Lisa – Welcome to the Atlanta Startup Podcast, the briefing room for the innovation ecosystem. I’m Lisa Calhoun, your host and general partner at Atlanta venture capital firm Valor Ventures. On this show, I bring you the investors, the founders, and the activators creating the fastest emerging venture capital ecosystem in the country.

Esteban Reyes! I’m so glad you’re here to join us on the Atlanta Startup Podcast. Tell me a little bit about your venture capital firm, Las Olas, where you’re based, where you like to invest….

Esteban:  super excited to be here. Thank you for having me, Lisa. Las Olas is early-stage venture capital. Also known as LOVC. We are a Florida-based early-stage lead investor. We’re typically investing anywhere from $750,000 to $1.5M dollars in series A companies. B2B only. Primarily software. Geographicall,y we focus primarily in the Southeast, but we’ll invest in many other places across the Eastern seaboard.

So yeah, I mean our focus is really finding companies that have identified a problem within a specific industry vertical or addressing some of the challenges that knowledge worker productivity tools face today given the changing dynamics of the market and sort of how hard their job has become. The lightning speed that they face in the market. So founders that have an asymmetrical insight into those problems and that have built a product and have some evidence of early product market fit.

So the concept was, that I would be involved for the first year, pretty hands-on mainly around things like go to market helping them build a team and then eventually, you know, transition into a more strategic role or, you know, board member role. So in my first investments, five of them didn’t really go anywhere. One, well, we got our money back on one. It was a Facebook app, CRM enabling realtors to better connect with their customers and partners. The other one was a B2B marketplace and enabling, enabling commerce between the U S and Latin America think about it as an Overstock.com or Alibaba.com but very focused in a specific market that was fairly successful. We grew to about $60 million in annual revenue, and then eventually I got bought out by some investors on the cap table.

And then lastly it was a, a kind of a different play was a roll-up of K through 12 schools. I wasn’t really a founder in that business, but I was one of the anchor first investors. So I guess they called me a founding investor if that means anything. So we grew that business to about $60 million in annual revenue and roughly $12 million EBITDA. And then got bought out by Leeds private equity last year. So I guess a little bit of a long story, but that was my background before getting involved in venture capital professionally. So I guess rewind a few years…Maybe like in 2013, 2012, I started to make angel investments just in parallel with all these things cause I was very intrigued about the idea of participating in more than one startup at scale and seeing success through the eyes of the founders.

So I realized then that angel investing wasn’t really going to cut it. It was just too hands-off. And in 2016, I partnered with Mark and Dean at Las Olas, and after spending a better time together, you know, and sort of like working through what was the vision for Las Olas, we decided to launch in 2017 we ended up closing a roughly $30 million first fund by 2018.

And today we’ve invested in 14 companies, pretty much allocating the fund as far as first check goes, we now have follow-on investments to make. And the whole thesis was that the world had changed. Building software products and technology products is a lot easier today than it was 20 years ago. And there was this dislocation of capital availability in markets like the Southeast.

Lisa: So let me pause you right there. That’s an incredible story. And I want to wind back to a couple of things you said that not everyone would say. First thing is you said, Hey, angel investing really wouldn’t scale and you made a comment about it just ‘didn’t have the control. ‘We’ve got a lot of different people in the audience, a lot of investors and a lot of founders. Could you explain your own perspective? What did you want to have that you didn’t have as an angel?

Esteban: It wasn’t really about control because at the end of the day, even today as a lead investor, I don’t believe I or we have control. The highest leverage point is really that investment decision. And then continuing to engage with founders in a helpful way. But it was more about involvement. I was able to be involved with some of the founders that I invested in, but I didn’t think that I could be as helpful if I was working with, call it, 20 or 30 companies, than if I was a lot more focused, say in like three or four. Being a lead investor, writing bigger checks and joining boards sort of lends itself a lot better for that dynamic and a little bit selfishly as just what I enjoy a more, right? Coming from the operating world. I, I like being closer to the fire.

Lisa: Great point. And so you invest a lot in Atlanta. Speaking of the fire, why do you like the city? Why do you like the ecosystem or why does it draw you in?

Esteban: I think Atlanta has been one of the most underrated tech ecosystems. And I’m not sure why cause there’s a lot of core elements in place starting with great institutions like Georgia Tech that produced amazing technical talent and their investment plan behind converting Atlanta into a major tech hub or facilitating a conversion of Atlanta to major tech hub. Today perhaps that is a lot more obvious and there’s a lot more people paying attention. But when we started to go to Atlanta maybe three, four years ago that wasn’t precisely the case.

I am super excited about Atlanta because there’s such high quality of founders and technical talent that I don’t think there’s any difference between the kind of opportunities you can find in Atlanta and you know, other major tech hubs. Perhaps the volume is you know, not the same, but that’s just a function of timing or where Atlanta is in the maturity cycle of being a tech hub. But if you’re spending time here, I mean, you are going to see the deals and I believe that we’re going to be surprised with it. The kind of companies that are gonna, you know come out of Atlanta or mature out of Atlanta in the next five to 10 years.

Lisa: Give me a little short story about a particular Atlanta investment that comes to mind, like how you met the founders, maybe a little bit about how the deal progressed and, and where you sit today with that founder, how often you come to Atlanta.

Esteban:  I’ll talk about a company called Cypress.IO, which is a company I worked with very closely. We first learned about Cypress actually through our own research. We spend quite a bit of time defining markets that we’re interested in. And automated testing is one that we’ve been tracking for a little bit because it’s pretty large market in total, depending on how you look at it. It’s anywhere from 15 billion to 25 billion a year that it spent in software testing. And the tools that exist before Cypress weren’t really that great. You know, the sort of top of mind, there’s a tool called Selenium. So in any case, we saw that Cypress had built something really interesting because of their technical approach was just fundamentally different than anything else in the market.

We saw that there was a kind of like this growing momentum within the development within the developer ecosystem. So we decided to reach out through one of their existing investors. We got connected and as soon as we met the team, the founder and CEO, we were tremendously impressed by the level of detail and their vision, almost like they were living in the future and had transported a portion of that future to the present. Cypress has such an amazing roadmap and perspective on how they were going to build this a tremendous company and capture as much of that, you know, large market as possible. So we very quickly got to work and within two weeks, we provided them a term sheet and you know, we move to a close, very diligently.

We ended up leading the round in joining the board. This was their seed round. Bessemer Venture Partners co-invested with us. And then last summer 2019, this was in 2018, sorry, in 2019 one year later Bessemer ended up leading their series a and joining the board as well. I talk to Drew pretty often. It’s more the things that he believes that you know, I, I can be helpful with, basically like I am part of his journey involved a very deep level and it’s a very rewarding experience. So that is a company that I believe is gonna really put Atlanta on a different level on the map. I’m biased when I say that, but I honestly believe they have that potential and that trajectory.

Lisa: So when you come to Atlanta, where do you spend your time? What part of the city do you know best?

Esteban: mean I try to keep it simple to be quite honest. I know that’s not the most interesting answer. I spend a lot of time at the ATDC which for those who don’t know, that is incubator accelerator of Georgia tech. I spent a lot of time talking to the EIRs at ATDC. I find that they have quite a bit of insight about the companies and also sort of like the local ecosystem. So I spend most of my time at the Starbucks near ATDC and then yeah, I mean, sorry, it’s a little bit boring, but that’s kinda that Starbucks. Yeah. And then, you know, ATV it’s also a fun spot. I like catching up with David Cummings when I’m in town. I try to also hit the guys at tech square labs you know, and just have like my little round that I go through in order to stay current with everybody and just get a good pulse of what’s happening in the city.

Lisa: One of the things that stands out about you of course, is that you’re a Latin VC and there just aren’t that many. Do you feel like Hispanic founders are in a unique place in the Southeast? I know I was reading a report from Stanford a couple months ago that the Southeast has the greatest density of Hispanic founders and I found that to be surprising and exciting and I wondered what your perspective might be

Esteban: It is an underrepresented community, right? So less than 1% of VCs are Latino. I don’t necessarily think in those terms when I’m working with founders. You know, I believe that the opportunity is pretty general and analogous for anyone that wants to pursue it. But I, I do agree that there is a higher concentration of Latino founders in the Southeast, and I think that’s just a of the demographics, right. In particularly in South Florida there’s a very large Latino population. So just by definition you’re going to have more Latino founders. But quite honestly, I don’t, I don’t necessarily keep tabs on that. I do think that there are going to be a lot of interesting companies that are gonna be built out of South Florida that address challenges in Latin America. And I think that Latino founders are probably in a really strong position to seize those opportunities. So for me, it’s more about the specific opportunity. And how does that founding team sort of fit in that picture, right? Are they, I’ve heard somebody say this before, I, I forget who exactly, but are they the perfect cast for that kind of movie, right? That they’re talking about. And if it’s a Latino and if it’s somebody that has, by having that sort of cultural background has an advantage, then awesome.

Lisa: Makes a ton of sense. So, in terms of coming to Atlanta, what kind of frequency are you on?

Esteban: Yeah, I’m in the city at least twice a quarter. Sometimes more often. I mean, it’s a pretty easy flight out of Miami, a little bit or two hours. So we’re, we’re kind of spoiled. And yeah, that I try to keep, as I said, a frequent cadence with folks locally. And just by nature of board meetings, I, I’m there and I’m always in person and board meetings or try to at least be in person. So, so yeah. Two to three times a quarter

Lisa: As an investor that comes into the city a couple of times a quarter, who’s someone you think every investor should meet in Atlanta? Just a shout out to, Hey, if you’re an investor, you’re investing in this market, you definitely need to meet…?

Esteban:  So I think there’s more than one per one person. So I feel challenged in answering that question. Mmm…. I would say the folks at ATDC in particular, Frank, he is a fantastic resource. He’s been super helpful to me in getting me connected across you know, ATDC and the whole ecosystem. I would say David Cummings is very helpful and very open. He is, for those who don’t know, he was the founder of a company called Pardot that told to Exact Target, which then sold to Salesforce salesforce.com and had a pretty successful outcome. So he’s a local founder turned investor and he owns and runs the Atlanta Tech Village. So I’ve always found spending time with David. Well, for sure Lisa…you are always incredibly helpful.

Lisa: Appreciate that.

Esteban: Yeah, I mean, I, I think that’s probably a good place to start. And it’s a, you know, it’s a tight knit, local or tight knit, a small ecosystem.So with those two to three people, I’m pretty sure that you’ll be able to get your way around and get fully connected. That’s probably true.

Lisa: As you’re coming into town, I know we’re going to have some people who will say, we should talk to him–he’s leading seed rounds! This is exciting. What specifically are you looking for? Like, what’s a great way for a founder to rise to the top of the stack for you?

Esteban: Yeah, so I guess starting from the top, I would say there’s two categories where I spend most of my time. One is vertical applications. Particularly focused on legacy industries that have been tech starred and our right forward transformation, you know, with things like machine learning and, and so on. So an example would be yes. Yeah. So when a Tampa would be logistics and transportation health care and professional services, right?

So those three are particularly interesting to me. And then the other big category is what I call knowledge worker productivity tools. That tends to be biased towards like developers, product teams you know, and tools that can help them be more effective. When you think about the typical company today or fortune 500, and you look, you spent some time looking at their financials the sheer amount of dollars that they’re spending in R and D is just outstanding. So if you think about any tool, any platform that can make that spend more effective, more efficient I’m really interested in learning about that as far as stage as I mentioned, companies that already have a product built, they have a team, they have some early traction and you know can benefit from three to $5 million round two to get to the next level.

Lisa: So when you say early traction, are you looking only at post revenue companies?

Esteban: Not necessarily. I mean, depends. So like for example, the developer tools, right, which tend to be a bottom up type, go to market a company. And what I mean by that is that it’s a developer first adoption, right? So an individual developer adopts the tool, then it expands to a broader team, say, you know, like a development team and then expands to the whole enterprise. And there may be some other segmentations depending on the product. So for those kinds of companies a lot of times you have a freemium model or a open core model, which a portion of the tool is open sourced, right? So maybe you’re not seeing revenue yet because you’re more focused about getting the adoption right, getting the, that initial developer to really love the tool. So it’s really understanding what is the key metric that reflects product market fit for a specific company. And then once, you know I agree with that, you know, with the founder, it’s like understanding how eventually they’re going to be able to capture value over time. Sometimes you’re able to capture that value ahead, right? Because of the tie. Like if you’re selling SAAS, for example, then that, that tends to be more of a, of a revenue proven product, market fit type of business. Does that make sense?

Lisa: This has been super helpful. How should a founder reach out to contact you?

Esteban: Pretty easy. So LinkedIn you know, Esteban Rayes or at Twitter @57cap.

Lisa: Thanks for your time today. I really enjoyed it. I think this has been super valuable for the community and look forward to seeing you in Atlanta real soon.

Esteban: I hope so. Thanks Lisa.

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