1Mby1M Virtual Accelerator Investor Forum: With Ho Nam of Altos 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 Ho Nam was recorded in April 2016. 

Ho Nam, Managing Director at Altos Ventures, makes a clear distinction between capital efficient company building and the “grow at costs in all sorts of unsustainable ways” philosophy. These are two distinctly different ways of building businesses.

Sramana Mitra: Why don’t we start by you introducing Altos Ventures and your core philosophy about investing? Obviously, it’s somewhat different from other VCs out there. I would like our audience to learn how you look at the venture landscape and how you and your colleagues at Altos have come up with a differentiated positioning for the firm. >>>

1Mby1M Virtual Accelerator Investor Forum: With Nitin Pachisia of Unshackled Ventures (Part 6)

Sramana Mitra: One last question, which is another trend. I would say it’s less visible. We are in 2017. Lots of stuff have already been built. Especially if you’re B2B investors, there aren’t that many wide open opportunities out there nowadays. Building another Salesforce.com is not that easy.

There are many niche opportunities. Some of these businesses need to be built for very small amounts of capital – $1 million to $2 million and sold for $10 million to $15 million. In some case, built for $250,000 to $500,000 and sold for $5 million to $10 million.

I’m encountering a class of investors who are actually looking at these. These are smaller TAMs. They are not 

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1Mby1M Virtual Accelerator Investor Forum: With Jason Lemkin of Storm Ventures (Part 4)

Sramana Mitra: Concur is one of the best examples of replacing paper. That has built a very valuable company. It went public on its own. It made the shift from being a license software company to a cloud company as a public company which is very difficult to do. It did very well as a public company and now recently got acquired by SAP for $8.5 billion.

Jason Lemkin: You might look at Concur and say, “How can I possibly compete?” What’s Concur doing now? $800 million run rate. There’s plenty of room at the bottom that you and I can get together and we can build a $100 million business and SAP wouldn’t even notice. >>>

1Mby1M Virtual Accelerator Investor Forum: With Nitin Pachisia of Unshackled Ventures (Part 5)

Sramana Mitra: VC firms are raising huge amounts of capital. The management fees are so big. They don’t really need to deliver any returns. They are just sitting and becoming fat with fat management fees.

Nitin Pachisia: To your earlier question about the trend in the VC industry, you have to decide as a VC whether you want to optimize for fees or optimize for carry. As a smaller fund, we’re optimizing for carry. If we do our jobs well, the carry is what’s going to generate the bigger returns for us.

As the funds that started off as miro-VCs and are now two $50 million funds, they’re optimized for fees. Whatever their thinking is, to generate carry, they have to return $250 million. If you don’t exit for $2.5 billion, my 10% is not going to be able to return the fund. >>>

1Mby1M Virtual Accelerator Investor Forum: With Jason Lemkin of Storm Ventures (Part 3)

Sramana Mitra: SaaS continues to be bigger because there is a lot more software adoption happening all over the world. Last week, we had a session that was focused on what’s happening on the Indian cloud market, which is a very active market right now.

There’s a company called Greytip that has built up quite a bit of scale. It’s a bootstrapped company. It has taken them many years. It’s a 15-year story. They do the equivalent of PayCycle. The per user fee for Greytip is $.30. It’s a completely different ball game in terms of pricing model and what is a profitable customer acquisition strategy. Everything is bigger. The number of customers all around the world is bigger. The number of competitors all around the world is bigger. >>>

1Mby1M Virtual Accelerator Investor Forum: With Nitin Pachisia of Unshackled Ventures (Part 4)

Sramana Mitra: If you have to make 500 micro-VC funds productive, there needs to be some of these segmentation and clear definition. Otherwise, nobody will find anybody. It’s going to be constantly hit or miss, or it’s going to be very inefficient. The information flow needs to get much more efficient.

To your point that there are exceptions, when people have really great teams – teams that have track record or teams that come out of specific scenarios with very compelling insights into problem areas – would be an exception. What is your read of unicorn mania? As a seed investor, you could get buried under later-stage liquidation preferences. How do you protect yourself? >>>

1Mby1M Virtual Accelerator Investor Forum: With Jason Lemkin of Storm Ventures (Part 2)

Sramana Mitra: Am I hearing that when you look back on EchoSign, you feel that you sold too early?

Jason Lemkin: I think it was a lucrative and fair financial transaction. What I didn’t realize until I got into Adobe is that the team would accelerate after that. I didn’t realize that the team was just getting good and that the team was coming into its own.

When you have a great team, once they cross that initial scale, no matter what the world throws up against you, you cannot be killed. Adobe is great, but it didn’t have anything to do with the brand. It all had to do with the team and a little more capital. I couldn’t see it before. No matter what anybody else does, it doesn’t matter once you’re at $10 million, growing at 100% or more. >>>

1Mby1M Virtual Accelerator Investor Forum: With Nitin Pachisia of Unshackled Ventures (Part 3)

Sramana Mitra: What about the vehicle? Are you doing equity investments or convertible notes?

Nitin Pachisia: It’s a mix. We like to do more equity and less convertibles but we work with the founders on whatever is the best solution for them is. Our preference is to do equity and we encourage founders, even for their subsequent rounds, to do price rounds versus layering up notes over notes.

Sramana Mitra: How do you process the current investment climate where capital is moving further and further upstream? How does a pre-seed or a seed investor mitigate the Series A gap? >>>