There has been a big debate over the last few years over whether the Series A crunch is real or not.What everyone can agree on, though, is that there are definitely more seed and early stage funds now than ever before, and more people willing to give money to young companies looking to make it big.
But just who are these funds and venture capitalists that run them? What kinds of investments do they like making, and how do they see themselves in the VC landscape?
We’re highlighting key members of the community to find out.
Bill Clark is founder and CEO of MicroVentures.
Clark has more than a decade of top level management experience in the credit risk management and financial services industry.
As Risk Manager at an online payment processing company, Clark’s responsibilities included managing risk on the merchant side of the business. His comprehensive approach to the company stems from key experience previously helping manage a billion dollar portfolio of small business accounts as Credit Risk Manager in the Small Business Risk Management Division of a captive financial institution.
He holds a BS in finance from Michigan State University as well as Series 7, 24, 63 and 79 licenses.
VatorNews: What is your investment philosophy or methodology?
Bill Clark: We invest in innovative companies that are building technology-enabled solutions to demonstrable consumer and enterprise pain points. We prefer to invest in companies that have a working product and a critical mass of users or customers and have already discovered product-market fit. The early stage companies we evaluate are typically looking for funds to implement a go-to-market strategy and scale their business to prepare for a Series A financing round.
VN: What do you like to invest in? What are your categories of interest and what opportunities do you see there?
BC: We like to invest in all subsectors of the technology space. We believe opportunities arise out of inefficiency, so we look for companies that are addressing a key issue in any given market whether that be health care, big data, business intelligence, financial services, or consumer products.
Given the model we use to fund our investments, we avoid overtly complex technologies, so bitcoin and the blockchain, biopharma, and quantum computing are examples of what is not a good fit for us.
VN: What would you say are the top investments you have been a part of? What stood out about those investments in particular?
BC: We have executed investments in a number of successful later stage pre-IPO companies through secondary transactions. These portfolio companies include Spotify, Dropbox, and Palantir, among others. Exits include Twitter and Facebook.
Top early stage investments include Space Monkey and Biomeme.
Most investments come down to the team and their ability to execute on their plan and make quick adjustments when things are not working as planned.
VN: What do you look for in companies that you put money in? What are the most important qualities?
BC: The most important attributes for us include a working product and a demonstration of product-market fit. Product-market fit can be demonstrated through a successful beta program, a critical mass of customers or users, or early revenue generation.
We look for strong, sustainable month-over-month growth in a number of key performance indicators. Another critical quality is founders who have domain experience, which can help the company weather times of industry or company volatility.
VN: What kind of traction do you look for in your startups? And can you be specific? Are you looking for a number of customers or order volume?
BC: Each company or product is different in how we measure or evaluate traction. There is no hard and fast rule as to whether a company meets our traction criteria to indicate an investment decision. That said, a few key things we look at are traction growth and the underlying performance of that growth.
For example, a company may show a graph of a consistently growing monthly active user base month-over-month, but if that company is churning 35% of its users every month, it has to spend that much more and work that much harder to attract new users. This pattern indicates a lack of product stickiness and means the product may be nice to have but is not critical to solving an overbearing issue in the market.
VN: Tell me a bit about your background. Where did you go to school? What led you to the venture capital world?
BC: I graduated from Michigan State University with a degree in finance. I was in credit risk management for 10 years at Dell Financial Services and Paypal. This experience gave me the ability to work with startups and small and midsized businesses and see their capital needs on a daily basis. Those insights led me to think about how to help these startups get funding from an alternative funding source.
VN: What do you like best about being a VC? What makes you excited?
BC: I like working with founders who are passionate about their company and the problem they are solving, then providing guidance when necessary and seeing the companies grow and gain traction/market share.
VN: What is the size of your current fund?
BC: We have raised ~$82 million for our companies so far and expect to deploy another $40 million over the next 12 months.
VN: What is the investment range? How much do you put into each startup?
BC: Given our funding model, investment sizes vary significantly. However, for early stage companies our typical investment size is $100,000 to $250,000 with outliers on both sides.
For late stage investment opportunities, we raise between $1 million and $5 million.
VN: Is there a typical percent that you want of a round? For instance, do you need to get 20% or 30% of a round?
BC: We do not have a predefined participation level in any given round. As part of our due diligence process, we evaluate the current funding round and determine where we might fit within that round. We like to invest alongside institutional VCs and fill out the balance of a financing round. On average we end up being about 25% of a round.
VN: Where is the firm currently in the investing cycle of its current fund?
BC: We fund deals on a deal-by-deal basis, so we are continually investing fresh capital.
VN: What percentage of your fund is set aside for follow-on capital? What is the size of the fund?
BC: For follow-on funding rounds, we re-evaluate a company and determine whether the opportunity merits a follow-on investment. If it does, we fund it using the same process as an initial investment.
VN: What series do you typically invest in? Are they typically Seed or Post Seed or Series A?
BC: We typically invest in seed, bridge/post seed, and Series A rounds.
VN: In a typical year how many startups do you invest in?
BC: We will invest in 60 to 70 companies in the next 12 months, and that will grow over time as we deploy more capital.
