Early-stage venture capitalists face some difficult choices when selecting a winning startup. The market opportunity, management team, and viability of the concept are primary ingredients that influence investment decisions, but the complexity that stems from starting a business in a rapidly expanding and changing market, creates opportunities for big wins in a VC’s portfolio.
Eric Franchi is a Partner at MathCapital, a very active and successful early-stage venture capital firm focused on the digital transformation of marketing and media. With about 45 companies in its portfolio, the firm has focused its investments in CTV, identity, commerce media, and analytics. Before MathCapital, Eric was the co-founder of Undertone, which Perion acquired for $180m in 2015.
In this episode of Infutor’s Identity Revolution Podcast, Eric and host, Cory Davis, discuss early-stage investment strategy. According to Eric, when assessing a winning venture, start by getting to know the founders. Finding common understanding of their unique perspectives and learning their reasons for starting a business in that particular niche, can mitigate risk and increase the probability of success. Eric also explains why he believes the next 20 years will be better than the last 20 years in terms of the acceleration of technology in this space.
- Name: Eric Franchi
- What he does: Eric is a partner at MathCapital, an early-stage venture capital firm focused on the digital transformation of marketing and media.
- Company: MathCapital
- Key Quote: “We think the next 20 years make the first 20 years look like child’s play.”
- Where to find Eric: LinkedIn | Twitter
- Be fearful when others are greedy, be greedy when others are fearful. Eric recalls the environment of MarTech and AdTech when he was trying to decide whether to start seeking early investment opportunities. According to him, it wasn’t the best time to start investing in digital marketing and media, yet that didn’t stop him from pursuing his vision. When you believe in your groundbreaking idea, you already have a great head start. “It still had a bit of disdain in the minds of generalist venture capitalists. So we were like, ‘Ha, if we believe in this, and not many other folks believe in it at the time, this could be a great time to start a fund.’ Because ideally, you want to start it when not too many people are paying attention.”
- How to pick a winning startup to invest in? Some of the key categories to look at when investing in a company are team, vision, market, and product fraction. However, when investing in such an early stage as MathCapital does, the priorities change. Eric says they’ll weigh the team and vision over anything. “I think A – the earlier the stage, the more we’re weighing the team. B – I think because we’re so early-stage focused, the fact that we’re so sector-focused and we’re still operators, Joe’s still deeply operational, it gives us an edge. And then, we’ve got the broad heading of marketing and media and AdTech. And then below that, a lot of our thoughts come from the market and where’s the market going.”
- When choosing a winning company to invest in, start with the founders. You can learn a lot about a startup just by looking at its founders. Companies are usually reflections of their leadership. So early-stage investors start by evaluating founders and teams to understand the company’s core better. “The more they can tell a story and help us understand from their unique perspective why they’re building this specific business in this niche, that’s where we’ll start to get excited.”
What to consider when assessing a startup founder
“In terms of how we will evaluate teams and founders, it’s a few things. It’s the number one if it’s a founder that we know. If this is their second business, this is their third business; they’ve had a track record of success before. So we’ll take that into consideration. It’s not necessarily like a slam dunk. We’ll bet on second-time founders. That’s a good thing to do because so many of our investments are like first-time founders, domain expertise, or some unique insight of why don’t you start this business that then becomes important.
While we know where identity is becoming super important, or CTV is becoming super important, we’re not necessarily in the depths of the market the way a lot of these teams are. So the more they can tell a story and help us understand from their unique perspective why they’re building this specific business in this niche, that’s where we’ll start to get excited.”
The future is bright
“All of these new markets are opening up to expand digital from what it once was. What does that then require? That requires an entirely new set of infrastructure to be built to make that right. So everything from the identity layer, the ability to use machine learning, and AI in a much more tangible way. The future is so large and yet to be built. Hopefully, now, after a couple of minutes of walking you through that mental model, it explains why we’re so excited to be investing right now ahead of all of that stuff ’cause we think the next 20 years make the first 20 years look like child’s play.”
Voice search will dominate the next era of technology
“I think there was a stat that half of all searches that happen across all devices, all platforms happen to be via voice. I think users are being retrained in their habits with these voice activations, which are just seamless and easy. Voice will start to change how people buy things, maybe how people rebuy things, maybe how people arrive at their decisions. I think that’s super disruptive. So I pay a lot of attention to the voice.”
[8:02] “If you can be zagging when everybody’s zigging, you might end up driving disproportionately higher returns.”
[15:25] “A lot of big stuff out there makes the next 20 years so much bigger than the past 20 years.”
[22:55] “Between the art itself and then the training that one needs to do to be able to do it at a high level and not get hurt and be able to hold their own against folks that are younger and way more in better condition than they are, that takes a lot of time, quite frankly.”