In this Private Fund Feature, we are excited to interview Andrew McMahon, co-founder & general partner at Ridgeline, an early-stage VC firm focused on enterprise technology companies impacting foundational industries across the U.S. economy.
Q: First off, how did you find yourself in VC?
A: Interestingly enough, I come from a non-traditional background for venture. In 2011, I was working in the Obama Administration, focused on technology policy and helping large government agencies modernize their technology. During that time, we met with a number of venture firms, including Sequoia Capital. They walked us through their vision for the future, and seeing the sheer breadth of companies they touched really sparked my interest. I was fascinated that they were creating companies that have the potential to go from a small business to a market leader in the U.S. economy in less than a generation.
During my last 18 months working in government, I was in San Francisco, trying to engage venture and high-growth technology companies and encourage them to work more closely with the federal government. I was spending a lot of time with GPs at venture capital firms, and their vision for their firms got me excited about the type of organization that you can build.
Q: Tell us more about Ridgeline.
A: Ridgeline is an early-stage enterprise firm investing in enterprise technology companies. Ben Walker, Ryan Clinton, and I founded the firm in 2019 and have been investing since early 2020. At a macro level, we are investing in the modernization of foundational industries across the U.S. economy. Broadly, we invest in technology that can impact manufacturing, supply chain and logistics, commercial aerospace, and defense. We invest in both Seed and Series A funding.
Q: What kind of enterprise tech are you most interested in?
A: At our core, we invest in three things: digital infrastructure, next-gen supply chains, and foundational hardware and deep technology.
Digital infrastructure is the next generation of computing infrastructure, data, cybersecurity, and software companies that will capture the value created through this modernization mentioned above.
In terms of next-gen supply chains, we think of these as the movement of information and goods that power the global economy. We invest in networks, data, and technology that will power the next generation of supply chains.
Ridgeline also invests in key hardware and deep tech that will act as the foundation for the modernization occurring across large enterprises.
Q: How do you evaluate a firm before investing? What are some of the things you look for?
A: One of the biggest things we try to remember is that you’re investing in a person or team. It’s all about understanding and believing in the team and the founder. Can they continue to iterate on the product they are building, and do they have unique insights into the market they plan to enter? It’s about them more than anything else.
Beyond that, we want to know that the product is solving a pain point that potential and existing customers couldn’t live without once they started using the product. Would the users throw a fit if you took away this company’s solution? It’s a great signal and a great way to build a foundation for an early-stage company.
Lastly, we expect the product to be serving a massive market or potentially massive market.
Q: How has the fundraising environment changed in the past 12 months?
A: Over the last year, the market has moved back into our preferred operating model. We’re seeing longer due diligence periods, which we love because, as I said earlier, deciding to invest in a firm is all about believing in the team and the founders. With longer due diligence periods, we can build that belief and fully understand what we are investing in.
We’re also seeing more rational pricing around companies, which absolutely benefits both the founder and the investors. More reasonable valuations and round sizes keep companies focused on their core day-one principles, maintain better potential for valuation uplift on common shares, and give the company a better chance of raising their next round.
Q: What are some of the biggest opportunities for LPs in venture?
A: There are slightly different opportunities for pure financial LPs versus strategic LPs. For pure financial LPs, it's the decrease in prices that has happened over the last nine months. This creates a really interesting opportunity for smaller funds and funds at earlier stages to take larger ownership positions with less capital and can increase the opportunity for better returns in a single fund.
Right now is as good an opportunity as any in venture in the last decade. It’s a great example of that Warren Buffet quote in which he says it’s wise for investors to be “fearful when others are greedy, and greedy when others are fearful.” There’s a lot of uncertainty in the market, but we are near or at the bottom of this downward revision. That’s an awesome opportunity that hasn’t existed in the last 6-8 years. The challenge for financial LPs will be in picking the best of the emerging managers.
For strategic LPs, the opportunity is a little different. It’s about peering into an asset class: an early-stage venture investment that might be too risky for a large corporation. So how do you take a position in this asset class and get insights into where the technology industry is moving and be able to develop relationships with companies at an early stage before you’re paying higher prices? The challenge is how broad you go. Do you select one manager or multiple? Do you have a full GP investing strategy? I think those moving toward a balanced GP and direct investing approach have the best position to succeed.
Q: As you embark on your new fund, what excites you the most?
A: I’m excited about putting our portfolio strategy into action. We’ll lead almost every round, taking board seats. I get a lot out of founder engagement, especially at the early stages. You’re working through interesting and unique problems. You’re really on the team rather than just being an investor. I’m looking forward to being actively engaged with founders and helping them build the company towards their Series A, helping them find their next-stage partners.
Q: What is important to you when selecting your service providers?
A: It varies, but in terms of very people-driven services, it’s the quality of the people and the natural ease of having a relationship with them. It’s about timely and consistent quality responses on the things we can’t do on our own. The other piece is that it’s essential with technology platforms that both sides—meaning the LP as well as ourselves—can use the product well. We can’t have anything that just works well for one group.
Q: What stood out to you about Juniper Square?
A: Juniper Square clearly understood the importance of serving both groups—that there are two sides and multiple types of engagement. Juniper Square ensured everything was buttoned-up and managed very well, leaving zero room for error. We knew we’d be able to present a very clean package to LPs that was easy for them to use.
Then, of course, there’s the very valuable component of being able to share the data and performance around the fund, allowing the individual LPs to see their world in a compartmentalized way and for us to see everybody’s world more broadly.