1Mby1M Virtual Accelerator Investor Forum: With Tim Guleri of Sierra Ventures (Part 5)

Sramana Mitra: Last question, are you chasing unicorns?

Tim Guleri: No. That is something that I’m not a huge fan of. Ultimately, unicorn is an easy term for way late stage investors to say, “I’m going to invest in this company for this valuation.” I feel that that does a disservice to so much of the value creation that happens underneath that top of the pyramid. If you look at the classic and best returns that venture capital has posted, it doesn’t come from these unicorns that are few and far between. A lot of the outcomes happen in billion dollar and south outcomes. These are companies that have fundamentally strong businesses that are growing 80% to 100%. They’re triangulating to be EBITDA positive. Those are the kind of companies we like to build. I don’t actually care. If somebody asks me, I’d say, “We’re in the business of building companies.” Whether it’s a unicorn or not is not something I worry about, because it’s just executing in that Series A, B, and C. We believe in, ‘Come early and stay late’.

Sramana Mitra: The concern I have is, the traditional classic venture capital does run into some problems when these late-stage investors come in with huge amounts of money. It disrupts the cap table.

Tim Guleri: They do it if you let them. We have a lot of inbound interest. I tell entrepreneurs, “Why would you take on load on your cap table ahead of you?” It makes no sense. I always tell entrepreneurs, “Build your business. Try to skip the next round.” I’m not a big fan of overfunding investments. I know there was a lot of chatter about the case for a fat startup and effectively, overfunding your way to success. You might get away, but by and large, all companies zigzag their way to final success. On the way down, that extra cap load is horrendous for entrepreneurs.

Sramana Mitra: We absolutely hate this kind of deal structure. These late-stage investors dangle a lot of capital. Sometimes, they dangle liquidity in front of the founders. The founders may have been at it for seven years and they want that liquidity. That is one of the ways they are getting into these deals, which is not healthy for anybody.

Tim Guleri: I’ll give you a 30-second example. There is this company of mine, which had a Series A. They’re in the third bucket. They went from $1.5 million, $4 million, to $16 million. I’m giving you exit ARR numbers. They’re tracking to do $30 million this year. They only burned $3 million. He refused term sheets and took something much different. If entrepreneurs have that discipline and confidence, I love those kind of companies. We will all do well.

Sramana Mitra: The public market has really been very much in favor of companies like the ones that have followed that strategy. Atlassian has done very well.

Tim Guleri: MuleSoft is a great example.

Sramana Mitra: Great entrepreneur.

Tim Guleri: This is the zig and the zag I was talking about. The reason the company got bought was that the timing was right. Salesforce was looking for scale in this space. Markets only care about growth and ultimate EBITDA. If you keep on that track and keep your business growing, good things happen.

Sramana Mitra: Excellent. That was a superb discussion. Thank you for your time.

This segment is part 5 in the series : 1Mby1M Virtual Accelerator Investor Forum: With Tim Guleri of Sierra Ventures
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