Responding to a popular request, we are now sharing transcripts of our investor podcast interviews in this new series. The following interview with Sunil Bhargava was recorded in October 2017.
Sunil Bhargava, Founder and Managing Partner, Tandem Capital, helped us explore the difference of post-seed versus pre-Series A financing.
Sramana Mitra: Tell us about Tandem. What is the focus of the firm? How big is the fund? What size investments are you making?
Sunil Bhargava: We are currently investing out of our third fund. It’s a $100 million fund. Our first check is usually $1 million to $2 million in late seed deals where the company is usually raising $2 million to $5 million. We invest in companies that have discovered a process of scaling. We’re not focused on a particular sector or technology.
Sramana Mitra: Let us talk a little bit about what types of ventures you have invested in so we can get a feel for your sweet spot.
Sunil Bhargava: We’ve invested in a bunch of different markets. As I said, we’re not focused on a particular technology. We’re not focused on enterprise. We’re not focused on mobile. What we are focused on is the channel and how you go to market. To give you an example, we have a bunch of investments in construction. One of them is a company called Vico, which is based out of Seattle. They’re in the smart home space.
There are a lot of companies in the smart home space but these guys’ thesis was that you have smart switches which are $75 to $100. Dumb switches, which are the ones you see commonly in homes and offices, cost $2. When a builder has to put in a hundred of these switches in a home, he’s not quite ready to take a $100 cost.
These guys have made an upgradeable switch so the builders can put in switches at a very low cost – close to the dumb switches. When somebody buys it, they can simply upgrade it. That is a very different go-to market. We look for innovation like that.
Sramana Mitra: What is the go-to market for a company like that?
Sunil Bhargava: For new home builders, there’s a very simple value proposition. The home can be made smart when somebody buys it. When somebody is interested in buying it, they could just say, “We’d like to pay the upgrade fee.” A minimum wage worker can then plug in the modules or they can do it themselves at a later stage. It’s also future-proof. They’ve made the selling and installation of smart homes a marketing play as opposed to a reasonably big building cost for home builders. That enables the home builders to make the decision much more simply.
Sramana Mitra: From their point of view, it’s still a B2B deal though. It’s not a B2C deal.
Sunil Bhargava: Yes. In our second fund, we did a lot of B2C companies. Our third fund is much more B2B or B2B2C rather than B2C.
Sramana Mitra: What trends are you seeing in your deal flow? This is not necessarily what you’ve invested in but what trends are you picking up based on what comes to you right now.
Sunil Bhargava: Today, the ecosystem for investing in very early stage is very robust. This is a phase where companies are building their MVPs and discovering their business. There are accelerators like Y Combinator and Tech Stars. There are many angels.
The number of companies that are getting enough capital to get their act together and find the initial seed of their business is tremendous. The quantity of deal flow is exceptional. There are also different ways to reach customers. Finding that right team, timing, and focus is still not easy at all. We probably do five or six investments in a year, but we see 20 times to 30 times that.