Over his career, Derek has been involved in over $3.5B of private and public company acquisitions. Prior to Acorn Pacific, he was the co-founder of a machine learning company in the news aggregation space and also served as the COO of a leading-edge government software company. He is a CFA charterholder and also actively mentors companies in the Dartmouth and Harvard alumni networks.
Can you tell me about your background?
I was an executive at a couple of software companies ranging from a 300-400 person enterprise software company, down to a startup level software company. Prior to that I was mostly in corporate finance.
Out of all your experience, what do you think best prepared you for your role in Venture Capital?
I served a lot of senior level operations, seeing--for a lack of better words--a lot of blocking and tackling. Dealing with a lot of headaches on the operational level really prepares you to understand what it takes to scale a company. I also had some experience operating a very small startup, working with my own team, bringing everything together, and raising capital.
Can you tell me more about Acorn? What is the approximate size of your fund? How much do you normally invest?
Acorn is a network of funds. Acorn Pacific Ventures is the fund with myself and three other partners.
Acorn was founded about 18-19 years ago as one of the first Chinese Americans funds here in the Valley, funded by a number of very successful Chinese American entrepreneurs in industry. They banded together with the vision to give back to the community, investing in founders and supporting that ecosystem.
Over time that morphed into a series of funds. Acorn Pacific is the forefront here in the valley. There are a couple funds in Taiwan and one in Shanghai, and a partner fund in Singapore. Between that ecosystem, we invest in founders and in their vision. We also look for companies that over time have an international component and can leverage our cross border experience. Things like optimizing supply chains and technology transfer.
How does your fund differ from other funds?
There are two main factors. Whereas a lot of funds have good operational people, at Acorn we bring together all of our operational teams. From the very first founders, it is a requirement that we bring in people who have seen it from a variety of standpoints. Everything from robotics to supply chain optimization to software.
We look for people who've been through it and have got battle scars. People who understand how it works and are very sympathetic to founders, understanding what it's like to raise capital and scale a company. Understand what it’s like to go through the good times and the bad times.
Can you tell me about how you make decisions in investments?
We try not to be overly formal. We don't run traditional investment communities. Rather, we want people to meet people. So, the operating partners and GPs at Acorn want to work with folks. We want you to meet the folks who are going to be helpful and who are going to be working day to day with you.
As those conversations go over time and people become more comfortable, we run through our diligence. That is our process. We of course make unanimous decisions about the partnership. Once we are invested we get behind the company, working through the good times and bad.
How do you deal with cold calls and e-mails? Do you have any advice for entrepreneurs trying to reach out to the VCs?
It’s very very hard. We don't put a lot of weight on them. We're not trying to exclude cold emails and cold calls, but it's very difficult to get our attention. It’s not a deal that's introduced by someone in our broad network, which can be very broad. We're not going to give it a lot of weight unfortunately. By chance you may get our attention and may get a response but it's pretty rare.
What's the number one red flag you see that makes you pass on investment?
There's a lot of flags that we look for. A team dynamic is really important to us. First and foremost we invest in people. If we see that the team of founders or co-founders are not gelling or there’s some dynamic that’s missing there or if the team is not cohesive, that’s big flag for us. If we feel the technology is something we don't feel that there's much defensibility in, that’s another piece that could also raise a lot of questions. I don't think there's ever just one flag so to speak.
Can you tell me more about your investment in MetaData with Gil?
We met Gil probably a couple of years ago, and at that point the company was still very young. First and foremost I liked Gil. He had very good passion when he spoke. The market he is in is a very crowded space. It’s one that I traditionally did not spend a lot of time in, but there was something that was interesting about Gil.
After the first meeting, we continued to keep in touch. He did what he said he would do in terms of delivering, in terms of top line, in terms of product, and customer traction. Transparency was really important to us and and Gil was super transparent. When we talked, we could tell he had a lot of candor and things clicked. We could also tell he cared very much about making the best out of his company and also being successful for his investors. The fit was there in terms of the people.
How do you identify passion in entrepreneurs?
It's hard to boil it down to a few characteristics. The advice I give to all founders is to be true to yourself. If you’re not true to yourself, we can see through that. If it’s not something you are passionate about it’s, for a lack of a better word, fake. Obviously.
In Gil’s case, he was in an industry he spent a lot of time in. That's a good sign for us. He came from a frustration with this space and he saw an opportunity to make things better. Gil’s case is just one. We can tell even though he's been at a few different companies, he was very passionate about making sure he would succeed. He was hungry.
What do you find difficult about seed stage investing?
Startups are hard. Anyone who has done it knows that. It's easy to, after the fact, describe how everything went right, but we all know it's so non-linear. There's so many things that can go wrong. Everything from product market fit to technology to the team. It’s just pure luck.
For us there’s never just one thing. There’s so many reasons that a company can fail, even if a company has all the right people and execution. There's no perfect investment. For us it's very much an art and it’s really going with your gut.
Would you be more likely to fund a very experienced team with a mediocre idea or a novice team with an amazing idea?
Every situation we come across is different. It’s really hard to boil it down to such simple terms. If I had to give an answer, I would say that The Valley is full of ideas. There’s not a lack of ideas, but it’s more about the ability to execute. Operational experience counts for a lot.
Is there any one piece of advice you want to give to founders that doesn’t get shared enough?
Be true to yourself and be humble. I think humility is a really important skill that we really value at Acorn. Rejection is hard and it requires endurance and perseverance. It’s not an easy thing to do. We've done it and understand it. It’s hard to look around you see all these other startups that are getting so much money and valuations, but they’re the exceptions. If you’re having trouble raising money, just keep at it, believe in yourself, believe in your team.
About the Alchemist Accelerator
Alchemist is a venture-backed initiative focused on accelerating the development of seed-stage ventures that monetize from enterprises (not consumers). The accelerator’s primary screening criteria is on teams, with primacy placed on having distinctive technical co-founders. We give companies around $36K, and run them through a structured 6-month program heavily focused on sales, customer development, and fundraising. Our backers include many of the top corporate and VC funds in the Valley — including Khosla Ventures, DFJ, Cisco, and Salesforce, among others. CB Insights has rated Alchemist the top program based on median funding rates of its grads (YC was #2), and Alchemist is perennially in the top of various Accelerator rankings. The accelerator seeds around 75 enterprise-monetizing ventures / year. Learn more about applying today.