1Mby1M Virtual Accelerator Investor Forum: With Nitin Rai of Elevate Capital (Part 4)

Sramana Mitra: You said you like early exits. Does that mean that if the company is raising more money after your angel round, you actually sell out on those rounds?

Nitin Rai: If we have an opportunity, we will. The biggest issue for any company is when they hit the $2 million to $3 million threshold, they need substantial capital to scale, no matter what the industry. Depending on who the the investor is, many times you see these growth equity firms or large strategic investors coming in.

They may want to own most of the company. They may want to take a larger portion of the company. We’re the small potatoes. We may not have follow-on capital to keep our prorata. If the markups are great, we may just sell out. It could be a 2x in a year to 18 months. It’s a great return.

Sramana Mitra: The reality is getting from zero to $1 million ARR is really hard but once you get there and you can show repeatability and velocity, there’s a ton of capital chasing those deals.

Nitin Rai: In Silicon Valley, yes; but not in Oregon.

Sramana Mitra: Silicon Valley investors these days invest easily in Oregon. Pacific Northwest is easy.

Nitin Rai: I know that, but it’s still harder when you’re an Oregon-based company to go out and raise substantial amounts of capital from outside. There are more and more companies that are coming in. When I talk to Silicon Valley investors, their responses are, “We like to invest in our backyard.”

Sramana Mitra: Some do. If we’re talking about very early stage stuff, they tend to invest in their backyard. When it comes to something more mature and proven, they have more flexibility.

Nitin Rai: I don’t want to discount the capital that is now available in Portland. Series A used to be very difficult. Now there’s enough fund and co-investment happening that a number of companies are able to get to Series A within Oregon so that don’t need to go outside.

Sramana Mitra: Who are your favorite Series A partners?

Nitin Rai: I’ve done four deals with Voyager Capital. We’ve done a number of deals with Oregon Angel Fund which has now evolved from early seed to Series A. Those two are the ones that we’ve done most Series A deals with. We’ve done a fair number of deals with Portland Seed Fund. There’s Rogue Ventures. There’s Seven Peaks.

I’ve done a couple of deals with Rogue Ventures. Seven Peaks is out of Bend, Oregon. We all end up in, at least, one or two deals together. There’s a lot of synergy between the local funds. There’s a fund called W2 in Eugene, Oregon. There’s a bunch of angel conferences. One is called Bend Venture Conference which is a fairly substantial angel conference.

Sramana Mitra: Is the philosophy that you described of avoiding unicorns and focusing on the niches shared by your peer group in Oregon?

Nitin Rai: I think I’m unique in that one. I’m actually religious about that strategy.

Sramana Mitra: Interesting to know that. How many seed stage companies are there in 2017?

Nitin Rai: We made most of our investments in 2017 out of the fund. When we announced the inclusive fund in 2016, within three weeks, we had a thousand people apply on our website. Most of them are from Oregon. I would say we have made almost 20 investments out of the fund just in 2017.

As a matter of fact, we have exhausted our first round investment in 18 months from both funds. That’s just Elevate. Oregon Angel Fund makes about four to six investments a year. Portland Seed Fund was raising their fund last year, so I don’t think they’ve made a lot of investments last year. In 2017, at least 30 to 40 companies got funding for seed funding which is a pretty substantial number.

Sramana Mitra: About a thousand companies looking and 30 to 40 got funded.

Nitin Rai: Yes.

Sramana Mitra: Good numbers. It has been a pleasure getting to know you a bit. Thank you for your time.

This segment is part 4 in the series : 1Mby1M Virtual Accelerator Investor Forum: With Nitin Rai of Elevate Capital
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