Investor Spotlight - Dcode Capital
NAME: Rebecca Gevalt, Managing Partner
COMPANY: Dcode Capital
HEADQUARTERS: Washington, DC
TECHNOLOGY VERTICALS FOCUS: Technology agnostic, Dcode Capital seeks to invest in growth-stage commercial technology companies that have broad applicability in the federal government.
PREFERRED ROUNDS: Series B+
CHECK SIZE: $1-$2 million
NOTABLE INVESTMENTS: StreamSets (acquired by Software AG for $581.7 million), Trifacta (acquired by Alteryx for $400 million), Tamr (backed by NEA and GV), UrbanFootprint (backed by Social Capital)
Rebecca Gevalt is one of three Managing Partners at Dcode Capital along with Meg Vorland and Meagan Metzger. Previously as Dcode’s tech managing director, Rebecca built and operated the stage-agnostic accelerator program, scaling venture-backed tech into the federal market. She also launched Dcode’s government business to teach government stakeholders how to find and contract with nontraditional tech companies. Prior to Dcode, Rebecca worked at the Central Intelligence Agency (CIA) for more than a decade. While there, she spent two years working with In-Q-Tel to bring novel tech startups into the national security space. She holds a BS from Tulane University.
Q: What is the origin story of Dcode Capital?
Dcode Capital launched from the Dcode advisory firm, where on one side of the business we've helped more than 150 venture-backed tech companies expand into the federal market and on the other we help government agencies find and contract with those tech companies. Dcode has worked with the best commercial dual-use technologies, including more than 20 unicorns, and is responsible for hundreds of federal implementations.
Collectively, we made a business decision not to require investment rights for companies to use Dcode’s programs. The reason was simple: Dcode’s mission has always been to get the best tech into the government. There are many reasons why a tech company might not want to give up equity at a given time and we didn’t want to limit the companies Dcode could work with and introduce to the government.
But over time, our companies started asking us to invest because of our federal expertise. We had demand from amazing tech companies and a phenomenal engine in Dcode to bring companies in and assess them in a unique way before making investment decisions. And so Dcode Capital was launched.
Q: Dcode Capital invests in growth-stage companies with commercial traction and defense/government applicability, typically referred to as dual-use. Why dual-use and why companies at that stage?
We invest in dual-use companies because the private sector is driving innovation in this country, and for the federal government to better serve and protect Americans, they must tap into that. We are at the forefront of that mission, first with Dcode and now with Dcode Capital.
The advisory side of our business, Dcode, is stage agnostic and works with companies from Seed to Series E. At the earlier stages, Dcode helps companies understand when the federal market is right for them and how to set the foundation for a successful federal practice.
From an investment perspective, Dcode Capital invests in Dcode companies at Series B or later because at that stage we’re best positioned to drive significant expansion of a company’s federal business and we’ve likely worked with them for a while at Dcode. At Series B, companies typically have significant commercial traction and going after more federal contracts is less risky.
Q: What level of commercial traction do you need to see and how do you assess a startup’s potential for defense/government applications?
We like to see around $5 million-$10 million in annual recurring revenue (ARR) to make an investment with 60% or more of that coming from the commercial sector. Most of our companies will also have several Fortune 500 customers which makes us confident they’ve achieved product-market fit.
There are so many parallel use cases between the private sector and government, so we find most B2B tech companies can have a play in the government. When I was at the CIA working with In-Q-Tel (IQT), we’d hear over and over again [from the government], “what I do is so unique there’s no way a tech company could help me do it.” IQT kept proving them wrong.
Q: What advice can you give founders of commercially established startups who are trying to expand to the defense and government markets? How do Dcode and Dcode Capital help companies navigate that transition?
It can be a hard slog and if you don’t know what you’re doing, don’t just start by hiring a federal sales team. Gather information and know-how first. Dcode recently launched an 8-week bootcamp to help companies figure out quickly and cheaply if the federal market is a fit for them. It’s a few hours per week and we cover all the basics. Then, if companies decide they do want to focus on federal, Dcode has follow-on programs to help with all the core pieces of a federal go-to-market strategy. Dcode Capital comes in after companies already have worked with Dcode.
Q: What are the most common characteristics of companies who successfully transition commercial technology and solutions into defense and government?
They’ve done their research, know how to measure success, and have thought thoroughly about how to manage a dual-use business. We run into companies not infrequently who think their first year in the federal market will net them millions of dollars. We also see CEOs try to manage federal sales with no experience or understanding of how the market works. They’ll keep responding to requests for proposal (RFP)s not realizing they have no chance of winning. We love talking to C-Suites who know the federal market is unique and tough to break into, but ultimately sticky once they can do it. Their first step is to learn and then lean on those with experience to help make decisions.
Q: Are you optimistic or pessimistic about defense and federal efforts to improve engagement with innovative and nontraditional companies (i.e. startups)? Are there any specific efforts that you are particularly excited about?
I’m optimistic because we know the people who are trying to improve engagement and they’re dedicated to the mission. Also, the government doesn’t really have a choice. We’re not going back to the days when the federal government was the biggest driver of innovation.
We’re particularly excited about the new DoD Office of Strategic Capital because they seem to be looking at the problem the right way and soliciting input from the correct players.
Q: Studies have shown that increasing the number of female partners at a fund correlates to an increase in fund performance. Why do you think that is the case?
I think in any leadership team, diversity of thought and viewpoint is critically important, and making investment decisions is no different. You also can find a lot of studies about women and risk aversion. In our investment committee meetings, there’s a lot of discussion, argument, and questioning of assumptions. I’m not sure if that’s because we’re women, who are risk averse, or if second guessing what you think you know was beaten into me at the CIA.
Q: Dcode Capital is an all female team which is rare in venture capital (VC) and especially rare in VC focused on defense and government. What competitive advantage does that give to Dcode Capital?
The short answer is that an all-female team makes us unique (and thus interesting) and allows us to be a part of the amazing ecosystem for women in VC.
During diligence conversations with a company C-Suite, we were told we were the first female VCs that had been on a call. That was crazy to hear, but I guess not surprising when you look at the stats. While it can be good for business to be an outlier, I hope that changes rapidly and we see more women VCs.
The ecosystem for women in VC is amazingly supportive. Recast Capital (also in DC) provides phenomenal programs and mentorship to women and diverse fund managers. Bridge Funding Global brings together LPs and female fund managers. Transact Global is a great place for women and diverse fund managers to share information. And then there are the larger private equity groups for women.
Q: Where do you see opportunities to bring more women into the defense and government VC space?
A lot of VCs in the defense space have experience with the DoD but you don’t see many female veterans going the VC route. Dcode has partnered with a number of programs, including Training with Industry (TWI), Education with Industry (EWI), and SkillBridge to support DoD personnel both during their service and through their military transition. I hope that by working with these programs, it will show more women the opportunities that exist in the VC world.
Q: Are there specific female investors that you follow or admire?
Sara Zulkosky and Courtney McCrea with Recast Capital are amazing. In addition to being successful investors, they’ve taken a huge leadership role in diversifying the VC ecosystem. The Recast Enablement Program has helped dozens (maybe close to 100 at this point) of diverse fund managers launch their funds, and the support network they’ve built is phenomenal. Additionally, earlier this month Recast launched a new program to help female fund managers cover their back office operations.
Q: What lessons have you learned about women in VC since launching Dcode Capital?
I think there’s a tendency for people to want to say all the right things but then you don’t see the actions to back it up. That was my assumption when I first started getting introduced to these groups for women in VC. I was proven so wrong. There really is an amazing network out there that genuinely wants to help female VCs be successful.