Responding to a popular request, we are now sharing transcripts of our investor podcast interviews in this new series. The following interview with Rami Elkhatib of Acero Capital was recorded in February 2018.
Rami Elkhatib, General Partner at Acero Capital, talks about his investments in companies that require a longer development cycle. As you know, 1Mby1M often uses Bootstrapping with Services as a core methodology to scale companies to fundability. Rami actually loves to invest in such businesses, read on.
Sramana Mitra: Let’s start by introducing our audience to yourself as well as the fund. What is your focus? What kind of things do you like to do? What is the fund size? What sized investments do you like to make?
Rami Elkhatib: We are exclusively focused on early stage enterprise software. The fund is $150 million. It’s somewhat of a unique model. We are a small team, so I’m the only General Partner. Typically, single-GP funds tend to be either seed-stage funds or micro-VCs. We tend to have this unique combination of a small team but more of a fuller-sized fund. That’s been very helpful in pursuing our strategy.
Our strategy is to be an early-stage investor in enterprise software. Next, we are extremely focused on funding companies with deep IP. Our main focus when we’re looking for investments is strong product and fantastic technology. Once we see opportunities that meet these criteria, our goal is to make deep concentrated bets in areas that we understand very well. Within that, our most exciting investment is when we see opportunities that actually require a lot of help and support. These are the kinds of opportunities that we’re looking for.
Sramana Mitra: Can you elaborate on how you define early-stage, especially when you’re talking about deep tech? Are we looking at requirements where the entire product has been built and you have customer validation? Are we talking about companies already in revenue? Where is the sweet spot?
Rami Elkhatib: I do think we have a little bit of a unique model in terms of how we think about stage and check size. Maybe the best way to illustrate that is by way of an example. I can tell you about one of our investments that illustrates that. About three and a half years ago, we made an investment in a company called Contrast Security that is revolutionizing the application security space. That investment was a spin-out.
There was a consulting firm that did consulting primarily with the NSA and a little bit with Wall Street banks. As consultants, they help the NSA make sure that their software and software applications are secure. As they were doing that work, they realized that there aren’t tools on the market that help you properly secure software.
If you’re not using Contrast Security, it’s still somewhat of a manual process. They invented their own software. Acero came in. Our Series A investment went into spin-out of that software. Our initial check was $8 million.