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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.
In this edition of "Meet the VC," we interview Marlon Nichols, a general partner at Cross Culture Ventures, an early-stage venture capital firm with a focus on cultural investments.
Prior to founding Cross Culture Ventures, Nichols was an investment director at Intel Capital where he led investments in women- and minority-led technology startups through the company’s Diversity Fund. Prior to joining the Diversity Fund, Marlon championed the seed-stage investment program for the Ultrabook and Perceptual Computing investment sector, working closely with the startup ecosystem to source, invest in, and advise early-stage, high-growth technology companies working on new mobile technologies enhanced by novel user experiences and perceptual computing. Marlon’s investments included Afrostream, Gimlet Media, Hingeto, LendStreet, LISNR, Mark One (Vessyl), Mayvenn, Mirantis, MongoDB, mSurvey, Sidestep, Skurt and Thrive Market.
Prior to joining Intel Capital, Marlon served as the Lead Fund Manager of Cornell University’s BR Venture Fund, the college’s evergreen venture capital fund.
Marlon started his career in enterprise software, where he successfully led the deployment of many global software and business process improvement initiatives for Fortune 100 enterprises. During his software career he was a member of a three-person team based in London, England that was responsible for the European expansion of Frictionless Commerce. Next, Marlon joined Edgewater Strategy, a boutique consulting firm where he led post-mergers and acquisitions technology integration initiatives for the Blackstone Group’s real estate division. Later, in the role of principal strategist, he led digital strategy initiatives for media companies such as Warner Music Group and McGraw Hill.
VatorNews: Tell me a bit about your background. Where did you go to school? What led you to the venture capital world?
Marlon Nichols: Just a kid from Jamaica, WI that loves technology and primarily grew up in Mount Vernon, NY. My mom is a small business owner. I learned entrepreneurship—the good the bad, and the ugly—from watching her live it. I studied Management Information Systems at Northeastern University and earned an MBA at Cornell University.
My introduction to venture capital came during my time with Frictionless Commerce. From time to time I would interact with some of FCI’s VCs and those interactions piqued my interest in the profession. After leaving FCI and moving back to the US, I joined a boutique consulting firm focused on media and entertainment strategy. A few years in, I paused and reflected on the professional experiences that I was fortunate to have had. In some ways my career was rewarding, but I was looking for more. Venture capital appeared to be a profession that would allow me to work with emerging technology, interact with extremely smart people, and truly be a part of the change that entrepreneurs sought to bring to our world. There was something beautiful about that last part. It also helped that if you do it right you can change the lives of your family members for generations to come.
VN: What is your investment philosophy?
MN: At Cross Culture Ventures, we believe that culture is the catalyst for consumer behavior. As such we study global culture with the intent to uncover emerging trends that are consistent across a number of cultures and regions. At the heart of all of this is the fact that if I understand what consumers want then I can invest in companies that promise to ultimately become tomorrow's next major brands.
VN: What do you like to invest in? What are your categories of interest?
MN: I like to invest in emerging trends that are global in nature. I'm attracted to solutions to real challenges. The greater the impact or change that technology or a solution can have on the world, the greater my interest.
Democratization of healthy lifestyles, the shift from ownership to possession in both the physical and digital world, chat/text becoming the primary form of communication and growing into platforms are just a few of the trends that we are currently investing under.
VN: What would you say are the top investments you have been a part of? What stood out about those investments in particular?
MN: The first 10 investments we made at Cross Culture Ventures. I could go into each one but, generally speaking, each company is taking a novel approach to solving real pain points or is creating unique opportunities. Some specific examples:
VN: What do you look for in companies that you put money in? What are the most important qualities?
MN: We look for entrepreneurs that have a strong emotional tie to the challenge they are going after or strong domain expertise and unique experiences in the target space. We also look for a track record of hustle, the proven mentality of "I'll do whatever it takes to win as long as it's within legal and ethical boundaries."
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?
MN: Sorry I can't be specific here—not because I want to be coy, but because it varies from company to company, by sector, by solution, by team, etc. Essentially, what we look for is substantive evidence that consumers will use the solution in a big and recurring manner. This can be demonstrated by revenue, by recurring users, by initial signups, by low churn rates, etc.
VN: 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 of a seed round vs a Series A round?
MN: The phenomenon you describe is a natural progression given the reduced cost of technology and the fact that so much can be achieved via software and the internet these days. It is essentially cheaper to build and execute on a beta product than it was in years past so it makes sense that investors would expect scrappy entrepreneurs to have achieved more prior to the first round of institutional financing. In my mind, the only difference between seed and Series A is whether the company is still testing product to market fit or if they've substantiated that fit and are ready to accelerate growth. So, at the seed round my expectation is that the product is built and is to some extent out in the wild (beta group or fully live). It would be a rare occasion for me to invest in a pre-beta product company.
VN: What are the attributes of a company getting a Series A?
MN: Evidence that they have achieved product market fit. This is usually evidenced by revenue that is growing consistently month over month (MOM)—maybe to the tune of 20% to 30% MOM. Again, this is only one metric, but at the Series A it becomes more important.
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? And is it deflating now?
MN: I wouldn't call it a bubble, but early-stage valuations were definitely on the higher side during the past few years. Since the start of 2016, I've definitely observed a correction of sorts. Specifically, valuations have come down and early-stage companies are raising more appropriate sums of capital based on maturity and company needs.
VN: If the bubble is deflating, how does that affect your investing?
MN: Doesn't really affect us. We are disciplined investors that invest in high-quality companies with solid economics that have proven their value in some way and want to partner with us because of the differentiated value we bring to the relationship. In other words, we don't invest in "hot deals" with artificial valuations just because all of our peers are clamoring to be a part of the deal. It's kind of like that old saying, "if your friends jump off a bridge..."
VN: What do you like best about being a VC?
MN: I love meeting incredibly smart and optimistic people. I enjoy playing a small part in the development of companies that stand to have real impact on our world. I love being around emerging technology. I love love love to learn.
VN: What is the size of your current fund? And where is the firm currently in the investing cycle?
MN: We are at the tail end of our fundraising process and so can't speak about this publicly. What I can say is that we've successfully raised capital from a group of terrific investors.
VN: What is the investment range? How much do you put into each startup?
MN: The investment amount varies with the opportunity and company, but, in general, our first check into a company is in the range of $250K to $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?
MN: We don't discuss this publicly except to say that we are flexible to an extent.
VN: Where is the firm currently in the investing cycle of its current fund?
MN: We are targeting 40 to 50 investments for fund 1. In our first year, we've invested in 10 companies. That pace feels appropriate to us, but the most important thing is to invest in the best companies solving real challenges.
VN: What percentage of your fund is set aside for follow-on capital?
MN: We don't discuss this publicly, but what I can say is that we plan to support our companies through two rounds of financing. We just executed our first follow-on investment when we participated in Thrive Market's most recent round.
VN: What series do you typically invest in? Are they typically Seed or Post Seed or Series A?
MN: We like to start at seed and participate through Series A, but there have been a few instances where we started at Series A.
VN: Is there anything else you think I should know about you or the firm?
MN: A key point of differentiation for our firm is the close relationship to the Atom Factory/SmashD Group. It is unprecedented for a sub-$100M fund to provide agency-type services to its portfolio company. At the early stages of a company's life cycle, communication strategy, branding strategy, marketing strategy, and business development are critical to its success. These are core competencies of the SmashD Group and represent some of the ways we support our companies post-investment.
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