Meet Mark Linao, Principal at AET Fund

AET Fund is the venture arm of Japanese mobile gaming company Akatsuki

Venture capital used to be a cottage industry, with very few investing in tomorrow's products and services. Oh, how times have changed!

While there are more startups than ever, there's also more money chasing them. In this series, we look at the new (or relatively new) VCs in the early stages: seed and Series A.

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.

Mark Linao is a Principal at AET Fund.

Before joining AET Fund, Linao was a senior multi-disciplined Engineer at aerospace and defense firm Raytheon. He had also spent time at the Rubicon Project and Amazon. After that, he was an Associate at Technicolor Ventures eventually transitioning to Director of Corporate Development and Strategy at Technicolor. Previously, Linao was a Venture Partner at Candela Partners, an angel, and pre-seed fund focused on mixed reality, computer vision, and mapping.

Linao is a graduate of the University of California Los Angeles (UCLA) with a BS and MS in Materials Science and Engineering and holds an MBA from the University of Michigan Ross School of Business.

VatorNews: What is your investment philosophy or methodology?

Mark Linao: At AET Fund, we’re a small, diverse team that looks to invest in the future of media and entertainment. More generally, the mission, and our north star, is we want to invest in companies that create a colorful and heart-driven world. Personally, I like to fund founders and operators that are really mission driven and solving a problem or developing new business models in certain sectors that make sense for us at AET to invest in. We’re pretty focused in general on the very early stages, on seed, so really early stages of a company.

VN: What are your categories of interest?

ML: We’ve identified a few sectors, and these may change, but overall we’re looking at the future of media entertainment, which is specifically gaming and esports. We’re looking at things that increase quality of life, so the most obvious one is well-being and hospitality, which includes food. Also, new consumer experiences are really interesting to us. We also like to look at emerging technologies and the intersection where they meet the categories I just mentioned, so we’re looking at AR/VR, voice, live streaming, cloud and other modes that digitize traditional ways of doing business.

We’ve done one investment in healthtech, but not interested in biotech or things like that. We're looking more along the lines of what Calm or Headspace would do for someone, more like digital health.

VN: What's the big macro trend you're betting on?

ML: I don’t think there’s no one big macro trend, but, in general, the internet has certainly allowed companies to reach consumers directly. You’re seeing the effects of this play out here in the media landscape, where the media industry is consolidating. For example, you have Disney buying Fox, and you have the telecom and carrier companies like AT&T purchasing content companies. In parallel, there’s been a rise of digitally native consumer brands that are going direct to consumer. So, what I’m seeing is the internet is changing the distribution of content services for products get to consumers.

This means we want to invest in companies can take advantage of what essentially is the zero distribution cost of the internet. For example, one of our investments is in Journey Meditation, which basically delivers guided meditation to consumers directly. The other thing is, right now, we’re evaluating companies that are the backend technologies that enable direct to consumer brands to thrive and flourish in the face of Amazon and Walmart and all the other platforms which are a marketplace for new brands. Categorically, that’s what we’re looking at.

VN: What is the size of your current fund and how many investments do you typically make in a year?

ML: The fund is $50 million; we’re a corporate fund but it’s set aside. We invest in the U.S. and India for now. We don’t have a goal on number of investments per year but I’d say in the last almost year and a half that we’ve been operating we’ve had almost 30 investments total.

VN: What stage/series do you invest in and how much is that in dollar amount for you?

ML: We are seed generally but we look at some pre-seed and post-seed before the A round. I’d say initial checks are anywhere between $200,000 to $500,000. Over the life of a company, we haven’t come up with that number yet but ideally we’d like to invest and support the companies and take pro rata up to Series A.

VN: What kind of traction does a startup need for you to invest? Do you have any specific numbers?

ML: There’s really no specific numbers and if we did give you one that would probably change, like valuations have changed over the last few years.

It really depends on the market and what kind of business the company is. There are definitely certain segments where you can look at comps in the market that are getting more of a premium, depending on who their team is, and the market that they’re in. There are certainly numbers out there for what SaaS revenue should be or what kind of monthly active users a company should have at seed but the problem is that it’s always fluctuating, so if I give you something now it probably won’t be relevant a few months from now. So, our job is to understand and really listen to founders and compare how everyone is doing at this stage.

We definitely look at engagement rates if it’s a consumer app, we definitely look at how big the market is and we look at a sales pipeline or the ability to sell a SaaS product. So, we’re more evaluating their network and the probability to be able to sell into that network.

VN: What other signals do you look for? Team, product, macro market?

ML: On the one hand, some people think seed investing a lot of luck, but, on the other hand, there are people who are very skilled at seed investing. Like I’m sure other seed investors you’ve spoken to, we like to focus on the team at seed. Specifically, we look at teams and founders that can do a few things specially: they have to be able to recruit, to be able to hire and retain talent; they have to be able to set the strategy and the vision for their company and instill that within their current team members.

On the product side, I look to see if the product is really differentiated and building towards a future of capturing customers or users in that market. The next thing from that is really understanding their go-to-market strategy, which has to be convincing. So, those are the main things I look for.

VN: What do you think about valuations these days? What's a typical Seed pre-money valuation and Series A?

ML: Things have definitely creeped up since I first started my career in venture and I think it’s a kind of all over the place right now. We don’t spend a lot of time in Series A doing initial checks, but, from what I understand, Series A has gotten more competitive. We spend our time on the seed, pre-seed and pre-Series A and I can certainly give you some ranges there. For pre-seed I’ve been seeing $3.5 to $6 million pre-money, and for seed I see $5 to $9 million pre-money.

How this affects our investing style is, because we don’t do as much Series A and valuations are getting higher, a lot of seed investors are exploring this pre-seed area. You can do one of two things to get ownership: you can go lower and go earlier and put less money for same ownership and then you’ll have more shots on goal, theoretically. Or, what I’m seeing, and while it’s it not exactly what we’re doing but we are exploring it too, is going later, to post-seed. Hopefully that’s much more derisked and, yes, you have to put more money in but the trade off is that, theoretically, the company is more derisked for Series A. We’re exploring along that spectrum now and I’m going both ways, but, right now, I’m exploring much more pre-seed.

VN: There are many venture funds out there today, how do you differentiate yourself to limited partners?

ML: We are born out of Akatsuki Inc. So, our LP is actually one of our differentiating factors.

VN: Venture is a two-way street, where investors also have to pitch themselves. How do you differentiate your fund to entrepreneurs?

ML: For us, the obvious one is that we’re well connected in Japan and we can be a bridge to Asia for founders. In a lot of cases that’s maybe too early for seed stage companies but there are plenty of times when that’s not the case.

Personally, for all of us in the fund, we’ve been able to work with founders on product strategy, on hiring and finding great syndicates to co-invest with us. Those things are what we’re great at. We’re not always the largest check but we definitely can reference where we’ve been very helpful. A lot of the job, for us, is to be accessible, so founders call me really late, all times of the night, or super early in the morning, about issues and we’re there to listen.

VN: What are some of the investments you’ve made that you're super excited about? Why did you want to invest in those companies?

ML: There’s this company called Blutag which is enabling voice shopping and they just announced some major partnerships with some big retailers. We’re betting on the future of retail and shopping is supposed to be an entertaining and delightful experience, so thematically that’s good for us.

Another one we did that I find really interesting is called Karuna Labs, and they’re using virtual reality environments, the same assets you would use to develop a VR game, and they’re using that to help manage chronic pain by literally reprogramming how the brain represents pain. There’s a big problem with opioid use in the U.S. and a lot of it’s linked to chronic pain.

There’s another company called Ghost Commander. It’s still really early but what they’re doing is developing audience-driven content on livestream platforms, where the actors’ decisions are controlled live by viewers.

I mention all these because they show that media and gaming assets can be used in different ways, whether that’s entertainment, shopping or helping to solve a serious health crisis.

VN: What are some lessons you learned?

ML: I started off my career in aerospace engineering, working for an aerospace and defense firm. There was a lot of red tape but I learned a lot in that industry. Then I went to work for a startup between their Series A and B rounds as an intern, and that changed my direction in terms of what kind of company I wanted to work for. During that experience, I was working for people in the C-suite and was creating board decks and things like that. This was a venture funded company, so I got a touch of what venture capital was and I started exploring it. That’s where the bug got in my head about it, about startups, tech, entrepreneurship and venture capital.

I went to business school, and I worked at Amazon, and then I was supposed to go back to Amazon but I was poached to go work and start a venture fund here in Los Angeles. That was in 2013 or 2014, so I did that and since then I’ve always wanted to be in venture.

In terms of the lessons learned throughout my career, it’s definitely important to do what you want. I work much longer hours than I ever have before but they feel short. Also, in this business of venture capital, in general the biggest lesson I’ve learned, and it sounds very basic but I think it’s really important, is to be be a good listener. Whether that’s evaluating companies or working with your portfolio companies, it’s surprisingly a differentiating factor. It’s important to me that I can be accessible to founders because building a company is really hard and with the pressure of investors, customers, your team, everyone, sometimes the journey can be a lonely one. It’s important to offer someone to talk to, whether it’s about the business or it’s about something else. For me, that type of mindset has paid dividends.

VN: What excites you the most about your position as VC?

ML: It’s really humbling, the work. You’re in this position where you get to meet extremely smart people, founders, other investors, subject matter experts. We get to meet founders who are putting a lot on the line and we literally get a front row seat to the journey that they go through.

I get to meet so many brilliant people every day and get exposed to diversity of thought, innovative thinking and new business models, things that you don’t even see in business school case studies. It’s a privilege to be in this position and it’s important to treat people with respect and respect people’s time. I almost feel like VC is all the great parts of going to school; my job is to literally read and consume new things and use that information to act on it.

VN: Is there anything else that you think I should know about you or the firm or your thoughts about the venture industry in general?

ML: If your idea seems crazy and ambitious, you may or may not be right about what you’re building and some funds will resonate with you, and some funds won’t, but we’re definitely interested in those founders and that are ambitious and have big, quirky ideas. If you can present them to us pretty rationally, if you fit that mold I’m definitely interested in chatting.