1Mby1M Virtual Accelerator Investor Forum: With Dafina Toncheva of US Venture Partners (Part 5)

Sramana Mitra: You invest in both healthcare IT and cybersecurity and your partners invest more in the life sciences angle of it.

Dafina Toncheva: Correct. I actually invest in cybersecurity and enterprise applications, mostly business process automation for various verticals.

Sramana Mitra: I know everybody is talking about AI and Blockchain. If you look at the last 18 months of what you’ve seen, are there nuggets that you could share that are overriding trends?

Dafina Toncheva: It’s a difficult question to answer because it’s broad. It depends on the angle. First of all, there’s a lot of deal flow. The seed market has exploded. There are over 200 firms that write seed-stage checks, which have produced 5,000 companies a year. It makes it really competitive for seed-stage companies. The Series A capital is not as available as the seed-stage capital.

In a way by creating so many seed funds, the ecosystem has also made it very competitive for the seed company to continue to build and compete for Series A. Another trend worth noting is, seed companies that I see in my deal flow are getting more and more traction early on. That is a reflection of the larger amounts that we’re seeing. If a company raises $500,000 versus a $3 million seed, of course, they’ll have business development.

Because more and more companies are raising larger seed rounds, we see a lot more traction. A traditional Series A company today would demonstrate anywhere between a million to two million run rate. What I also like is how this industry is getting attention. Entrepreneurs are building software to address business problems. Logistics is getting a lot of attention. Real estate is getting a lot of attention. I invested in a company in the construction space.

Construction is one of the most conservative industries. The construction workers are not necessarily tech-savvy or early adopters. It’s nice to see that software is now broadly used and adopted. Even industries like railroad or construction can get attention and get disrupted by technology. I saw a company that was building backend office support for moving companies. Think about that.

Sramana Mitra: My observation about that trend is, some of these are great niche businesses. They’re not necessarily venture-scale businesses. They don’t have the TAM to be a venture-scale business, but they would be wonderful bootstrapped businesses.

Dafina Toncheva: Or find funding from someone else. It’s always important to think about who the right business and financing partner is. Many founders just grow them organically. Some just get money from angels. I always think the best way to fund a business is through customers.

Sramana Mitra: Totally our philosophy. We have a company in the portfolio right now. It’s a healthcare IT on the business process side that is probably going to do somewhere around $5 million with no outside financing.

Dafina Toncheva: That’s amazing. Can I talk to them? Usually, you get companies that have an element of consulting or at least started that way.

Sramana Mitra: Exactly. We have a methodology that we use in the program called Bootstrapping Using Services. You do consulting and start getting close to the customers. Use that as your seed capital and then gradually switch the business to a software business.

Dafina Toncheva: Yes. That’s another perfectly fine way to start a company. The challenge there is switching the culture from service-oriented to more of a prototype product company.

This segment is part 5 in the series : 1Mby1M Virtual Accelerator Investor Forum: With Dafina Toncheva of US Venture Partners
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