Differential invests in B2B data technology startups using AI and machine learningRead more...
Parkway invests in companies that use simulation and AI to drive digital transformation
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.
Gregg Hill is Managing Partner at Parkway Venture Capital.
Prior to co-founding Parkway, Hill was the co-founder and Senior Managing Director of H&S Capital Group, a technology-focused investment company. He is also the President of Hill Gray Seven, a privately held commercial development and investment firm specializing in retail, office, medical, and high-end, multi-family properties. Hill Gray Seven is the preferred developer for many Fortune 500 companies and currently operates in 15 states.
Hill also owns and operates many restaurant companies throughout the Southeastern United States, and is the Founder of Red Castle Farms, a thoroughbred horse racing corporation located in Pasadena California.
Hill began his career as a professional tennis player. In 1998, he was the No. 1 tennis recruit in the United States. He attended the University of Southern California on an athletic tennis scholarship and later played professionally at Wimbledon and other major global tennis tournaments, and was featured on 60 Minutes and ESPN.
Outside of the office, Hill is a Board Member for the Orlando Chapter and Southern Regional Chapter of the Young Presidents Organization. He is also involved with the American Diabetes Association in the Orlando area and was named the ADA’s “Father of the Year” in 2013.
Hill holds a Bachelor of Arts from the University of Southern California, and is a graduate of the Nick Bollettieri Tennis Academy, now the IMG Academy.
VatorNews: What is your investment philosophy or methodology?
Gregg Hill: Jesse Coors-Blankenship and I met as undergrads at University of Southern California in the early 2000s. He was majoring in architecture and I was a scholar athlete and one of the top-ranked tennis players in the country. We ended up being best friends and continue to be to this day.Fast forward more than a decade and Jesse is a professor at Columbia University, doing cutting-edge research in artificial intelligence. Meanwhile, I have turned an initial $750,000 into over $300 million in investments in commercial real estate developments around the country.
One day, Jesse told me he had developed a technology to teach machines to engineer aircraft parts by themselves. The technology he had developed was Generative Design, and when he asked if I would invest in his startup, I said “hell yes!” I invested early and joined the board, and with the combination of Jesse’s technological expertise and my business experience, we turned Frustum, Inc. into a massive success.
What I took away from that experience, aside from almost 18x my money, was that our success with Frustum was replicable.
Our methodology is to look for deals that share some of the key attributes that made Frustum such a success, including a truly disruptive technology or business model, a clear addressable market and a strong, dedicated team. Our philosophy is that every investment has to have similar DNA and be a “hell yes,” or we don’t do it.
VN: What are your categories of interest?
GH: Parkway is focused on disruptive technologies across all sectors, with a specific eye on companies that are using simulation and AI at the heart of their development process to drive digital transformation. Some of the things we look for are technologies or trade secrets that can act as a moat against competitors. We also look for companies that really know their customers well and are developing products to meet their specific needs. If a company doesn’t know its customers, and future customers, well, we won’t invest. Most importantly, we like to see pace, we look for founders who have the same sense of urgency to success that we had at Frustum.
VN: What's the big macro trend you're betting on?
GH: One of the biggest macro trends we see is de-carbonization, that is why clean energy is one of our areas of focus. This is being driven by governments on a global scale, and is going to transform our society. If you assume the world is decarbonizing, think about what it needs. You need to be able to measure and track carbon emissions, manage and/or offset those emissions and you need new forms of energy. This trend has and will continue to create a huge number of great companies.
VN: What is the size of your current fund and how many investments do you typically make in a year?
GH: Fund 2 is $60 million dollars and we look to make five to 10 investments a year. At Parkway, we let the quality of the opportunities drive the number of investments. Unless we are absolutely convinced that an investment is going to be a winner, we won’t do it. In our experience, given the choice, it is preferable to tell your limited partners that you haven’t invested their money yet, than to tell them you have lost it.
VN: What stage/series do you invest in and how much is that in dollar amount for you?
GH: We invest from seed to growth investments, and everywhere in between. Our ticket size ranges from $1 to $6 million, or more with co-investors.
VN: What kind of traction does a startup need for you to invest? Do you have any specific numbers?
GH: We like to see companies whose technology is already working and ready to commercialize. We are interested in businesses that are generating or have real potential to attract customers and generate revenue in the foreseeable future.
VN: What other signals do you look for? Team, product, macro market?
GH: Team, product, and macro market are among a long list of factors that we look at. This is just the nuts and bolts of investing. I think ultimately something has to "wow" us about the business. By this I mean, "wow, look at that revenue growth," or, "wow, look at that technology," or "wow, that’s a huge market opportunity." Unless we get that wow factor that makes us say “hell yes,” we aren’t investing.
VN: What do you think about valuations these days? What's a typical Seed pre-money valuation and Series A?
GH: There is no doubt that valuations are high for some companies. A Bay Area company may have great or lousy prospects, but either way, it will probably be priced with great prospects because of the comparables in the same geographic area. That is why we also look at geographic markets that are off the beaten path. We are just about to do our third investment in the South West. We have found that valuations aren’t as high, and there is world-class innovation happening there. You need to know what is going on in Silicon Valley and Silicon Alley, but you also need to look for value, because one of the few things that is usually very difficult to change, is the valuation at which you invested in a company.
VN: There are many venture funds out there today, how do you differentiate yourself to limited partners?
GH: We differentiate ourselves in a number of ways.
First of all, we are heavily invested in Parkway. We and our families are currently a very large percentage of our total assets under management. We are all-in on our strategy, and it is paying off. Frustum was a huge win for us, and our last fund which closed in 2019 is already valued at 1.5x, so we are delivering on our commitment to make money for our investors.
Most of our investors, whether family or otherwise, are high-net-worth individuals and family offices. The way we differentiate ourselves is partly by Jesse’s technical expertise and partly by my success in building businesses. We are also both founders; we have built very successful businesses with our own hands and our own money, and most other VCs haven’t. Many of our investors are also successful entrepreneurs and businesspeople, and we speak the same language.
We also regularly offer co-investments. Many of our limited partners are the type of people who like to make their own investment decisions. They want to see deals that we are investing in ourselves, and have the opportunity to double-down on opportunities they like. Our investors are wealthy, sophisticated people, and we want to give them access to the types of institutional-quality deals they wouldn’t otherwise generally see.
VN: Venture is a two-way street, where investors also have to pitch themselves. How do you differentiate your fund to entrepreneurs?
GH: We are successful founders ourselves. We can help our portfolio companies with every aspect of their business because we have been there and understand the struggles as well as what it takes to succeed. Many VCs claim to want to help their portfolio companies, but often turn out to be tag-along investors because they don’t have the real-world business experience to actually help. Those that do, often rely on operating partners to do the work they should be doing themselves. At Parkway, we are the operating partners.
When we invest, we get involved, and we get great reviews from our portfolio companies. We were recently selected to lead Burrow’s Series C round over their existing investors. One of the main reasons we were chosen is because we had been so involved in helping them build their business. That kind of involvement really matters for founders.
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?
GH: We are super excited about every investment we make, and often for different reasons.
Here are a few examples: Burrow, a D2C modular furniture innovator, has a unique business model which has led to triple digit growth and 19 new products launched in 2020 alone. TestFit is a first-to-market generative design building configurator and has traction across six countries; we think it is poised to transform the building modeling space;
TAE Technologies is expected to be the first to commercialize fusion energy, and disrupt the global energy market and OnScale is a ground-breaking cloud engineering simulation platform which is set to disrupt the existing $10 billion on-premises software market. Siera AI is an industrial AI vision solutions provider that was a finalist for a 2021 MHI Innovation Award, and was also recognized by AustinInno as one of the top Austin tech startups.
VN: What are some lessons you learned?
GH: Where do I start? Every day is a new chance to learn. Here are a couple of examples.
We once had a founder bail on a portfolio company because he got an amazing offer from one of the world’s biggest tech companies. They saw in him exactly what I did ... unfortunately. Lesson learned? Always ask yourself, if Apple/Google/whomever offered one of our portfolio company founders a massive check, are we giving them enough reason and opportunity to stay.
Another investment didn’t work out as well as expected, because the founder just wasn’t as motivated as we thought he was. It all comes back to the pace and sense of urgency that I mentioned before. At Parkway, we have a sense of urgency in everything we do, because we know that time is a finite and limited resource. Lesson learned? Make sure your portfolio company teams have similar values and drive for success as you do.
VN: What excites you the most about your position as VC?
GH: Every week we have some of the world’s brightest minds bring us the most incredible technologies and business ideas. Some of these people we decide to back, and help build their businesses not only with money, but with our time and expertise. What excites me is knowing that there are definitely more Frustums out there, yet to be discovered.
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?
GH: We are an emerging manager with a very strong track record. Our last fund closed in 2019 and is already at 1.5x. We are also very large investors in our funds. As a whole, we and our families currently make up a significant percentage of our assets under management. So when somebody is investing with Parkway, they are very much investing with us.
This means that we go into every deal firmly believing that it is going to be a massive home run. If we do not feel that sense of conviction, if we do not feel a deal is a “hell yes,” we won’t do it.
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