1Mby1M Virtual Accelerator Investor Forum: With Rami Elkhatib of Acero Capital (Part 4)

Sramana Mitra: What trends do you see? If you look back on the 2017 calendar year, what have you seen in your deal flow that you can synthesize as key trends?

Rami Elkhatib: I’ll answer this in two parts. As we are focused on enterprise software, we look at trends that have been persistent for five years and beyond. Since we began investing this fund, the combination of mobile, cloud, and data has completely reconfigured the enterprise IT market. That’s something that has persisted for a long time and will continue to persist for a long time. There is this side of the trends where there’s a lot of continuity in the enterprise market.

One day, something else will come along and reshape the landscape. We’re always trying to be on the lookout for that. Then within that, there are also the more local trends. These are areas of interests that come and go. Some of them stick. Some of them don’t. In 2017, we started to see a lot less focus on AR/VR or at least the pure plays. AI has started garnering a lot more focus.

Sramana Mitra: AI is huge right now.

Rami Elkhatib: For us, AR and VR never really became an important investment area in our fund, because they just didn’t intersect with the areas of the enterprise that we’re looking at. AI, on the other hand, is a very different story.

Sramana Mitra: How do you process the current investment climate where capital is moving further and further upstream? How does a seed investor mitigate the Series A gap? There are 500 to 700 micro-VCs in the industry right now and literally 100,000 seed deals a year but the number of venture deals is still in the 1,200 to 1,500 range. How do you process that trend?

Rami Elkhatib: To be honest with you, that is one of the drivers of our investment strategy. It basically creates that need for a venture firm that has the ability or desire to make full Series A type investments. It goes back to what I mentioned earlier on companies that have deep IP even though the go-to-market hasn’t been fully demonstrated. From our perspective, we look at it as an opportunity where our model and value-add can be helpful to some of these companies that have not reached the typical Series A setup that we’d be willing to take a Series A bet on.

Sramana Mitra: So you are okay with not having everything figured out and you’re still willing to invest in companies based on the hypothesis or the assumption that with the right funding and the team infusion into the deal, you can scale?

Rami Elkhatib: Absolutely. It has to start with our conviction that the team has built the right technology. We won’t go in pre-product. We need the product or, at least, the core of the product to be something that can demonstrate to us that it really solves an important problem. Not only are we willing to do it, it’s actually our preference to be engaged in these kinds of investments because we get to add a lot of value early on.

Sramana Mitra: It’s a gap because a lot of the Series A investors right now are looking for real metrics. They want to see a million or $2 million in ARR, which is not easy to get to. If you’re willing to come in before that, you actually have a competitive edge.

Rami Elkhatib: In a way, I think of it as a gap that probably partially explains why we, as a firm, came about.

This segment is part 4 in the series : 1Mby1M Virtual Accelerator Investor Forum: With Rami Elkhatib of Acero Capital
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