1Mby1M Virtual Accelerator Investor Forum: With Ben Mathias of Vertex Ventures (Part 5)

Sramana Mitra: We are in 2018. A lot of stuff has already been built. Relative to the amount of capital that is available in the market, there are 700 plus micro-VCs in the market right now. There is a huge number of entrepreneurs who are starting companies. We can’t expect that every single venture out of this cauldron of creative energy is going to become a billion-dollar company. It’s just not mathematically viable.

Those are rare market opportunities but there are lots of opportunities for building smaller companies. If you’re looking at $200 million TAM, there are lots of niche opportunities. There are some funds that I’ve talked to who are taking note of that >>>

1Mby1M Virtual Accelerator Investor Forum: With Ben Mathias of Vertex Ventures (Part 4)

Sramana Mitra: When you look at the Indian geography, what is the distribution of deal flow that you’re seeing? Is there a bias towards Bangalore? I know Chennai and Pune have done well.

Ben Mathias: It’s pretty scattered. Bangalore, for sure, is the leader in terms of the number of companies. We do see a lot of companies coming from Chennai, Pune, and also from the NCR. Recently, we started to see a lot of startups in Hyderabad as well.

Sramana Mitra: What about the Series A gap? You just said that there are a lot of companies that are able to get to a million dollars ARR. How much of that pool is getting the Series A funding? What percentage is selling into the Series A gap? >>>

1Mby1M Virtual Accelerator Investor Forum: With Ben Mathias of Vertex Ventures (Part 3)

Sramana Mitra: In terms of deep technology companies, could you share one or two examples from your portfolio or from your radar that are interesting global potential.

Ben Mathias: I’ll talk a little bit about one of the companies I mentioned a few minutes ago, ActiveAI. This is a technology company that is building solutions for conversational banking. They are deployed in several large banks in India, one in Southeast Asia, and also one in North America. The use case here is for people to do their banking through a chat or voice interface. This could be transactional banking. This could be as simple as Q&As. >>>

1Mby1M Virtual Accelerator Investor Forum: With Ben Mathias of Vertex Ventures (Part 2)

Sramana Mitra: Do you invest in B2B ventures that would be Indian B2B-facing?

Ben Mathias: We do. Most of our companies started with their initial customer base in India. At the end of the day, the Indian B2B market is limited. You could probably get to a $20 million ARR company if you focused on India, but if you want to get to the $100 million ARR, you need to be focused outside of India as well.

We fund two categories of companies. There are companies that have built solutions for emerging markets. They would typically expand out of India into Southeast Asia and the Middle East. There are companies that have built technology that are applicable in global markets. The quickest path to success there is to be able to start >>>

1Mby1M Virtual Accelerator Investor Forum: With Mackey Craven of OpenView Venture Partners (Part 5)

Sramana Mitra: How do you parse unicorn mania?

Mackey Craven: By unicorn mania, do you mean the number of companies that have billion-dollar plus valuations that are still private?

Sramana Mitra: A lot of things. There’s unicorn mania in that there’s so much capital. There is a rush to fund these later stage companies and overfund these later stage companies. Last year, we did an extensive coverage of a phenomenon. It’s a unicorn mania negative phenomenon called Death by Overfunding. These were very good companies. >>>

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 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 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. >>>