1Mby1M Virtual Accelerator Investor Forum: With Laurel Touby of Supernode Ventures (Part 3)

Sramana Mitra: What do you think of this particular phenomenon? We’re in the beginning of 2018. Lots of stuff have already been built. Nowadays, there aren’t so many wide open opportunities with multi-billion TAM’s but there are many niche opportunities.

Some of these businesses need to be built for very small amounts of capital – $1 million to $2 million and sold for $10 million. Maybe even smaller investments – $500,000 and then sell for $5 million. Do you have appetite for these kinds of investments?

Laurel Touby: As long as the founder is not trying to create a lifestyle business that they want to hold on to forever and they’re willing to give their investors an exit, then absolutely. That’s one of the reasons that we have to be valuation-disciplined. If we invest at the $5 million valuation, there’s no reason why you shouldn’t sell quickly for $30 million. I make money that way. So does the founder actually.

When I started my company, I only raised $500,000 from investors and I sold for $23 million. Guess who made money? I did and my investors. These are some of the lessons that I bring to the table when I talk to founders. There’s another way. You do not have to continuously raise capital. You can also raise a little bit, hit a certain point of value, and then sell at 10x to 20x.

Sramana Mitra: How firm are you about your desire to invest only in founders who have done it before? Is that written in stone?

Laurel Touby: We’ve got some great investors in our fund. One of them is Chris Sacca from Lowercase. He’s also an advisor to the fund. One of the great pieces of advice he gave us is to be as flexible as possible and not make any hard and fast rules. We’re taking his advice. We are not stuck on any hard and fast rules. We’re going to be as flexible as possible. We don’t just want to invest in serial entrepreneurs. Once you’ve been down the road a couple of times, you learn so much.

Sramana Mitra: No question. Our community is full of first-time entrepreneurs. The learning curve for them is incredibly steep, which is what we are trying to help them with for years and years. There is a certain amount of stuff that you have to master if you want to navigate this game of startups reasonably, without losing your shirt and without blowing up. It’s not easy to do. At the same time, there have been very successful first-time entrepreneurs and we know so many of them.

Laurel Touby: We have about 40 points of reference that we look for in terms of investment criteria. A lot of it is just in my head but some of the signaling that makes me excited is when a founder really knows the space they are going after. If they’re an entrepreneur who has done it before, that’s a huge signal. If they have technical expertise or technical co-founders, that’s excellent.

If they’ve done customer research and actually reached out to customers, that’s great. It’s all about the customers. You have to be fearless about testing. There are a lot of people who are afraid that their idea will be killed. They’re so attached to their idea that they’re afraid to actually test it with customers. That’s something you have to get over with.

They have to have gone through stress before. I’m not very excited about founders who had an easy life and were handed everything. They’ve never really been through tough times. I like to over index on founders who’ve gone through some things horrible in their personal or professional lives. I want them to be stress-tested. I want them to be people who will never give up.

It’s not the same as being somebody who’s bull-headed. It’s somebody who is flexible and yet will never give up. There’s a fine line there.

Sramana Mitra: Resilience. Thank you for sharing your insights. Thank you for your time.

This segment is part 3 in the series : 1Mby1M Virtual Accelerator Investor Forum: With Laurel Touby of Supernode Ventures
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