Lehr is VP of strategy and business development at UnityPoint HealthRead more...
Thomas previously ran early-stage startup programming at The Idea Village
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.
Sara Thomas is a Principal at Maven Ventures.
Prior to joining the Maven team, Thomas launched her own consulting and advisory business in 2014 to help founders, investors, and their networks thrive. In addition to Silicon Valley, Sara’s passion for startups led to serving clients in New Orleans, West Virginia, Kansas, Ohio, and Johannesburg, South Africa.
She previously ran early-stage startup programming at The Idea Village, an entrepreneurship engine in New Orleans which has been driving the entrepreneurial rebirth of The Big Easy post-Katrina. While at The Idea Village, she built and managed a team of over 40 employees, contractors, and mentors to deliver direct services to over 1,200 companies.
Thomas was previously a management consultant in the Strategy and Operations practice at Deloitte Consulting in San Francisco.
She holds a BS in Finance from Xavier University in Cincinnati, Ohio and an MBA from the Stanford University Graduate School of Business.
VatorNews: What is your investment philosophy or methodology?
Sara Thomas: We think there's a strong opportunity for investors who have a specialized focus for their fund. So our focus is 100 percent consumer software technology. That's what we tend to look at. If a company comes to us and they have a B2B or SaaS model, it's just not the right fit. Because of that, we have a specialized way to view consumer investments versus other verticals that other firms might focus on.
The first thing we look for is what we call "a vision worth fighting for." Do we think that the founder is bringing something into the world that, at meaningful scale, will do something positive for all the people who interact with it? That doesn't necessarily have to be a social mission, but we've invested in self-driving cars, virtual reality, fintech, transportation, social networking, communications and messaging platforms. Anything we think that 100 million people might engage with on a daily basis, and that will truly have a meaningful impact on their lives for the better. That's what we call the "vision worth fighting for," and is unique to our philosophy. From there, we’ll look at the team, the market opportunity, and other areas; but “vision” is what encapsulates our overall philosophy.
This was a founding principal of the firm. Jim Scheinman is the founder and Managing Partner at Maven; he started as an angel investor for five years, then as a formal venture fund for about the last three years. He defined the “vision worth fighting for” and that's really why I came to join the fund as well—it’s been a personal passion, and the reason I work with startups is I think that for profit entrepreneurship is the best opportunity our generation has, at scale, to have a meaningful impact on the world. That's what led me to Maven.
In addition to our personal passion, the “vision” is important for consumer tech because it's really hard to build a consumer technology that is scalable with tens of millions, or hundreds of millions, of people. So if the founder doesn't have that vision, what will keep them going for the next five to 10 years to build this company? It just makes it that much harder and they're so much less likely to succeed.
VN: What do you like to invest in? What are your categories of interest?
ST: One of the areas that we're looking at right now is consumer health. I think now, more than any other time in the past, there are new opportunities for consumer health software technologies, largely because consumers are interacting with their health in a different way. People now have higher deductible plans, they're now purchasing insurance for themselves on exchanges. Those are behaviors that are relatively new, partnered with the fact that people are used to price shopping, people are used to accessing services though technology, represents some new opportunities for consumer health companies. They can go directly to an individual user, and an individual person can make a decision about their healthcare, and can interact with a healthcare company in a way that only large employers and health plans and health providers used to do.
So that's one area of interest for us in consumer software. Again, with that idea of a vision worth fighting for: you can offer healthcare in a more affordable, better way, leading to better outcomes, something that's just less painful for people.
With virtual reality I think that the best software experiences, and the best software products, are much better than people think because the hardware hasn't been out in the market for very long. Samsung is just out a couple of months, and Oculus isn't even out yet, just now in pre-sale. A lot of everyday consumers haven't tried that technology yet, and I think a lot of the top products are better than people think. One of the companies that we've invested in is Altspace VR, which is the social network of the future. You can put on a virtual reality headset and be on the couch with anyone in the world, and actually take a tour of a volcano, or watch a presentation, or just spend time with your best friend playing a game together, which hasn't been possible before, to actually do that and feel like you're in a room with somebody. For people to have that type of real, personal connection is massive. So that's a game-changing vision that we're looking for. I think there will be more virtual reality opportunities, software products we will invest in in the future, because we've seen that experience and how good, and how real, it can be.
In the world of fintech, one of our investments is a company called Neighborly, which is building a municipal bond investment platform. That doesn't sound particularly sexy from the outside, but when you start to realize that there are a billion dollars a day issued in municipal bonds, and if an individual person wants to buy a muni bond right now it's hard to do, and they actually, often, don't know what that municipal bond is going to support. So Neighborly is creating a way for an individual user to support the causes they care about. If I can support a local school or a local park, or even my local sewer system, and actually know that those dollars are going into something in my local community, wouldn't that be an amazing new way to interact with public finance? So that's the kind of vision we're looking for, a true, groundbreaking, novel marketplace that doesn't exist yet.
VN: What would you say are the top investments you have been a part of? What stood out about those investments in particular?
ST: We are so proud of all of our portfolio companies who are doing unique and meaningful things for consumers. I’ll share just a few.
There's a company based in the Bay Area, called Chariot, which helps people get to and from work in a faster, more affordable, more reliable way than other alternatives. They run nine routes throughout San Francisco, and it's a point-to-point commute, so it's much faster than taking existing public transit or ride-sharing options. It’s something a rider can count on every single day to get to and from work—it’s something people do every single day and it really impacts the quality of their lives. They use 14 passenger vans which fit enough people that it's economical, but it's small enough that it can still easily ride along most city streets. They've really been thoughtful about how they structure their routes so that they're not disruptive to traffic.
The last company I'll mention is Sunshine, which provides the world's most accurate weather. It's a free iPhone app, and it uses the hardware technology available in iPhones in a way that nobody else really does. It allows for street-level accurate weather. So Sunshine can tell you if its going to rain on your block in the next hour, whereas most weather apps and other weather sources, are importing weather from standard weather stations, such as the airport. In a city like San Francisco, with so many micro-climates, the weather at the airport is not exactly what the weather is going to be like in the rest of the city. Sunshine allows for that kind of true, street-level customized weather reports.
VN: What do you look for in companies that you put money in? What are the most important qualities?
ST: As we already covered, the first thing we look for is that “vision worth fighting for”. The second thing we look for is the founding team. We have a list of characteristics and top qualities that we think are really important for founders. It's not a hard and fast scorecard, but they are the top qualities that we think it takes to succeed in building a high-growth, billion dollar business: somebody that's passionate. We really value, and pretty much require, a technical team. Even if these are consumer companies, they're really tech companies and having someone on the team who can build the early product, and lead it to scale, is critical. Somebody that's coachable. We spent a lot of time hands-on with our companies, working with them in the trenches, every single week getting together with them in person to help them build their companies. It doesn't mean that someone always has to take our advice; it's their company and we look to our founders to be the leaders and the decision makers, but somebody that's open to new perspectives, and open to that advice, and seeks out the experience of others, is really important to us. Somebody that's driven, that's really persistent, that we know that they're just not going to take no for an answer. Those are some personality traits and characteristics that we look for.
And then there's specific skills that founders need to have. For a high-growth startup, somebody needs to be a good fundraiser, they have to be able to communicate their vision to investors and get them excited. They need to be a good recruiter so they can draw people in to work with them when they may not always have the salary to match bigger tech 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?
ST: If it's a typical seed round, and we're not working with them in the incubator, and there are other investors coming into the round, typically there is a little bit of traction. We rarely invest at that stage if it’s pre-product. It doesn't have to be a lot of traction but often it's at least thousands of users, depending on the product.
If it's a social product then we actually need to see it working and see people using it. If it's something where can get a sense of how the product works and how people are interacting with it, that's pretty important to us, though it doesn't have to be a million users or more. We're not necessarily looking for revenue at that point. Many of our investments are pre-revenue just because of the type of investing that we do. But we do look for early user numbers and really dig in to the engagement of those users. How are they using the product? How frequently are they coming back? Are they telling friends about it? Has it become something they've invited into their daily lives? Is it something that's really important to them and something that they need? So that's really how we think about traction.
We have done investments in companies where it is just a team and an early idea, and we share the passion and the vision of the founders, but those are rare. It really comes from the right time, the right team and the right idea. Outside of that, some view of the product and how it's going, is always helpful.
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?
ST: We do sometimes see the $3 million plus seed rounds, but the most frequent round that we're seeing is $1.5 million and under, somewhere between usually $500,000 or $750,000 to $1.5 million. For a consumer product at that point, we are looking for somebody that has a live product, that has some sense of users, and how people will engage with their product. We do care very much about the business model, the revenue model, but for some companies it's just not the right time to generate revenue in the very early days. It's better to focus on your users and their engagement, but it really does depend company by company.
VN: What are the attributes of a company getting a Series A?
ST: We're not a Series A investor, we don't evaluate a lot of Series A companies as the entry point, so the best advice that we can give to our companies, is to get to know their ideal investors and their funders of choice for Series A. Hear from them about metrics that they're looking for, what would get them excited to fund a Series A. Get a lot of data points for their specific business. For instance, we’re frequently seeing businesses start in one city and then need to expand city by city. So there are varying viewpoints; a lot of Series A funders say, "We need to see you in two cities operating," while some say, "No, we just need to see you locked down in one city and doing really well, and we'll give you the money to continue into a second city." It varies, and I think each investor has his or her own perspective about when the right time for a Series A is. Often it's revenue driven. There's a certain floor of revenue they expect to see in order to take a look at a company, and I think those numbers are really best viewed from true Series A investor.
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?
ST: I think we are already seeing the correction of late stage valuations taking place. That's been happening over the last couple of months with a lot of write-downs from later stage investments. I am starting to see a noticeable contraction, though I wouldn't call it a drastic change, in valuations of seed funded companies. I'm seeing more companies now taking a little bit longer to raise their rounds, companies that come to us, we might say we need to see a little bit more time, a little bit more data, and then a month or two down the line they come back to us again and they're still growing, but they haven't closed a round yet. So it is taking a little longer, a little bit of an adjustment in realistic valuations. I'm not seeing those $12 million to $14 million valuations right out the gate anymore. I have been seeing even stronger companies in the beginning of 2016 than I was seeing in the last quarter of 2015, so I think the companies are still really strong and we're seeing a lot of great investment opportunities. We're ready to move forward with new seed investments in 2016, so we're not really worried about a massive bubble or a massive correction. I think we've already seen the signs of a healthy correction. A lot of it has played out, or is in the process of playing out right now. I know it's scary with what's happening in the public markets right now, but I think, as far as the private markets, at least in the early stage, we're getting to a pretty healthy place right now.
VN: If we're in a bubble, how does that affect your investing?
ST: A big part of our job as seed funders is to get people to their Series A, Series B funding and beyond, so that's a big part of my job. I don't think about the later stage valuations, but we are spending time with our existing portfolio companies to make sure that they're ready to get that next round of funding, and that they're as healthy as can be, they've grown as much as needed, they have as much cash on hand as they need to be able to achieve those next funding milestones and they can continue to grow. As far as our seed stage investments, we do realize when we invest in a company that that company needs to be able to successfully raise follow-on rounds of financing. That's part of the decision, but that's always been a part of it, so I don't feel like that's particularly changing right now.
For companies, focus on operations, keep your burn down, take advantage opportunistically of, as bigger teach companies start to struggle a little bit, some of their top performers are coming back on the market, which is really great for startups. But be really thoughtful about that.
VN: Tell me a bit about your background. Where did you go to school? What led you to the venture capital world?
ST: I'm from the Midwest, my folks live in Cincinnati, Ohio, I went to undergrad there. I went to Xavier, which is a relatively small, private Jesuit school in Cincinnati. I was a finance major and was always interested in business and finance, so that's where my background was coming from, but I also had almost like an emotional connection, a mental connection, to large scale social change. My personal passion has always been at that intersection of for profit business and social change. That passion took me Stanford business school, where I did my MBA, with the idea that I was going to focus my time there on finding the companies and industries where I could really live at that intersection of business and social change. At the GSB is where entrepreneurship really came to be that perfect intersection. Since graduating almost nine years ago now, I've been focused on that intersection and working with startups.
It took me on kind of a winding path; I was a consultant for a few years at Deloitte in the strategy practice, working primarily in healthcare, which is what led me to this idea of consumer health investments. I lived in New Orleans for a few years, working to help launch and support businesses, working with early stage founders to help get their businesses restarted and growing after Hurricane Katrina. That led me to launch my own company where I was able to work with startups all around the country, to help them with their strategy, operations, and fundraising in order to be more successful. I come from the founder's side of the table and from working hands-on with early stage founders. That's what led me into venture, as I found that it was really the best opportunity to continue to spend time every day with early stage founders who are building really meaningful businesses, in a way that I can continue to help them grow.
The founder of Maven, Jim Scheinman, was actually one of my clients when I was running my own business. I was an adviser to Maven initially to help build our incubator. My background is working in startup incubators, and helping figure out what resources companies need, gathering those resources, and connecting them to companies at the right time. My goal is to know about an obstacle before it ever comes, and be prepared to help a founder overcome it before they even know it's there. I was working with Maven to help build out our incubator and after a couple of months we both realized that it was a great fit longer-term. So I wound down all of my other consulting clients and joined the firm full time as an investor. That was about a year and a half ago.
VN: What do you like best about being a VC? What makes you excited?
ST: I love working with our founders. Having a small piece of each of their businesses, and each of their success, for me personally is really meaningful. I also love the fact that its business, but its also very personal. Building those personal relationships with people and understanding at a seed stage, the finance and the operations and the marketing and the brand, that's all important, but you're also building a relationship with this individual CEO, co-founder, and that, to me, is something that I love to do, spending every day working with our founders.
The other thing I like is that it's just a constant learning ground. Being able to be at the forefront of new technologies and to envision what reality might be like for consumers a year or two down the line, and to help bring those technologies into existence is really exciting. Always being able to look at what are new and emerging trends that consumers might be seeing in the next couple of years and that level of excitement, and the constant opportunity for learning, for me is really energizing.
VN: What is the size of your current fund?
ST: We are raising a $25 million fund, we've had our first close, so we're in the process right now of investing out of that fund.
This is our second institutional fund. Our first fund was $7.5 million, which we fully invested in 22 companies.
VN: What is the investment range? How much do you put into each startup?
ST: For Fund II, our first check will be $350,000 to $500,000.
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?
ST: That's not really a hard and fast number for us. I would say what we typically see if that we'll probably be either the biggest check, or in the realm of the biggest check, that the company is taking. But often, they could have another investor or two that’s participating as well. But there’s not a specific amount of the round that we're looking for.
VN: What percentage of your fund is set aside for follow-on capital?
ST: We reserve around 60 percent of our fund for follow on financings.
VN: What series do you typically invest in? Are they typically Seed or Post Seed or Series A?
ST: We've invested all across the seed spectrum. In the year and a half I've been at Maven, we've done things from pre-seed idea stage all the way through to late seed or small Series A. The pre-seed/seed, the first institutional round, is really the best fit for us. We have a small in-house incubator, where we can work with founders at the really early stage, and we have worked with companies that are just two founders and an idea. Often that happens when we truly share the passion for that idea, and we know we can help them be more successful and we take such a hands on role. So we can do really early stage investments like that.
We also participate in what's become a more traditional seed round, like $1 million to $1.5 million, where there are often other investors around the table as well, pulling that round together. So that's a good stage for us as well.
VN: In a typical year how many startups do you invest in?
ST: We expect we'll have 16 to 18 total companies out of the second fund. We invested in seven companies in 2015, and we think that's about the right order of magnitude for us, with a bit more of a concentrated approach, with bigger checks into those initial rounds and more money reserved for follow-on financing.
VN: Is there anything else you think I should know about you or the firm?
ST: I think one of the things that is most differentiated about Maven is our consumer-only focus. There aren't other seed and pre-seed funds that focus 100 percent on consumer software. If there are, we'd love to meet them, I'm sure there'd be a lot of opportunities to work together. There are great Series A partners that we work with that do only consumer, really great generalist investors that we often co-invest alongside, but the idea of a purely early stage consumer fund is pretty unique to Maven. That's something that really differentiates us because of the high volume of deals we're able to see and evaluate in a specialized way.
The second thing is that we love to be hands on with our founders, with the background that Jim and I both come from, and we'd like to continue to do that, so that concentrated approach allows us to remain really hands on.
Other than that, we're excited to have Fund II in the bank and ready to start investing in some of the great new consumer visionaries that'll break out in 2016.
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