Meet Cathryn Chen, General Partner at Radiate Ventures
MarketX recently launched Radiate Ventures to invest in fintech, deep tech, and vertical SaaSRead more...
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.
Mike Janke is co-founder of DataTribe.
Janke is a 6-time founder, accomplished entrepreneur and former member of SEAL Team 6. In addition to Data Tribe, he is a co-founder of Blue Pacific Studios, an LA based media content production company, SMGI a bay area cybersecurity firm, and investor and board member of Onyara, which sold to Hortonworks. Janke was the Co-Founder of Silent Circle, a private security communication hardware and software technology firm, and Mike is also the founder of “Blackphone," the world’s first main stream commercial secure android smartphone.
He is a board member of: DataTribe, Dragos, OP2Labs, MindBridge AI, Blue Pacific Studios, Strider and Prevailion.
Prior to starting multiple technology firms, Janke was the founder and former CEO of SOC-USA, one of the countries largest defense logistics and security firms headquartered in Washington DC, with over 8,000 employees in 14 countries.
VatorNews: What is your investment philosophy or methodology?
Mike Janke: DataTribe is a very unique model – there is really nothing out there exactly like us. We are not an accelerator, an incubator nor a pure-VC. We call our methodology or structure a Startup Foundry. Our design is to over-resource and make startups an “unfair advantage” in the market.
DataTribe invests in and co-builds four companies a year. We do not schedule cohorts or structured group timelines. DataTribe invests $2 million plus at seed stage and moves the small early stage company into our facilities. We work strictly on a vanilla term sheet with equity. No warrants, no charge backs and no weird cap-table gymnastics. Each startup in DataTribe will receive over $1 million of free in-kind services within a 12-month time frame.
That turns into a total of $3 million plus of value for the $2 million invested as it would cost a startup that much to have all of those support services and personnel to accomplish what our team does for them. We have a very experienced full-time team of seasoned operators (multi-time CEOs, CMOs, CROs, CTOs) that literally embed within the startups from day one. Not a dime for these services comes from the startup. We are structured more like a company than a typical venture firm. We have an OPEX (operational expense), not a management fee and that helps pay for all of the support we provide. We have our own in-house, full time General Counsel, Marketing, Recruiting, Product Management and Go-To-Market professionals, and our network of corporate LP’s often become the startups first customers.
All this is what makes it an “unfair fight” for our startups. Some of the unique data points we can share around the success of this philosophy speak to the idea of “over-resourcing the startup”. On average over the past 4 years globally, the average cybersecurity startup took 21 months to complete an A round from their initial seed. Over the past four years, DataTribe companies have completed A rounds within 13 months of our initial seed investment. Several of our companies have had the highest A round valuations in the country. We measure our success by the successful growth of our companies, not by fancy marketing. Our track record of investing and validating our philosophy of “an unfair fight” has so far proven this out in spades. Real metrics versus hype is key for us.
VN: What are your categories of interest?
MJ: DataTribe focuses on what we call “Over The Horizon” technologies that come out of the intelligence community, classified R&D labs, national defense research organizations and others areas within the Five-Eyes nations: U.S, Canada, U.K, Australia and New Zealand. These countries are putting massive amounts of money into cybersecurity and data science initiatives. We focus on taking these very experienced teams out to build 100 percent commercial SaaS startups. We look for technologies in cybersecurity and data science that are three to four generations ahead of anything in the commercial market or technologies that have never existed before.
We focus on building very fast-moving commercial enterprise sales companies. Many of our companies are now the fastest growing cybersecurity, AI and data science companies in the world. We have built a track record to show what can happen when you apply this focus to the commercial markets. We do not do “technology transfers,” nor do we have any government funding. In many ways, we are the opposite of In-Q-Tel. We take cutting edge tech out of the classified space and building successful commercial companies in a hyper-accelerated fashion.
VN: What's the big macro trend you're betting on?
MJ: We are really focused on cybersecurity as a whole. It touches every part of every company and organization. However, most of the ideas behind the technologies and founders we build with come from the offensive side of government. This is where the real innovation is. For example, if our government develops a very unique offensive cyber capability that almost always means there is no defense for it. Which then means this is a huge, up and coming vulnerability for all organizations. We work with highly skilled founding teams to build a defensive or cybersecurity product based upon the new cutting edge offensive capability, and who better to be the founding team than the actual team leaders out of government?
We see three areas that are several generations ahead of the commercial markets due to massive government funding into the intelligence and research areas - cybersecurity, AI and data science.
VN: What is the size of your current fund and how many investments do you typically make in a year?
MJ: We are structured very differently than a typical Venture Fund, so we shy away from the term “fund.” Our LP’s are Fortune 500 corporations and over 75 of the top commercial technology company founders/CEO’s and CTO’s. Each of these have personally invested in DataTribe.
We are currently operating on our second round of money called “DataTribe 2,” totaling $50 million. We will co-build and invest in 12 more companies in three years with this, then we will open DataTribe 3. We are structured so that each of our pools of LP funding are separate LLC’s under the parent DataTribe company. In terms of normal venture funds, this looks and acts similar to a typical VC, but we are structured very differently.
Most venture firms have institutions as LP’s. We do not. Our corporate LP’s are partners that help us vet, grow, and ultimately use the technologies our startups sell. It’s a very different model under the hood. DataTribe invests $2 million plus at seed and we put money all the way up to C series in our companies.
VN: What stage/series do you invest in and how much is that in dollar amount for you?
MJ: We look for startups with little or no initial capital. Very early stage. We will over-resource our startups with up to and over $2 million at seed with a follow-on of up to $6.5M in A along with our partner Allegis Cyber, Silicon Valley’s oldest and largest cybersecurity venture firm. My co-founder of DataTribe is Bob Ackerman, the chairman and founder of Allegis Cyber. Bob and I shared this vision for taking cutting edge teams and tech ideas out of the classified offensive space and building massive, fast moving commercial software startups. We are not built to hold our entire pro-rata as the company grows, but we put money in at each stage and squeeze-down to fit in other partner venture firms to help them grow at each stage.
VN: What kind of traction does a startup need for you to invest? Do you have any specific numbers?
MJ: We focus more on the team and technology than initial traction. Does this technology fundamentally change everything? Is it just an incremental improvement in the space, or is it three to four generations ahead of anything in the market? Some of our companies came straight out of the NSA with the idea in their head and some of them came to us with almost $1 million in revenue. We also focus on the founders. Do they have the emotional intelligence to be a good CEO, or do we put an experienced CEO into a highly experienced technology founding team? We’ve seen success with both approaches.
VN: What other signals do you look for? Team, product, macro market?
MJ: Yes, we do give these factors high importance in our evaluation. However, we have designed a rich collaboration network to leverage when evaluating such things. Our strategic corporate partners, CISO network and our 75 plus top CEO/CTO company founder investors (we call them our Brain Trust) help us validate whether the technology is solving a needed pain point right now or is just an interesting R&D project. This helps us understand how and where a new technology can fit in the market and helps us drive the startup to over $1 million in bookings within 12 months.
It’s a unique system that helps us understand the difference between buyers and technology. Lastly, we put a high value on the emotional intelligence levels of the CEO. Many are technically brilliant but if they cannot manage diverse groups of people the company will suffer greatly. Most of our founders are in their late 30’s and early 40’s with over 15 years of experience leading highly sensitive intelligence software and architecture missions. We are not the right structure or investors for 24-year old’s coming out of Stanford.
VN: What do you think about valuations these days? What's a typical Seed pre-money valuation and Series A?
MJ: We do not focus a lot on seed stage valuations, simply because we are designed to build value. By over-resourcing and embedding a lot of our team into the company in the early days, we are able to drive value to hit high A round milestones that a startup needs to achieve a quality A round.
We do occasionally see unwarranted expectations. But we generally find that building a relationship with founders at the start allows us to show our value, show comps for the market and work towards outcomes of value, not just a number. We see over 260 pitches a year and only chose four - so we are not bound by very large fund metrics that mean we have to put lots of cash to play just because we need to do it. We are built differently. More of a “sniper shot” than a shotgun.
VN: There are many venture funds out there today, how do you differentiate yourself to limited partners?
MJ: This is not really a challenge for us due to our different structure I’ve explained above. We are very different in our approach, philosophy, structure and area of focus. Our LP’s are looking to be ahead of the curve and be attached to startups who are on the bleeding edge of what’s next. Most enterprises and organizations today recognize that so many of today’s cybersecurity innovations are coming out of massively funded government intelligence agencies.
There has been a huge shift over the past five years where former NSA/CyberComm, CIA, etc. tech experts are now the preferred candidates for CISO, CIO and CSO roles. This is simply due to the fact these experts are very used to fighting nation-state level opponents. Our LP’s are also focused on investing in fewer companies that get very big and relevant fast, as opposed to throwing spaghetti against the wall in myriad investments. Many of our corporate partners/LP’s end up as channel partners selling or pushing the technologies into their supply chain and third-party ecosystem.
VN: Venture is a two-way street, where investors also have to pitch themselves. How do you differentiate your fund to entrepreneurs?
MJ: I believe there are several critical areas that any investor needs to focus on when working with entrepreneurs. The first is a cultural fit. This is just as important to the entrepreneur as it is to us. We see a lot of great technologies where we are not a good cultural fit for the team. Second is to ensure both of us are aligned in how to get from point A to point B. Because we are a very different model, we end up spending 10-12 hours a day with our startups every day. So it is critical to talk about our weaknesses just as selling our strengths.
There is no way to hide your weaknesses when you move them in and spend every day together - so it’s better to say “hey, we are great at this, but we don’t know much about selling to consumers.” It’s important to not over hype what we can do. Our reputation is more important than one deal and founders talk, so you cannot BS people.
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?
MJ: We have been blessed to have almost too much success over DataTribe 1 and now DataTribe 2, to the point where we feel unrealistic expectations about DataTribe are developing. There is a lot of hype and noise about us, some of true and a lot of is not true. So I worry about the level of hype to some extent.
That said, we have companies like Dragos that is simply dominating the industrial control and IIoT space - one of the fastest growing companies in the world. Enveil is one of ours that solved the problem of homomorphic encryption and is the first in the world deploying this at scale. Prevailion is another unique company that just closed its A series with the highest A round valuation in cybersecurity globally over the past three quarters.
VN: What are some lessons you learned?
MJ: Too many to list here! But seriously -- making mistakes has been one of our superpowers. Our ability to bring lessons-learned back into our system, what we call the DataTribe Playbook, has really helped us learn how to not make major mistakes twice. We have also learned that staying focused on what we are paid to do and not getting sucked into the hype around DataTribe is very important.
It might feel great to be asked to speak at multiple venture and technology conferences, but this does nothing to help our startups. So saying “no” to things that do not directly help our startups achieve needed funding milestones is a huge lesson we have learned.
VN: What excites you the most about your position as VC?
MJ: I tell my wife every day that I have the greatest job in the world. I get to sit in on pitches about some of the most exciting and futuristic technology in the world. I get to work 10-12 hours a day with startups in our facility and watch them go from 3 people to 30 in 12 months and move out post A round to their own offices. It’s an incredibly rewarding and satisfying job.
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?
MJ: As a six-time CEO and founder myself who is now 51 years old, I have had a front row seat to the massive changes that have occurred in the Venture community. I remember when it was a big deal when VC’s were raising $500 and $600 million funds - now they raise $8 billion, $10 billion and $100 billion funds. The downside of this is that a lot of venture has become institutionalized. More like PE firms than VC’s.
They are under pressure to deploy $5 billion funds over a short time frame, which means doing a $10 million A series is not tenable. They need to write $100 million checks so a lot of the smaller early stage companies have to rely on angels or smaller VC’s that don’t have the resources to help them grow. I do believe that the venture industry needs both ends of that spectrum. But when everyone is chasing the same D series in the valley, I worry about who is going to fund the two guys in a garage with the next great innovation.
MarketX recently launched Radiate Ventures to invest in fintech, deep tech, and vertical SaaSRead more...
Overwater Ventures recently announced it's $20M debut fund to invest in human and planet healthRead more...
Red Cell Partners is an incubation firm focused on national security and healthcareRead more...
Joined Vator onI am a 6-time CEO/Founder, co-founder of cyber startup foundry, DataTribe, author of 2 books and former Navy SEAL