An edited conversation follows.
Crain’s: How do you identify the kind of people you want to back?
Cerasani: It’s big ideas that I’m looking for. I encounter engineers who leave their old engineering firm with the desire to do something similar on their own. That’s OK for them, but venture capital like mine is seeking ambitious entrepreneurs with big ideas that will disrupt entire industries. I’m looking for the unicorn who will earn me back 10 times or more on my investment.
Once past the ideas, it can be a challenge identifying future business leaders. You look for confidence and acumen, and sometimes it comes down to how they carry themselves. I can use the same lessons I used in hiring the right people at my own company in sniffing out leaders.
I’m looking at backgrounds and track records and references, and also work ethic. I find too many younger people who don’t know what hard work is. Working hard is being willing to be in the office past 4:30 on a Friday afternoon and working on a Saturday. I don’t like a founder who is merely a project manager. If you are proposing a restaurant delivery service, I want to see you grinding away, making calls to restaurant customers yourself. You should be engaged in everything—later on, when you get to $40 million in sales, you can start outsourcing stuff like payroll and insurance.
Crain’s: You must encounter a lot of tech pitches.
Cerasani: I see too many young people who think they have found a better way to skin a cat with social media. They’re betting my money that they can compete against Facebook and Instagram and beat them. They aren’t realistic and I usually dismiss their pitches immediately.
Crain’s: At the early stage, how do you value a company, and thus your investment?
Cerasani: Many owners have ridiculous notions of what their businesses are worth. As I invest, I very often feel that I can bring more to the table than just cash. I want to be treated as an adviser, and if so, then I want an advisory share of the company, which often ranges from one-fourth of 1% to 1.5% in advisory shares. I am generally available to help them and am likely to know the right people who can assist them further.
Crain’s: What kind of businesses are you currently investing in?
Cerasani: I’ve been investing in things like cannabis and sports gambling but looking for a niche. There is a firm called The Gaming Society in California that focuses on wagering on women’s sports like basketball and soccer. Kevin Garnett, the former pro basketball player, is a co-founder. That’s a unique niche in wagering, and it reminds me of the approach I took years ago to my own insurance business, which focused on selling to small private colleges that bigger companies often overlooked.
Another niche I like is occupied by a Chicago firm I’m invested in, called Quicklly.com. They were founded by four Indian owners and focus purely on deliveries from Indian and Asian restaurants.
Crain’s: What percentage of your investments will become hits?
Cerasani: The rule of thumb I live by is that for every 10 investments I make, four of the companies will go out of business, two will break even, two will return two or three times my investment, and the last two will break out and return anywhere from 10 times to 100 times my original money.
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