I had the chance to chat with Mike Brown Jr., Founder and Partner at AOL Ventures, a few weeks ago. I’ve known Mike for a few years now and during the conversation I asked if we could turn the chat into a formal interview for this blog. He graciously obliged and the following Q&A about AOL Ventures and “Corporate VC” is an excerpt from that conversation/interview:
Give us the background on your fund and what you guys are up to?
Sure – AOL Ventures is the VC arm of AOL, focused on early stage investing in consumer internet businesses. We formally launched the fund in January of this year and are a small team of investment professionals supported by some great Senior Advisors and the entire AOL family.
Overall, we focus exclusively on investments where we can add the most value, blending our personal expertise with some element of parent company involvement. We’re broadly interested in a bunch of different opportunities within the consumer web, and tend to focus on Seed and Series A investments in content, advertising, mobile and local spaces in the US of A.
What stage of startups are you looking at and what do you look for initially?
We’re a small fund with $30M of committed capital, so we focus on Seed and Series A opportunities. Typical investment amounts at the Seed level range from $50k to $500k and from $500k-$3M at the Series A level.
Other than the standard things, we like to play around with a working prototype at the Seed level and like to see some key inflection points met if you are looking for Series A funding. We also tend to focus on repeat entrepreneurs but are not opposed to funding first time founders who have significant domain expertise.
Have you invested in any startups thus far?
We’re just through our first year and pleasantly surprised with where we’re at – Rather than single anyone out you can see a full list of our announced portfolio companies and other relevant investment information on CrunchBase. (CrunchBase Profile for AOL Ventures)
What are you not looking for and/or what is a bad way to pitch you?
People email me sometimes and say, “if we only had AOL’s traffic we would be huge!” I get it, but that’s not a logical investment thesis for us to deploy capital against. We’re not looking to be anyone’s 80% customer and we frankly pass on a lot of entrepreneurs who have unrealistic expectations about what they want out of the relationship with us (it is a marriage after all).
We are not really interested in anything other than consumer Internet, so it’s not good to send me your telecom idea or new consumer electronics device that you need to raise money for. Later stage opportunities are also out of the mandate of our fund.
I’ll make a point here – we are not opposed to getting emails from people seeking partnership opportunities and recognize that this is a product of where we sit. By virtue of our gig we are highly accessible to the external world and also know almost everyone or can get to anyone within our parent company. If you think there is a relationship that doesn’t make sense from a funding standpoint but might be interesting to AOL, Inc., we’re happy to make the intro and they are definitely open for business. Feel open to approach us and don’t be shy.
How active or passive is AOL Ventures in deals?
That really depends on how involved the entrepreneur wants us to be. We tend to be passive-active in nature and will help when asked, but most of our entrepreneurs honestly like us to get pretty involved.
During the investment process we really try and hone in on exactly what the entrepreneur wants out of the relationship and what are the specific tasks that we need to accomplish to help them take the company to the next level. If these align with our own abilities and we feel we can meet the expectations then we’re happy to get involved.
Do you look at portfolio companies as future acquisition targets?
Not really. While we definitely understand that AOL is a large media company and acquisitive, we’re not really involved in those discussions. Remember we’re a minority investor in early stage companies, so the best we can do for our companies is present options for them – at the end of the day those decisions are up to the entrepreneur and the company board.
What’s the difference between Corporate VCs and Independent VCs and how is AOL Ventures similar/different?
Assuming a Corporate VC is operating a traditional fund vehicle and not just investing off of the balance sheet (probably the first real difference), I would say the most recognizable difference is in the single vs. multiple LP structure. Corporate VCs tend to have their parent company investing in their fund whereas Independent VCs tend to have multiple LPs (like endowments, pension funds, etc) investing in their fund. In addition to the nuts and bolts of things like governance, investment committees, etc, also being different Corporate VCs have also tended to be more strategic in nature, making investments in companies that have significant strategic value (and potential BD or M&A synergies) back to their parent company.
Note that this is a broad generalization and I’ll caveat it by saying that with the emergence of models like Intel Capital, Steamboat Ventures, Comcast Interactive Capital, Genecast and new players such as us and Google Ventures, the model of non-strategic Corporate VC is also starting to play a meaningful role in the early stage ecosystem.
In terms of our day-to-day, I would say there isn’t much difference. We think and act like any fund from a sourcing, diligence, execution and management of investments standpoint.
Where do you see corporate venture as a meaningful piece of the ecosystem?
That’s an interesting question. Historically I’d say that corporate venture has been most meaningful at the later stages of a company’s life cycle but that has primarily been product of fund sizing and strategic mandate of the corporate funds. I’d say it’s a relatively new phenomenon that corporate venture funds play in the early stages of a company’s life. While I am a believer that corporate venture can also be meaningful at the early stages, the fact is that it is largely unproven and pretty new in the overall game.
Corporate VC generally has gotten a bad rap – what are some of the things that you think you need to do to be successful?
Haha, who said it has a bad rap?! In all seriousness though, I think there are a few key issues that we looked at from the outset and felt needed to be in place to make this model work effectively.
First and foremost, we have carry in our fund and share in the upside if we earn a financial return for our LP. I don’t think many Corporate VCs operate this way and we feel it creates a lot of mis-alignment with entrepreneurs.
Second, we operate autonomously with a small investment committee (3 ppl) and separate governance structure. We’ve written a check as quickly as 72 hours (obviously not ideal but we have done it). We believe in the ‘quick yes / quick no’ philosophy and we’re not out to waste an entrepreneurs’ time. We co-invest with people we know and don’t ask for any egregious terms above and beyond the lead investors terms.
Third, we tend to only invest in situations where we can add measurable value and really give entrepreneurs that unfair advantage they need. The perfect deals for us are those where we can blend our personal expertise and value-add with a flavor of parent company involvement and value-add.