1Mby1M Virtual Accelerator Investor Forum: With Steve Beck of Serra Ventures (Part 2)

Sramana Mitra: That’s very good to hear that kind of alternative investment thesis because with 700 plus micro-VCs in the industry, there is no way we’re going to get 2,500 unicorns. Unicorns are supposed to be rare, so it’s mathematically impossible to have that many. I hear from too many investors that they’re all chasing unicorns. I’m actually thrilled to hear the investment thesis that you just laid out. Let’s double-click down on that a bit. Is that mainly a B2B thesis?

Steve Beck: We’re an opportunistic firm. We have a fairly broad thesis which is a little bit unusual. I would say about 70% of our fund is information tech broadly. Within information tech, we do B2B SaaS. I know a lot of people feel that’s played out but we don’t find it’s played out. We think that there’s a lot of sectors that are still awaiting disruption or greater efficiency.

Obviously, B2B is great because it’s a quick path to revenue and it’s capital-efficient. You don’t have to put a lot of money to get the company growing. We’re big into artificial intelligence. We like Internet of Things and companies that are oftentimes big data, algorithm-based opportunities. The remainder of the fund is around agricultural technology. Agricultural tech is actually just information tech going into agriculture.

Whatever we’re seeing working in the Valley, you’ll see that influencing AgriTech in a three to five year echo. It’s neat because you can see what’s working broadly in information technology. Then you can extend that into this huge market of agricultural tech. We’ve had a lot of success there. We have an office at the University of Illinois, which is one of the largest AgriTech hubs in America. We’re exiting a company now that I cannot name, but it is a fantastic exit.

Then the third area is we do some devices, which is generally not in favor with most venture capitalists. Devices are capital-intensive. It takes a little bit more money to get off the ground. We have an expertise in it. A couple of my partners have exited scientific device companies. We’ve had good fortune with that. We do continue to play in that space too.

Sramana Mitra: Our focus is all IT and IT-enabled services. Within that spectrum, what you said about B2B being played out, I don’t agree with that. If you’re looking for multi-billion dollar TAM opportunities, it is somewhat played out, but if you are open to the niche opportunities with early exits that are sub-$50 million, that opportunity is not played out at all. That is wide open and people are not playing in that space enough. I’m fully with you on the investment thesis that you laid out on B2B SaaS.

Steve Beck: I don’t know a lot of people who know this. The average exit in venture capital is $55 million or right around there. For most firms in the Valley, when they’re putting $20 million into the deal, there’s nothing for them. For a firm like ours, we’re oftentimes getting in at a $4 million pre-money. We exit a company in three of four years at $60 million. That is amazing.

Let me brag a little bit. Our firm is in the top 10% of the nation in the metrics that people like to track for venture firms. Everyone has heard of the IRR. What most people also look at, as you are well aware of, is this thing called distributed capital. How much money do I get back? How soon? Also the total value, PVPI. In those metrics, we are in the top 10%.

The reason we’re able to do that is because we’re early in and early out. We get these great SaaS deals. They build a company. In four years, they sell the company for $40 million. It does not make for a good cocktail party story. No one in the Valley wants to hear how you sold your company for $40 million. When you got in at pre, that’s a fantastic return. Our batting average is actually 60%. That’s pretty unusual. I love this strategy you’re mentioning. It really does work.

This segment is part 2 in the series : 1Mby1M Virtual Accelerator Investor Forum: With Steve Beck of Serra Ventures
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