Incisive Ventures' Martin Tobias Discusses Market Cycles and Companies that "Enable Laziness"
Founder and Managing Partner of Incisive Ventures Martin Tobias is many things. Inexperienced is not one of them.
Over an impressive career that has stretched longer than this humble writer's entire life, Martin has worked as operator, advisor, angel, confidant, consigliere, manager, founder, CEO, and investor. Take a deep breath, there's more!
In this conversation with Stonks CEO Ali Moiz, Martin weaves a narrative that begins as programmer at Accenture, touches on his time at Microsoft, and continues to his present day role at Incisive Ventures.
Given the breadth and depth of his far-ranging expertise, this is an episode you ought not to miss.
For the audiophiles out there, listen, subscribe, rate, et al (you know the drill people!) on either Spotify or Apple.
The ocularly-inclined can scroll down for some conversational highlights
Nota bene: The below conversation has been lightly edited for clarity and Stonkyness.
On His Journey from Operator to Investor
I became a "professional" investor—that is, managing other people's money—only in the last two years. It was a long, winding road to get here.
I started off as a double major in computer science and business and I went to work as a programmer at Anderson Consulting before it became part of Accenture. I joined because I had no idea what I wanted to do with my wacky, weird combination of technology and business.
Anderson sent me to a bunch of different companies and one of those was Microsoft. Before the IPO, Microsoft said, "Hey, we could save some money by hiring this guy." So they made me an offer.
The partners at Anderson convinced me to not take it, and I waited a year before I eventually did join.
I did the math that year cost me $20M in stock options... You live and you learn!
Over the course of my career, I met Ron Conway—one of the very first "angel investors"—and I joined his fund. That fund was a series A investor in Google and, after the Google IPO (where I received shares!), I was hooked.
There is something unique and magical about the power of getting in very early at some transformative companies like Google and Microsoft.
After Microsoft I started two companies, one of which I took public in 2000 called Loudeye Technologies with a $2B market cap for a company with $10M in revenue... It was different times back then.
It was actually the very last company to go public in the Dot-com boom. We went public on March 17th, 2000 and March 21st was the peak.
That taught me a great deal about timing and since then I have been through a number of cycles— the 2008 crash, the 2020 crash, and whatever we're living through now. These things come in cycles and it's imperative to understand what stage of the cycle you are in.
I decided to invest full-time because I didn't want to operate companies or manage employees any more.
First I started an AngelList syndicate with nearly three-thousand members.
I next started a small $2.5M Angel Fund on AngelList.
Most recently, I completed the first close of my $10M pre-seed fund, which is now investing exclusively into pre-seed software companies.
On His Investment Thesis:
When the pandemic started, like most people I had a great deal time on my hands. With it, I stepped back and surveyed all the investments that I had done in order to figure out where I had an idea in which I invested that was counterintuitive that then turned out to be right and generated outsized returns.
My idea of investing directly in software companies that reduce friction at scale has performed about a 6.8x MOIC versus my 2.5x MOIC as an LP in funds. An example of such a company that reduces friction is Google.
Google made Android free, apps free, and email free. They reduced friction via scale and eliminated a number of costs/friction for apps and search. That's exactly the kind of company I'm looking for.
As such, I do not invest in hardware companies, drug discovery companies, CPG companies, crypto/blockchain companies, or any other company/vertical where I am not an expert.
On Funding Benchmarks
Some VCs say that pre-seed is anything before the seed, but for me the angel round is where you're underwriting ideation. This consists of a deck and a dream. I personally do not invest in the angel round.
To me, pre-seed begins once your MVP is done and has been in the market for at least three months. Better yet, you might have some amount of revenue or customers.
If it's a B2B application, 10 or 20 customers would be great. If Consumer, 5K-10K customers. Put simply, the risk you are underwriting is getting to the seed round. That's where I thrive and enjoy investing.
On Vertical Market Software
I just invested in a company called Built Data. It aligns with a theme about which I'm very excited: the opportunity for vertical market software.
I love software that goes into old industries that are really laggard. This company is basically Slack for field construction workers. So plumbers and contractors that are out on a job site and they're trying to install a toilet and they don't have the right part, the drawing isn't correct, or they have to move some plumbing or something like that.
It was started by a contractor that had been running his own contracting firm for ten years. He built this software for his own internal use and it greatly improved the profitability of his personal contracting business. Now he's generalizing it and selling it to other construction companies.
I love those kinds of great founder-market fit stories; where a founder solved a personal problem and is now scaling it to service a larger market.
Construction is one of those areas that is very much lagging in terms of penetration. Anytime you witness somebody using spreadsheets or fax machines to manage a business process and fax machines, you have an opportunity for vertical market software.
How Martin Capitalizes on Laziness
People love any technology that enables laziness. I remember when Starbucks went public I called a friend of mine who was an investment banker and asked if I should buy it.
He said, "They're selling a legal addictive drug that you pay like 20 times what it costs to make at home because it's convenient..."
Though you can make coffee at home that is cheaper, people can pick it up via drive-thru and are literally addicted to it.
It's the same with Amazon, PayPal, or Docusign. Any company which enables people to be lazy can potentially be a phenomenal business.