1Mby1M Virtual Accelerator Investor Forum: With David Lambert of Right Side Capital Management (Part 3)

Sramana Mitra: What fund size are you working with to be able to do that many investments?

David Lambert: Our current fund is a $15 million to $20 million fund. We have $50 million under management across all our funds. The first fund was launched in 2012. It was pretty much proof of concept. We still did over 250 investments out of that fund.

Sramana Mitra: Have you seen exits?

David Lambert: Yes, there have been a handful of exits. One of the companies I just mentioned earlier on was bought by Amazon for almost a billion dollars earlier this year. A lot of the companies that we’ve sold to are companies that people haven’t heard of. One of the things we’re in favor of and don’t mind at all is companies selling at lower valuations.

Sramana Mitra: Define lower valuation for me.

David Lambert: Anything in the $20 million to the $100 million range.

Sramana Mitra: If you haven’t read this article, Bootstrapping to Exit, you definitely should read it. Most exits happen in the sub-$50 million range. You’re going to have to manage your capital into the company to be able to make money for everybody at the sub-$50 million range. I’m happy to hear that range that you gave.

David Lambert: Right Side Capital was founded based on the knowledge and the data that most exits happen at the sub-$50 million range. There are very few once you start getting north of $100 million. At the time that we invest, most of them are on a path where they could take advantage of that active and liquid market out there.

Some smaller companies self-select themselves out of that because they believe their business can scale out higher or they just want to go on a higher risk profile for the business. We’re completely fine with that too.

Sramana Mitra: Can you talk about a couple of examples of these companies that nobody has heard of that have found good exits?

David Lambert: I’ll give an example of one that did an interesting pivot and found a good exit. It went forward well. Everything fell apart. They pivoted. Then everything came back.

One of them was a company called Draft. They had a different name early on when we invested. It’s one of our consumer ones. They were in the sports fantasy world when we invested. This was before the government had tried to shut that market down. They had bootstrapped from almost no money to become the sixth or seventh largest player in that space.

We invested in the small round that they did. They grew successfully. There were two large players in that market that raised hundreds of millions in venture capital bludgeoning each other to death. They saw that path happening.

They ended up selling off the assets they had built to one of those two dominant players. They ended up restarting and building out a consumer product that was not based on live betting. It was based on social network and things like that. They started to get traction there.

Because they were capital-efficient, they were able to stay alive long enough to where that market came back around to be more friendly. They started pivoting into that with a substantially different business model. A public company from the UK came in and wanted to enter the US market and made them an offer that was in the mid-$10 million range.

They sold rather quickly. It was a great outcome for the entrepreneurs. The only reason they were able to execute on that exit was because they had been very capital efficient. They had not raised millions of dollars. They had raised around $2.5 million.

Other interesting things that you can play for is sometimes seeding in the private equity world. That company that I mentioned, PetDesk, was also very capital efficient. They recently raised around $12 million in a round led by a private equity firm. It was a venture firm that acted like a private equity firm. The company was able to get in new capital to grow the business. A substantial amount of that went to buy out some existing cap table and the founders were able to get some liquidity. We’ve had a few companies that have gone down that path.

This segment is part 3 in the series : 1Mby1M Virtual Accelerator Investor Forum: With David Lambert of Right Side Capital Management
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