Seed Capital From Angel Investors: Saad Khan, Partner, CMEA Capital (Part 10)

By guest authors Irina Patterson and Candice Arnold

Irina: How do your companies usually exit?

Saad: Generally speaking, the vast majority of activity for any venture-backed company has been around acquisitions.

IPOs . . . there just haven’t been a lot in the past few years. I think in the Web space in particular, the vast majority of activity tends to be acquisitions. That isn’t to say that there aren’t opportunities to build big IPOs, but look at even the big companies that are around now on the social media side. None of them are public. Facebook’s not public. Groupon’s not public, yet.

I think, all of these things, especially because they’re so capital efficient, lend themselves more to acquisitions. Going public is not necessarily what entrepreneurs want these days, either. That just speaks to a bunch of things: compliance, regulations, and other things that have made going public very difficult. The majority of activity that we’ll see in our portfolio and that I’ll certainly see in the companies that we’ve invested in is going to be exits that come through acquisitions.

Irina: What is your biggest investment success to date?

Saad: A lot of the companies that we’re investing in right now are doing very well. Certainly in this fund, a lot of things that I’ve talked about that I’m an investor in haven’t exited, yet. I absolutely believe that they will, but it’s too early to call it.

Irina: What do you think venture capitalists can do better?

Saad: They can do everything better. I look at my job as being a service provider for the entrepreneur, which is an attitude that, unfortunately, I don’t think is shared by a lot of people. But the best investors do their best to be entrepreneur problem solvers, on their behalf.

So, as I look at what I do, it’s based entirely on what I think are, at any given time, the needs of the people whom we’ve invested in. If that means we want to hire the best people and we need help finding the next best executive or the next best co-founder, then that’s my job.

If that means thinking through a new product release or a strategy moving forward, then it’s my job to be a strategy consultant. If that means introductions to new, potential customers that could be game changing, or partners who we think can change the trajectory of the company, it’s my job to be a business development guy.

We all have our own personal strengths and things that we gravitate toward. In general, we should be taking all of our directions from what entrepreneurs need. That’s how I view my world.

Any board meetings that I go to are an opportunity for an entrepreneur to get people like me and others working on her behalf to solve her problems and help her that front. Whatever that means, that’s what I’m doing. In general, we could use a lot more of that in the venture industry.

Irina: What do you think entrepreneurs can do better?

Saad: It’s hard to generalize what entrepreneurs can do better. I think entrepreneurs are doing a fantastic job, in general. People are doing fantastically well with, in some cases, raising no money.

So, I think people are doing a great job: new products are coming out; consumers have more and more options. Productivity is are going up because of all the cool stuff that entrepreneurs are working on. I don’t know that there’s anything that categorically entrepreneurs need to do.

Irina: Close to 99% of entrepreneurs are rejected for funding. What are they doing wrong?

Saad: I think, in that case, the venture model is just a very specific model that doesn’t work for a lot of people. For instance, no venture firm ever backed Walmart. Is Walmart a crappy company?

So, why is that? It’s just because the venture requirement based on the structure that I outlined to you is very specific. It’s something they can get to exceptional growth, exceptionally fast, with minimal amounts of capital and then exit in the course of three to five to ten years.

That’s not how most companies are built. Ninety-nine percent of companies are not built that way, and it’s not because they’re not great companies. It’s just because they don’t fit that particular model.

This segment is part 10 in the series : Seed Capital From Angel Investors: Saad Khan, Partner, CMEA Capital
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