Funding / Investing / Resources / Venture capital

Lessons in VC trends as Radnor’s NewSpring Capital marks its 200th investment

Advice for today's market, based on two decades of investing experience? "Mitigate your burn," GP Marc Lederman said, and "do not invest ahead of demand."

Venture capital. (Photo by Flickr user, used via a Creative Commons license)
Over the life of a venture capital firm, investors see trends come and go, booms and busts in the market, and of course, a whole lot of pitch decks.

There’s a lot to be learned from two decades in the business, Marc Lederman, cofounder and general partner of dedicated growth equity funds for Radnor-based NewSpring Capital. Lederman and the other cofounders began work in 1999 and have seen the VC firm through many iterations, verticals, deals and exits. You probably remember NewSpring from some of the biggest tech biz acquisitions since 2000.

The firm recently made its 200th investment, leading a $50 million Series C for customer engagement platform Cordial. As part of the deal, NewSpring partner Brian Kim will join Cordial’s board of directors. NewSpring also recently launched its fifth funding vertical and has $3 billion in deals under management, operating with about 70 employees.

Advice for today’s market

After getting a start amid the dot-com era bust, Lederman told today’s VC market does feel different. Tech companies are at an inflection point, and tech layoffs have become more common in the last few months. Even more so, they’re being talked about: The term “startup layoffs” hit its highest point in Google search in May since 2005.

“We’re fortunate in having done this for 23 years, we’ve done it through two full-blown recessions, and we’ve had to help portfolio companies through it all,” Lederman said.

Marc Lederman. (Photo via LinkedIn)

Valuations might be down again right now, and we’re also dealing with high inflation. But we’re not in the same spot as 2008, he said, when companies’ revenue dried up overnight with the uncertainty of the recession: “The world was kind of on fire,” the GP said, as contracts were getting canceled and companies had to make difficult decisions, sometimes including talent layoffs.

But the goal of NewSpring is to partner with them and navigate through it. The advice? Don’t get too ahead of yourself.

“Mitigate your burn,” Lederman said, and “do not invest ahead of demand.”

Hindsight is 20-20 (years)

The region did well in the last two downturns compared to the West Coast, Lederman said, as Philly’s industries like healthcare tend to be a bit steadier, and its tech companies tend to be a bit more capital efficient. You don’t see a ton of companies like Gopuff, raising billions, around Philadelphia.

And a lot’s changed about the Philadelphia VC landscape, too. When NewSpring was new and building its brand, it was hard to find a company that wasn’t running a big process in Silicon Valley. Lederman said most of the the firm’s early investments went to companies in New York, DC and Philly, though it’s grown an extensive network since then.

While NewSpring partners still value in-person connection, technology like video conferencing has aided in the due-diligence process, letting its investors keep tabs on thousands of companies. Sometimes the team is tracking a company for a year or two before making an investment.

The three Ms

When it comes down to it, two decades in investing have allowed the firm to come up with three Ms: management, market and business models.

“We’re looking for good teams, a strong CEO, a good core team,” Lederman said. “We’re backing people — that’s still the most important part of this.” He added that NewSpring is looking for companies that want a good business partner, and are interested in what, aside from capital, the firm can offer.

“Market” means that business works in a large, adjustable markets that will grow at a rate higher than the GDP.

And finally, how strong is the business model? Is it capital efficient? Will the company scale and grow without burning? And does it have something that differentiates it from others? Lederman said NewSpring will always look for businesses with strong recurring revenue models and “some stickiness,” not a product that makes them start from scratch every quarter or year with revenue.

Companies: NewSpring Capital

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