1Mby1M Virtual Accelerator Investor Forum: With Bruce Cleveland of Wildcat Venture Partners (Part 2)

Sramana Mitra: Our community’s work is with the very early stages. When you say you’re willing to do seed, can you elaborate? What’s happened in the seed ecosystem is that there are 500 to 600 micro VCs that have come into the business in the last five years or so.

That seed ecosystem has fragmented into pre-seed, seed, post-seed, pre-Series A, small Series A, and then the $4 million to $6 million traditional Series A. Where in that continuum do you like to peg yourself when you say you want to invest in seed?

Bruce Cleveland: It’s not around the size of the seed but the rationale for the seed. We like to get to know companies and the entrepreneurs really well. We have a pretty good network ourselves, but as you said, there’s thousands of companies starting all the time. If there’re interested areas where we’d like to get more familiar with the team, then that’s the time we’ll make a seed investment.

Roughly around 5% of any given fund that we do will be seed investments. The purpose of those seeds is to identify what will become full follow-on. One of the problems, of course, for these micro-VC investments is that it could be a one-and-done. That means that the entrepreneurs are left with having to figure out who else is going to invest in the company. That can take a while.

The benefits of having, at last, a seed philosophy and seed strategy is that we can participate in those early stages but then also we can tell our entrepreneurs, “Depending upon how the business goes and how things work, we can also be follow-on investors.”

Sramana Mitra: When you choose to invest in a seed company, how much validation are you looking for in that business? You’re not doing concept financing I imagine. What is it that you gauge for? We’re seeing all kinds of metrics from different VC firms that they’re looking for before putting in Series A.

Bruce Cleveland: I call those bankers. They’re not actually VCs. I’m sure they’ll disagree with my comment. We started with ideation. I’ve created two companies at Wildcat. I was the entrepreneur. I started them. I’ve built the business. I recruit the personnel to staff the company from CEO to the entry levels. We start there.

The traditional VC route was go get an MBA from an Ivy League school, go to work at Goldman, become a tech banker, become a principal and them move your way up. For the most part, that route into venture has failed. Many of those people never panned out. What seems to be happening, which I think is actually a good thing, is people from the industry are coming back in to do these investments. You can add in the operating principles into these companies but if you really want to do venture investing, the venture part is what I would call PowerPoint investing where there are not a lot of metrics.

Basically, we believe that there is a market. The market is described by XYZ parameters that the opportunity is to build a product or service to serve that market. There’s some kind of evidence of that particular opportunity. Then what team do we need? We use this traction gap framework to help the complete assessment in terms of the investment, market, and then the team.

The main thing is the metrics I have is basically, “Have we done market due diligence? Have we gone out and talked to 50 companies?” Get out of the four walls and talk to some people to verify that there might be some veracity in the market opportunity.

This segment is part 2 in the series : 1Mby1M Virtual Accelerator Investor Forum: With Bruce Cleveland of Wildcat Venture Partners
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