Sramana Mitra: How do you read the open source trend? The commercial open source trend has also been going gangbusters. A lot of interesting companies have come up with that trend. What are you seeing in your deal flow?
Tea Hea Nahm: Open source is great. You’ve got Databricks and others. Customers like open source. You want to go with what customers like. The challenge is, if it’s open source, how do you compete with your competitors especially if a big platform decides to adopt the open source? That’s what we look at. We like open source as long as we believe that the company could still have a differentiated position that will generate meaningful business for them.
Sramana Mitra: I’ve had open source conversations with a number of VCs who are enjoying the open source business model partly because of the immense lead generation capability of the open source business. If you can find a good freemium model, but there’s enough additional stuff that they have to buy from the company, it’s a terrific lead generation mechanism.
Tea Hea Nahm: Absolutely, it helps there. You just need to have a good monetization and profit engine at the backend.
Sramana Mitra: I’m going to switch gears a little bit from trends to the specific investment strategies of how you like to invest. What qualifies as an attractive seed investment? What do you want to see in a company? Do you want to see paying customers? A certain MRR?
Tea Hea Nahm: I could turn that around and explain our two deal filters. When we look at companies, we don’t look at them as seed, Series A, or Series B. We look at those as terms invented by lawyers. Does the company have a product-market fit? Do they have go-to-market fit where they can unlock growth? Once a company has unlocked growth, then it’s on the path where they’re scaling to becoming the category leader. We look at those stages and we analyze the company in that manner.
About a third of our investments are in companies that are in pre-revenue. Those companies tend to either have a founder that we really believe in, or it’s a space where we feel we need to have an investment. The other two-thirds, we look for companies that we feel have product-market fit and that we can help them find go-to-market fit.
Sramana Mitra: Do you have a metric to gauge that you have product-market fit?
Tea Hea Nahm: It’s usually a million in ARR and 20 customers.
Sramana Mitra: $1 million ARR is a magic number that unlocks a lot of options for entrepreneurs.
Tea Hea Nahm: For us, there’s just so much B2B software at a million ARR. We just feel overwhelmed with the number of deals in that area.
Sramana Mitra: When the deal flow has a lot of million ARR companies, what is the next filter?
Tea Hea Nahm: Stepping back for a second, the question we ask is, “Do we think this company can become the category leader?” If they can, we tend to do well. Are they in a space that can become a category?
Sramana Mitra: Defining the category is important.
Tea Hea Nahm: Right. The first thing is, will this space become a category. The second question is, do we think they can become leaders? The first step to becoming a leader is unlocking growth. Do they have the product vision and roadmap to become that leader? The third is, can the founder get me there?
