1Mby1M Virtual Accelerator Investor Forum: With Ken Elefant of Sorenson Ventures (Part 3)

Sramana Mitra: So one of the things that you said, which I found somewhat distinct is that you’re looking for smaller markets and not these markets that most VCs tend to go for. We’re in 2017 and lots of stuff have already been built.

Nowadays, there are not many wide-open opportunities out there, but there are many, many niche opportunities. Some of these businesses need to be built for a small amount of capital. Maybe $1 million to $2 million and sold for $10 million to $15 million. Maybe even smaller. I imagine you’re not interested in these types of investments.

What is your definition of small? The most common answer we hear from VCs is billion dollar TAM’s, but I think that you have a different approach. How do you peg TAM in this shifting environment?

Ken Elefant: I’ll give you a few examples from the past. I was an investor in Prolexic, which did security from the cloud. Distributed denial-of-service attacks were already happening. There were some kind of early potential solutions with that and some firewalls had reasonable solutions.

When I invested in Prolexic, it was clear to me that the security needed to be done from the cloud so there is an existing market problem. The approach of the startup was completely different. They created this new market associated with doing security from the cloud with distributed denial-of-service being the first wedge into the market.

There’s an existing market out there, but their twist into the market is nobody could do it from the cloud like Prolexic could.

Sramana Mitra: How do you parlay the TAM equation on that?

Ken Elefant: I think the way that you size the market is if you know that the Global 10,000 all have a distributed denial-of-service problem, you can understand from the bottoms-up how much each one of these enterprises would pay if there was an applicable solution that was out there. If you believe that the company is going to be developing the right solution for that market, then they should get a lot of market share for that potential problem.

Sramana Mitra: In that case, you’re looking basically at your solution as a replacement for the entire Global 10,000. So it’s effectively the same market size as any other security solution. It’s just a matter of time.

Ken Elefant: If you look at it from an enterprise 2,000 or 10,000 approach, they may have part of the problem solved within existing products. But if that part of the market is becoming more and more evident, then those existing solutions are going to become worse and worse, and a new approach needs to take effect. When new approaches take effect, then essentially you’re creating a whole new market.

Sramana Mitra: But that’s a regular venture style investment. It doesn’t really fall in this niche with a smaller TAM model. That’s a regular venture style investment, I think.

Ken Elefant: I think that I look at it a bit differently than other venture investors because what we want to do is we want to highlight the trends that are happening where whole new companies could be created where the incumbent cannot move to address that opportunity.

So we talked about the movement to cloud and how many of the global 10,000 enterprises are actually starting to put Docker into production and using Kubernetes for orchestration and actually implementing Microservices and server-less architecture. That movement is happening.

Is there a security company that’s really associated with that movement to cloud? There are some startups that are focused on container security but nothing that’s really focused on directly solving that problem. There’s a whole new market that’s emerging. But you could say, “That’s just apps for enterprises. That’s app security as well.” It isn’t. It’s a whole new market that’s being developed.

This segment is part 3 in the series : 1Mby1M Virtual Accelerator Investor Forum: With Ken Elefant of Sorenson Ventures
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