1Mby1M Virtual Accelerator Investor Forum: With Mackey Craven of OpenView Venture Partners (Part 4)

Sramana Mitra: There’s another dynamic, which is a lot of these seed stage investors who are working in the very early stages are exiting into those kinds of mega rounds that come in Series B and C. That is a very healthy trend because I think these two segments are different. It could take a long time to traverse the full spectrum from friends and family all the way to something that is actually scaling at a significant pace. You can’t have small funds taking positions all the way through.

I also have some mixed feelings about this over investment in the seed and post-seed stages. In many of these cases, these companies don’t have either the velocity or the TAM to be venture-funded companies, but the entrepreneurs are setting themselves up with expectations that they’re going to be venture-funded companies. 

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1Mby1M Virtual Accelerator Investor Forum: With John Frankel of ff Venture Capital (Part 4)

Sramana Mitra: I’m going to ask you a few trend 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? The number of seed investments that are happening have gone up but the Series A number has stayed steady. How do you parse this trend?

John Frankel: There’re a lot of data points out there. It’s easy to string them together into a story. The thing to understand is once a venture capitalist invests, probably two-thirds of their portfolio goes nowhere. One third gets written off. One third, they get their capital back. The last third is where the returns are. >>>

1Mby1M Virtual Accelerator Investor Forum: With Mackey Craven of OpenView Venture Partners (Part 3)

Sramana Mitra: You’ve been investing for a while. Let’s look at your 2017 deal flow. Give us some flavor of what trends you are seeing. How many deals do you see in a year? How many do you invest in? What are the highlights of the trends in that deal flow? Let’s just focus on 2017 just because we’ve just finished that time and it gives us a snapshot of what’s contemporary.

Mackey Craven: As a firm, we speak with roughly 5,000 companies and invest in five. We make concentrated investments that we think have the opportunity to be large and enduring. 2017 was no different. However, given the number of businesses and entrepreneurs that we speak with, one of the more interesting trends that we saw last year is directly related to the previous question around geography. >>>

1Mby1M Virtual Accelerator Investor Forum: With John Frankel of ff Venture Capital (Part 3)

Sramana Mitra: That is a very reasonable strategy for Indiegogo. You mentioned that Indiegogo’s equity crowdfunding platform has been successful. What are the trends? What kind of ventures are gaining traction in the equity funding world of Indiegogo?

John Frankel: A lot of the things they’ve been going for are what you might consider lower beta type of projects. These are ones that may not be shooting hundred times returns but can really do well. Maybe less of the kinds of things that the venture capitalists back. We’re in the early days. It’s too early to say that crowdfunding is a niche. It’s somewhere between the first and second inning with regards to the opportunities that crowdfunding brings. >>>

1Mby1M Virtual Accelerator Investor Forum: With Mackey Craven of OpenView Venture Partners (Part 2)

Sramana Mitra: It also gives you a flavor of how good a product it is. Is the product really meeting the needs of the customers? I think churn is a very good indicator of that.

Mackey Craven: Coming back again, it really doesn’t have to do with revenue scale. It has to do with validating that repeatable value proposition. Aside from conversations with customers, that quantitative metric often speaks strongly about that point.

Sramana Mitra: I’m going to switch the question to another quantitative myth that comes up all the time in early stage financing, which is TAM. Let me phrase the question slightly differently. At the beginning of 2018, lots of stuff have already been built. >>>

1Mby1M Virtual Accelerator Investor Forum: With John Frankel of ff Venture Capital (Part 2)

Sramana Mitra: Let’s look at 2017. This is our last roundtable. We are about to close the year off. You have, I imagine, seen thousands of deals this year. What are the trends in your deal flow?

John Frankel: We’ve been leaning heavily into AI, cyber security, robotics, FinTech. We’re seeing a ton of opportunities in those spaces. The reality is, AI isn’t a space. It’s a toolset. You’re going to see AI embedded in almost everything over time just the way mobile or SaaS is when you look at enterprise. With regard to other trends, there’s a lot of noise, excitement, and manic behavior around Blockchain and ICOs. We’re looking at it and studying it. It’s not necessarily an area that we think institutional capital should be playing today. >>>

1Mby1M Virtual Accelerator Investor Forum: With Cindy Padnos of Illuminate Ventures (Part 5)

Sramana Mitra: One of my observations is lots of stuff have already been built. Nowadays, there aren’t so many wide open opportunities, especially in B2B that you can consistently build billion-dollar companies. 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 then sold for $10 million to $15 million. Maybe even smaller – $250,000 to $500,000 and then sell for $5 million to $10 million. Do you have appetite for these kinds of investments? What is your analysis of this dynamic in the industry? >>>

1Mby1M Virtual Accelerator Investor Forum: With Cindy Padnos of Illuminate Ventures (Part 4)

Cindy Padnos: We structure our seed investment with, at most, three other co-investors, but typically have one co-investor. We think it’s really important to be investing with like-minded investors.

It’s also a bit dangerous to have a very large fund writing a small check into your seed round. It’s a significant signaling risk if that fund doesn’t come back to lead the Series A. The question is why not. It might not have anything to do with the company. It might be as simple as the fact that that partner had another company that they financed three months ago and they just can’t take on another new investment right now.

Sramana Mitra: What you’re talking about is this trend that has come together in the last decade – spray and pray. There are lots of funds that are putting a little bit of money in a lot of deals and just not taking any Board seats or any real skin in the game. That has become very popular right now.

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