Tamara Steffens on TR Ventures' strategies, legal tech AI, and mission-driven investments | E32

I see. I understand. Okay. That's helpful.

Speaking of legal tech, is it true that the industry sector of law firms is sort of adopting generative AI and those tools faster than sort of any other industry sector. Maybe you have such a lens into that particular customer segment. Welcome to Impact TV, a corporate venture video series through a partnership with Impact Venture Capital and the Kaufman Fellows. I'm Jack Crawford, a founding general partner at Impact Venture Capital.

And alongside my colleagues, Pat Bumpus from Impact Venture Capital and my co chair from Kaufman, Alessandro Santo, we're excited to welcome Tamara Stephens, Managing Director at Thomson Reuters Ventures. Hi Tamara, how are you doing today? Hey, good Jack, how are you? I'm doing great.

So let's see, you're spending a little bit of time in New York, obviously, where Thomson Reuters is Headquarter, but you live in Dallas, is that right? I do live in Dallas. We're actually headquartered in Toronto, just our fund is headquartered here in New York. Got it.

Okay. So I've been paying attention to the Dallas market because I happen to be a Sacramento Kings basketball fan, the Dallas Mavericks and the Kings are fighting it out for the last spot in the NBA, playoff. You lost a major player to the Lakers or less. Don't know.

Has there been any revolts in Dallas? A lot. I think, if you ask anybody, they would say, what the heck happened? Who made that decision?

You know, I grew up in Detroit, so, you know, I'm still rooting for the Pistons at some point, but they, you know, hit or miss there in that city, depending on the sport. They've gone from, they may go from worse to first, because I think they had the absolute worst record in the NBA last year, and now in a solid playoff spot. So I think your dedication may pay off. Yeah, well, it finally paid off on the Lions, right?

I think I wanted to throw a turkey leg at the TV for twenty years in a row on Thanksgiving. But, you know, we've had a couple of good seasons. So it pays to stay. Stay true to your team.

Loyalty is paying off. So let's talk a little bit about your professional career, to kick things off and allow you to introduce yourself a little bit. Some time at Sun Microsystems, Silicon Graphics, and then obviously as it relates to corporate venture, some time at Microsoft's M12 and now at TR Ventures. Maybe you could just talk a little bit about that journey and sort of what led you from one opportunity to the next.

Yeah. Microsoft was pretty interesting. It was my sixth startup, and we actually ended up selling it to Microsoft. So for those of you who use Outlook mobile on your phone, the old app was actually called Accompli.

It still looks and feels very similar. There haven't been many changes to it, so I guess it was good. And then that was at the end of twenty fourteen. And I did a lot of business development for them, mostly on mobile because they were in transition of getting away from Windows mobile and moving to Android and iOS for all of their apps.

So we were the first mobile tech company that they acquired, and so we spent a great deal of time working with Google and Apple and Samsung and, you know, making sure that our apps ran well on all the devices out there. And that was really my background, was mobile tech and a lot of email. That was my third email company. So yeah, I was excited to be at Microsoft.

Did that for a few years. Originally, they started the fund, Microsoft Ventures, they had asked several of us from the acquisition to take a look at how they could structure the fund and what would be most beneficial. So we did give input when they first set up the fund to begin with, and then a few years later they asked me to take it over. And I stayed for three years, and then Thomson Reuters said, hey, we'll give you a chance to start the fund from scratch, and I was like, this would be fantastic.

It's super thesis driven, so we happen to be very focused on legal, tax, risk, and fraud. Obviously with AI applied to those categories, it's a pretty fantastic spot to be right now. What would you say is a primary difference outside of industry sector focus at M12 versus TR Ventures? Any other fundamental differences that you would note?

You know, not really. We were very independent at Microsoft, and we're very independent here at Thomson Reuters. You know, we didn't need business unit approval at Microsoft and we don't require it here. I would say that because we're smaller, we have a better opportunity for moving into a partnership pretty quickly, right?

So as we look at companies, sometimes we can even suggest a partnership, you know, before we invest, which is even better, right? But not required. A lot of times, you know, we have to get into the deals as quickly as other financial VCs get in, and we move very fast, we'd rather take a position at the table and then work the partnership that's what's required. And sometimes, you know, we're investing in something that's pretty early stage, which is our most investments, right, is Series A, we do a little bit of seed.

Startups, you know, that are a million to 3,000,000 in revenue are still early, right? They can't take the full muscle of Thomson Reuters, go to market. So we kind of have to pick and choose what's going to work for them, and not take away from their natural growth, right? And bring them new deals, but not bury them, right?

So we try to be careful in how we partner. One of our portfolio companies, Pondero, was focused on fraud, waste, and abuse in the government market. And they got some traction. Think they ended up getting between 10,000,000 and $20,000,000 of revenue and is ultimately acquired by Thomson Reuters.

And I think the part of the driver was expanding into the government segment and having more customers in the government segment. I know you to focus mostly on law firms, accounting firms, other things that relate to risk and compliance. Are you still looking at sort of active efforts in the government channel? Can you talk a little bit about that market segment and how important or not it is?

Yeah, it's still a really important segment for Thomson Reuters. We have a lot of focus around the government. But I would say from an investment perspective, it's slightly narrower. Not that we don't look at that category at all because we do.

Just, you know, what our team needs in that category is, as you said risk and fraud. It is a large category, don't get me wrong obviously, but you know what we can do and what we can help is slightly narrower than some of the other categories we look at from an perspective. But no, still super important to us. And we still look at, I mean, were looking at a FedRAMP company the other day that's doing really well.

So we still look at it. We haven't found anything that's really only government. I would say some of the tech, even much of the tech that we look at from a tax perspective or a legal perspective, often can fit into the government sector as well. Some things actually fit all sectors of TR, and that's even best for us from an investment perspective.

If we can help the startup in all of our categories, that's even better. Yeah, I could see that sort of cross industry focus for sure. And as you think about investments versus acquisitions, can you talk a little bit about how you guys evaluate sort of and maybe how TR Ventures collaborates with the M and A team and sort of how you decide or how you think through whether something's a significant venture investment opportunity versus an acquisition opportunity? Yeah.

So we are actually under the same umbrella. We're all under strategy, right? So the I would say the Ventures team is not really here to build the pipeline for M and A, but it is a natural occurrence, right? We've acquired one of the companies we've invested in a couple of years ago called Materia.

If it's a company that fits our strategy and where we're going long term, it's obviously something we would love to invest in, right? But it's definitely not we don't have a venture fund to build an M and pipeline, right? It would be a natural occurrence occasionally to happen. I don't see us acquiring more than 10% to 15% of our portfolio, so it's not a huge focus.

That said, we work pretty closely with M and A as far as when they're looking at tech and want to, you know, acquire, we'll work with them from a valuation perspective. What else is in the market? Who are the competitors? Are there smaller companies out there we should be looking at in addition to what we're already looking at?

So we'll get involved from a, you know, strategy perspective, but you know it's a different focus for us on the M and A side. And I think publicly we've said we have $10,000,000,000 on our balance sheet for investment in M and A, so we're both taking off the balance sheet, right? Our venture fund takes off the balance sheet, as does our M and A team, so similar process, but they're writing bigger checks. Yeah, exactly.

Okay, so that's the exit side of things. Let's go back and talk about sort of the stage of TR Ventures sort of focus. I moderated a panel on behalf of the NVCA. This is as we were starting Impact Venture Capital in 2016.

And it was a roomful of corporate venture groups who had historically participated in Series C and Series D rounds of financing. And the buzz and the discussion was, hey, we're all going to start going earlier stage and looking at series B and series A and even making some seed investments and even occasionally taking board seats. And so it was a movement back then that I've seen now play out over the last six, eight, ten years now. I'm wondering how do you think about sort of stage and your role there?

Is it seed in series A? Where are you focused at when typically get involved with these companies? Yeah, I would say 80% is Series A. We'll occasionally do a B, if we can stretch and get into that round and it makes sense for us, and we'll occasionally do a C if it's a really good fit.

We usually do seed post revenue, which means they have, you know, some revenue product market fit, and it, we can, get, you know, into the deal and be able to help them, right? Again, we don't like to bury companies. And we're also fine getting into a seed and helping them more with product or engineering, right? And areas that we can help them that aren't going to, you know, take up their time on go to market quite yet because they may not be quite ready for that.

But I would say majority of what we're doing is Series A. We're trying to look at horizon three, which is why we will look at seed and mostly Series A because, you know, our product teams and our engineering teams are focused on the here and now and in a pretty solid roadmap. And so for me, that's, you know, the old McKinsey horizon one, two, three, you know, they're really looking at horizon one and two, right? Excuse me.

Yeah, one and two, sorry. We're looking at three, right? We're out there trying to say, what is next? Next, What is a bet we can take to make sure that we're looking at next gen tech and where the market is going, so our customers can take advantage of that as well.

So we're trying to be the eyes and ears for TR, but we're also trying to bring that signal into our customer base as well. Makes great sense. I mean, maybe you could expand a little bit more on the value beyond capital, because what I've seen from Tiara Ventures is market insight, obviously, initial early stage capital. You can help with co development projects.

You can certainly provide efficient access to customers, particularly in the legal and accounting and compliance areas. Those are some of the ways that I've seen you add value beyond capital. Did I get them all, or are there other things that you focus on? I think you did hit them all.

We can also be a customer, I would say. So in some cases, like we have two of our portfolio companies, one out of London called Detectd, which does know your business, KYB. A lot of people know KYC, that's more of a know your customer, right? So these are for business customers to be able to check who they are to verify them.

We actually need it for ourselves, like we sell to corporates all over, right? And we want to be able to verify those law firms, those corporations, those mid to small businesses that we're selling either our tax products to, our legal products to, or, you know, risk and fraud, right? So they're fantastic company, they have a great KYB AI solution, we can certainly introduce that solution to our customers, and we have, but we also use it internally to check our own customer base, right?

So it's a good example of us, you know, trying to find them customers through partnerships, but also using the product and being a reference for other corporates on how to use a KYB solution. So that's the only one you missed. We can be a customer in many cases. Very helpful.

Yeah, that's very helpful. So, okay, let's you were showcased in a global corporate venturing article, and I think quoted as saying, you know, corporate venture funds should try and sort of run themselves like a traditional VC. And I think, you know, Intel has sort of followed your advice and now spitting out their corporate venture group. M12 sort of spun out and rebranded.

I think the Intel Venture Group is going to rebrand. So they are sort of more and more operating like independent VCs. There anything you would highlight with regard to how you think about sort of corporate venture groups and operating as a key stakeholder in the venture ecosystem? Yeah.

I mean, I think if we have the same, you know, same objective as all the large VC funds which is to return the fund, right? Get 5x, 10x, 20x. If that's our objective, we're going to go at the market and go after opportunities the same way they do, right, which is for financial return. So first and foremost, we want to return the fund and we want to be in the top 25% quartile, right, the top quarter.

So I don't know what that is of late. It was, you know, 2.5x and above was in the top 25% quartile. That's always our goal, right?

So our opinion, and it will be, is to make the best financial investments because ultimately those are going to be the best technology companies as well for our customers, right? We want to invest in companies that we can recommend to our customers, and those companies have to be doing well, right? We don't want to introduce a start up to them that really is, you know, not gonna make it. That wouldn't be good for us or for them.

So we really have pretty strict financial guidelines and I think they're identical or similar to most VCs, you know, that we work with out there. We have the same criteria, so it puts us all on the same page of what we're looking for and how we're going to go after the market and how we're going to get those returns that we need. I don't think they're going to keep us around forever if we lose all their money, right? As my CFO would say.

Self sustainability is an important thing. You've got an evergreen fund, right? That's the structure at Tiara Ventures. And maybe you could talk a little bit about that.

And then are you just investing in companies? Do you invest into SPVs? Do you invest into other VC funds to get access to deal flow? Maybe you could talk about the evergreen structure and then sort of the deployment strategy to add.

Yeah. And I would say our definition of Evergreen may not be the same as some others. Our intent is to be an Evergreen Fund. We're still early, right?

We're in year four, so we certainly haven't returned the fund yet. We refreshed the fund, so from an Evergreen perspective, you know, we look at it every three years to refresh the fund, but the intention is that, you know, in that seven to ten year period, we will return the funds on, you know, a regular basis as well, right? So it will become a self sustaining group within the organization. Again, we're investing so early that our intent to return would be, you know, in that same time frame that seed and Series A funds return, which is at the moment ten years.

And so that's our intention. We do, with our latest fund, we are taking positions in other funds, very small positions, and it's geographic or vertical focused. So if you think of we have a big focus in LatAm, we have a big office in Sao Paulo, we were talking earlier about the Kaufman Fellows being there this week. We have a big payroll and tax operation, a solution down there called Dominio, where we do the tax and payroll for about 70% of small businesses in Brazil.

We also have a big legal product and solution for law firms and corporate legal departments, just like we do in North America. And so if you look at it from that perspective, we don't have staff in Brazil, right, looking at every deal that's out there. So can we take a position in an early stage fund, a seed stage fund, that can then share that information with us so that we can make some joint investments when it comes to a Series A, right? Same thing like with the legal tech fund here in North America, only focused on legal tech.

They're looking at every legal tech company that is out there. They can share deal flow with us, what the market is, what valuations are on legal tech, and an M and A world as well. So those are the kinds of things we're looking at. Same thing in Southeast Asia, where we'll take an LP position there as well.

And we'll add to those to give us more geographic post coverage, as well as vertical coverage. I see. I understand. Okay, that's helpful.

Speaking of legal tech, is it true that the industry sector of law firms is sort of adopting generative AI and those tools faster than sort of any other industry sector? Maybe you could, you have such a lens into that particular customer segment. Maybe you could talk a little bit about how AI is influencing or impacting law firm segment of customers out there. You know, it is really interesting because I would say three years ago we co sponsored the Legal Tech Fund's first conference in Miami and they had, you know, maybe 10, you know, startups.

One of them was a company, one of our first legal tech investments was a company called Spellbook, which has been on fire from the get go. It's fantastic technology in the legal tech world. But know, they would say maybe 10% of law firms were using it or testing it or you know they had one or two people in the firm that were looking at it and that was December of twenty twenty two. And you look at it two years later and it's like most law firms have and are using AI every single day, right?

Is it every single partner, every single person in the firm? No, but I would say as a percentage it's significantly higher than one or two people, right? So, I would say legal is really adopting it much faster than people predicted, in my opinion, and tax is right there behind. And there's two reasons why legal and tax AI is so applicable.

One, you have the content and the data sources to create models in legal for verticalization of solutions, whether it's debt transactions or patent or, you know, litigation, plaintiff type work, those solutions can be very very targeted and very effective at what they do, right, sitting beside a lawyer and having a lawyer use it. Same thing in tax, right? There's just not enough accountants, there's not enough people to do the work, right? Can you apply, you know, tax code and a tax engine and create agentic solutions that will do your taxes, right?

Yes, the answer is yes. And so you're seeing great technology being applied in those categories, and used every day right now, right? And so, I don't think that's going to change. It's only going to continue to increase.

And there's more and more tech, you know, kind of startups happening in both of those categories, seems like daily. So, yeah, I think there's a lot of room to grow. I think all the firms are using the tech right now. Extraordinary demand in the legal sector, the accounting sector, other compliance areas that you're focused on without a doubt.

As you see that customer demand from your own customer base and you turn your attention to startups and sort of deal flow, are there systematic deal flow strategies that you have? Are there tactics? Maybe just talk a little bit about where you're sourcing most of your opportunities from. Is it professional networks?

Is it attendance at events? How are you sourcing deals these days? We definitely have good relationships with a lot of VCs. I'd say most of the large VCs and other, especially if they're in our categories, like they're looking at the same segments we're looking at, we have pretty detailed thesis under each category of what we need.

We don't invest in competitive tech. It's kind of one of our things, like we don't want our company to compete against the startups that we're investing in. It may happen over time with roadmaps and things changing, so we can't promise that forever, but that's the intent, right? We're not going to invest in competitive tech.

So our thesis is anything that our customers may need that is adjacent to the technology we already offer them. So we try to really dig in in those categories. You know, in the case of Materia, which we ended up acquiring, they were a seed stage company that had amazing, an amazing kind of MVP, and really came in, gave us a demo, and we started talking with them about, you know, our product team started talking with them about, hey, what if you did this or what about this and this is what customers are asking.

So there was a lot of, insight into what they were building. Hence, you know, we really loved what they ended up building and offered it to our customers. Our customers loved it, and now they're part of our family. But, yeah, I would say, you know, overall we have pretty deep thesis and we share those thesis with other VCs.

So the good news is VCs they get to know us and they want to look at legal tech or tax or indirect tax direct tax from a corporate level. We can help them, right? We've great great engineering and product people that help us diligence products. We've looked at a lot so we know the space well, if they bring somebody to us we can quickly give them an opinion of what's missing, what's not missing.

So we've tried to develop these partnerships where they're trusted and they know we have the right expertise to help in the categories that we look at. Yeah, beyond the product expertise, it's clear that you provide efficient access to channels customers that can be really valuable for a startup in the early stages. And so having you on the cap table early, once the company's got a minimum viable product and product market fit, to be able to extend out in that channel is very easy to see.

Circling back on a comment that you made earlier about sort of self sustainability of TR Ventures and the importance of financial returns, do you complement that with any level of sort of strategic focus or any mission driven activities? I'm finding that in addition to financial returns, there's also a strategic element to the decision making around investments from many corporate venture groups. And then on occasion, they're also thinking about the sustainable development goals or other things.

Are you purely financially driven or are you looking at other strategy elements or mission driven elements? Yeah, mean, would say we look at all three, but we first and foremost, the financials have to make sense to us. And then second, you know, we don't invest in what we don't know, right? So if we can't diligence it with good engineering or good product people, it's not in a category we understand, we're not going to look at it because it doesn't make sense for us, right?

Because we can't do the diligence we need to make the decision. So ultimately, we're investing in what we know, which is strategic, right? And then we don't invest in overlapping tech, right? There may be little elements that we do or they do that we'll see occasionally and we figure out a way to work with them to take them into our customers.

But overall, we we try to align with things we don't have that our customers need. So ultimately it is strategic. Yeah. So most, sounds like many of your deals are sourced through the broader venture community and other professional relationships you have.

When entrepreneurs knock on your door directly, are there certain sort of characteristics, qualities in the company or in the entrepreneur that you're looking for? Maybe just describe sort of who sort of breaks through the noise and gets your attention because of something about their company or about the entrepreneur specifically. Yeah, if they understand what we sell to our customers and they can explain where they fit, you know, hey, you guys sell to lawyers or hey, you guys sell to accountants or this is a corporate tax program or this fits, you know, the general counsel and, you know, mid sized companies.

They know what we do and where we can bring them in. If they know our customer base and it fits where they want to go, that's usually a pretty good fit if they can explain it to me. That's number one. You know, second time founders are always great, you know.

It's not perfect, right? You don't always hit multiple home runs, but it does help that somebody's got a startup background, at least from my perspective, because they understand what it takes to run a startup. So that's important. But again, in our categories, if they know what we're doing, and they tell me where their product fits, that's usually what I need.

They've done their homework. They understand who your customer is and, how they can add value with your existing line of products. Yeah, it makes great sense to me. Outside of sort of exchanging market insight with the traditional venture community and potentially sourcing deals from them and co investing, any other ways you're collaborating with the traditional venture community or anything that you would suggest or anything you'd like to do with the traditional venture community that could add value to what you're trying to accomplish within TR?

Yeah. I mean, I would say we are a member of the National Venture Capital Association, also the Global Corporate Venturing, so we do try to attend those events when possible. There's only eight of us, so, you know, we spread ourselves then. We do attend a lot of conferences, particularly in the category of, you know, tax, right?

So Money twenty twenty and, you know, legal tech conferences, so that we can, you know, see what's in market. So that's where we find founders and we try to meet with as many investors as we can to make sure they understand what we're looking at and where we can syndicate deals. So that's I think that it's working for us right now and I think that will remain our strategy to get our brand out there. We're still only three and a half years old, so still relatively new in market.

Hopefully people have heard of us more by now than they did three years ago, and we'll keep trying to get the brand out there. I think you've done a great job of elevating your brand, and I certainly have run into entrepreneurs that are very familiar with TIER Ventures and with you. So I think you're doing a great job of elevating your brand. As you look forward, any particular industry sectors or problem sets that, you find intriguing if you look out sort of three to five years for areas of innovation that you think, are either personally interesting or highly relevant to what you're doing at, at TR?

Is there any one or two things that you would highlight for the entrepreneurs out there that are thinking about bringing innovation to you and to TR? Yeah. I mean, lately I've been looking a lot at corporate tax, right, on that side and what's changing. There's a lot of laws changing globally.

And we bought a company in Sweden called Pagero that does e invoicing. So if you think about cross border payments, taxes, and what's happening globally, it's really complex and it's changing pretty quickly. And so I've been trying to understand what's happening in that market and solutions that work globally for our customers. So that's been probably it's super complex, so anybody who's going to go try to fix it is not going to be able to fix all of it, but, you know, some of it, if you piece it out, even the pieces are pretty big from a total addressable market, so we've been looking at that quite a bit, in addition to everything you can do in legal and tax because if you think of our markets Southeast Asia, you know, Brazil.

Brazil probably has more complex tax codes than The US, as crazy as that is, and also probably more litigation than The U. S. So it's LatAm is a just high growth area as a whole. So we've been looking a lot at a lot of fintech in that space as well.

Interesting. Okay. All right, we're going to switch to the rapid fire portion of the Q and A. Just a couple of quick questions for you as we wrap up here.

How do you prepare yourself for professional excellence as a sort of a high performing CDC? What are the kinds of things that you find yourself doing to stay in touch with market trends or to, you know, ensure that the internal culture with your team there? Anything that you would highlight as it relates to sort of professional development or professional excellence? You know I would say we do a lot of this rapid fire with our team, right?

Our team meetings just trying to go through pipeline for sourcing in a very quick way to make sure we're looking at everything, do we need to take a second look, and we try to pass fast, right? So I would say one of the things we try to do in venture, we're not perfect, but we try to look at it, look at it quickly, and make sure the founder knows why we're not going to invest, or if we need to look at it in a year, right? It may be too early stage for us. So we try to keep that premise around at all times.

If we're going to pass, let's pass fast, right? So they can move on and they can go raise the round or do what they need to do quickly. But move quickly, right, is probably the most important thing in VC and it remains the most important thing, I think. Operating at the speed of a startup, right, and being able to mirror that is difficult, even for traditional VCs at times, to get through your proper due diligence.

But I think that's an astute comment. That makes great sense to me. Favorite blog or podcast or publication, that sort of keeps you with the market insight that you need to make great decisions? Oh, don't know if market insight.

Let's see. Podcast, I would say, it has nothing to do with the market, but I really like it. The two Kelsey brothers on New Heights and all the sports they talk about, I tend to listen to that when I run because I think that they are hilarious. So I don't know if that gives me any market insight.

You know, I don't I do listen to a lot of venture capitalists and their opinions, and I read a lot, But I would say as far as podcasts, I probably listen to more fun podcasts than I do venture capital podcasts. I got to follow your lead there, because I end up sort of on the grind listening to these technical podcasts when I'm running or riding a bike. I think I need to chill out a little bit. Yes, unspoken a little bit.

Yep. It helps you go to work with a better attitude. Okay, favorite restaurant, last question. Favorite restaurant in Dallas.

So last time I was there, went to Nobu, which was just like a world class meal. Was there with my family, so I had the right crowd with me. I love Nobu, but I'm looking for sort of in the nooks and crannies of Dallas. What's the gem from your perspective?

Well, would have to say Tex Mex, right? Because that's what we're known for. I would say Dose Mesas is fantastic. A little less fancy might be Tupanamba, which is my daughter would say Dose Mesas.

I would say Tupanamba. I'm a big Tex Mex fan, and it's whoever makes the better margarita, and they both make a great margarita. So I like both of those. All right.

I'll give them a shot in my next visit. On behalf of the team at Impact Venture Capital and the Kaufman Fellows, thanks to Tamara Steffens for spending a little bit of time with us. Thanks, Tamara. You're welcome.

Thanks, guys. That's a wrap for this week's show.