Anyone who’s ever plied the universe of a first-person shooter video game knows what spray-and-pray mode is all about.
Grab the burliest fully automatic weapon you can get your hands (or alien appendages) on and mow down every target that comes into view, be it good, bad or otherwise, and “pray” the law of averages, in lieu of careful aim, works to your point advantage.
When applied to the world of startup investment, spray-and-pray is an approach that relies on writing checks to a large number of fledgling companies and waiting to see which effort shows the most promise. Those that rise to the top get follow-on funding and the flounderers get left behind. It’s a strategy that dispenses with due diligence in favor of the math equivalent of a full clip and indiscriminate mayhem.
They do ships — relationships
And it’s a method that represents the very antithesis of how Utah venture capital firm Album VC has been going about its business for the past eight years on its way to becoming one of the most successful seed-stage investment firms in the region.
How successful you ask?
The company reports it’s seven-for-seven on backing Utah tech “unicorns,” the industry term for privately held companies that achieve the $1 billion valuation benchmark. And it’s an investment partner in a slew of other local and out-of-state startup endeavors that are working their way toward achieving their own mythical beast status. Partnerships that all began with a focus on one thing that’s at the heart of the firm’s self-imposed prime directive — personal relationships.
“We found early on that time spent with founders, in person and really coming to understand who they are is critical,” said Album partner Sid Krommenhoek. “Walks, going skiing, doing all that we can do to really get a pulse on who this person is.
“When you make an investment at our stage, seed stage, this is the beginning of years and years of time with that person. So, you want to discern two things — do they have the ‘it’ factor, and will I like them and will they like me ... because what’s coming is too long a time to be in a tough relationship that doesn’t work.”
Album’s founder-focused vetting and relationship building approach is time intensive by both intent and nature but instead of staffing up to increase the number of deals the firm can turn in a given cycle, Album’s three partners have instead settled into a pace commensurate with how they do business.
“A lot of investors are focused on doing a high volume of deals,” said Album partner John Mayfield. “We’ve come to kind of a model and cadence, investing in two startups per partner per year, a pace far slower than most for a venture fund our size.
“This is an approach that raises the bar for focusing the mind and getting the best deals done. I might look at a hundred deals in a year, and I’m only going to do two. The hardest part is saying no to so many entrepreneurs.”
Quality over quantity
And that focus continues even after those deals are struck. Album partner Diogo Myrrha noted the firm is compact (the company’s full complement is five, including the three principles) by design, a structure that ensures portfolio companies aren’t passed off to support staff when it comes to ongoing consult and, sometimes, a bit of mentor therapy.
“We’ve made the very deliberate decision of quality over quantity,” Myrrha said. “That also means the partners are the first call when crap hits the fan. We’re here for that and it sometimes means offering some psychological support along with business advice, listening and walking through the hard problems that come with being a startup.”
While Album has kept its team small, its just-announced Fund IV is a whopping $200 million, a 10x jump from the firm’s first fund cycle less than a decade ago.
From an investor’s perspective, being able to spot, very early on, a company that’s forging a new solution or creating opportunity where none existed before relies on a clear-eyed adherence to good business principles, Album says, but alongside that is also a certain amount of intuition and the kind of savviness that comes with experience. And it also requires being able to steadfastly ignore whatever flavor-of-the-month startup ideas are grabbing the latest headlines in the tech reporting community, according to Album’s trio of principals.
Hearing the signal over the noise
“We are highly collaborative internally but we don’t look for, and actively try to avoid, the false signals and the noise, which can be deafening, generated by tech publications, blogs, meetups and summits,” said Krommenhoek. “Our work comes down to something pretty simple and it’s to spend time with the founder and see around the corner with them.”
Mayfield expounds on that, noting the founders that have earned Album’s backing tend to share a set of definitive traits.
“When we step back and look at the entrepreneurs we’ve backed, the common theme between them and the biggest outcomes is they’ve prepared in a very focused and specific way for the markets they’re going after,” Mayfield said. “And how they do it is a lot more missionary than mercenary.”
Mayfield held up Podium co-founder and CEO Eric Rea as a perfect embodiment of the market understanding and problem-solving traits that Album looks for in its investment targets.
Rea’s inspiration for launching the customer communication platform was seeded in part by the challenges his father was facing as a small-business owner. Album’s early backing helped get Podium, founded in 2014, off the ground and it’s gone on to stellar success. Last fall, Podium announced it had secured a $201 Series D funding round, surpassed the 100,000 client mark and earned a valuation north of $3 billion.
And, a sizable group of Album-backed founders are collectively completing a remarkable circle in a local tech ecosystem that has long been notable for its collegial vibe and pay-it-forward attitude. Some 35 leaders of Album’s early portfolio companies are pitching in to the firm’s latest, $200 million fund.
“From founder to funders — that has a nice ring to it,” Album wrote in a web posting about the new fund.
While Album is now among the OG firms in a Utah venture investment community that was still a nascent industry a decade or so ago, the partners see the region’s still burgeoning tech sector as a playing field of both growth and opportunity.
“As it pertains to this new $200 million, at this phase, we think it’s a great time to be starting a company and a great time to be investing in a company,” Mayfield said. “We’re thrilled with all the companies we’ve backed but in a way we’re just getting started. The next five years, maybe 10-plus, is going to be exciting and everything up to this point has prepared us for what’s ahead.”