One of the biggest complaints that local entrepreneurs have with Los Angeles has been a dearth of local sources of venture capital. However, the recent surge in startup activity has attracted a lot more capital into the area, including a significant amount of capital from LA's latest fund: Karlin Ventures (www.karlinvc.com). We sat down with TX Zhuo, who is heading up the firm's venture investments, about the fund and his path here after a recent stint at Eric Schmidt's Innovation Endeavors fund in Palo Alto.
What is Karlin Ventures?
TX Zhuo: Karlin Ventures is an early stage venture fund based in LA. We are going to focus most of our investments in LA. We do mostly seed and Series A, and the occasional series B round, especially if we get into the company in seed or Series A level. We invest anywhere from $100,000 to $1 million per company, and the maximum we'd invest in any company would be $2.5 million. We focus on a lot of sectors, but the geography is more important to us than the industry. Specifically, we look at digital media, healthcare IT, e-commerce, education technology and financial services. We have four investments so far, two of which are public. One is a voice analytics company called Saygent, the other is Wallaby Financial, which is just out of Mucker Labs. We are looking to make ten to twelve new investments per year. We also do follow on rounds for our existing portfolio companies. Hopefully, we'll grow our portfolio to around 50 companies.
How long have you been looking at this market?
TX Zhuo: I started my own business out of college, an e-commerce company. I sold it off for a really modest single digit exit. I then went on to work for McKinsey for a couple of years, then got involved in Eric Schmidt's seed fund, Innovation Endeavors up in Palo Alto. I have been doing seed stage stuff for a while. I also served as CFO for a startup called Lit Motors, which finished second at the recent TechCrunch Disrupt event.
When did you move down to LA?
TX Zhuo: I moved down here four months ago. We're a very new fund, but are aggressive and like to hustle. I'm glad to meet everyone. Over the past few months I've been building my network, and we've done about a deal a month so far.
What's the ideal kind of company for you to invest in?
TX Zhuo: I consider us a late seed investor. We definitely do post proof-of-concept, and would prefer post-revenue companies. We don't need for you to be breakeven company, but a business with paying customers is great validation in itself. I tend to invest in seasoned entrepreneurs or those who have the right experience in the particular industry they are in.
Experience is a big thing for you?
TX Zhuo: I think, at the seed level, experience is really important. I think the right team and network are very important, as is traction, validated by customers. It is a great trait if a person has experienced both successes and failures before.
Do you like to lead, and how do you work with others?
TX Zhuo: We try to syndicate and act as friendly allies to the other VCs here. We tend to coinvest, and have looked at a couple of deals even with funds like Founders Fund in the Bay. How we try to differentiate ourselves is we act fast, stay committed to our portfolio companies and work in their best interest.
How does Southern California versus Silicon Valley compare so far?
TX Zhuo: I like the LA community a lot. Among investors, everyone is friendly, and more willing to co-invest. For lack of a better description, people in Silicon Valley have sharper elbows. They're pretty competitive about deals. Valuations here are much more attractive too. I think we're ready to see a whole new wave of startup sucesses come through. As you probably know, most of the accelerators here have only been around for a year but have found amazing talent. For example, MuckerLab, had 100 percent of their companies funded out of their most recent class. The time is ripe for the LA scene to grow with the right seeds in place. What we need to do as investors is support these companies so they don't have to go up north. The other thing I notice is that here in Los Angeles, people do not know of the LA success stories like how they idolize them in Silicon Valley. If you walk down the hallways of UCLA or USC, and ask them for the successful startups here, they can't name anyone. That's something we need to change.
What's the best way to approach you as an entrepreneur?
TX Zhuo: Someone on our team will try to respond to every email. Our website is up, and we have an application process. The other way, is to email us at email@example.com. LA is small enough of a market that you can get a warm introduction to almost anyone. If you can't, that speaks a lot about how hard you're trying. Having said that, I'm happy to talk to people at any time even those we're not investing in. We're happy to help support them and see them succeed