1Mby1M Virtual Accelerator Investor Forum: With Swati Chaturvedi of Propel(x) Ventures (Part 2)

Sramana Mitra: How about some examples of companies that you have funded within the IT sector?

Swati Chaturvedi: One company was including a software in chips sent to OEMs like the Samsungs of the world. The idea there is it is an Internet of Things application. Those chips track every connected device in the home. The idea there is can you understand why those devices are failing. Is it because of the device itself or is it because of Internet failures? That was helpful.

Another company that we’re doing in information technology is focused on gesture recognition. The goal is that they want to enable every device to recognize gestures. Today, gesture recognition is a computing intensive process. It is really difficult to locally do a lot of the gesture recognition computing. Recognition happens in the cloud.

The idea is, can we reduce the footprint of the hardware and the software so that every time your device can actually recognize gestures. That’s what they have done. They’ve reduced the footprint of the hardware and the software so that it can be embedded in tiny chips.

Every little device including your tiny Tiffany watches will be able to recognize gestures. It could be as simple as your hand movement. It could be based on touch. That is an important trend as well that we’re seeing. Those are two that come to mind immediately.

Sramana Mitra: Talk a little bit about the types of investors who are part of your community.

Swati Chaturvedi: We have done a lot of demographic analysis. They’re 45 plus. We also know a lot about their education levels. For example, 60% of individuals on Propel(x) have Masters degree or more. 13% of individuals have Ph.D.’s. They’re highly educated people. They tend to ask a lot of questions.

Sramana Mitra: Do these people have experience as angel investors? Have they done this before?

Swati Chaturvedi: The people that invest, almost 100% of them, have done this before. We are an Internet company, so we attract all kinds of people. That said, most people are watchers. The 10% of the people who actually pull the trigger have a very strong correlation with offline angel investment portfolios. They tend to have done it before. In terms of exit, we haven’t specifically asked if they had exits before. Because we know that they’re professional angels offline, our understanding is they know how this works.

Sramana Mitra: Your business is relatively new, so you haven’t seen a lot of exits.

Swati Chaturvedi: Yes, not yet.

Sramana Mitra: One thing that I observed is that we are in 2017. Tons of stuff have already been built. Nowadays, if you look at the B2B IT world, there aren’t so many wide open opportunities to build these hyper-fast hyper-scalable companies, which has been the general way angel investment has happened. Angels invest in businesses that then get follow-on VC fundings that go on to build these very large companies.

Of course, most of these investments fail. The truth is, that’s what people have been looking for. The angels have operated as seeders into VCs. Then the VCs are looking for very large opportunities. Today where we are, there are many niche opportunities. Some of these businesses don’t fit that parameter that VCs are looking for. Some of these businesses need to be built for very small amounts of capital – $1 million to $2 million and then sold for $10 million to $15 million.

Is there appetite in your community for this type of investment? What about smaller investments like $250,000 to $500,000 and sell for $5 million to $10 million?

Swati Chaturvedi: I would agree that that has been the case. I’m not sure that angels are of that mindset as well. In fact, professional angels and angel groups tend to avoid these mega opportunities where they have future venture capital competition. For example medical devices is a field where VCs don’t play in.

Sramana Mitra: I see the expectations are very much that they’re going to be seeders to VCs. VCs are going to be looking for large-scale opportunities. I’m pretty sure the dynamics of different industry angel communities are different. You’re absolutely right when it comes to medical devices. We don’t do medical devices. We don’t do pharma. We only do IT.

We are seeing some angels or some angel-cum-acceleration groups that only invest small amounts of money and expect that there will be no VC involved. These are starting to happen now. The angels are realizing that if you get into a company and it’s a good company, then it goes into unicorn mania and raises hundreds of millions of dollars and the angels get diluted and weighed down under huge amounts of liquidation preferences. What are you hearing in your community?

Swati Chaturvedi: Everyone is very cautious about how much venture capital money will the company need after the seed. They totally are. I feel like people need to get comfortable with the idea. If you’re not going to invest in a company that needs venture capital or you’re specifically looking for a company that does not need future venture money, then the expectation should be that this exit will be small. You should be comfortable with that. People have not come to terms with that. That becomes hard to reconcile. There needs to be some education there.

This segment is part 2 in the series : 1Mby1M Virtual Accelerator Investor Forum: With Swati Chaturvedi of Propel(x) Ventures
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