1Mby1M Virtual Accelerator Investor Forum: With Susan Mason of Aligned Partners (Part 3)

Sramana Mitra: If you do that capital efficiently and exit into a large company with the channel that has all those different verticals that they can access, you could conceivably broaden that portfolio and the acquiring company then gets a lot of leverage out of that platform.

Susan Mason: Indeed. What we’ve seen is that the companies that get acquired tend to be very successful acquisitions. You don’t see these big acquisitions that, invariably, fail within large corporations. Our companies get acquired typically between $80 million to $100 million in less than six years. The revenue run rate at that kind of sweet spot position is sub-$10 million. It is a textbook strategy and we run that on every one of our companies.

Sramana Mitra: Can you talk about a couple of more examples of the kinds of companies that you have invested in and then give us the investment thesis on why you were drawn to those companies?

Susan Mason: Another company that we invested in was a company called Omney. The team came directly out of the financial services space. This was the team’s second company together. This was the CEO’s 6th company. This was a team that hit the ground running. They saw an opportunity where, even though the US has what would be considered a pretty advanced banking infrastructure system, the challenge is moving money in real-time. This is a difficult challenge behind the scenes. This team identified and built a platform that addressed that problem.

You could think of it as the express train across the financial backbone that was able to deliver cash in real-time. They built the platform. They secured large corporate entities. Some of the largest banks were their biggest customers as well as some of the next generation money transfer types of services. They secured that on the outset and within 15 months, that company was acquired by one of the large credit card processors in the industry. That company required a total of $2 million to execute the strategy. The team owned 75% at the exit.

The founding team and employees did very well and with less risk. We could have made the decision of putting in more money and go for a $500 million exit but the risks around that go up tremendously for a startup team. When we sat down and looked at it, we decided to take the exit. Now they’re building the next company.

Sramana Mitra: Susan is providing some of the mathematics of what you hear me saying all the time – try not to raise too much capital. It would be inappropriate for me to not call out that one of the most successful companies in our portfolio has raised close to $100 million. That’s their choice.

When we started working with them, they just had a prototype. We actually did all of the validation work before financing. They went straight to Series A with $1 million with Excel Partners. They systematically and continuously built customer bases.

Today, they have over 50,000 global customers. All that is good. It’s not one of these smoke and mirror companies. It’s not a Snapchat play where there’s valuation but no revenue. This is not the reality of the company that I’m talking about. I think they will be fine. To be perfectly honest with you, I personally feel uncomfortable with that level of fundraising because I think it screws up the equation in many different ways.

Susan Mason: I think the key element for entrepreneurs is to be just aware. Make a conscious decision of what you’re going to do and truly understand the implications of those decisions. That’s really what we advocate. You can raise as much money as you want but understand that if you have a post money of $250 million, your investor are going to be looking for well above a billion dollars outcome. The number of acquirers are very few.

The reality of the IPO track is it is a very small percentage of venture-backed companies that go through IPO. Our philosophy is just understand the risk metrics along the path and make a conscious decision of how you’re going to operate.

This segment is part 3 in the series : 1Mby1M Virtual Accelerator Investor Forum: With Susan Mason of Aligned Partners
1 2 3 4