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The LA-based Mucker Capital team thinks local entrepreneurs often got the short end of the financing stick. With his co-founder Erik Rannala, Will Hsu started an accelerator program called MuckerLab back in 2011 to help with the biggest issues facing LA entrepreneurs as they saw it: a lack of mentorship around operational experience and access to Bay Area capital. Out of MuckerLab came Mucker Capital, which just launched last month.
"We always believed that LA entrepreneurs get a little shortchanged when compared to Bay area entrepreneurs,” said Hsu.
Mucker Capital is bridging the funding gap, providing pre-seed funding to local companies as well as partnering with non-local venture firms to help them find the best local talent.
A maturing market
Hsu said he now thinks the LA market has matured, becoming a “vibrant ecosystem,” with increasing number of quality deals. Even still, venture funds in LA focus on Series A and above. That left a gap in the market, which Hsu and his co-founder are working to fill. The company sees it as an opportune time since the market is maturing. Hsu thinks the infrastructure is key, making LA a “more hospitable environment" for new ventures.
The local talent pool is helped by having some great universities in town and by the sheer size: LA is almost twice as big as the Bay Area. Hsu, like others, said he sees an influx in talent coming to LA to pursue technology-related businesses. And according to him, unlike their tech-counterparts up north that tend to follow trends, LA entrepreneurs follow their interests, background and passions in starting a company.
Connecting LA to the Bay
The firm partners with non-local venture capitalists. For both the entrepreneurs who don’t have contacts up north and the non-local venture firms, Mucker Capital acts as a bridge. Their on-the-ground knowledge of the market and LA entrepreneurs means they can keep a close eye and working relationship with funded companies, providing a venture firm a few hundred miles away the confidence to invest in LA. Without that link, Hsu thinks VCs are more likely to invest only in firms that have a good trajectory and are already scaling their business.
Mucker Capital is an extension of Rannala and Hsu’s background; the duo invests in what they know (software, internet, code-related projects). That way, they can ensure they are value-added investors. As a baseline, they looks for authentic entrepreneurs who understand both the problem they want to solve and the solution they provide.
The firm has over 30 companies listed in their portfolio so far, such as BloomNation (a marketplace for local artisan florists).
Tips on Raising Funds
Hsu said he thinks many entrepreneurs go about starting a business and raising funds the wrong way. To him, the first step is not only figuring out the opportunity costs of leaving a potentially high-paying job (Hsu said the “moment you raise venture capital you are married to that capital for the next 10 years.”) but also focusing on “getting to product-market fit.” That comes before any talk of funding.
Not raising money is what Hsu recommends when the companies don’t need it or when there’s no reason for a VC to put in extra money. Instead, the emphasis should be on why a potential VC should invest. Mucker Capital works with entrepreneurs where “the problem they think exists can be solved by this product they think they can build,” said Hsu. Following these steps, fundraising should be easier.
The fund can’t talk about how much they have in capital. They are in the middle of a fundraising process, but said that traditional seed funds are around $20 to $25 million in size.
