Trends Watch: October 4, 2018

EisnerAmper’s Trends Watch is a weekly entry to our Alternative Investments Intelligence blog, featuring the views and insights of executives from alternative investment firms. If you’re interested in being featured, please contact Elana Margulies-Snyderman.

This week, Elana talks with Sean Drake, Founder & Managing Partner, Stony Lonesome Group.

What is your outlook for venture capital?

We are seeing the pendulum begin to swing back away from the $3 billion plus mega venture capital funds and back to the roots of venture in the 1980s and 1990s when venture capital would take early stage risk and work closely with their management teams to build their businesses. We like to refer to this as “Mentor Capital” as much as “Venture Capital.” In fact, we question if a $3 billion fund is truly doing venture.

In the later stages, we are seeing a lot of competition for the best deals in the growth stages, to the point that the competition is driving the price up to where, by the time you actually win the deal, you almost wish you had not because the valuation has been bid up. We believe the best venture capital managers like to get in early, take a little more risk, and then benefit from the bidding in the later stages to drive up our valuation.

Why do you believe investing in entrepreneurs who are military veterans presents attractive investment opportunities for venture capital?

From inception, it has always been a core investment thesis of ours to invest in entrepreneurs who are military veterans. We do this because we believe that this provides an edge in our investments. In a recent TED talk, they discussed a study that looked at the primary factors that determined success, and it turned out that the number one factor was grit; which can be synonymous with tenacity, determination, and strength of character. Being an entrepreneur is a tough business, and not giving up and reaching an exit is a big part of what can determine ultimate success for the investors.

What keeps you up at night?

With our focus on national security, what keeps us up at night is wondering if the United States has peaked as an economy and as a world power. Is it possible that we are on the beginning of that decline and it’s just too early to actually notice? Well, do you think the Romans were aware when they were on the backside of their 300-year reign of power? What happened after the Golden Age of Rome? That’s right, the Dark Ages…. With that said, we are also big believers in the ingenuity and the grit of the American people and we are supporting that view by investing in entrepreneurs that will have an impact on preserving our position and the balance of power. While investing in apps, food delivery, and social media is nice; Stony Lonesome Group is challenging investors to back areas like cybersecurity, AI, computing power, and IOT as a way to help keep America great. It is up to every American to preserve this for themselves and for future generations. The bottom line is that we as Americans cannot afford to get complacent and expect “the other guy to do it”… just ask the Romans.