If you have been bootstrapping and think you are ready for investors, you need to learn how investors think. First, please study our free Bootstrapping course and Investor Introductions page. Then start looking for entrepreneur – investor fit. Today I introduce you to Matt Holleran.
Matt Holleran, General Partner at Cloud Apps Capital Partners, talks about his firm’s investment thesis in what he calls Series A. His is one of the rare firms that invest at the concept stage. You can listen to a podcast of our conversation here.
Sramana Mitra: Tell us about yourself,a bit of your background, and about Cloud Apps.
Matt Holleran: The most interesting market in the world and business problems to work on are business software problems. I’ve been in the business software industry for 25 plus years in leading customer support companies in the enterprise software world like Salesforce.com, Clarify, and Datasweep. I started my career at Morgan Stanley. Then I was at another firm called Emergence Capital Partners for six years prior to starting Cloud Apps Capital Partners in 2014.
I’ve been an investor now for over 12 years in this category. That’s a little bit about our history both as an operating executive and as an investor. That helped me to get to know a lot of entrepreneurs, but also executives, partners, and advisors who can help small companies on their way.
Sramana Mitra: What about Cloud Apps Capital Partners? When did you start? What’s the investment thesis of the firm?
Matt Holleran: I kept running across great entrepreneurs and executives who were masked on to a really important business problem and had great expertise. But maybe they didn’t have product and market yet. Maybe they had early customers. Maybe they had a small team of five. I kept having to say to them, “The venture market doesn’t do that stage of investing anymore.”
The president and CEO and founder of Okta is now worth $15 billion to $20 billion. I was his first call in my prior firm, but it was too early. That’s the stage for the right entrepreneur dealing with the right problem where you can give them the right amount of capital to build a great business application, but also assist them along the way. That’s what we really refer to as the classic series A. Cloud Apps Capital Partners was founded to be the best firm in the world in the cloud business application market at the classic series A stage.
Sramana Mitra: Elaborate on that for me for a second because you know the early stage market has changed. It is now quite segmented. Some people are doing pre-seeds, seeds, full seeds. Some are doing pre-series A, small series A, large traditional series A. Where does your series A fit in that continuum?
Matt Holleran: I’m not qualified to speak about the consumer market. But in the cloud business application market, for an entrepreneur who’s building a business around an important problem, a $2 million financing from a headless syndicate of pre-seed and angels is unlikely to give them enough capital, focus, or expertise for them to get past the goal posts of the larger firms.
We call it the dreaded $2 million headless syndicate. We’ve now done this several times in fund one and in our second fund. We’ve had multiple companies that were two domain experts in a very big problem. They had no lines of code yet and no customers. We might have led a $4 million classic series A1 financing and then a $4 million to $6 million A2 to help them to get past the goal posts of what the larger firms are looking for.
For example, Propel is now the leader in cloud product lifecycle management. It just raised $18 million financing in the fall of 2018. That’s a really good example where we first invested in a domain expert in the market globally before they had any code. We like to work with angel investors. We like to work with some of the leading seed firms in the classic series A syndicate.
But in general, these entrepreneurs generally need about $5 million in order to build a good product and get the right kinds of customers. That’s how we see it in the cloud. There’s this application world. But again, the seed and the pre-seed market works very well on the consumer side which is an area where we focus.