Sramana Mitra: Let’s talk about what you have invested in in your current portfolio. Maybe even exits. You talked about a couple of exits this year. One of them was an IT company.
Victoria Pettibone: The two exits are both public. One was Ciel Medical which exited to Vyaire Medical. The other was Cloudamize, which exited to a Blackstone portfolio company. Both were very good exits. They are not disclosing numbers on either of them, but our investors were happy. Both of those exits happened within two years of our investors investing in them.
Sramana Mitra: They didn’t have venture money in the company. They were pure angel-funded companies that straight away exited?
Victoria Pettibone: I believe they have some venture money in the company, but I don’t know the details.
Sramana Mitra: If you look at the IT part of your portfolio, are there any highlights of companies that are doing particularly well that you are excited about?
Victoria Pettibone: I have to say I’m excited about pretty much all of our portfolio. The companies are all facing the challenges of running a company really well. Something that I want to highlight is that so much of this early-stage investing is about building relationships with the investors and entrepreneurs.
The reason that I don’t freak out about companies not hitting milestones is because if we have a good relationship with the executive team, we can do what we can to support them through that. We really stress the need for that kind of transparency and good communication. Having these companies report to us on a regular basis is really important to us.
Rather than point out any company, I would say that the ones that we feel the best about are the ones that are really good at regularly reporting. They found ways to make it not a huge burden on them. The entrepreneurs that try to make the reporting helpful to them and can see it as a way to leverage their investor network, those are the companies that are doing well.
Sramana Mitra: I think investor relations is a requirement. If you raise money from outside investors, you have to report about your performance. That is just the way the business works. There’s no going around it.
Victoria Pettibone: The ones that embrace it as something that could help them are the ones that do really well. The thing about having angel investors is that each angel investor comes with their own network of people and investors. The more you can leverage that, the better. I always think it’s helpful when they give little shoutouts to the particular investors that have helped them. I’m also an investor. When I get an investor report and there’s a shoutout to somebody I know, it makes me feel competitive. I think the companies that are doing the best are the ones that are regularly reporting.
Sramana Mitra: One of my favorite case studies is the story of Modernizing Medicine. He’s the founder of Blackboard. Modernizing Medicine raised all their early rounds from physicians. This is a technology that is targeted towards physicians.
They were customers who were also investors. They just drummed up some much endorsements. All these investors were talking about how they were using the product and recruiting new customers. It’s a phenomenally effective round of investment that helped them grow.
Victoria Pettibone: You have a whole army of people.
Sramana Mitra: Leveraging that is really important. How do you process the current investment climate where capital is moving further and further upstream? How does a seed investor or entrepreneur mitigate the Series A gap?
Victoria Pettibone: One of the points that I know you speak on is building revenue streams and, for as long as you can, trying to fund the business out of revenue streams and not necessarily trying to grow super fast. If the companies can find a model where they can self-sustain for a while and then really start to build those metrics and user base, then they’re in a much stronger position to go out and be able to successfully raise that next round. I think that’s one thing.
Sramana Mitra: Becoming sustainable and not dependent on outside capital is definitely one of the best ways to mitigate the Series A gap and thereby, making yourself not dependent on Series A. Maybe you can do without Series A. The tricky one as I’m listening to you is maybe you have done that and you’re not growing very fast. Then you go out to raise Series A and people are going to say, “You’re not growing very fast.”
Victoria Pettibone: It’s true. I think there can be a case where, “I haven’t been growing that fast but look at what I’ve done with just me. Look at how I can scale this the moment I add a sales team.” If you can prove to them that all they need to do is add water, I think you can sometimes overcome that. That is certainly a challenge.
Going back to relationships again, your angels are going to be the ones to participate in that bridge round and the next bridge round. That’s why you want to build really good relationships with them so they really stand by you in those times. I would say don’t feel bad about the bridge round. So many companies that I see end up needing the bridge round.