Capital seeking entrepreneurs iterate their pitch to countless investors over and over, and while getting investor attention is one thing, closing them is another. To help fellow entrepreneurs, I recently sat down with active advisor, investor, and founder of Leverage Software, Mike Walsh, to get insight into his investing habits and philosophy. Mike recently started a micro-venture capital fund called Structure Capital, which he’s actively investing out of and is poised to be a $10M fund. Walsh currently has seven companies in his portfolio, including Surf Air, UBER, Breather, popexpert, CargoMatic, BoatBound, and Ongig.
Walsh shared that he has been angel investing since 1999, and an investment into Salesforce’s Series A was the first check he ever cut. When asked what made him take the leap of faith, he said that the energy and enthusiasm of the founding team, coupled with the tremendous growth opportunity, proved hard to turn down.
Rightfully so, Salesforce grew into a billion dollar business in less than a decade. This streak of luck was not only limited to one company, as Mike was also an early investor in Uber, who is backed by First Round Capital, Menlo Ventures, Goldman Sachs and more, and has raised over $45M over it’s 4 year company lifetime.
Because of his impressive track record of investing in early stage companies and his instinctual decision-making, Walsh receives around 100 pitches per month and plans to invest in roughly 20 companies this year. So one has to wonder; first, how do you manage to stand out from the clutter and second, once you have the meeting, how do you close Mike type profiles?
While Walsh claims he looks at every pitch that comes across his desk whether it be through his site or via intros, he shared that the start-ups who most spark his interest “are the ones who were referred to me by another investor that’s looking to co-invest, or if the investor knows me and the company may not be a fit for them, but might fit my thesis. Or a co-founder who I’m invested in makes an introduction, otherwise anybody who knows me through business or personal. Those go to the top of the list, but if somebody comes through LinkedIn and describes how they fit my thesis in the initial introduction, then I look at those right away too.” He emphasizes that it is critical to describe, from the very beginning, why you think you are a good fit with his investing philosophy and thesis. “I’m always pretty impressed when entrepreneurs say, ‘We’re a good fit, and this is the reason why.’”
Now, say you passed the first step and managed to get his attention. What are the steps you need to nail in order to get that check? According to Walsh, “Number one, they have to fit the thesis, and that’s kind of a primary thing, then if it’s a consumer brand, say Breather, I’d think about if I know a thousand people who would use that service. If it’s an enterprise company, like Ongig, then I’d have to know a hundred companies that I can introduce them to if they were a portfolio company.” That’s the first filter that determines whether or not it’s worth both your time and his to take a meeting.
Then he notes, “there’s got to be some meaningful traction, whether it’s a working product, has some early revenue, a meaningful partnership with an alpha product.” In the absence of traction, he doesn’t really get involved, as it is too early for his investing appetite.
He also mentions that the market size is important, and one thing he thinks about is the worst-case scenario. “I don’t know if other investors think about this but when I think about a company, everybody’s goal is to build a billion dollar company, and the founders should be thinking like that, but in my mind I’m thinking what’s the worst case thing that happens here and what’s the potential multiple on that.” Ultimately, he needs to know that his investment is positioned for an acquisition say it doesn’t grow to where everyone had hoped for.
Finally, the team is obviously important too, and “not just what they’ve done and how they executed it in the past, but for me it’s what I think they would be like to work with and work for. I also think about whether they would be able to recruit great talent.”
What it boils down to for Walsh when evaluating whether or not to get into bed with startups is the energy he gets from the founders. “It’s probably too harsh, but if I don’t get a good vibe then I probably won’t invest,” which is something so intangible yet so meaningful. He explains, “even if I think the company could be something really huge, if I can’t see myself having a beer with them or cup of coffee, then it’s a deal breaker.”
Overall, Mike Walsh has had a large amount of success in his investments, and his investing criteria are a large reason why. Entrepreneurs who take his words to heart are bound to not only get in front of more investors, but to be able to do what is most important and actually close them.
As seen on Forbes: http://www.forbes.com/sites/tanyaprive/2013/06/19/how-to-get-in-front-of-investors-and-close-them/