Sramana Mitra: I’m going to get to talking about specific trends and specific companies in a moment. I just want to clarify one thing which is the stage issue. Give us a sense of what is your definition of seed.
What do you like to see by way of validation before you’re willing to write a check? What sized checks do you write as your first check?
Keith Bank: We’re extremely entrepreneurial so we try not to set out rules. For the most part, we don’t back two people in a garage with an idea. It’s typically where there is a fully-hardened product or service with some early customer traction.
Our typical check size is a million to $3 million, and we reserve a similar amount for follow-on. The team is usually three to 10 people. Maybe they’re missing one or two key areas, but for the most part, they have the bulk of the management team fleshed out.
We look for enormous market opportunities and a proprietary aspect to the business. First and foremost, it’s all about the who. We have a saying in our firm, “The who is more important than the what.” The “what” has to be interesting, but without the “who”, we’re not going to make the investment.
We spend a lot of time getting to know the entrepreneurs and look at all kinds of areas. Are they coachable, malleable, and flexible? Do they have the ability to attract and retain talent? Do they have a cast iron stomach? In the early stage, we think that’s very important to really focus on the team.
Sramana Mitra: Let’s do some case studies of what you have invested in. Tell us a bit about what you saw when they came to you that captured your fancy.
Keith Bank: We have a company called Club Champion that is doing high-end custom golf clubs. When I decided to attack it, people looked at me like I had three eyes in my forehead. I thought it was a very mom-and-pop niche type of business that hasn’t been handled in a professional manner.
Like many sports activities, a lot of entrepreneurs in the space are former athletes and former coaches. They may not necessarily have the business skills or acumen to be successful. I thought that this industry was ripe for someone to come up with a business model with good margins and good ROI.
We’ve since grown it to 75 locations from just one in Chicago. Our early investors made about 38 times their money when we sold the business. I was extremely hands-on. This is a brick-and-mortar business which is different from anything we invest in.
I was involved in all aspects of the business – getting the model right and getting the margins right, getting the right team in place, and making sure the business would scale. I thought that if we made five to six times our money, we would be doing good.