Note: This article is the ninth in a series of interviews highlighting the work of interesting fund investors.
Matt Johnson is the founder and Managing Partner of Johnson Venture Partners, a micro venture capital fund investing in seed and early-stage startups. Matt has invested in over 40 venture-backed companies throughout 15 years of early-stage investing experience. Matt is an active member of many regional and national venture investor networks and serves on the selection committee for Venture Atlanta. He is a frequent guest lecturer and panelist on the topics of startup investing, innovation, and entrepreneurship, and has been a mentor and advisor to numerous startups. Prior to JVP, Matt was an investment consultant with TIAA and a development officer at a major research university. Matt received a BA in Economics and an MBA in Entrepreneurship from Clemson University.
Matt, thank you for participating. When was the JVP fund established, and is this the first fund you have managed?
JVP launched as a micro VC fund in the spring of 2015. Prior to that, we operated as an angel group made up of several of my closest friends and family members. We invested in about a dozen startups in the early years, and I learned the ropes by coordinating our deals and managing SPVs. My dream had always been to manage a venture fund, and in 2015 that dream became a reality when we relaunched as JVP and I assumed responsibility for all of the day-to-day operations and investment activities. I began recruiting LPs from my extended network and started growing the fund’s assets and visibility. JVP is the first and only fund I’ve managed. In 2020, I brought on a full partner to help support me and our 30+ portfolio companies.
What is the thesis of The JVP Fund? Do you focus on any particular type of founder, company or industry? Are there particular types of startup companies you steer away from?
JVP is industry-agnostic, so we consider investments in any industry or vertical as long as there is technology underlying the product or service. Our most successful investments have been in the areas of artificial intelligence, fintech, data, and digital media. We emphasize scalable software/SaaS and internet companies and tend to steer away from capital intensive product-based companies or research-heavy life science projects. We are primarily B2B investors, but we aren’t afraid to invest in B2C if the market opportunity is attractive and the founder has deep domain expertise. When looking at founders, we focus on the core traits of focus, determination, resourcefulness, customer-centricity, and a healthy obsession with leveraging technology to solve problems for a well-defined customer set.
Tell me a little bit about your fund size, stages you focus on, and your typical check sizes when investing in early stage companies?
JVP is a micro VC fund investing primarily in seed (pre-A) startups located in the Southeast U.S. We invest between $50,000 and $500,000 per company, and we occasionally lead or co-lead rounds. JVP is a disciplined and price-sensitive investor in that we only invest in companies that are valued or capped at less than $10M. This optimizes our returns and prevents overpaying for equity. We invest in a wide variety of industries including software/SaaS, AI, fintech, healthcare, advanced manufacturing, consumer products, and digital media. We will invest in Series A funding rounds of existing portfolio companies as a follow-on to our initial seed investments.
What would you say are the main things that differentiate you from other similarly-sized VC funds?
Startups require time and patience to grow. JVP is structured as an evergreen fund with a long-term life cycle, allowing patient growth of portfolio companies without superficial time constraints. This aligns well with founders who are looking to grow their companies sustainably and create true long-term value. While the fund’s life cycle is open-ended, the size is capped at $10M with a 10-year investment period, at which we will stop making new investments and focus on harvesting portfolio gains.
Tell me a bit about yourself; what makes you good at what you do? Is there a particular experience or set of experiences in your personal history that you feel especially helped prepare you to be an investor?
I was hooked the second I learned there was a job where I could get paid to try to find the next Google or Facebook. Turns out being a VC is slightly more complicated than that, and breaking into venture capital back in the early 2000s was no easy feat. Having very little experience and no connections to VC firms, I self-educated and acquired enough knowledge to convince a few friends and family members to pool some capital and start doing angel deals. That's how I got my start. And while I’m still very much a work in progress as a fund manager, I do possess a few traits that have allowed me to do what I do for as long as I’ve done it. I’m generally curious as to how the world works. I want to see behind the curtain, and I rarely accept things at face value. I enjoy studying human behaviors and motivations. I like working with data and statistics. I’m in tune with business cycles and can identify market trends. I’m comfortable being uncomfortable and can perform well under pressure. I’m skeptical on the surface but an eternal optimist deep down. Most importantly, I’m extremely patient. I've also been on the other side of the table as a startup co-founder, which gives me valuable perspective as both an investor and an entrepreneur.
Tell me a little bit about your limited partners – for example, are they individuals, family offices, institutions, or a mix of both?
JVP was designed to provide a smart and affordable way for individual investors to include early-stage venture capital in their overall portfolio strategy. Our LP base consists of high-net-worth individuals and family trusts seeking portfolio diversification and the potential for superior returns that can be achieved by investing in startups. Many of them are busy executives or business owners who are interested in startup investing but lack the time or experience to do it on their own. JVP provides LPs with passive returns through professional investment management. We keep our LPs well-informed by providing monthly e-newsletters and quarterly fund reports.
How do you like to get deals done? Do you lead rounds or do you tend to follow other leads? What's your view on taking a board seat?
We invest in syndication with other VCs and angel investors. We will occasionally lead a pre-seed or convertible round, but we prefer to invest in seed equity rounds alongside a trusted lead investor from inside our network. We take board seats only when it makes sense from a value-add or expertise standpoint, and we’re careful not to overpromise and underdeliver in this respect. We always request board observer rights and often serve in an advisory role.
Would you consider your fund an especially “active” or “value-added” investor?
As a relatively small investor, we have to be comfortable being along for the ride in many of the deals we participate in. That said, we always try to be helpful by making customer introductions and introductions to other prospective investors. A big part of our value-add is connecting the dots between our portfolio companies, potential funding opportunities, strategic partnerships, and market expansion opportunities.
Are there some portfolio companies you are especially proud to be working with or simply would like to highlight?
Every investment is unique and interesting in its own way, but I’m particularly proud of the investments we’ve made in the practical application of artificial intelligence, such as Call Simulator, Parmonic, and TSO Life. I’m also thrilled with our seed investments in Atlanta-based fintech Viva Finance and pharmaceutical martech platform Impiricus, both of which have successfully raised follow-on rounds and are currently on impressive growth trajectories.
What are the most important ways you would say the investing world changed during your time as an early stage investor? Looking ahead in early stage investing, what are you most excited about? What keeps you up at night?
The venture asset class has evolved tremendously since I began my investing career. There is an increased appetite for deals and LP allocations from traditional venture investors, and non-traditional investors have entered the VC space in staggering numbers. Early-stage investing continues to broaden out to the mainstream through crowdfunding, access to startup investments for non-accredited investors, and a general increase in awareness of technology entrepreneurship and startup investing.
I also think investors of all types are asking themselves “what’s next?” beyond the public markets and real estate, and private equity and venture capital firms are benefiting from that. The education landscape has changed as well, with most colleges and universities now offering courses in entrepreneurship and venture finance. There has also been a rise in entrepreneurial support organizations such as incubators, accelerators, and increased government funding of startup and innovation initiatives. In short, there are more resources available to entrepreneurs and investors than ever before. Risk capital is more accessible and more organized than ever before.
While the availability of capital and the professionalization of early-stage investing are positive trends overall, there are a number of downsides to consider. One obvious downside is inflated valuations, which can negatively impact investor returns and handicap founders. In times of abundant funding, rounds can come together too quickly, leaving little time for proper due diligence. Another negative effect, in my opinion, is that venture investing is becoming more transactional, whereas historically it has been a relationship-driven industry. In spite of these challenges and a macro economy that appears to be trending toward recession, early-stage VC continues to show strength and resilience. I’ve managed JVP through several business cycles, and my approach remains the same: be disciplined, invest in people first, and remain patient.
If you could give entrepreneurs one piece of advice about working with you and your fund, what would it be?
There is no shortage of advice directed at entrepreneurs. I tell our portfolio company founders to focus, focus, focus. Noise and distractions are everywhere 24/7, so you must keep your head down and remain laser-focused on delivering a solid customer ROI/ROP without sacrificing your margins. Rely on data and facts over emotion or gut feel in your decision-making. In other words, we like to work with customer-centric, data-driven founders who are building real businesses and are eager to translate topline revenues into bottom line earnings. That is what creates liquidity optionality for founders and early investors.
What tips would you pass on to someone getting started/raising their first fund/making their first investment?
Become an LP and/or a Venture Partner at an established or emerging firm. Both are excellent, risk-reduced ways to learn the industry.
What early stage investing blogs/thought leaders/sources do you follow (besides the Seraf Compass of course!)?
Podcasts: Invest Like the Best; Capital Allocators; How I Built This.
Stay tuned for additional interviews as The Seraf Compass continues to profile interesting small funds, impact investors, women investors and family offices.