“Work hard, and do the right thing, and good things will happen.”
Matt Blomstedt is the Managing Partner of SpringTime Ventures, an $8M seed fund focused on startups in the Mountain Region. His team has invested in over 20 startups including TrueCoach who sold to TSG earlier this year and SonderMind who recently raised $27M in their Series B. Prior to founding SpringTime, Matt worked in M&A in Oil & Gas for over 9 years in Texas.
How did you go from M&A in Oil & Gas to raising a seed fund in Colorado?
It was really all by chance. I moved to Colorado because I wanted to be in the mountains. I just fell in love with Boulder and I was very familiar with Colorado because I spent a lot of time in the state while working in energy. So I ended up making the move in the beginning of 2016 and not long after that I met a couple of entrepreneurs that were raising capital for their respective ventures. I tried to help them by connecting them to potential angel investors in Texas. And those first meetings kind of spiderwebbed from there. I ended up meeting many founders and also some VCs and accelerator programs. And the more founders I met, the more it became clear that there was a lack of seed capital available in the region. At least at that time – now there are more funds in the area helping fill the gap. You did have Foundry Group & Access Ventures who have been very successful investing in the area but are now managing a lot more money and don't focus on seed necessarily.
You also have all these people moving to the Rockies from the coast. And these are smart, entrepreneurial people who want to live here because of the quality of life. It’s really a great place to live and work, and those things are very important variables for a healthy tech startup ecosystem. The momentum was there then and it continues to grow today. So it just seemed like a great place to start a seed fund. Now, four years later, we're up and running, and it looks like that that thesis is playing out nicely for us and other new investors in the region.
The other extremely important factor are my partners. I didn't really know what I was doing starting a venture fund. So I was blessed to meet them very early on in this journey and somehow convinced Rick, Rich, John and Jeff to support me and guide us on this journey. Together we raised $8 million for this first fund.
Now that the fund has been raised, what are you looking for in a typical investment? What gets you really excited?
Every deal is different. But there’s a few main pillars we look at. You always have the team, the market, and the product. The biggest thing and what’s in the center of this all, at least for us, is the team. We really like teams that have lived and experienced the problem that they're solving for. After the team, the market size is really important. We’re venture investors, and we need the potential for venture type returns. The market has to be a multi-billion dollar market. And sometimes on the surface it’s tough to see just how big a market can be, so you really have to buy in to the founder’s big vision. Those are the two biggest things. The product is obviously important too, and we don't invest pre-product. At the same time, at the seed stage, products are in various stages of development, so we take that into consideration. But it's always nice to see a product that makes you go, “Wow, we this is cool”. But product is a work in progress at this stage.
You were used to large sets of data when you were doing M&A in Oil & Gas. You don’t have that luxury of data in seed investing. How do you make up for that?
It's so different. We were working on nine to ten figure transactions in that space and just the amount of data and due diligence you do, it's on another level. Here, we get such a wide spectrum of data. Especially the really early ones. We’ve invested in companies that are pre-revenue and any kind of financial model or forecast they put together is really just a shot in the dark. But we like to look at that forecast because it gives us a glimpse and insight into how the entrepreneurs are thinking about the growth of their business. We understand the model is going to be wrong. And again, that’s why the team is so important.
Are there any specific industries you’re focused on?
We started pretty agnostic, and still are to an extent. But I think now you can look at our portfolio and place companies into five or six buckets. Health tech is one that we are investing in and will continue to invest in. Logistics and supply chain technologies, the industrial space – meaning automotive, manufacturing, aerospace, and food within that category. Rick is really good with digital content and we’re in a couple of companies that I would place in that bucket. After that, you'll see a couple of Fintech deals. We also look at insure-tech and legal tech as well. We feel like we know (and/or friends of the fund) these industries, and we can bring expertise and value to help grow these types businesses. Most of our investments are in B2B SaaS businesses and marketplaces, with a few consumer deals mixed in.
Are there big macro changes happening in those markets that make them attractive from an investment perspective?
I think so. You'll see in all those industries that I just noted are making shifts to digitization. Obviously COVID sped some of this up, especially within the health care space. There are many digital health and telehealth platforms out there already and more are popping up just because the market seems to be opening up. I think we are seeing this in many industries though. This does bring new challenges, however. When a market gets hot, you have to be able to cut through the noise and really understand the space and understand the differentiation in the business that you're potentially going to invest in.
What should a founder look for in an investor? Especially in the seed stage?
We actually get that question a lot from founders, and I love it. It's so important that they’re asking that because this is such a long journey for them. And it's their journey. So they need capital partners that are going to be supportive of them throughout that.
I think that there are a few things. You need an investor that you have a good rapport with that’s going to be open with you, that's going to communicate well with you, and that’s going to be there for you when you need it. Startups are hard. You’re going to need help. That's why we always try to be as open, transparent, and honest as we can with founders from the start. And we’ll continue to operate in that manner as we invest. Even if we don't invest, we still try to help them if we can.
What you don’t want is investors that don't fully buy in to your vision. Especially at the seed stage, you just don’t have time for those distractions and it can slow companies down. And that's not good for anybody.
The other great thing you can do as an entrepreneur is talk to the other portfolio company founders in the investor’s portfolio. Get as much feedback about them as you can. The other founders in the portfolio will tell you like it is and what it’s like working with partners at the firm.
How do you view your role once you’ve invested in the company? What’s your responsibility now?
Let me start with some additional color. We're not a lead investor, so we’re smaller in a sense. Our check sizes are anywhere from $100-250k initially and we approach investing with no ego at all. If we have a board seat or board observer role in the company, it's not because it's a contractual right. It's because it truly makes sense for one of us to have a more involved role within the company. It could be based on past experiences or market expertise where we’re truly able to help. And some of the biggest things we help with are customer introductions and hiring. I actually would put hiring as the number one thing we help with. All these companies that that we work with that are raising money are hiring. They’re going to spend money on hiring for sales, marketing people, developers, mid-level management, and sometimes another c-level executive. So any top notch introductions we can make to new potential team members are super valuable to these companies. If you get a hire wrong, it can really set you back.
Obviously, there's also the strategy piece and go to market plans that we help to varying degrees with. We also utilize our network to see if others outside of just our core team can help. That’s why we focus on some of these industries because we have friends of the fund and LP’s that that can also help provide value to these businesses.
Once the company raises capital, where do you think they should really invest that money into?
Every deal is different but it's almost always going to sales, marketing and to further product development. Some companies with a more developed product might be spending more on marketing and sales. It just depends on where the company is at but it's almost always going into one of those buckets.
Regarding capital, is there a certain runway or capital efficiency you look for when investing in startups?
We look very closely at capital efficiency and runway. We like to see an 18 month runway with a raise. That does not mean that they're not going to raise again for 18 months. They could raise again in 12 months, 9 months or 24 months. We just want to make sure that with their plan in place, that this money could last them at a minimum of 12 months. We really feel more comfortable at 18 months. If things get cooking and they really find their groove and the founder feels comfortable speeding that burn rate up then it’s fine to do that, but there's got to be a lot of thought put into it.
Are there certain red flags you’re looking for as well?
We look at their history. How they’ve spent dollars prior to this round of funding. How efficient have they been? Depending on how much the company has raised or how much data we have at that point, it can be pretty easy to notice red flags. There are different metrics you can look at such as their revenue generated for every dollar spent or dollar raised. But again, every deal is different. At the seed stage, when you see a company that's raised $4-5 million or more dollars, and still not seeing much in the way of customer or revenue traction, you wonder why that is. Unless it's a deep tech company. There's are deep tech companies that you simply have to spend that kind of money to get the product ready. But with most of the SaaS businesses we're looking at that's not the case. And of course you want to invest in people with integrity.
You’ve invested in over 20 companies now. What’s been your biggest learning so far?
Oh man, startups are hard. I feel like the more time that goes on and the more I learn, the less I know. Because it’s really hard. It's definitely been humbling for me to see some of these businesses that have taken off. From afar it looks like, “Oh, you just put money in it, and it just keeps going.” But internally, they've had their own battles. For the majority of them, it’s a grind. They're working every day, and they're trying to make shifts here and there constantly. So I think my biggest learning is just the appreciation for how hard this is for founders. Even the ones that have been doing this and living these problems for years, it's still hard. That's why I'm always available to them. I try to build a really close relationship with founders. I also feel very strongly that their mental health is important because what they're going through is so challenging.
It’s still early days for the fund but you’ve had a few breakout successes already with SonderMind recently raising $27M from General Catalyst. What do you think it is that they’ve done that has put them in this position?
Mark Frank is just an excellent operator, and he's also built a phenomenal team. From day one. That’s a company with a world class culture. If you ever listen to him or speak with him, culture is always up there at the top. So as they've grown, they just continue to build on this culture and hire people that really buy into the vision of what they're doing with mental health. I think that's very important. He’s also done the same thing on the investor side. The board is full of rock stars. After that, you have to execute, and they’ve been great at that as well. Mark and the team have done all this in a very humbling way.
They've also timed this well as mental health in America has just come to the forefront and is being talked about every day now. So all these things have kind of come together. I think it's the perfect storm. They're building something very special over there and we’re huge fans and supporters.
Mental health is also very prevalent with entrepreneurs given the pressure they are under to perform. What should entrepreneurs do to manage their wellbeing?
It’s so important because startups require so much attention. It's hard to just turn it off. But at some point you can burn out. Every person handles stress differently. So blanket advice is tough because what I do is different than what you might do or what someone else might do. But I think you’ve got to set some time aside for yourself. Whether it's working out, reading, or doing something else that you love where you can actually turn it off for a bit. Put your phone away and put your computer away. I know a CEO who just took some time to go to a couple of national parks. I don't know the last time he took a vacation! So getting out in nature, especially right now in 2020, this is a hell of a year. You just have to take care of yourself. Whether it's mentally, physically, emotionally, spiritually or all of those things. Seek out help if you need it, whether it's professional or talking to friends and family about it. Address it. The longer you wait, the worse it gets. These problems snowball. So it's best to address it and get in a great routine early on that helps you address the stress.
Since you’re investing so early, your feedback loops are slow and it’s difficult to know whether you’re getting good at this. As a former athlete how do you deal with that when you’re used to quicker feedback loops?
Patience has never really been my strong suit. I want quick feedback, and I want to fix things. I'm working with a tennis coach right now, one of the best in the country. I videotaped a match from the other day and went back and watched it and was like “This is ridiculous. Why can’t I do this vs that?” Tennis is hard. So humbling. I want to be a million miles ahead of where I am right now and I'm just not unfortunately. And that's a good analogy for where we are at with things for the fund. We are striving for great progress, but it takes time!
Our team talks every week and we get together every quarter. We look at how we can better as a team and manage our processes better, our decision making, deal flow management, communication, and how we can help our portfolio companies better. We look at all these things and frankly, you can always be better. But I’ll tell you, we're better today than we were four months ago, ten months ago, two years ago. I mean, we're miles ahead of where we were two years ago.
What traits are critical for entrepreneurs to have?
Everybody’s different but I think perseverance, grit, and passion are critical. It’s cliché but it’s true. You’re not going to build a company from scratch without having these traits. You also can’t get away from the little things that matter that tie into execution- attention to detail, following through, doing what you said you were going to do, and adjusting when necessary. Stubbornness is also something I think about. Stubbornness can be a good thing or a bad thing. You have to be stubborn and stick to your vision, but not be so stubborn that you end up hurting yourself or your business.
You were able to make a transition into an industry that you had no experience in. What’s your advice to those who want to make a similar transition into something completely different but lack the experience or knowledge in that field?
Yeah, that's a good question because I had such an untraditional path to venture investing. But I think talking to as many people in the field or arena that you want to get into if you’re going to make a complete switch is really critical. I'll take a call from just about anybody, by the way. Get as much feedback as you can.
With 20+ portfolio companies, LP's, and constantly evaluating new opportunities, you must get a 1,000 emails a day. How do you stay on top of it?
It’s not THAT many, but we do get inundated sometimes. What I do is I have zero emails in my inbox every night when I go to bed. Zero. If there's one or two sitting there, it's because I'm waiting on some feedback or something before I hit a response. But I'll get stressed out if I have a bunch of emails in my inbox, so I stay on top of it. When I get an email, I address it, market it, or file it. Otherwise, I drive myself crazy with it.
What’s a book everyone should read?
Swing Your Sword by Mike Leach.
He’s the football coach currently at Mississippi State, and made a name for himself during his time at Texas Tech. He’s just such a curious person. He was a lawyer turned football coach and the way he approaches life and coaching is just so cool. I highly encourage someone to read about Mike and how he approaches life and how he connects with people from all types of backgrounds.
I'm gonna go with this quote from my high school basketball coach. It’s so simple yet so true.
“Work hard and good things will happen.”
I'll add to that a little bit. I'll say,
“Work hard, and do the right thing, and good things will happen.”
But I love the simplicity. If you operate your life in that manner, good things will happen.