1Mby1M Virtual Accelerator Investor Forum: With Venktesh Shukla of TiE Angels (Part 2)

Sramana Mitra: I’ll provide a bit of commentary for the audience on some of the things that you mentioned as trends. We’ve also seen this unstructured data problem being solved. For a couple of decades, there have been major companies that have been formulated on this unstructured data problem. Autonomy was one of them that went very big.

Today, one of the trends that we’re seeing is this whole unstructured data problem being solved for specific verticals or specific functional areas and solutions built on top of that unstructured data problem in a cloud-

based architecture with AI. Those can be very interesting and very compelling new companies to pursue. On the Cyber Security side, there’re a lot of AI applications.

Cyber Security, however, is an extremely over-invested segment. It has always been so. If you look at the last 20 years of the venture capital industry, Cyber Security may be one of the most heavily-invested areas in the industry. If you are doing a company in Cyber Security and you’re looking for seed and angel investors, you would need to position your product very sharply so you can differentiate and clearly articulate where exactly you play in that heavily crowded market.

I’m going to ask you to comment on a few broader trends that I have identified. I’m getting inputs from a lot of investors on this trend. One of my observations is we’re in 2017.  Lots of stuff have already been built, but there are many niche opportunities around what has already been built.

Some of these businesses need to be built for very small amounts of capital – $1 million to $2 million and sold for $10 million to $15 million. Is there any appetite in your community for this type of investment? What about smaller investments like $250,000 to $500,000 and sell for $5 million to $10 million?

Venktesh Shukla: That’s an attractive proposition. When I started out as a angel investor, that was my guiding principle. I would look for those kinds of opportunities. What I gravitated towards was big ideas. The reason for that is simple. What I discovered was that startups are inherently risky.

Unless you’re going into an area where the barrier to entry is so high that you just don’t see more than a company or two in that area, it’s really hard to figure out where to bet on because startups are inherently risky. They fall apart for non-business reasons. Sometimes the founders don’t get along with each other. As an investor, you’ll soon realize that the risk is not any smaller investing in a niche market because there’re a whole lot of other risks that exist with any startup.

The only exception would be something like semiconductor intellectual property where there are only five or six experts in the world. There is this great professor who dedicated his life to understanding that area. They are starting to see a semiconductor IP company. You can be pretty sure that it’s not going to be a crowded space. You can be pretty sure that if they do that job well, the company will have an exit for $20 million to $40 million. Unless your timing is right and you’re targeting potential acquirers very well, you would just miss the opportunity.

Sramana Mitra: This is a very good point that I’m seeing. There are angels and accelerators who are following this strategy of going after these smaller opportunities where you need to find an expert in that specific domain. Then the cycle needs to be closed with the acquirer.

These kinds of opportunities are best tackled when you have a good, close relationship with the corporate who are going to become the eventual acquirers. You’re almost validating it with the acquirers, building it up to a certain point, and then selling into that acquirer who has almost given you a thumbs up upfront.

Venktesh Shukla: The game can be played, but it requires not only deep domain expertise but also deep domain relationships. If you know that if I’m doing this marketing automation, here are the potential acquirers. They need to know what specifically I am doing so that I could have a quick exit because if I don’t have a quick exit, you need to raise more money. If you raise more money, the valuations go up. Expectations and exits are high. The problem compounds itself very quickly.

This segment is part 2 in the series : 1Mby1M Virtual Accelerator Investor Forum: With Venktesh Shukla of TiE Angels
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