Esper Angel Venture Capital Investment Memo

Tl;dr: Root Ventures invested in the angel round of Esper in February 2018. They shared their investment memorandum on a Github repo. Read to understand how a venture capital investor thinks about investing in a company and how they communicate it to their partners and potentially their limited partners.

About the VC investment memo

Lee shared 4 investment memos in April 13 2021. Lee explains:

“A company we invested in is announcing both their Seed and Series A tomorrow, and I’m about to Open Source my investment memo. We are far from the first to do this, but I have to admit, every time I’ve seen it, I’ve thought: big deal. But I have to tell you I’m nervous af.

VCs kind of get by on the opacity of the process. Normally, if we make the right decision for the wrong reason, you’ll never know. If we make a bad decision that was obvious in hindsight, you’ll never see precisely what we missed.

But I think I’d like to publish as many of these as possible anyway, when and as permitted by the founders, trying not to filter them or publish only when the company is successful. I mean, GitHub has tk/tcl code I wrote in 2007, so this can’t be more embarrassing than that?

It’s hard to describe what my decision-making process is, and maybe this helps with that. Maybe it’s generalizable to how other seed investors make decisions. I’m not sure. In general, we need more people to have access to VC, to understand the game. Maybe this helps a tiny bit.

And if this experiment doesn’t work out, there’s always git filter-keys…”

Lee comments:

“(5/2021) At the time of Esper’s Series B announcement, I went back and read this memo, and I have to say I don’t really like it. One page is maybe 80-90% too short for a deal memo (though here, I was looking at an $80k investment rather than a lead investment.) I committed to the deal before Yadhu had joined as a cofounder, so there’s no mention of him here. He was obviously an enormous get for Shiv, and the two have worked incredibly well together. And I think a number of my go-to-market ideas here are not that smart – e.g. distribution through agencies, which may one day work, but are not, could not be, and have not been a focus in the first 3 years of Esper’s life. Well. I suppose that means I think I’ve learned something in the past 3 years. Hopefully that’s the case.

Note: A big part of Shoonya’s pitch at the time involved providing low-cost hardware. In the first year, it became apparent that most customers wanted “bring your own device,” and were primarily interested in Shoonya’s software. This precipitated a change in focus and startegy from bundling hardware, OS, and cloud services, into providing pure software. Accordingly, Yadhu became CEO, and the company strategy shifted. More on that story in Avidan’s tweetstorm.”

About Esper

Esper specializes in android device deployment and application management platforms for enterprises. Esper was co-founded in the year 2018 by US-based, industry veterans Yadhu Gopalan and Shiv Sundar. In addition to providing a device and application management platform, Esper enables device manufacturers and chipset vendors to deliver a lean Android solution purpose-built for the smart dedicated device space. Esper allows its customers to control every aspect of their device fleet and go as far as real-time debugging of applications on a remote device when required.

As of 2021 they have raised $40.6m.

Esper raised $30 million in a Series B round led by Scale Venture Partners, with participation from existing investors including Madrona Venture Group, Root Ventures, Ubiquity Ventures, and Haystack.

They did a $7.6 million Series A round, led by US-based venture capital firm Madrona Venture Group and existing investors Root Ventures, Ubiquity Ventures, HaystackVentures, and Pathbreaker Ventures, also participated in the round.

Prior to these they (as far as I can tell) did in total a $2.7m seed in 2018, seed extension and prior to both, an angel round which these memos pertain to.

About VC

Root Ventures is a hard tech seed fund in San Francisco with $150M AUM. We are engineers leading the first venture rounds for technical founders solving hard problems. Our typical check size is $1-2M. We don’t mind leading, co-leading, or following. We aim to be your best partner and the investor who best understands your product and your technology. With 2/3 of our fund in reserve, we also want to be your longest term partner, investing in every round, and bridging between rounds when we have to.

It was founded in 2013 and headquartered in San Francisco, California.

Usual caveats

No investment memo made voluntarily public will ever be 100% as it was. The pressure is just too high for VCs to look smarter, and not make founders uncomfortable, etc. I highly praise the VCs that share their thought leadership so we can all learn.

If you’re learning to make a VC investment memo, don’t assume the memos are what you exactly need to do. Information will be redacted. Assume anything “delicate” or sensitive is not in the memos.

Root add “Some things have to be edited/redacted, particularly around personal references and diligence, pricing, and any information about the company or product that would be of competitive interest. But otherwise, we’re trying to stay true to our original thinking. As things change with the company, as inevitably they will, it’s likely you’ll see us talking about their new stuff on Twitter or around the web.”

The only memo that is 1 to 1 is the Youtube memo because it was in a lawsuit.

Esper Venture Capital Investment Memo

It’s just the below! It’s short.

Overview

Esper (fka Shoonya) is looking to bring security, fleet management, lower costs through deeply integrated supply chain, and developer-focused APIs to every company who provides touch-enabled devices either as part of their internal business systems or as part of their product and service offerings to their customers.

This term sheet is led by Root and supported by Semil Shah at Haystack – raising (redacted.)

The CEO, Shiv is a hustler. I’ve spent a couple months getting to know him, and have been impressed with his tenacity and his ability to hit aggressive milestones. He thinks in hours when other founders think in days, and thinks in weeks what I thought would take months. And so far, I haven’t seen him take no for an answer.

I see a big opportunity for companies looking to build touch-enabled devices like tablets, either 1) as a primary product like Ziosk, 2) as part of a service offering like Fivestars or 2) as part of a business process like…basically every place Windows CE is deployed today from Stitchfix (or smaller) to Amazon. Portable and wearable computers are nearly ubiquitous in operations-heavy industries such as manufacturing and fulfillment, so this size of market is clearly in the multiple $BBs.

But these customers will be interested in fleet management (upgrades, ability to shut off delinquent devices), and also in security. I’ve sent over a few customers to Esper and feel confident this is a real issue worth paying for. In this light, Esper functions a bit like a Red Hat for mobile in this light. It takes open source software and improves on it for a specific use case, bundling support, and also further offerings like cloud hosting that are indispensable, and allowing developers to focus on application software.

Bundling all of these services – fleet management, cloud, a development platform, and hardware allows Esper to capture a lot of value, and also offer to companies as a monthly service what used to be a capital expense. This could unlock new kinds of customers who wouldn’t have the hardware chops or the capital up front to bring a physical hardware product to market. In this sense, Esper is an enabling platform for software that depends on touch, a market that is sure to continue to grow.

The biggest upside case for this product is that in the future of ERP, businesses will want to be building and deploying applications on touch-enabled hardware in addition to or instead of desktop-first ERPs like SAP and Oracle. In this world, you can imagine an Oracle, SAP, or even Pivotal partnering with Esper to help their customers solve business operations problems that rely on physical hardware, such as operations, mobile workforce, or hardware installations like point-of-sale and other systems.

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