1Mby1M Virtual Accelerator Investor Forum: With Matt Holleran of Cloud Apps Capital Partners (Part 2)

Sramana Mitra: It is very refreshing to hear that you’re willing to do a $4 million to $5 million round on pure team and concept and no line of code. But the truth is, most of the micro VC’s who are doing B2B SaaS are looking for product-market fit.

Some are looking for a certain MRR metric, whether that is $20,000 or $40,000 per month, and in some cases, $80,000 per month before they’re willing to write that $1 million to $3 million check. I don’t think your point applies to consumer market at all.

It definitely doesn’t apply to B2B SaaS because we have talked to hundreds of micro VC’s at this point who aren’t investing at the concept stage.

Matt Holleran: I would say there’s also a difference. I think Propel is a great case study for us here. This is in a $15 billion global TAM category. Ray Hein, the founder and CEO of Propel, had been VP of Products and Strategy at Agile Software, which was a leading provider of Product Lifecycle Management (PLM) software solutions back in the day. He’s a great domain expert and had cloud-specific expertise. They’re moving to the cloud in the right way to deliver more capabilities.

It’s a big problem that you need to build applications for and get customers successfully. So you really can’t put in $100,000 or $500,000 to get that going. It doesn’t make a dent in the problem. There are a lot of big categories and titles that need applications for their teams, but there are also a lot of companies that aren’t venture scale companies. That’s a great thing.

We don’t call them lifestyle businesses. We say those are amazing businesses where people are working hard. But they’re unlikely to be venture scale IPO companies. For those folks, a seed financing for traction where they might return capital or they might get acquired along the way may very well work. But for the big problems, it doesn’t.

Sramana Mitra: Your point is well taken, but most businesses out there are not venture scale businesses. That’s absolutely correct. We constantly harp on that with our audience because, as I said, we don’t expect a million companies out there to be fundable. A small percentage of those companies are going to be fundable at venture scale.

But, we do have case study after case study of companies who have been doing venture scale businesses and have gone on to raise huge amounts of financing but have bootstrapped the early stages. From your previous life at Salesforce.com, you must remember Optus that went to $5 million in revenue before they raised a penny of financing. That’s a venture scale category.

Matt Holleran: Yes, Optus is a great example of that. At the time they were founded, I was leading the Salesforce platform, which they had built their business on. I met with Meyer, their Co-Founder and Head of Product. He was a peer of mine at Clarify back in the day. I know the business and and the category quite well. You’re absolutely right.

They did the right thing to bootstrap with just customer capital along the way. They’ve also been successful executives and entrepreneurs making that choice the right way. So, there are situations where companies can self-fund through that period. I think you’ve also seen a number of them, particularly internationally.

An example is Atlassian that had no capital prior to late-stage financing. But I think those are generally an exception which when you get to a venture scale category, you have to move because vacuums don’t exist forever in the world. If you’re not going as fast as you appropriately can in a venture category, someone else may. You may lose the opportunity.

This segment is part 2 in the series : 1Mby1M Virtual Accelerator Investor Forum: With Matt Holleran of Cloud Apps Capital Partners
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