1Mby1M Virtual Accelerator Investor Forum: With Gary Little of Canvas Ventures (Part 2)

Sramana Mitra: What is your focus? B2B or B2C?

Gary Little: Both. I focus more on the B2B. I have a partner Rebecca Lynn who is strong in FinTech and healthcare IT. I have a partner Paul Hsiao who’s strong in marketplaces. He led an investment which combined SaaS for designers with marketplaces to buy furnishing. He’s involved in helping us build our marketplace.

Rebecca was involved with LendingClub and a couple of other FinTech companies that have done really well. The best known company that I’m still involved with are MuleSoft and Evernote.

Sramana Mitra: A couple of questions out of what you said. A traditional Series A today is Series B in terms of what people are looking for metrics-wise. Entrepreneurs are being very capital-efficient. In Series A, they’re not looking for $5 million to $10 million often. Maybe a couple of partners put in $2.5 million each.

How do you parse the change in the dynamics of venture capital? What do you need to have to raise a Series A? What is the definition of a Series A?

Gary Little: Very good question. The definitions are changing. Series A used to be what’s now seed. There are many firms making money available on an angel or seed basis. There’s a lot of $50 million funds that maybe clubbed together. Those provide founders the opportunity to build something and bring into market to see if it has traction.

On the B2B side, we get involved when companies are approaching that one million in ARR. That’s still very early. Most of the sales have been done by the founders. They may or may not have sales people in the company. If they do, they’re probably one or two. They typically do not have a Head of Marketing or Head of Sales. The engineering is done by the founders. It’s really a technical team that has gone out on their own and sold to initial customers.

If engineers can figure out how to sell and get a million in ARR, there’s probably something there. At that stage, the company does deserve $5 million or so. We would put that in all ourselves along with early investors. Sometimes, we bring in small followers. Rather than spraying our investments around, we consider ourselves conviction investors. We make fewer investments. If we like them, we try to get a good stake in the company. We may be involved with that company for 10 years or more. We try to choose wisely and really commit to helping that company grow.

Sramana Mitra: Your take on the Series A is you would take the whole round and not try to split.

Gary Little: Yes. For the traditional venture firms at that Series A, you could only effectively manage seven to ten boards. If you’re only making one to two of these investments per year, and if it takes five to seven years to exit, you’re on six to eight boards. If you are choosing that wisely, you want to make sure you have sufficient stake in the company.

We like to make a conviction stake because we believe in what the company is doing and commit to helping that company be successful. You’re looking for a relationship that’s going to be long-term. If we’re successful in the next round or the round after that, the company would be at $10 million in ARR. That’s where the growth stage funds would kick in. We see our role as bridging companies from that angel seed stage to the bigger stage.

Once we have a stake, we’re on really common terms with the founders. They have ownership. We have ownership. We want to make the right decisions to hang on to that ownership while building a successful company. Our mission is not to put a lot of money to work, it’s to make something of the equity that we have and that the founders have.

This segment is part 2 in the series : 1Mby1M Virtual Accelerator Investor Forum: With Gary Little of Canvas Ventures
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