One thing stands out in a quick search through Boston-based Launchpad Venture Group’s website: the sheer number of portfolio companies acquired by names from Google to Philips and eBay. It’s a remarkable level of success for any investment group, and is a testament to Launchpad’s 22 years in the industry.
To learn more, Startup Boston caught up with Launchpad’s Managing Director Raza Shaikh, who discussed the firm’s investment strategy, as well as his views on AI and the broader landscape amid high interest rates.
SB: I wanted to start by talking about Launchpad, and discuss how you build portfolios without acting as a traditional fund.
RS: Launchpad is an angel group, which is sometimes called an angel network or angel syndicate. We are a band of 175-plus members now that started more than 22 years ago. We embarked on this thesis that you can combine the wallets, brains and networks of individual investors with the efficient decision making of a venture capital fund to professionalize this asset class at the angel stage.
Launchpad evaluates, invests in, and supports great companies through its members. We find companies, they present to the group, and we have an efficient process to go through the pitches and conduct diligence; we’re really good at leading rounds at the seed and sometimes pre-seed stage. So this terrific process and combination of the right people allows us to build a really great portfolio.
SB: So Launchpad brings angels together so they can invest together, and you take an equity stake in the companies. Is that right?
RS: We invest collectively, although everybody writes their individual checks. These are typically priced equity rounds, meaning founders are giving up a chunk of their company in exchange for capital. It’s almost always a preferred equity round that we lead.
SB: When I looked at your website, I was struck by how many companies in your portfolio had been acquired by others. How have you achieved that level of success?
RS: There's no secret there. At the highest level, it's not timing the market; it's time in the market. Launchpad investors have been doing this for 22 years, and we've invested in upwards of 150 companies. These are companies that are either going to build and grow and then get acquired or, unfortunately, not succeed and close down. But acquisitions and M&A are the most common way for these companies to exit. It might take five, seven, even ten years.
And one of the most important lessons in exits is that they don't happen by accident. Exits are engineered. You have to think about it from the get-go. That doesn’t mean you're going to sell the minute you get an opportunity. We encourage companies to keep in touch with potential acquirers, and to build relationships and partnerships. We're very focused on not just investing, but supporting and driving returns.
SB: And are you focused mainly on tech companies?
RS: We focus on a couple of levels. The first level is that we’re a multi-sector group, or a generalist group. About one-third of our investments tend to be on the spectrum of life science, healthcare, medical devices and digital health, and about a third is in software as a service, enterprise software, and tech-enabled business services. And then the last third is everything else, but mostly things that are B2B, including clean tech, climate tech, HR tech, legal tech and so on.
The next level is geography, where we target companies in the Boston and New England area – and sometimes New York. We want companies within driving distance, because we want to join board meetings and meet with founders. After all, almost two-thirds of the members have started companies, so they know about the industries and sectors.
SB: Are there any technologies that you're particularly excited about for 2024?
RS: That's a really good question. As investors, we usually don't go after so-called fads. As for the flavor of the day, AI, we do realize that there is going to be opportunity. But we're still going to boil it down to the problem you’re solving for the customer. Are you meeting their needs? Does somebody need this and are they willing to pay money for it? And can you build this into a successful business? So yes, AI is hot, and there are sub sectors and segments in particular areas that are a little more prominent, and we do look at those, of course. But we're not going to be investing only because it's hot.
SB: And I wanted to zoom out a little bit and talk about the investment landscape. Since you focus on pre-seed and seed rounds, how do you see those shaping up? I know it's been a turbulent couple of years, with a surge in interest rates.
RS: One thing about angels is that they're investing their own money; they are not organized as a fund and they don't have LPs (Limited Partners). Also, they don't have fund cycles where they have to deploy in say three years and wrap up the fund in ten. The good news is that angels and early-stage investors invest in all times. And most angels know that great companies are usually built or started in tougher times, and are more likely to succeed because they must be building something that somebody really needs. They have slightly easier access to talent in harder times.
So while we did see slightly more activity in our group in the heyday years of 2020 and 2021, we've been pretty consistent ever since. We're still collectively deploying upwards of 8 to 10 million a year into Boston and New England area companies as a group.
SB: My last question is about the future. As you look out at the rest of 2024 as well as 2025, are there any changes on the horizon, or shift in strategy?
RS: We constantly tweak our process and improve the experience for founders based on the market evolution. But in the bigger picture, we’re going to stay consistent in our approach of steady and deliberate investing. We love this asset class. We know that startups and small businesses are the drivers of job growth for our economy, and angel investors and early investors provide fuel for that.
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About the author: Randall Woods is a former editor at Bloomberg News and currently is a Senior Vice President at SBS Comms, a communications agency for technology companies and startups.
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