1Mby1M Virtual Accelerator Investor Forum: With Amos Ben-Meir at Sand Hill Angels (Part 4)

Sramana Mitra: When you’re looking at enterprise deals, what are you comfortable with in terms of validation level? Are you looking for paying customers? Product ready but with no customers?

Amos Ben-Meir: Generally for Sand Hill Angels, we don’t do many deals that are at the proof of concept stage. Our deals are seed-stage deals but with companies that have either bootstrapped, gone through an accelerator, and have actually developed MVP and have had traction in the form of pilots of actual contracts. That’s where it starts to get interesting for us. The majority of seed investors tend to operate this way nowadays.

Sramana Mitra: Let me ask you a slightly different question. This is in the dimension of TAM. Right now, there is a very large number of VCs operating somewhere in the spectrum of pre-seed, seed, post-seed, pre-Series A, and small Series A. These are anywhere between $15 million funds and $100 million mall Series A. These are anywhere between $15 million funds and $100 million funds. The bigger ones start to do larger Series A’s.

For the smaller funds, we see a very large majority of them still looking for billion-dollar TAM ideas. Is that a requirement for your investments of do you also consider stuff that are smaller TAM ideas that could be better as acquisition exits. You build them as capital-efficient businesses and then sell to corporate strategic acquirers relatively early in its cycle. Is that something of interest to you?

Amos Ben-Meir: I would say we look for larger TAMs. If we see a path for them to get to over a hundred million in revenue, that would be an interesting opportunity. We look for startups that have bigger opportunities in terms of TAM as well as the specific percentage of that market that they can obtain. If a startup comes to us and the market size is maybe a couple of hundred million and they could maybe get just 10% of that, that’s not that interesting. Sometimes we do make those types of investments though they are rarer. I typically don’t put a stake on those types of deals.

Sramana Mitra: What is your read of Silicon Valley’s obsession with unicorns?

Amos Ben-Meir: If you’re a big fund, the economics is such that you have to be pre-occupied with swinging for the fences like getting multi-billion dollar exits. The economics of the fund require it. They’re looking for exits that will return the whole fund. For that, they need to put a lot of money to work to get a significant exit.

As an angel/venture investor, I would be happy with a smaller multiple. Anything above 10x is fine. If a company I invest in can get an exit that’s a couple of hundred million dollars and that means more than a 10x return for me and the other investors, I consider that as a success. As an investor, this is an asset class that has very high risk and majority of investments end up being losers. There are ways to mitigate that depending on how you build your portfolio or whether you do just early stage or later stage.

I think unicorn mania is something that larger funds require. In the portfolio, I do have a couple of companies that are valued over a billion dollars.

This segment is part 4 in the series : 1Mby1M Virtual Accelerator Investor Forum: With Amos Ben-Meir at Sand Hill Angels
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