Much ink has been spilled over the “broken” venture capital model. Several years ago, Greg Warnock reached this same conclusion while at vSpring Capital, deciding venture capitalists weren’t being adequately compensated for the risk of investing in pre-revenue deals. So he started a new firm to do the opposite of that.
Warnock, alongside former MarketStar Corp. CEO Alan Hall, formed Mercato Partners to invest exclusively in revenue-producing startups with the goal of finding companies “grappling for their first foothold,” and bolstering their sales forces from ten to 500. That strategy has performed well thus far. Two years and four investments into its life, the firm’s IRR is in the low triple digits, while its portfolio company revenues grew 50% last year.
I asked Warnock a few questions about Mercato’s strategy and how it fits into today’s VC market.