As entrepreneurship has become a global meme, with the title of “Founder” worn like a badge of accomplishment, there’s no shortage of emerging investors on hand to fund these wide-eyed optimists.
Just who are these funds and venture capitalists that run them? What kinds of investments do they like making, and how do they see themselves in the VC landscape?
We’re highlighting key members of the community to find out.
Meet David Hall, a Partner at Revolution LLC’s Rise of the Rest Seed Fund, which focuses on seed stage companies located outside of the Silicon Valley, New York City, and Boston. The firm, based in Washington, D.C., is led by Revolution’s founder, Steve Case, a well-known entrepreneur and co-founder of America Online (AOL).
The VC firm says that each investment in its seed fund portfolio is a collaborative project. Hall has been a part of that teamwork since 2006, serving as a Partner for the last three years.
During his tenure with Revolution, Hall has served as an observer on the boards of Revolution Money (acquired by American Express), Booker, Vinfolio, Koofers, SnagFilms, BenchPrep, and Homesnap.
Previously, Hall was Director of Planning and Development with The Washington Post Company. Prior to that, he served as manager of Business Development for Akamai Technologies, Inc. and senior financial analyst for Morgan Stanley & Co. Inc.
In an interview with Vator, Hall said that Revolution has been focused on geographical diversity since its launch in 2005 and has invested over $1 billion in companies based outside of Silicon Valley.
VatorNews: What is your investment philosophy or methodology?
David Hall: At Revolution, we believe that some of the most exciting investment opportunities are emerging in cities across the United States — not just in Silicon Valley, New York, and Boston, which received 75 percent of all venture capital last year.
At Revolution, we call this investment thesis “Rise of the Rest,” a phrase repeated often by our Chairman and CEO, Steve Case, as we travel the country in search of startups.
We have seen success using this strategy, but it’s been reaffirmed over the last few years as we have been approached more by executives, entrepreneurs, investors, lawmakers, and the media. Many of them expressed a desire to join us in some way or were interested in our approach to sourcing deals in these regions.
We hope that shining a spotlight on great companies around the country would encourage more investors to source deals from these rising regions.
VN: What do you like to invest in? What are your categories of interest?
DH: We like to invest in companies that are disrupting industries that impact our everyday lives, like food, healthcare, transportation, and agriculture, but we keep our mandate broad and generally seek out companies using technology and innovation to disrupt the status quo.
During our Rise of the Rest road trips, we’ve found that entrepreneurs in rising cities are very successful at capitalizing on the sector expertise that already exists in their region to build next-generation businesses in that category.
For example, during our road trip, we stopped in Chattanooga, which has a storied history in transportation and logistics. The company that won our pitch competition and received an investment from our Rise of the Rest Seed Fund was FreightWaves, a leading provider of data and analytics for the freight market.
VN: What would you say are the top investments that you have been a part of? What stood out about those investments in particular?
DH: There are a few companies in our portfolio that I’m particularly excited about.
Among them are Guardhat, a Detroit-based company embedding hardhats with sensors and a technology platform that saves lives and improves efficiency, BacklotCars, an online marketplace for auto dealers which is based in Kansas City, Mo., and Ready Responders, a New Orleans-based provider of community-based paramedicine delivered by EMS-certified medics deployed in Uber-like on-demand fashion.
VN: What do you look for in companies that you put money in? What are the most important qualities?
DH: Besides looking for startups outside of the major tech hubs, I also look for strong, flexible founders, who bring an entrepreneurial spirit, a deep and diverse connection to their local networks, and a desire to succeed.
VN: What kind of traction do you look for in your startups? Are you looking for a number of customers or order volume?
DH: This obviously varies case by case, but for me, generally, traction for early stage companies is determined by their “path to one million,” which for consumer businesses is defined as the steps taken to get one million users or customers. For B2B companies, it is generally defined as the path to get to $1 million in revenue.
Approaching and crossing that million line is not purely deterministic, but it’s one of many metrics and milestones that I think are important for startups working to prove their business roadmap.
VN: How long does it take for you to invest in a startup after your first meeting with a team, and how do you conduct your due diligence?
DH: Generally, we like to meet a company, assess details about the founding team, technology, market opportunity, and the specific deal terms (valuation, investment syndicate, etc.) and come to a decision within a few weeks.
My approach towards due diligence at the beginning consists, at a minimum, of the following: a detailed market study so that I can fully understand the macroeconomic dynamics of the industry in which the investment operates; a full understanding of the product and business roadmap; and it always includes founder and customer references to get a better picture of why the entrepreneur started the company and how the company is solving existing customer pain, respectively.
VN: These days a seed round is yesterday’s Series A, meaning today a company raises a $3M seed and no one blinks. But 10 years ago, $3M was a Series A. How has that changed where a company needs to be to get their Series A round?
DH: I think the venture market is responding to the infusion of additional capital at the earliest stages in which angel and “friends and family” investment rounds have replaced traditional seed round investors.
Additionally, we often see companies go through incubators or accelerators and graduate from these programs with financing and introductions to investors who can propel the company until its Series A round.
I think any of the aforementioned early capital sources may affect the fundraising strategy of a company, but it shouldn’t impact the company’s velocity for building out its technology platform or its go-to-market strategy.
VN: What is the size of your current fund?
DH: Revolution’s Rise of the Rest Seed Fund is a $150 million fund. Overall, Revolution funds total $1.3 billion and allow us to support startups at every stage of their lifecycle.
VN: What is the typical investment range?
DH: Our initial investments from the Rise of the Rest Seed Fund typically range from $100,000 to $1 million.
VN: Is there a typical percent that you want of a round?
DH: Our participation varies depending on the amount of capital being raised, but we generally invest 10 to 20 percent of a round. However, our seed fund does not lead rounds, as we prefer to partner with other investors, particularly, regional funds.
We like to think of this method as a way to encourage regional investment and connect companies to other people and organizations that will help accelerate their growth.
VN: Where is the firm in the investing cycle of its current fund?
DH: We deployed the fund in December of 2017 and we expect to deploy most of its capital over the next three years.
VN: What percentage of your fund is set aside for follow-on capital?
DH: We have reserved a significant amount of capital in the fund to make follow-on investments and seek to do so in our strong performers.
VN: In a typical year, how many ventures do you invest in?
DH: In the current investment climate, we are investing in a few new companies each month and expect to invest in more than 150 companies out of this current fund.
VN: Tell us a bit about your background. What led you to the venture capital world?
DH: After graduating from Morehouse College in 1997, I moved to New York City to work in investment banking as an M&A specialist for Morgan Stanley. Next, I moved to Akamai Technologies, where I worked in finance and M&A while getting a crash course in Internet technology. After Akamai Technologies, I pursued an MBA from Harvard Business School. After graduating, I joined the Washington Post Company to work on deals at the intersection of media and technology.
When I was at the Washington Post, I read an article about what Revolution and Steve Case were building in D.C and I found a classmate who worked at Revolution Health, one of Revolution’s earliest investments. I connected with the firm and the rest is history.
VN: What do you like best about being a VC?
DH: The best thing about being a VC at Revolution is meeting a wide variety of entrepreneurs from all backgrounds and from all over the country and getting to pursue deals that are making a huge impact in places which aren’t typical hotspots for venture investing.
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Image: Revolution’s Rise of the Rest Tour