1Mby1M Virtual Accelerator Investor Forum: With Nihal Mehta of ENIAC Ventures (Part 2)

Sramana Mitra: Can you double-click down to the point about seed? What is your definition of seed? What needs to be in the venture for this to qualify as a seed investment?

Nihal Mehta: That’s a great question. Typically, the team has been built out and there’s a product prototype. There’s some usage on the product. If it’s B2B, there’s some revenue, but not a lot. If it’s a consumer product, then there’s some user data. That’s really important for us because we want to reference customers. It’s definitely pre-product-market fit. The product is not flying off the shelves by itself. The founders are still pivoting, tweaking, and iterating on the product to make it stick.

That’s our job – to get it to product-market fit and raise a Series A. At the stage that we invest in, the team has been built out. The product prototype is there and the founders need capital to just accelerate their iteration of the product. Typically these rounds are $2 million to $3 million now. These would have been called Series A five or six years ago. Now, it’s seed.

There’s actually a whole cohort of capital right before us called pre-seed. Entrepreneurs are raising pre-seed now from angels, friends, and families. Typically, that helps them build the team and build the prototype. Once they have that, they’ll go and reach the seed.

Sramana Mitra: In all the conversations that we’ve had, the terminology is even more segmented. The progression is friends and family, pre-seed, seed, post-seed, pre-Series A, Series A. Based on what you’re describing, you’re more in the pre-Series A ballpark than seed.

Nihal Mehta: The nomenclature is a little subjective and it changes every month. In general, we’re in the first institutional round – the round before the Series A.

Sramana Mitra: You mentioned B2B and that you’re looking for revenues. Are you also looking for revenues in B2C? How do you mark the stage in B2C?

Nihal Mehta: Typically, the consumer businesses we’re investing have no revenue at the seed stage. How we analyze them and how we invest are dictated by things like engagement. We want to make sure that consumers are coming back. There is a semblance of virality – users are inviting other users. That’s starting to happen.

There’s some uniqueness to the product that can’t be found elsewhere. There needs to be a business model to monetize the business. Typically, consumer businesses are monetized by subscription or advertising. We need to see a plan and a vision that they will monetize. A lot of it is gut instinct in terms of investing pretty early without data points.

Sramana Mitra: It’s difficult to convince investors that it’s going to monetize at some point because there are so many unknowns. We see entrepreneurs struggling with that. I think B2B is easier at some level.

Nihal Mehta: Looking at the past two years, the majority of our investments were enterprise. We think there’re more opportunities today. Another point to make is the big incumbents – Google, Facebook, Apple, and Amazon – are executing extremely well.

This segment is part 2 in the series : 1Mby1M Virtual Accelerator Investor Forum: With Nihal Mehta of ENIAC Ventures
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