“Many people think of venture as a hits-driven business,” he said. “Many people may not realize how right-skewed this distribution truly is.”
Based on the data the firm has collected, Coats said more than 75 percent of VC “wins” — defined as financings that generated the top 1 percent cash-on-cash multiples — are small deals, with less than $10 million raised.
And, the majority of wins were led by lesser-known firms. About 45 percent were led by the top 50 firms, he said.
He also revealed the East Coast and West Coast VC communities performed on par with one another over the past decade.
Asked about San Diego’s reputation as a startup town, Sigalow said, the city remains among the so-called “third tier” of geographic locations in terms of venture returns.
However, its population is more than that of many other cities in those ranks.
S.D. Not Measuring Up?
“I’m just not seeing the velocity of company formation one would expect for a city of this size,” Sigalow said.
However, that perspective doesn’t include the city’s robust life science and drug development companies, areas in which Greycroft does not invest, Sigalow added.
At Greycroft, which he co-founded in 2006, Sigalow has led investments in companies such as grocery-delivery startup Shipt, which Target Corp. recently acquired for $550 million; in peer-to-peer payments app Venmo, which was acquired in 2012 by payments company Braintree for about $27 million, and in Braintree, which PayPal subsequently acquired for $800 million in 2013; and Buddy Media, which Salesforce acquired for $689 million in 2012.
The Ohio Test
When it comes to consumer products, Sigalow says he employs the “Ohio test” when considering whether to invest: Asking his parents, who live where Sigalow grew up, in Ohio, whether they have heard of it.
“Most people when they’re funding consumer businesses think, ‘is it a good product for me?’” he said. “They don’t realize that 99.99 percent of the United States is not you.”
Outside the merits of the product or service in which he is considering investing, Sigalow said an essential element of a pitch from an entrepreneur is that person’s experience and story.
“People who have really unique perspectives and experience for what they’re doing … we’re investing in people: That’s my business,” he said.