We spoke with Matthew Pierce about Originate’s investment strategy, deal structure and the exciting developments in the Los Angeles technology scene.
Matthew Pierce is the Vice President of Product Innovation at Originate in Los Angeles. Originate is a value-added venture firm which provides technical, strategic, and capital resources to a broad variety of companies, from startups to the Fortune 500. Matthew formerly worked for Warner Bros. in digital distribution, and prior to that was a consultant at the Boston Consulting Group. He has an MBA from the UCLA Anderson School of Business and a BA from Stanford University.
Tell us about the deal process at Originate.
There isn’t really one kind of deal process at Originate. We’re flexible in that we can look at a wide variety of deals, whether companies are in their infancy, in the Fortune 500, or developed internally. In the case of the latter, we have a team of 70+ engineers, so if any of them develops an idea for a company, our rich entrepreneurs-in-residence program helps them foster and grow their businesses.
On top of that, Originate has partnered with Fortune 500 firms to develop their software. Having that kind of scope and understanding of what the giants of industry want, gives us perspective and allows us to look at every deal on its own merit.
For entrepreneurs, we can work with them anywhere along the chain. We consider ourselves “Value Added Venture”, and we play in different stages of the startup lifecycle. But I’d say our sweet spot is between the alpha stage and the A round. This is where we can add a tremendous amount of value with the quality of our engineers. It’s a nice spot in the LA venture ecosystem too as we have a lot of incubators and accelerators in the area, so when startups graduate from their classes, we can help their companies scale and get from pre-MVP/MVP to a robust, scalable commercial product.
What sets Originate apart from the other accelerators?
Our real strength is the technical resources we can deploy. We have engineers in Los Angeles, San Francisco, New York, China and we’re building a team in Sweden. The quality of the engineering work being done at Originate is very high. Our feeling is that one of the difficulties startups face is sourcing quality engineering talent. So on top of capital, we offer developers, designers, and strategists who have worked together and understand process. We have a broad variety of engineers which allows our companies to have access to whatever technology stacks, languages, and expertise they need, whether it be Ruby, Android, iOS, back-end systems integration, etc.
Do those engineers become co-founders in the startups they work on?
Not directly. We offer them an incentive structure that we call “innovation equity”. So the profits and equity stakes from our projects go into a pool, and that pool is distributed within Originate with a significant portion going to the engineers working on that project. This plan means that when Originate does well, everyone does well. This structure aligns the whole team and encourages the best engineers to come and work for us.
How do you evaluate which startups to invest in?
There is no magic formula, but there are certain things that we look for that every VC looks for. You want there to be a great team working on a clear pain point with the ability to monetize. Ultimately you’re investing in people. This is nothing revolutionary.
Are the deals always structured on an equity basis?
Not always. Sometimes we do all-cash deals or cash+equity deals where we take a certain amount of money up front in exchange for engineering on specific projects. Deals like this limit Originate’s equity position, but they allow us to come in and add value right away, helping to launch products or develop new pieces of software. It allows us to hedge our risk, and it allows partner companies to get great talent while giving up less equity.
Where do you see Los Angeles and funding heading over the next 2-5 years?
I really like what’s happening in Los Angeles right now. I came up in the Bay Area in the late 90s, and that was a very exciting place to be. And right now, Los Angeles is a very exciting place to be. I like how much talent there is in Southern California. We have world class universities here and world class companies that are being built here. I think we’re all figuring out how to make that ecosystem work in a way that is very different than they’re doing in San Francisco, New York and Boston. I think one of the key differences in LA is that the sources of funding are different here. The accelerator, incubator, angel, and seed-stage investors are a bigger part of what we do in Los Angeles. Whether that will continue or whether there will be a smaller number of bigger players remains to be seen. Those sorts of cycles are pretty standard in any industry where you have a huge explosion in X and then you end up with a smaller number of X. What we do have though is a tremendous amount of money out there with a desire for outsized returns. People want to put their money into something that’ll be the next big thing. Our hope is that Originate can play a role in that ecosystem. We’re excited about our relationships with the universities, industry, VCs, Tech Coast Angels, and the incubators/accelerators. We feel that our value is separate from that chain and that it adds to the whole community.