1Mby1M Virtual Accelerator Investor Forum: With Ben Narasin, Founder and General Partner at Tenacity Venture Capital (Part 4)

Sramana Mitra: The most important thing is that big market opportunity. Hypergrowth is not a natural state of business. If every entrepreneur thinks that we have to achieve hypergrowth, that is not viable. Most businesses don’t have the characteristics of being able to meet that hypergrowth criteria.

Ben Narasin: Absolutely agree. Venture wasn’t built to fund really good businesses. It’s built to fund phenomenal outlier businesses. 

Sramana Mitra: The problem has been created in the media. The media has positioned entrepreneurship equals venture capital. That is what has created all this misconception, anxiety, and rejections. If you get a lot of rejections, it’s bound to discourage you. If you’re going out there without the right goods and you’re not a fundable entrepreneur, then you get rejected again and again. You don’t understand why. That’s a recipe for disaster.

Ben Narasin: I think it’s a great disservice for an entrepreneur who should not raise venture capital spending time doing so. There’s nothing wrong with a business that doubles every year that makes you a healthy living. Lions only eat meat. Don’t try to feed the lion a salad or they’ll eat you instead. Hypergrowth companies are rare. That’s what venture seeks out. Finding that match is really important. I don’t know if it’s the media.

In Silicon Valley, it’s almost like if anybody lives here, they assume their business should raise venture capital. That’s not the case for the vast majority of instances. There’re a lot of different forms of capital. It’s a long-term marriage. When you go out to raise money, you need to be able to find the kind of capital that matches the realities you want to build.

Let’s pretend that you had a business that you wanted to build as a lifestyle business, and yet, you managed to raise venture capital. You sign a one-way prenup and you don’t get the right to exercise it. I never raised venture capital. I had a business that was hypergrowth, but it wasn’t a venture-fundable business. Had it been venture-funded, I would not have survived.

Sramana Mitra: In fact, your e-commerce category right now is full of companies that are not necessarily venture fundable. They’re niche e-commerce businesses. Shopify is very easy to start a company with. Then there are all kinds of financing available. You can get inventory financing. You have Kabbage and all these fintech firms that will give you a little bit of money. I’m curious to hear your analysis of e-commerce. E-commerce is starting to get to a point where most of it is not really venture fundable.

Ben Narasin: Within the category, there are some venture opportunities. As an example, 54% of all merchandise sold on Amazon is sold by marketplace sellers and not by Amazon. I wanted to understand that better. I bought a palette of Amazon returns and then relisted it on Amazon and on eBay to see what that was like.

The most compelling marketplace sellers are selling their own unique product. That 54% of volume is made up of everybody from the sole operator selling a single product to multi-faceted players. What has started to happen, though, is that on top of that, there are a couple of venture-backed businesses which are buying those individual sellers and stitching them together to become the Proctor & Gamble of online. They’re buying companies that are as little as $1 million to $5 million in revenue. They’re adding it all together to create a bigger venture scale opportunity.

If you can show that by spending a dollar, you can make a dollar eighty, they will fund that. Kabbage would fund sellers on eBay against their selling history. One is you have a source of capital. Two, you would have a source of liquidity as an exit. 

This segment is part 4 in the series : 1Mby1M Virtual Accelerator Investor Forum: With Ben Narasin, Founder and General Partner at Tenacity Venture Capital
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