1Mby1M Virtual Accelerator Investor Forum: With Greg Sands of Costanoa Ventures (Part 4)

Sramana Mitra: A few trends questions. How do you process the current investment climate where capital is moving further and further upstream? How does a seed investor mitigate the Series A gap? Statistically, there has been a lot of micro-VCs in the market. There’re a lot of pre-seed, seed, and pre-Series A investments but the Series A numbers remains constant. How do you parse this trend?

Greg Sands: That is the trend that we play into. A little more than half of our new investments are Series A investments. The vast majority of our capital goes into Series A. I love the fact that everybody else is retreating from it. The big firms have some success. Their egos grow and their fund sizes grow. They go on to piling unicorns. That’s completely good news for us. We find that we don’t end up competing against them very often.

Sramana Mitra: What’s your preferred check size?

Greg Sands: For Series A, $2 million to $6 million. We’re usually the lead but there’s usually some other capital around us.

Sramana Mitra: But you’re okay with doing $2 million to $3 million Series A? You don’t have to do a $5 million to $10 million Series A.

Greg Sands: Exactly.

Sramana Mitra: That’s the other issue with the larger funds. They want to do Series A that were once upon a time called Series B.

Greg Sands: As you know, the actual designation of the round doesn’t really matter very much. I don’t care very much what it’s called. Round sizes have grown. I started in the venture business 19 years ago. There was no such thing as seed. The first round was a Series A. Five years ago, there was no such thing as pre-seed.

Sramana Mitra: That’s right.

Greg Sands: Those things evolve. The way we think of it is, in some ways, we’re an old school venture firm with a bunch of old school practices and some modern innovations on top of it. We’re high conviction investors. We’re going to go talk to a bunch of customers. We’ll introduce you to customers to be able to be part of a sales cycle and see how that works. We’re going to do a bunch of diligence. We’re going to talk to the people that you’ve worked with before. We work as hard after as we do before. We’re likely to want to own 20% of the company. We’re likely to want to go on the Board. We’re likely to want to write a check that’s meaningful.

In return, one gets the benefit of an institutional partner – someone who’s got reserves for you. Someone who’s not just showing up at Board meetings but thinking about you and working on your business between Board meetings. In addition, we’ve built this sales and marketing team in particular to help our typically product-oriented founders figure out how to build that initial sales and marketing process and then subsequently the machinery behind it. We architected that position for ourselves in the market. Frankly, you’re right. There is a gap and there aren’t very many people who do what we do.

Sramana Mitra: How do you parse unicorn mania? As a seed investor, you could get buried under late-stage liquidation preferences. How do you protect yourself?

Greg Sands: The unicorn mania you described is certainly a huge part of it. Not all of it is in the business consumer segment. It does matter to have teams that are long-term dedicated to companies. It does matter to have the right partners on the board at every stage. It does matter to have a capital structure where everybody’s got the opportunity to work together. A recent example of that is the sale of Intact to what is now Sage Intact.

That was $850 million. It was sub-unicorn level but a highly successful outcome. That was one where we went out with terrific partners. Everybody made money. The management team made money. Customers were really well-served. I like saying that Intact was only in TechCrunch when it made a funding announcement. It was never covered. Not once.

Sramana Mitra: I covered them.

Greg Sands: Right, but TechCrunch in particular. It is the exact great Silicon Valley company creating value for everybody that we should be focused on. I don’t particularly care about that. It was more important that we won industry awards. We won product awards. We won best CEO awards. We won best place to work award.

That’s the substance of how great companies are built. The press necessarily focuses on unicorns and the brash ego-driven venture capital investors. They focus on a handful of CEOs who get themselves in trouble. The real answer is I just ignore it all. They’re not relevant to my business.

This segment is part 4 in the series : 1Mby1M Virtual Accelerator Investor Forum: With Greg Sands of Costanoa Ventures
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