McKesson Ventures is the strategic venture arm of healthcare company McKesson CorporationRead more...
Ware was previously Head of Product at Zappos, and founded several companies including SHIFT
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.
Zach Ware is Managing Partner of VTF Capital.
Ware has founded several companies including SHIFT, a massive transportation operation and technology company which nearly killed him. Before that he was Head of Product at Zappos.com and built its current campus.
Previously he led distribution and later ecommerce for The Republic of Tea. His background includes leadership in real estate development and government relations.
Ware will also be participating in a panel called "Surviving an evolving venture biz, and finding deals as an emerging VC fund" at Vator Splash Spring on May 12.
VatorNews: What is your investment philosophy or methodology?
Zach Ware: At VTF Capital, we invest in the future of commerce. We often invest at day one and hustle alongside our companies to help them grow.
VN: What do you like to invest in? What are your categories of interest?
ZW: We have a more definitive focus on commerce and marketplaces. We are interested in the following three categories:
First is vertical, or companies that define an entire category of products and shopping such as True.com, Combat Gent, and Ring.com.
Second is physical, or companies that build innovative technology for physical commerce such as WithMe, Ink and Swapbox.
And third is access, or companies building technology products and services that enable greater access and efficiency in commerce like AnyPerk, General Assembly and Buffer.
VN: What would you say are the top investments you have been a part of? What stood out about those investments in particular?
ZW: This question is like asking "which of your children is the best?"
Among our largest investments in terms of their size today you'll find General Assembly, Ring, Littlebits, Galvanize, Banjo and Meta. Some of our early-stage companies in the retail space that have been breaking out of late are Combatant Gentleman, Ministry of Supply and Bow and Drape.
VN: What do you look for in companies that you put money in? What are the most important qualities?
ZW: A few things. We like companies that control the relationship with customer, as customer satisfaction is always a huge win in our book.
We also like companies that own a vertical market on a unique platform like Thrive Market, which is a third party retailer; that aren’t marketplaces, like Living Social, since they’re short lived; and can disrupt physical retail, since we have background in real estate.
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?
ZW: We veer towards companies with momentum. Once a company establishes that people actually want to buy what they are selling, we get engaged to help power building sales momentum. The numbers that make sense to us vary by potential market size. So, no.
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 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?
ZW: In our view a company that's raised more than $2M is post-seed. We generally get involved in a company before that point. We don't think a company should raise all that much to get to a point where they have validated that regular people want to buy what they are selling.
We have a very strict rule against investing in companies that launch via Kickstarter BEFORE they establish the retail and ecommerce channels direct to consumer. Successful Kickstarter projects prove interest from an early adopter set of people. Establishing a direct customer channel proves a company has staying power. That's when we feel that a company has product/market fit.
VN: What are the attributes of a company getting a Series A?
ZW: The spreadsheets are different from company to company. Usually a Series A company is on a path to achieving $1M in annual sales through a direct customer channel. For a non-commerce company the attributes could be related to active users in a network company or simply MOM growth for a SaaS company.
I don't think a revenue-centric company with less than $500,000 in annual revenue is ready for a strong Series A.
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?
ZW: I actually disagree. I think huge sums of money are going into a select few companies while a lot of others face a cash crunch. I think that we're in a period of rationalization whereby investors are becoming more aware of the challenges of scaling a loss-centric company. Investors are looking at companies with little to no revenue and little to no plans to unlock it and questioning whether those companies can continue to scale or if putting more money in now simply kicks the can down the street.
VN: If we're in a bubble, how does that affect your investing?
ZW: I don't think we're in a bubble. But recent market behaviors influences our investing by pushing us to question whether we believe a seed company will be able to raise a Series A down the road. We consider future potential investors more heavily than before.
VN: Tell me a bit about your background. Where did you go to school? What led you to the venture capital world?
ZW: I was raised on a farm in the South and attended Vanderbilt University studying Economics. My journey seems disjointed at first glance but all of my professional experiences are linked by a common bond of building intuitive things that solve misunderstood problems. I’ve built campuses, buildings, companies, websites, hardware systems and more. They all seem the same to me. I do my work through several companies today (see /now). Currently, I enjoy investing in companies that focus on the future of commerce and marketplaces.
I moved to Las Vegas to lead product at Zappos. Not long after our CEO, Tony Hsieh, and I started working on plans to revitalize downtown Las Vegas. We would later launch the venture fund that would become VTF Capital as well as Downtown Project. While at Zappos I left product to build the downtown Las Vegas HQ campus and later left Zappos to focus on startups full-time.
VN: What do you like best about being a VC? What makes you excited?
ZW: It's an interesting job and much harder than I expected. In a way you don't just worry about the challenges of your own company, now you have dozens to worry about. We are operationally engaged investors so our companies share their woes with us. We work in the trenches. So we get stressed out too. It's exhausting and exhilarating.
I love the opportunity to work with people creating awesome things every day. I'm amazed every day at the power of founder determination.
VN: What is the size of your current fund?
ZW: We have $43 million invested.
VN: What is the investment range?
ZW: We generally invest $500,000 to $1 million throughout a company's lifecycle, though our largest investment is $5 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?
ZW: This varies by company. Our initial strategy was to widely spread ourselves. Today we invest deeper in fewer companies. We generally prefer to be about 20% of a round though, again, our targets change based on the stage of the company.
VN: Where is the firm currently in the investing cycle of its current fund?
ZW: We're in our fourth year of investing and our fourth active fund.
VN: What percentage of your fund is set aside for follow-on capital?
ZW: Approximately 60 percent.
VN: What series do you typically invest in? Are they typically Seed or Post Seed or Series A?
ZW: The definition of Seed and Series A has changed over the years. Today, at VTF Capital, we call ourselves early stage – seed and A investors; not growth capital but we do have plans later in the year for that.
VN: In a typical year how many startups do you invest in?
ZW: In the beginning we invested in high quantity. So far, we’ve invested in 110 portfolio companies to date. Now, we plan to invest in about five to 10 companies a year.
Editor's Note: Our annual Vator Splash Spring 2016 conference is around the corner on May 12, 2016 at the historic Scottish Rite Center in Oakland. Speakers include Nigel Eccles (CEO & Co-founder, FanDuel), Andy Dunn (Founder & CEO, Bonobos), Mitch Kapor (Founder, Kapor Center for Social Impact); Founders of NextDoor, Handy, TubeMogul; Investors from Khosla Ventures, Javelin Venture Partners, Kapor Capital, Greylock, DFJ, IDG, IVP and more. Join us! REGISTER HERE.
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Joined Vator onZach is the managing partner at VTF Capital, an seed/A venture fund focused on the future of retail and commerce. He was Head of Product at Zappos.com and later developed its LEED Gold campus. He has eaten the same thing everyday since early 2015.