By guest authors Irina Patterson and Candice Arnold
Irina: How many entrepreneurs did you actually incubate?
Jason: In the past 18 months, we’ve funded two PowerPoint presentations, roughly, where there was a great entrepreneur with an idea, but that was it. That’s a pace we’re comfortable with. We might accelerate.
Irina: So, they came in and worked in your offices?
Jason: One did; one did not.
Irina: How many pitches, approximately, do you get per month from all your sources?
Jason: I have no idea. For me, within education, it’s a relatively small sector from a venture investment perspective.
So, within the consumer side, the way I like to think of it is, we want to see the vast majority of great entrepreneurs who are creating great companies in that sector. Within Web-enabled consumer services, likewise. For us, it’s not a question of how many pitches we see but how many quality entrepreneurs we’re talking to.
I think, as opposed to just focusing on the quantity of potential investments, one of the things we’re looking at over the next year is how do we develop relationships with 15 to 20 additional great entrepreneurs we don’t know yet, people who can be involved with Maveron going forward.
We have a sharp focus on getting to know great people. I think, when we look at potential investments, it’s people first and markets and products next.
Irina: How many entrepreneurs, roughly, do you talk to per month?
Jason: As a firm, hundreds; as an individual, dozens.
Irina: Out of those dozens, how many deserve a closer look?
Jason: Right now, I’m in deeper diligence with, maybe, four companies – something along those lines. I think that’s fairly typical.
You know, each of us here, depending on stage, will do one, two investments, on average, a year. Maybe three, if they’re seeds. We’re not doing a lot of investments, but we’re talking to a lot of folks. That’s typical. Most partners/principals at VC firms will do an investment or two a year . . . maybe two or three, with the exception of people who focus just on seed investing. If you’re investing in $100,000 chunks, you have to do a lot more.
Irina: As a firm, in the past 12 months, how many ventures have you funded?
Jason: I’d say we’ve funded three to six. Recently we’ve been investing smaller, bit sizes, but more companies, so I think that range will move upward over time.
Irina: Can you name specific factors that play the largest role when you are considering whether to invest?
Jason: There are a lot of great business ideas and lots of businesses that can create wealth for an individual. I think, to justify taking venture investments, they are unique companies. So, for us, we’re looking for something that can create a minimum of $20 million in equity value for Maveron over a five- to seven-year period, which, pragmatically, if we own 20%, means something that’s going to have an exit that’s $100 million or more within five to seven years.
There are very few companies that can scale that quickly and create that kind of equity value within that time frame. It doesn’t mean they’re bad companies. It just means that if you’re looking at an investment from a venture fund, you have to look at things like fund size, you have to look at what you think the size of the price can be, and you have to understand the expectation that a company’s going to have to scale very quickly to meet the expectations of that investor.
Is the market big enough? is a big filtering question. The second question is, is the solution this team has proposed one which we think can scale and sees enough share to create that kind of equity value? The third and perhaps most important question is, If the market’s big enough and the solution is interesting enough, are the people talented enough to execute against the plan and make it happen, which is, in many ways, the hardest part?
Irina: What is the average dollar amount you invest?
Jason: We have two buckets which we’re investing in right now: a seed investment, which is typically $250,000 up to $1 million, and a core investment, which is $2 million to $5 million. For a core investment, we typically require a validation of business model, user traction and some evidence or, at least, intuition that additional dollars in will have ROI associated with them given the initial results.