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1Mby1M Virtual Accelerator Investor Forum: With Robert Weber of Great North Labs (Part 4)

Posted on Saturday, Dec 19th 2020

Sramana Mitra: Here in 1M1M, we are huge believers in bootstrapping. We encourage people to bootstrap first and raise money later. It creates a healthier term sheet and trajectory, but it is hard to do in such expensive cost structure situations.

My other question, based on what you have said, is about the structure and the strategy that you are following for your fund. You described a couple of case studies where you exited into full-on rounds of funding. Talk about how you are thinking about early exits and not playing this game of building unicorns. 

Robert Weber: There are a couple of points to unpack. We have set aside 50% of our funds for reserves. We have $12 million in reserve out of the $24 million. Even beyond that, we have a very active investor base. We can create investment vehicles if we decide to continue to back our portfolio companies.

I do think that the unicorn mania is overhyped. Capital efficiency is under hyped. We bootstrap the company out of the dorm room to $70 million in revenue. It did take us 12 years. Mynul Khan’s sales are bigger, but he bootstrapped it for 7 years.

When we think about it, it has more to do with what we think is the possible growth rate of the investment. We are looking for things that can outgrow what you can find in the public market – companies that can grow 50% to 100% over a sustained period.

Most of these startups, as they mature and maybe get to the latter part of their growth stages, see their growth rate slow down. That is the indication for us. In one of the companies that we invested in, we didn’t take full liquidity. We still had some ownership, but we’ll take some chips off the table.

Another thing that has evolved over the last ten years is that there is a more vibrant secondary market. Later-stage investors are more willing to clean off the cap table and even beyond that, they are more interested in the secondary market.

This is also one reason why the IPO market has been pushed to later and still later. You see these mega IPO’s now. This is all healthy to have more liquidity options. That is even true with founders. Many founders can take some liquidity early or early employees from their stock options. I think that it is healthy to help them with their own risk and personal well-being. 

Sramana Mitra: These larger funds can start investing $5 million or $7 million check sizes which means that they are coming in later in the game. It takes a while to get that early bootstrapping phase going. The investment world is completely segmenting into the ones who play in that early stage versus the ones who play in the later stage.

The phenomenon that you are describing is something more of that. People play the early stage, then exit at series A or B. That’s a perfectly fine strategy for a small fund.

Thank you for your time.

This segment is part 4 in the series : 1Mby1M Virtual Accelerator Investor Forum: With Robert Weber of Great North Labs
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