Mike Maples and Ann Miura-Ko on The Limits of Incubators, the Right Fund Size, and the True Meaning of “Pivot”
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early stage investing in a new innovation environment. It was obvious to me back in 2005 that that was going to happen. I think we are better than most at that.
X: What’s the right size for an early stage investing fund?
MM: Less than $100 million. If you want to know a fund’s strategy, you have to ask one and only one question: How big is your fund? The typical fund does 25 to 30 deals. If you have a $300 million fund with 30 deals, that’s $10 million per deal. Or you can do 20 deals at $15 million. What ends up happening is that the size of the fund dictates all the decision-making. People say you can do super-early and super-late stage investing at the same time, but the fact of the matter is that you spend most of your attention where the money goes. So the constraint on the fund size is part of the discipline of being purely early stage. We are not a small fund so that we can become a big fund.
X: But there are many larger venture funds that have seed-stage investing programs. What do you think of those?
MM: It goes back to the F-16 story. If you spend all day flying B-52s, you may understand that F-16 pilots have a good business, but that doesn’t make you an F-16 pilot. You are going to get shot down against a real F-16 pilot. For the same reason, we don’t want to compete against Sand Hill Road. We would just get crushed.
AK: And as I was saying before, when entrepreneurship is democratized, fundamentally capital is also commoditized. So the question is what do you bring to the table in the learning and discovery mode? What is the set of services that you uniquely provide? Because we are purely focused on seed-stage investments, I think we are experts in that field.