1Mby1M Virtual Accelerator Investor Forum: With Nilanjana Bhowmik of Converge (Part 2)

Sramana Mitra: Talk about the stage that you want to invest in. How do you define Series A? Here in Silicon Valley, what we are seeing is a fragmentation and segmentation of the seed to Series A ecosystem. My second company was funded by NEA as well. At that time, NEA was okay with doing these very early stage deals. They no longer are, because they’re so big. Your point about capital moving further and further upstream is very true.

However, in Silicon Valley, there is a lot of new capital that has come in. A lot of micro-VCs have come into the ecosystem. There is a ton of companies that are doing seed, post seed, pre-Series A, and small Series A. Even the larger funds are going into these $7 million to $10 million Series A. There is a class of funds that is coming in to fill the gap and investing the $1 million to $5 million Series A gap that was created.

How do you define Series A from your point of view in the Boston ecosystem? What do you want to see in a B2B company? What level of validation do you want to see to be able to call that company worthy of a Series A?

Nilanjana Bhowmik: It’s a great question. I think the market is extremely confusing. At the same time, I would also say that I think there’s a rich array of choices for entrepreneurs. Someone starting a company needs to understand the nuances of these terms more than before so they don’t waste their time with the wrong firm.

Series A for me is a type of investing. Series A tends to be a particular type of portfolio construction where ownership matters, which is very different from seed investing where you are spreading your capital across a much larger number of investments and you’re compromising on ownership. What we do is classic Series A investing. We construct a smaller portfolio. We still have enough number of companies in those to have diversity for investors but we take significant ownership. That’s the key.

The stage of the company can vary. It can be two entrepreneurs with no company founded yet all the way to a company that has raised capital and has some revenues. That’s the difference. For example, I have companies where I have been the very first foundational investor where there was no product and office.

Sometimes, we call the security a series seed or Series A but it was comprised of one or two investors that took some meaningful ownership and therefore had skin in the game. It’s how you reserve capital and how you think about follow-on investing. That’s really the key difference in what might be called a Series A investor versus a seed investor.

Sramana Mitra: Well explained. If I’m hearing you right, you are comfortable with a team that has a concept and is pre-product? Your definition of Series A embraces that?

Nilanjana Bhowmik: It depends on where in the tech stack the company is. Typically, we invest up and down the tech stack. By tech stack, I mean very high IP infrastructure layer all the way to easier to get started with a couple of millions of seed application layer. If it’s in the application layer, it’s relatively easy to start something with a million or two of seed capital and get to some revenue. For those types of companies, we will go in after the seed round. Because there’s such a huge supply, we are more demanding. We will look for some revenue and early momentum. On the other hand, if it’s a company which is into hard IP that requires some significant engineering dollars before revenue can be seen, we are very comfortable going in pre-revenue and pre-product.

Sramana Mitra: Excellent. Very good to hear that because it’s such a rare category these days. It doesn’t really follow the lean startup principle. It’s a bit of a fat startup. I know a few investors who do those things, but they’re not that many. It’s good that you’re doing that as well. Within B2B, what trends do you see? If you look at your last 15 months of deal flow, what are you seeing and what are you liking?

Nilanjana Bhowmik: We see a lot of things. We focus on a few things. We are in the class of more proactive investors, so we’re quite disciplined in the type of things that we want to go after. I can mention a couple of areas that are of interest in our current fund. One area which is emerging that is extremely early is Blockchain. Within that, we are interested in the protocol versus currency-related technology. That’s an area that is of great interest. Surprisingly, customer adoption has begun. It’s the protocol that has the potential to displace the entire software stack. It’s of great interest to us.

Another area in which Boston is very strong is what we call Industry 4.0. A certain set of technologies are at a point of confluence which is bringing about the biggest change to manufacturing since the industrial revolution. That would be the confluence of robotics, IoT, and AI. We have invested in pockets of those areas. We are becoming quite systematic in our approach.

Sramana Mitra: MIT is full of those.

Nilanjana Bhowmik: A lot of robotics is coming out of MIT. That’s exciting for us.

This segment is part 2 in the series : 1Mby1M Virtual Accelerator Investor Forum: With Nilanjana Bhowmik of Converge
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