1Mby1M Virtual Accelerator Investor Forum: With Charlie O’Donnell of Brooklyn Bridge Ventures (Part 5)

Sramana Mitra: Entrepreneurs start up somewhere and they get intoxicated with this funding thing. If they are hitting their stride and everybody is chasing them and offering them money, it goes to their head. They want to keep raising money. If you get to a situation like that, it’s perfectly okay to sell out for a small fund.

Charlie O’Donnell: I also think there’s a little bit of a difference in terms of what goes on in geographies. One of the things I noticed is that in the Valley, the goal is to be at the top of the heap of the startup world. It’s focused on a single industry – tech.

If you sell your company for $500 million, you’re clearly not at the top. It seems like everybody is focused on that climb. New York is a multi-industry place. New York is a fun place to live if you’ve sold your company for $500 million. I think that so long as there is private equity and finance, there’s always someone doing something different or bigger.

Sramana Mitra: That’s a good segue into a question that I’ve been pondering. Maybe you have your perspective on this. The internet is now more than 20 years old. Lots of stuff have already been built. These days, there aren’t so many wide open opportunities out there but there are many niche opportunities. Forget $500 million exits.

I’m talking about opportunities where you build something for a small amount of capital – $1 million and sell for $10 million. You have something even smaller – $250,000 and sell for $5 million. These opportunities exist. There are some investors who are focusing in on some of these. What is your take on these kinds of opportunities? Would you invest in stuff like this?

Charlie O’Donnell: A $5 million to $10 million outcome is still fairly small but it’s too large to not be a serious consideration when a company is buying you. It’s just as easy to buy a company for $10 million as it is to buy a company for $200 million. Frankly, just as hard. You’re thinking about trying to get time and attention of acquirers. Frankly, it’s not easy. Many entrepreneurs think of it as easy. Those deals are not easy to do. They are not career-making for any of the corporate development people involved.

I’ll answer with a spin on what you’re talking about. There are a lot of companies that may be after a seed round plus a smaller A. Maybe $5 million to $6 million of total financing. That could probably become very profitable. Businesses that don’t need a lot of future dilution represent a really interesting opportunity.

If you do the math on a company that took $5 million of investment and got to $100 million outcome, that’s a good outcome if you’re a founder or a seed round investor. Pricing really matters. The difference between going in at a $3 million valuation versus $5 million valuation makes a huge difference. There are a lot of interesting opportunities along those lines.

Sramana Mitra: We are very bullish on the smaller capital-efficient deals that get a good shot at being exited with good economics and good outcomes for everybody. We encourage and support our entrepreneurs aggressively on those.

Unicorns are few and far between. If you have your eyes set on only doing unicorns, you’re not going to get very far. You’re going to crash and burn.

Charlie O’Donnell: I probably turn away just as many companies because they shouldn’t raise money for what they have.

Sramana Mitra: There is that category as well. We support those as well. They’re perfectly viable businesses. Our philosophy is entrepreneurship equals customers, revenues, and profits. Financing and exit are optional.

It was great talking with you. Thank you.

This segment is part 5 in the series : 1Mby1M Virtual Accelerator Investor Forum: With Charlie O’Donnell of Brooklyn Bridge Ventures
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