1Mby1M Virtual Accelerator Investor Forum: With Cindy Padnos, Founder and Managing Director at Illuminate Ventures 2021 (Part 2)

Sramana Mitra: Were they Americans? What ethnicity were they to move to South Korea?

Cindy Padnos: No, one of the founders is Chinese. The other is Indian. They were both born in their respective countries, but they were educated here in the US. They helped to build several companies here. The CEO had actually been the VP of Engineering of the company that I founded, which was an early SaaS software company.

It was a procurement software company. He had also gone on to have a couple of other successful exits. He had been Chief Product and Operations Officer at Demand Tech when they went public. He had left to start this company, which was a predictive analytics engine for online and cross-channel retailers. Coupang was their largest customer at the time of the acquisition.

Sramana Mitra: That brings one question to my mind. You generally invest more in the B2B, right?

Cindy Padnos: Correct.

Sramana Mitra: The company that you had invested in was a B2B that got acquired by a B2C company and that is how you got into B2C.

Cindy Padnos: Correct. You never know because you can’t predict these things. We have had other non-consumer companies that have benefited from COVID as well. We have a company up in Vancouver called Allocadia. It’s a rather remarkable company in many ways. The founders had bootstrapped the company to over $1 million in ARR. We have been investors there for about five years now.

They are an ROI management, attribution, marketing, planning, and budgeting platform that sits in between your ERP system and the plethora of marketing automation tools below that. A CMO needs to be able to plan and budget. As you can imagine with COVID, every CMO got a message very quickly telling them to cut their budget. There were massive cuts in marketing that had to be implemented quickly.

This is a tool that helps you understand where your next dollar should be allocated. It helps every person on the marketing team with that planning and budgeting process. The demand for that product increased significantly and it won’t go away because people now understand that they are budgeting for things like marketing.

It has to be much more agile. It has to be real-time. Historically, it was set it and forget it. You set a marketing budget at the first of the year and things don’t change that much. Now, that’s changed a lot.

Sramana Mitra: Let’s do a little bit of level-setting on the basics of how you are doing your fund right now. What size funds are you working on? What check sizes are you writing? What stage do you want to come in? You mentioned that there was a company that already bootstrapped to $1 million. Give us an idea about your investment thesis and the fund strategy.

Cindy Padnos: Most fundamentally, we are looking for companies that are further along than most. We do seed-stage investing. This means that we are typically the first institutional round of investment in a company. We generally write a $1 million check. It can be a little bit more and it could be a little bit less. We are almost always syndicating that investment and maybe even sharing it with other like-minded co-investors.

The round sizes are around $2 million to $4 million in size. We lead or co-lead those rounds. From time to time, we will go in when someone else has led, but that is a little bit more unusual. In terms of the companies that we are looking for companies that are further along, maybe it helps to just give some examples of what that could be. For example, we have done companies that were spinouts from large corporations.

There’s one from SanDisk that was being acquired and they said, “We don’t need these software products. I don’t know why SanDisk cared about these, but we don’t.” They spun out an intact team with a dozen optical engineers and a management team that had worked together for years.

That company now is called JetStream which is a continuous data protection solution for a hybrid cloud environment. They are the only solution in the Microsoft Azure AVS platform for managing real-time disaster recovery for the VMware environment. It was a deep tech company that had an interesting team. They were looking for spin-out capital. That is one example. We have done several of those. 

In other companies, it wasn’t the deep tech that was interesting. In another one, it was a customer base where they were spinning out of a law firm with a legal tech platform. It would instantly have a thousand customers that were already the clients of that law firm. We have done companies that have been entirely bootstrapped.

This segment is part 2 in the series : 1Mby1M Virtual Accelerator Investor Forum: With Cindy Padnos, Founder and Managing Director at Illuminate Ventures 2021
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