By guest authors Irina Patterson and Candice Arnold
Irina: What factors receive the most weight when debating whether to invest?
Mark: It’s a combination of a large market opportunity and a great team. We’re looking for three things: a large market opportunity; a unique and compelling solution to that market opportunity; and a small team of entrepreneurs that has consistently demonstrated extraordinary things in their pasts.
Any of those three things missing, and it’s probably not the right opportunity for us.
When we see those three things … when we see a compelling team going after a large market with a unique approach. … Those are the three large boxes that need to be checked in order for us to be very interested in an opportunity.
Once we’ve checked those three boxes, then it’s more into the details of the go-to-market opportunity. How capital intensive the business is, how competitive the space is at that point. Hundreds of different factors. But once we’ve checked those three boxes, there are dozens of other smaller boxes.
We’re probably willing to overlook some of the smaller boxes, but I can’t imagine many times where we’ve invested when we didn’t check those first three major boxes.
Irina: How many investments have you made in the past 12 months?
Mark: Four, I believe. I don’t think we’ve ever done more than five investments in a year or fewer than three. Every year seems to be three, four, or five investments.
There are four partners here. It’s a lot of work, given that all of the partners are sitting on a number of boards and we’re looking at so many opportunities. I can remember once or twice in the past decade when, personally, I’ve made more than one investment in a year. We average one investment per partner per year.
Irina: What’s the range of your investments in dollars?
Mark: We’re somewhat stage agnostic up through early growth capital. We have made a fair amount of $200,000 investments in seed stage. We’ve done many, many series A. We’ve done a few series B and series C investments. We’d like to create portfolio for not just across region and sector, but stage as well.
Irina: How long does it take for a company to receive funding?
Mark: We’ve invested as quickly as one week, and we’ve taken as long as two years of tracking a company. I’d say, on average, it probably works out to about two months.
If you’re asking me for the bell curve, I’d say it’s two, maybe three months from first meeting a company until we actually invest. The bell curve definitely has outliers.
We’ve made investments very, very quickly, and we’ve also taken a very long time. It all depends upon our comfort level with those three boxes and some of the smaller boxes.
If we know the team intimately, and we believe that management risk is mitigated to a great degree, then right away, the process gets a lot quicker. We don’t have to spend as much time with the team, getting to know them and their strengths and weaknesses.
If it’s entrepreneurs that we, as a firm, have gotten to know well over the past decade, then the process probably moves a lot quicker. Given that there’s so much risk in the team in the early years of a startup, if we don’t know the team very well, we’re going to spend some time [with them].
Rarely, if ever, will we invest in a team where we don’t know the entrepreneurs or have references from people we trust. So, much of the risk is management team.
Irina: Do you think in terms of valuation when you invest?
Mark: Yes. We definitely think about valuation, but we don’t have any predetermined expectations on valuation.
The valuation we arrive at is based upon all of those boxes. It all comes back to strength of the management team, size of the opportunity, stage of the company.
When you factor all those things together, you come up with what I like to call both sides leaving the table equally dissatisfied. Then you know that a fair deal has been struck – in any type of venture, not just an entrepreneur negotiation. In any negotiation in life, a fair deal has usually been reached when both sides leave the table equally dissatisfied.