Hearing a potential investor say “Your idea is nuts,” could mean bad news for an entrepreneur. But if that phrase is coming from venture capitalist Stephen Marcus, MBA ’08, there’s a good chance it’s just the beginning.
Riot Ventures, with offices in Boston and Los Angeles, focuses on early-stage companies before there is a clear market. Marcus looks for companies that will eventually turn out a useful product and lead to big returns.
“If it’s a cure for a brain disorder, the million-dollar drug you turned out is a billion-dollar drug,” he said. “It’s pretty easy to figure out there’s a market there … everyone needs to get somewhere, so transportation is pretty obvious.”
“If you have an idea on a napkin, that’s when we should be talking,” he said. “I’m investing on the frontier. If there’s already a sufficient number of companies in it, it’s too late for me.”
The fund typically makes “small” investments with the hopes that it will get the company to a point where it can attract other, larger investors. “A lot of these companies I’m looking it, they don’t need a lot of capital to prove something out. They need a lot of capital to get it to scale,” he said.
Marcus targets companies that can reach meaningful milestones in their first year. He wants those companies to be led by entrepreneurs who have passion and domain expertise.
“On the supply side, on the tech side — any dimension of that business where you have some experience, rather than starting from zero,” he said. “Not that you can’t start from zero, but it’s just as an investor, I look at that as ‘You’re going to have to learn, and on somebody’s back — mine.’ ... I’ll pay you to learn some of it, but I’d rather you make mistakes on somebody else’s payroll.”
Marcus also prefers to be a hands-off investor. “Any company you have to work for, that is a bad investment,” he said. “Ironically, I’m hoping to invest in somebody who doesn’t need me. I resist the urge constantly to try to get in and do stuff for companies.”
That doesn’t mean he won’t get his hands a little bit dirty if he has skills that can be of use to a company he’s investing in, though. Marcus said the hyperloop and synthetic biology companies that he invests in each have significant engineering challenges, and while he’s not a neuroscientist or biologist, he has been able to lend his hardware expertise to that side of those businesses.
Here are a few companies in Riot Ventures’ portfolio:
Arrivo is designing high-speed light rail to ferry vehicles around cities and solve transit issues.
System1 uses phenotypic screening to discover novel drugs for neurological and psychiatric disorders.
Simbe Robotics is developing Tally, an autonomous system for auditing store shelves for out-of-stock items, low stock items, misplaced items, and pricing errors.
Sentenai is a platform for streamlining the processing of sensor data.