1Mby1M Virtual Accelerator Investor Forum: With Corey Schmid of Seven Peaks Ventures (Part 3)

Sramana Mitra: If you can close deals of that size, yes. What is your value proposition in those scenarios? Let’s say your specialty is digital health. You have a company that comes to you with product market fit. Where are your relationships?

Corey Schmid: We do have strong strategic and corporate relationships based on our own backgrounds. Over time as we work with these companies, we’ve been able to open up a lot of the doors for customers and advisors. Where I think we can add the most value is in that syndication process. You know this well. Your investors are part of that family. You’re getting married and it’s imperative that you’re building a really good team for the long haul.

Opal is a great example. We helped them syndicate their Series A and B with some other phenomenal partners. We’ve done this with several of the companies in our portfolio where we’ve been able to hold their hands early on and be that strategic professional fund that’s beyond angel that can help them hone their strategy and then help them open those doors to investors and build a strong Board that’s going to allow them to get to the next phase.

Sramana Mitra: My next question is about unicorn versus niche. In the Bay Area, the unicorn chasing is still dominant. I was just taking with Nitin Rahyu from the Oregon ecosystem. He categorically specified that he’s not interested in unicorns. He’s interested in niches. I’m curious what is your investment thesis. Is it unicorn? Non-unicorn?

Corey Schmid: Unicorn mania isn’t necessarily a big problem for us. We are looking for companies that are building a truly sustainable business, a phenomenal team, and a phenomenal product. I wouldn’t say we’re niche. We’re not looking for a tiny market that is going to flip a quick one to two times return.

We absolutely are looking for big disruption and you’ve got to find a market that has a big enough sustainable customer base and truly has an unmet need to build a big enough business. Where you can find niche is going very deep in a solution. Cricket is a great example of that in dialysis. They’re not going to solve every healthcare problem.

We tend to see a variety of 10x returns in regional markets. We don’t have to just return that. We can return three to five back and have a very healthy return to our LPs and success rate.

Sramana Mitra: The truth is you can do three to five times in non-billion dollar markets as well. People tend to ignore $200 million TAM markets, but if you do a good business in a $200 million market and get a good exit, you can do 4x easily. Nothing is easy in venture.

Corey Schmid: You can map out valuations on very similar companies. One is being built in Portland versus Bay Area. The valuation, even in the concept stage, is phenomenally higher in the Bay Area. It’s not to say there’re no amazing companies being built there. We lean in very hard strategically to help craft the success of that company so they are set up to be in a bit of control as they raise their next funds because they’ve built a solid company.

Sramana Mitra: Even if companies are headquartered in the Bay Area, there have a very substantial backend somewhere else. Our portfolio is full of companies with India backend. We’re financing a company right now that has 15 people and the bulk of that is in India. It’s a very common model. Some of them are also elsewhere in the US. It’s understood that having the entire team in the Bay Area is not an easy thing to sustain costs structure-wise.

Corey Schmid: Actually we have a neighbor who left the Bay Area and relocated their company to Bend. They’re doing phenomenally well. They’re growing rapidly. They’ve got more investment. It depends on the dynamics of the company.

Sramana Mitra: We’re also seeing a lot of virtual companies these days.

Corey Schmid: There’s absolutely a move to that. As investors, we have to be very open-minded to explore how the given dynamic and the culture of a team can work in that.

This segment is part 3 in the series : 1Mby1M Virtual Accelerator Investor Forum: With Corey Schmid of Seven Peaks Ventures
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