In less than two years, venture capital firm Active Capital has raised over $21 million for 20 founder-led companies in the business-to-business (B2B) software as a service (SaaS) market. The San Antonio-based firm’s portfolio has two companies operating in stealth mode, five startups from San Antonio including FunnelAI and Flightpath Finance, and five based in Austin, including Pingboard. The remaining companies are located in mostly metropolitan areas across the U.S.
Pat Matthews is the founder of Active Capital, as well as an entrepreneur and an angel investor in more than 50 startup companies. He raised $21.5 million over the past 18 months so Active Capital could lead seed rounds for the founder-led B2B SaaS companies in which it invests. He and firm partners Pat Condon and Cat Dizon work closely with founders to mentor startups as they grow into sustainable businesses.
Matthews decided to focus on early-stage startups that are generating revenue but have not yet launched a Series A funding round, with investments ranging from $100,000 to $1 million. Active Capital is backed by dozens of entrepreneurs and executives from Rackspace and other B2B software and infrastructure companies.
As a successful entrepreneur himself, Matthews understands how to build SaaS companies. He founded Webmail.us in 1999 and “raised only $500,000 when it was expensive to build a SaaS company,” Matthews said. His company became Rackspace’s first major acquisition in 2007. Matthews stayed at Rackspace and worked as a senior vice president and general manager of cloud operations until he left in 2013.
“We sold Webmail.us for one hundred times what we raised,” Matthews said. “That was life-changing for my partners and me and for the ecosystem around us.”
Thee Active Capital founder told Startups San Antonio more SaaS companies are getting launched in Texas, and San Antonio and Austin, in particular, as SaaS in the enterprise continues to grow and evolve as a market. Matthews first invested in Flightpath Finance in 2017 for example, because he said they “filled the gap in the market for financial modeling tools and services, especially those that give founders a current status rather than a one-time snapshot.”
FunnelAI is another San Antonio SaaS startup Active Capital has funded because the founders created the first automated sales funnel company to use artificial intelligence.
“The biggest thing I feel is a new energy in San Antonio, especially in downtown where you can start to see a density in tech companies and the energy that comes from that,” Matthews said.
Matthews offered his thoughts on what the deliberately small, specialized venture firm looks for in startups, how founders should think about investment, and how to prepare when reaching out to venture capitalists.
Startups San Antonio: Is there a “hot market” or quality that catches your attention as you select B2B companies for funding?
Pat Matthews: We look for companies that are disrupting specific niches where there is an opportunity to build something meaningful. We try to keep everything under the B2B SaaS umbrella, but we’re flexible about the products they’re building.
Because we only invest in founder-led companies, we need to believe in the founder. We also only invest in the pre-seed or seed stage, when companies are raising anywhere from $500,000 to $1.5M. Finally, we want to be the lead investor so we can be the influential partner who can work closely with the founders to help them build their company.
Outside of our criteria, we look to see if they have they been capital-disciplined and have gotten good traction. Tech has gotten so affordable that the right technical founders building a product can get it to market for lower costs. We look for evidence of progress on little capital and founders ready to take on the next level of financing.
SSA: How would you like founders to think about investment in their startups?
PM: I like to work with founders who are thoughtful about their funding because it is easy to get caught up in big funding rounds. Unlike years ago, B2B SaaS companies today can get to market without raising tens of millions in venture capital.
Money does not solve problems, most of the time it can create problems. Founders need to think about creating value and the impact of dilution on their equity. Do they have the right market opportunity to raise such big dollars? Raising money should be relative to your company’s opportunity.
SSA: What should startups think about before contacting a venture capitalist? What kind of other questions should a founder ask?
PM: There are hundreds of VC firms across the country, so it makes sense that venture firms are specializing. Do your research on what the venture firm is looking for and how that maps with what you’re doing.
A founder could ask a VC, “What drives you?” That’s important for founders to understand since many don’t know how venture capital works. This question allows you to get to know the VC. Also ask, “Why are you doing this?” That answer will help founders decide if their objectives align.
The more educated you are, the better decisions you will make about how much money to raise for your company and when.