1Mby1M Virtual Accelerator Investor Forum: With Ron Heinz of Signal Peak Ventures (Part 2)

Sramana Mitra: A couple of points to add to what you said is, I started seeing a bit of an inflection point in Utah after Omniture. Omniture was a very visible success out of Utah. Omniture went public. Adobe acquired Omniture. That has been the milestone. The other thing, from a trend point of view is, companies from Utah have done great bootstrapping.

Both Pluralsight and InsideSales were bootstrapped to a very large degree. They did not actually take much early stage capital at all. By the time they took capital, that capital was a lot of capital and not your traditional

 Series A. These were very large amounts of capital from Silicon Valley. That underscored the culture of your ecosystem, which is not the ecosystem culture in Silicon Valley.

In Silicon Valley, people are obsessed with venture capital as early as possible. Yours is very much the philosophy of One Million by One Million. I think you have a more sustainable basic cultural framework in Utah, which has its underpinning in bootstrapping as opposed to this mad rush for capital as early as possible.

Ron Heinz: There have been a couple of different waves. During the Novella time, those businesses thrived deep into the 90’s. Then along came Omniture. We have two or three other companies that thrived in those early 2000 years. Then, you had the great recession that slowed things down and caused some changes in the ecosystem. Then the last three or four years coming out of the recession, there has been a lot of capital and growth.

To your comment on early stage investing versus patient capital versus bringing in capital later on for growth, I do think the state is known for bootstrapping. Valuations tend to be much more reasonable here. You do oftentimes see more attractive investments at the entry point. If you look at Pluralsight, in particular, they were probably 10 to 12 years old before they brought in capital. Many of the dollars that have come into those businesses have been secondary transactions where founders and early employees took some capital off the table.

In the last couple of years, we’re seeing a little bit more of a traditional bend towards seed. The seed market here is growing. Series A investments are becoming a little bit broader. Valuations are still relatively reasonable in our opinion which makes it a great place to continue to work and invest. Sometimes those change. Sometimes valuations can pop up and get a little bit frothy. We and others have to be careful and balanced with the entrepreneurs as we look at capital and valuations.

Sramana Mitra: What is your definition of an attractive Series A investment? Let me give you some color on what exactly I’m looking for. In Silicon Valley, a lot of Series A investors in SaaS are looking for a million dollar ARR in place before making Series A investments. Their expectation is that the entrepreneurs have gotten to that point either through bootstrapping or through other kinds of seed investments. They want to come in after the $1 million ARR mark is hit.

There are two kinds of funds we see. There are actually small funds that are willing to do $1 million to $3 million investments and keep this in a capital efficient mode. Then there are these big funds who don’t do $1 million to $3 million investments. They need to invest in large chunks because they are larger funds and they can only manage so many companies based on how many partners they have. They can’t do these smaller deals, so they immediately want to put in a lot of money.

Then the whole game changes. Basically the bar is much higher.

Define for me your definition of Series A.

Ron Heinz: That $1 million ARR is a great benchmark. I think we’re looking for just as much promise of accelerated growth. A million dollars is certainly a nice benchmark. It’s common throughout the US. We always look at three key things – management team, technology, the addressable market. We take a lot of our cues from the management team – whether they have had prior startup successes or are people who are coming out of large corporations.

The technology is very important. If you’re going to be smaller and you’re going to change the world with your product offering, it’s got to be best-of-breed technology. Those are the three things that we’re typically looking for. In summary, we’d love to see a million dollar run rate.

This segment is part 2 in the series : 1Mby1M Virtual Accelerator Investor Forum: With Ron Heinz of Signal Peak Ventures
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