Battery Ventures’ Chelsea Stoner on Growth Investing In the Time of SoftBank
This article originally ran in Term Sheet, Fortune’s newsletter about deals and dealmakers. Sign up here.
Earlier this month, French President Emmanuel Macron invited a contingent of 40 U.S.-based venture capitalists and limited partners to come talk tech.
Investors from Andreessen Horowitz, Greylock Partners, Khosla Ventures and Battery Ventures attended the two-day roadshow in Paris that took place at Station F, the Vision Institute, iBionext and the Elysée Palace.
Chelsea Stoner, a general partner at Battery Ventures, was part of the group that went on the tour.
“They organized this trip to show how forward-thinking the Macron administration is,” she told Term Sheet. “It’s clear they want to turn France into more of an innovation capital. It’s far easier to do business there than some of us thought.”
Stoner is a growth investor who has risen through the ranks at Battery to become the first (and only) female partner in the firm’s 35-year-history. She often pursues software-healthcare companies in markets that a lot of other investors overlook. Her portfolio includes Avalara, which raised $ 180 million in an IPO earlier this year, as well as Brightree, Marketo, ClearCare, and Curve Dental.
In a wide-ranging conversation, I caught up with Stoner to get her impression of the French tech ecosystem as well as to learn more about some of her biggest deals and gain insight into her investment strategy.
TERM SHEET: What was the general feeling among the VCs on the tour about investing more capital in European tech companies?
STONER: There have been good companies to come out of France, Germany, and the U.K, but being able to cross a border and become a large compelling company across Europe is difficult to do. A lot of companies tend to be pretty conservative — they get to the $ 50 million level and sell rather than wait for the really big outcome. Valley investors, on the other hand, are willing to take a lot of risk. Are we going to take the time to go over there if we think the founders are willing to sell early? I don’t know — that’s not really that interesting to us. So that’s still a big question. The sense in France though is that they recognize this, so they talked to us a lot about the changing attitudes around risk-taking.
You went on the trip during the “yellow vest protests” in Paris. What are some of the risks associated with deploying capital in the region?
STONER: It’s hard to say. Macron and his team have made it much more compelling to do business in France — both for entrepreneurs starting a business as well as for investors doing deals. The protests and unrest happening there obviously present a big cloud over this. I think Macron has this very strong message, and I think he’s doing everything he should be doing to make it right. Europe needs a leader in technology right now, and it would be a real shame if he doesn’t execute on his plans. But right now is a tough time to be in his role for sure.
You backed Brightree, which was acquired for $ 800 million. At the time, the CEO said that Battery helped boost revenues from $ 8 million to over $ 100 million. What are some things you did to transform the company into an attractive acquisition target?
STONER: First and foremost, our management teams operate the businesses, and we do everything we can to be helpful. We’re not giving them playbooks and telling them what to do, but we are very helpful when it comes to acquisitions. The case with Brightree was that they had never done an acquisition before. Once you have the market map of all the companies in and around that space, you ask yourself: “Are there certain technologies to go acquire and sell to your customers?”
They were seeing pretty dramatic organic growth just from selling their core cloud product to businesses that really needed a cloud product. That was tremendous growth. Then we ended up doing 6 acquisitions onto the platform, and we took something that they were selling for $ 5,000 a year up to, at the end, $ 50,000 a year. You get a customer who’s paying so much more because you’ve unlocked all the value you can offer them through different packages.
And then it really comes down to the execution of the acquisition. We do deals for a living, so we should be able to be on the ground helping them execute acquisitions. In Brightree’s example, I was helping them develop relationships with the acquisition targets, create models, and negotiate the docs.
What’s going on in the cloud space right now that you think Term Sheet readers should know about?
STONER: The biggest story continues to be the shift to the cloud from the legacy space. We think it’s still in the second or third inning, and there’s still so much older software out there and new cloud companies coming up all the time. What gets me so excited is how that applies to various verticals. People can now develop software much more cheaply and be able to go after smaller markets, so it makes sense now.
Look at the dentist space, for example. We just invested in Curve Dental, which is based up in Calgary. Something like 5% of dentists use cloud software today — that’s pretty incredible. So there are still these pockets of different markets out there that could really benefit from the adoption of cloud.
A lot of your deals are in the healthcare-software sector. There’s been chatter about using blockchain technology to securely store medical health records, for example. Are there any further applications you see with the technology as it pertains to healthcare?
STONER: We as a firm are definitely looking at blockchain. I think it’s a super interesting technology with a lot of different applications. I have not seen anything as it applies to healthcare yet. It certainly would be a great technology to use for that purpose, but I will say, healthcare has traditionally sort of lagged in terms of adopting new technology, and I think blockchain is still very, very new. Just thinking about the adoption of something like that in healthcare is still a long way away.
So what are the more imminent healthcare trends on your radar at the moment?
STONER: The whole trend of the escalating cost of taking care of folks in the hospital is one to watch. We’re starting to see more and more insurance companies really trying to lower those costs and getting those people from the hospital back in the home. We invested in a company called ClearCare, which sells software to home care agencies. I think we’ll see a lot more of that shift from care outside of the home to care at home, and we’re all over that game.
Companies have access to a lot more capital these days. As a growth investor, how do you see the venture capital landscape evolving as players like SoftBank enter the market?
STONER: It’s a very interesting strategy. I tend to like that SoftBank is going after the category leaders, just like we are. They know who those are by the time that they’re investing and putting a ton of money behind them. They’re making very big bets obviously in each of the leaders in the respective markets, and it’s a very good strategy. Does it make our jobs tougher as growth investors? Yeah. It just means we need to be there before SoftBank is. We need to find the companies earlier.
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