1Mby1M Virtual Accelerator Investor Forum: With SC Moatti of Mighty Capital (Part 5)

Sramana Mitra: The corollary of our previous saying is that VCs love to come to the rescue of victory. That is also a very popular saying in our community.

SC Moatti: It’s a very interesting point that you mentioned. What you’re saying is the traditional VC industry has whales and minnows. Some people are here just for the show. Some people are coming in and taking over victory. I would say that I tend to agree. The traditional industry has its faults.

The reason I talk about the dolphins is that this is something that we are trying to change. There are all the dolphins out there who are saying, “We want to do things differently. We want to go back to the origins of venture capital where the origin was, you had somebody who’s highly connected, highly experienced, highly valuable, and who is helping a young entrepreneur. There is a whole system of apprenticeship.”

Sramana Mitra: Yes. The next question that comes in though is the metrics of investment. For example, you have said that you like to invest in Series A and beyond. These days, Series A has moved downstream. You may have to raise five rounds of capital before you qualify for Series A.

The SaaS metric these days across the board is a million dollar ARR. Getting to a million dollars in ARR isn’t easy. An entrepreneur either has to bootstrap or has to raise pre-seed, seed, post-seed, and pre-Series A before they get to $1 million ARR. There’s this whole early-stage game which is very complex.

SC Moatti: Let’s break it down a little bit. It’s not that complex. It’s back to your point about focusing your energy on making revenue as opposed to raising money. I encourage every entrepreneurs to focus on that first and then raise money. Let me give a different perspective on that. Let’s say you have an idea. You decide to build a prototype yourself.

Let’s say you go to an incubator. The incubator is going to help you package your idea so that you can go and sell it to a few customers. Along the way, they’re going to take 7% to 10% of your company. Once you’ve done that, you go and try to sell your company, but you find out that the best way to do that is to go to join an accelerator. The accelerator program is going to help you go from one to 10 customers so that you’re ready to raise your pre-seed or seed round. Along the way, they’re going to take 10% to 20% of your company.

You graduate from that accelerator and you’re ready to raise a seed round to staff up your team. They’ll take anywhere from 20% to 30% of your company. First of all, you have already lost control of your company. Pretty much, any professional Series A investor will stay away from you. You’re going to wonder why. You only have about 30% ownership. A Series A investor will take about 20% of that. Now you have 10% left.

What’s in it for you? You may think, “I want to change the world. I’m not here to make money.” On a day-to-day basis, why would you put in so much work if you’re not going to get anything out of it? That’s why an investor would stay away from a company that has that kind of a cap table. The moral is that when you’re at the very early stage, you want to be incredibly capital efficient and you want to find ways to raise as little capital as possible and make revenue as quickly as possible.

This segment is part 5 in the series : 1Mby1M Virtual Accelerator Investor Forum: With SC Moatti of Mighty Capital
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