Transitioning from serial entrepreneur to serial venture investor

For a venture capital investor to best help lead a startup or entrepreneur to success, it can be crucial for an investor to know what actually being an entrepreneur is like. For serial-entrepreneur-turned-venture-investor Mirza Baig, this experience helps to guide his leadership and understanding as partner and co-leader at Aldrich Capital Ventures.

ABERMAN: Tell us how somebody like you, Mirza, a serial entrepreneur, proven entrepreneur, how does that relate to becoming a V.C.? What were you doing before you started Aldrich Capital?

BAIG: I was a serial entrepreneur. I had started three startups, and they were in different tech sectors. I had gone through that route of raising money. I love meeting with investors, building a business, and I realized how difficult it was to do this in a market like D.C. For the last startup in the crisis 2008 and 2009, I met with every potential investor group here in the D.C. metro area, and got turned down by every one of them. And then, finally I went to Silicon Valley, and there over a period of seven days in early 2010, I got six term sheets, and I realized that there is a big hole in investing in D.C. I had a good business, that was growing 100 percent year over year, and I couldn’t get funded in the D.C. metro area.

ABERMAN: When I talk with entrepreneurs, and I’m sure this is true for you as well, I often find people start businesses based upon something that really bothers them, and it sounds like that’s the situation here. But you were bothered by the industry, and how you were treated. Having said all that, though, you then took 2010, you sat with your partners, and you ran a business.

BAIG: That’s right.

ABERMAN: And you made money because you sold the business.

BAIG: That’s right.

ABERMAN: Why didn’t you just go off and retire, and play golf like a lot of people do?

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BAIG: When I was younger, I used to think my ethnicity, or my college, was the folks that I identified with. But today, as I’ve grown older, I realized my people are the entrepreneurs. I identify with them, I identify with their journey, I identify with what they have sacrificed, their blood sweat and tears. And for me, when I meet other entrepreneurs, it feels like meeting a member of the family. And if I can be part of that journey, and if I can help them, I am grateful.

I know that sounds hokey, but unless you have sacrificed a tremendous amount for your business, you cannot identify with that. In ‘08, I was doing my third startup with my co-founders. We were bleeding money. We didn’t have the right model. There were no credit lines available.

Vendors that were servicing us were asking for money earlier. The people that we were servicing were asking to pay later. We had hired for growth, except now the markets were shrinking. We were servicing the auto industry and the finance industry, two industries that were shrinking pretty dramatically. We were servicing markets like Ohio, like Toledo. So, we were in this shrinking market with increasing cash demand needs, and both my co-founder and I laid everything on the line.

So, unless you’ve been part of that journey, you’ve gone through that journey, you just don’t understand what it takes to build a business. So when we meet other entrepreneurs, we say we get them. We get the journey they’ve been on, and we want to be part of that journey. If we can help them grow their businesses, and make money at the same time, we want to be part of that journey.

ABERMAN: And I think that that is a hallmark that any experienced entrepreneur has We respect and want to work with others. But having said that, my experience having started businesses and funded businesses, it’s very different when you own your own business, and you’re principal, compared to when you’re invested in a business, where you’re more of a coach. How have you found the conversion from going from one to the other?

BAIG: It’s taking a minute to go from being a person who runs a business, to being an investor. So, it’s definitely very different roles. But the thing you realize by the time you get to your third business is, even if you’re a founder of a business or co-founder of a business, your job really is to be a coach. It’s leadership from the bottom, in the sense of servant leadership. You help folks that are trying to reach their potential, but they’re doing it in your business that you’ve co-founded, or you’ve founded.

And in the same way, when you deal with other founders, you’re helping them reach their potential. You’re coaching them, you’re giving them advice. You’re stepping away when you need to. You’re stepping in when you need to, and if you’ve gone through that role a couple of times, you realize you can do this well. Because at the end of the day, businesses you’re investing in are part of your business, and you have to treat them the same way that you did if you were scaling a business.

ABERMAN: So, as you go from successful entrepreneur to investor, there’s an intermediate period that I find many successful entrepreneurs go through, where they invest their own money in the businesses, and I know that that’s something you and your partner did. You took tens of millions of dollars from your exits, and started Aldrich in that way.

But now you’ve modified to what people would describe in the industry as a professional V.C. fund, you have outside money. How is that different for you, or does it seem like it’s different from when it’s your own money? If I can put it another way: as an entrepreneur coming to a V.C. are there things about the relationship with the outside investors that an entrepreneur needs to understand in order to feel comfortable taking money from a V.C.?

BAIG: I think if you’re just in the business of placing bets, entrepreneurs can sense it. Entrepreneurs, by and large, have a very high degree of detecting B.S., and they can detect it from far away. If you’re just there placing a bet, and you’re going to check in once a quarter and tell the entrepreneur, hey, I think you should increase revenue, they’re going to sit there and say thank you, Sherlock. Thank you for telling us what we need to do to, increase revenue. Thank you.

But if you tell them, here are a practical five ways to increase revenue, here are two where we can be helpful in, and here are three you should go explore, and here’s one maybe you’d bring in some outside resource to help you, they appreciate that, and I think that’s a different way of looking at it. And then, more importantly, when you explain to them that you’re not just doing this with other people’s money, but you’re doing this with your own, that resonates incredibly differently than just saying, I raised some money from some ultra high net worth individuals who shall not be named, but I’m just placing a bet.

ABERMAN: And in exchange for 20 percent of the profits, without any skin in the game.

BAIG: That’s right. And we have a lot of skin in the game. From my partner, who I’m incredibly grateful for, in terms of helping me with my third business, but also being a partner with me, and myself, and our friends and family, we are more than 10 percent of the fund. And that is a big deal. It’s an anomaly in our industry. The reason it’s an anomaly is, most private equity V.C. funds have between 1 to 3 percent of their committed capital coming from the team. In our case, it’s more than 10 percent. We’re almost, you know between four to 10 times higher than normal.

ABERMAN: Before I let you go, really quickly, since I think you’re the kind of fund I’d want to take money from: what kind of deals are you looking for?

BAIG: We look for companies that are in healthcare, I.T., fintech, applications software, companies in the lower middle market. I think companies that are typically more than 10 million in revenue, founder-run businesses that have built their business the old fashioned way. They’ve bootstrapped their business, and grown their business, and typically in geographies outside of Silicon Valley and New York. That’s where 80 percent of tech investing dollars go today.

ABERMAN: Well, Mirza, we really appreciate you coming on. Folks, make sure you check out Aldrich Capital. Mirza Baig, thanks for joining us today.

BAIG: Thank you so much.

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