1Mby1M Virtual Accelerator Investor Forum: With Sunil Bhargava of Tandem Capital (Part 5)

Sramana Mitra: I make a very clear distinction between real unicorns and pseudo-unicorns. The problem is there are a few unicorns in the market that are legitimate and it’s full of pseudo-unicorns.

Sunil Bhargava: I agree. It’s always interesting to hear those stories. They’re very educational into what is what for them. A friend of mine built a SaaS company, which made $5 million a year in revenue and then sold it. They have a very nice lifestyle. That’s not a bad thing to do.

Sramana Mitra: We have case study after case study of companies that have built incredibly good self-financed bootstrapped businesses at this point.

Sunil Bhargava: I think people should think about that clearly. With venture, it has to be big and fast.

Sramana Mitra: Venture capital is not patient at all. It’s not patient capital because the funds are timed funds. The reason I asked you the unicorn mania question is that the early stage investors are getting impacted by unicorn mania. Somebody comes in later in the game and loads up lots of liquidation preferences, the early stage investors and the entrepreneurs really get screwed.

Sunil Bhargava: That’s true. Luckily, we haven’t faced any of that yet. Maybe if Outdoorsy get to be in that unicorn thing, hopefully we’ll have a chance to exit.

Sramana Mitra: I think that’s the answer – exiting at the right time. My last question, one of my observations is we are in 2017. Lots of stuff have already been built. There aren’t so many wide open opportunities out there but there are many niche opportunities. Some of these businesses need to be built for small amounts of capital – $1 million to $ 2 million and then sold for $10 million to $15 million. What do you think of these kinds of opportunities?

Sunil Bhargava: I think they’re great opportunities for entrepreneurs. They just have to structure them differently. There should be a structured way to fund cash-flow generating companies. That’s something that I’m curious about. The $5 million company that I talked about, he didn’t raise any money but also, he was lucky enough to have the wherewithal to figure out  the marketing and other stuff. It doesn’t even have to be a high tech business.

Sramana Mitra: Your point is well-taken that there is a whole bootstrapped business building methodology. We spend a lot of time on that because a lot of the companies we work with actually should not go and raise money. The question I’m asking is a bit different where you take an opportunity which is not like a billion dollar TAM opportunity.

It’s more like a $100 million TAM opportunity. It’s better to go-to market with products like that through somebody else’s channel who has all the core products around which these niche opportunities could sit on. What needs to happen if you build the product, get customer validation, but instead raising huge amounts of money, you actually sell the company very early.

Sunil Bhargava: In Tandem one, that was our model. We built companies for small acquisitions. We invested in eight companies over two years. By the third year, all eight were acquired. I don’t know if you know The Fabric. These guys are a couple of entrepreneurs who come out of the networking space.

They understand that marketplace. They’re well-connected in that space. They find entrepreneurs who want to do something in that white space. They themselves put in about a million into the company upfront and then they help them raise money and figure out the direction to go to. They helped them get acquired.

Sramana Mitra: Ravi is doing that in Hive. They actually don’t raise venture capital.

Sunil Bhargava: Absolutely. Hive is the same. Hive and Fabric were in the same office building for a while. Hive is doing it in Big Data. Fabric is doing it in the networking space. There’s going to be a lot of these that will emerge.

Sramana Mitra: It was great talking to you. Thank you for your time.

This segment is part 5 in the series : 1Mby1M Virtual Accelerator Investor Forum: With Sunil Bhargava of Tandem Capital
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