to my dad for kind of pulling me into that in the early days. But Wharton raised there. I went to Penn. I did internships in the two careers that almost every person at Wharton goes into banking and consulting. And I absolutely hated both of them. And I was like, going into my senior year, I'm like, what am I going to do with this Wharton degree? And I was so lucky, Samir, Microsoft had come to campus and was recruiting for product managers at that point, PMs, you know, to help kind of build products and work with commercial parts of the organization to launch them.

3:11They came to campus and they recruited me and that started a 10-year career in product management. And so I got very lucky to go back to my software roots that I had built with my dad and start a career in that space. You think about all the different companies, whether it's Microsoft, Google, LinkedIn. I think LinkedIn was the last shop before you went into venture. What prompted the move into the investing world after being a product manager for a decade? Yeah, I was building these products. I had a really great, great time. I was the first head of mobile at Netflix. I was early on the monetization team at YouTube right after Google had acquired YouTube.

3:45Funnily enough, Hunter Walk was my boss for about a year at YouTube, fellow seed legend. For me, I was building, I think at the time in 2013, the Sales Navigator product at LinkedIn. I was working, one of the features that I was the PM for was InMail, which many of us use and or feel like they're probably getting spammed. But I was looking at it and saw an email from Andreessen Orlitz. And they said they were recruiting partners for the investment team and ideally people that fit my phenotype who had started a company, which I did back in 2010. Not a great story there, but it was a it was a year of effort.

4:20People who had actually built products in their in their journey as PMs. And they later told me that why why were PMs like the phenotype they were looking for? Well, Chris Dixon, Ben Horowitz, even Mark himself, like they were the ultimate PMs, right? They were the mini CEOs of those product organizations that work with the engineers to build and spec products and commercially launch them with the sales organizations and continue to iterate on that loop as you improve the features and the products for the target audience. They felt like the PM would be a really great because that's exactly what you have to do when you evaluate startups.

4:56You have to understand technically the capabilities, but also the commercial go to market. They really started building out this team. And so this was back in 2013. We were deploying A16Z Fund 3 at that time, which was a monolithic$1.5 billion fund. And I had never thought about going into venture to answer your question, but they got me excited about it. I ended up joining and we were investing in everything out of that one fund, seed to growth, consumer to SaaS, but also bio and health, which was kind of a new area that I was getting into. That started my journey into some of those categories.

5:29But yeah, I didn't really thought I was going to get into venture so early. A couple of people actually in venture were like, don't go so early as always. You should go start a company or go be an executive at a startup first because you've been at these big companies, Google, Netflix, and LinkedIn. And you may want to actually go get some startup experience before coming into venture. But I just felt like this was an opportunity that I could not pass up. I got to meet half the firm, half of the A16Z firm. At the time, there's only 50 people. I think today there's 500. conduit. So I got to meet half the firm, most of the GPs.

6:00And I was just like, I've got to be here at this point of time. And you were there for three years before starting Refactor in 2015. How did you know it was the right time to spin out and start your own firm? Obviously, getting to learn from people within the A16Z walls with folks like Ben and Mark and others is great. But venturing out on your own is always tough. It's like, do you have the track record? can you raise capital? How did you know at that moment that going into business for yourself, and I know at that time it was also with David Lee, but how did that all come about and how did you have the overall sort of confidence that it was the right time to do so?

6:37One thing to note is that at that time, I was on the investment team. I was not a general partner, so I was not writing checks. The GPs are the only ones that have the ability to write checks, sit on boards, and lead investments at A16Z. At least that's what it was at the time, and I believe that's how it is right now. It's structured. And they told me during the interview process, so there's probably not gonna be a path for you to be a GP here because they were looking for people who had half billion or billion plus exits to come in and be GPs there. They told me upfront, you're probably gonna spend a few years here.

7:07And at the end of those few years, you're either gonna wanna start a company, you're gonna wanna maybe join one of the companies that you diligenceed and maybe you're a board observer with, or if you wanna go be an investor, we're happy to help you make introductions, et cetera, support you, but you're probably gonna have to do that somewhere else if you want to be a check writer. And I said, okay, that's really good to know. I mean, I knew on the very first day on the job, I mean, it's a Monday partner meeting. I don't know if you've kind of heard about this structure before, but like at the time there was only about 15 of us on the investment team.

7:37So there was eight general partners and seven of us on what we called the deal team. And we were like that monolithic team. So we covered all the stages and all the sectors. And on Mondays, we'd be locked in a room, basically, from like nine to like six or seven o 'clock at night. The morning was the final GP pitch that founders would come and pitch us. Back to back, there'd be like three or four. And that would be the last pitch before we decide on whether we were going to invest or not. We'd break for lunch and we'd come back and we'd have deal review. And deal review was when we would process all of those companies, discuss them in depth, teams, traction, technology, markets, terms.

8:13and that was like just the most amazing educational experience as you can imagine being in VC. And then of course, we'd not only discuss those companies, we would discuss all the other companies that all of us had met since the previous deal review meeting. So after that Monday, obviously I'm exhausted. I come back home. I tell my wife, I'm probably like, I want to do this for the rest of my life. I am exhausted, but this was like the most amazing experience that I had. I knew I wanted to be an investor in that category. And so I think a few years had come up and I was at A16Z. I was getting into digital health, computational biology, synthetic biology.

8:50I helped start the BioFund, which was the first sector-specific fund that A16Z raised in 2015. And then, yeah, I reconnected with David Lee. David and I were at Google 20 years ago. He was running SB Angel with Ron Conway, and he had just left, and he was looking to start a new firm. We ended up chatting and over a few months realizing that we had a lot of similar ideas of how we wanted to treat founders and where we wanted to spend our time investing at the seed stage versus multi-stage or series eight, et cetera. I went and told Mark and Ben that, you know, listen, it was like right before Christmas in December 2015.

9:22I'm like, guys, like I think I found what I want to do. And they're like, oh, yeah, we already know. David's already called us. And we said, yeah, he'd be crazy not to partner with you. And I was like, thank you. That's awesome. So that's started my journey. So one of the things that we've seen, we've seen a lot of people spin out of larger firms. And from a culture standpoint, it's very different being an investment person that is at a big firm where your sole responsibility is investing. When you start a firm, it's really soup to nuts in terms of setting up the fund, thinking about all the things that you historically haven't had to do.

9:56Fundraising, picking service providers, thinking about culture, team, brand. And what things were transferable from your time as a product manager and maybe an Andreessen that you took over and that you kind of learned over the first one to two years that were very transferable? And what were some of the toughest things that you had to learn and adjust to as you started your own firm? Some of the easier things that I was able to transfer, especially from my time at A6D &C, is how we treat founders. And Ron and David at SV Angel had a very, very similar mentality, right? And so the whole thing that you've probably heard about, if you're late to a meeting at A16Z, it's a$10 a minute if you're a partner.

10:35It's$100 a minute if you're a GP. Those are all true, or at least they were at the time. That is extremely important. You want to make sure that you treat founders with respect. You come in and prepare for meetings. I talked about this on a previous podcast years ago, but what we did was we had an NPS score for every investment partner. We had an interaction with a founder, and then we passed on them. They would get an email from us. And, you know, 99 % of the time people are passing, so they probably are really upset and they're kind of disappointed that A16Z is passing. But they get an email and they have one question in it.

11:08It's like, how likely are you to recommend A16Z based on your interaction with Zoll? You know, 1 to 10. As you know, getting anywhere in the 8, 9, 10 range is extremely challenging. We all had our NPS scores and they were published internally. Even the GP has had NPS scores, believe it or not. That was taken extremely seriously. The way that we prepare for those conversations, sometimes I would have 10 pitches a week because I was on the front lines with the deal team, meeting companies for the first time, deciding which ones I wanted to propagate and talk to the GPs about. And so we had to even treat how we write the pass email and the communication around that very carefully, how we could help those founders.

11:45Taking those things that I learned from A16Z and applying that at Refactor, I think is something that I definitely did. I think building a brand is always extremely challenging. I think A16Z had a little bit of an unfair advantage there with Ben and Mark's reputation previously. And so we had to build a new brand and we took that very seriously. And the reason we did and the way we did that is even though you have a$50 million fund, first fund, David and I were the GPs on that first fund. And then he retired a couple of years later when I went solo. We did a lot of what I called, you know, SV Angel style checks, 25K, 50K checks into dozens of companies.

12:21and I was a little worried about that because I had learned at E16Z, like we need ownership to be able to return a fund. Like how are we gonna make this work? And David's like, no, listen, like we're a first time fund. Refactor is just coming up on the map with founders. The more we invest in companies and founders, we're building out that network and we're extending our reach of our platform and our name. And the way that people are gonna be able to work with us, they're gonna tell their friends and their colleagues about us. So, you know, we have about 60 companies in fund one, which is actually pretty a lot for a$50 million seed fund.

12:56But 30 of them are core investments where we are getting our, you know, at the time of five to 10 % ownership target and 30 we had no ownership targets for. And a couple of them ended up actually being unicorns and actually helping drive a lot of returns. But it's a very small amount of capital put into a company. And I want to come back to portfolio construction. It's something that there's so much debate on, you know, big fund sizes and how many companies, where you invest, follow-on versus initial, the ownership versus more companies, as David mentioned, with less ownership. I do want to go through your model and how you've evolved over the years from fund one to fund four.

13:33Before we, though, leave, because we have talked a little bit about David being part of it, he retires two years later, you had always been part of companies and funds that had team structure, partnerships, LinkedIn, Google, obviously big companies. How did you decide to be a solo GP and then ultimately stay that way when all you knew before that was team-oriented businesses? I mean, the short answer is I didn't know. And I spent six months after David told me that, listen, I'm going to retire. We had talked about this when we started Refactor. He's like, maybe maybe fun two, but probably fun three is when I'll probably step back.

14:07So all and you'll need to decide whether you know how big a team you want to build, etc. And then he's like, you know, came back to me in late 1718 and said, you know what, I'm probably going to retire. And you should think about, you know, what you want to do. And I was in a little bit of a shock that I had to make this decision so quickly, you know, so soon after launching Refactor. And I was nervous. So I spent six months talking to a number of my friends and partners and colleagues, and some of them that I thought would be GP candidates. Some of them, a couple of them were actually high net worth LPs of mine who are good friends who wanted to potentially get into venture with me.

14:41But some of these folks had very differing ideas of what they wanted to build. One wanted to build a$500 million multi-stage, multi-sector fund. I said, like, you know, I've seen what that looks like with A16Z. I do not want to compete with A16Z. I think that's going to be a challenge. Others wanted to do, okay, let's do seed, but let's do a$200 million dollar seed fund. I'm like, that's a big seed fund. Like, yeah, we'd have to do fintech. We'd have to do lots of other categories. I'm like, you know, that doesn't really get me excited. I'm not really, you know, stoked about doing just, you know, normal SaaS deals.

15:11I've been spending time in health and bio and increasingly climate tech. And this was back in 2018. And I was like, I am, I am really determined to focus on those categories. And so the more and more I thought about it, if you, you know, recall, there's probably like, you know, 10 steps in the GP marriage process, right? You know, I probably only got to step two or three with anybody. And I even brought them into my office right here in front of me and sat in with pitches with founders. And even the types of questions that people would be asking and how they would think about certain ideas, it led me to believe that maybe this is something that I can do on my own.

15:44And then I went back to David. I was like, I'm thinking about going solo. He's like, duh, you definitely should do this because you love your independence. You love your authority. You know exactly the types of founders that you want to work with. You're a really good picker. You're a type A personality. We talk about how my wife calls me A plus because super maniacal organized in terms of what our portfolio looks like, how I manage my time. I try to make it a priority to be as responsive as I can with our founders. And so all of these things have come up and said, okay, I can control this. and especially if I keep the fund size small and keep the investments in a concentrated basis, I can spend a lot of time with these companies and rinse and repeat the model every few years.

16:28And so I went back to our LPs and some of them bought that idea and some of them, very frankly, did not. Fund two was a very hard fundraise, right? So we went from 50 to 36 million. So I went down in fund two. Luckily, our anchor stayed with us and they have been amazing. It's the Knollwood Investment Advisory Group in Baltimore. more. They are fantastic to work with. I think they're going to work with me hopefully the rest of my career. But the rest of the group, I had to rebuild from fund two onwards. And I'm glad I did because a lot of those folks were, you know, because David had such an amazing track record.

17:01Those were David's LPs. Let's just be very honest. Those are David's LPs. He's the one that convinced them to invest. And he was a very, very good seller at that point. And so I had to be a seller. I had to come in and say, like, this is a round only refactor. This is all that you're investing in. And so I had to rebuild that LP base. And then a couple of years later, went back to the original size of 50 million. All of those folks ended up re-upping for a lot more. And so that fund was done very quickly. And so all in all, I'm so glad that I've been a solo. Yeah, let's go back to some of the fun two discussions, because at that time, I still think 2017, 18, being a solo GP was something very difficult for a lot of institutional investors to really internalize because of the inherent, at least perceived or maybe real in some cases, risk of key man, the inability maybe of the GP to bounce ideas off somebody else that's within their shop to push thinking.

17:54What were some of the biggest pushbacks that you had and how did that frame your thinking in terms of the gaps you had to fill as a solo GP to address some of those concerns as you went from fund two to fund three? Many LPs wanted me to hire people like principals and associates. They wanted me to build up more advisory network. I'm probably one of those rarest OLGPs that have kind of pushed back on that and said, I'm not going to hire anybody. I'm the only full-time employee and have been at Refactor for almost seven years now. A lot of the LPs were a little nervous about that, to be honest. And again, the numbers change as companies raise more capital.

18:32But on average, I do about seven or eight new investments per year. and let's say maybe five are graduating from C to Series A and beyond every year, two or three are shutting down or being acquired. So it's an effective replacement rate of one to one, right? Seven or eight new investments, seven to eight graduation slash shutdowns. I don't take board seats, but I'm very active with the founders, right? I'm a major investor, board observer, you know, I'm leading and co-leading rounds. And so I do spend a lot of time with those businesses, but I kind of pass the baton to the next set of investors at the next round.

19:06I do spend some time with those businesses as they mature, of course, but it's more rare than that. Being able to think about how to convince those LPs and fund two that I was the one to back was really, really challenging. Keyman risk, you brought up that. So I want to make sure I mentioned that. So one thing that Manu Kumar from K9 told me was that you should actually put together a separate insurance policy that if anything happens to you is all the management company is paid some few million bucks. And they can use that. They, meaning the LPs, the LPAC, can use that to either hire a new GP, hire a new team, or figure out how to manage the assets and kind of dissolve the entity over the following years versus kind of pulling additional fee capital from the LPs after you may have passed.

19:55I thought that was brilliant. And once I did that, I felt like it started getting fewer and fewer questions. And then on the principal and associates, It's like, you know, Tim Connors from Pivot North. Like he was the OG solo capitalist, right? You know, he was at USVP in Sequoia for a long time and then spent on his own firm. And like me, I like, he's very consistent, like raising 35 million-ish every few years. Like he's had like top quintile, you know, top 5 % type funds for a long period of time. And he's also from Indiana. So I call him up every once in a while. I called him up six, seven years ago when I was going solo.

20:27I was like, these LPs are telling me I should hire associates and principals and I probably need to hire multiple like one for healthcare, one for bio, one for climate. And I don't really want to manage three people. He's like, Saul, don't do it. I'm like, what do you mean? It's like, well, the very, very best people, they're going to want to be promoted inside. They're going to want to be a GP in your firm. And you have already decided that you want to be a solo GP. So there's going to be internal friction there. Secondly, they're going to want to do investments. And you're going to want to support them.

20:55But when the follow-on check comes on, those principals and associates are going to have an information asymmetry issue where they're going to know more about the companies than you are as the GP because they're going to be the ones that are going to be going to the board meetings and talking to the founders. And then you're going to be in a very tough position on how to decide whether to do the follow on investment or not. And then if you are actually lucky and have like a two year cadence with some of these folks, you're just gonna be hiring and firing people every few years. Like if you really do you really want to be doing that.

21:24So to sum up, I was like, okay, Tim convinced me that I should not hire anybody and stay solo. And you mentioned, you know, Tim, obviously one of the most successful solo GPs out there. Manu, of course, has done incredibly well. There are other folks that have now scaled to Elad, Oren Zav, for example. Oren, you know, has been on the show before and he said, I'm not going to hire anybody. I've, you know, they have two billion over management, but it's still just a one man show and people can't believe it. You know, one of the things I asked him and I wanted to ask you is, are there just inherent things that, you know, obviously the pros are there.

21:57We've talked about some of the pros of being able to manage, not having sort of the overhang of personalities, decision-making, politics, things like that. But, you know, as a one-man person or one-man show in this case, there are resource constraints. How do you balance your views versus somebody that can push your views? What are the things that you do as a solo GP to maybe overcome some of the just inherent challenges of just being solo and having just so much time available to you to be able to do things you need to to run the firm. Yeah, I think, and you mentioned service providers earlier, which I was not able to touch on, but like, you know, we've been, I've been working with Aduro for eight years.

22:37I've been very lucky to have a very strong and consistent team for many, many years. Not only that do they know Refactor, they know me, right? And how I work and what I expect in terms of responsiveness, quality of information and, you know, where they need my help and to get something done and when they can just do things on their own. It's been really great to have them. You know, I've got my tax and audit team. I've got a virtual EA down in California. She's been running my life for nine years. I've never met her before. She worked at a A16Z portfolio company before. You know, she has been great and keeps everything on task in terms of scheduling and some of the other back office stuff that I have to get done, tracking of deals and all that, right?

23:16I feel like I've found all the elements that have, like the stuff that I'm actually not good at and or don't want to do. I found people that helped me with that. And that allows me to spend all of my time with founders. I get to really spend like a significant amount of time meeting new companies and working with my existing portfolio companies. And if I can maximize those two buckets by having the supporting team around me, then I think that actually makes it a lot more worthwhile as a solo to actually understand my time. Because as you know, as a solo also like, you know, I've got two little girls at home during COVID.