Sramana Mitra: In a nutshell, you are still looking at unicorn exits as the preferred investment thesis.
Spencer Crawley: Correct.
Sramana Mitra: It is the conventional wisdom of venture capital.
Spencer Crawley: We debated it at length. It’s not something that we took as gospel from day one. It’s a more organic process of building a business and scaling. In a way, it’s a very VC question in terms of when you’re meeting a seed-stage company to have a meaningful internal debate if this is a billion dollar exit or not. It’s a little bit academic. The amount of unknowns are so significant.
Perhaps a better way of putting it is, it would be a red flag to us if an entrepreneur said, “If I get a $50 million acquisition in a year’s time, I’m taking it.” That may be a completely understandable life decision for an entrepreneur based on return of investment on their time. If that is their goal or frame of mind, that may lead to decisions that they take that optimizes profit over growth.
It informs decisions that they take in those very formative years of the business. It’s more of understanding the mindset of the entrepreneur on whether he or she wants real scale versus seeing the door ajar and going for a market gap and saying, “I’ll cash out when I can.”
Sramana Mitra: Just like it’s really important to get product-market fit, it’s also very important to get investor-entrepreneur fit. What you’re saying is that. Some investors have different investment theses. Some entrepreneurs have different goals. You have to align all these goals and choices in life. An entrepreneur who’s taking money from a traditional venture fund should be aware of the expectation that they’re going to have to really work super hard and super intensely to get to blitz scaling.
That’s a very intense path. That’s a very low probability path. Hyper growth is not a natural state in business. There are many ways to succeed. A company that gets to $50 million with a capital-efficient cap table is also a success. It’s just not the success that your firm or equivalent investment thesis firms are looking for.
Spencer Crawley: Completely right. In the portfolio of venture investments, there will likely be outcomes in that range that you mentioned. It’s just that perhaps for some of those, they end up being $50 million strategic acquisitions by someone because that entrepreneur sweated blood and tears to try to build a $500 million business but didn’t quite play out. I completely agree with how you phrased it.
Sramana Mitra: All right. Thank you for your time.