Responding to a popular request, we are now sharing transcripts of our investor podcast interviews in this new series. The following interview with George Spencer was recorded in January 2019.
George invests in SaaS companies mostly in the Midwest from a small fund out of Chicago. The interview contains an excellent discussion on ideal levels of capitalization for good exit prices.
Sramana Mitra: Let’s get acquainted. Tell us about yourself and about the firm.
George Spencer: I’ve been in the venture business in Chicago since 1990. I worked first for a firm called Boston Capital Ventures, which was opening a Chicago office. I then helped start a firm called JKMB Capital where we had a terrific run from 1996 to 2000. I left there and joined Princeton Partners and helped lead the spin out of that in 2000.
I stayed there through 2006. I went out on my own after that and started investing my own capital. I raised a small fund in 2016. I invest in information technology companies in the venture growth stage, which is once the company has gotten a little bit of customer momentum and has built their initial product. We typically invest about $2 million over time.
Sramana Mitra: Let me double click down on a few of the things that you said. You already started in the direction of helping us understand the specifics of the fund. When you say information technology investments, tell us a bit about what you like to invest in.
George Spencer: Primarily B2B. If something ends up as a B2C investment, it was a mistake or something that happened over time. I’m typically looking for a recurring revenue software company. Recurring revenue is a big part of our story. It could also be a managed service business based on some level of proprietary software.
Sramana Mitra: What is the size of your fund?
George Spencer: The fund is $15 million. It’s just me. I do all the work. We’re going to make seven investments. At least, that’s the goal.
Sramana Mitra: You said you’re based in Chicago. Is Chicago the only place you invest in or are you broader than that?
George Spencer: I try to focus in and around the Midwest. Having said that, I just made an investment at the end of last year in Los Angeles. But really, I’m making a conscious attempt to stay out of Silicon Valley and Boston area. In the fund, my first investment was in Chicago. My second investment was in St. Louis. My third investment was in LA.
Sramana Mitra: Elaborate a bit on stage. You want the product built and a few customers already in place. What is a few customers? Are you looking for paying customers?
George Spencer: I would say the first deal I made was in a company called Data Cubes, which I believe had three customers when we invested in the company. I just invested in a company called Twine Data in Los Angeles that has quite a few customers. That was a Series B. Data Cube was considered Series A investments.
Sramana Mitra: What kind of monthly recurring revenue run rate do you like to see in place before you come in?
George Spencer: I would say as low as $30,000. That’s a little bit of a proxy, but it’s more about being able to understand why the customers are buying it. It is pretty hard to do.