By guest authors Irina Patterson and Candice Arnold
Irina: How long does it take for a company to receive funding?
Jason: It depends. We like to get to know entrepreneurs over time. We’d prefer to know entrepreneurs for six to twelve months before we back them. It doesn’t mean that we always follow this guideline, but we invest in people, and we like to take the time to get to know those people before investing.
We’re typically not a group that responds well to someone coming in for a pitch and our writing a check the next day. If we have enough connectivity to that person through our network to be able to do due diligence on them in a holistic way, we will move fast. But that’s more the exception than the rule.
Irina: How do you get to know them?
Jason: You know, [through] multiple conversations, coffees, dinners, introducing them to a variety of people in our office.
Irina: Will you go over your terms for valuation again, please?
Jason: Valuation’s always a question of what the market will bear. We don’t have hard and fast guidelines on valuation or ownership percentage. We do love markets that are a little out of the way. We have a pet insurance company. We invest in online post-secondary education. We don’t always go with the grain.
Irina: Do you have a number for market size?
Jason: No. As a rule, I love big market sizes versus small ones. I like larger addressable markets. That said, would I invest in a company with an addressable market of $30 million but growing? No.
If it was $200 million, would I? Probably not, but maybe, and it’ll scale up from there.
I prefer large addressable markets with, typically, multiple billions associated with them. It’s often a lot easier to play in a bigger market, but there’s no hard and fast rule. Sometimes markets emerge so quickly.
If 18 months ago you were going to invest in a company that focused on developing things for tablet computers, you would have been ahead of a wave in a very large market. We might have taken that bet. What I don’t like are markets where you don’t know where the inflection point’s going to be. I think those are dangerous, and we try to avoid them.
Irina: At what stage of a company’s development do you prefer to invest?
Jason: For the vast majority of entrepreneurs, we want to see user traction and business model traction, even for seed investments. Typically, what that means for us, given our focus, is you know how to acquire a customer, you know how much it costs, you know how to monetize the customer, and you know what the revenue and gross margin are going to be.
If you’ve had a $100 million exit in the past, then we’re likely going to need a lot less validation than if you haven’t. In cases of exceptional entrepreneurs, we’re willing to go early, to the point where we’ll fund a PowerPoint presentation.
The people bar is significantly higher to go earlier than that. What we’re looking for from an entrepreneur is, you don’t need a $100 million exit, but you do need a track record, throughout your life, of success and leadership.
It starts in high school. Were you captain of your tennis team, or were you just a member of it? It goes on to college. What kinds of leadership activities were you doing? Did you work 30 hours a week to pay your way through school? Did you form a volunteer organization that was able to grow and scale up?
I think there are many ways to prove leadership and the ability to lead people and do things that end up being successful. But we want to see evidence of that even if someone hasn’t had a successful entrepreneurial venture before.