IVCA Q&A: Matt McCall, Partner at New World Ventures, on Strategies in Seed Investing

IVCA Q&A: Matt McCall, Partner at New World Ventures, on Strategies in Seed Investing

August 17, 2011

CHICAGO - “ With the local Excelerate Labs Program winding down towards Demo Day on August 31st, one of its greatest supporters has been New World Ventures. Before the current class of ten companies started the 13 week program, New World Ventures offered each of them the opportunity to tap into $50,000 of convertible debt. This is in addition to their mentoring from the associates and partners.

Matt McCall, a partner at New World Ventures, recently talked to the IVCA about their fund strategies in both seed investing and their partnership with Excelerate, and how that benefits the VC community overall.

IVCA: What is the New World Ventures current strategy in developing seed incubators and seed investing?

Matt McCall: We've expanded our investing scope in both earlier and later stage. With our seed investing, we have concentrated on the Midwest because of a lack of seed capital in this region and our 15 years of successful investments in start-ups. We have two programs. One is for proven entrepreneurs - “ often entrepreneurs we've backed in the past - “ who are looking to seed their next opportunities. The other program is for companies with some sort of traction and vetting - “ such as through programs like Excelerate, Kellogg or the Booth Management School - “ where the plan has been pressure tested, and where there are capable, young entrepreneurs involved. With this program, we'll look to put small dollar amounts into a handful of companies each year, who are carefully vetted.

IVCA: Specifically then, is New Venture's partnership with the Excelerate program part of that vetting process?

McCall: Yes. Last year, we made some seed investments in a couple of the graduating companies from the first Excelerate program. This year we expanded the program to include a small amount, $50,000, to all the graduates. That was similar in nature to the SV Angel's - ˜Start Fund.'

IVCA: With competition to attract talent to incubators getting more fierce, how did the seed investing partnership with Excelerate make sense in making sure that incubator can bring in the best ideas and the best talent?

McCall: I wouldn't use the word - ˜competition.' I think the challenge in the Midwest region is not so much that there's competition, as much as there is a scarcity of seed capital in the area. If anything, the angels in Excelerate are working together to get critical mass by forming syndicates. In Silicon Valley, it's a different story, but for a lot of stuff we do here, there's a scarcity.

IVCA: What has proven successful at the Midwest regional level?

McCall: What has happened in the region is we now have entrepreneurs who are on their fourth generation of companies. We find a growing array of exciting opportunities for our core seed investing, which are the larger amounts into situations where we're backing proven Midwest entrepreneurs, such as the team that started BrightTag. These are entrepreneurs who have played at the national level, and who are world class. That if anything is a key indicator that the Midwest ecosystem has inflected.

As it relates to the rawer start-ups, there is no doubt that Excelerate has created a world-class program. That is because the co-founders, Sam [Yagan] and Troy [Henikoff], have literally willed it into existence, and have created a phenomenal program. And more importantly, the entire community has rallied around it. All the major VCs and entrepreneurs are meeting with this Excelerate class, mentoring them and helping them through the 13-week program. So by the time they come to the end of it, they are really battle-tested.

IVCA: You mentioned that SV Angel's 'Start Fund' was the model for your seed investing program with Excelerate. What did the Start Fund do, that made New World Ventures sit up and take notice, then put in plans for that level of seed funding?

McCall: We'd already done that in part last year, by backing a handful of the first Excelerate graduate class. We realized we were big supporters of the program and we thought it would strengthen the program overall, knowing that it was in place. Also it was a show of confidence in what Sam and Troy had built, process-wise, and the quality of the companies coming out of the program. We were really impressed with that quality.

IVCA: How closely does New World Ventures participate in the Excelerate incubator? Will the seed investing partnership be in addition to other activities within the program?

McCall: We're involved in a couple things. We are a sponsor investor in Excelerate itself, along with other investors. Many of the partners and associates do the actual mentoring within the program. Anything we can do to help Excelerate Labs, we will consider, because there is such a critical need for it in the community, and they really created a model that works.

IVCA: How will New World Ventures participate in the culmination of the program, the presentation of the Excelerate companies on Demo Day later this month?

McCall: Like everyone else, we'll look at the companies coming out and figure out if there are opportunities to invest more. At a minimum, we've supported and helped out all the companies in that portfolio up to that point.

IVCA: With current technology, you can do so much more for less money these days. How did this notion play into New World Ventures' decision to apply the three-pronged approach to seed investing now?

McCall: Because of our deep, flexible source of capital, it allows us to have significant options in what we do. So we wanted to find intelligent ways in which to canvass the entire spectrum of multi-stage opportunity, ranging from small seed all the way to late-stage investing. We've done late-stage companies that do nine figures in revenue, all the way down to $25,000, and everything in between.

Our belief is that if it is in a domain we understand and we can price and structure it accordingly based on its stage and risk, we should have successful and profitable investments across the spectrum. Also, if we can work with other angel investors and VCs to help fill a gap, we're enthusiastic about doing that.

IVCA: In general, where are the best ideas of late coming from? Is it a specific industry, generation or technology? How does seed investing contribute to keeping those ideas motivated and to promote outside innovation to keep it all fresh?

McCall: There is a saying in the venture business, - ˜there is an inverse relationship between visibility and profitability.' By definition you have to cast a wide net and be in tune with the market trends that are out there. What we're trying to do is cast as wide a net as possible with the seed programs we have, with the hopes of seeing a new model or a novel approach that just hasn't been thought of before.

IVCA: In conclusion, how do seed incubators best contribute to the venture capital industry?

McCall: What is incredibly positive is that there are a number of players in the community here that have embraced this with a passion, including Sandbox, OCA, Apex, Lightbank and a host of others. I feel very positive for the future of this region, because of the high caliber of investors. The number of buckets that an entrepreneur can go to for seed capital has risen dramatically. Which means we can hold onto our talent more easily, and we have more horses in the stable to potentially be winners in the long run.

For more details on Demo Days, August 31st, click here.