Collin Gutman of SaaS Ventures: 5 Things I Need To See Before Making A VC Investment

An Interview With Orlando Zayas

The ability to accomplish something with nothing. The more you’re able to get done using little more than charisma and equity, the more impressed VCs will be. It’s easy to spend lots of money on mediocre talent, getting great people to work for nothing is the sign of an leader that can win. We have a company called Standard Bots that build their entire MVP (over two years, as it was a very sophisticated product) for minimal cash because they were so effective at finding talented people who wanted to join Evan’s team and believed in him.

As part of our series about “5 Things I Need To See Before Making A VC Investment” I had the pleasure of interviewing Collin Gutman, co-founder and managing partner of SaaS Ventures, a venture capital firm focused on enterprise tech startups in second and third tier cities across North America. SaaS is uniquely committed to supporting innovation outside of traditional coastal tech hubs, and has portfolio companies in 24 different states, as well as Canada.

Prior to founding SaaS Ventures, Collin co-founded Acceleprise, the world’s first pure enterprise tech accelerator. Originally based in DC and now with locations in Australia, New York and San Francisco, and Melbourne, Acceleprise focused on helping to solve the challenges unique to enterprise tech at the earliest stage, and built an extensive network of 120+ mentors to aid its 45+ investments.

Collin has also been an entrepreneur, having founded WorkAmerica, a social impact workforce development startup, funded by Kapor Capital, Acumen Fund and others. He saw firsthand the challenges of raising seed rounds in a fractured venture ecosystem, and decided to found SaaS Ventures to help fill this gap.

Collin holds a BA cum laude from Yale University, and is an avid DC sports fan.

Thank you so much for joining us in this interview series! Before we dig in, our readers would like to get to know you a bit. Can you please share with us the “backstory” behind what brought you to this specific career path?

Collin Gutman: I think opportunity usually stems from timing plus interpersonal connectivity. In my case, I have a mentor named Sean Glass, who is a successful entrepreneur. Sean and I had the idea to start an accelerator together, but I had no ability to raise capital nor venture experience. Sean served as the glue to pull the accelerator together, I did a lot of the leg work (along with a third partner) and was able to learn at his side. After three years of running the accelerator, my experience went from 0 to having watched 45 companies through bad times and good times alike. It’s very hard to get into venture and it usually requires both luck and an industry insider willing to take a gamble on teaching you.

Is there a particular book that made a significant impact on you? Can you share a story or explain why it resonated with you so much?

Collin Gutman: My favorite book, going back to when I was a teenager, isMoneyball by Michael Lewis. I’ve always been passionate about sports and market inefficiencies, and Moneyball crystallized their relationship. I think my passion for early stage venture comes in part from how fragmented and inefficient the ecosystem is. Trying to make the best of that situation by finding entrepreneurs living outside the purview of most VCs and creating industry-changing companies is my way of living Moneyball.

Do you have a favorite “Life Lesson Quote”? Do you have a story about how that was relevant in your life or your work?

Collin Gutman: When I was just starting my entrepreneurial and venture capital career at the age of 23, a fellow founder named Zvi Band and I went out to lunch. Zvi told me “if you’re not bipolar yet, you will be.” It was somewhat tongue-in-cheek, but largely prophetic. Starting a company is hard, and took a toll on my mental health when I ran my company. It helped to have been forewarned — that my stresses were not my own problem — they were systematic among entrepreneurs. Having received that perspective then lived it I think makes me a more compassionate VC. No matter how my portfolio companies are doing, it helps to step back and consider the team’s mental state as they fight a difficult battle.

How do you define “Leadership”? Can you explain what you mean or give an example?

Collin Gutman: Simon Sinek wrote a book called Leaders Eat Last. For me, that’s the notion of leadership. Those who are always putting personal gain first or fighting over every nickel are often difficult to work with. I try to make sure that everyone else — my startups, my partners/colleagues, my LPs — are happy at every decision the fund makes. That’s what leadership means to me. If everyone else sees self-sacrifice they will emulate that behavior and work for the communal good.

How have you used your success to bring goodness to the world?

Collin Gutman: I’m not sure I’d call myself successful quite yet — a VC is only as good as his/her current fund, and funds take 10 years to really judge! But I’d say I try to generally be helpful to every entrepreneur I meet. We will pass on many great companies. Many entrepreneurs are starting their second-best company right now — with their winner being years in the future. If you treat every person with respect, try to be helpful and treat them as you wanted to be treated when you were an entrepreneur I believe the world will be a better place, and the culture for innovation will continue to thrive.

Ok, thank you for that. Let’s now jump to the main part of our discussion. The United States is currently facing a very important self-reckoning about race, diversity, equality and inclusion. This is of course a huge topic. But briefly, can you share a few things that need to be done on a broader societal level to expand VC opportunities for women, minorities, and people of color?

Collin Gutman: Most VCs come from a background as an entrepreneur. So I think the VC problem is a function of the lack of entrepreneurs from diverse backgrounds by and large — the pool of successful entrepreneurs looking to move into venture is predominantly white and male. So for me it’s about dramatically growing the pool of entrepreneurs among women and people of color. While I think the recent rise of minority-focused funds are great — they provide access to capital to those who have traditionally faced barriers connecting to capital — I think focusing on funding for current entrepreneurs is only a small part of problem. The problems begin at an earlier age, and it begins with education. Suburban whites have more access to entrepreneurs as mentors in their communities and men are more likely to learn Computer Science then women. I have yet to see a scaled initiative from someone like Amazon, Google or a mega-venture fund like Andreesen Horowitz to provide high quality entrepreneurship and computer science education (a Google Entrepreneur certificate?!) to those traditionally dissuaded from the industry. I think that encouraging women in middle and high school to learn technical skills and fostering entrepreneurial education among traditionally neglected communities of color would go a long way for the entire ecosystem.

Can you share a story with us about your most successful Angel or VC investment? What was its lesson?

Collin Gutman: My most successful investments, across the board, are stories about founders. Not the product, not the traction, but the founders. One great example I can point to is DivvyCloud. DivvyCloud recently sold for $145M to Rapid7. When we invested with Acceleprise, we invested in two brilliant engineers with a vision who were still working day jobs for a large company. The capital we gave them allowed them to quit their day jobs and start the company. They were pre-product, pre-revenue, and if you saw their pitch deck, you’d call them pre-legitimate pitch deck. But people build great companies. We believed in Brian and Chris. They survived the lean early years, raising just enough capital to get by and converting angels into true believers. They pivoted the initial product vision, first subtly then more dramatically, to achieve product-market-fit. And they ultimately turned the company into a success. But my top rule is to back A founders with B ideas over B founders with A ideas.

Everyone says “how do you judge an A founder?” That comes in two forms. One can be resume. If you’ve achieved success in the past in ways that seem replicable, then you’re likely an “A founder.” But I believe great companies can come from the minds and passion of 20 year olds with no resume as well. So there it becomes a subjective calculus for the following reason: if I think you’re an A founder, and you wow me, then you’re likely to wow a subset of customers, other venture funds, advisors, etc. So sometimes the definition of an “A founder” is just someone I believe is an A founder!

Can you share a story of an Angel or VC funding failure of yours? What was its lesson?

Collin Gutman: While I could easily tell stories of founding teams turning out to be “B founders” or even “F founders” — where I simply made a mistake in my belief in a founder — I will tell a more macro story. Acceleprise made 45 investments out of its fund. 8 years later, it appears that only 6–8 will produce material returns, and 90%+ of our returns will come from 4 companies. And these numbers come from a really good fund! We performed well financially despite having basically 10% of our companies truly succeed. So the lesson is that venture capital, like baseball, is a game of failure. The reason VCs have portfolios instead of betting on 1 or 2 companies in which they have high conviction is that unforeseen events take place. S*** happens, as I say all the time. Sometimes the entrepreneurs do everything right, the VCs make a good decision, and the company still fails. This is where my earlier point about compassion comes in. All you can ask of yourself and your entrepreneurs is that you listen, learn, work hard and work as a team. If you do all of that, and in the end the company fails, you can have no regrets. Failures are a part of entrepreneurship, and it’s important that both sides recognize that and deal with failure with maturity and compassion.

Can you share a story with us about a problem that one of your portfolio companies encountered and how you helped to correct the problem? We’d love to hear the details and what its lesson was.

Collin Gutman: One of our successful portfolio companies, Huntress Labs, had a problem relatively early on in its existence. The company only had $15k of MRR, and had a $20k MRR opportunity on the table, but the customer was asking for the world. At first, they asked for exclusivity. Then, the customer asked for pricing based purely on their ability to re-sell Huntress’ product. After a few hours on the phone with the CEO, we decided that neither of these routes were viable. Exclusivity would prevent future gains for a short term win, while a deal without guarantees left the re-seller without sufficient incentive to re-sell. So we came up with a proposal in which the company would guarantee Huntress a specific amount of revenue, with more earned as the company re-sold a quantity above a specific threshold. This was risky, the easy move was to take the guaranteed $20k of MRR and more than double the company’s revenue. But we made this proposal knowing that the re-seller could walk away. They ended up signing on our proposal, and since then Huntress has been a rocket ship.

Is there a company that you turned down, but now regret? Can you share the story? What lesson did you learn from that story?

Collin Gutman: I would not say that I ever regret a decision, because every decision we make is the right one for us at the time — given the world of imperfect information and inability to predict the future in which we operate. Having said that, every good VC passes on companies that ultimately become successful — it’s a sign of the quality of your dealflow that you’re unable to invest in every great company that comes across your transom. But I remember a company called OpsGenie that pitched me in 2012. The founder was clearly very bright, but we were getting pitched by literally one DevOps Operations console a week back then. We just didn’t feel like we had the ability to predict which one would win. Sure enough, OpsGenie raised $10M from Battery Ventures in 2016 and sold for $295M to Atlassian in 2018. The moral of the story is to always keep an open mind. You can’t assume that every company is another copycat, and building relationships with founders can lead you to spot the gems.

Super. Here is the main question of this interview. What are your “5 things I need to see before making a VC investment” and why. Please share a story or example for each.

Collin Gutman:

1. A founder that is going to win their market. As I alluded to earlier, you need to either convince me that you’re a dynamic leader of people whose mix of talent and knowledge make you qualified to tackle the opportunity in front of you, or be a world leader in terms of experience that pointed you toward the problem you’re solving. The best example I can point to here is StayNTouch, which I mentioned earlier. Both of the founders worked together at Micros, which was the industry leader in hotel point of sale systems. They said “hey Micros stinks, let’s build a system that is strong in all the places where Micros is weak, and kill it!” And they were on their way to doing so before accepting an attractive acquisition offer. But nobody in the world was better suited to attack Micros than Tim and Jos.
2. A market that can sustain a fund-returner. There are lots of great businesses out there. Many will make their founders a lot of money. Not all are venture style businesses. For us to invest, we have to see a path to at least 25x our money. That means if you want a $10M postmoney valuation, you have to be able to sell for at least $250M — even more if you’ll take future capital that will create dilution. Many entrepreneurs are better off bootstrapping to a $50M exit that they wholly own than raising venture capital and shooting for a moon that may not be there. So I want to make sure you have a large enough market that, with a reasonable penetration rate, you create a venture-size exit. We have a company called FeedTrail whose market seemed small at first glance — patient feedback for hospitals. After the founder explained his vision, we saw a potential challenger to Qualtrics and Medallia — a potential category leader in customer experience software. The vision corresponded to the target market, and the founder’s vision pointed to a very large market that wasn’t obvious at first glance.
3. The early makings of a core team. Even if you can’t pay them, you have people around you. And not just people, GREAT people. Great leaders can rally and inspire. Even if your deck says CTO is XYZ pending our seed round, or pending Series A, getting advisors, board members, and future team members lined up will show that you can recruit elite talent needed to help you build a company — because nobody builds a winner on their own. At Acceleprise, we wanted A+ founders, but one of the questions we always asked was “who else is on the team?” and a great surrounding cast (even pending surrounding cast) was key. Even LeBron needed Dwyane Wade to get over the hump.
4. The ability to accomplish something with nothing. The more you’re able to get done using little more than charisma and equity, the more impressed VCs will be. It’s easy to spend lots of money on mediocre talent, getting great people to work for nothing is the sign of an leader that can win. We have a company called Standard Bots that build their entire MVP (over two years, as it was a very sophisticated product) for minimal cash because they were so effective at finding talented people who wanted to join Evan’s team and believed in him.
5. Customers who love your product. For you to displace an incumbent with far more money and brand recognition, you need to have a product that’s incomparable, not just slightly better. Customers, therefore, need to LOVE your product to make the switch or go with the lesser-known brand. The best example I can think of here is that we were doing diligence on a company called Trackstreet, which started by doing minimum advertised price compliance for businesses. One of the references for the company said “I would quit my job if we got rid of Trackstreet.” Now THAT’S what I call a sticky product.

You are a person of enormous influence. If you could inspire a movement that would bring the most amount of good to the most amount of people, what would that be? You never know what your idea can trigger. :-)

Collin Gutman: I’m from Washington DC, a major city with lots of economic opportunity. Between the coasts, the economic opportunity doesn’t exist in the same way. There are fewer great jobs and far fewer thriving tech startups -partially driven by a lack of available capital and the focus on investing in Silicon Valley. I’d want more people to pay attention to the flyover states. Talent is far more evenly distributed than jobs and capital. With the world going to a WFH model, hopefully talent, great companies and capital will begin to better align for some of these overlooked markets. One of the cities in which SaaS Ventures is most active is Kansas City — not exactly atop most VCs’ lists of tech hubs!

We are very blessed that some of the biggest names in Business, VC funding, Sports, and Entertainment read this column. Is there a person in the world, or in the US whom you would love to have a private breakfast or lunch with, and why? He or she might see this. :-)

Collin Gutman: Andrew Yang. Since he started Venture for America, he’s been a leader in showing that talent is far more well-distributed than capital and opportunity. I think we’d be able to inspire a lot of positive entrepreneurial change across the country together.

This was very inspiring. Thank you so much for the time you spent with this!

About The Interviewer: Orlando Zayas is the CEO of Katapult, an award-winning omnichannel payment platform. Zayas is known for his revenue growth strategies and visionary leadership in the eCommerce and retail space. His future-forward expertise has led companies such as GE Capital, Safe-Guard Products International, and DRB Capital. Zayas is also highly committed to providing educational opportunities to underprivileged communities through his philanthropic endeavors. Zayas’ business insights are regularly featured in publications such as Forbes, Entrepreneur Magazine, Retail Insights, and more.