1Mby1M Virtual Accelerator Investor Forum: With Andrew Romans of Rubicon Venture Capital (Part 3)

Sramana Mitra: Are you into B2B?

Andrew Romans: We’re probably about 70% enterprise and 30% consumer. On enterprise, we’re more likely to go in very early. With consumer, when something comes to us from our network, we look for very strong unit economics where the CAC to LTV ratio is very impressive. We need to see something that’s already working for us to get into a B2C type of opportunity that might just be powerfully leveraging the internet or smartphone.

Most of the stuff that we spend most of our time on is enterprise technology. If you ask a hundred Chinese investors what they invest in, they will give you the same list of buzzwords in pretty much the same order. I am embarrassed when I’m saying the same thing. We invest in companies that have hardcore real technology that can create some sort of moat and prevent competitors from copying them quite easily.

These days, that means software that does the work in an existing value chain. If you look at the loan industry and how you get mortgage in the United States, we completely screwed up how we do that just like we did in healthcare. These guys are fixing it. When you go to get a mortgage, it takes about 47 days to get one. Some of the things that these people do to give you that mortgage is print out an email, walk across the room, fax something, and ask you multiple times.

With Lenda, which we invested in, they automate all of this stuff. The software does the job that that human used to do. Now, we went from 47 days to 40 days. Now we’re getting it down to 16 days. Ultimately, you should be able to apply for your mortgage on your mobile phone, hit a button, and it’s almost instant. In any value chain, you can look at how it is done now and whether we can use technology to do that better with lower cost. These are areas that are able to process lots of data. A lot of the VCs are just calling us AI, ML, Big Data.

Sramana Mitra: Where are your corporate relationships? Where do you have unfair advantage based on your corporate investors or LP’s? Where can you take entrepreneurs where other VCs can take them? There’s so much money sloshing around right now. You’re looking for a company that has a lot of people chasing them to give them money. Why would they go with you versus others?

Andrew Romans: If you take funding from Verizon Wireless Ventures, keep in mind that they don’t really care about the return that they’re going to make. They don’t want to lose money but they’re not overly excited about making 100x return because they don’t compensate their team based on the profitability of the investment. They might say they do but they really don’t. What they care about is strategic value to their core business which is $100 billion.

If you take funding as a startup from Verizon Wireless Ventures and they become a customer or distribution partner, you probably just made an irreversible decision that you can’t fix, which is that T-Mobile, Sprint, and AT&T will not talk to you anymore. You’ve picked a side in a competitive environment where they’re basically at war with each other.

If Verizon were to invest in our fund and we introduce the startup to Verizon possibly before making the investment or after, and Verizon starts selling this service to all 10,000 of their stores, that’s incredibly strategic. That can help the company without shutting the door to doing business or even being acquired by AT&T or T-Mobile. We wouldn’t give a Board seat to anyone at Verizon.

We’re saying, “Should the company raise another $10 million or should it accept the offer on the table from Verizon’s Corporate Development team that wants to buy the company, the guy from Verizon Wireless, if he were on the Board, would say, “I think we should sell the company now.”

A VC like me would say, “I think we should raise another $10 million and make Verizon pay four times more to buy the company either right away or make them wait and we’re getting more expensive by the day.” Being able to broker business relationships with large corporations while not creating limitation and capping the upside for the entrepreneur and other investors is powerful in itself.

This segment is part 3 in the series : 1Mby1M Virtual Accelerator Investor Forum: With Andrew Romans of Rubicon Venture Capital
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