Investor Discussion Series: Alex Ledoux of Ledoux Ventures

I recently caught up with eCommerce angel investor Alex Ledoux of Ledoux Ventures.  Alex is a serial entrepreneur and investor who has invested in Shop Succulents and Inventors Launchpad.

What do you look for when investing?

I look for smaller consumer goods and eCommerce companies doing $1-$4M revenue, preferably in fragmented industries.  I’m not a fan of pre-revenue companies.  It has to be a business that I can bring my skills, such as internet marketing and business development, to bear and accelerate the company’s growth.  I’m especially interested in companies that do poor or little marketing that I can step in with and rapidly scale businesses.

I aim to take a large minority stake and look for founder’s who are hustlers and willing to learn and improve.  Unlike a more traditional technology focused angel investment I generally look to grow and sell my investment within a 2 to 5 year timeline.

In terms of vertical I’m more opportunity driven than having a specific thesis I look to invest around.

As primarily an eCommerce investor what are your thoughts on Amazon?

Dynastic companies have been built in the past and will continue to be built.  Don’t be afraid of Amazon.  The companies I look at build a brand outside of Amazon but they don’t ignore it.  I’m fine with investing in companies that do a large amount of revenue from Amazon even though the problem there is you don’t own or have access to your customer data.  Amazon ideally should just be another channel but not your business’s core.  

In general, Amazon is slow to catch onto consumer trends so you can usually get ahead of them, at least for a couple of years.

Especially early stage for eCommerce - how do you test whether the product has any real legs or is just a fad?

I structure my deals in such a way to limit my downside if the product turns out to be a fad.

What consumer trends are you interested in investing in 2018?

I’m more opportunity focused and less into trends.  However, one area I’ve been looking at is getting involved in the board game space.

What are some resources you use to stay up to date on consumer trends?

Facebook, podcasts such as The Tim Ferriss show and eCommerce Fuel.

How do you source your deals?

Finding good deal flow is hard.  If you are doing things right in eCommerce you often times don’t need investors as your business will generate substantial cash flow. Given that, I put a major focus on bringing much more than just money to the table. I look to be seen as a partner with capital, instead of an investor. I look to bring marketing and business development to any business I get involved in. As far as sourcing deals, Reddit has been a shockingly good place to source deals and get referrals.  I also attend as many events as possible.  I’m planning to start a podcast to build more of a brand for my investment firm as well as partner with accelerators.  I’ve also had some success with cold outreach to companies I’m interested in.  I also want to get deeper involved with the angel community.  

Any investors you personally look up to?

A handful of angel investors that I’ve closely worked with.

Any predictions for 2018?

Amazon will continue to dominate. As an eCommerce business owner you really need to look at how you can best use Amazon’s growth to your advantage without becoming purely Amazon focused. From a marketing perspective, I also think Amazon PPC and influencer marketing are musts for 2018.

Anything else you think potential consumer investors or consumer entrepreneurs should know?

• It’s amazing how many people I meet with good ideas but aren’t willing to make the jump to entrepreneurship.

• On the other hand some people think if they just start something everything will just come naturally.

• I’m constantly amazed by how few companies market correctly. Many companies blindly trust marketing agencies. Or they don’t even get the basics like having a high conversion optimized website. Many companies never take the time to learn who their customer is and look at he data.

• Marketing and being data driven should be the first focus of any consumer company.

Investor Discussion Series: Ben Narasin of NEA

Ben Narasin is a Venture Partner at NEA where he focuses on investing in early stage emerging markets and technologies.  His overarching focus in seeking new investments is in his words, “to find founders who make me say wow”.  

Author’s note, Ben is one of the most engaging VC’s I’ve ever been fortunate enough to speak with. If you get a chance to see him speak I highly recommend making it a priority. 

What trends are you currently investing in, especially any that are more under the radar?

There isn’t much overlooked today with so much money and people in the space.  For example, Artificial Intelligence and Machine Learning is popular but every startup claims they have that so you have to figure out who has that for real.

Industrial IoT is a big, interesting category including robotics.  The way I think about the world is different.  Some investors look at one category of things.  I’m more centered around the entrepreneur and finding a vision that makes me say wow.  They show me a new vision of the future.  Its not a category investing method but one based around human beings.

Areas I don’t focus on are crypto, security, cannabis, and medtech.  You need a very specialized expertise to get really good at investing in these spaces.

Blockchain will create a ton of value, but at this point there is so much hype.  Its currently speculation, not investing.  Right now you are over paying because something is on the blockchain.

Right now you want to look at enormous industries that are antiquated and need to be disrupted.  For example, one of my investments, Transfix is disrupting trucker brokerage which is an enormous but antiquated industry.

If something is hot now it’s to late.  You need to be in the business of what’s hot tomorrow.  What’s next is where venture makes its money.   

Where and how do you source your investments?

You find these entrepreneurs everywhere but as an investor we have to see a stunning number of pitches to get there.  Active investors will see over 1,000 pitches a year.  From that you will make 1 or 2 investments.

The best opportunities come from referrals from entrepreneurs you already invested in.  I also make sure I speak at every opportunity I get and stick around afterward for entrepreneurs to talk to me.  

I actually found LendingClub while driving to work listening to the local NPR.  Spent time tracking the founder down.  Pushed until I got to the founder. 

What do you look for when Investing?

I look for 5 things: People, People, People, Great Ideas, Enormous market

When I was a seed investor I funded roughly 80 companies over a decade, half of which raised Series A from tier 1 firms.  The company is proving a thesis off a seed round - Series A is what allows you to build a business

What’s Overhyped today from an investment standpoint?

ICOs and coin based things.   

What’s the key signal or two you look at when thinking you want to invest in an early startup, what ultimately convinces you?

The decision making process is the most important part in venture investing - the outcome is less important than that you had a good process. Luck matters and influences this. 

What are some resources you use to stay up to date on a space?

Go to a lot of conferences and trade shows.  Learn from every meeting.  Even in a horrific pitch there may be some nugget you take away such as a trend or competitor they are up against. I read from books in the library across sci fi, fiction, non-fiction. Read the newspapers.  You do everything.

Any advice to young venture capitalists and angel investors out there in sourcing deals?

I was an institutional seed investor, never an angel investor.  You need to take it very seriously.  Never lose your fear when making an investment.  You do all the work you can to get to a point of comfort.

People obsess excessively over valuation (what you pay and what you sell for are all that matter).   Exercise tremendous discipline.  Its ok to go with your gut but your gut needs to be some level of training, knowledge and experience. 

Any predictions for the next year or two?

Deflation is much more likely than a pop.  No idea how long this will continue.  I don’t invest for something short term.  We invest in companies that can be world class so assume a 7-10 year journey.  Can’t imagine in the next 7-10 years we don’t see at least one correction.

Your job is to wait for the right ball to swing at, wait for the right pitch.  As an investor you aren’t penalized for when you don’t swing but what you strike out at. 

Anything else you think investors or entrepreneurs should know?

It comes down to trusting your gut as long as your gut is based on experience. It’s both science and art.  Early stage is more art than science. Later stage is science. 

Investor Discussion Series: Evangelos Simoudis of Synapse Partners

Evangelos Simoudis is the founder of Synapse Partners, a VC firm that focuses on AI and Big Data investing.

How do you really identify and due diligence AI companies, versus companies just doing statistics or have vaporware?

There is a lot of hype in the space about what is possible with the technology available today.  Anytime there is hype in a sector you get pretenders along with the startups that are developing important IP. 

At Synapse we partner with large corporations in automotive and transportation, financial services, and telecommunications. We work with Sr. Executives from corporations in those industries to understand what they view as strategic problems for their companies and we then determine which of these can be addressed via data and AI.

Since Synapse Partners invests exclusively in early-stage startups developing enterprise applications combining big data with AI, my personal background in AI proves to be very helpful when we consider new investment opportunities.  We also tap into our firm’s advisory board that includes senior AI and data scientists.

What kinds of moats do AI companies have from what you’ve seen?  Does it really just come down to the data/all the algos are mostly the same right?

Identifying and gaining access to the right data sets for solving important enterprise problems, selecting the right AI approach to exploit that data, properly preparing the data for processing by the AI system, and finally making sure that the results of this exploitation are correct are the prerequisites for creating such moats.

It is an oversimplification to think that all one needs is data and that more data is always better. The moat is created by the uniqueness of the data and its quality, as well as the ability to exploit  it in a smart way.  It’s a fallacy to think that by taking some open source machine learning software and presenting a large data set means that one can create an important product.  This approach may have been used in the past but the low-hanging fruit has already been plucked. 

For example, properly labeling data before presenting it to machine learning systems turns out to be a difficult and expensive task that today is mostly performed manually. As corporations work with very large data sets, such as those generated by autonomous vehicles, such manual labeling becomes prohibitive. We have invested in a company called Understand.ai that uses AI to automatically annotate that type of data.    

What Trends are you currently investing in?

●      For the past couple of years, we have been investing in companies that develop AI-based software to enable autonomous mobility.  More recently, we developed and currently pursue an investment thesis around using big data and AI to monetize autonomy. For example, we are looking at startups developing fleet management and commerce-related AI systems for passenger transportation and logistics where autonomous vehicles will have an advantage. This includes tasks like scheduling, and maintenance of autonomous vehicles aimed at increasing a vehicle’s uptime.   

●      Intelligent software agents (not chatbots) that operate within larger software or hardware systems, for example warehouse robotics. We are interested in systems that understand natural language so that they can collaborate with humans, and can learn from such interactions.

What’s Overhyped today from an investment standpoint?

AI, autonomous vehicles, blockchain and cryptocurrencies, augmented and virtual reality are all hot areas but are all overhyped right now in terms of their potential impact and the speed with which this impact will occur. It will take us longer than the popular press talks about to really see the impact from these but I remain optimistic that we will have important changes as a result of using these technologies to address enterprise problems. We will continue to see significant pilots and experiments being done by corporations using these emerging technologies.  However, people need to keep in mind there is a big difference between experimenting with a technology and extracting insights and being able to have broad deployments.

On the other hand, I am very optimistic about the accelerating proliferation of cloud computing in the enterprise. But you can see how long it has taken cloud computing applications to permeate the enterprise and for the market to become as large as it is today. 

What’s the key signal or two you look at when thinking you want to invest in an early enterprise startup, what ultimately convinces you?

I start with the team and I like to see how driven they are for the startup. I pay attention to how complementary the team members are, since I consider well-rounded teams to be an important ingredient to a startup’s success. I don’t want to see a team that consists only of engineers.  I like to understand the team’s background and how they got where they are.  Of course, we always pay attention to the market opportunity, which can often be challenging when the startup is trying to address a brand-new market.  Lastly, at Synapse we always syndicate. It is therefore important to understand who are the other investors.

What are some resources you use to stay up to date on a space?

I spend a lot of time reading and working with large corporations. Technology- and startup-related conferences are also important sources of information.  These days I find myself connecting a lot more with PhD and academic colleagues.  The biggest challenge I have is finding good enough filters to discard the overhype of the AI field right now.

Any advice to young venture capitalists and angel investors out there in sourcing deals?

It’s not only about writing checks for new investments; it’s about making money for your investors.  Finding a company that wants your money is the easy part, understanding if this is a good company and important investment opportunity to make you want to be part of the company for the next 5-10 years is something you need to focus on. 

Sourcing these days is very difficult. There are so many startups being created and capital is a non-factor.  Having deal flow today is not hard. Having the right deal flow is the important part.  You get the right deal flow by being able to show to the entrepreneur and your co-investors that you have something unique and important to offer.

Today local networks are not as important as they used to be.  You need to be able to tap into global deal flow and be willing to invest globally even as a small investor. 

Anything else you think AI  investors or enterprise entrepreneurs should know?

AI is a complex field. It includes several different areas.  Not only machine learning.  People don’t have as much of an understanding of AI as they think.

Investor Discussion Series: Niko Bonatsos of General Catalyst

Niko Bonatsos is a managaing director and former entrepreneur at General Catalyst.

What Trends are you currently investing in, especially any that are more under the radar?

At General Catalyst we are generalist investors looking to be inspired by ridiculously ambitious entrepreneurs.  Lately I’ve been spending a lot of time on Augmented Reality and Virtual Reality.  VR is better than ever but still early.  I’m also spending a lot of time in the crypto space.   Other areas I’m interested in investing around include the end of life space which includes life insurance, finding caregivers, setting up wills, etc.   Another non-sexy area I am looking to invest is the medical tourism industry such as a booking.com for medical tourism.  This is a huge space that is not yet followed by the mainstream.

You’ve written a bit and invested around augmented reality.   What do you think of Augmented Reality right now?

AR is still in its early days with the platforms having a vested interest to push it hard which you are seeing as all mobile devices became AR capable.  Pokemon Go’s success was a great example of the potential of the space. 

There are also very interesting enterprise use cases for mobile first AR products such as collaboration, technician help applications, etc.  We are also seeing a lot of high quality talent coming into the space.  Even more importantly some enterprise focused AR plays are starting to make money so this is really happening right now.  Recently I invested in 6D.ai, platform as a service that is solving data persistency and building the ARcloud. 

Gaming will be the first killer application on this platform.  Houzz recently did a study on an AR feature in their product that showed when customers use the AR feature they would spend a lot more money.  AR will also be a boon to eCommerce.

What are some resources you use to stay up to date on the space?

I read a lot of stuff.  I also get to meet a lot of super high quality people including angel investors, executives, and entrepreneurs.  I then simply put in the hours to learn the space. 

Any advice to young venture capitalists and angel investors out there in sourcing deals?

●      Assume you will lose all your $ when you invest as an angel - only invest what you can afford to lose.

●      Come up with a mental framework (e.g. I only invest in people that I’d start a company with, etc.) of what type of opportunities you want to invest in.

●      As an angel investor the stuff you think will do well won’t do well and the stuff you think won’t do well will do well. 

●      Double down on stuff you are very certain will work out very well.

Any predictions for 2018-2019?

There will be a VR company with a million daily active users.  At least 3 or 4 more Pokemon Go types of companies that are AR enabled.  There will emerge a second killer app for crypto (beyond digital money) with crypto scaling so people can build off of them as platforms. 

Investor Discussion Series: Tae Hea Nahm of Storm Ventures

I recently had a chance to speak to Enterprise investor Tae Hea Nahm of Storm Ventures.  Tae is a successful entrepreneur and longtime venture capitalist with decades of experience.

What Trends are you currently investing in, especially any that are more under the radar?

Currently, I am interested in the intersection of AI and SaaS.  SaaS is just automating working flow in the cloud.  If you combine that with vertically focused AI you get intelligent workflow where the user takes an action and the AI makes a recommendation – the user can decide to follow the recommendation or not.  Through this the AI gets smarter.  This combination improves SaaS applications dramatically.  An example of a company I have invested in that follows this theme is BlueShift which is marketing automation with intelligence.   SaaS built on top of the AI is the next major disruption in the Enterprise space.

Can you talk about your new book Survival to Thrival?

Survival to Thrival is an Enterprise startup guide.  It will be split in two books, one that focuses on the company and one that focuses on the people.  The major stages of an Enterprise company are:

1) Founding the Company

2) Getting Product Market Fit  - at $1M in revenue

3) Go to Market Fit – adding $1M in revenue per quarter

4) Accelerating a Category Leader

5) Industry Leader - $500-$1B in sales

Each stage requires unique strategies and execution.  The key stage for enterprise startups is finding go to market fit which is when you unlock growth

As a key distinction from enterprise firms, for consumer companies product market fit is key and it doesn’t matter if the company is losing money.  In consumer companies product market fit isn’t correlated with money so the investing strategy is different.  However, getting product market fit in Enterprise is not enough to be successful. B2B key inflection is go to market. 

What do you think of AI these days - is it mostly hype with VCs crowded in and startups pitching to the hype?

AI is an extremely disruptive technology.  It’s not so much AI itself but AI integrated with the application to make user’s better.       

You have a lot of experience - how has the venture investing industry changed since you started it compared to today?

More startups are succeeding outside of silicon valley.  In B2B specifically what’s changed is customers more willing to buy things over the internet without having a face to face relationship.  You still need the sales team to close big deals but not early on. 

Any advice to young venture capitalists and angel investors out there?

For Angel investing do at least 20 deals. Try to do same dollar amount per deal with no follow ons.  Also be sure to follow someone you trust who is on the board.  This could be the Founder, a VC, another angel investor, etc.  They will act as your proxy. 

Any predictions for 2018?

The biggest transformation in Enterprise is the rise of the three cloud companies with Amazon, Google, Microsoft and the migration to the cloud.  The next compute platform is the cloud.  With the cloud you get big data + AI for free.