1Mby1M Virtual Accelerator Investor Forum: With Nilanjana Bhowmik of Converge (Part 3)

Sramana Mitra: Do you invest only in the Boston area only?

Nilanjana Bhowmik: We invest up and down the East Coast. The big tech hubs on the side are Boston, New York, and surprisingly Toronto.

Sramana Mitra: Great. What are the highlights of your current portfolio? We are probably talking about Longworth as opposed to Converge.

Nilanjana Bhowmik: I’d say a good range of companies spanning all the way from infrastructure to the application layer. We just transacted a company in the crowdsourced application testing that we backed in 2009. This was called Applause. They created this whole concept of on-demand testing of software that truly leveraged cloud so that you need not have your own infrastructure of testers and professionals. It’s a great example of a company where we were the first institutional investor.

We took that all the way to $100 million in revenue. The company is considering going public. That was a recent good exit for us. We have several other very exciting companies. We have a company called Rize, which is a great innovation in 3D printing where it brings the strength of metal to plastic parts. That’s another exciting company where you can bring 3D printing to the point of manufacturing. There are many others. We love our portfolio like our children.

Sramana Mitra: What percentage of your deals are MIT-origin deals?

Nilanjana Bhowmik: That would be almost half of it.

Sramana Mitra: As you can imagine, I have a huge soft corner for that. Silicon Valley went bonkers with unicorn mania funding all sorts of stuff with all sorts of bad terms. How do you view that sitting in Boston? How does unicorn mania feature in your world and your universe?

Nilanjana Bhowmik: We are blessed that we are removed from Silicon Valley and the fact that we do B2B. The unicorn mania is concentrated more in the Valley and more in consumer. We tend to see far less of that in the B2B world. In the B2B world, things tend to be a lot more metrics-based, and therefore valuations are more grounded in operating performance. We tend to really focus on company building and strong operating metrics. The growth investors respond accordingly.

If the company is operating well and it has strong metrics, then there’s a lot of capital upstream that wants to come into those high-quality companies. We always keep our expectations and we tell our management to keep their expectations real. Too much money at too crazy valuations can sometimes end up being a problem for businesses. Expectations that are distorted can lead to a good situation appearing to be not so good because there’s just too much demand on management to produce results that a company simply can’t. That’s the problem sometimes.

Sramana Mitra: Last question, we are in March 2018. Lots of stuff have already been built. There aren’t as many wide open billion-dollar opportunities out there but there are many niche opportunities. Some of these businesses need to be built for smaller amounts of capital and sold for smaller exits. The vast majority of the exits in our industry happens at the sub-$50 million range.

If you do stuff in a capital-efficient manner, you can access these reasonable exits. There are just a lot more such opportunities than the big billion-dollar swinging for the fences kind of opportunities. How do you view this?

Nilanjana Bhowmik: I absolutely agree with that. I have this conversation with many entrepreneurs. Not every business needs or should raise venture capital. I think entrepreneurs really need to understand that. Sometimes, they don’t have to make that decision on day one. They can start with some seed capital and see what type of business it is, what growth paths it can possibly have, and frankly what’s the best decision for the entrepreneur.

Sometimes, taking money robs you of a good exit opportunity because the venture investors have different expectations in terms of outcomes. I agree 100% with you. The good news is that the possibility for that set of exits between $10 million to $50 million has increased in the last 5 to 10 years. I think entrepreneurs need to be smart about capitalizing their businesses and keeping their options open.

Sramana Mitra: Wonderful. Thank you for your time.

This segment is part 3 in the series : 1Mby1M Virtual Accelerator Investor Forum: With Nilanjana Bhowmik of Converge
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