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Meet the New Santa Barbara Venture Fund Eyeing Software Startups
Samson Amore
Samson Amore is a reporter for dot.LA. He holds a degree in journalism from Emerson College. Send tips or pitches to samsonamore@dot.la and find him on Twitter @Samsonamore.
A new venture fund based up the 101 isn’t letting the current market slowdown curb its appetite for new software startups.
Santa Barbara Venture Partners has officially closed its first, $11 million investment fund, the company told dot.LA, with the primary goal of backing software-as-a-service (SaaS) companies based predominantly in Southern California.
The Santa Barbara-based firm was founded in 2020 by former tech entrepreneur Dan Engel, who said that he looks to invest in companies that can weather the storms of tumultuous capital markets. SBVP claims a strict set of criteria for its portfolio companies; Engel said it won’t invest unless a startup can prove it’s already conquered product-market fit and is generating at least $3 million in annual revenue, with an emphasis on companies with subscription-based revenue models and annual growth rates of at least 75%.
“We invest at a stage when product-market fit has already been figured out,” Engel told dot.LA. “We don't want to take that risk, because too many times it doesn't end up getting figured out, and an investor ends up with a goose-egg zero.”
The firm plans to invest in startups that are anywhere from the seed stage up to their Series D round, and which have the potential to deliver a 3x-to-6x return in at least a seven-year time span, Engel added.
“We try to invest in businesses that are really hard to screw up,” Engel noted, half-jokingly.
So far, SBVP has backed nine companies out of its debut fund with an average check size of about $850,000, according to Engel. The fund recently saw its first exit via San Diego-based nonprofit fundraising platform Classy, which raised $118 million in a Series D round last year before being acquired by GoFundMe this January.
While he’s cautious about backing companies that don’t have a clear track record of growth, Engel did say he’s optimistic about the current state of the tech startup environment despite increasingly sluggish market conditions. He noted particular optimism about SBVP’s chosen software market.
“Every time SaaS is down, it comes roaring back up,” Engel asserted. “It's got real advantages to it as an investment—such as having the ability to weather storms that others can’t, [like] much more capital-intensive businesses that don't have predictable recurring revenue.”
Still, there is at least one company in the SBVP portfolio that’s been directly affected by stagnating IPO markets—with Classy originally planning to go public before opting to shelve its Nasdaq ambitions
“The M&A market I don't think is too different at the moment; maybe multiples are down a little bit. The IPO market is certainly on hold at the moment, and that affects us too,” said Engel, who worked in customer acquisition and marketing for the likes of Google before co-founding Santa Barbara-based fintech software startup FastSpring. He also served as FastSpring’s CEO prior to its 2013 acquisition by L.A.-based investment firm Pylon Capital.
Other recent SBVP investments include Hydrosat, a satellite thermal imaging company that graduated from Techstars’ aerospace accelerator in Los Angeles; and Berkeley-based Voltaiq, which makes software to analyze the efficiency of electric vehicle batteries. The remaining investments from the new fund include Bark Technologies, Specright, Nice Healthcare, Jackpocket, Rad AI and Curri. Engel said over 70% of the fund is already invested, including via sidecar deals.
Samson Amore
Samson Amore is a reporter for dot.LA. He holds a degree in journalism from Emerson College. Send tips or pitches to samsonamore@dot.la and find him on Twitter @Samsonamore.
https://twitter.com/samsonamore
samsonamore@dot.la
‘Don’t Lose the Stupid Way’: Melin Hats Co-Founder Brian McDonell on Building a Business
09:33 AM | June 07, 2022
Courtesy of Brain McDonell.
Brain McDonell didn’t have the stereotypical rags-to-riches story.
On this episode of PCH Driven, the Melin Hats co-founder joins the show to talk about losing everything, working when he was young and how he built his company.
With his dad as a successful entrepreneur, an 11-year-old McDonell got to experience family vacations at ski resorts and having family outings in Cabo, Mexico. But that all changed when his father’s business went bankrupt and the family was forced to sell off everything.
“I remember going to my parents at one point and saying, I want to go to the movies, and I would just go to them expecting to get some money… And my mom put her head down, she goes, ‘We're not going to have money for a while’,” said McDonell.
Without totally understanding what had happened, McDonell promised he would never let this happen to his family again; he began hustling.
Today, McDonell is the co-founder of a premium baseball hat company called Melin Hats.
His idea came out of a problem that bedevils baseball cap wearers: the funky smell and sweat stains that accompany heavy use.
“I really want to solve [problems] like the sweat stains and like the product integrity of the shape… that basically we could make the hat stay looking and smelling and feeling new, much, much longer,” said McDonell.
Building in features like a moisture-wicking lining that would actually draw the sweat off your forehead.
McDonell said he wasn’t always the smartest or most athletic person in the room, but he was always careful with his decisions and did everything possible to reduce risk, including vetting everyone he works with.
“Don't lose the stupid way,” he advised. “If the business idea was wrong. Fine. Be judged for that. But don't die off in some random, silly circumstance,” said McDonell.
Now a father, McDonell thinks often about what he’d want his own son to learn from him. He acknowledged that making a business will always come with many challenges, but he hopes those will become teachable moments.
“I think just having the aptitude to understand that everything in life is within our control, so long as we're committed to the outcome that we desire, and how [we] treat people.”
Subscribe to PCH Driven on Apple, Stitcher, Spotify, iHeart, Google or wherever you get your podcasts.
dot.LA Engagement Fellow Joshua Letona contributed to this post.
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Jamie Williams
Jamie Williams is the host of the “PCH Driven” podcast, a show about Southern California entrepreneurs, innovators and its driven leaders on their road to success. The series celebrates and reveals the wonders of the human spirit and explores the motivations behind what drives us.
Her Highflying LA Startup Changed How Students Got to School. Then Came the Pandemic.
06:57 AM | January 21, 2021
When Joanna McFarland co-founded HopSkipDrive in 2014, she thought she had discovered the perfect low-risk business model – contracting with school districts to provide safe and reliable ridesharing for students.
"I always said this is the most recession-proof business there is because it's schools and schools don't close," McFarland recalls. "But apparently it's not pandemic proof."
With the raging coronavirus shuttering schools in most of the eight states it serves plus Washington D.C., McFarland says the company is bringing in "far less" than 20% of the revenue it did pre-pandemic. Though that's up from last Spring when revenue vanished practically overnight.
"2020 has been a year," McFarland said in a Zoom video interview last month. "I don't know what else to say."
McFarland attended The Wharton School for undergrad, and got an MBA at Stanford in 2005, before executive roles at OneWest Bank, AT&T Interactive and GM Consumer Finance. But nothing could prepare her for 2020.
"March, April and May was just crisis mode," McFarland remembers. "New information was coming in every single day. How do you possibly plan for next month or next quarter, let alone like tomorrow? How do you keep your team from freaking out?"
HopSkipDrive laid off 10% of its workforce in March, but thinking that schools would reopen by Fall, McFarland hoped to retain the bulk of her staff. The company received a $1.6 million Payroll Protection loan in April to retain 102 jobs – one of the largest given to an L.A. startup.
"That meant that we got to keep all of our operations team, our support team, our marketing team, our sales team," she said.
The funding ran out in August, and with most students still stuck at home, she laid off 60 people. Fewer than 50 employees remain.
"That was very, very difficult to do," McFarland said.
Joanna McFarland attended The Wharton School for undergrad, and got an MBA at Stanford in 2005, before executive roles at OneWest Bank, AT&T Interactive and GM Consumer Finance. But nothing could prepare her for 2020.
It was a major setback for the once fast-growing startup, which was started by McFarland and two other L.A.-area working moms desperate for a safe way to ferry their overscheduled kids to and from school, soccer games and violin lessons — activities that now seem like the relics of a bygone era.
"With eight children between us, we were constantly struggling with the need to be in multiple places at once," McFarland said soon after launching. "We designed HopSkipDrive to be safe enough for our own kids to use, and in doing so, have developed a scalable transportation solution that has been game changing for families."
Before COVID-19, HopSkipDrive had been on a significant hiring spree, relocating its offices to the trendy ROW DTLA in the Arts District, where Spotify has its L.A. headquarters.
HopSkipDrive raised $22 million in late-stage funding last February from two of L.A.'s most prominent venture firms, Greycroft and Upfront Ventures, to bring its total fundraising close to $45 million. (Upfront also got in on the 2015 seed round.)
"We're excited to invest in a L.A.-based company that's creating a whole new category and solving such a real problem for families," Upfront Ventures partner Greg Bettinelli said in 2015. "We see a real growth opportunity."
The timing of the most recent raise – a month before stay-at-home orders went into effect – proved fortunate in extending HopSkipDrive's runway when contracts dried up. Through it all, McFarland has given up trying to predict when students will be back in the classroom.
"In times like this, you look at what you can control and you look at what you can't control and obviously we cannot control when schools open or don't open," McFarland said.
What she can effect is HopSkipDrive's slimmed down operation, which she says will pay dividends when things return to normal.
"It gives you time to take a step back and look at every single process and every single thing that you're doing and figure out how we would do this a little bit faster, a little bit better, a little bit more efficiently," McFarland said. "Ultimately, we have a much faster path to profitability when sales do return than we had before."
And McFarland, who has had to navigate the crisis while her kids have been at home, too, takes a degree of solace in the fact schools will reopen at some point. When that happens she thinks they will need HopSkipDrive more than ever because of a nationwide bus driver shortage that has only gotten worse during the pandemic.
"They're going to need our help, and we're all gearing up for that," she said. "I'm excited for that day."
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Ben Bergman
Ben Bergman is the newsroom's senior finance reporter. Previously he was a senior business reporter and host at KPCC, a senior producer at Gimlet Media, a producer at NPR's Morning Edition, and produced two investigative documentaries for KCET. He has been a frequent on-air contributor to business coverage on NPR and Marketplace and has written for The New York Times and Columbia Journalism Review. Ben was a 2017-2018 Knight-Bagehot Fellow in Economic and Business Journalism at Columbia Business School. In his free time, he enjoys skiing, playing poker, and cheering on The Seattle Seahawks.
https://twitter.com/thebenbergman
ben@dot.la
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