Note: This article is the third in a series of interviews highlighting the work of interesting female investors.
Liz Leahy is an early stage investor and entrepreneur with 20 years of experience leading and funding start-ups. Liz is a passionate advisor to students and emerging start-ups. She is the Founding Partner of Purple Sage Ventures, a fund focused on early stage companies with diverse founding teams. Liz is also the Pitch Coach in Residence at the Columbia University Start-up lab, sits on the Columbia Business School Lang Entrepreneurship Center Board and Chairs the Georgetown Angel Investor Network (GAIN).
Liz, thank you for participating. How long have you been investing in early stage companies and how did you first get started?
I’ve been investing in early stage companies for about a decade. My investing interest was fueled by my experience as an entrepreneur/operator and my subsequent work with students/alumni entrepreneurs who were interested in developing businesses from Columbia Business School and Georgetown University, my alma maters. The lessons I took away from my own operational experiences and the Alumni Entrepreneurial Network participation have helped me to identify opportunities, and pitfalls, for potential investments
Looking ahead in early-stage investing, what are you most excited about?
The talent, creativity and innovation I am seeing every day in our pipeline keeps me excited about the incredible possibilities. The clearest example of this opportunity is with under-represented founders, who quite simply generate enormous value for the portfolio. Capital is clearly harder for them to access, yet their returns – as I have experienced them - are on par with any other founder. I hope this access to capital will improve, and while we are seeing some progress on this front, we have a long way to go. One fact that gives me some comfort: there is an uptick in the number of funds that are focusing on diverse founders as well as the number of funds looking to add diversity to their portfolios.
What keeps you up at night?
Like most funders, I want my investments to perform and firms that I believe in to succeed. However, I don’t focus on the results, but the process to achieve them. Deep into the night I think about ways to improve how we source opportunities, diligence them and help to nurture them. If we are constantly adding value throughout these processes, the results will be there.
Do you have an investing thesis or a focus on any particular type of founder, business model or industry? Are there particular kinds of startup companies you steer away from?
In a nutshell, Purple Sage Ventures invests in early stage start-ups with diverse founders. Our primary focus is on products/services that innovate supply chains, increase business and personal productivity, and reimagine wellness. We invest in seed stage companies that are post-launch, with at least 6 months of revenue or some customer traction. We also participate in Series A rounds via co-investment with other like-minded funds and/or as a follow-ons to one of our previous investments.
We avoid firms wherein deep expertise to evaluate the opportunity is required. If the industry has a complex regulatory, technical or development knowledge base as a key driver of the investment thesis, it's not for us.
Our thesis is simple - do the work and focus where others are not looking. Other investors may not focus on diverse founders, or smaller ticket sizes, or unloved, unsexy industries – but we do.
Do you consider the type of investing you do to be “impact investing”?
There is an enormous gap in gender funding that led me to believe there is an opportunity to help create value and level the playing field a bit via PSV. In my experience, diverse founding teams produce equal and/or better results to any other founders, and I believe that our focus, guidance, input and support helps drive positive outcomes. So, yes, if I can help underrepresented founders build their business, especially when others are less interested, I would say that has “impact.”
Where does your best deal flow come from?
We source deals from multiple channels: inbound inquiries, from our team’s own networks, from other investors we have worked with in the past, from various angel networks and, of course, our portfolio companies’ networks. Interestingly, we get substantial reverse inquiry referrals from the networks of companies that we have passed on. We consistently hear our approach and advice – even when we don’t choose to invest – has made the process a productive one and they are happy to refer us.
How do you know a great entrepreneur when you see one?
Our sourcing, diligence and investing process drives our outcomes. Great entrepreneurs are uncovered through focusing a critical eye on them, and their businesses, as well as their decision making processes to determine if they have the right outlook.
For me, it’s a growth mindset. Are they looking for opportunities to learn, to improve? Do they look at problems as springboards or walls? Can they make good, critical decisions with imperfect data using the mosaic of information available to come to a logical decision?
The hardest thing to assess is, of course, character. Does the founder want to grow the right way, or the quickest way, and how do you align interests to ensure all parties are better off?
Finally, we look at the team. Very rarely is one individual so complete they can build a great business by themselves. Almost universally founders need a strong, cohesive unit and these dynamics are crucial. A critical part in our evaluation is if the company is committed to diversity – in all ways – as they build their team. If not, they are less likely to succeed as a business and even less likely to get our investment.
Do you think your gender influences how you approach investing? If so, can you tell us a bit about how?
It definitely does have an influence. Recent 2021 data suggests that less than 3% of female-led companies get funding, fewer than 15% of all VC partners are women, and 65% of U.S. venture capital firms lack female partners. From a funding perspective, I think we need to democratize access to capital. It’s not a pipeline issue, it’s that diverse founders don’t necessarily have the same access to capital as others. Therefore, our approach is to help provide access. In addition, we’re trying to build a network of folks who have a similar approach. Purple Sage Ventures is working on curating a “pipeline network” of funds that represent diverse founders. Our goal is to have the ability at each point in the valuation lifecycle to allow deserving founders to get access to capital, input and advice.
Can I ask you to speculate on what makes you good at what you do? Is there a particular experience or set of experiences in your history that you feel especially helped prepare you to be an early stage investor?
That’s a very interesting question, I would have to say it’s the combination of working in startups my entire career as an employee, manager and founder, as well as the businesses that I have helped with my work with the Columbia University Start-up Lab, the Lang Entrepreneurial Center at Columbia Business School (CBS) and the Georgetown Angel Investor Network. I coach and advise start-ups and have seen countless companies at their most early stage, and I think that gives me a better sense of the chances for success - preparedness, quality of idea, execution challenges and desire to succeed.
In my coaching role, I tend to concentrate most on encouraging founders to address how they will meet their goals and how they will conduct themselves and their businesses. At Purple Sage Ventures, by focusing on KPIs, we hold companies accountable for their progress, which is critical in the early, chaotic development phase.
Are there some portfolio companies you are especially proud to be working with or simply would like to highlight?
As we are all currently experiencing, re-awakening from Covid has created supply disruptions of materials and labor. Supply chain management is shifting towards a more integrated network to better coordinate supply, demand, inventory, and capacity. Yet none of these trends are occurring in a vacuum and issues such as global warming, and inequity need to be addressed. The private sector can, and should, play a massive role. Three of our portfolio companies strengthen supply chains while having significant environmental and social impact.
Renewal Mill, a food company that fights climate change and global food loss by upcycling byproducts from food manufacturing into superfood ingredients, premium, plant-based pantry staples and baking mixes.
Many companies are moving towards carbon neutrality in order to court a growing sustainability-focused consumer base. Renewal Mill stands out because the product itself comes from an upcycling process making sustainability easily accessible. I love their tagline, ‘Fight climate change from your kitchen, one delicious bite at a time.’
Inclusively, a technology-centered inclusion solution and employment platform for job seekers with disabilities, mental health conditions, and chronic illnesses to inclusive employers committed to providing needed workplace accommodations. This company matches talented individuals who can contribute to companies who need them.
Tailored Industry, an on-demand knitwear manufacturing company. At present, it can take apparel brands from 6-12 months to sample, produce, import and deliver a new product. Their on-demand software platform enables brands to by-pass this inefficient process; sampling can be completed in a few days, with on-demand orders drop-shipped in just 72 hours. This cuts waste, energy consumption, pollution and saves money for companies through more efficient cash management, inventory management and floor space.
Do you have set expectations for founders on how they should lead their teams and communicate with their investors?
More and more of our portfolio companies are doing Town Hall style investor updates, and I find them to be super-helpful. It allows investors to meet each other, ask questions and benefit greatly from an open forum/group discussion. It’s a great way to get a lot out of investors while making them feel empowered and part of the process. I have found this to be an excellent forum.
If you could give entrepreneurs one piece of advice about working with you, what would it be?
For our portfolio companies - Be prepared, know your story, know your numbers and put yourself in the investor’s shoes for a moment so you can understand our incentives. Then ask questions and follow up. Create a reason for frequent touchpoints that include well thought out agendas and “asks” for our help.
For companies that pitch us - All of the above. Additionally, create the reason for the next phone call and the next meeting. Remember, even if we offer a quick “no, not for us,” we’ll tell you why. This can be great learning for how to approach your next investor.