1Mby1M Virtual Accelerator Investor Forum: With Todd Belfer of Canal Partners (Part 3)

Sramana Mitra: Talk to us a little bit about geography. You mentioned you’re operating at about five geographies. What are the dynamics of these geographies? I know WebPT is in Arizona. What are the dynamics of the Arizona market right now? Are you seeing a lot of deal flow?

Todd Belfer: I see a lot of healthcare deals in Arizona. We see a lot of B2C deals.

Sramana Mitra: But you don’t do B2C.

Todd Belfer: Yes, we don’t do B2C. For some reason, we see a lot of doctors starting B2B and B2C companies in healthcare. There’s probably half a dozen telemedicine companies in Phoenix and a whole slew of physicians have started analytics and consumer health companies.

Sramana Mitra: Interesting. What about the other geographies that you’re in?

Todd Belfer: We’ve done five investments in Atlanta. Atlanta is the CRM marketing automation capital of the world. That’s where the first CRM ever started in the 70’s. A lot of subsets of marketing automation and CRM are in Atlanta.

Sramana Mitra: CRM is a very mature market. What is fund-worthy at this stage of the game?

Todd Belfer: When you have so many people with domain knowledge in those segments, they’re always thinking of something new that hasn’t been invented yet. We just sold a company in Atlanta that is in the call analytics space. Think web analytics, but for the caller. There’s just a lot of human capital there in that space. A lot of these executives leave and start something else.

Sramana Mitra: Yes. In Utah, there is a lot of analytics just because Omniture came from there and that has created the same kind of dynamics.

Todd Belfer: We’ve had two marketing automation companies in Atlanta and we’ve had this call analytics company. In Phoenix, we see a blend of a lot of things. For San Diego, we see more companies coming from the life science / healthcare space. The reason we choose these geographies is that’s where our bench is and also we don’t see a lot of early stage $1 million to $3 million of capital and million dollar ARR companies.

We compete against angel networks, family and friends, and seed funds, but very rarely do we see venture firms competing against us.

Sramana Mitra: The big determining factor, which I like a lot in how you’re playing this game is that willingness to playing this smaller TAM market. The VC funds are still mostly looking for the very large TAM and ignoring the niche. I agree with what you said. In a large portion of B2B SaaS, the big problems are solved.

There are a lot of niche problems that you have to do in a very capital efficient way and exit relatively early and not try to build unicorns. The unicorn mania is still very active in the venture market. The niches have a lot of potential. It’s a very smart way to play the investing game the way you’re doing it.

Todd Belfer: The last company we funded in San Diego in the vet space, their TAM is probably about $100 million right now. We were the only venture firm left at the table that they are talking to because the other ones all left. The other venture folks thought that was too small.

Sramana Mitra: Anything else that you want the entrepreneurs in our community to know about working with you?

Todd Belfer: One thing we see which we wish entrepreneurs and founders would do more of is really understand the market. Understand what it takes to go to market and sell the product. A lot of people believe their own story and their own belief that it’s easy to build a product and go to market. Before they go raise money and hire a bunch of people, it’s important to get a subset of customers to really understand who they’re selling to and how they can win even if it’s six customers.

Sramana Mitra: One thing we really emphasize a lot on in our program is to really understand the sales cycle. Who’s the buyer? In those six customers, what is the process of selling? Whom do you need to convince? What are the criteria based on which people buy?

Todd Belfer: We funded a company in Phoenix a couple of years ago. They were going after $100,000 sales. They realized that they needed six to seven different people in the company to approve the sale. Now they’re going after $10,000 to $20,000 deals and the sales cycle went from a year to 30 days.

Sramana Mitra: Very good. It was great talking to you. Thank you for your time.

This segment is part 3 in the series : 1Mby1M Virtual Accelerator Investor Forum: With Todd Belfer of Canal Partners
1 2 3