1Mby1M Virtual Accelerator Investor Forum: With Krishna Srinivasan of LiveOak Venture Partners (Part 3)

Sramana Mitra: How did this entrepreneur find you or how did you find him?

Krishna Srinivasan: It’s the old myth of this business, which is you need a strong recommendation to be able to get to a venture firm. He just cold emailed us with his back story. We brought him in. We introduced him to a few law firms ourselves. Two of them became customers during diligence. We knew we were onto something special. He had many of the great attributes of a great entrepreneur.

Sramana Mitra: What you said about cold emails versus introductions, I actually think that entrepreneurs should be able to cold email VCs, especially if you’ve got something going already. You should be able to contact whomever you think would be the best investor for your business. Those investors should look at it.

Your point is very well taken that those who are not accepting cold emails are probably losing out on a certain type of deal flow, especially these kinds of people who have domain knowledge somewhere outside of the technology industry. That’s part of the reason why we are doing One Million by One Million – to bridge that access gap. We introduce people to investors left, right, and center.

As an industry phenomenon, your point is very well taken that in not accepting some of these approaches, there is a danger that you’re losing a lot. At the same time, people get so many emails.

Krishna Srinivasan: Yes, and there’s no substitute for having some impressive execution. These are people who have managed to bootstrap their way to get to early evidence of traction. Traction speaks for itself.

Sramana Mitra: Our philosophy is bootstrap first and then raise money later. That’s in response to how the industry behaves. The industry likes product-market fit. That’s the bottom line.

You must be seeing thousands of deals a year. If you look at the last 18 months of your deal flow, what trends are you seeing? What’s standing out?

Krishna Srinivasan: It’s pretty consistent in the sense that we struggle with completely broad, horizontal ideas just because there are lots of people thinking about broad, horizontal ideas. We’ve seen a lot of amazing companies coming out of verticalization of industry expertise. The big question is if they can be big enough niches.

Maybe the first problem is a nice beachhead to get started with. Can this entrepreneur dream about a second act where they can parlay their early success? Can they do a larger play for the downstream? Entrepreneurs here start thinking about that. How do you get to a first beachhead? If it’s a B2B2C play, where do you go and crack into a B2B angle and use that network to build a B2C opportunity?

That way, you go from a dependable source of revenue from a B2B play and you build a network and go to an interesting market play. That’s a common theme we are seeing in somewhat more capital constrained markets like in Austin. Industry meets B2B2C is popular. We see a steady stream of exciting innovation in the infrastructure software space. We are seeing a variety of evolution in infrastructure software type of plays. Those would be the two broad areas.

Sramana Mitra: Would you credit infrastructure deal flow to the presence of IBM? It seems like probably there are a lot of entrepreneurs who grew up through those systems.

Krishna Srinivasan: True. There are a lot of exciting startups that have come out of that. We have an exciting company called NSS Labs, which can be described as consumer reports meet cybersecurity. A lot of talent in cybersecurity, computer networking, and of course Dell has a giant presence here. Those are the areas where we tend to have lots of talent.

Sramana Mitra: What are your thoughts about unicorns? Of course, most Silicon Valley VCs are chasing unicorns. How do you think about it?

Krishna Srinivasan: If we end up with a unicorn, it’s wonderful. As opposed to pursuing a badge called unicorn, we balance capital efficiency with getting to exciting outcomes. If the company had to raise $300 million to get to a billion in valuation, that has got implications for earlier-stage investors and the founders themselves. There might be a structured return built into it to make it attractive.

If you have a company that is capital efficient, people might do even much better in that instance instead of pursuing a unicorn. What we look for are sub-$100 million businesses. Can you grow in a capital efficient fashion to get to that revenue scale? Good things naturally happen to those companies. Those companies continue to grow. Those companies can be acquired. Founders can be phenomenally wealthy doing that. They don’t have to depend on VC to go build an amazing portfolio.

Sramana Mitra: Your fund size is at the right size to do all that. If your fund size is too big, then you don’t have the luxury of doing what you’re talking about. I actually think that your fund size is much better suited to venture investing than these billion-dollar funds that try to do venture investing. We got a great view into what’s happening in Texas. My first summer job was in Texas at Texas Instruments in Dallas. I know the area well.

Krishna Srinivasan: Things have changed a bit since then.

Sramana Mitra: I’m sure. It was nice to meet you. Thank you for your time.

This segment is part 3 in the series : 1Mby1M Virtual Accelerator Investor Forum: With Krishna Srinivasan of LiveOak Venture Partners
1 2 3