1Mby1M Virtual Accelerator Investor Forum: With Seksom Suriyapa, Partner at Upfront Ventures (Part 4)

Sramana Mitra: I’m going to double-click down on your second category. You have product-market fit. The options are, do we sell the company now or do we go for another round of funding. If we choose to go for another round of funding, we will get funded because we have product-market fit. In that scenario, how does valuation compare in an exit versus a funding valuation?

Seksom Suriyapa: This is where things get tricky. Because of the way the venture market is today, which is frothier than where an acquirer is willing to pay, the sticker price on getting venture money will look very attractive from a valuation point of view. The tension is two-fold. One is when you raise money at a relatively high valuation because that’s where the venture is pricing you, you’re also building an execution that could potentially be heroic. You have to grow into these valuations through executions.

On the sell side, the venture market might say you’re a hundred, but the buyer might say, “I’ll pay you fifty in cash today.” The difference is if you get the fifty in cash today, you have whatever return you have. The execution risk has now passed to the company. You now don’t have the execution risk.

Sramana Mitra: What tension do you experience in negotiating with companies that have a lot of venture capital versus the ones that have smaller amounts of capital? This is relevant right now given that the valuations are ballooning.

Given what’s happening in the venture market today, how will these companies ever find strategic exits? They’re all thinking that they’re going to be unicorns. How are these companies ever going to find strategic exits?

Seksom Suriyapa: The reason you see valuations like this is that, in some ways, the market has proven that it is possible to have multi-10’s or low-hundreds of millions of dollars exit. It wasn’t something that happened 10 years ago. I talked about SuccessFactors being the highest software multiple of all time. That was only a $3.4 billion deal.

What I’d say is that entrepreneurs do have a belief that the trees will just continue to grow to the skies because they have seen that there’s a potential to get there. There is this natural tendency to think that you could be the one to get there. I’m a bit old-fashioned and still believe that, at the end of the day, what you want to do as a business owner is to control your own destiny and that you should capitalize on yourself as much as you need to get to your next milestones.

You should be very rational about what level of scale you believe the business will achieve. Think a lot about what is a great return on that investment you’ve put into it both in sweat and money. When the tide finally turns, the companies that will do okay are the ones that built real businesses and had been able to execute and grow not because they were fueled by excess capital, but because they had inherent strong business models. I’m not as much in favor of the tendency to over-capitalize.

Sramana Mitra: We are on the same page on that. Thank you for your time.

This segment is part 4 in the series : 1Mby1M Virtual Accelerator Investor Forum: With Seksom Suriyapa, Partner at Upfront Ventures
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