Responding to a popular request, we are now sharing transcripts of our investor podcast interviews in this new series. The following interview with Greg Sands, Costanoa Ventures was recorded in December 2017.
Greg Sands, Founder and Managing Director at Costanoa Ventures shares his investment focus.
Sramana Mitra: Tell us about your investing focus. How big is the fund? What size investments are you making?
Greg Sands: Costanoa Ventures invests in the entire stack of business-facing software. These are companies that change the way the world does business. We’re investing out of a $175 million third fund. There are two modes. We do seed investments, which most typically are half a million to a million and a half. Then Series A investments that range from $2 million to $6 million.
Sramana Mitra: You said business-facing, so it’s a B2B fund.
Greg Sands: That’s right. We’re fundamentally a B2B fund for these days where there is a ton of data and AI-driven applications workflows and business processes, vertical software as well as business marketplaces, security, data stack and devops.
Sramana Mitra: What about geography?
Greg Sands: We invest all over the US. We are principally a US-focused firm. We have slightly more than half of our investments in Silicon Valley. The two biggest clusters outside of that have been in Boulder and New York City, but we’re open to things all over the country. We have also found an increasing number of companies that have started elsewhere but are moving or have moved headquarters to Silicon Valley. It really didn’t happen 15 or 20 years ago. For example, we have three companies that were started in Australia.
Sramana Mitra: There’s a lot of that going on. We’ve done case study after case study that have been started somewhere else and eventually moved either to Silicon Valley or US and have done very well. Speaking of Australian companies, Atlassian has done very well.
Greg Sands: The thing that we all realized is that there are smart, driven, creative people all over the world. The wonderful thing about venture capital industry and platforms such as yours is that it’s enabling the great talented, driven people regardless of where they are.
Sramana Mitra: The learning has really accelerated around the world. What used to be this tribal knowledge in Silicon Valley has really become global knowledge at this point. Platforms such as ours have definitely contributed to that. In general, the internet has contributed to that knowledge becoming global.
Greg Sands: That’s absolutely right. The early writings of friends and good partners like Fred Wilson, Brad Feld, and David Hornik started to crack open the velvet curtain and give people access to the venture capital process and mindset. That rippled on through itself with a great many sharp and intelligent blogs both by founders and venture capitalists.
Sramana Mitra: If you look at the last six months in your deal flow, could you synthesize what kind of trends you are seeing that are interesting and are worth discussing?
Greg Sands: By the way, I very much tend to think bottoms-up rather than thematically and distilling into trends. I will force my mind to follow your question, but I also think that there’s a natural bias towards recency. I think the number one thing that we see and that we’re working on is the applications of the broadly construed modern AI stack to a set of business problems.
The platform opportunities in and around AI is now in the land of giants. Those are going to be relatively few and far between. As it penetrates into industries, there are extraordinary opportunities. When I founded the firm, the founding blog post was about big data applications. Applied AI has a very similar playbook.
Ultimately, you need to aggregate, curate, and originate data because in the long run if you don’t have unique and proprietary datasets, then it’s going to be awfully hard to defend your business. You, at least, need to be a word class adopter of the modern stack of technologies, and sometimes inventor; but sometimes being a word-class adopter of the modern stack is enough.
Then you have to find a substantial business problem, do customer discovery, and build your way up the stack to completely solve that problem. For example, we’ve done things recently in retail automation and another in aquaculture. These are going deep into vertical industries that solve end-to-end problems in very fundamental ways by applying that technology stack.