Meet Brian Dixon, Partner at Kapor Capital

An interview with one of the newest partners at Kapor, an Oakland-based and social-focused firm

There has been a big debate 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.

Brian Dixon focuses on identifying and evaluating early-stage investments along with helping portfolio companies grow effectively. Brian joined Kapor Capital in 2011 after spending two summers as an MBA intern, and was promoted to partner in November 2015. He is committed to making sure entrepreneurs of all backgrounds have access to advice and capital in order to make their business succeed.

Brian holds a Bachelor of Science in Computer and Information Science from Northeastern University and an MBA from F.W. Olin Graduate School of Business at Babson College and has been selected as a Management Leadership for Tomorrow (MLT) Fellow, Babson Fellow, and Springworks Scholar.

Prior to business school, Brian started his career as a software engineer at Citigroup through their selective IT analyst training program and has worked as a product and project manager at Education First and Babyzone (Acquired by Disney Inc.). He has founded multiple technology start-up companies and enjoys working with founders and accelerator programs.

VatorNews: Tell me a bit about your background. What led you to the venture capital world?

Brian Dixon: At 15, I was selling sneakers on eBay. I ended up getting my own website and realized that buying shoes and selling them on eBay was great, but what if you could create your own custom sneakers? By 17, I started creating my own custom sneakers called Blak-Out.

I would remove all the sealant on the shoe, have them painted, and sell them on eBay for a profit. I started to get more and more requests. And I got lucky because a gentleman by the name of Lebron James (when he was a rookie) ended up wanting sneakers. I made a pair for him and that’s when things got a little bit out of control, but it was a good lesson of entrepreneurship at a young age. I ended up shutting down the site just because you can’t really grow a huge business with all the supply issues, but it was important for setting me on the path to entrepreneurship, which ultimately led to venture capital.

I went to Northeastern University after high school and purused computer science and a business minor. That was interesting because I wanted to be able to build products and build things I could think of or friends would think of. Then I got a developer job right out of undergrad at Citibank focused on building municipal bond systems, so not that interesting. But all those things led me back to entrepreneurship. I had a chance to create two more startups after that point which was really interesting. And then most recently I went to Babson College for my MBA, which I finished up in 2013.

VN: What is your investment philosophy or methodology?

BD: At Kapor Capital, we’re a social impact venture firm. We find companies that have great venture opportunity but also that will close gaps of access and create opportunity. What we’re looking for are products that create a level playing field for users.

VN: What do you like to invest in? What are your categories of interest?

BD: We invest across many fields—financial technology, health, education, a sector we call “work,” and a new sector called “people ops technology.” When you think about hiring in the workplace, there’s a lot of bias, and we want to invest in tools that help mitigate that bias. Not too many firms see the world the same way we do, and that gives us a chance to make some interesting investments.

When we’re looking across these sectors we’re trying to focus on products that help low-income communities or people of color in the U.S. Education comes to mind: a test like the SAT is a standardized test but not everyone has equal access to prep materials. Some people can afford offline tutors, which is great. Some people can afford a new online product that’s $30/hour, but when you think of a low-income student, they can’t afford that. We invest in a company called Magoosh that provides all-you-can-eat SAT and GMAT prep for $100. And, if you can’t afford that price, they also have partnerships with organizations so you can get it for free.

VN: What would you say are the top investments you have been a part of? What stood out about those investments in particular?

BD: Most recently, we’ve invested in a company called Swing Education. They’re solving the substitute teacher problem in schools. The average teacher is out of school 10 days a year. And you look across the spectrum, that’s a lot of outage. Those days for students aren’t great educational days: you have a sub come in and play a video, and that’s not a great way to prepare students for college or standardized tests. Swing allows schools to have on-demand substitute teachers using the latest technology. Every school has teachers who are out 10 days a year, so this is a large opportunity but also has a chance for better educational outcomes.

Another one is called Pigeonly. What they do is foster communications for incarcerated Americans. Having communication with the outside world when you’re incarcerated is important to your development and to having a good transition out of the prison system. The founder of the company had been incarcerated himself, and he saw the injustice and inequity of having to spend almost upwards of a dollar per minute for phone calls because all the calls were long distance. Pigeonly allows inmates to have local calls, dropping the cost from close to a dollar per minute to a few cents per minutes. Family members end up paying the subscription of $10 or less to save a lot of money. It’s really a monopoly because there’s no reason that calls should be that expensive for inmates.

VN: What do you look for in companies that you put money in? What are the most important qualities?

BD: What we’re looking for is a company that has the team first and foremost. You have the idea person—he or she has hopefully thought of the idea. You have another person that can actually build the idea and bring it to a point where you have a minimum viable product, or MVP.

Then it’s product and traction. You built something and people are finding value from it.

The third thing would be a focus on impact. Does this actually close gaps of access and provide opportunities? That’s important because just because you're an edtech product doesn’t necessarily mean it’s inherently good for students or schools.

Fourth is something traditional to venture, which is if there’s a big enough opportunity to build a huge business.

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?

BD: These days, just building a product isn’t enough to go out and raise a seed stage. You have to demonstrate inklings of product market fit or a demonstration that you’re working towards that. The example I gave you with Swing is not having ten thousand teachers on the platform, but it is having a couple hundred teachers on the platforms that say it actually works. You can actually talk to teachers and schools and say, “Hey, what do you think about Swing?” We found, time after time, that they loved it. You don’t make your full decision on that but it helps. It de-risks the business a bit by being able to talk to real users.

As far as revenue goes, we don’t have any hard and fast rules..

VN: These days a seed round is yesterday's Series A, meaning today a company raises a $3M seed and no one blinks. But 10 years ago, $3M was a Series A. So what are the attributes of a seed round vs a Series A round?

BD: The purpose of the seed round is to have a product. If I had one way to summarize it, it would be “defined product market fit” and to actually have some clue of how you’re going to build the business.

These have been changing over time. The Series A crunch, or what it takes to raise a Series A, has been pushed to the point where a company comes into Series A with a million-dollar runway. Seeds initially were where you went for your first funding. So now you see pre-seed funds popping up. From a dollar amount, we’re looking at seed rounds anywhere from $750K to $2 million, which is a large range for a seed round. Whereas a typical Series A round is $4+ million after you’ve figured out product market fit in one market and now you’re going to grow to three markets.

VN: Given all the money moving into the private sector, I believe there's more money going into late-stage deals in 2015 than there was during the heyday, back in 2000. Do you think we're in a bubble? And is it deflating now?

BD: We’re going to continue seeing a trend of it being harder to raise money. I think that’s true and we’re starting to see some of that. Series A rounds aren’t as easy as they used to be, to be quite frank. Companies really do have to have some kind of business model. Gone are the days you could raise a seed round, and get a bunch of users interested in the product, but have no way to monetize. What is the plan for the Series A in terms of monetization? If you come up short on that, it’s going to be really hard to raise money.

When we advise our companies, we have that conversation about how they think about monetization and where they will be for the Series A. That’s what we can do as investors to get it on their radar. You’re raising money today and in nine months or so, you’re going to have to go raise. What does that mean? What does that actually look like? Where is the market today? And it’s hard because you don’t know where it’s going to be. Companies that build great products, get users, and have a clue of how to monetize are better positioned no matter what the climate looks like.

VN: If the bubble is deflating, how does that affect your investing?

BD: It all comes down to what is the actual plan and how does the company execute against that plan? There are a lot of companies out there who plan to go out there and get a bunch of users but don’t have a plan to monetize. That’s not necessarily a bad thing. Investors and entrepreneurs should be fine if that’s the plan all along. If the plan was to go out and have a million-dollar run rate but you show up with a million users with no monetization, then that’s tricky. We ask questions about what the next 12 months look like, and based on what sector they’re in we have different metrics to guide founders.

VN: What do you like best about being a VC?

BD: It’s working with the founders. Having been a founder, I definitely have empathy for what they’re doing. You know they’re spending so much time on the product because it means a lot to them. They started a company when they probably could have taken a job but they’re doing this because they feel passionate about what they’re trying to build and change. That’s my favorite part of the role: seeing founders in the beginning of their journey. It’s something special. It’s an opportunity I don’t take for granted.

VN: What is the size of your current fund?

BD: We have a $25 million commitment to invest in diverse companies, from 2015 through 2017. So we’re investing roughly $8.3 million per year. What’s interesting is that 50 percent of those dollars will go to teams that have a woman or person of color founder on the team. That’s something we take pretty seriously and are excited about. We’re proud to do that.

VN: What is the investment range? How much do you put into each startup?

BD: Typically, we invest $100K to 250K in the seed round. And we do reserve capital for follow-on.

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?

BD: On average, we put in $150K in a $1 million seed round. Some firms have a certain ownership percentage, but we don’t have those strict parameters.

VN: What series do you typically invest in? Are they typically Seed or Post Seed or Series A?

BD: Seed.

VN: In a typical year how many startups do you invest in?

BD: 20.

VN: Is there anything else you think I should know about you or the firm?

BD: Venture is constantly changing. I’ve been investing now for five years, and I’ve seen many changes. Most recently, the markets have tightened up a bit, but we’re a startup ourselves. We’ve changed our investments to doing strictly impact deals in 2012. And, most recently, we’ve been focused on investing in companies that are willing to build diversity-inclusive workplaces. That in itself is exciting, and I can’t wait to see what happens when they turn into much bigger companies, when diversity and inclusion are baked in from the start. I’m just excited to be a part of the ride and to be able to take the ride with many great entrepreneurs.