Investor Stories 6: My Investing Strategy (Mirabile, Wheeler, Winblad)

Nick: Today, Christopher Mirabile joins us from the Launchpad Venture Group. Christopher, can you talk about how you evaluate and select early stage startups, and how that may be unique from other venture investors?
Christopher: Well, you know, I don’t know that anybody’s got a really, totally unique perspective, but we—when we invest early enough, pretty much everything but the team if fixable. And so we really start with great teams. It’s people who are pretty exceptional. Bright, radial thinker, flexible, coachable, they take advice, they seek advice out, they’re a good networker, they’re persistent, they’re determined, they’re courageous, they’re free thinker—you know, people who really are special.
And the second think you think about is the market. And you look for markets that are interesting in one way or another. They obviously need to be at least large enough to support a decent exit, but we look for all sorts of things. Markets that are ripe for disruptions, or very fragmented, or grow very quickly. Where a hang glider might call them thermals, we’re looking for thermals to ride up on. So we think a lot about the market and if you’re really going after the wrong market, that’s hard to fix and you pretty much have to pick into something else.
And then we look for solutions for, you know, think about the product, and it has to be smart and differentiated and defensible. We tend to focus more on need-to-have products, rather than nice-to-have products. I joke about, I call it “Oxygen, aspirin, or jewelry?” and we tend to focus on oxygen and aspirin, not jewelry. There’s nothing wrong with investing in jewelry and B to C consumer-land or consumer mobile, that’s fine, we just don’t have as much depth in that area and tend, instead, to focus on problems that are more in the need-to-have variety and where we can understand the buying priorities. It’s not enough to just have a customer set that needs the product, but is it actually a purchasing priority relative to the other things on their plate?
So that’s kind of how we think about the world, and I don’t know how unique it is but we’re very, very, very clear in that focus.
Nick: Yeah, I like this point you made about must-haves verses nice-to-haves. I feel like I’ve seen a lot of companies that are developing a nice-to-have and in the process, they’ve broken a must-have. Like something ultimately frustrating for me—first thing that jumped in my head was my iPhone, the battery is a nightmare. I have to charge this thing like three times a day. And so, in their quest to do all these extra features, which has been wonderful, they’ve broken a must-have! Which is—it’s gotta be able to turn on!
Christopher: Yeah, that is hard. That is hard for sure. You see it also in startups who are targeting problems but the problems aren’t quite compelling enough. So, four example, you see startups all day long that are going after—they’re making a marginable improvement in one cost that’s not even the biggest cost of a customer class, right. So for example, I had this little blinky gizmo widget here and it’ll save 20% on your electric bill. So if I’m running a commercial restaurant, you know, rent and labor and food costs are things that are really gonna change my bottom line. Saving money on electricity would be great, but it’s a priority I may not be able to get to right now. I may sometime, but maybe not right now. I’m too busy right now. And when you’re dealing with startups that are going after problems that can easily be put in the “I’m too busy right now” category, you’re setting yourself up for long sales cycles and high cost to sales.

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Nick: On today’s special segment, we have Morris Wheeler of Drummond Road Capital. Morris, can you talk about your thesis and/or how you evaluate early stage startups and why you approach investing with this philosophy?
Morris: I guess if I had to define the thesis that I invest on, it is capital is the least important resource that a seed stage company needs to succeed. The most important resource is figuring out how to building out your team at the lowest possible cost to your company and get all of the different points of view and resources and connections that you need to succeed. So my thesis is dependent upon becoming a valuable member of the team early on. Not a member of the management team, not even necessarily a member of the board, and I’ve never asked a company to be a paid advisor, but in my view, my role as mentor is to help companies understand what kind of resources they need to bring to the table, and that if I can do that for a company, then they are going to allow me to invest and that the only way that I am gonna stay whole through a Series A round with the VCs from the coasts and from Chicago that are playing with much bigger pools of money than I have, is to have that founder on my side and for them to believe that I am a value adding investor. So if there were any thesis, my thesis is that of playing a value-added role early on in the company so that the check is the smallest thing that I am bringing to the table.

Nick: I’m curious, do you ever take a similar approach to Ohio Tech, for instance? Where you make an investment and you secure a set of follow-on investments such that a founder or startup never has to approach a VC for financing?
Morris: In a way, that’s a trick question, because one of the most important traits that any startup CEO needs to be able to demonstrate to any investor is their ability to raise money. No startup CEO can afford to let me be the one that raises money for them. Yes I make introductions, and yes the introductions that I make are important, but it’s up to the CEO always to make the decision on “who do I approach?” and for them to raise the money. I’ll provide whatever support I can provide. I’ll provide what connections I can provide, but ultimately it is the CEO’s responsibility to raise funds for their startup.

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Nick: Today we have Ann Winblad with us. Ann, if you had to sum up your investment approach or philosophy, how would you describe it or how is it unique and differentiated from other venture investors?
Ann: One of the really unique value propositions that we give is we’re all here in Silicon Valley. John Hummer went to Stanford to get his MBA, and Lars Leckie—one of my other partners—went to Stanford. My partner Mitchell, who himself was a successful entrepreneur, we funded his company. It was one of the first billion dollar exits. He sold his company to FlyBase, which is now Oracle. Mitchell didn’t even do to college. I went to a wonderful regional university in Minnesota called the University of St. Thomas. But we view ourselves as being agnostic of pedigree. And that’s a really important thing here in the valley. There’s really quite a bit of inside baseball here. Lot of Stanford grads getting funded, and we like Stanford grads too, but really have a much more open view of the entrepreneur.
Our latest company we funded is a company called Peerlyst—P-E-E-R-L-Y-S-T—we funded a young woman, and, you know, when she came in and pitched, she really impressed us in, again, how she really, really knew her marketplace. She was already such a student about this marketplace but she basically could tell us more that we know. Her name is Limor Elbaz. And we just said “Okay, she’s in a great market and we want to work with her.” So we view it as a working relationship with the entrepreneur as well as these large markets. I think that’s unique. It’s not common across all venture capitalists.
There are a lot of biases, we try to keep our biases aside and really fund a broad range of entrepreneurs. We’ve had a number of women CEOs throughout our twenty-five years. We really do look—the nationalities of our entrepreneurs are across the map. And I mentioned MuleSoft before, this company still has one of its cofounders from Malta, he’s still one of their chief strategy officers. The other key contributors, when they first got started, were in Argentina. Today we have a hundred developers in Buenos Aires. So we really do look at the entrepreneur can be anyone.
We also look for really unique markets. As A-run investors, we can’t follow the herd. Sometimes we take great risks that look like they’re gonna be successful and do not end well. Napster was a good example there. The first peer-to-peer network, it went on fire. However it met a lot of resistance from other market players. And so I think we have a unique lens on market places. We see hundreds of software companies every year and select a few. We are known by entrepreneurs as being very open minded. We like people who are genuine, not necessarily your typical pedigree. That’s Hummer Winblad Venture Partners.