1Mby1M Virtual Accelerator Investor Forum: With Darshan Vyas of LOUD Capital (Part 3)

Sramana Mitra: The issue that we are seeing is that a lot of companies are not ready for a $5 million to $10 million Series A. We need funds that can do $1 million to $3 million Series A. That’s only viable if the fund sizes are relatively small. The larger fund sizes cannot do $1 million to $3 million Series A.

Darshan Vyas: Correct. I can only speak for Columbus right now. We have a good grasp of the investors that are interested in Series A. What we’re lacking are the investors that play the part we do, which is the angel investment. There’s a lack of resources to help entrepreneurs get off the ground.

Sramana Mitra: That is also true in a lot of new ecosystems. How do you parse unicorn mania? As a seed investor, you could get buried under late-stage liquidation preferences if you have a hot company. Of course, you haven’t gotten to that phase. You haven’t experienced this, but have you thought about it?

Darshan Vyas: Absolutely. As our companies grow, we want to provide that Series A fund. We expect that they will be at that Series A round.

Sramana Mitra: You need to think about co-sale rights and stuff. What’s happening with the unicorn mania situation is a lot of late stage funds are coming in with very large amounts of money and putting lots of liquidation preferences such that the early stage investors get completely screwed.

To protect against that, you’re going to need to put in co-sale rights so that if the founder gets some level of liquidity through these rounds, you get that as well.

Darshan Vyas: That’s a great point. In the Columbus ecosystem, our first recent $1 billion exit was a company called CoverMyMeds. We have opportunity to have more of these billion dollar plus exits. However, early investment groups like ourselves are very purpose-driven. Right now, our focus is to provide resources to help these entrepreneurs from idea to Series A. I’ll be quite honest. I haven’t thought that far out.

Sramana Mitra: I have a slightly different question which maybe you haven’t thought about either. We’re in 2017. Lots of stuff have already been built. There aren’t so many wide open opportunities to build these billion-dollar companies, but there are many niche opportunities.

Some of them can be built for very small amounts of capital. Maybe a max of $2 million and then sold for $15 million. Do you have appetite for this kind of investment? A related question is what about even smaller investments – $500,000 and sell for $5 million?

Darshan Vyas: Our investors do want us to take more risks to get that higher return. We have done some special purpose funds. We know there’s opportunity for liquidity in two to three years. It might not get you that big return, but it still provides some upside. Within our network, we have about 60 physicians that are all limited partners of LOUD Capital and they let you do these one-off deals. In an indirect way, we do provide capital to these quick win opportunities.

Sramana Mitra: Interesting. Good overview of what’s happening in Ohio. Anything you want to add before we conclude?

Darshan Vyas: No, this is great. You gave me a lot of insights. We hope to grow LOUD Capital as this ecosystem grows. As we start getting more traction in our fund, we look to continue to create larger funds that play in that Series A space. I don’t think we’ll ever go beyond the Series A space. We like to stick in that early stage and Series A space.

Sramana Mitra: Sounds good. Thank you for your time.

This segment is part 3 in the series : 1Mby1M Virtual Accelerator Investor Forum: With Darshan Vyas of LOUD Capital
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