1Mby1M Virtual Accelerator Investor Forum: With Greg Sands of Costanoa Ventures (Part 5)

Sramana Mitra: I think this whole unicorn mania has been created by the sheer stupidity of the entrepreneurship media. They’re so driven by funding announcements. Every time somebody has a funding announcement, they run up lots of articles about the funding announcement. Entrepreneurs mistakenly believe that funding announcements are good. It’s not necessarily good. If you raise too much money, you price yourself out of the market.

Greg Sands: That’s right. It seems crazy to not maximize price but I think what ends up happening is you can take a higher top-line price with a bunch of structure and more preference stack or lower price that doesn’t have multiple preferences or other >>>

1Mby1M Virtual Accelerator Investor Forum: With Greg Sands of Costanoa Ventures (Part 4)

Sramana Mitra: A few trends questions. How do you process the current investment climate where capital is moving further and further upstream? How does a seed investor mitigate the Series A gap? Statistically, there has been a lot of micro-VCs in the market. There’re a lot of pre-seed, seed, and pre-Series A investments but the Series A numbers remains constant. How do you parse this trend?

Greg Sands: That is the trend that we play into. A little more than half of our new investments are Series A investments. The vast majority of our capital goes into Series A. I love the fact that everybody else is retreating from it. The big firms have some success. Their egos grow and their fund sizes grow. They go on to piling unicorns. That’s completely good news for us. We find that we don’t end up competing against them very often. >>>

1Mby1M Virtual Accelerator Investor Forum: With Greg Sands of Costanoa Ventures (Part 3)

Sramana Mitra: What you’re saying is that you are open to doing even pre-seed investments?

Greg Sands: Yes. They tend to be in more experienced founders or people that we’ve known for a longer period of time. At ACME and Alation, we’ve invested, effectively a company formation.

Sramana Mitra: I think that is the trend. If you are a first-time founder, your journey of getting pre-seed investment is very tough. If you’re a repeat founder and have experience, then everything takes on a different color. The vast majority of our community that is looking for financing is first-time founders.

I tend to tell them to get more validation done. People don’t really know you. People are not betting on your 

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1Mby1M Virtual Accelerator Investor Forum: With Greg Sands of Costanoa Ventures (Part 2)

Sramana Mitra: Let me ask you a question in what you’re seeing. I’m completely with you and I’ve written extensively on this topic. The opportunity in AI is in applied AI. The unfair advantage is in the hands of people who have really deep domain knowledge in a particular domain where you apply the stack and solve a business problem. You mentioned agriculture, for instance.

If you look at that particular company, where is that domain knowledge coming from? What is the genesis and anecdotal founding of that company? How did this expertise come together – the combination of reasonably good understanding of the AI stack and the domain knowledge?

Greg Sands: One of the things that we all experience are people who have the technical knowledge and start out saying, “How do >>>

1Mby1M Virtual Accelerator Investor Forum: With Greg Sands of Costanoa Ventures (Part 1)

Responding to a popular request, we are now sharing transcripts of our investor podcast interviews in this new series. The following interview with Greg Sands, Costanoa Ventures was recorded in December 2017. 

Greg Sands, Founder and Managing Director at Costanoa Ventures shares his investment focus.

Sramana Mitra: Tell us about your investing focus. How big is the fund? What size investments are you making?

Greg Sands: Costanoa Ventures invests in the entire stack of business-facing software. These are companies that change the way the world does business. We’re investing out of a $175 million third fund. There are two modes. We do seed investments, which most typically are half a million to a million and a half. Then Series A investments that range from $2 million to $6 million. >>>

1Mby1M Virtual Accelerator Investor Forum: With Guy Resheff of Grove Ventures (Part 4)

Sramana Mitra: How do you see unicorn mania in Israel? As a seed investor, you could get buried under later-stage liquidation preferences. How do you protect yourself?

Guy Resheff: One thing that I would say that’s markedly different is that, in absolute terms, the number of unicorns generated in Israel is significantly smaller. That has driven some type of thinking within the Israel venture community that strives to achieve more limited goals. There’s a lot of talk about Israeli companies being sold at prices that are too low. Multiples have not been lower, but the exit price is lower.

Sramana Mitra: You’re not really playing the unicorn mania game to that extent which is a good thing. >>>

1Mby1M Virtual Accelerator Investor Forum: With Guy Resheff of Grove Ventures (Part 3)

Sramana Mitra: If you look at the last six months of your deal flow, could you synthesize some of the most interesting trends that you have observed?

Guy Resheff: A common one is artificial intelligence. It’s everywhere.

Sramana Mitra: SaaS for large markets is kind of over. Everything in SaaS right now is niche.

Guy Resheff: If what you mean is that the basic infrastructure has been laid, that’s true in many ways. The caveat that I would say about that is, it really depends on the types of problem that you’re trying to solve. In our case, we are in Hardware-as-a-Service >>>

1Mby1M Virtual Accelerator Investor Forum: With Guy Resheff of Grove Ventures (Part 2)

Sramana Mitra: A follow-on question that comes to my mind is that if you are looking for most of the core R&D to be done before you come in, what is the assumption about how the prospective company funds that R&D phase? Is it coming out of university research? Is it coming out of government agency research? Where is your deal flow coming from?

Guy Resheff: It’s a wide variety of sources. Just to make it clear, we don’t expect a vast majority of R&D to be completed. We usually enter at a point where there is a tremendous amount of additional development to be done. It’s really just the fundamental basic research that we should be able to validate. We have an extensive network of entrepreneurs that we communicate with. >>>