1Mby1M Virtual Accelerator Investor Forum: With Nitin Rai of Elevate Capital (Part 3)

Sramana Mitra: We’ve done stories on other companies from Oregon that have that dynamic of very capital-efficient execution. We did a story on ShareID, which you probably know. I think they’re Eugene-based.

Nitin Rai: I’m an early investor.

Sramana Mitra: We did that story very early on. They were already quite successful. They were already over $5 million in revenue but with very little capital. We love stories like this. The truth is this is how the entrepreneurship ecosystem of the world – not Silicon Valley –  works. We’ve done case study after case study of these capital-efficient success stories.

Nitin Rai: I have plenty of those in my fund.

Sramana Mitra: We make sure they get their recognition. This is part of the problem in our industry. The media focuses on funding announcements. Ten years ago, Sridhar Vembu came to see me at my house. He pitched me a company to write about called Zoho.

Nobody heard about Zoho. Nobody wrote about Zoho. I was the first to write about Zoho. Today, Zoho is approaching a billion dollars in revenue with no financing. He has taken zero outside financing. Tell us more about what your perspective is. I’m going to clearly zero-in on a trend question.

The way I’m observing you invest is it’s emblematic of where we are in the history of technology. We are in 2018. A ton of stuff has already been built. Today, if you want to build another Salesforce, it’s not that easy because there is Salesforce and all kinds of other things that are big. There are so many niches.

You just described this great story of a legal tech niche. There’s all kinds of niches where you can build capital-efficient companies that can have very good outcomes just like the one you just described. I take it that this is definitely a part of your investment thesis.

Nitin Rai: Yes, I’m a niche-y guy.

Sramana Mitra: Glad to hear that. Just in the last six months, I’ve probably talked to 80 investors who operate in this general ecosystem of pre-seed, seed, post-seed, pre-Series A, and small Series A funds. A large number of them are still looking for unicorns. There are about 600 or more micro-VCs that are operating in this space. If everybody looks for unicorns, it is just mathematically not viable.

Nitin Rai: Correct. I don’t chase unicorns. If a unicorn comes to me, I’d say, “Go to the Valley. I’m not for you.” We’re focused on who I want to invest in. My thesis is, I want to come in very early. I want to mentor these entrepreneurs and I’m looking for early exits. I’m not ashamed about that. I like to get in early and get out early.

As an angel investor that invested along with a group of other TiE angels, we return almost 3.5x of our original investment if we were a fund. Many of those investments are still around. Our IRR would be a phenomenal IRR. There are those vertical niches where there’s not a lot of competition. You’ve got to put together a great team that really executes and is capital efficient. You can build a $5 million to $10 million and sell it for 5 to 10x.

I don’t believe in the traditional venture model to tell you the truth. I call myself as a very small private equity player. We not only provide capital but also great mentorship. We have great entrepreneurs who are investors in our fund. What we provide the entrepreneur is the feedback that they really need to execute well. That’s 85% of the problem. If you can solve that at the very early stage, the chances of success are far higher and the returns can go from 2x to 7x. That’s our model.

This segment is part 3 in the series : 1Mby1M Virtual Accelerator Investor Forum: With Nitin Rai of Elevate Capital
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