Erica: What determines the size of the initial investments you make?
There are two sides to this answer that generally need to match up for a VC to consider an investment. On the one side, there is the strategy of the VC firm. Depending on a myriad of factors including targeted stage of investment, fund size and corresponding initial and follow-on (reserve) investment, expertise of the partners, etc., a VC firm sets its strategy on how much capital it would like to put to work in each investment. Generally speaking, the firm tries to balance the overall portfolio so as not to be over-weighted in any particular investment while also trying to own a consistent percentage of each portfolio company (within a targeted range, e.g., 20%-40%). Capital held in reserve for follow-on investing is very important as we often find that even the best ideas take longer to develop and without capital to support those companies you may find your ownership interest shrinking over time. A general rule of thumb is to reserve 1-2x a Series A investment for follow-on. With this strategy, the VC seeks investments generally matching its targeted criteria.
On the other side, there are the needs of the entrepreneur/company. Again, there are many factors influencing a desired level of funding including stage of development, access to angel, friends and family money, capital efficiency of the business model, etc. Here, an entrepreneur should look to minimize dilution while balancing the time and distraction (impact on the business) it takes to raise capital. While this may seem scientific, there is artistry to this process as the entrepreneur learns about the VCs value-add including past successes and company building experiences, access to customers, strategic partners and advisors, etc.
For New World Ventures, we seek investments from early to late stage in the broad category of information technology (see our web site for targeted sectors of interest www.newworldvc.com) and we look to invest initially from as little as $3M to as much as $20M (taking into account all the factors above). Our unique LP base provides us with much more flexibility in adjusting our investment strategy to the opportunities at hand than a typical VC fund, which can at times better align our funding and exit strategy with that of the entrepreneur.
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