Mark Linao (AET Fund): We’re focused on investing in the future of entertainment – Gaming, Interactive content, and things like that in Media.

Mark Linao is Partner at AET Fund (Akatsuki Entertainment Technology Fund). He was a senior multi-disciplined engineer at aerospace and defense firm Raytheon. He has also worked at the Rubicon Project and Amazon. After that, he was an Associate at Technicolor Ventures eventually transitioning to Director of Corporate Development and Strategy at Technicolor.

How it’s all started? How did you decide to enter the venture investment business?

I’ve been working in мenture for almost 7 years now; I’ve started off as an associate in another firm. And before that, I worked at a startup. While working at the startup and meeting with a lot of venture investors, I started to think that it might be a good role. I became interested in investment as a career, because being an investor in an emerging company, be with entrepreneurs and partner entrepreneurs was always very appealing to me. That’s how my passion for venture capital has started – it was interesting to marry the two general interests I had which were investing and early-stage entrepreneurial companies. 

What was the most unusual startup you ever supported?

I think, working in media interactive content gaming is one of the most unusual and interesting things. We are investing in an E-sports, which is very interesting, and one of the companies I’m supporting right now creates software that trains users to be better at games. As gaming is becoming more professionalized and a real sport, you can make a career out of it. We invested in the company that literally helps you be better at video games. 

How many startup projects do you review per year?

It is very opportunistic. On average we’ve been investing in maybe 6 to 8 per year. This year it may differ because of the current situation with coronavirus.

How startup teams usually find you? Do you wait for inflow or scout for interesting ideas and perspective teams? 

They reach me in a number of ways. Some come through my personal network of entrepreneurs that I’ve built over the years. The other is cold outreach through e-mail, or Twitter, or other digital means, like our website. But typically it through personal networking and other venture investors that are looking for co-investors. 

How you select startups to support? What are your criteria? 

It’s a little bit of a mix of theme and team. The first filter really is that we’re really focused on investing in the future of entertainment, which is Gaming, Interactive content and things like that in Media. We are trying to work with companies that are building products in a space that aligns with our vision and mission to expand the market of this industry. We are looking for great founders, who may have some track record and done this in the past. Personally I like people who are very product-oriented; it is important that they know how to build and have a clean and compelling vision for a product and how the world would shape out, who has a grasp on current trends. And then the second thing we have to believe is the team, that it is strong, that they can do it, that the team members’ background, their past history, their personal interests and hobbies align very well with what they’re building. At the end of the day, the great entrepreneur is kind of a spider in the center of a web, he or she is guided by passion and the vision of what they’re building. We try to find an entrepreneur like that at a very early stage. 

What areas in the entertainment space do you prefer?

My interests are broad. I’m very interested in how to create platforms to contact creators, gamers, etc., so they can make more money and can make a living, transforming their passion into the profession. This is a kind of Shopify or Patreon for game creators and gamers. Shopify has enabled companies and individuals to start their online business by selling the things they create. Something similar is happening in gaming and in interactive content. We invest in a company that allows live streams, to make their video shoppable. And I personally really like such companies. 

At what stage you prefer to enter?

We do seed and pre-seed, meaning very close to the formation stage and the stage after that when they’ve already assembled the team, have a beta or alpha of the product they’re building. This is our stages. 

What is the geography of your interests?

I’m based in the US, but we are looking, opportunistically, in Europe. There is a lot of gaming activity happening there, obviously. We’re also looking in certain parts of Asia, being a Japanese firm. But, I’d say, for me it’s 90% or more in the US. 

What is your due diligence procedure and how long does it take you to cover the whole way from the first meeting with founders to contract and check signing?

It is variable. On average, it’s 2 to 3 weeks. With the current situation with COVID-19 it takes a bit longer because our due diligence process is really meeting with a founder, getting a sense of the other company and the team behind it. We do initial call and then we try to meet in person, but that’s difficult to do these days. We look at the market trying to figure out is this going to be a niche or a big untapped market. That requires to write a memo and arouses further questions for the team, which means a few more meetings. At the end we produce that memo about the team, the market, the product, the opportunities and risks, the positives and negatives – everything on one memo for us as a team to evaluate the investment together and vote for it. It’s really a relative game. We have to be passionate and interested personally in our projects, in companies while still looking at other companies at the same time. Generally at this stage, it is a process of getting to know the founder and understanding what they are building, and getting comfortable with the investment.

How big is a check you usually issue?

We are in the business of doing $250-500k checks. We’ve written higher in the past, but this is our sweet spot. 

How many Xs do you expect on exit for your investment? 

We’re looking for something that, at the very least, will exit at 10x. But in reality, only a few companies in any investor’s portfolio will drive the returns of the entire fund, which means that any company has an opportunity to return 30x to 50x. We want something like, at least, 10x to 20x, I would say.

What percentage of ownership of a company is fair to take for investment?

We are not as competitive as others, who want 15% to 20%. We’re more in the 5% to 15% range.

What qualities you are looking for in startup teams? 

We are looking for founders who have great product vision, serial entrepreneurs who just have to build something, it’s in their DNA. We love entrepreneurs who have a good track record of building and creating great things and try to figure out how to commercialize their ideas. We see a lot of people with great background and education, but honestly, that doesn’t matter – just the ability to execute. It is a relationship business, so we do want to work with entrepreneurs that, we think, we can get along with. There’s a lot of friction sometimes when the Investor/founder can’t get along, and we try to avoid it as much as possible.

Investors prefer to work with teams. But have you ever supported a one-person startup?

We have done it in the past. We don’t see a lot of that, because most entrepreneurs are already in the hiring process. As long as they can hire a team, it’s fine. 

Who you would prefer to work with, Steve Jobs or Steve Wozniak?

I’m very attracted to product-oriented thinkers, but as CEO you have to have the ability to market and sell your product. I know that his personality was very difficult to work with, still, I’d probably choose Steve Jobs.

What are your red flags?

We try to look deep at the background of a team. Especially in these days, when we can’t meet in person, reference checking is a big thing. It’s a red flag when we don’t see personal or emotional attachment to what they’re building if they aren’t passionate about it. Once we had a founder and we found out that this person has actually been recruiting for other jobs. That’s totally fair to do that from his side, but it was clear that he was raising this kind of money to go pay himself a pretty large salary for something highly risky and that he would have a majority of this money. It is a red flag if someone is doing it more for the money than   for the equity. Basically, we are looking for an answer to the simple question: is this person really interested in building a product or will walk away the next month saying that the product won’t work out – with our money in his or her pocket? 

Have you ever rejected a startup and then regret it? 

Yes. And it would be silly to say otherwise. No examples, but there were a lot of interesting proposals. 

Can you name industries you really like, yet will never invest into?

We don’t invest in FinTech, but it’s a sector I’m interested in. Let’s say: We would invest in things like Blockchain if it was some application to the gaming. But I’m pretty interested in what’s going on in the Cryptocurrencies, despite being skeptical at the beginning. Still we, as a fund, won’t invest in it directly.

Has your VC approach changed after the COVID-19 started?

Yes, it has. We’re backed by a real large gaming company, and now we try to be more focused on gaming opportunities. We are also trying to think what all this situation means and how the post coronavirus era will look like. We have not only rethought what we’re going to be investing in, but we’d double down our investments in the gaming sector. It always was a hard sector, but the last year has accelerated things. The process became trickier, we had to re-evaluate how to invest in this environment, when we can’t meet with entrepreneurs in person. We’ve done 1 investment already, nevertheless. 

Generally speaking, Is COVID a threat or opportunity?

Total opportunity, in my opinion. In many prospects gaming and digital future, digital transformation in IT has been accelerated. This digital transformation has already impacted big companies, like Microsoft, their earnings are growing for a few years. It is the same with gaming. 

Can you name the three most breakthrough startups in history in the entertainment industry? 

The most interesting one currently is Fall Guys. Fortnite is another one. I might be biased, but I think World of Warcraft was a breakthrough game – they made the genre of MMORPG more appealable to the mass audience.

Is venture business chess, checkers, backgammon, go, card games?

It’s a mix of card games and chess: it requires both intellectual efforts and luck. 

Are you satisfied with what you do, or do you think to apply your knowledge and skills to something else in the future?

Great question. I think about that all the time and I don’t know. I love what I’m doing right now, this is what I want to do for the rest of my life. But there are definitely times when you meet a company and you are totally overwhelmed and would like to go and work for that company. It is, actually, one of my filters – do I want to leave venture capital to go work with this company? I think that serves as a strong filter for evaluating startups. Still, this is the best job in the world.

What is your second favorite city is it in the United States and Japan?

Probably, Seattle. In Japan I love Tokyo – it has the best food!

Your three advices to founders

One: You are going to get a lot of “No” in this business – keep pushing. Two: Develop relationships early, because you can harvest them later. That also means to be very helpful and mindful for other entrepreneurs and investors in the surrounding ecosystem. Being a nice and good person goes a really really long way. Three: Find a mentor or someone that you can bounce ideas off. To be honest, these rules, probably, are made for anyone.