1Mby1M Virtual Accelerator Investor Forum: With Yanev Suissa of SineWave Ventures (Part 5)

Sramana Mitra: There are plenty of VCs focusing heavily on revenue numbers in the seed stage right now.

Yanev Suissa: I remember I qualified it as who I know and who I respect.

Sramana Mitra: I think I’d beg to differ there. There’re plenty of good VCs who are also focusing on revenue numbers at the seed stage partly because there is a lot of bootstrapping going on. People are doing so because they can and because they’re getting access to deals. They are making a lot of progress on their own getting into serious ARR numbers before coming into financing.

Yanev Suissa: That would be maybe definitional then where we’re disagreeing because if you have significant revenue when you go to raise, you’re probably going to raise a $7 million.

Sramana Mitra: I’m going to be very specific on the question I’m asking you. There are a seed stage VCs that are looking for a million dollar annual revenue run rate – $80,000 or thereabouts in monthly revenue run rate – before they’re willing to put in $1 million to $3 million. They are small funds because the large series A’s of $7 million require that you get to a certain stage and are ready for that kind of valuation.

There are funds that are willing to put in $2 million to $3 million. There’s a whole segmentation that has happened between small Series A players and large Series A players. So thats’ yet another level of segmentation that happens. Many of those funds require a million ARR before they fund. If you look at the post-seed or pre-Series A, there’re players who are looking for $40,000.

Then there are people who are looking for $40,000 ARR but maybe what this company hasn’t figured out is how to accelerate. They’re willing to either take the acceleration risk or not. There’s lot of players in that spectrum as well. What I find is with how you’re painting things with a broad brush is a lack of precision.

Yanev Suissa: I actually think that precision is crap. I’m not saying it doesn’t exist in the market and that people don’t try to say, “You need this amount of money to be interesting to us.” What I find is when any one does that, they make exceptions to the rule all the time.

When you’re looking at a deal, you’re looking at specific qualities. Between you having a technology I can use, see, and touch rather than just an idea is a distinction. Some folks will be willing to bet on an idea. Some want to see that the tech is, at least, developed enough so that there’s a little bit of tech risk.

In the consumer space, they might be looking for a certain number of users to show that it does have consumer interest and traction and you have metric. I might be looking for various metrics or various technical milestones to show that the thesis is working or the product is working. If I believe in your team, or your product, or idea and I’m arguing at the seed stage whether you have $50,000 or a million, that is not a reasonable type of analysis that has much substance to it.

Sramana Mitra: There is plenty of that kind of analysis going on in the market right now. Frankly, I don’t see a problem with that. First and foremost, there is a big difference between trying to just creating a piece of technology without much customer traction. There’s a big difference between a piece of technology that does have some amount of customer validation.

There’s a big difference between technology that has actual paying customers. There’s a big difference between a company that has paying customers of a certain scale in that people have actually figured out how to acquire customers and not just one or two customers.

Every stage of that is a level of de-risking that makes a company more attractive to investors. I don’t see any problem in that. I think these are very reasonable demarcations that people are making and people are choosing to play in different stages of that de-risking. I think that that is what’s happened because there’s so much money operating in the early stages right now. This is happening and this is a good thing I think.

Yanev Suissa: I agree completely with all these things.

This segment is part 5 in the series : 1Mby1M Virtual Accelerator Investor Forum: With Yanev Suissa of SineWave Ventures
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