1Mby1M Virtual Accelerator Investor Forum: With Jason Stoffer of Maveron (Part 3)

Sramana Mitra: Let’s switch topics a little bit to look at some other categories that you tend to invest in. You like to invest in education it seems – online education. I saw that you’ve invested in Course Hero. We’ve done a big story on Andrew. I love what Course Hero is doing. Huge numbers of college students are hanging out on Course Hero both sharing and using course notes.

What I like about the business is it has a very clear monetization model. It’s not some foo-foo business. I love the fact that Course Hero is essentially a subscription business. A large number of their users are subscribing. Andrew bootstrapped that business for a long time. I think it was already about $10 million before they raised money.

Jason Stoffer: I think he bootstrapped it for a while. He raised a seed round which we led. Then he just kept growing it. It’s one of these businesses where we would have loved to lead a Series A financing. It’s a case study for entrepreneurs. Marketplaces take time. They have a natural rate of growth. You can try to force it by spending a lot of capital against it or you can be less dilutive and take a longer term outlook.

Andrew owns a heck of a lot more than most entrepreneurs do at the stage he’s at. Value accretion year-over-year is high. He’s been very scrappy in building the business off of very little investor capital. It’s a perfect case study of an entrepreneur putting his head down and not spending a lot of time talking at Tech Crunch and conferences.

Sramana Mitra: That’s the way I like to build businesses. Philosophy-wise, we definitely advise our entrepreneurs to bootstrap first and get some valuation, and then raise money. It’s a much more sound approach to growing businesses.

Jason Stoffer: I don’t think there’s a right way or a wrong way. Our lenses are different. For us as a consumer venture firm, there’re typically four to five businesses a year that are venture-backed that end up being worth a billion. Last year, there were 12. Is it the new normal? I don’t know. What I do know is, we’re looking to invest over the investment period of our fund in those billion-dollar businesses.

Sometimes you’re able to invest in future billion-dollar businesses with a very capital-efficient entrepreneur. Sometimes either the idea or the entrepreneur don’t lend themselves to capital efficiency. It’s less of a focus for us. As an entrepreneur, it’s something to have a very deliberate thought process around.

Sramana Mitra: That’s exactly right. Our perspective is more the entrepreneur’s perspective. We have a portion of our portfolio that is venture scale, but we also have a very large portfolio of businesses that, right now, don’t look like are going to be venture-style companies. As a result, we have to practice methodology that people can be successful with or without venture capital.

Jason Stoffer: It’s interesting. A lot of the wealth in the US, or globally, is created by people who have a family business that’s doing $80 million in revenue and spitting off $12 million in cash a year. If you make prudent financial choices, you can create an incredible amount of wealth off a multiple decades’ time frame. That kind of a business is not one that venture capitalists get particularly excited about.

Sramana Mitra: If you look at the book, there is a case study called WatchUWant. This guy was an eBay seller. He built a $6 million business from his closet. He was putting inventory of these expensive luxury watches in his closet and selling $6 million worth of merchandise.

He has scaled that business without any outside capital. He scaled it to $20 million. This book is full of these kinds of stories. E-commerce is a category where you can do that. In online education also, we are seeing a lot of bootstrapped businesses. These are very well-crafted bootstrapped businesses.

This segment is part 3 in the series : 1Mby1M Virtual Accelerator Investor Forum: With Jason Stoffer of Maveron
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