1Mby1M Virtual Accelerator Investor Forum: With Jonathan Lewy of Investo (Part 3)

Sramana Mitra: Let me try to parse what you are saying. In some cases, you go after Latin American companies where you can add value by introducing them into your Silicon Valley network. That is one of your value propositions to Latin American companies in the pre-seed stage. That’s one sector. You just provided an example of that.

You also invest in pure Silicon Valley companies where you provide Latin American networks in case they want to get into Latin America. That is another differentiated value proposition where you’re offering pre-seed financing and a Latin American network. These are two differentiated strategies in your investment that I have picked up so far. It seems like you also have a third kind of focus which is to find random good companies where you want to be pre-seed investors.

Jonathan Lewy: That’s correct. What we have learned about seed funding is, it’s a very social activity. If you start to analyze who invested in which company, you can pick up patterns. For that reason, we’ve been in touch with amazing founders working on amazing projects. We don’t want to be limited. We have a responsibility with the money of our LPs.

Sramana Mitra: What about Silicon Valley versus the rest of the US? Are you investing only locally in Silicon Valley?   

Jonathan Lewy: Most of them are in Silicon Valley but we do have a couple of investments in New York and Boston. Like I said, we invest in companies outside of US and Latin America. We have a great company in Africa but we found out that it’s harder for us to bring value because of the distance. Whereas for companies that are closer to us, we can help them more. We try to focus on that.

Sramana Mitra: Talk to me about how you view the Series A gap. In reality, the pre-Series A has really become a very fragmented and segmented story now. There is a whole continuum but there is a lot more pre-seed and seed investments than Series A. What is your strategy to protect yourselves as well as entrepreneurs from the Series A gap?

Jonathan Lewy: There are a few reasons for that. The first reason is that notes have made it possible for companies to raise more and more money without having to lose equity. The main reason is, the funds are getting bigger and bigger. For them, it’s better to raise a bigger Series A because they can put more money into the company. We need to adapt to that. We are the ones that are suffering from that.

As early stage investors and angels, we are the ones that are losing here. For the founder, it’s easier. They can raise a lot money in phases and they don’t need to justify the new valuations. They can just increase the cap. It’s pretty easy because they don’t need to close the round. They can just accept more money. For the Series A, it’s great. They can wait more and make a bigger check. It’s tough for us. But I think there is an opportunity for small funds like us to bring value.

Sramana Mitra: Your fund is not large enough to put follow-on money into a large number of funds. You can only do that with a very small number of funds, right?

Jonathan Lewy: It’s true. When the check size gets big, we use other investment vehicles.

Sramana Mitra: What does that mean? Elaborate on that.

Jonathan Lewy: It’s simply to create a new vehicle to put more money in the company. You can put bigger check sizes. There is also a very good reason why it’s important for a small firm because you don’t want to affect your IRR by putting a big check in a company that is already in the late stage.

Sramana Mitra: You have a pool of investors who are also limited partners in your small fund. You have relationships with them and you bring them into special investment vehicles if you see an opportunity to put in more money.

Jonathan Lewy: Exactly. Usually it’s around the Series B that checks start becoming too big.

This segment is part 3 in the series : 1Mby1M Virtual Accelerator Investor Forum: With Jonathan Lewy of Investo
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