Starting a company is nothing short of overwhelming. Understandably, many early-stage startups are unsure how to secure the funding needed to promote the growth of their brand. Silverton Partners Venture Capital partners with early-stage startups by investing in opportunities to build businesses over time. We spoke with Silverton Partners Managing Partner Morgan Flager about his background in helping startups through Silverton VC.

In our interview, Morgan discussed key qualifications startups need to get more consideration and offered valuable advice for any startup looking to enter the world of entrepreneurship.

Before committing to a funding event, what do you look for in a startup CEO?

Having a unique view of the market is important.  Prior small company experience is also helpful because it’s different from working at a Fortune 500 company.

Beyond that, one of the unique things I look for is a very strong vision of the solution they want to build. Clarity of vision is important because, in a startup, you can be yanked in different directions. Starting with a strong point of view on what’s broken in the market, what needs to be fixed, and how they want to fix it is critical.

Lastly, they have to be able to inspire others to kind of join them on that journey.  If you’re not able to excite others to join you in that mission, then you’re probably not the leader. Those are the main things that we look for.

How do startups find you?

Today, about 75% of the companies we end up backing are founders who were referred from entrepreneurs we’ve worked with before. It’s all reputation-based, entrepreneurs had good experiences and recommended us to others. 

That’s not the total number of deals that we look at. We also get a lot of inbound to the website. Lastly, we also proactively reach out. However, it results in a smaller volume than inbound at this point in time.

What’s the best way to submit a plan to Silverton partners?

My personal view is to send an email that’s concise. An email with some tangible specifics on the business, where you are, and what the plan is for the year.

If we don’t respond, the best way to follow through is to provide updates that are relevant to kind of the deficiencies that were identified and to do that on a regular cadence. Sending updates along the way every month or every couple of months explaining we added new customers this month, you know, we added $500,000 or $100,000, in ARR, etc. 

Because it’s a little bit opaque knowing what’s going on in the firm with that particular person, you increase your chances of success by continuing to provide that level of updates on a regular basis and then allowing people to kind of engage when they’re ready.

What kind of return do VCs typically desire from their portfolio startups?

It depends on the stage of the venture investor. We’re early stage. So, most of the checks we write that the first check into a business, we’re typically underwriting those 10x Plus. Sometimes people ask why the return expectations are higher earlier? It’s just as simple as those businesses are riskier. Over time, you’re probably going to have more losses invested in that stage, so you need higher returns to offset the losses on the later stage side. 

What are other ways in which VCs like Silverton support startup growth?

Venture investors help with recruiting. Where you get the most leverage is the executive ranks, so if you need someone Head of Customer Success or someone to run engineering, that’s something that you should definitely ask your venture investor to help find. 

I personally spend 20-25% of my time recruiting for our startups. And if you have a venture investor who’s inclined that way, they can be super effective because they have a lot of relationships with executives that they’ve worked with before. Eventually, we will tap out and will need to continue to raise money, or startup companies raise money, they’ll need money from other folks. 

Then the other thing is advice. I’d say the most obvious point of advice is helping people avoid mistakes, which usually comes from having made those mistakes directly or being a part of them in some way. But I think the real value is identifying network effects within the business that can really unlock value. I’ve tried to spend a lot of time helping entrepreneurs think through things. We’ve seen a ton of business models. We’ve seen how downstream investors in the public markets value those, and we can help folks build out areas of their business that we know will be highly valued by later capital providers. 

As more VCs are investing in early-stage startups, how early and startups growth stage will Silverton invest in?

We’ll do it as early as pre-product pre-revenue. I’d say that’s why 15% of the companies we find are at that stage. It could be a bootstrap company that’s now at three to five million. Those are opportunities we’ll look at: the pre-revenue or pre-product stage. 

So for the folks that think they need money from us or someone like us at a super early stage, the better team that you can put together, the higher likelihood you’re going to get someone to take the risk and jump in earlier.

What key accomplishments must a startup typically have to receive your investments from Silverton partners?

Are they able to retain key employees? It tells a lot about their company culture, so we pay a lot of attention to that. 

What are some of the key metrics you pay attention to while the startup is in your portfolio?

We’re pretty focused on unit economics. Don’t spend too much time with unit economics, but if you break down a business model, there are some metrics that fall out of that. How much is that customer worth? Are they growing? Even in early businesses, there are some indications that it may not be at a steady state where they’re going to be, but you can see how efficiently they acquired customers and how often customers stick around.

We pay a ton of attention to those and continue to monitor those things long past our initial investment. It determines the value of that business. 

What are some of the hottest trends that interest you among startups in Austin and across the United States?

Over the past few years, we’ve spent a lot of time on healthcare, healthcare IT, and federal tax law. I think most people would say there are a lot of inefficiencies with how healthcare dollars are spent. There’s a growing ability for technology to provide better outcomes, which is super important because people live longer. 

We made a number of investments in that area. I’d say one of the most notable is a telemedicine infrastructure company that just raised $250 million.

On the FinTech side, we’re also at a business called Self, which helps people with bad credit really improve their financial situations. It’s never a perfect solution. But we love opportunities like that because I think it’s an opportunity to win and make money as an investor. But it also makes the country a better place, which is something we try to do as well.

Are you looking for companies that address an underserved market or disrupt a traditional one?

The answer to that is like definitely both. There are different risks and benefits to both. It’s really a matter of displacing competition. You need to have something that’s novel in new markets. There’s a little bit more leeway to build that up over time and create modes. Competition entering the market after you create it can change that, but for the most part, you can be a little bit slower-paced about it if you choose to, you know, the risk is, a lot of times people think there’s a market there. You can have very successful investments. They just require a little bit different strategy.

What would you say excites you most about your role as a partner at Silverton?

I think the greatest part of the job is you get paid to work with some of the smartest people in the world who are also super motivated. They have the ability to create a company from scratch, and that’s exciting. You get this combination of smart people with the right motivation, and really awesome things can happen. I would say by far my favorite activity is interacting with entrepreneurs.

What do you say is your most memorable or unique way that a startup pitched you and you ended up investing in them?

Yeah, so we invested in a company called Favor, which is a local delivery business. I got introduced to the founders by an investor. They were working out of their house and doing the deliveries themselves, maybe like two or three deliveries a day. It was super early days, and they had such passion for the service. They pitched us, asking what we wanted for lunch from anywhere, and advertised that they could have it there in 20 minutes. It was nice to experience the product as a consumer and get excited about what the demand side of that might be like.

What role does Diversity, Equity, and Inclusion play in your consideration process for new investment opportunities?

At least 35% of the companies that we backed have a female lead, either with a founder or a CEO. So I think we’ve been reasonably good about being inclusive in terms of funding. We’ve been lucky that we’ve got some amazing female founders who then refer other female founders they know.  

But, there’s a lot more work left to do. We have to proactively break out of existing networks because five or 10 years from now, I want that number to be higher than 35% and more inclusive of other minority groups. It’s something we think about, and our investors are also starting to care about.  Over 50% of folks are just asking about data and reporting out, bringing visibility. That is the first step.