Inside Reach Capital’s $265M Fund V with Jomayra Herrera

Jomayra Herrera is a Partner at Reach Capital, an early-stage venture fund investing across learning, health, and work. Previously, she worked at Emerson Collective and Cowboy Ventures, investing in companies including Handshake, Guild, Contra, and Career Karma.

💡 5 Things You’ll Learn in This Episode:

1. Why Reach Capital is doubling down on pre-seed and early-stage investing with its new $265M Fund V.
2. How learning, health, and work intersect to create new opportunities for innovation.
3. What Jomayra looks for in exceptional founders, especially in the age of AI.
4. Why the strongest AI companies go beyond AI as a feature to create new capabilities and durable advantages.
5. How B2C-to-B2B models and school choice are creating new opportunities across education.

✨ Episode Highlights:
[00:03:32] Reach Capital’s $265M Fund V and its renewed focus on pre-seed investing.
[00:06:28] Why Reach is choosing to go earlier rather than later.
[00:08:42] The intersection of learning, health, and work.
[00:16:02] The founder traits that matter most in the age of AI.
[00:24:47] What makes an AI company more than just an AI feature.
[00:33:14] Pathfinder, ESAs, and the changing education marketplace.
[00:39:06] Jomayra’s vision for the next 10 years of investing.
[00:44:24] Why strategic acquisitions and private equity remain the most common exit paths.

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Transcript

[00:00:00] Alex Sarlin: Innovation in pre-K to grade learning is powered by exceptional people. For over 15 years, Edtech companies of all sizes and stages have trusted Higher Education to find the talent that drives impact. When specific skills and experiences are mission-critical, Higher Education is a partner that delivers.

Offering permanent, fractional, and executive recruitment, Higher Education knows the go-to-market talent you need. Learn more at hireedu.com. That's H-I-R-E-E-D-U.com. 

[00:00:33] Jomayra Herrera: There is a unique form of enjoyment that you get from working with early stage founders that are figuring it out in the moment and are constantly learning and pivoting and figuring and changing, and that's where we get a ton of our energy.

Growth stage, I think there's a lot of really interesting work that's happening there, but I just don't think it fulfills us in the same way. And so that's why we decided we're gonna grow incrementally and really just double down on the areas where we know we can perform well.

[00:01:07] Alex Sarlin: Welcome to Edtech Insiders, the top podcast covering the education technology industry. From funding rounds to impact to AI developments across early childhood, K-12, higher ed, and work, you'll find it all here at Edtech Insiders. 

[00:01:23] Ben Kornell: Remember to subscribe to the pod, check out our newsletter and also our event calendar.

And to go deeper, check out Edtech Insiders Plus, where you can get premium content, access to our WhatsApp channel, early access to events, and back-channel insights from Alex and Ben. Hope you enjoyed today's pod.

Hello, Edtech Insider listeners. We are coming to you with our favorite longtime guest, Jomayra Herrera. I think this might put you at record number of appearances. It's like you and Matt Tower neck and neck. Welcome, Jomayra Herre-Herrera. I'm gonna give your intro, but first I just wanna say welcome to the pod.

[00:02:06] Jomayra Herrera: Thank you for having me. I'm super excited to be here. 

[00:02:09] Ben Kornell: So Jomayra is a partner at Reach Capital, an early-stage venture fund investing in learning, health, and work. She started her career as an operator at an Edtech startup called Bloomboard, and eventually started a career in venture capital at Emerson Collective, where we first met, and Laurene Powell Jobs' family office.

And before Reach, she was at Cowboy Ventures, where s- she spent most of her time working with consumer internet and marketplace companies. At Cowboy and Emerson Collective, Jomayra championed investments in Contra, Career Karma, Handshake, and Guild. And at Reach, she works closely with Stepful, Workwhile, Merit Health, Claire Health, Tenor, KaiPod, Manifold, and more.

As always, welcome to the pod. It's so great to have you here today. 

[00:02:55] Jomayra Herrera: I'm super excited for this conversation. 

[00:02:58] Alex Sarlin: Yeah, and, and we're, we're so excited to talk to you always, but especially today 'cause you are bearing really amazing news. You recently announced Fund V, marking an incredible journey from a $50 million learning-focused fund to now more than $1 billion in assets under management, AUM, Fund V, and Reach has been really successful in the space.

Tell us about the fund and your lessons along the way, and how you've gotten to this amazing fifth fund for Edtech and HealthTech. 

[00:03:32] Jomayra Herrera: Thank you. Yes, we could not be more excited. So Fund Five, it's was or it is an oversubscribed two hundred and sixty-five million dollar fund, and the focus of the fund is to lead and co-lead pre-seed to Series A rounds across learning, health, and work.

Most of what we do is staying the same. The only changes that I would say with Fund Five are, one, we're going earlier, so we are institutionalizing pre-seed as an investment category for us. Amazing. And so we are really-- If you are building anything at the earliest stages, we are open for business. And then the other piece is really doubling down on our renewed thesis, which is around investing in three different verticals, learning, health, and work, and ideally the intersection of those three verticals.

And in terms of just lessons learned along the way from a fifty million dollar fund all the way to a billion in assets under management, is that you're fundamentally doing different jobs as you expand scope, right? When you're a fifty million dollar fund, you're mostly following. You have a small handful of companies that you're supporting.

You are really not focused on portfolio diversification or any of those pieces. You just wanna invest in really great companies, and that's your primary job. Going to a billion in assets under management, we have hundreds of portfolio companies now. We are managing multiple funds. We are spending our time doing things like LP relationships and whatnot, and we're also now having a range of exits and also managing those processes.

And so the job itself has evolved over time, but it's super exciting, and the values that we've had since day one around the Reach way and around building a great team have really helped us as we've evolved and grown the team over time. So we really, we couldn't be more excited. 

[00:05:42] Ben Kornell: It's so interesting because most funds, as they get bigger and bigger and bigger, they go later and later stage, and part of that dynamic is putting more capital at play to work, maybe doubling down on investments or an aspiration to be an end-to-end player.

But Reach has had some incredible success identifying startup founders and ideas so super, super early, and that's been a big part of the DNA and secret sauce. Even your entrepreneurial community, I think you've got like a sidecar fund that they're reinvesting in Reach Capital. So what is it that made you decide to push up into seed and earlier stage rather than kind of follow the rest of the crowd into going into Bs and Cs and Ds?

[00:06:28] Jomayra Herrera: That's a great question, Ben. It is not because of a lack of interest or demand. So as I mentioned, we were oversubscribed. We could have raised a lot more. We could have gone later stage. But the reality is, is when we looked at our performance and what drove our outlier returns and really gave cash back into the pockets of our LPs, it was coming from our early stage investments.

And I think what some people misunderstand is what makes you a great early stage investor does not always, and in fact, more often than not, it doesn't make you a great growth stage investor. Those are two different skill sets. And so for us, we wanted to double down on what we felt like we were really well prepared to do.

And so we said, "Let's go earlier, not later," because that's really where we think we have a unique advantage. And the other piece is that it's the space we love, right? Like, there is a unique form of enjoyment that you get from working with early stage founders that are figuring it out in the moment and are constantly learning and pivoting and figuring and changing, and that's where we get a ton of our energy.

Growth stage, I think there's a lot of really interesting work that's happening there, but I just don't think it fulfills us in the same way. And so that's why we decided we're gonna grow incrementally and really just double down on the areas where we know we can perform well. 

[00:07:55] Alex Sarlin: It's, uh, really exciting to hear that, and I'm sure lots of our listeners are excited to hear that you're opening up to early stage.

And, you know, Reach has always had really terrific returns. I, I think Tony has said it's either top quartile or top quintile. You can correct me on exactly where it is, but it's done great. I think, you know, a lot of people in Edtech have been worried about the investment landscape from VCs. That it's gone down from some other funds.

Some other funds have been focusing only on follow-on investments. But fund five for Reach is learning, work, and health. You expanded your portfolio there. Tell us a little bit about your philosophy on how these areas are interconnected and how this 200, you know, 60-plus million dollar fund is maybe a shot in the arm for the Edtech field and not only the health field.

[00:08:42] Jomayra Herrera: Yeah. So I think that when people look at our verticals, and in general when people talk about industries in the venture environment, they think about them in silos. And what we have realized, both in terms of looking at our historical investments, but as we think about our thesis areas, is where the outlier potential is is in the intersections.

Yeah. And it already exists within our portfolio. So as you think about the three verticals, they have two kind of call it two trends that make them converge in really interesting ways. So the first is in each of our verticals, the existing institutions are failing them. In education, it's traditional schooling.

In healthcare, it is hospital and health systems and insurers and payers and whatnot. And then in work, it's the employers failing to invest appropriately in their workforce. And so the existing institutions that people see them are failing them. And so that then creates an opportunity for real innovation.

The second piece, which in hindsight feels so obvious, but it's just become so much more apparent now, is that as you think about the patient or the student or the worker, that individual doesn't exist in a silo. That individual exists in a universe that has all these different components that are relevant for their life, and therefore, it is hard to actually remove any particular piece to make it work.

And so if you go through our portfolio, you actually start seeing this happen really naturally. So take Cartwheel Care, for example. They provide behavioral health to students, so addressing a health-related matter. They use schools as a go-to-market channel because that's the best way to access schools, and they rely on a flexible workforce model in order to be able to do that appropriately and effectively.

You take one of those three things out, the model falls apart. But because you actually have brought in the three verticals, they intersect in a way that's like load-bearing. They intersect in a way that actually compounds in value. And so what we've realized is what seems messy on the outside, what seems like hard to pinpoint of whether is that learning?

Is that health? Is that work? That's where our opportunity is, and that is why we're choosing to double down on that intersection. And so to the question around, you know, this isn't about injecting more capital into health or injecting more capital into other sectors, it's about injecting capital into this intersection that frankly I think is not being invested in in a, in a meaningful way 

[00:11:28] Ben Kornell: Yeah.

There's so many times that I find that, um, these areas of focus actually have some very similar mechanics, like you said, and I worked for a healthcare, was at a kidney dialysis company for four years, and I often say I learned more about how to transform education from four years working in kidney dialysis than I have in 20 years in Edtech.

What are some of the insights that you're getting from the healthcare side of the house that you think are either insights that are applicable in education or that tell us a little bit about where education needs to go long term? And, you know, for our Edtech listeners, what seems most actionable for businesses in our space based on those insights?

[00:12:12] Jomayra Herrera: Yeah. So I'll start with the similarities between education and healthcare are uncanny. W- as we started diving more and more deep into healthcare as a vertical, you run into a lot of the same issues that education has. Incredibly slow sales cycle, resistance to adopting technology, partially because of user resistance, but also because of issues like privacy and vulnerable populations, right?

Similar as education. You have issues around the person that is the buyer is typically not the user, and highly regulated environments. So the similarities are uncanny, and the truth is, I don't wanna make it one way because I think that there are things that healthcare can learn from education just as much as healthcare can learn from education, and, like, I think that's where we play a really interesting role where we can actually take the insights from both to be able to help inform either one of those sectors And so on the healthcare side, in terms of just insights that we've learned from investing so far is there is similar to the way that there's a reduction in, call it trust in schools.

To date, there is that similar reduction in trust in the healthcare system from a consumer perspective. On the consumer side in health, what we've seen is an explosion of consumer spend on wellness, on healthcare products, and that has bolstered the growth of companies like Function Help, Superpower, you name it.

And it is a realization that people are willing to actually put money and spend once they realize that, one, something is really important to them, like their health. But two, when they realize that the institutions that they've been relying on so far just frankly are not going to cut it. We're already seeing the early innings of that in education, right?

And you see the rise of school choice, and we can talk about that in more detail, and you're seeing the tailwinds around ESAs. And we're now in the early innings of that. If we can take any learnings of what we're seeing happening in healthcare, we're going to see an explosion over the next few years, and we're gonna see a massive inflection point.

And so we've been taking those kind of learnings and applying them as we think about the increase and the rise of school choice, and what does that mean in terms of the tools that are needed to enable that over time. I would say healthcare is probably a little bit ahead on that front. 

[00:14:48] Alex Sarlin: Yeah. It, it was super interesting to hear you talk about the parallels there, and you know, we mentioned some of the Reach companies that I think back up exactly the philosophy you're talking about.

Obviously, KaiPod a- and others are in that space of really providing consumer choices for schools for going outside of traditional institutions. But I, I specifically think of StepFull as another company that is a total overlap, as you say, between health, work, and education. Just hits all three. They're all absolutely in there.

I wanna use them as an example here because, you know, as you're moving to early stage, even earlier stage startups and, and you talk about the record that Reach has had in investing and finding early stage founders that are really gonna grow. StepFull 2021, three founders, but the-- Carl Maddi, who's the, the founder who is now the CEO, we're talking to him on the podcast next week.

It's probably gonna come out right around this time. I'm curious, when you see a founder like that, and you can use him or, or others, what is it about founders, regardless of the sector they're in, whether they're in health, work, or education, that you're like, "These are the type of people that we really feel like understand the system, that will stick with the idea, that can make it work, that can pivot as needed, adapt as needed."

Like, what qualities do you look for in people and, and who sort of personifies that for you? 

[00:16:02] Jomayra Herrera: Oh, man. First of all, you'll love your conversation with Carl. He's the absolute best. So there are a couple of traits that we look for. The first, you, you mentioned it, which is quick learner and fast to adapt.

We've always looked for that. It's way, way, way more important now. Now, in the age of AI, where technology is accelerating at a pace that we have never seen before, and there is just so much noise around what you could do, the possibilities, the ability to learn quickly and be decisive is so important.

Carl actually exemplifies that. He does that really well. He moves quickly and, and informs himself, and is hungry and eager to learn and, and be really coachable. The other piece that we've always cared about, but similarly actually care about even more now, is access to sector expertise, and it doesn't necessarily have to be the CEO.

It could be a co-founder, it could be an, an advisory board, but that access to sector expertise becomes super critical because at this point, I think we could all agree that AI itself is a commodity and everyone has access to it. And so then the question is: how do you take your product and deeply integrate it into the workflows of your user?

The only way that you're going to be able to do that is by having access to that sector expertise, by fundamentally understanding that end user really, really, really well. And sticking with StaffWell as an example, you have Tressia, who previously was at Udacity and understands how to build really great online learning experiences.

You have Carl, who understands the end learner really well because he has done that by working with the end type of user at Handy and at Uber, so, like, understands the psychology there. And then you have Edo, who joined as a CTO coming from Apple, knowing how to, like, design really great-- like, one, he's a great engineer, but also designing really beautiful learn- like, experiences.

And so you have this combination of this team that works really well to build something for this population. And then the last, and I might argue maybe, like, one of the most important, is discomfort with good enough. So we are now-- Like, I... This is uniquely important right now. We are now in an age where we're seeing companies go from zero to 100 million in 12 months That is unheard of, unprecedented.

If you all remember, like, the old Bessemer graph that used to say, like, zero to a hundred million, and, and they would, like, say it's going from, like, 10 years to, like, eight years, and now, like, seven years. No, now we're seeing it in, like, 12 months or less. And so founders can't be okay with zero to a million in 12 months.

I mean, look, every model is different. Some are gonna grow slower than others. Some won't monetize for a while, which is totally fine. But we wanna back founders that they're uncomfortable with the idea of, like, okay, well, that product is okay. Like, our-- we're doing just enough for that customer to keep them happy.

We want to back founders that over-delight, that overdo it in a way because they are so, so, so maniacally ambitious. And so those I would say are maybe, like, the three traits that we, we spend a lot of time trying to figure out. 

[00:19:23] Alex Sarlin: That's great. 

[00:19:24] Ben Kornell: Yeah, it is compelling, and it also does kind of speak to these commonalities around great entrepreneurs in all sectors.

Can you talk a little bit about B2C versus B2B? So much of Reach's success has actually been in B2B businesses in Edtech, and one of the advantages that you have as a firm is just knowing the complexity and challenges of the B2B motion, the regulatory constraints, and so on. And in healthcare, there's also similar B2B opportunities as well as constraints, and yet a lot of the stratospheric growth that we're seeing in both education, you know, I believe you're an investor in Outschool- Mm-hmm

uh, or in healthcare, some of the examples you've given, are B2C. Mm-hmm. Do you feel like there's a renewed-- are we in a renaissance period of B2C, or do you kind of look at B2B and B2C at both as opportunity sectors? Tell us a little bit more about how you think about those motions. 

[00:20:22] Jomayra Herrera: So going back to my original point on the things that education and healthcare can learn from each other and the rise of just consumer spending in these categories, I think we naturally believe there's a lot of opportunity in B2C.

And when you fundamentally think about where the big pockets of money are, they do exist in B2B. And so typic- like, what we've been seeing is building a brand and starting off in B2C, and then expanding to B2B over time, and the combination of those two models actually creating a really strong, durable company.

[00:20:54] Alex Sarlin: Yeah. 

[00:20:54] Jomayra Herrera: Let's stick with Stufil, for example. They started B2C, they expanded to B2B two years ago, and now they have signed with most of the top 10 health systems in the country. And so now it's this really nice self-reinforcing network effect and flywheel because they have the B2B branding and employability.

They still have B2C building out that initial, call it alumni community and showing that they can actually teach tens of thousands of students in parallel at a time and do it successfully. And they were able to move more quickly in B2C than in B2B and learn more quickly. And we're seeing that also on the like true, call it clinical healthcare side as well.

We are investors in a company called Clear Health. It's a wearable for hormone measurement for women, and it's both B2C and B2B. B2C is critical because you develop that brand love, but B2B is where you develop that clinical validation that allows you to then be able to scale more broadly over time and potentially become reimbursable by insurance.

And so it's not either/or at this point. We're kind of seeing that like B2C is the early entrant opportunity and then you expand B2B over time. 

[00:22:08] Alex Sarlin: It, it's very gratifying to hear you say that, Jebmi, because I've been seeing that and, and feeling that pattern as well. But, you know, you see a lot more pitches, a lot more companies th- than we do, so I'm sure seeing all these different trajectories and pattern matching, seeing that, that B2C to B2B model, and using the B2C to, to learn fast, to use your AI to grow product growth, to create brand loyalty and, you know, deliver an outstanding experience that will keep people paying month after month, and then going to B2B once you have that in place, that makes a lot of sense to me.

It's, it's, it's true. 

[00:22:39] Ben Kornell: But it does mean that you can't ding founders who say, "We're doing both B2C and B2B." 'Cause I know how many founders have pitched to a VC and said, "We're gonna do both." And they're like, "Lacks focus." I, I think one of the things that is behind that statement too is ability and willingness to pay is now distributed across both B2C and B2B.

So kind of out-of-pocket pay in the past in healthcare was not a very common thing in the US, now incredibly common. Yeah. Out-of-pocket pay, whether through an ESA, which is government pay, but a, a parent or family or out-of-pocket pay for a family for supplemental education, is now becoming very common in US education.

So there's a way in which, like, B2B was primarily the predominant channel because that's where all of the ability and willingness to pay was. And now we actually have a market change that is really, I think, compelling, and this flywheel of grow and prove it out with B2C and then cross-sell into B2B is, like, a much more realistic path to scale, uh, you know, $100 million revenue company than it was before.

[00:23:51] Jomayra Herrera: I think that's right. 

[00:23:53] Alex Sarlin: You're talking about the differences you've seen in the AI age, how some of the factors for founders have become even more important, right? To iterate fast, to learn quickly, to not be settle for a, you know, good enough product. And Reach has a, a really good record of sort of spotting AI companies early in the Edtech space.

They backed companies like Replit, like Gradescope, which is now part of Turnitin, WriteLab, and others well before the wave of AI that we're all riding right now and what we're, we're getting covered by was happening. So what did you see-- You know, when you look at the AI landscape over the last few years, even pre-generative AI, but in, especially up to now, what do you see as special sauce for companies that are trying to, that are really trying to understand how AI can expand their businesses, get to that, you know, $100 million in a year?

Like, how do you know when somebody really understands how to ride the AI wave effectively? 

[00:24:47] Jomayra Herrera: So truth is, we'll find out in a decade when we find out the- Yeah ... the winners and the losers of this AI race. 

[00:24:53] Ben Kornell: We, we may find out in, like, a year. That's probably not the answer we're, we were hop-hoping for. But if it is in a decade, then that's good news.

[00:25:02] Jomayra Herrera: Yes. It's true. So I actually, I went back to my team to ask them about some of these original investments in Replit, GradeScope, Writelab, the early investments. Because I was here- Yeah ... for the follow-ons, but I wasn't here for the first check, just to get a sense of what did we see? What did we ultimately bet on?

And I think the funny thing is, is that it had nothing to do with AI. It was all about the founder. So with Amjad at Replit, it was he had this massive, ambitious vision of scaling the coding capabilities to a billion learners. Like, that was his vision, and he was actually using schools as a channel, so there was, like, a clear overlap with what we...

where we could provide value. And so it was a bet on Amjad. Similarly with Arjun, he was building a product to basically scratch his own itch. Like, he, he was building it for himself. And then Matthew at Writelab, he wanted writing to be less about grammar and spelling and more about higher clarity in thinking when you're actually writing.

Like, it was never about the AI, it was about these, like, big, ambitious visions and these incredible founders that were going after it, and then AI just enabled their vision. AI created the kinda why now. AI created the tailwind. And I think that's still true today, right? Like, I still think it fundamentally, at the early stage, it comes down to the founder's vision, the founder's resilience, their willingness to learn, their maniacal focus to, like, make these massive companies.

It really comes down to that. But if you want me to kinda add color around, you know, what are the things that we, we start to look into beyond just the founder, we ask ourselves, if you removed AI from this product or this company, like, is it a fundamentally different company? If the answer is no- Mm-hmm

then, like, AI is not really... Like, it's kinda like a feature to it. It's not fundamentally an AI company. And then does it unlock something that previously was not possible before? So if we take the example of going back to Clare.Health, AI allows them to provide continuous, non-invasive hormonal measurement.

In the home at any time for women. That was not possible before. Like truly- Right ... it was not possible before. It is now made possible, and that becomes a lot more interesting. It's not incrementally better. It is like materially better because it is something that was not possible before. And then the other piece goes back to that sector expertise point I was making earlier, which is, are they building a company that is difficult to rip and replace?

That once it's actually implemented, it's deeply in the workflow of these users, it's compounding its data moat because it's generating net new data, and it's creating this amazing flywheel to just get better and better over time. Those are some of the things that we think about in figuring out, is this an AI kind of feature moment in time, or is this a company that is durable and it's meant to stay?

[00:28:22] Ben Kornell: Yeah. I feel like we're entering this era where the absolute value of what you see today is not what determines whether they survive and defend. It's their velocity and their capability because you're really betting on the solution set. The other thing that you mentioned were these kind of new capabilities that didn't exist before, and as you described it, it also spoke to the very specific knowledge around these niche areas in healthcare or niche areas in Edtech.

And one thing that is always funny is when people say women's health is niche, I'm like, "It's like 3% of the population, so forgive me, I'm, I don't mean niche in that way, but I mean specialized knowledge is really differentiated. So I guess the question I have is, are there areas that were uninvestable before because it required just too much niche knowledge- Mm

and it required too much, like, technical expertise to build a solution for that, that are now opening up because of AI? How do you see the kind of underserved or unserved needs being met in these social impact areas? And what do you think, uh, we've been talking mainly from a business perspective, but what do you think the social impact potential is here as you're thinking about this fund in the next decade?

[00:29:45] Jomayra Herrera: Yeah. So there are a lot of areas that are now interesting, investable in a way that perhaps wasn't possible before AI. So I'll give a couple examples across our different verticals. The first is one of our thesis areas in our work vertical is around SMB SaaS. SMB SaaS, or actually, sorry, SMB AI. SM- like, selling into SMBs was historically very, very difficult and- Small and 

[00:30:13] Ben Kornell: medium businesses for our, our education- 

[00:30:15] Jomayra Herrera: Sorry.

[00:30:16] Ben Kornell: Yeah, 

[00:30:17] Jomayra Herrera: that's not right? Small and medium size, yeah, small and medium sized businesses, was historically really difficult to do. It's a highly fragmented category. There's generally low willingness to pay. There's very little digital penetration, and so in a lot of ways, small and medium sized businesses skipped the SaaS evolution.

They never really got their version of an ADP or a Rippling and whatnot. And so most of them are on Excel or pen and paper. It's manual for a lot of their back office and internal operations work. And so now you fast-forward to SMB AI tools that can take charge of scheduling, payroll, billing, invoices, et cetera, and now you go to them and you say, "Hey, I'm not providing you a SaaS tool so that your non-existent back office person can run it.

I am now providing you the back office person you could never afford." Mm-hmm. Mm-hmm. Very different offering at that point And so that's a market now, a segment now that you can sell to. It's investable, and we're actively looking for companies in that category. The other piece is, so I know we've talked a lot about school choice, and we've talked a lot about l- the companies like Kaipon and Pathfound- or that are enabling school choice.

We're, we're definitely investing in that category. We are not ignoring traditional K-12 schools. We are still very much investing in companies that are building out tools for traditional K-12. And so company like Snorkel provides immediate feedback for students as they're doing their work. That wasn't really possible before, right?

Like, it was, one, a teacher can't really do it when they have 25 to 30 students, but then, two, actually providing personalized AI-driven feedback in a way that is responsive to some- the way that a student is speaking in the moment wasn't really possible pre-generative AI. You could have like a mechanistic kind of call it tree that if this, then that, but that's not personalized to the student.

That's not taking into account their misconceptions. That's not taking into account the way they think and then the way that they communicate. And so now you have a place where you can actually sell Snorkel, and it's something that previously was not able-- you were not really able to do. And that's the way we're kind of viewing things.

We're, we're seeing like, one, like there's capabilities and capacities that frankly weren't possible before. And then two, it's opening up markets that frankly weren't investable before. 

[00:32:50] Alex Sarlin: Yeah. It feels like they're almost like these new mini categories, like in between what has existed in the past. It, it's really interesting to think about.

And, uh, you mentioned Pathfinder in passing and, uh, they, you know, they've just done some really interesting work that I think is relevant to our Edtech audience. Do you wanna just give a little update on Pathfinder's work? They do this like ESA card and all these things. 

[00:33:10] Jomayra Herrera: Yeah. 

[00:33:10] Alex Sarlin: And then I have another question for you as well, but I'd lo- I'd love just to bring that up 'cause it's really interesting.

[00:33:14] Jomayra Herrera: For sure. So I'll give a little bit of context on Pathfinder and what they're working on. So for those that are listening, there is this concept of education savings accounts. Many states across the country are passing legislation that basically takes money that your child would normally use in school, so make it, the math simple, $10,000 if they were to go to school, and they just give it to you as a parent so that you can then use it how you think it makes sense to be used for your child's education.

It could be private school, could be a micro school, it could be homeschooling, but you choose how to, how to use that money. Now, the challenge is for most parents, that money comes as a form of reimbursement, and so they have to put money up front in order to use it and then submit for a reimbursement that they hope they will be eligible for.

For most parents, that is nerve-wracking. Yeah. Like that becomes a re- a reason to not do it. It becomes a reason to just let me keep my child in school. And so what Pathfinder does is they basically, they do two things. They pr- provide you a card where they're kind of fronting you that upfront cash so you can use it, so you don't have to rely on those reimbursements.

But they've also built out an AI engine that is automatically, every time you make a transaction on the card, it's running eligibility on that AI engine so that they're making sure that you're actually making purchases that you're going to be eligible for reimbursement for. And so it ends up just being something that parents love because it takes away that headache they have on putting upfront cash and also just worrying that they might not ever get that cash back.

And so they've launched in Arizona and are doing really well as they go- Yeah ... into the, the school year. 

[00:34:52] Alex Sarlin: It tickles me because I met Ahmad, the, one of the founders of Pathfinder, a couple years ago, and it just speaks exactly to your sort of like the founder personality. It was like he was at the time doing like a project-based learning assistant, but he was focusing on micro schools and home schools, and he was like, "This population is so interesting.

It's growing like crazy." But the product was totally different. Totally different. Yes. And now, I mean, but what you just described, I mean, you c- you just hear it. It's a brilliant product. It makes tons of sense. Growing audience, it, it makes tons of sense. And it's like, it's exciting to see, a- and I'm sure that their pivot is partially because of their relationship with you all and, and Jennifer and, and your whole group, because they're very clever, but also you guys know the space incredibly well.

So it's exciting to see. I want to ask this is gonna be, come across as kind of an, a intense, silly question, but I really am curious about your answer. As the number of sort of Edtech focused or Edtech specific venture funds has started to decrease, there are less around than there were at the height of the pandemic, and as you're going to earlier stage founders, I have a feeling you're about to be inundated by a humongous number of young founders.

I mean, I get emails every day now from somebody in a dorm room who just invented a new AI flashcard app. I'm curious how you are gonna navigate that. Y- y- y- you were already one of only a few that really, really focused on education and Edtech, and now you're even fewer, and there are even more founders coming out of the woodwork.

People coming from tech, people coming-- students, teachers, everybody wants to be an Edtech founder in this AI age. It's so many. How are you gonna navigate it? 

[00:36:25] Jomayra Herrera: Oh, man. So it i- no, it's, it's, it's a good thing, right? It's a champagne problem. Yeah. Like, this is- It is ... it's fantastic, and more people are building than ever, which is great.

And, and truly the talent is phenomenal. 

[00:36:40] Alex Sarlin: It is. 

[00:36:40] Jomayra Herrera: And so it's a mixture of we, we've grown the team over time, so, you know, we're well-staffed- ... which feels great. The second is we leverage AI in our processes as well, and so you're never going to get, like, every pitch that we get is looked at with human eyes, but we leverage AI to help us do quick assessments.

And so we have an inbound tool, call it a triage tool- Yep ... that helps us get to answers a little bit faster. But we still, no response goes out without actually having a human eye on it. And so that helps us to triage a lot more. And the other piece is, while we have this large fund, we're still conviction-based investors, which means we're not doing a spray-and-pray approach.

We still are only doing a certain amount of deals every year. And so we have to, it puts urgency on focus and on building out theses. And so we're doing a ton of internal work around developing what are the thesis areas that we wanna go really deeply on and make sure that we make an investment in and meet all the great companies in that category.

And so then there are gonna be moments where we say, "You know what? Right now in health, we're focusing on these two or three areas, and then everything else is just not a priority." Unless of course, like, there are always exceptions. But the thesis-driven work is going to become paramount where when we have just so many companies coming at us every day.

[00:38:03] Alex Sarlin: Yeah. That makes sense. 

[00:38:05] Jomayra Herrera: Yeah. 

[00:38:06] Alex Sarlin: Exciting. It's a good problem to have, but yeah, it's a flood. 

[00:38:09] Jomayra Herrera: Yeah. 

[00:38:09] Ben Kornell: Yeah. So let, let's look ahead. You know, um, many investors are kind of hitching their ride to pretty foundational AI breakthroughs. AGI, when you use that term, you know, it means different things to different people, but part of the bets in venture are really around concentrating bets around different scenarios on a 10-year timeline.

As you look out in terms of what some of the transformational technology will be, where are you placing your bets? Where are you more skeptical? And how are you balancing the kind of increased uncertainty and increased velocity that we're experiencing this moment? And for our entrepreneurs, you're advising them to be prepared for those types of future.

What kind of advice are you giving to your portfolio members given that kind of long-term vision? So- 

[00:39:02] Jomayra Herrera: So 

[00:39:02] Ben Kornell: let's look into- Yeah ... your crystal ball, Jomayra. What are you seeing? 

[00:39:06] Jomayra Herrera: So there was a question around like how we're thinking about balancing for this 10-year vision. The truth is, as a venture capitalist, our role is to build out a portfolio, a diversified portfolio that we can make a bet on there will be, call it, anywhere between two to five massive outliers, and that is our job, and to ultimately return capital to our investors.

And so what we are spending a lot of time on is, of course, we're staying principled in terms of like where we think that there are interesting opportunities, but like most importantly, like we're keeping things diversified. So where people are shying away from tech-enabled services, we're not, 'cause we're like, actually in a world where everyone's betting that everything's gonna be AI and software, we're actually betting that humans still matter, particularly in the sectors that we're investing in.

And so tech-enabled services will be a component of what we invest in. Pure like software is gonna be a component of what we invest in. We're gonna invest in LATAM and Europe and the US. Like we are going to focus on building out a diversified portfolio that is aligned with our overall thesis areas. So that is the first thing.

But as I think about 10 years from now, you know, where we think about making bets, it comes back to this idea of we ultimately are investing in sectors that are focused on the human as the unit of analysis, right? You're a worker, it's a patient, it's the student. And so what that means is that we're betting that, one, the companies that will succeed are gonna sit at that intersection across the three areas that we invest in and really treat their end user as a whole person.

And then the second piece is that the human aspect will always matter in the sectors we invest in, that human relationship will always matter. And so the companies that we're investing in, it's not about replacing them, it is about actually supporting them, about empowering them, about enabling them, and not necessarily just a replacement The last thing I'll mention is we're also running off the assumption of Jevons paradox, which is we actually think like demand across our sectors are going to explode, just truly explode.

You make things cheaper, demand explodes. We've seen it historically over time, and that informs how we invest. So if you take healthcare specifically, we've seen so many narratives around doctors are going to be replaced, like clinical workers are going to be replaced, and we're nervous about the opposite.

We're like, demand is going to explode so much that the workforce shortage we have is only going to get worse. And so we actually need to invest in the next set of tools and companies that are going to help address that. And so those are kind of the themes that we're investing against or thinking a lot about as we think about the next 10 years.

Now, when it comes to founders, founders have a portfolio of one, and that is their singular company. And so diversification is not necessarily a practice they can actually use in their work. So with founders, it's really comes back to one, think about like the-- fundamentally, like your job is to build a 10 to 100X better experience for your end user.

And so then the question is, is how best to do that in a way that is durable over time? You don't ignore the technology that is happening around you, but you also don't make that the thing that you follow, right? Like you have to be convicted and have conviction around where do you think the world is going 10 years from now?

Where do you think your user, your customer is actually hoping to get to in 10 years from now? How do you follow that? How do you deeply integrate into their lives and then use the technology available to you to help accelerate that? I think the worst-case scenario is if you have founders that are constantly looking to the next thing and jumping around.

The best ones are maniacally focused on like that end goal. If you take... Actually, Replit's a great example. Didn't make revenue for quite a while, and any other founder might have said, "You know what? This isn't working. I'm gonna zig instead of zag. Like I'm gonna, I'm gonna pivot. I'm gonna go another route."

Amjad stayed maniacally focused on what he was building. He knew there, there was something there, and it's a company that is now exploding in ways that no one imagined. And so just that clarity and vision, that conviction is just so, so critical now, and there's way too much noise 

[00:43:35] Alex Sarlin: It's a great point. I wanted to ask you a little bit about exits.

I know we're close to the end of our time here, but you mentioned early on in the conversation that you've seen exits of all sort of different types, and there was a period a few years ago where we were seeing a sort of spate of Edtech IPOs. That period seems to be slowed down, to say the least. It, it has not seen that much.

But we're still seeing interesting acquisitions. We saw GPTZero get acquired just a, a couple weeks ago. We saw Handshake, one of your portfolio companies, acquire Uplimit, you know, as a training platform. It's still, you know, happening in all sorts of different ways. I'd love to hear you talk a little bit about how you think about exits and acquisitions at this moment, and if you're an Edtech founder, what is the trajectory you're sort of painting for yourself if you're thinking about what exiting might look like and if you're gonna work with a VC?

[00:44:24] Jomayra Herrera: Yeah. So I will say the market has been very active over the last six months, so we've had six exits in six months. Some of- Wow ... have been announced, some have not. And so it's been very active. The truth of the matter is, is if you just look at it very high level, the vast majority of exits will be through a strategic acquirer or private equity.

Like, that's just the path for, call it, ninety percent of companies. It's, like, a very small subset that actually end up becoming publicly traded companies. So for that strategic side, the reason why it's so active right now is because every large company is thinking about their AI strategy and realizing that they're behind.

And so for them, especially if they have cash on the balance sheet, the question is: Who do we buy to accelerate this? Both in terms of bringing the right team and the right DNA to help our teams, you know, get up to speed, but also the right product. And so for founders, I have different advice for different founders, right?

Like, for founders right now that are kind of in the middle of the road, the market is very active in terms of purchasing. For founders that are just starting, the truth is, don't worry about exits right now. Like, this is not the-- Like, that, that is not your, that is not your core focus. Like, your investor will write a memo around, like, the potential exits, and they'll figure it out.

Your job as a founder- ... is to truly think about how do you build a company that can generate a hundred, two hundred, three hundred million dollars in revenue, and then the exits will... Like, I have no idea what will be the top ten companies ten years from now that will be acquiring other companies or that, or, or what the public markets will look like ten years from now.

All we know is what we know today and what we know about our customers and just having vision and clarity on over-delighting your customers, and the exit will come when it comes. And so it's the job of your VC to write that in their memo. 

[00:46:17] Ben Kornell: I also think that it's interesting that the cost to scale doesn't require C, D, E, F, G rounds anymore, and so your move to pre-seed, seed A is very feasible that companies could be doing exits of a billion-plus or even sub one billion, but where the economics are really good for those early investments because the requirement of capital is so much lower to scale in a AI world.

So I think that's- Yeah ... the kind of expertise that Reach has developed over the last decade seems particularly tuned to the types of companies that could create breakthrough in social impact spaces like health and education. So with that, I think we'll wrap up here. Jomayra, we always learn so much whenever you join the podcast.

Thank you for sharing that wisdom. If there's folks that are listening that wanna learn more about you or about Reach, what's the best way t-for them to reach out? 

[00:47:21] Jomayra Herrera: They can email me, jomayra@reachcapital.com. Add me on LinkedIn. Also, they can subscribe to our newsletter- Yes ... Reach Capital, The Wire. 

[00:47:31] Alex Sarlin: Definitely subscribe to that newsletter.

I mean- We highly encourage that newsletter. Yeah, it's great Yeah. Thank you so much. It's always an incredible pleasure, and I was so excited to see the news come through about this fifth fund, and all the momentum that Reach has had, and all the success that Reach has had. And, you know, I look through your portfolio, and it's just, like, heartwarming.

There's so many incredible companies, incredible founders, many of whom we've interviewed on this podcast over the years, and it's just, like, it's some of the best people in the whole space, and some of the best companies in the whole space. So it's, it's, it's really amazing. Thank you so much for being here yet again with us on Edtech Insiders.

[00:48:05] Jomayra Herrera: Thank you both. 

[00:48:06] Alex Sarlin: Bye bye. Thanks for listening to this episode of Edtech Insiders. If you like the podcast, remember to rate it and share it with others in the ed tech community. For those who want even more Edtech Insider, subscribe to the free Edtech Insiders newsletter on Substack.

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