Tom Ball, Author at Next Coast Ventures

Zeynep Young is a serial entrepreneur who just became a venture capital partner with Next Coast Ventures.

In this Ideas to Invoices podcast, Young discusses what it takes to succeed as an entrepreneur and what she looks for when making an investment.

Previously, Young founded and served as CEO of Double Line Partners, an educational technology startup in Austin. And before that, she was portfolio director at the Michael & Susan Dell Foundation and an associate principal at McKinsey & Company.

Young is currently the CEO of milk + honey, a wellness and beauty company with a portfolio of day spas, salons and products in the organic, luxury market.

Alissa and Shon Bayer founded milk + honey in 2006 in Austin. The spa business has grown to five locations in Austin and Houston. Milk + honey is launching nationally, Young said. They also sell organic products like a natural deodorant online and through their stores, Young said.

After selling Double Line Partners to a private equity company, Young took a year off to spend more time with her kids and family. But she didn’t stay away for long.

“I think if you enjoy what you do it gets boring to be away from it,” Young said. “I love tech and I love spas and I love startups and I missed that. And it’s really fun to get back into business and starting talk about ideas that you’re really passionate about and working with people you really like.”

In the partner role at Next Coast Ventures, Young is looking for ideas where she can add a lot of value. The firm is built for entrepreneurs by entrepreneurs, Young said. Tom Ball and Mike Smerklo, founding partners of Next Coast Ventures, are both entrepreneurs who have built companies and taken them to an exit. Next Coast Ventures recently closed on a $85 million fund and is looking to invest in early stage entrepreneurs in the Austin area and similar tech markets.

“We look to invest in things that we really understand and have expertise in where we think we can add a lot of value beyond just the capital,” Young said.

At Double Line Partners, Young launched the company from zero dollars and grew it to $20 million in revenue from her dining room table. She spent six years as a bootstrapped entrepreneur building up the educational technology company before selling it.

Young will be looking at software, educational technology and retail startups.
Under 10 percent of venture funded companies are founded and led by women, Young said. There is opportunity there for VCs to reach untapped markets, she said.
“I think we should definitely have more women in venture capital and more women should get involved in,” she said.

That’s one thing that differentiates Next Coast Ventures. It is intentional around building diversity of experience, Young said.

Entrepreneurs pitching Young should have a customer focus. That’s the number one thing she looks for when making an investment.

“I think part of the thing I see missing in the space right now is that people who are first time entrepreneurs get very focused on raising the capital,” Young said. “And then the second thing they think about is how do I build a minimum viable product and then they start to think about the customers.”

As a bootstrapped entrepreneur, Young had to think about the customer every minute of ever single day.

“I think if that is sort of your third or fourth priority, it’s going to be very difficult to be successful,” Young said.

She doesn’t want to hear a pitch targeted to capital or how they are going to get the product done. She wants to hear about how they are going to reach customers.

What doesn’t play well with her is an entrepreneur talking about getting one percentage of a huge market. She wants to hear about specific customers.

It’s also important for an entrepreneur to understand the industry they are working in, Young said. They must have industry experience on their team, she said.

“I love innovative ideas that disrupt industries, but I think you have to know a little bit about the domain and the industry before you disrupt it,” she said.

Young also recommends that entrepreneurs work their network to find customers for their products and services as extensively as they work their network looking for capital.

And in the process, entrepreneurs will have to deal with a lot of rejection. But they should be open to the feedback from customers as well as investors.

“When you hear no, it doesn’t mean that the idea is bad,” Young said. “It’s just not for that person. Not every concept is right for every person.”

The sales process also is easier if an entrepreneur is passionate about what they are creating, Young said. But if an entrepreneur isn’t comfortable with that part of the business they need to add a team members who is, Young said.

“There’s no success without sales,” she said.

Next Coast Ventures’ Founders Give Fundraising Advice

April 5, 2017 by Laura Lalorek

Publisher and Reporter with Silicon Hills News
Host of the Ideas to Invoices Podcast

Next Coast Ventures might be able to afford to lose $1 million on an investment, but can an entrepreneur afford to lose five to ten years of their life working on a startup that doesn’t hit it big?

That’s the kind of deep thinking unearthed in the latest Ideas to Invoices podcast featuring Mike Smerklo and Tom Ball, co-founders of Next Coast Ventures, an Austin-based Venture Capital Firm that invests in early stage companies. It just closed on a $85 million fund last month.

In the podcast, Ball and Smerklo discuss how difficult it is to build a company.

One of the things that sets them apart from other VC firms is that both Smerklo and Ball are experienced entrepreneurs who have taken a startup from idea stage to exit.

Before launching Next Coast, Smerklo ran ServiceSource and took it from a small startup to a public company with more than 3,000 employees. Ball was a general partner with Austin Ventures for a decade. But he also founded Tahoe Domains and Co-founded Openfield and Razorgator Interactive and founded eCoupons.

Next Coast Ventures looks at a lot of attributes when evaluating a business plan including team, the founder, market fit and if the founders match up to the opportunity, Ball said. They also look at the domain the business is operating in and what theme it approaches, he said.

“We look at is it a good use of our time and can we add value to the investment,” Ball said.

Entrepreneur to market fit is a key metric, Smerklo said.

“There’s great ideas and sometimes the entrepreneur isn’t well qualified to run that business,” Smerklo said. “So we spend a lot of time thinking about can he or she take this business from this concept and really drive it to the next level. Is their passion, their energy and their domain experience a good fit for the idea they are trying to bring forward.”

They also look at the risk and reward balance in the business plan, Ball said. Next Coast Ventures wants to get a ten times return on its investment, Ball said. So it looks for ideas that can provide that kind of return, he said.

The best way to pitch Next Coast Ventures is through a qualified introduction from someone they respect, Ball said. They get a lot of cold email pitches to info@NextCoastVentures.com and they try to respond to most of them, but the best way to pitch them is through someone in their network.

“There’s a vast number of ideas and opportunities we can spend our time with and unfortunately or fortunately, our job is to say no 99 percent of the time,” Smerklo said.

To make it easier to find the deals Next Coast is interested in, the firm looks at certain themes. It plans to invest in business models designed for digital natives as well as innovative companies in the education, retail, business to business and business to consumer sectors.

Next Coast Ventures has already invested in four Austin-based startups: Umuse, Dropoff, OnRamp and Phlur and one San Francisco-based startup Cloverpop and one New York-based startup Clarity Money. It has also invested in two more local startups, which it has not yet publicly announced.

Next Coast Ventures had conversations with more than 600 entrepreneurs last year. Ultimately, the firm plans to invest in 20 to 25 companies during a three to four year period, Ball said.

The number of investments any firm makes is really small compared to the number of deals it looks at, Smerklo said. That’s why entrepreneurs should cast a wide net when looking for funding, he said.

There’s a lot of variables that come into play when a VC firm says no other than the idea, Ball said. It might be the stage the fund is in or whether they have made an investment in a competitor, he said.

Next Coast Ventures doesn’t use a “Moneyball for analytics” system to evaluate entrepreneurs.

“Ninety percent of the decision is the entrepreneur,” Smerklo said.

Both Smerklo and Ball have extensive networks in Silicon Valley from time spent working there. They take entrepreneurs they invest in to Silicon Valley early on to meet with syndication venture capital partners there, Smerklo said.

“You can never start that process early enough,” he said.

The Next Coast Ventures market it invests in isn’t geographically defined, it’s “spiritually defined” Smerklo said. They look for deals in Austin, which has great ideas but not as much institutional capital that is available on the coasts, he said. They will also invest in the Midwest, Boulder, Salt Lake City and other markets that are similar in size and mentality to Austin, he said.

Both Smerklo and Ball have raised money as entrepreneurs. It’s never easy, Smerklo said. They spent a year raising $85 million from private and institutional investors for the Next Coast Ventures fund. In the end, the fund was oversubscribed. They initially planned to raise a $55 million fund. They also put their own money into the fund.

“It’s planes, trains and automobiles,” Smerklo said. “It’s being passionate about what you are doing and reaching out to every opportunity.”

The funding situation in Austin is better than it’s ever been from a competitive dynamic among the investors, Ball said. It’s very healthy versus having one big investor, he said.

“Having multiple options in a bonus,” he said.

In Austin, seed financing is better than it’s ever been ever, Ball said. There are a lot of people here who are accustomed and attuned to investing in early stage companies. And Capital Factory, Techstars, Galvanize, WeWork and others have helped to build the local technology ecosystem, he said.

Entrepreneurs who know how to sell are at a key advantage in the marketplace, Ball said.

“You have to know how to sell and get the word out about your product,” Ball said.

Next Coast Ventures also recently added Zeynep Young, founder of Double Line Partners, as a partner. She brings tremendous entrepreneurial experience as well as diversity of thought, Ball said.

For more tips on how to get VCs to back your startup, tune in to the podcast, available for download on iTunes.