Home Inside the Mind of an Early Stage Venture Capitalist

Inside the Mind of an Early Stage Venture Capitalist

Ever wondered what goes on inside the brain of a venture capitalist? What kinds of companies do they look for? What most impresses them about entrepreneurs? Where do they see the industry heading? Certainly these are all things that any early stage startup or first time entrepreneur would find value in knowing from a VC – especially one with several years of experience in a particular industry. Today I had the opportunity to pick the brain of Matt Fates, a partner at Boston’s Ascent Venture Partners, a firm focusing on early stage investments. Here’s what he had to say about these questions.

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?

“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.”
– Matt Fates

Fates says one thing that he and his firm look for is companies that have sought out Ascent based on research. Don’t go blindly fishing for funding – instead, search for the VCs that are most likely to be interested in your idea and most likely to help you succeed. Ascent, he says, focuses on B2B enterprise IT solutions – so don’t come to them if you want to build a consumer-based social network, for example.

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.”

Ascent porfolio companies like 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.

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.”

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The ReadWrite Editorial policy involves closely monitoring the tech industry for major developments, new product launches, AI breakthroughs, video game releases and other newsworthy events. Editors assign relevant stories to staff writers or freelance contributors with expertise in each particular topic area. Before publication, articles go through a rigorous round of editing for accuracy, clarity, and to ensure adherence to ReadWrite's style guidelines.

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