1Mby1M Virtual Accelerator Investor Forum: With Yanai Oron of Vertex Ventures (Part 5)

Sramana Mitra: That’s exactly where my question comes from. We are in 2018. There is a lot of stuff that has already been built in all different areas of technology. Right now, there are not as many billion-dollar opportunities, but there are many opportunities that are in that $200 million TAM range.

In a way, there are ways to make money off these opportunities. You build it up to a point and you then flip it a little bit earlier. You can do 3x on these deals. My question comes from exactly that observation. Some of the funds that we are talking to are making that call. Part of the issue also is that there are 700 seed funds in the industry. If everybody is chasing unicorns, there’s not enough of those.

Yanai Oron: Once again, this is very hard for me to say. I still need to return around $450 million to my investors. If I look at a company and I think I can get $20 million best case, it’s hard for me to accommodate.

Sramana Mitra: Of course, your fund size determines those. For a company to be interested in a $20 million exit, they need to be a very small VC firm. There are a lot of $15 million to $30 million funds who are structurally equipped to be able to do those kinds of deals. Vertex is not.

At the same time, you can do stuff that NEA cannot do because they’re a billion plus fund. These structural points need to be taken into account. What are your other points that we haven’t covered in the discussion today that you would like to communicate to our community of entrepreneurs who may be interested in working with you?

Yanai Oron: One of the issues that we’re seeing entrepreneurs grapple with is in the funding strategy. I cannot stress enough that funding strategy is critical. You can get the right product and people, but if you miss your mark on the funding to get you to the next round, that’s a shame. Even though there is so much money looking for companies right now, each fund is looking for certain things.

There are always solutions. You can always go to other funds. A big part of what we want do with first-time entrepreneurs is, we try to plan out the funding strategy. Sometimes you want to raise $2.5 million as a seed, but you can only get to $1.5 million, nut that’s okay. In that case, go for one or two major investors. They can work with you and they have the responsibility to carry you through that crunch. They can do a follow-on. They can bring in additional investors.

As an A round, we see companies that did two to three seeds. They gave out so many percentages. They already have some big convertibles on their balance sheet which makes the A round very tough. You focus on product-market fit because that’s what it’s about, but if you did everything right on that and still miss the funding, your outcome can change so much.

Sramana Mitra: Thank you. That was a very interesting conversation.

This segment is part 5 in the series : 1Mby1M Virtual Accelerator Investor Forum: With Yanai Oron of Vertex Ventures
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