MFV PARTNERS Interview Series: Untapped Capital

Kristine Harjes:

Hello, and welcome to the Motley Fool Ventures Partner Fund Interview Series. Investment officer Kristine Harjes here. Motley Fool Ventures has been making limited partner investments in other venture funds. And we're really excited to highlight some of these rising star VCs and their investing strategies. I'm here today with Yohei Nakajima, the General Partner at Untapped Capital. Yohei, thanks for joining me today.

Yohei Nakajima:

Thanks for having me.

Kristine Harjes:

If you could kick us off and just tell us a little bit about yourself and your journey, what brought you to found Untapped?

Yohei Nakajima:

Yeah, I've been around early-stage startups for 15 years, starting really on the community side and been on the investing side for about seven years. Initially with Techstars, helped spin up the Disney accelerator, moved to a more central role, got to work with, at that time, it was about 30 accelerator programs on the top of funnel. So sourcing, helping source with all the accelerator programs, developing an outbound program where I was personally building lists of maybe a 100 to 200 leads for each program and AB testing outbound strategies, and I'll come back to that. Last couple of years, I've been at Scrum Ventures, which is a seed and series e-fund in the Bay Area with close ties to Japan. So I sat on the investment team as a venture partner and led their consulting arm that worked with corporates like Nintendo, Panasonic, Dentsu, and so on. And that brings us today.

Kristine Harjes:

Very cool. And tell us about Untapped? How big is the fund? How's the ray's going? What's your strategy?

Yohei Nakajima:

Yeah, so Untapped is a pre-seed seed fund led by myself and my partner, Jessica Jackley. She's most well-known for being the founder of kiva.org, has co-founded a couple of other startups since then, and worked at a couple of great venture funds like Collaborative Fund in the early days and Spark Labs Global more recently. So our pre-seed seed fund is a generalist fund. Our thesis, we're calling, Under Networked Founders, specifically we're trying to invest in founders on the fringes of the startup ecosystem from a social graph perspective. What we've seen is that the pre-seed seed stage market is, I think, too heavily reliant on referrals. And we see a lot of funds who want to invest in the same deals. And having done a lot of outbound in my career, I know that we're able to find founders who are building great businesses, who just don't have access to venture capital through their existing network.

These include underrepresented founders, introverted technologists, non-tech industry veterans, small town, what we call small town heroes, young founders, and heads down founders who are founders, who are just heads down building a business and having come up for to fundraise. They’re not in our network by definition. So we primarily source through outbound. So the majority of founders we talked to, we reach out to, not the other way around, and we hope we’re not going to be the only ones doing this in the future. But this is, I think, something that’s much needed in the pre-seed seed stage.

Kristine Harjes:

Yeah, it’s a relatively unique strategy. I don’t know that I’ve ever heard of another fund that relies primarily on outbounds possibly just because it’s so hard. What are some of the strategies and the places that you look to find these difficult to find founders?

Yohei Nakajima:

Really the strategy is to look at as many startups as possible. So looking at every company on Product Hunt, going to Angel List sorting by new, looking at threads on Twitter, Google searching ideas we come up with, setting up a Google alerts for startup pitch competition. So if there there’s a small pitch competition in a university in Iowa, it’ll show up in my email.

Kristine Harjes:

Very cool. And you’ve touched on this a little bit, but can you elaborate on the implications that this have for diversifying the face of entrepreneurship?

Yohei Nakajima:

Yeah. Today the onus is on the founders to be reaching out to investors and finding investors that want to invest in them. But in my experience, when investors, the decision makers, are looking at lists and reaching out to companies, they’re already interested in investing, and it just becomes much more efficient. Our hope is that by showing that you can have strong returns during outbound, we’ll see more VCs doing this. And what’ll happen is if more VCs do outbound is that founders will spend less time fundraising on average. And there’ll be less reliant on their existing network, which, we believe, will help democratize the access to venture capital, which is something we all want to see.

Kristine Harjes:

Very cool. Have you made any investments so far?

Yohei Nakajima:

We’ve made three investments so far. We’re very excited about all of them. MilkRun, Julia and her team are helping consumers buy direct from farmers. She used to be a farmer in Portland. She’s since launched, after launching in Portland she has since launched in Seattle and Austin. Went through YCombinator after an investment. So she’s on great track. Our second investment is in Level. They work with labor marketplaces like Dolly and Keep, which is in the moving space, or porch and home improvement, to offer loans to their contractors and other financial services like insurance. They get proprietary data from the marketplaces to help underwrite these loans, and the marketplaces will take a percentage of the earnings from the contractors on the platform aside and pay Level back directly. So it’s a really clever model that allows people who are working paycheck to paycheck to be able to buy new equipment and offer better services. So we’re very excited about their mission.

Kristine Harjes:

Very cool.

Yohei Nakajima:

And our third investment is in a company called Obviously AI. It is a no-code auto ML tool. I was blown away when I saw the demo. You can upload a spreadsheet, choose a column to predict, click a button. It'll run through a couple of models and pick the best one, spit out top drivers. And when you want to make additional predictions, you can just upload an additional spreadsheet, ping it via an API, or even use a form if you need to get predictions on the go. And we've been talking about a lot of new features out on top of this, but we're very excited about what they're going to be continuing to build.

Kristine Harjes:

That's awesome. I love their name. So as you're reaching out to investors, I'm sure the cold outbound requires a little bit of a pitch for yourself and why these founders should want to work with Untapped. What do you tell them? How do you work with your founders?

Yohei Nakajima:

So when we ... We like to work with founders that want to build a network, right? They may not have a strong network initially, but Jessica and myself, we have really strong networks that surprisingly don't overlap that much, which is great. So we put our heads together, find people that can help these founders, and then ourselves, we like to get our hands dirty with a lot of our founders. We'll jump on a weekly call right when we invest with them to work through everything from go-to market product, of course, sales, fundraising, and we just like to work with them really closely. And most of the founders that I've invested in, I consider friends as well. So it's a true relationship that we like to build.

Kristine Harjes:

That's great. Yeah, we are at the same mentality there. It's a long-term commitment to these founders and we're also really excited to be an investor in Untapped. We've got another long-term relationship ahead, and I'm very excited for what we can all learn together.

Yohei Nakajima:

We're very excited as well.

Kristine Harjes:

Thanks for taking the time out of your day to do this interview with me.

Yohei Nakajima:

Of course. Thank you.

Kristine Harjes:

For more information about Untapped Capital, you can check out untapped.vc. And there are more interviews like this available at foolventures.com. Thanks for listening and fool on.