Sramana Mitra: One of the options that we have to keep in mind is that the vast majority of strategic acquisitions happen in the $50 million to $60 million price point. For everybody concerned about making money with a $50 million exit, you have to build the company in that $5 million to $10 million capitalization.
George Spencer: That’s right. The goal here is not to sell the company for $50 million to $60 million. If that’s what ends up happening, you end up making three or four times your money, so be it. Just getting yourself to the position where you’re able to do that is important. I think that you need to be very capital efficient and conscious of that. To be honest with you, I don’t think that happens all that much out in the Valley.
Sramana Mitra: The dynamic is very VC-intensive and unicorn-intensive. You’re absolutely right. It doesn’t happen as much out of the Valley, but it’s happening a lot in the startup universe. We do a global business. There is a tremendous amount of bootstrapping. We support bootstrapping very actively, which is where my question comes from. If you flip the argument a little bit and instead of $5 million to $10 million and if you can build your company for $3 million to $5 million, you can make serious amounts of money even at a $50 million exit.
George Spencer: Yes. Once you get the business up to $4 million to $5 million, you don’t have to get that much dilution to get the company to $1 million of MRR because of how the bank debt works.
Sramana Mitra: Exactly. Bank debt is very effective if you have the proof point.
George Spencer: I agree.
Sramana Mitra: I take it based on this conversation that you’re not obsessed about the unicorn mania phenomenon.
George Spencer: That would be an accurate statement.
Sramana Mitra: If you look at your deal flow in the last year, what trends have captured your attention?
George Spencer: You got an incredible amount of innovation that’s going on in the economy right now. I think we’re in the third or fourth inning of the transition from an analog to a digital economy. It’s everything from Blockchain to drones. On some level, it all comes down to data that’s being created and put out in the world. Then, what you can do to integrate and create value out of that data, that’s one of the big trends I’m investing on.
The second trend I’ve been working on is what I think is the turning upside down of the advertising, research, print media industry, which has been driven from the notion that print media isn’t what it used to be. You’ve got all these new digital media that are emerging and trying to capture customers with the same sort of advertising models. Look at companies like Qualtrics and Survey Monkey that are in the new economy of market research. The Nielsen’s of the world are clawing to keep even. It’s an example of another industry that’s probably going away.
Sramana Mitra: As parting comments, what would you like to convey to our audience which includes a huge number of bootstrapping entrepreneurs who are constantly being advised to build their companies in a capital-efficient way?
George Spencer: Venture capital is not for every company. You need to look at your company in a way that helps you build your company and make money. When I invest in a company, I look at the entrepreneur as my customer. Does that always mean that I’m going to agree with the entrepreneur? No. Does it always mean that the entrepreneur that I’m investing in is going to be the CEO? No.
But I want to help him build his business and collectively make money. There’s a lot of ways to skin the cat out there. There’s a lot of angel money out there than there ever used to be. Unless you have a billion dollar outcome company, you got to get your business to a point in time where you can either manage the burn rate with your existing investors or better yet, you’re break even and making money.
Sramana Mitra: Absolutely.
George Spencer: You don’t have to do the crazy things.
Sramana Mitra: We have a simple way to crystallize what you said. Entrepreneurship equals customers, revenues, and profits. Financing is optional. Exit is optional. On that note, thank you very much.