Kim founded Formation 8 and was previously a General Partner at Khosla VenturesRead more...
Michel invests in marketplaces and payments, with companies such as Move Loot, Wanderu and TalkSpace
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 more and more money to young companies looking to make it big.
But just who are these funds and venture capitalists that run them? What kind of investments do they like making, and how do they see themselves in the VC landscape?
We've highlighting members of the community to find out.
Michel was formerly Group Head at TD Capital (USA) in New York, TD Bank's $500 million private equity fund focused on the media and communications sectors. Prior to joining TD Capital, Marc was the Managing Partner of EOS Partners SBIC. He began his career at Merrill Lynch Interfunding.
While leading TD Capital, Marc co-founded Precyse Solutions, a leading health information management company
VatorNews: What do you like to invest in? What are your categories of interest?
Marc Michel: The category we have been most interested in, and focused on, over the last few years has been marketplaces. There is a big opportunity to organize a lot of businesses around the Internet, and there has been a real need of improving the entire consumer experience. The biggest that everyone thinks of is Uber, and they have done a phenomenal job of improving the customer experience, but there are a whole lot of other categories as well.
The most prominent we invested in was IndieGogo and we have done others since then, including Move Loot, which a used furniture marketplace, Wanderu, a travel marketplace, Upcounsel, which is a marketplace for legal services, and my favorite, which is Talkspace, which lets people connect and communicate with licensed therapists.
We have also become interested in payments. We have started to look at payments companies, and that is something I am personally interested in, including lending platforms the bitcoin ecosystem, and e-billing. We have invested in Transactis, Symphony Commerce and Fuse Networks.
Payments is at the core of everything. It's a gigantic industry, to begin with. one of our first investments. One of our first investments was Transactis, which is an end to end payment processor, and we learned a lot about how the payments infrasttructure works. We felt like very few others VC share that domain knowledge, and we are leveraging that into oppprtunities for the fund.
VN: What would you say are the top investments you have been a part of? What stood out about those investments in particular?
MM: With the exception of Indiegogo, where the market didn't exist, they co-invented crowdfunding with Kickstarter, so they weren't reinventing a preexisting market, all of the the other marketplace companies were all operating in very large markets, but ones being served by older technology. With Move Loot, before that it was largely Craigslist that people used, which was not a great experience, and had security risks.
Talkspace not only reinvented the way mental healthcare delivered, now primarily over a mobile device, but the way they were pricing the product allowed people to access mental health services in a greater and more frequent way. The company is expanding the market for mental health therapy by capitalizing on the unused time that therapists might have.
Patients pay $25 per week, as opposed to $150 hourly. So the patient gets access for the entire week for that amount.
VN: What do you look for in company's that you put money in? What are the most important qualities?
MM: It might sound trite, but, first and foremost, we are looking for a special management team and entrepreneur. That starts with the CEO, who is the most important person, but companies are a team effort, so we are looking for a highly qualified and special team that can execute on their vision.
There's something about being in this business a long time, you get pattern recognition around highly qualified people, who are smart, driven and passionate about what they're doing. There are intangibles, like grit and perseverance, and hustle and cleverness. It's not enough to be smart, you have to be street smart in order to build a business against competitive pressure, limited capital and resources, lack of momentum and brand. It takes a special group of people to build something from nothing.
We also want to see that they are operating in a large market. We are trying to invest in cos that can become large enterprises, which is hard to do in small markets. Mental health, furniture, transportation, those all very large markets to operate in, and that makes it easier for an entrepreneur to build a very large business to be successful.
VN: Tell me a bit about your background. Where did you go to school? What led you to the venture capital world?
MM: I went to Emery University, where I earned double degrees in economics and business. I went to work for the Federal Reserve Bank right after school, thinking I'd go back and get a PhD. Instead I started to look for job on Wall Street. Eventually through connections I got a job in the tech underwriting business.
I then went to work for a startup group doing middle market buyouts. While we weren't really working with tech oriented companies, I did see entrepreneurs often build businesses from scratch, and that had a great appeal to me.
I then started a VC fund, which is no longer in existence, which I founded and ran for a number of years. I built that into a $500 million fund. I became an angel investor for a number of years until Metamorphic Ventures was founded in 2008. That was not one of the best times to found a new business, given the economy, but we eventually got off the ground and started investing.
I also started a company, which still around, a medical data and record company that became big and successful. I also got operating experience at Merril Lynch.
I think what I love about venture is that it really asks me to be multi-skilled in a variety of areas. I find myself being a psychologist, helping coach entrepreneurs through their ups and downs. What I really love the most is playing rabbi to the entrepreneurs I work with.
Some of them have even scheduled regular hours with me, so we talk once a week, or every other week, about what's going on, like strategy issues or capital issues. Talking about culture is something they appreciate the most. It's never easy to build a team and a strong culture. Firing someone, for example, is never an easy thing to do, even if it is often the right answer. Being able to talk through it, whether a person is salvageable or not, and if they should upgrade the position. I often get involved, if its senior management, meaning its going to be in the top five roles of a company, they might ask me to interview the remaining two or three best candidates. Many of them find that helpful.
This builds trust, and my objective with everyone I deal with in business is to build trust. They know I'm going to keep the conversations confidential, and that I will give them by best advice. Most of them end up building deep trust relationships, and tell me things they might not tell the other VCs, like what's troubling them, what's working and what's not. They don't want to seem confused in front of VC investors but it is very helpful ti deal with problems early.
A number of founders, even though I've stepped off the board, continue to schedule regular meetings to talk about things. I even have a founder who exited who comes to talk. I enjoy doing it, its not an imposition.
I also also love the strategic element of being a VC. I have to have knowledge and expertise in all disciples, which is unique in a lot of business professions. I'm not a specialist, I get a lot of variety of. I also like that im thinking about lots of businesses and industries, how they can be reinvented, and not one narrow thing.
Also, even if I don't fund them, I meet spectacularly talented people every day. Its a fun profession.
VN: What is the size of your current fund?
MM: It's a $70 million fund.
VN: What is the investment range? How much do you put into each startup?
MM: For seed companies we average $500,000. For Series A the average is $1.5 million to $2 million. We also do between the Seed and series A, and that is roughly $1 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?
MM: We'd love to get 20% or 30% but the market has become more highly valued than it was in the depth of the recession. Since 2008 to 2009 it has inflated and expanded quite a bit. Our goal is to get 10% to 15%, though with seed is its less than that, but we hope to increase in Series A.
VN: Where is the firm currently in the investing cycle of its current fund?
MM: We are about two-thirds through the fund.
VN: What percentage of your fund is set aside for follow-on capital?
MM: Roughly 60%.
VN: What series do you typically invest in? Are they typically Seed or Post Seed or Series A?
MM: We invest in seed through Series A.
VN: In a typical year how many startups do you invest in?
MM: We are averaging 10 to 12 seed investments per year.
VN: Is there anything else you think I should know about you or the firm?
MM: I think the firm is known for having a fairly strong network of execs, in development and recurring sales. Chunks of our LP base are operators that we call on every day to help look for opportunities and help the portfolio companies. We have a network of about 60, and that seems like a large investor base to manage and it is, but I prefer to have it.
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