John Francis is a general partner at Stout Street Capital, a venture capital fund based in Denver, Colorado. Stout Street has made 70 small seed and pre-seed investments in software startups outside the big tech centers in North America.
Unlike big Silicon Valley VCs, almost half of Stout Street’s investments are in more practical software companies that have reasonable valuations, sustainable growth models, and won’t need more outside investment before they exit.
In this in-depth interview with a “practical funder,” John explains the ROI math of professional investors and how they think about investing. John also has great insights on how founders should think about raising money in the first place.
Best quote from John:
“There are so many things that can kill a business. And running out of money is probably the number one reason.”
The potential for a 10X return is reduced if they don’t have enough money to survive for the next three months. The potential goes down to maybe even less than 1X, so we can’t invest.
“Even though we love the founders and we love the idea, we have a fiduciary responsibility to our LP investors when we are investing their money. It’s heartbreaking sometimes to say no, but that’s the reality of it is we just can’t do that.
In this episode, John explains:
- The basic investment math that a seed-stage venture fund manager needs to deliver the expected return to their “limited partner” investors
- What kind of investment valuation and eventual exit outcomes are required to raise institutional capital
- When a practical founder shouldn’t raise VC funding and how they should be thinking about taking outside investment capital
- How “practical VC investing” is different than traditional moonshot VC investing and why founders need to be clear about which kind of funding they want
- What’s happening in valuation for investment and acquisitions in 2022 compared to 2021
Stout Street Capital Company Facts
- Founded: 2017
- Description: Stout Street Capital is a seed and pre-seed venture capital investment fund that actively invests in practical software startups with sustainable growth models
- Number of Employees: 9
- Location: Denver, Colorado
