Meet Paul Martino, Managing Partner of Bullpen Capital

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.

Paul Martino is Managing Partner of Bullpen Capital.

Martino is the founder of four companies and active early stage investor. He was most recently the CEO and founder of Aggregate Knowledge.

In 1990, Martino started his first venture which was an online gaming company. In these pre-internet, bulletin board days, he was one of the original innovators to bring to life the multi-player user experience. Paul’s early games from almost 20 years ago are the inspiration for several of the modern social gaming offerings.

Martino founded Ahpah Software, a computer security firm that was the result of his work as a Ph.D. student at Princeton University. He is the inventor of several core patents related to social networking.

Note: We are hosting our second annual Post Seed (#postseedconf) event on Dec. 1 at Ruby Skye in San Francisco, at which Paul Martino will be interviewing John Doerr, of Kleiner Perkins. The event - which we expect to draw more than 500 attendees - kicks off at 8 am and ends around 5 pm. We're excited to have Cory Johnson, anchor at Bloomberg West, broadcasting live from 7 am to 11 am PST. It should be a riveting day! Register here: Post Seed 2015.

VatorNews: What is your investment philosophy or methodology?

Paul Martino: It's very simple: we focus on companies in the post seed stage. That means we invest after an institutional seed fund, like Floodgate, but before series A firms are ready to go in. They are waiting later to write Series A checks, which is giving us a lot of opportunity.

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

PM:  We are a stage based investor. We have done fantasy sports with FanDuel, enterprise software with DoubleDutch, direct to consumer and health. We are not afraid to go into any category where the thesis fits. There may be some where it doesn't, but that's a rarirtyrarity.

Most funds differentiate themselves by being experts in thing, like Seqouia with enterprise expertiseat Sequoia. We find our operational experience to be the biggest value add, so category doesn’t matter near as much. excellent, so it doesn't matter. We look for companies that have their first $1 million to $5 million in venture capital, and up to about 2550 employees. It's largely the same, the same. regardless of category, and its repeatablke in any vertical market.

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

PM: In general our best investments look a bit like, 'This thing is working, but they haven’t raised much money yet." With FanDuel the numbers were awesome. It was this unusualweird Scottish company, and a scary space to go into. We see that time and time again, but they had the numbers.

DoubleDdutch in the event space. It was not a category were initially excited to  wanted to be in, but we saw the numbers and said, 'This guy's kicking butt."

We are contrarian investors are hearts, and that is our philosophical difference with many other funds..

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

PM: The product's got tota work, but it's early. We've been CEOs and we've started 14 startups. We know what it looks like if it's early but if it works. We don’t invest in pivots. We need to be early enough, but the  guys have to be ready. That's a good Bullpen investment. We are good at finding those companies.

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?

PM: Most companies are making a million a year in revenue. Traction is a huge component, but whether they have six or eight customers,. or a million or two million users, it's got to work. If the product is not complete that’s not enough.

VN: What are the attributes of a company getting a Series A?

PM: With an A round, you want $5 million  in annual revenue that is growing . Now scaling a round you want to get 3 to 4x year over year round, which is crazy. But that is the place where the “Big A” rounds happen.

This is having an effect, causing thea Series A crunch. Seed exploded, while the Series A bar stayed which is flattening the higher bar for companiesflat. And tThis is happening in a bull market, in a  bear market it would be even crazier.

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?

PM: We are in a late stage private equity bubble. In the public markets, companies get priced lower than last round. TMan oh man, this late stage private market is going to end badly when companies go public at lower prices. Something like seven of last 11 IPOs priced lower than their last round.

VN: If we're in a bubble, how does that affect your investing?

PM: That round is far enough away, since we focus on A round, that later stage bubble is largely outside my world view. We get them where they need to get to, but that’s not my world. You should go ask guys from Andreesen Horowitz or Seqouia who invest in those later rounds.

By the time it gets to them, mMy job is done. If I invest and get them a $10 million A round, I'm done. I'm off the board. It's their challengeproblem to deal with downstream macro economic environments, and it's not my battle to fight.

VN: Tell me a bit about your background. Where did you go to school? What led you to the venture capital world?

PM: I’m a four time CEO and founder. I was CEO of Aggregate Knowledge, as well as Ahpah Software, which was a security company, and also started a modemand a game company. I had no desire to go to VC, until Mike Maples called me and invited me to join Floodgate.

What got me going was doing data and analysis of value and stage. In 2009 I was able to see the Series A crunch. I didn't want to be a venture guy, but I saw that the Series A crunch was going to big, and that there was an opportunity, so I started a fund. I reluctant started Bullpen. That’s the back story. I'm one of the most reluctant fund managers you'll ever meet!. I was hoping there was a way to capitalize on the series A crunch without starting a fund, but this was the best route.

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

PM: It's very simple. I excited by a deal like FanDuel. We were the one fund out 78 that said yes. That makes me wake up all day long. It makes my day every day. 

VN: What is the size of your current fund?

PM:  We are on our second fundfirst and second fund. It's a bit complicated because there are so many special purpose vehicles (SVP)s, but we have about $7580 million across two funds.

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

PM: We like to put $1 million and another $1 million to $2 million into winners. So it goes up to $3 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?

PM: We don’t have a hard ownership goal.

While other insiders and investors to double down we like to buy high single digits of the round.

VN: Where is the firm currently in the investing cycle of its current fund?

PM: We are about 2/3rds though fund 2, and in the Spring will be start with fund 3.

VN: What percentage of your fund is set aside for follow-on capital?

PM: Close to 50 percent. It's 50/50, but we think it should me more like 2/3 follow-on and 1/3 initial in future funds..

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

PM: We do one a month. That’s the pace no matter how hard we try to change it. We didn’t set a goal, that’s just the way it turned out.

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

PM: We have started a new partner, and we will make the announcement at the Post Seed conference.