Jim Stallings spent more than a quarter century at IBM, most recently as general manager of global markets, prior to his foray into the venture capital world.
He retired in 2013, but his retirement didn’t last long. A $25,000 angel investment of his in a local founder propelled him into founding PS27 Ventures, today a major VC player based in Florida.
Stallings has a $20 million VC fund for early-stage technology companies that launched in June and an unusual philosophy on VC investing, for which he credits his high success rate for investments — he puts it at 70%.
This interview has been edited for clarity and brevity.
How has your time with IBM informed your work as a VC investor?
The wonderful thing about working at a big company like IBM (NYSE: IBM) for a long period of time is you get exposed to so many different industries, so many different customer types, big and small, but also you get exposed to a lot of new ideas, new innovations, new approaches to business. Technology moves and changes so rapidly — and it always has — that you have to learn to adapt to those, and you learn that by working with your customers.
That's probably the great advantage you have, coming out of an environment like that and starting work with early-stage companies — you sort of know what customers are looking for and how they evaluate things and how they adopt new technologies.
I've had 30 years of working with technology-oriented customers, and that's been a big, big advantage, I feel, coming into a role like this.
Why did you decide to focus on early-stage start-up investments in particular?
One of the things I realized 10 years ago (when he founded PS27) was we were entering what I view as an acceleration of innovation, and the pandemic and other events just accelerated that. The internet’s caused technology to go through these different iterations — fast connection, the smartphone and apps on the smartphone. And I think we’re in this next version of what the internet’s created, which is you’re going to be able to personalize everything, all your information, so it’s the kind of stuff you’re interested in.
I think that this is creating what I believe is probably the biggest boom in innovation in human history. The barrier to entry to use technology to create something new, to solve a problem for either a customer or in our personal lives, you can do it faster and cheaper than at any time.
You’ve said part of your strategy as a VC investor is tolerating less risk than other VCs. How did you come to that, and how useful has it been?
The traditional VC model is, you raise the funds, you anticipate deploying the capital in a short period of time, like three years, and you're going to get a 90% failure rate. The 10% that are successful more than return the total amount of the fund, plus some profits. We call it the “spray and pray” model.
Our model is, let's work with every single one of these companies. Let's not spread it around but be very deliberate about selecting the companies, and we select the companies based on the founders’ ability to learn and adapt. Then, we work with them for a year, year and a half, to de-risk the failure. We introduce them to all the different things they’re going to be exposed to in an organized way. And we don’t deploy all of the capital immediately — it’s as needed, as we achieve our goals. So, it’s a very different model.
That’s how you do it: working very closely with the founder. That’s been the key to success for us, and in some cases, it’s a smaller portfolio. But our (success) rate is somewhere around 70%, versus 10%. Success, to us, isn’t always an IPO or some big (funding) round. Success is: Does the idea sustain itself? Does it become a company? Can you create jobs? It’s not always some big Amazon thing. We’ve been trained as a public to think that’s success, but that’s really not most of private equity and venture capital.
The majority of our companies turn out to be thriving small businesses, and some of them go on to be very successful companies.
