Neha Khera, once-partner at 500 Startups, has joined US-headquartered pre-seed stage investment firm 2048 Ventures as partner.
Though based in the United States, 2048 Ventures invests in emerging markets outside of Silicon Valley, including in Canada. In her new role, Khera will be based in Toronto and plans to use her existing network across Canada to help 2048 Ventures execute its investment thesis.
2048 Ventures aims to be a lead institutional investor in pre-seed venture capital (VC) rounds, which Khera described as “unusual,” given the fact that the pre-seed stage can be the riskiest to invest in.
2048 Ventures invests with a focus on emerging technology markets such as Toronto.
Khera pointed to a gap in the Canadian market for early-stage investing, noting that Canada’s VC market has matured in the last five to seven years, leading many early-stage funds to move upstream. She said this leaves new entrants into the market without a pre-seed institutional investor to turn to.
Khera, who has been an early-stage investor for the last decade, said startups at the pre-seed stage lack a solid institutional investor to turn to. Many rely on angels, accelerators, and funds who do not have pre-seed investing at the core of their thesis, she said.
“I’ve always been a huge believer in this space in the ecosystem,” Khera told BetaKit, referring to pre-seed investing. “Seeing that there’s a huge gap in the Canadian market, and [given that] 2048 also recognizes that and wants to get behind that, it just felt like such a great, natural fit.”
2048 Ventures brands itself as a geo-agnostic firm, investing anywhere outside of the Bay Area, with a key focus on emerging tech markets. Since closing its $27 million venture fund in 2019, 2048 has already made several investments in Canada.
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Last year, the firm invested $525,000 as part of Toronto-based Ratio.City’s $1 million seed round. 2048 has also invested in Toronto-based startups BioBox and Konvrs, and Montreal-based startups nplex and Turbodega. Khera noted that 2048 Ventures invests between $300,000 and $600,000 per round.
“We don’t think that the valuations in San Francisco are necessarily reflective of where a company is actually at in its lifecycle,” Khera told BetaKit. “So we’re focused on burgeoning tech markets that are outside the Bay Area like New York, Toronto, the northeastern US, and Austin.”
Khera joins 2048 Ventures from 500 Startups, where she led investments in Canada for the VC seed fund and startup accelerator. Notably, 500 Startups is exactly the type of early-stage firm Khera says is currently missing in Canada. However, the 500 Startups brand in Canada is also mired in a complicated history.
“I think 500’s got an amazing accelerator platform, but I was always keen to get back into institutional investing.”
— Neha Khera
500 Startups sought to put a bigger focus on the Canadian ecosystem in 2016, launching a new Canada-focused fund. 500 Canada, as it was called, raised $15 million in January 2017, targeting $30 million overall.
However, allegations of 500 Startups founder Dave McClure’s sexual misconduct came to light as 500 Canada was in the process of raising an additional $25 million for a now-targeted $40 million fund.
The scandal and McClure’s subsequent resignation killed the fundraise, and led to 500 Canada’s managing partners terminating the fund’s investment period in July 2017.
While Several 500 Canada partners departed to launch a new seed-focused fund (Panache Ventures) Khera stayed in the 500 family, joining 500 Startups in 2018 as the US fund’s Canada-focused partner in addition to managing 500 Canada’s follow-on investments.
At the time, Khera’s investment role at 500 Startups was predominantly sourcing potential deals and companies to send to 500 Startups’ Seed Program. When BetaKit asked Khera in 2018 whether she would eventually be leading direct investments and rebuilding a national team on the ground in Canada, she said it was too early to say.
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Since then, 500 Startups has not appeared to slow down. Per a February report from Pitchbook, 500 Startups was the most active early-stage investor in 2019. Moreover, a regulatory filing dated April 2020 reveals that 500 Startups also raised approximately $66 million for a fifth fund. Given this continued activity, why is Khera leaving 500 Startups?
“I think 500’s got an amazing accelerator platform, but I was always keen to get back into institutional investing, which is just investing without the platform of having an accelerator,” the VC told BetaKit.
While the window for 500 Startups to rebuild a team and direct investment pipeline in Canada appears to be closed, Khera told BetaKit her experience at the fund will help in her new role at 2048.
“I think one of the most wonderful parts about 500 is the global platform that it has, and being exposed to that was a game-changer for me,” Khera said.
“500 has got such a great global network,” she added. “It was important to me that I maintain some form of a network outside of Canada, because I think it will really help our portfolio companies at 2048.”