Eric Ball – General Partner for Impact Venture Capital
Eric Ball is a technology finance professional, investor, and board member. He currently serves as General Partner for Impact Venture Capital, which has made several technology investments. He also chairs the Audit Committee at Glu Mobile, a publicly-traded leader in 3D freemium mobile gaming.
Until May 2016, Eric was Chief Financial Officer at C3 IoT, which is revolutionizing the use of big data to make our power network and the Internet of Things more efficient.
From 2005 to 2015, Eric served as Senior VP & Treasurer at Oracle, one of the world’s premier technology companies. While there he was named one of the 100 most influential people in finance by the editors of Treasury & Risk Magazine. Prior to joining Oracle, Eric served in various finance roles at Flextronics International, Cisco Systems, Avery Dennison, and AT&T.
Eric holds a PhD in management from the Drucker-Ito School, as well as masters degrees from the University of Rochester and a BA from University of Michigan. He is the co-author of the book ‘Unlocking the Ivory Tower’ (released in April 2016 in Japanese language version) and has taught at three universities as well as online.
Alan Olsen: Hi, this is Alan Olsen and welcome to American Dreams! I am visiting here today with Eric Ball. Eric, welcome to today’s program.
Eric Ball: Thanks, Alan. It is really fun to be with you again, and I am looking forward to catching up.
Alan Olsen: Eric, we have known each other for years and as we get together today, let’s revisit your your background and and your journey through Silicon Valley and how you got to where you are today.
Eric Ball: Oh, well, sure. I will try to make a 50 years story short. I started as an academic I grew up in the Midwest, went to college in the Midwest, and then went straight into graduate school and started life as an academic and economics and finance. But I elected to not build a career as an academic. So 1988, I launched a 32 year corporate career, where I spent the bulk of my career working for five large corporations. The last 11 of those years from 2005 through 2015. I was a Senior Vice President and Treasurer at Oracle working for Larry Ellison. I was part of the finance team, a senior team in finance there, borrowed $52 billion to pay for 105 acquisitions that occurred on my watch. I also managed the the portfolio of corporate venture assets, Oracle acquired a lot of companies with active corporate venture programs. And we ended up with stakes in 180 different startup companies and that that was part of my charter. At the same time, I started doing investing in venture capital on the side, I had done my doctoral dissertation in venture capital. And I had gained as a mentor Don Lucas, somebody I have immense love and respect for. And he had been the first venture investor in Oracle, he was on the audit committee for board at Oracle that that sort of made him one of my bosses. And I spent a lot of time with him outside of Oracle, joining him as he made investments in an early stage startup company. So I started both of those roles in Oracle and in hanging out with Don around 2005 invested in several companies. Then, in 2015, I left Oracle to join a startup an AI unicorn, here in Silicon Valley. I was CFO there for a year and then left to launch it to be part of launching Impact Venture Capital.
Alan Olsen: That is quite a history there it and a very successful lot of very successful landmarks. I am going to circle back to the Midwest, what part of the Midwest?
Eric Ball: I grew up in Michigan in the Detroit suburbs.
Alan Olsen: And your Michigan alumni?
Eric Ball: I went to University of Michigan, I am a diehard Michigan alumni, I have had to diversify a little bit because my oldest is a freshman at University of Wisconsin. So I am working my allegiances around the big 10. But, but I remain a diehard Michigan alum in my youngest, who is in eighth grade, says he wants to go to Michigan, so I may still get a chance to get to get a child to my alma mater.
Alan Olsen: So I want to revisit so there has been a transition, that’s very successful history with Oracle during the acquisition time, 52 billion is no small number to go out and start buying companies and then moving from there for a year or two another CFO position. But what was the motivation for launching the venture firm in 2016?
Eric Ball: I had been investing in venture since 2005. And really found that I had a passion for it. And that was a little bit of a surprise to me, because I spent the bulk of my career at really big companies, but I was drawn to small companies where you could make a decision to change direction on Monday, and already be in that new direction on Tuesday. And that is very appealing. I also learned that even though my background was with larger companies, I had, you know, built some skills that were useful for small companies and, then I had advice for them, and some of them were interested in listening to my advice. And so the idea idea of engaging in a fresh opportunity in building something from scratch. And in really feeling like I was having a meaningful influence on the path that a young company was taking, you know, turns out to be very addictive, I also really enjoyed, essentially the portfolio approach of investing in 20. Young companies and having my own fortunes rely on a portfolio rather than a single bed on a single company, I just found it interesting to be looking at one business model on Monday and another business model on Tuesday. And I just found that really intellectually engaging and stimulating. But I would say the primary motivation was that at the time, I didn’t see a lot of independent venture firms that were collaborating effectively with the large corporates. And I thought that perhaps my unusual background for a venture capitalist, which is coming out of working at very large corporates, might be useful to build an independent venture firm that itself played well with those corporates in terms of investing in young startups.
Alan Olsen: How has COVID impacted the venture community?
Eric Ball: I would say in a couple of different ways, the the amount of dollars that the venture community allocated to startups only paused briefly. So 2019 set of record 2020, I think was going to break that record and ended up merely matching the 2019 record. And then 2021 Just blew the record out of the water again. So the overall activity in the space in terms of dollars allocated to startups, really barely paused and then just discontinued upward. In terms of how it affected the startups that themselves were being funded. I think it really taught a mix of you can have a plan what Mike Tyson said, “Everybody has a plan until they get punched in the face” you can have a plan, and it’s important to have a plan, but your ability to react becomes very important too. And so, venture investing is a really strong mix of planning and reacting. We have a portfolio of companies, with 20 companies in our fund one in 12 companies so far in our second fund. And we had, essentially, some were doing well, some were doing less well. But COVID changed the dynamics of every company so much that it completely flipped who our best performing companies were. We had some companies that couldn’t meet in person with customers and their sales suffered. Even though they had great business models. They just weren’t meeting their their sales projections. We had other companies that experienced a huge tailwind, and did much better in a COVID environment. We just invested in one company, our first company in fund two, that was using machine learning to create synthetic medical records to improve health outcomes, and actually make medical research easier to do. And we invested in that company in January 2020. And the Gates Foundation decided that it was one of the best companies equipped to help lead the fight against COVID. So this company had a kind of a rocket fuel accelerant to its growth. We had another company that called Task human that markets to corporations to allow their employees to access professionals nurses, mental health professionals, fitness coaches, dieticians, all in remote platforms like zoom for for personal improvement. And the demand for that kind of access to health professionals remotely got a clear boost from COVID, people were much more interested in getting health advice without actually traveling to a medical office to get it. So there were several companies in our portfolio that just took off because of COVID, even while other companies had trouble with sales because of COVID. And what it meant was that when we set out at the beginning of 2020, with our forecast of which companies were performed better and which would struggle that that became completely jumbled and changed over the course of COVID and we had two simultaneously make decisions in real time about reallocating our own capital to feed the winners, including the winners that were unexpected winners, that that all happened under COVID. And now as we are starting to see the first signs of emerging from COVID, we are finding ourselves with a new balanced rank ordering of which companies in our portfolio seem to be best positioned.
Alan Olsen: So you will always have opportunities to decide whether or not you want to be partnering or investing in a company. What is the primary differentiating factor why you invest with one company over another?
Eric Ball: I think that there are different elements that go into that. As a finance person before I got into venture, I used to think that it was primarily an analytical exercise and that it was about evaluating numbers and forecasts and determining which company, you would forecast, better cash flows, and there remains an element of that to it. But I also think there is a creative element or an intuitive element that is more like being an artist than a quant. And the younger the company, the more artistry is involved versus quant, where you really synthesize a mix of, how does the market look? How does the sector look? How does the team look? How does the business model look? You may have a forecast that under sells or over sells. And so it is a mix of business model, and team and market fit. And there is a real blend of analytical and business in more more just intuition and creativity, that go into it, which makes it really interesting. And I think that it makes investing in very young companies a very different experience than investing in more mature companies where you have cash flows, and you have more numbers to base your decisions from.
Alan Olsen: So Eric, I am a new entrepreneur, and I got a great business plan, got a great story to tell, I want to come before you and pitch my new company and get some money. Before you are going to open that door, what are the minimum requirements that I need to have, in order for you to talk to me? Give me a little bit of coaching, so I am not wasting your time or my time?
Eric Ball: Well, I think a lot of it starts with a presentation, or an overview of the business and the team that strikes the right balance between being concise and being thorough. And that needs to include a description of what the opportunity is, why this team is the best team to pursue that opportunity. Why this time is the best time to pursue that opportunity. How you are going to guard against downside, but most importantly, how are you going to capture upside. As a finance professional in a large company, you are usually trying to avoid a bad outcome. You are very cautious and risk averse. But as an entrepreneur, the real question is, how good is the best case outcome? Because venture investors aren’t looking for high probability of a little bit of return, they’re looking for some probability of a very large return. And the appeal of venture is that you can gain 1000 to one multiple on investment, but you can only lose one times your investment. And so you are looking for that asymmetric payoff. And so you do need to have a mix of business model and team and really spend time on both of those, to show that it is the right team to execute against the business model that you have identified. But I always tell people, figure out what the best what the best case outcome looks like, and tell me how good things can be if the best case outcome appears. Because it is surprising how many people come with somewhat muted ambition. I think I have got a really good chance of doubling, doubling the investment over several years. And that is great and you should always strive to be credible. But I might rather invest in something that has the possibility of being a very outsized outcome, even if the probability is a little bit lower. Because in a portfolio of 20, or 30 companies in a fund, I only need a couple of them to perform in an outsized way to be a well performing fund.
Alan Olsen: So Eric, I want to probe a little bit deeper into this. I am an aspiring entrepreneur with a great business plan number one before coming to you, do I need to have any revenue? Are you going to look at seed stage? Versus Do you want to look at Series A?
Eric Ball: We are early stage. So in our case, you don’t have to have revenue. It’s great if you do, but you don’t have to, we are often the first institutional investor and a startup, which means that maybe friends and family and Angel investors have already come in. But corporates may or may not have come in larger venture firms may not have come in. So we are frequently the first institutional investor. You need to have more than an idea, you need to have credible traction toward revenue, but you do not you do not need to already have revenue.
Alan Olsen: Okay, so number two, there’s a commitment made to give me money. Okay, are you going to draw accountability? And in, you know, gently siphon that out as we we reach benchmarks, or do I get the whole thing at once, to put the frame rate?
Eric Ball: Well, you get an initial investment, but we like most venture firms will make a relatively modest initial investment. And we typically don’t start investing in a company, once it’s mature. We only invest in companies if we’re in fairly early. But we do continue investing in companies that we have already invested in if they meet their milestones. So our initial check may be small, it could be, you know, $500,000, or some other relatively modest amount. But then if the company gets traction meets its milestones, the team sets a stretch goals, and are accountable for those goals, and meets meets those goals, then we might write a larger check the second time around. And we will also then go and find people who can write a larger step check still than we can. Because much of what our role is, is to serve as the bridge between that early seed capital and larger investment and a large part of what sets us apart is our emphasis on collaborating with corporate venture arms. And we invest in companies that we think will become interesting to those corporates. Even though we may invest while they are still too small for the corporates to actually be part of the initial, the initial investment.
Alan Olsen: So Eric, what is the climate like in Silicon Valley? Right now, we’ve seen in Wall Street recent pullback and some of the growth oriented stocks, the specs of a lot of them have fallen on their sword, but can you give us an overall feeling and sentiment for where innovation is at and what the hot sectors are right now?
Eric Ball: Innovation is running at a breakneck pace, and nothing has caused that to pause even during COVID in 2021, the amount of venture dollars allocated, raised and allocated, increased substantially, you know, nearly doubled. So 2019 set a record 2020 tied that record and 2021 shattered that record. So when people talk about month to month, acceleration or pullback, it is based on a baseline of more dollars going into venture than ever before, and that continues to be the dominant theme. Some sectors are seeing more growth, both in capital and evaluations than others. On fin tech finance technology, is seeing some very high valuations even on relatively modest revenues. Cybersecurity remains a very active space, where if you have an innovative product, you are rewarded with a high valuation, digital medicine is very active space, the intersection of Life Sciences with software and hardware, just as tremendous opportunity. And I think even the COVID crisis helped show what type of opportunity there is in that intersection of Life Sciences and hard technology. So those are just some of the sectors, we had Impact Venture Capital invest in young companies, but we look for companies that also have some kind of applied artificial intelligence tool within their within their toolkit. In the in the 1990s, there was a lot of investment in Internet tools and Internet technology. And in the 2000s, those internet tools were used to make every sector more productive. Every company manufacturing companies, food companies, all started using the internet as a productivity tool, we think that there is an equivalent thing happening now with artificial intelligence, where, for several years, people were pushing the frontiers of what machine learning and AI can do. And now it has become a productivity tool. And a lot of startups are taking those tools and applying them to help make multiple sectors more productive. And so we are not sector specific. But we look for the deployment of AI tools in finance, security, health, different sectors. And we think that that’s, that can be a winning strategy today, in the same way that internet productivity tools were winning strategy 20 years ago. And then what we also see in the in the venture space is, is a validation of the decision that we made five years ago, we said, we want to be the independent VC that collaborates well, with corporates. When we started in 2016, fewer than one in 10, venture backed deals, including the corporate investor. In 2021, over half of the venture backed deals included a corporate investor. So a large part of this infusion of capital and attention is coming from corporates who have realized that they need to go beyond simply acquiring young companies or doing internal r&d, but it’s very cost effective to become a venture investor themselves and get access to new technologies with a relatively modest check size. And so we are investing in young companies based in large part in our discussions and partnerships with corporates around what technologies they’re looking for. And we think that we get an informational advantage from doing that in a way that lets us look at young companies that either already have or might soon catch the attention of of some of the larger corporates that are playing a much bigger role in the venture ecosystem than they were even just a couple of years ago.
Alan Olsen: Very good. Well, I have been visiting here today with Eric Ball. Eric, I appreciate you giving us an update with Silicon Valley where things are at and also your recent fund. So Eric if a person has questions and they want to follow up with you how would they go and reach you?
Eric Ball: They can go to our website, impactvc.com and we have we have contact information email addresses there. And we are always happy to hear from people who like to learn more about what we’re doing.
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This transcript was generated by software and may not accurately reflect exactly what was said.
Alan Olsen, is the Host of the American Dreams Show and the Managing Partner of GROCO.com. GROCO is a premier family office and tax advisory firm located in the San Francisco Bay area serving clients all over the world.
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