1Mby1M Virtual Accelerator Investor Forum: With Eric Benhamou of Benhamou Global Ventures (Part 4)

Sramana Mitra: You said you argue with a lot of your industry colleagues on this topic. You have to manage how much capital is required to ride that curve. You have to do it somewhat capital efficiently. You can’t raise $100 million and have a $100 million exit. That is not going to give you the return that you’re looking for.

You have to manage it within a reasonable amount of capital. Let’s say you do the Series A. Maybe the company does require a Series B. Where will that Series B entrepreneur go? Who will think the way you are thinking?

Eric Benhamou: That’s an excellent point. We have to look at the entire lifecycle of the company. If we make a mistake of starting a company which requires $100 million of capital, we’ve made the wrong choice. We focus on capital-efficient companies.

These are companies that may require $10 million to $25 million of capital to execute the business plan. If we contribute 10% to 20% of the total amount of capital, we’ll have sufficient influence in that company to make it worth our while. We’re not the right fund for all companies. Not every problem can be solved with $25 million of capital but enough for us to take the strategy that we did.

There are some companies, particularly in consumer-facing opportunities, which require massive amounts of capital to create mind share. For this, there is no substitute for that. You have to have lots of capital and you have to run very fast. At the other end, you have companies that have a substantial amount of IP lead.

Sramana Mitra: The last bit of that question that I was asking is who amongst your colleagues are thinking this way and are going after these opportunities? You will not be able to put in the full $25 million that the entrepreneur needs. There needs to be another group of investors who are thinking with the same kind of an investment thesis.

Eric Benhamou: There are plenty of them. In this business, you cannot operate by yourself. You have to have lots of fiends who trust you and who would like to work with you. Fortunately, we are in a good position. We have lots of people who are anxious to get hold of our companies and pick them up at Series B and beyond. If you happen to be an investor that runs $500 million to a billion dollar, there’s not that many opportunities available to deploy this capital.

We supply high quality stream of opportunities for Series B and beyond. We know who these people are and we work with them closely. We don’t wait until the company needs capital to tell them about what we do. As part of our mode of operation, we try to envision the entire lifecycle of the company before we invest. First of all, who else would come in with us at ground level. We also try to think about who might come at Series B two years downstream.

This way, we can plan the entire lifecycle of the company. There’s probably a dozen large funds today who have lots of capital to deploy. They typically cannot deploy this capital in the same time we do. We focus in early stage and much more effective in mid to late stage. That’s the way we divide and conquer.

Sramana Mitra: To synthesize what you said, it’s to look for the more capital-efficient opportunities that are less like playing in Las Vegas. These are more execution-dependent and are more persistence-dependent and not as dependent on the luck factor. Then, you ride that in a very disciplined execution-oriented way.

In the course of that, if the entrepreneur comes up with a second or third product line that can take you to a unicorn level, that’s fine. Then you will play the company accordingly. At least in identifying your companies, you’re creating an investment thesis that two or three rounds of investments can get you a $100 million exit.

Eric Benhamou: Yes, that’s our approach. In the SaaS business, once you have a product that flows out and once you accomplish successful deployment across one or three dozen enterprise customers, you have a formula. It’s up to you how fast you want to accelerate. You can make a smart tradeoff between how much capital you want to deploy and how fast you want to do.

We want to get these companies to that stage where they have a product which is proven, a market that is clear to understand, and a couple of dozen customers who validate the existence of this market. Once we have that, then a large fund can come in and decide whether they want to write a $5 million check or a $50 million check. The risk is relatively controlled because the parameters have already been understood.

Sramana Mitra: Great! Thank you for your time.

This segment is part 4 in the series : 1Mby1M Virtual Accelerator Investor Forum: With Eric Benhamou of Benhamou Global Ventures
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