1Mby1M Virtual Accelerator Investor Forum: With Jake Seid of Stone Bridge Ventures (Part 4)

Sramana Mitra: I’m surprised that you haven’t talked about selling when these very high level of investments start coming into a company. Sometimes it’s not just companies that are not just doing well. Sometimes if a company is a hot company, the trend has been to raise huge amounts of money.

There are risks raising that kind of money because valuations can get way ahead of themselves. Then in the follow-on round, you start running into down rounds and liquidation preferences. That’s where the seed investors get screwed. One of the ways a lot of seed investors protect themselves is when that kind of dynamic sets in, they sell and do not remain.

Jake Seid: I view it as a case by case situation. When I make an investment, it’s not just, “Here’s some money. I’ll see you in five years.” It’s a very close working relationship. In some sense, it becomes a hand-in-hand relationship through ups and downs.

Sramana Mitra: That’s only in the early stages. When a company has gone through several rounds of financing, that relationship with the seed investor starts to slacken. That’s the honest truth about the dynamics of these businesses.

Jake Seid: I would say different investors have different styles. We built Ten-X to quite a large scale. I had 800 people reporting to me. The Wall Street Journal reported our sale at $1.6 billion. We built a scale company. It’s my experience that as a company scales, I feel like I’ve been able to continue to contribute and work hand in hand with the entrepreneur.

Sramana Mitra: That was a bootstrapped company. That was not a company that had a lot of seed investment. I covered that story extensively.

Jake Seid: My point is that given I have scaled that business and went through that experience, my personal investment style has been to continue to work with entrepreneurs as they scale. I can’t speak for other seed investors. Over time, maybe they do less. I could just speak for myself where as the businesses scale, I continue to work with the entrepreneur. My goal is to work with them through their exit.

Sramana Mitra: You’re still very young in the game. We’ll see how that plays out. It’s not entirely only up to you, right? People get very busy. Time becomes more valuable than anything else. Doing a lot of investor relations on a continuous basis is not so easy.

Jake Seid: That’s the key difference. It’s not like, “Let me give you an update and do an investor relations discussion.” For me, it’s where can I help. I don’t focus on taking their time to get an investor update. I don’t have to update my partnership as part of figuring out how I could contribute to the company’s continued success. You’re exactly right. If they’re feeling like it’s an investor relations activity, they’re going to stop. Fortunately, I’ve been able to have a relationship where it continues to feel like a value-add discussion as opposed to investor relations discussion.

Sramana Mitra: We are in 2017. Lots of stuff have already been built. If there are 500 plus seed funds and there are huge numbers of angels in the market right now, everybody wants a multi-billion dollar opportunity, that’s not a viable scenario mathematically.

However, there are many niche opportunities. The TAMs may be smaller. The TAMs may be $100 million. Some of these businesses need to be built for small amounts of capital – $1 million and sold for $10 million or $250,000 sold for $5 million. How do you parse these opportunities?

Jake Seid: My view is the other end of the spectrum. I think there are more multi-billion dollar opportunities going forward. I think we are in such the early stages of the enterprise being re-platformed for AI and hybrid multi-cloud. We’re in the early stages of financial services moving from offline to online.

We’re in the early stages of really knowing what the real impact of Blockchain is going to be. These are massive industries all up for grabs. You look at overall IT spend versus the combined cloud revenue of IBM, Google, and Microsoft, it’s tiny. You look at the number of enterprises that have moved from traditional silo-based architectures to more of a virtualized containerized internal cloud. These are not billion dollar markets. They’re like $100 billion markets.

I’m quite bullish on the fact that you don’t have to look for the niche opportunities. As an entrepreneur, you should not look for niche opportunities because you’ll spend as much time working on the niche opportunity where there is much risk of failure and not all the upside. I think we’re in this very special time where these large opportunities are in the early innings. That makes it a great time for both entrepreneurs and investors.

Sramana Mitra: We disagree on that point. Thank you for your perspective. Very interesting discussion, especially what you were talking about in terms of the cryptocurrencies filling in the Series A gap. It’s a very interesting point to consider. It’s a very interesting early trend that I am also seeing. Thank you for your time.

This segment is part 4 in the series : 1Mby1M Virtual Accelerator Investor Forum: With Jake Seid of Stone Bridge Ventures
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