Techrockies: Thanks for the interview. For those who aren't familiar with Flywheel, what kinds of companies and industries do you invest in, how big is your fund, and what are you looking for in a deal?
Chris Traylor: Flywheel primarily invests in seed- (pre-product) and early-(pre-revenue to minimal revenue) stage technology start-ups. More appropriately, though, we are first institutional capital. This includes companies with significant operating histories, which, due to various inefficiency-based reason(s) or lack of execution, have yet to achieve their venture-exit-sized market potential.
Our geography to invest is primarily the four corners region (CO-NM-AZ-UT) and northern CA. Industries of interest include traditional IT and physical sciences, including clean tech. Capital efficiency is an important criterion, as our fund size is between $30 and $35 million.
As former tech entrepreneurs, Flywheel looks for deals where our network and experience can have a meaningful impact. We want to do business with companies that desire a hands-on partner.
We look for sustainable competitive advantages and what we call re-segmentation opportunities, which is the application of innovation into existing market verticals to reorganize leverage.
Funding amounts are generally in the $100k to $1 million range initially and $2m- $3 million lifetime.
Techrockies: What are some of the companies you've invested in, and are there any in particular that have been doing pretty well?
Chris Traylor: We've made investments in eight of the fifteen to twenty companies we plan to invest in. Two, including Ft. Collin-based Tuscany Design Automation and Centennial-based Groople, are in Colorado.
Groople delivers group-specific travel-booking solutions. Groople recently recruited a CEO / CFO travel veteran combination in Michael Stacy and Shannon Hyland, respectively, to take the company to its next stage of growth. We're in the process of closing a new round led by a new investor to fuel expansion.
Tuscany is in the electronic design automation (EDA) market selling automated structured design tools to chip companies. Randy Smith, an EDA veteran, was recently recruited by the team and Board as CEO. They've got some good news they'll be announcing at the 43rd Design Automation Conference.
Techrockies: How are you finding the technology industry and investment opportunities in New Mexico, as well as the rest of the Southwest/Rockies region for your fund right now?
Chris Traylor: If you're willing to roll up your sleeves and take an active matching approach there are opportunities, more than the bandwidth one has to pursue. It's sometimes required to help founders package their ideas and round out the management team, but the result is a great company. There's a funding gap at the seed level at around $250k - $1 million, which applies broadly across the four corners.
Techrockies: How have you found the reception of out-of-the-area VCs to investing in the area?
Chris Traylor: The short answer is a high level of receptivity. First, the "flattening" of the globe through technological (and therefore knowledge and accessibility) and other advancements has allowed what were once thought of as 'fly over' regions to become more prominent players in the global supply chain. Second, the degree of competitiveness for quality deals in the traditional private equity meccas (e.g. Bay area, Route 128, etc) has resulted in a geographical diversification. Third, there is an increasing awareness and maturation of the Mountain West's strengths, including the volume and quality of innovation and entrepreneurial spirit, all the while maintaining its cost of doing business advantages.
Techrockies: What have you found that helps most with making companies fundable?
Chris Traylor: The most important facet of any company is its team. It's about getting the right people with the right expertise, relationships and mindset in the right positions to do the right things. Inevitably challenges arise, and the team's ability to handle and then turn whatever it is into a competitive advantage is a big difference maker.
Talk to customers before you talk to investors to validate the market. This should include identifying the intensity of the customers' pain, the optimal solution and associated ROI; determining willingness and timeline for adoption; and assessing profitability and scalability.
Techrockies: What advice would you give to entrepreneurs who are looking to pitch their company to you?
Chris Traylor: Be not only the equivalent of an industry analyst on *your* market, but your *customers'* markets as well.
Don't try to sell or overtly influence any potential funding partner, just be passionate and disclose transparently and the opportunity will articulate itself.
Do due diligence on your funding partner, as they need to bring added value beyond the value of the check they write.
It's about the size of the pie. Do what you need to get the right people at the table to grow it. Identify all 'white hot' risks and then develop a plan to address each one, and have the right people to execute to that plan.
Understand your funding strategy, particularly what your total capital requirements to liquidity are, timing and amounts and milestones required, and why and what your funding partner's exit expectations are.
Techrockies: Great advice! Finally, what areas are you most interested nowadays in, and are there any particular sectors you think are the most promising?
Chris Traylor: A few things...(a) increased ubiquity and feature convergence coupled with the inherent advantages to the mobile computing platform has produced needs for software applications that allow for useability within a smaller form factor; (b) accessibility and the maturation of the internet has increased the volume of opportunities for packaged information services; (c) virtual prototyping is now a reality, but the environment continues to require optimization and interoperability for design and simulation tools.
Techrockies: Thanks for the time and excellent thoughts!