Responding to a popular request, we are now sharing transcripts of our investor podcast interviews in this new series. The following interview with Mark Selcow was recorded in March 2019.
Mark Selcow, General Partner at Costanoa Ventures, talks about the firm’s primarily B2B investment thesis and strong penchant for investing in companies that have grown outside the Bay Area.
Sramana Mitra: We had Greg Sands of Costanoa a few months ago. We’re going to continue the conversation today with Mark. Let me just recap a little bit of the vital statistics of the fund that we’re talking about here.
This is a San Francisco-based fund that’s investing out of a $175 million third fund. They invest in seed and series A. This is a B2B-focused fund. They invest all over the United States. Welcome Mark. We’ll continue the conversation from where Greg left off.
Mark Selcow: Thank you. I’m really pleased to be here.
Sramana Mitra: Let’s start by painting, for our audience, a picture of your analysis of the B2B venture market and how you’re seeing the opportunity.
Mark Selcow: I have my own purview that comes from my experience as an entrepreneur. I co-founded two companies. A consumer business in the Web 1.0 era called BabyCenter and an enterprise B2B software company called Merced Systems. Merced Systems built performance management software for high turnover workforces.
I have deliberately chosen to invest in B2B because I love the opportunities, the extent of transformation that’s happening, and leveraging changes in the data economy. AI, in particular, is really profound. Because so many meaningful companies can be built in a systematic way where even though my consumer startup worked really well and continues to be very large in its category, consumer businesses are at a very high risk. When they work, they work beautifully. But often, they don’t. It’s harder to research, analyze, and know. I like investing in B2B because I believe a higher rate of the companies will succeed. That’s part of the investment thesis of our firm and my own personal preference.
Srmana Mitra: I also did one consumer company in my entrepreneurship life. That was my conclusion as well. In the large consumer place, it’s very much ‘winner takes it all’. Although in e-commerce, it’s not entirely winner takes it all. You can do niche e-commerce businesses and still make lots of money.
B2B has a higher probability of yielding some level of success, even if it’s not unicorn level of success. So are you chasing unicorns or are you also interested in the broader opportunities in B2B?
Mark Selcow: We’re not only chasing unicorns. Investment threshold doesn’t require something to have that kind of potential for us to get excited about it. Clearly, we like investing in companies that are in markets where we think the upside is uncapped, which means a unicorn is possible if everything goes well. They’re really rare.
If we invest at the right time and on the right set of terms and a company grows in the hundreds of millions, it can be an incredible life-changing and profoundly positive experience for the founders, the team, the employees, and of course the customers. It can be an incredible return for us.
So, we’re building a portfolio. Portfolio theory is such that if many of the companies don’t achieve unicorn status, we can still accomplish our objectives for our limited partners. However, it always helps if there are a couple of them that really break out.