1Mby1M Virtual Accelerator Investor Forum: With Greg Borchardt of Caerus Ventures (Part 5)

Sramana Mitra: I’m going to ask you a slightly different question. Given what you are doing, it sounds like there must be tons and tons of niche use cases out there of your model. We’re in 2018. There’s a ton of stuff that have already been built. Some of these use cases are not necessarily all billion-dollar TAM use cases.

Some of these are smaller niche opportunities. You can build great businesses with one or two million dollars and these probably can be good acquisitions for other larger companies for $10 million to $15 million. In some cases, slightly larger or smaller. You could be investing $5 million and selling for $25 million. You could be investing $250,000 to $500,000 and selling for $5 million to $10 million. Is that something that’s interesting to you?

Greg Borchardt: My non-answer is it depends. We look for deals where we can be happy without needing a multi-billion IPO. For example, if we can invest in a company at a sub-10 million valuation and that company may be sold for $70 million to $150 million, we’re very happy with that. We feel that the majority of deals that happen out there happen through M&A and not through IPOs, especially in the current landscape of investing where we see a lot of people playing at the seed and pre-seed stage.

Then, consider some much larger funds. For example, SoftBank is the biggest of the big funds. The traditional VC firms that have been extremely successful are raising larger and larger funds. There is a lack of investment in the middle. What does that mean for startups? Are they either going to get to a point where later stage investors come in and then the exit isn’t going to happen till probably longer than it’s historically been, simply because someone investing a billion dollars or $3 billion needs X times that in order to be happy with their exit in the later stage?

Whereas for the earlier stage investors, they may be perfectly happy with an exit of $50 million to $100 million. If you could get to lesser than that, it depends on the type of company. If it’s a niche market, we personally aren’t going to look for a company that’s sub-$5 million and then exit it at $20 million plus. We’re playing a little bit later than that. Because we’ve seen a lot of investors pile into the pre-seed and seed stage, we’re actually looking at a lot of deals lately that are more seed to A.

I hesitate to call them by specific stage names because I feel as though stages have changed. What were the typical seed or Series A deals is no longer a seed or A deal. It has shifted. Series A deals are much larger. Seed rounds are much larger. You’re seeing more pre-seed rounds happening. Beyond that, geography affects what is a seed or an A round. I can tell you an A round in the southeast is generally less than an A round in the Valley. Those are just labels. We look more at valuations and the size of the round in general.

Sramana Mitra: Any other parting comments that you have for our audience?

Greg Borchardt: We just really view connected hardware as the next mega trend in the sense that the smartphone powered the last generation of innovation. We see with rapid prototyping tools, small batch production, cheaper components, open APIs and SDKs, it’s become a lot more cost efficient and faster to scale some of these connected hardware companies. There has also been a real recent boom in hardware-focused incubators and accelerators that are creating truly investable startups.

We love startups with strong teams because in our mind, we need to buy into the product or the technology that’s being built. It’s great to see traction and have a large total addressable market, but it’s really up to the team to execute. We focus a lot on the team. We love getting to know the founders and trying to be value-add investors wherever we can.

Sramana Mitra: Great. Thank you for your time.

This segment is part 5 in the series : 1Mby1M Virtual Accelerator Investor Forum: With Greg Borchardt of Caerus Ventures
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