William Leonard
Hey, ladies and gents. Welcome back to the Atlanta Startup Podcast. I’m William Leonard, your host and an investor of Valor Ventures, a leading seed-stage VC firm here in Atlanta, Georgia. Today, I’m excited to welcome Dan Drechsel of Panoramic Ventures to the podcast. Dan, thanks for joining me today.
Dan Drechsel
William, thank you for having me.
William Leonard
Awesome. It’s good to connect again. I know you were a judge at the 11th Startup Runway showcase back in March. It’s always good to have you on the judging panel.
Dan Drechsel
Well, thank you. I enjoyed it. It was a very well-done event. It’s always great to catch up with another Mercer alum as I know you are and spread the gospel of Mercer.
William Leonard
Definitely, definitely. Dan, I would love to just kick it off here and give our listeners an introduction to Panoramic Ventures.
Dan Drechsel
Absolutely. Panoramic, formerly known as BIP Capital, is at this point a 14-year-old, early-stage venture firm headquartered in Atlanta. We’ve been the most active investors in early-stage in Atlanta for the last six years running. We adopted the name Panoramic and recently changed our name and rebranded because we take a wider view of investing and we always have. Take that wider view by trying to open doors for innovators in overlooked regions, diverse founders, female entrepreneurs, university students, researchers, and we look to open access to people who haven’t traditionally been able to access venture financing from the bastions of venture financing in the northeast and the west coast. We believe great companies are built in many places by all sorts of people. But we also believe that it takes more than just money. We take a wider view of what’s needed to scale businesses as well as taking our know-how support and the fact that we really care what happens to our partner entrepreneurs to invest time and effort in helping them be successful. Our approach thus far has yielded great companies like PlayOn! Sports, QA Symphony, Cypress, Trella Health, Ingenious Med, and AchieveIt. Panorama has yielded success for the entrepreneurs, but also for our limited partners as well. Our first three funds are all headed towards top quartile performance against their vintage benchmarks. Our fourth fund is shaping up very nicely and we’ve had our first successful close now on our $300 million dollars fifth fund which we’re raising presently. Just to spend another minute, more recently, just looking specifically at our fourth plan, we’ve had great success in the Midwest and here in the southeast, which has been our traditional bastion. We’ve invested in companies in Greenville, Minneapolis, Indianapolis, Columbus, Ohio, Nashville, and Jacksonville, in addition to about just under half of the companies in that fund have been in Atlanta. The funds in 2018 vintages, we just put the last logo in it, and Q1 of 2021 it has turned out that we’ve invested in 37% of the companies have either women founders or CEOs, or minority CEOs, or founders. 25% of the logos in that fund or the companies in that fund, we invested initially in the seed stage. Effectively 25% of them are in the Midwest and the rest of the southeast. That’s kind of BIP Capital in a nutshell. I’m sorry, Panoramic Ventures, in a nutshell, takes a while to get used to changing the idea there.
William Leonard
Definitely. But that’s a great overview, Dan, and I’m really excited and impressed to hear those statistics around diversity. Not only the founding teams and the members of those teams but also the diversity in location, the Midwest, the southeast. I think all of those ecosystems are really shaping up to insert themselves into the equation as tech hubs here soon. I think that’s a great transition to talking about our backyard here in the Atlanta tech ecosystem, what are some of the trends that you’re seeing at Panoramic, and some of the tailwinds that are really pushing this ecosystem to become more robust year over year?
Dan Drechsel
Well, it’s always great to talk about the Atlanta ecosystem. And you know, it’s interesting, so many folks think that this success of Atlanta happened during their generation of company creation. I started working for a software company in Atlanta in 1982. But the Manhattan folks do, the S1 folks do, the Pardot guys think that the Secureworks folks, the Cloud Sherpas folks, they all think that Atlanta’s ecosystem came of age when their company was in its fast growth stage. Likewise, the Calendly, LeaseQuery, and Greenlight people will think the same thing. I can tell you that MSA who I will pour early on in Atlanta, one of the early successful software companies, garnered investment from general Atlantic partners and then went public in 1981 on NASDAQ. I was president of an internet banking software company that reached unicorn status here in Atlanta in 1999 at a valuation of more than 5 billion. Obviously, that was 20 something years before the word unicorn was applied to startups. The antecedents of Atlanta’s success go back a long way. Part of what makes the ecosystem so attractive today is that it’s built in an immeasurable pool of talent, this experience successful execution, and growth. You know, people like David Cummings and Pardot, the folks from Manhattan, have contributed to groups of talented individuals that have been through those organizations as they’ve grown and then exited. That has been added to over time by the tremendous university system Georgia Tech leads and continues to graduate female engineers and black engineers in the country, and always has. We’re blessed with the tremendous leadership of Georgia Tech. But then Mercer and Morehouse, and Emory contributed to the talent pool here as well. We have this constant feed of talented software engineers that can be paired with experienced sales and marketing and management folks. And that’s proven to be a very frothy mix to continue to build companies. It’s been going on for a long time and this isn’t a 21st-century phenomenon. It isn’t an overnight success but it’s a continuing success. I think it will continue because there’s more capital available in Atlanta now. And there’s this kind of growing growth in terms of the number of companies. The news that Microsoft is going to put a big center here, that Google’s gonna add a center here, Airbnb is going to put a center here, on top of the 30 something corporate research centers that are all centered in Midtown near Georgia Tech. Out of Fortune 500 companies from around the world and the 20 plus Fortune 500 headquarters are here. And then all combine to make an extremely attractive ecosystem. If you pair that with the rational cost of human capital to employ it here, and the advantage in cost of living, and the great place that it went is to live from a weather climate and activities standpoint. You get what’s going to continue to be a food poll, a very fruitful ecosystem.
William Leonard
I totally agree. I think it’s important that you touched on that talent piece there with the universities here in metro Atlanta. You mentioned Google, Amazon, Microsoft, Airbnb are all building tech hubs here throughout this decade, I think that’s going to naturally draw in so much more talent to this already robust and dynamic ecosystem. I’m excited to be a part of that. Definitely. Transitioning here a little bit, what’s been your path to being a partner at Panoramic Ventures? I know you’ve had a plethora of operational experiences. Can you walk us through your background a little bit?
Dan Drechsel
Sure. I was an operator for 35 years at MSA Dun & Bradstreet Software, ADP, and SAPas COO of public/private equity and venture-funded outfits. I came down to Georgia Tech in ‘78, started as a software engineer for MSA in ‘82. And though I’ve lived in DC, Minneapolis, Chicago, Boulder, and London as part of my career, for 15 out of the 35 years as an operator, most of that time, I was actually working for companies either in Atlanta, or divisions of big companies that were headquartered in Atlanta, where I was based in Atlanta, SAP for example. I’ve been around the ecosystem here for 40 years. And then along the way, got a lot of experience in the strategy, execution, fundraising, all the functional areas of the tech business. Got exposed to a variety of business models that you know, was great prep. Also, I got my MBA in finance from Mercer, as we were talking about earlier, which is why I’ve always had a strong numbers orientation, and my financial background really equipped me. And then, when I was finishing my last stint as a CEO, one of the venture firms in Atlanta asked about me becoming a partner. That led me to kind of look at the VC business. When you’re raising money as an operator, you do look at the VC business, but you’re kind of a consumer of its products. You don’t look that closely and really study it. And when they asked, if I wanted to join, I took the time to really sit down and look at the value chain, and see how venture firms actually created value as part of the ecosystem, what they did for and with entrepreneurs, and how that resulted in them creating value for their limited partners. That study led me to decide that was the next right leg for me and my career. When I finished that assignment, as CEO, I looked around at the various venture firms in Atlanta, looked at what stage of investment they were in, and critically, who needed what type of partners because you also have to be pretty young to be a be in the VC game, because the funds last 10-12 years for each investment cycle and exit cycle. It turns out that Mark Buffington from BIP Capital, both needed somebody with my profile in terms of having a lot of operating expertise, and had ambitious plans to continue to expand the firm, and can invest at the right stage. I like the early stage, even though I’ve done quarter stage kinds of stuff as well. That was a great fit and that’s how I transitioned into VC 3-4 years ago.
William Leonard
That’s a great story. Across your 35 years operational career, what were some of the lessons that you learned that have translated to the VC world so to say?
Dan Drechsel
It’s always interesting that when you’re an operator, and you’re attracting VC or private equity funding, and when you’re a VC, growth is king. Venture capital and really private equity to a degree as well exist to apply capital where there are increasing returns to grow. And, essentially, be in places where that capital can be used to grow faster than the business would naturally grow. And those increasing returns to that growth can be effectively scraped off between the entrepreneur and the investors in order to provide a return at a significant level. When you’re investing, we’re all looking for a kind of a company with a profile that can take you to a 10x return in four or five years, seven at the outside, and those are not common. One of the lessons is growth is king. Delivering a 30% year-on-year growth or a 15% year-on-year growth, which might be outstanding, in generalistic, is just insufficient for venture capital investment.
William Leonard
In the team at Panoramic, you’re investing at truly the early stages. Across the three or four years that you’ve been in VC thus far, fundraising is a part of the journey that you can’t escape or you can’t circumnavigate. When you’ve seen founders come to Panoramic seeking capital, what are some of the good things that they’re doing to make you all want to lean in deeper? What are some of the things that you’re seeing founders struggle with when pitching? Can you share some insight around that for our listeners?
Dan Drechsel
I have this theory and I guess it’s a theory, but it seems pretty proven and it seems most people agree with it. I see two basic types of founders. You know, there are folks who discover technology and then look for a business problem to solve with technology and you can see a lot of that right now in AI and computer vision. You know, we’ve seen it in the past with propeller technologies. And then there are people who have found a problem and looked for a way to solve it. I do find that it’s easier to figure out how to build a business where you’ve found or discovered a problem you’ve experienced in a workplace, you used to work in your career, or you as a consumer, you’ve got an issue that you’re working on. Those are businesses that are much easier in my mind for founders to wrap their heads around and get focused. Because as they think of the product-market fit, they’ve got the problem pretty clearly identified usually. And if that problem is in a big, big market, and it can be solved in a feasible, desirable and viable way, then you can wrap a really, really good business around that, right. And if the markets are big enough, and the growth rate can be accelerated into high growth rates, that’s a good great venture investment. The more difficult ones, I think, are the ones where there’s a really interesting technology and the founder of bringing that technology to bear has to go look for places to apply it where that technology can revolutionize an industry. Google was that, basically. There have clearly been great companies built that way as well. It’s often when you see a technical founder struggling, it’s often harder for them to get a very specific problem that they can get their teeth into with their technology, and get a clear product-market fit, that’s an advantage in the marketplace, that they can then grow around. I find that those sorts of founders are more difficult. Even though they may also build a very successful company. If you look at the market right now, there’s been a lot of highly publicized high valuation large checks written into companies, particularly out of the West Coast, in the northeast, where companies are seeking to identify the platform player in an area. We find those valuations in those large checks difficult than we find a lot of entrepreneurs taking the approach of going out and asking for large checks as high valuations, when their business may not be quite ready for that. In fact, we led a study, working with ATDC data a couple of years ago, called Is All Capital The Same Shade of Green, we looked at Georgia based capital versus out of state capital and found that even though the entrepreneurs would raise half as much not where they used in state capital raised half as much and half the initial valuation, they actually had more successful exits, at the same valuation as people who took out of state capital, and they themselves achieved a higher return because they had taken less dilution along the journey than those that took out of state capital. There’s a tendency because of those highly publicized high events, if you will, for entrepreneurs right now to be seeking big checks at large valuations. That may not be what’s best for them or their business to get on that super high burn rate revolutionary approach. There always used to be a thing about East Coast investors versus West Coast investors. Often I throw the Boston folks and the New York folks into the West Coast investors. And there really is kind of this revolution, “Let’s dominate a category, speed at all costs.” kind of approach to VC versus a, “Build your business in a measured way, and provide high value to customers in a large category, and capture it over the course of building the business.” And those two approaches, although both yield highly successful results for investors and for entrepreneurs, they’re pretty different. The candidate businesses that fit well with each one can be pretty different. I see right now entrepreneurs presenting themselves as a revolutionary business, and some of them aren’t as suited to that as they think they are.
William Leonard
Dan, I love the contrast of the founders there that you mentioned. I think the findings of that study with the ATDC data are interesting. I guess my follow-up to you is, the capital-raising scene has evolved, since the results of those findings. In the present day, April 2021, do you think those results, the findings, still hold true to this day, or has it changed since you all did that study?
Dan Drechsel
I don’t buy that the capital raising scene has evolved, I believe the capital raising scene is cyclical and we’re on an upside of a frothy end of the cycle right now. We will experience some change, some catalysts will drive it, and we will end up in a place where we’re not at the frothy end of the cycle again. But I think the work of that study was done with five years of data from ‘14 to ‘19 I think. I don’t think the fundamentals of that have changed. In terms of structure, the level of, you know where we are, and investing cycle, we used the Bessemer Venture Public SaaS Company Index as a baseline to kind of keep track of valuation. And at 1.68 times revenue was normal for it which is pretty frothy valuations. Right now, it’s running just around 15 times revenue for a publicly traded SaaS software company. That’s pretty rich. But that’ll revert to some level at some point right now, the S&P 500 is also north of 35, in its historical norm is in the 16 range. We’re in a period where with low-interest rates, and coming out of the pandemic, where everybody expects a throttle brought the economy, where asset valuations are just high. It won’t always be high.
William Leonard
Yeah, certainly not. I know you’re no fortune teller with a crystal ball but where do you see this frothy cycle ending up in the short term, let’s say two to three years from now, where do you envision it?
Dan Drechsel
Will it change in two or three years? As you said, we don’t try to read crystal balls. As a firm, we can look at the data, and we’re a very data-driven firm, we can look at the data and say, “Okay, it’s high. What catalysts are gonna change it?” As a firm, we wouldn’t venture to try and speculate on that, or even to try and build that into our plans. We still think great companies can be built. We think that great founders will understand that the partners on the venture side need to build returns into those that said at this level, that doesn’t necessarily mean that they need to get top dollar in order to build a great company. That’s really what we try and do is find people building great companies in great markets.
William Leonard
Love it, Dan. Switching gears here a little bit at the Startup Runway event, and in March, we did the mock board meeting, which is really aimed to help founders who have never raised their first institutional capital, get a true sense of what it’s like to lead and navigate conversations in the board meeting. And I know you have some resolute insights on this. I’m curious to hear you know, from your perspective, how can founders leverage the meeting of the minds that occur in board meetings? Are there any best practices for running effective board meetings for early-stage founders?
Dan Drechsel
I do have firm opinions about that. William, as you know, I have a lot of firm opinions. It’s not unusual to have a firm opinion. But you know, what I encourage the entrepreneurs I work with is kind of down a couple of paths. One is a monthly cadence for the early stage. To me, if you’re less than 20 million in revenue, you probably ought to have monthly board meetings. The reason for that is it forces the entrepreneurs and the management team to actually take stock on a monthly basis of where they are building their business and their performance. Otherwise, it’s too hard. It’s easy to execute madly in the frenzy of running a small business, small innovation business, and not stop and say, ‘Okay, did I make my numbers this month? And if I made my numbers this month, what do my sales look like? What am I reps performing at? What are my channels performing at? And let that drift, because usually, if it’s not a monthly cadence, it’s a quarterly cadence, right? Now, that said, you don’t want founders or management teams to have to spend three days every month, building a board pack, and then conducting and following up on a board meeting, so I’m highly encouraging of management using the reports that they normally generate, to actually conduct the board meeting. And in fact, I encourage my entrepreneur, the experts I work with, to actually just record the guts of the board meeting, meaning the update that the board needs to be cognizant of the current issues in the business and the current business performance. That information transmittal piece of the board meeting often takes a lot of time, I encourage them to record that, send it out with the board packet, a day or two before the board meeting. And then equally importantly, to use the time in the board meeting for them to address their key issue. Now, boards generally won’t let you get away with not doing a sales update as part of a live board meeting. That gets you to repeat that level of information, transmittal, and discussion, usually. But then if you could do that, and you know, in the first 15 or 20 minutes, we’ll do the financials in the sales even if the board meeting is only an hour or a good 40 minutes to address one or two key issues that are keeping the CEO up at night, or the management team perplexed about how to proceed and get that experience. I have this saying that I stole from somebody somewhere along the way, “Wisdom comes from experience and experience comes from a lack of wisdom.” And normally, the board members have seen a lot of movies, and have made a lot of mistakes, and therefore have generated over time, a lot of wisdom. And so they’ve usually seen a lot of variances around what the management team faced and can help them see the future a little bit more clearly than they might be able to see themselves. And that’s the key before a board meeting and how it can be leveraged by the entrepreneur to help them accelerate their business into its proper growth path.
William Leonard
I think that’s excellent advice there. As you’ve been a part of several boards, and what mistakes have you seen founders make? How can they really, like you said, leverage the wisdom to avoid those mistakes, and what are some of the common mistakes that you’ve seen disrupt/derail board meetings that really shouldn’t be happening?
Dan Drechsel
The most common is the same that happens in sales meetings and sales discussions, death by slides, right? They produce a packet, it’s got 40 slides that covers you know, every area of the business and every new project that’s being implemented in customer success and every you know, new customer that’s gone live and every sale and every pipeline and the board meeting is scheduled for three hours or some crazy number. And then they spend all that time basically transmitting information on the status of the business. None of the time actually getting to key strategic issues and discussion points. It’s an easy trap to fall into because the board needs that information. Board members are busy. Board members often clearly demonstrate that they haven’t read the materials. But my view is you send it out the day or two in advance, two days is better than one. You hold board members accountable for having actually reviewed the material and absorbed it and not ask a bunch of stupid questions about the status of the business when they’re already supposed to know it. Now that said, that is helped by a video or something that gives a voiceover to the materials, but holding to that level of expectation that you’re not going to review the 40 slides, but it’s good for them to have that information. But you’re not going to handhold them and walk them through it because they haven’t read it. And holding the board to that expectation rather than caving into board members’ lack of performance is the same thing the CEO needs to be engaged in, relative to their own management team, right? They would never tolerate one of their executives to walk into a meeting, having not prepared for, and then expect the rest of the management team to ramp them up on what’s going on. If they’d sent the materials out advanced, they shouldn’t let a board member get away with that either. And that leads to some rabbit holes where a board member will take them down a path because they haven’t thought about the implications of whatever the material, because they’re absorbing, and in real-time, they’re just not value-added to the business. The value-added business is using the board to achieve guidance and outside knowledgeable thinking about the issues that the business faces, not substitute management were some board member that has been a sales vice president or has been a CEO is trying to manage the pipeline through the sales executive where the CEO had a board meeting.
William Leonard
I hope the founders make note of that. Less slides regarding generic information, more discussion around strategic initiatives, and truly holding board members accountable to reading through, and in reviewing the slides prior to the meeting. The meeting can be held in a more efficient and mutually beneficial manner for everybody attending.
Dan Drechsel
Don’t get me wrong. I think the big 40-page slide deck that reviews everything, it actually has its value, but not in the meeting. That should be what should be read for the background of the board meeting that is used as the discussion slides in the meeting.
William Leonard
Definitely. Great insight, Dan. And lastly, as we’re wrapping up here, Panoramic recently announced that $300 million fund, correct?
Dan Drechsel
Yes, sir.
William Leonard
Awesome, awesome. Panoramic, formerly known as BIP, I know traditionally invested a little bit more upstream and now this fund is investing pre-seed. Can you talk to us a little bit about the evolution of the fund there a little bit?
Dan Drechsel
Our core business is series A investments, it’s writing $2-7 million checks with businesses, to businesses that have a $1-5 million recurring revenue, B2B software businesses mostly. But early in a fund cycle, which is where we are now, If you think of the fund as a 10-year fund with a five-year investment cycle, we’re in the first couple of years of a fund. We will do seed-level investments. And so we’ll write $250,000 checks into a number of businesses. But really, those are businesses where we think they’ll grow fast enough that the series A will occur while we’re in the investment window for the same fund. Literally in our fund four, a quarter of the investments ended up in the fund, we wrote a seed check initially and then later wrote the series check and led the series A for the entrepreneur. And so that’s a common thing for us. In this fund, will end up doing 80% of the fund in series A investments, but we’ll do 5% or so in seed and pre-seed. Seed investments will come from the companies that are raising a couple of million, a couple of them are two, we’re writing a $250,000 check. And again, with the same expectation that we’ll be able to write the series a check, and leave that round within 18 to 24 months or 30 months after that seed check goes in. Our pre-seed effort is wrapped around a different concept. Paul Judge joined the firm as a partner for fund five in February. He and his former partner ran an event called Startup Battle where they awarded, I think, a $100,000 check to the winner of the Startup Battle in Atlanta, about every six months. I think you probably have seen or will see our announcement of a startup showdown, we took it from battle to showdown. It’s not quite so military. But again, the idea is that we can help the ecosystem by doing a little bit of pre-seed investment. And for a relatively small amount of capital, we can enable entrepreneurs to get started at the pre-seed level, where they’re really taking their first or maybe first after friends and family outside check-in. And we’ll use that to generate a large number of pre-seed investments coming out of the startup showdown in Atlanta, and then we’ll broaden it out into other ecosystems across the Midwest and the southeast, where we invest over time.
William Leonard
Got it. That’s awesome. Dan, I’ve been in contact and known a lot of the guys at BIP, and to see the evolution of the firm into Panoramic now is just a great story, I think for not only Atlanta but the southeast ecosystem. I’m excited on that front there. It’s been a great conversation here, Dan. I’m confident the listeners will find a lot of value out of the insights that you shared here in this discussion, and just excited to have another friendly face here in the Atlanta ecosystem to invest alongside. We really appreciate you joining here, Dan, and hopefully, we’ll get you back at Startup Runway for our fall cohort.
Dan Drechsel
Absolutely. We try and support the ecosystem. Happy to participate and help you guys with Startup Runway. I know it’s been a month or so now, but congratulations on getting your fund two closed and raised and I’m sure you’ll help a number of great entrepreneurs make great companies out of that. Hopefully, we can do some of the series A to follow on your seed.
William Leonard
We would love that. Dan, it’s been great. I appreciate your time, and I will be in touch soon, okay?
Dan Drechsel
William, thank you for your time, and it was great to participate.
William Leonard
Take care.
Lisa
Thank you for listening to the Atlanta Startup Podcast. You know, we’re not just a podcast, we’re a community, and we’d love to see you at one of our digital or physical events, go to valor.VC and sign up for an event that makes sense for you. We have events for founders and the investors who back them. Another event you might enjoy is Startup Runway. The Startup Runway Foundation is a Valor organization that provides $10,000 grants to founders who are women or people of color building next-generation software products. Applications are free and we’d love to hear from you at startuprunway.org. And as always, thank you so much to the organizations that make this podcast possible. Not only Valor Ventures, but also Write2Market, a tech marketing and PR agency in Atlanta, Georgia, and the Startup Runway Foundation and Atlanta Tech Park Valley’s headquarters, and also headquarters for over 100 local entrepreneurs, building global businesses. See you next week. Please bookmark the podcast and join us.
