Sramana Mitra: My observation having talked to lots of investors at this point on this topic is that the answers tend to vary significantly. There’s a class of investors who are only interested in billion-dollar plus TAMs. Then there’s a body of investors coming together now who are doing smaller funds like yourself who are very pragmatic and understand that most of the exits happen in the $50 million to $60 million point.
To make good money off a $50 million exit, you have to do it capital efficiently and make sure that there is a ceiling to how much money you raise to be able to make sure that everybody has a healthy exit in that scenario. That’s a different class of investors. It’s interesting how every venture market is also segmenting big time.
Christina Brodbeck: That’s definitely true. I think there’s a lot of change that’s happening which we’ll continue to see over the next few years. I don’t remember exactly when AngelList launched but around that time, you started to see a shift. You had more and more angels playing in the market. Things have moved upstream.
Sramana Mitra: How do you view the Series A gap in the industry? There is a tremendous number of micro-VC firms that have come into the market. As a result, there is a lot of seed financing. In fact, I think the numbers are getting up to hundred thousand plus of seed financing, but venture financing is still constant at the 1,200 to 1,500. There is clearly a huge Series A gap. How do you process the reality of this gap?
Christina Brodbeck: I do think that more and more companies are funded at the earlier seed and angel levels. A lot of those companies don’t necessarily need to raise money. I don’t think the validation should be raising money. It should be if you really are a strong and solid business. There is this gap that does occur. It’s about making sure that your values are aligned with the entrepreneur’s values and that you’re offering more than just money.
At the end of the day, money is great but it doesn’t get you very far if there is nothing behind it. One of the things that we really do is, we use our different skillsets, are as hands-on as possible, and build the relationship as early on as possible. For instance, my background is on the design side of things. I often sit down and do regular calls with either the designer or the design team. It’s usually just one person, but I sit down with them and go over saying, “These are the features that are coming up. What are the flows for that? How do we make it better?”
Every single one of the people on our team has a different skillset that they bring to the table and we really try and sit down with our founders and help them with those things. As an investor, you want to be as involved as you can. Obviously, there’s a fine line because as an entrepreneur, you don’t want an annoying investor. You do want to make sure that if they need help, you’re there for them and also to proactively offer that help.
Then on the entrepreneur side of things, if you’re going to make a choice to raise money or take money, make sure that you’re taking it from somebody that you feel comfortable working with and you don’t feel that they’re just out there to make a profit. At the end of the day, you want to make sure that they’re really your partner.