Sramana Mitra: What about sectors? Is there a B2B preference? What kind of companies do you like to invest in?
David Lambert: Our favorite business model is definitely B2B SaaS. We don’t have a particular focus where we have to invest in. What ends up happening in today’s world is that it takes a lot less capital to build a successful B2B SaaS business than it does to build a consumer business.
Our mix has changed over time. Back in 2010, it was probably cheaper to build a consumer product because if you can get an article written about you on TechCrunch or some news media, you get thousands of users overnight and you could test your product to see if people like it. Now you can’t do that. It’s much more expensive. Most VC companies don’t end up fitting what we’re looking for.
We try to keep an open view because what’s capital efficient today might be very different than what is three years from now. 75% of what we invest in today’s world does end up being B2B. Mostly SaaS.
Sramana Mitra: Did you read my recent series of bootstrapping to exit articles?
David Lambert: I have read some of them and I have looked at some of your previous interviews. I have a good idea of where you’re going philosophically. We’re very much aligned with that. At a high level, the entrepreneur world has been somewhat brainwashed into believing that the rounds of funding you raise are what determines success.
In our view, what determines success is the last check into your company, which is the one where you’re being acquired. Everything else is working backwards towards that.
Sramana Mitra: Let’s talk about a few of your companies. Walk us through a few examples of what you have invested in. In particular, give us some insights into what was the state of the company when they came to you.
Who were they? How did you find them? What is it that attracted you enough to want to write the check?
David Lambert: We’re very active investors. We’ve invested in 900 companies since 2012. I can highlight a couple. It’s not that we have a very specific profile that we’re looking for. We have some companies that will be well-known brand names that have gone down the venture capital route. Some of those might be Data Robot and Class Pass.
We’ve got a lot of companies that are completely off people’s radar because they’re going after niche vertical B2B SaaS markets. We have a company called PetDesk that is a B2B SaaS product for the veterinarian market. They’re doing wonderfully, but no one has heard of them.
We’ve got a very interesting company called Lab Fellas that has a B2B SaaS product that targets the life sciences and biotech lab market. It is a product that helps lab operations. Again, it’s not necessarily a product that most individuals will be that familiar with.
In general, what we look for in companies is a host of things. We look at the team. We look at how much capital you raised to get to where you’re at. You look at what your current cash burn is. We look at your unit economics. We suck up a lot of data points and then we make a very quick yes-or-no decision, usually, within a week or less.
Our philosophy, which is somewhat different from most firms, is that you can’t predict much about the future at this early stage. We do almost no subjective analysis where we say whether this is a good or bad idea, whether we think there will be demand, or how large will this market get.
At the stage that we invest in, there are too many variables. You can’t be that accurate in making any predictions going forward. That big subjective step doesn’t add much value. That would be in the scenario where companies don’t pivot their business models a lot. The reality is, half of the companies that we invest in that are wildly successful don’t look anything like what we invested in originally.
We focus a lot more on unit economics, cash burn, and team. Is your price point high enough to support sales force or not? What are your near-term cash needs? Most of what we invest in is going to fail, but we do hundreds of investments to smooth out the risk curve.