Chris Latham, Deputy Managing Editor, Wealth Solutions Report
December 16, 2022
Surge Ventures, a new venture studio initially targeting the financial services and wealth management space, aims to bring multiple software-as-a-service (SaaS) startups to market by addressing emerging compliance risks.
These include advisor data governance, client privacy obligations management, user entitlement management and holistic Personally Identifiable Information (PII) posture assessments. The venture studio uses a proprietary “Surge Method” that seeks to swiftly test ideas, detect product-market-fit, track growth, and de-risk investments by focusing on promising products and solutions. Virgo Capital, an Austin, Texas-based private equity firm, provided $10 million in seed funding for Surge Ventures.
It is the brainchild of Sid Yenamandra, who founded and ran the award-winning cybersecurity platform Entreda before its acquisition by K1 Investment Management and Smarsh in 2020. He also serves on the Advisory Board for Wealth Solutions Report, and WSR CEO Larry Roth joined the new Advisory Board for Surge Ventures.
Yenamandra, Co-Founder and Managing Partner of Surge Ventures, spoke with WSR about his vision for the venture studio.
WSR: How did you come to realize that the financial services and wealth management industry has an innovation gap that Surge Ventures can help fill?
Yenamandra: We saw a perfect storm in both the venture and wealth management industry driven by three macro trends. First of all, the financial services and wealth management industry over the last several years has been adopting artificial intelligence (AI) and data-centric business models at an exponential pace.
Then there’s the rapidly changing regulatory landscape around data governance and privacy in the U.S. federally and statewide, coupled with escalating GDPR, CCPA and FTC enforcement actions on the heels of a number of reported data breach events. And the current market situation precluding established companies from investing in new and innovative technologies as these companies focus on their bottom line. Additionally, a general drop in early-, mid- and late-stage venture and PE investments compared to last year.
We believe the Surge Ventures model enables us to react quickly and swiftly by building multiple products and brands in parallel to address burgeoning problems. For instance, data governance for the financial services wealth management industry.
WSR: Why is it so important to go beyond product development by also helping startups in this space recruit the co-founders and executive team, or making first client introductions?
Yenamandra: The most commonly repeated phrase in startups is “Time is money.” My own experience in founding and growing Entreda focused my thinking on core value-drivers for Surge Ventures in several ways. First, we believe that capital is important, but that the entrepreneur’s time is more critical.
Second, I believe investors should have a fiduciary mandate to help their portfolio companies with a number of formative tasks so their portfolio companies can focus on products, customers and service. Taking a page out of the broker-dealers’ and RIA aggregators’ playbook, we believe a shared-services team in the formative stages can really give a lot of time back to the entrepreneurs to focus on products, customers and services.
As a founder and entrepreneur, I had to do a number of critical and laborious tasks, from setting up payroll, to developing cash flow models, to getting legal contracts, to SOC 2 compliance, to choosing my marketing tech stack, all while trying to achieve product-market-fit. It would have helped me to have a partner-investor who was not just a source of money, but a real business enabler, so I could have gotten to the same outcome quicker!
WSR: What makes Virgo Capital the right private equity firm for Surge Ventures to partner with at launch? How do your goals and philosophies align?
Yenamandra: Virgo Capital was the right private equity firm for several reasons. First, Virgo Capital is a well-respected software private equity firm and Surge Ventures benefits from decades of SaaS investment, growth and scale experience as well as access to capital to do targeted add-on acquisitions.
Second, Virgo Capital has a track record of being innovative, flexible and less playbook driven, which is needed for building a great platform. Finally, our thinking around the future of venture investing – and co-founding the next generation of product-led, growth oriented SaaS companies focused on solving an industry-focused problem – was completely aligned around capital plus domain knowledge, industry network and shared services.
WSR: What does success look like for Surge Ventures over the next couple years, and how does the current market environment factor into that picture?
Yenamandra: I’m super excited to be launching Surge Ventures at this time! As I think back, I have always begun a new journey when the market environment was similar to the current situation. Short-term, I look forward to introducing our first set of portfolio companies that are solving critical problems in the data governance and privacy space for wealth management firms. Longer-term, I believe we will be expanding our aperture and focus into other areas beyond data governance and associated compliance.
In addition, I am deeply honored and grateful to be able to work with a distinguished panel of advisors who are going to be critical in shaping our focus at Surge Ventures. Our Advisory Board will be an integral part of shaping our product thesis and investment decisions. I look forward to working with each and every one of them as they bring their vast experience, knowledge and industry connections to help Surge Ventures and our portfolio companies focus on the right things and get to escape velocity faster.