as an investor, I don’t see how the math truly plays out for the risk.
I put a stop to the fund a few weeks ago, and decided not to take on a 5th class. Y Combinator and Techstars have successfully proven that they can have true exits. The current market conditions in oil and gas are not great. We have already invested into 34 existing companies that are still growing. How can we manage 10 to 12 more and how can we manage a larger fund when we can barely keep up with the companies that we’ve already invested in?
As the largest LP, I’m looking at it as an investor: Would I personally invest in myself and this team without a track record? We didn’t have an exit. We believe there will be exits but it’s unrealized value right now. I have not paid back existing investors’ cash. We said five to seven years but the companies are still raising Series A rounds. The exit is at least another four to five years away. So the timeline went from five to seven years to 10 to 12 or 13 years. With current market conditions pushing that out to 15 years.
We didn’t have the complete team necessary that has experience and and track record of being able to manage funds and make high returns to investors. One of my rules in business, you always want to have the best people in the world on your team who’ve been there and done that. I’m not going to raise [another] fund and take on new companies without some kind of secret weapon in my satchel.
X: What would you like to see happen with the 34 companies in the next year or two?
K.C.: I don’t have a mandate. I personally have a lot of money tied into these funds, so I should be spending my time with those companies and helping them whichever way I can. Last year, it was impossible to help; we were looking through deal flow, interviewing companies. My time’s better spent helping them. Right now, I don’t even know what that truly means.
X: What are the set of circumstances that would cause you to bring in another class?
K.C.: Exits—and those entrepreneurs need to come back to Surge themselves and invest or start another company and lift the playing field. We’ve seen that at Y Combinator, Techstars. They’ve been successful in seeing that happen. We’re too early to see that, but there is a path. Milestones need to happen.
X: I understand that (the decision to pause the accelerator) was not a function of investors balking.
K.C.: No, everyone else is nodding heads, saying, yes you’re doing great. I put responsibility on myself to make the right decision. With the market conditions, the lack of track record, and the team, I don’t believe I can produce the returns unless we have a few unicorns. I’m not going to bet on a unicorn. As an investor, I’m not going to bet on those odds. While there’s a big reward that could be out there, the risk is higher than the reward. That’s not a prudent way to invest money.
