Month: April 2014

The evolution of the Venture Capital industry has been fairly dramatic over the past several years. A trend that’s emerged prominently in the early stage market is the massive supply of seed stage companies relative to supply of Series A capital. Bullpen Capital is one of the early pioneers in providing stage specific financing related to this phenomenon. The below is a transcript of a chat I recently had with Duncan Davidson, Founder and Managing Director of Bullpen Capital. Duncan has over 25 years of investment experience and was previously a Managing Director at VantagePoint. By now, nearly everyone in the industry has heard of, and is likely fatigued of the term “Series A Crunch”. You and the rest of the Bullpen team identified this issue several years ago and developed an investment thesis around it.  Tell us more about the factors that led the team to identify the issue. We’ve now seen a decade long plus era of cheap – it now takes a lot less money to get a company started than ever before, which has created a massive increase in start-ups and seed stage focused funds. During this era, the ability to rent the cloud from Amazon and use open source software has dropped the cost of capitalizing a start-up from ~$5M in 1999 to $500K in 2010. Our belief was that with the mass amount of activity at the inception stage along with the concurrent consolidation of the old venture industry, there would be a fundamental and pronounced funding gap as the post seed level. The seed rounds of today are akin to the old Series A of yesteryear from a company development standpoint, but the A rounds are getting bigger, “Super Sized” and more like C rounds, waiting for the deal to be de-risked. Do you believe the relatively scarcity of A round funding will sustain? If you look back in history, every one of the tech booms were characterized by some fundamental change. In this case, the era of cheap has fundamentally changed the venture funding landscape. As long as that continues, the Series A Crunch will continue. This is not just a temporary problem of capacity in the industry. With this not being an ephermal issue then, how should entrepreneurs look at taking capital and planning out their seed rounds?   Well, raising seed capital is now a process and not a singular event. An entrepreneur needs to understand that they will never get out of the money-raising business. They will be raising money all of the time and in most cases, in a series of smaller raises. At Bullpen, we are late in the seed process once...

I recently sat down with Ullas Naik, Founder and General Partner of Streamlined Ventures, to discuss the current seed fundraising market. Streamlined Ventures is a seed stage firm that focuses on investing in business application and infrastructure software companies. Ullas has nearly two decades of investing experience and previously 12+ years as a senior Partner at Globespan Capital Partners. Tell us a bit about why you formed Streamlined Ventures? At Globespan, we primary focused on early/mid growth stage investing, but I always gravitated toward early stage investing. When I parted ways with the firm 2 years ago, I continued angel investing and realized that there were many interesting investment opportunities where I could invest my personal money and lead seed rounds. I started to think about raising a fund where I could lead these rounds and that dovetailed with a specific thesis that was formulating in my mind around business applications and infrastructure and how to get companies in these spaces to extreme scale with limited dollars. You’ve had a long history in investing as both an investor and as an angel.  What are the differences between investment philosophies between the two and should this affect the way entrepreneurs approach pitch meetings? It all depends on the stage of the business. A very early stage company with limited proof points is probably not ready for today’s institutional lifecycle VC. They may take a meeting because of prior relationships but it’s unlikely that they will invest. At this point, the most realistic option is to raise money from F&F/ angels, and potentially Micro-VCs. Although these days even the opportunities Micro-VCs are seeing have a lot of business progress and traction. There seems to be a fairly established fundraising pattern that companies follow where the first $300K-$500K is raised from F&F/ angels round, followed by 1.5M -$2MM from Micro-VC’s, and then a traditional institutional round. What are some of the other options for companies have proof points and are seeking to raise between $500K to $1M to get them to the next milestone? Micro-VCs and angels are probably the only option when you’re raising a pool of capital that’s between $500K and $1M. You might have some strategic investors corporate investors interested if the value proposition is synergistic, but I’d recommend companies tread carefully at this stage as raising from strategics early can create numerous unintended consequences down the line. What about crowdfunding platforms such as Angellist? I think crowdfunding solutions are good and fair options but it’s not 100% clear to me that those avenues can fill an entire $1M round efficiently and effectively. Plus, if you want an active investor, then the angel list syndicates...