What qualities do you look for in entrepreneurs?
"We are always looking for a few things, and they really don't ever change," Fates told ReadWriteWeb. "We look for strong people with experience and leadership qualities that have either the technological knowledge or that something special that allows them to be a leader."
I hear a lot about how a VC invests more in the entrepreneurs than the business idea itself, so it's not surprising that Fates jumps right to the quality of people when considering potential investments. A team with experience and leadership will go much further with an okay business idea than will a team with a great idea but neither of these qualities.
And what about the companies themselves?
- Matt Fates
Additionally, he says that companies need be actively engaging an audience of users when they come to the table.
"We do like to see companies that have been very frugal and have scratched and fought their way to building a product and selling it, proving that it works and solved a pain point," he says. "By doing this they're taking out the tech risk and making it more about business execution. When we see that the customers validate the company we can then think about how many other people have this problem and how quickly we can scale the company."
But what about first timers without startup experience? How can they get a chance to sit at the table with you?
"There is no magic formula," says Fates. "Knowing the industry is important, as are other types of experience, but running a successful company is not mandatory. First time CEOs sometimes do well, and we've backed some ourselves. It's more about having deep insight into an industry. We look for real leadership skills, people who can run a company and convince people to join their team, and convince customers to buy their product."
Fates stresses the point that a pair of technical co-founders are much worse off when approaching a VC than a small team with some business-minded entrepreneurs. The smallest teams he says the firm looks to invest in contain 5 people. Basically, teams need to have a few technical people (developers, engineers) and a few sales, marketing and biz dev folks. This dichotomous organization is the best way "to make headway in the venture community," says Fates.
What trends are you seeing among the companies you invest in? Any mobile, location or emerging tech?
"Mobility is a very good sector and we have a few investments in that space, but at a higher level there are two major trends," says Fates. "First is the explosion of data. There is a massive amount of information that is being gathered and digitized these days and it's mostly unstructured [...] The second is the power of the web to transform industries [...] People expect to use the web to do things these days."
ClickFox and HubCast are prime examples of these two trends. ClickFox provides businesses with customer experience analytics from not just the web, but also from automated phone systems. On the industry revolution side, HubCast has used the power of the web to disrupt the commercial printing industry.Ascent porfolio companies like
IPOs and Early Stage Investing...
There were lots of other great comments that Fates made during our discussion. We discussed the potential consolidation of the VC industry - something he agrees will happen to a certain extent. I mentioned the recent trends around IPOs, and he noted that public offerings go up and down a lot, so they are not likely back for good, but more are on the horizon this year.
"Ging public is a point in your history and you have to continue to do well afterwords," says Fates, contrasting to finality of mergers and acquisitions - a factor that could be influencing the drop in IPOs over the last several years. "M&A is an outcome and people get liquidity."
As for why Ascent chooses to focus on early stage investments, Fates attributes that to the success of the VC model at smaller sizes.
"With the venture capital model, it's easier to multiply a modest amount of capital than it is with a larger investment," says Fates, pointing out the speed at which early stage tech companies can grow. "Investing a small amount up front allows the company to make reasonable progress - they've got to do well but they don't have to hit homeruns all the time."
"Having 30 small investments takes just as much time as having a few really bigs ones," he adds. "When you're in, you're in."