Celesta Capital invests in deep tech companies, with a focus on hardware, out of a $400M fundRead more...
Some of Maple's investments have included Twitter, Twitch.tv, ngmoco, Weebly and Chegg
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.
Maples has been on the Forbes Midas List since 2010 and was also named one of "8 Rising Stars" by FORTUNE Magazine. Before becoming a full-time investor, he was involved as a founder and operating executive at back-to-back startup IPOs, including Tivoli Systems and Motive.
Some of Maple's investments include Twitter, Twitch.tv, ngmoco, Weebly, Chegg, Bazaarvoice, Spiceworks, Okta, and Demandforce.
Maples is known for coining the term "Thunder Lizards," which is a metaphor derived from Godzilla that describes the tiny number of truly exceptional companies that are wildly disruptive capitalist mutations. He likes to think of himself as a hunter of the "atomic eggs" that beget these companies.
Maples got is BS at Stanford University and his at MBA Harvard Business School.
VatorNews: What is your investment philosophy or methodology?
Mike Maples: The tech startup business is all about hyper-exceptionalism. Out of tens of thousands of
companies started a year, 97 percent of the exit profits will likely come from less than ten….the point one
Our job is to find the point-one percent. But we have an extra twist. We want to avoid competing
in a fiercely crowded landscape of established Series A funds. So we have to find these companies at the crazy, risky, and early time before Sand Hill Road is excited. When we are right, we will be rewarded because we will have been able to invest smaller amounts of money at lower valuations. That’s what makes our math work.
VN: What do you like to invest in? What are your categories of interest?
MM: One of my favorite investing books is Fooled by Randomness, by Nassim Taleb. One of his key
ideas is that people underestimate the randomness in everyday life and markets. They become too certain in their knowledge of what they are looking for, and therefore miss opportunities right in front of them because they weren’t awake to the possibility of an unexpected rare event.
So, as a general rule we like to see any startup idea that has the chance to be meaningful enough to be in the top point-one percent. But we try not to be too dogmatic about the areas we are focused on. We believe that knowing the rare exceptional startup when you see it is the more important skill.
VN: What would you say are the top investments you have been a part of? What stood out about those investments in particular?
MM: The most successful so far have been Twitter, Lyft, Twitch.tv, Okta, Demandforce, Weebly,
Chegg, Xamarin, Refinery29, Spiceworks, Playdom, and ngmoco. There are a few younger ones
that I think have a chance of also being very good.
The common element of all of these startups is that their teams were amazing. They were amazing in their domain knowledge for the products they were building and they were amazing at their ability to “McGyver” great outcomes in harrowing and uncertain circumstances. It’s surprisingly rare for a startup team to be able to execute at the level of speed, urgency, and precision required to build a real company.
VN: What do you look for in companies that you put money in? What are the most
MM: We have four main qualifiers:
One, a visionary entrepreneur with domain knowledge and innate product skills who has a product idea that is not obvious. Two, a huge potential market. Three, a fundamental advantage, usually based on deep technology or a network effect. And four, modest capital requirements to get to critical mass in proving the product is a winner.
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?
MM: My opinion is that most investors are overly focused on traction right now. The problem with that
is it can be gamed in the short term. And even worse, it often instills a mindset of iterating metrics to nowhere. It’s more important to us that the startup has a structural competitive advantage and is on the path to creating a product that blows people away in large potential numbers. I have never seen an awesome product with a fundamental advantage and lots of potentially delighted customers not be able to make money.
VN: Given that 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 to get that Seed round? Since it's a "Seed" does it imply that a company doesn't have to be that far along?
MM: You guess is as good as mine! I can hardly even parse the language these days to describe seed rounds.
I think the ever-changing and sloppy language around seed rounds is happening because of a wildly undisciplined seed environment. When you have too many new investors funding startup ideas led by teams that aren’t ready for the road ahead, you have a recipe for all types of madeup new financing models. None of the companies that did awesome for us cared about any of this stuff. They just took their initial seed money and executed.
VN: What are the attributes of a company getting a Series A?
MM: Build a product that an early set of customers loves, has huge market potential, and that is very hard for other companies to copy.
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?
MM: I think that a set of private companies are over-priced and over-funded relative to public companies. But markets have a way of working over time and I believe the correction is already starting to happen.
VN: If we're in a bubble, how does that affect your investing?
MM: It makes it doubly important to invest in a company that will be hard to replicate. In an environment of undisciplined capital, you can find yourself investing in a company that ends up competing in a sector with multiple over-funded competitors engaging in mindless competition. Even if you are right about the category and founders, your control of your destiny is limited because the game shifts from company building to fundraising and promotion.
VN: Tell me a bit about your background. Where did you go to school? What led you to the venture capital world?
MM: I majored in Engineering at Stanford. Then I was a product manager at Silicon Graphics in the early 90s. After that I went to Harvard Business School and then moved to Austin to run product marketing at a startup called Tivoli Systems. After Tivoli went public, it was acquired by IBM and I co-founded a company called Motive.
After Motive went public, I moved to back to Silicon Valley and pursued the VC path. I thought that I was getting a little burned out on starting companies and that the venture business would be a way to be “forever young” in the sense that I could still be in the energy of the startup ecosystem without being directly on the front lines.
VN: What do you like best about being a VC? What makes you excited?
MM: Some of the founders we have worked with have built some of the most important digital businesses in the world and it’s exciting to know them and work with them from the earliest of days. Most of these people had a choice of whom they could work with and I will always be grateful that they let us be involved.
VN: What is the size of your current fund?
MM: It is a $75 million fund.
VN: What is the investment range? How much do you put into each startup?
MM: We will usually invest between $500,000 and $2,000,000, but we have gone as low as $100,000.
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: No. We like to say “There are no good deals…Only good companies.” If we think a company has a chance to be exceptional, our job is to find our way in any way we can.
VN: Where is the firm currently in the investing cycle of its current fund?
MM: We are about halfway into the investing cycle of our current fund.
VN: What percentage of your fund is set aside for follow-on capital?
MM: We set aside 50% of the fund.
VN: What series do you typically invest in? Are they typically Seed or Post Seed or Series A?
MM: We invest at the seed stage.
VN: In a typical year how many startups do you invest in?
MM: About 10 to 15.
VN: Is there anything else you think I should know about you or the firm?
MM: It is core to our mission to not only make lots of money but to be a force for change in democratizing entrepreneurship.
We are proud to have been one of the tiny number of firms to have invented the micro-VC space over a decade ago. Back when we got started in 2005, it was very hard for a founder to raise $1M. They had to raise a whole lot less or be de-risked enough to raise $5M from a traditional VC. But when firms like Floodgate and FirstRound Capital started succeeding, this completely changed. Now over $4B has been invested in hundreds of micro-funds in the last few years. While it makes our job harder to have more competition, it feels very satisfying to have played an early role in such a big change event.
We are also proud to generate returns with a diverse team. 50% of our partners are women and a large portion of the founders we back and are pitched by are women. We have also backed five black CEOs. We do this not for politically correct reasons, but because we believe entrepreneurship is shifting and will continue to do so as the barriers to starting new companies collapse.
We hope to continue to be activists in new areas that contribute to change bigger than us.
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