Sramana Mitra: One small detail question. One of the issues of the current venture capital ecosystem is that Series A financing has become larger. A class of VCs has developed that does the smaller Series A checks. Then you are doing the traditional venture capital. You want to put in $5 million to $10 million. If an entrepreneur just wants $5 million Series A, would you do that round fully as a solo investor?
Dafina Toncheva: Yes. I would love that. I think the appropriate amount of capital keeps everyone disciplined and makes them more focused on achieving milestones that will set the company up for success for the next round. We will definitely lead a Series A financing that is on the smaller side. We’ve led a Series A financing as small as $4 million.
These things have changed quite a bit. What used to be a traditional Series A now edges towards a large seed. What used to be the seed, now is called pre-seed. Now traditional seed is a $2 million to $3 million round. What we call early-stage financing has now been pushed up to a point to be $5 million to $8 million Series A financing.
Sramana Mitra: I’m going to go into a few different fund-related details. You have a deep experience in cybersecurity. Ray recruited you at Venrock for your cybersecurity expertise. You have continued to invest in cybersecurity for many years now.
Dafina Toncheva: Cybersecurity before it was popular.
Sramana Mitra: To be fair, cybersecurity has probably been one of the table steaks for venture capital in its entire history. Companies have continued to invest in cybersecurity throughout the history of venture capital in the last 30 years. It is one of the most invested categories of venture capital which is where I’m going with this question.
It’s so crowded. This market is so incredibly crowded. What is your methodology? What is the map in your head on how you invest and how you think about cybersecurity investment? I know it’s a convoluted question. You can take as much time as you need.
Dafina Toncheva: I like it. I think it’s an important question and something we think about a lot here. There are several answers to your question. You’re right. It is a crowded space. One thing that I have noticed over the years as I’ve made security investments is that nuances matter a lot. On the outside, every security company has the same marketing message. They all protect the data or the user or the network. As you point out, there are thousands of companies.
Nuances in this industry matter a lot. There are different ways of approaching the problem and solving it. The art of investing in security is in being technical and understanding the differentiated approach to solving the problem. Having a technical background has really helped me. Being close to the space over the years also helps in assessing opportunities. It’s a highly fragmented market. There are many point solutions. There are many companies that solve a small part of the problem.
While that’s interesting, it doesn’t necessarily lead to companies that could grow to be billion-dollar opportunities. That is okay. We tend to look for companies that can grow to be beyond $500 million or even a billion dollar market opportunity. It starts with understanding the landscape and the holes that create opportunities for new players to come in and redefine the space.
We are very selective. USVP has been investing in cybersecurity for 20 years. Our track record, just in the last 15 years, is 7.7x on returns in security. I don’t think we have ever had a single loss in security. Not one of our company has been a write-off.
Sramana Mitra: That’s incredible.
Dafina Toncheva: Being associated with that has helped with deal flow. We were the very first investors at Checkpoint, which is one of the largest security companies in the world. We also invested in Imperva, which is another public company. We are investors in Trusteer. They raised $5 million from USVP and never raised again. They sold for $60 million to IBM. We stay close to the entrepreneur community. We get to know the experts in the space. That really helps us evaluate opportunities.