Mike Chalfen on Building Resilient Venture Portfolios and Supporting Founders

Mike Chalfen studied civil rights history before moving into consulting and joining Apax Partners in 1996. He says its analytical culture taught him to handle legal work, numbers and investment recommendations himself. As the partnership grew, he also learned how difficult large organizations can be to manage.

Looking back, Chalfen says he sometimes managed his career rather than the money he invested. He recalls failing to argue strongly enough for a follow-on investment in a company that later had a much larger outcome. Stebbings sees a similar potential conflict when managers value the prestige of bringing in a large investor over retaining ownership.

After Apax, Chalfen became an angel investor and says working directly with founders changed his focus from the business alone to the entrepreneur and opportunity together. He later joined Advent Venture Partners, co-founded Mosaic Ventures and eventually chose to invest independently through Chalfen Ventures.

He says solo investing gives him more room to express his approach and spend time with founders. He does not believe he was particularly good at building a firm. Investing and supporting founders demand different skills from operating an organization and leading a team, in his view.

In July 2022, Chalfen describes the market correction as serious and says information moves faster than during the dot-com downturn. He also sees economic headwinds beyond technology valuations, including war, inflation and supply-chain instability. His suggestion that those pressures might persist for a couple of years was a forecast at that time.

Past busts taught him that good companies can remain good businesses even if their outcomes take longer and require more dilution. He no longer counts on a quick payday or tries to time a winner. During the 2001 downturn, a mentor asked whether they would put even one dollar into each portfolio company at a zero valuation—a test of whether the underlying business was worth backing.

Chalfen says he made new investments faster in 2021, then returned to a normal pace of roughly three or four per year. His focus remained software businesses selling to businesses, from inception through Series A. At the time of the interview, he did not regret the faster pace and believed the resulting companies were reasonably robust; this was his assessment, not a demonstrated outcome.

To younger investors facing their first downturn, he distinguishes uncertainty from anxiety. Uncertainty is inherent in early-stage investing, he says; acknowledging it, using a decision framework and explaining choices early to portfolio founders can reduce unnecessary anxiety without eliminating risk.

Asked whether good venture deals should look absurd to one's friends, he says it depends on strategy. A company creating a market may look strange, but one taking share from incumbents need not. He learned that ideas appealing only to his immediate circle might represent too small a market.

Chalfen describes his solo fund as a product for founders: substantial attention and support without necessarily seeking to dominate the capitalization table. Rather than demanding a fixed ownership stake, he wants to understand the milestones for a round and help assemble investors suited to those goals.

He says he has sometimes offered either to underwrite a whole round or invest a smaller minimum amount so the founder can choose another partner. Stebbings compares building a cap table to assembling a sports team; Chalfen agrees that founders should know what each investor or angel can actually contribute.

Chalfen's portfolio approach is concentrated but seeks different kinds of risk. He looks across end markets, go-to-market motions and capital needed to learn, rather than relying only on a count of companies. Some investments may depend on a new market emerging, while others attack an established market with vulnerable incumbents.

For market timing, he looks for evidence of an unmet need even when a category has not yet formed. He cites a stealth portfolio company receiving about 25 inbound inquiries a day despite limited publicity. The example is his observation and the company is an investment, not independent proof of market size.

His funds target roughly nine or ten core investments. He describes initial checks of about $1 million to $3 million at inception and up to $8 million at Series A, with a preference not to put more than roughly 10% to 11% of a fund into a first check. If evidence develops, he might seek two positions of 15% to 20% each; these are his examples, not guarantees or universal limits.

For follow-ons, he asks whether new money can plausibly produce a tenfold return, while recognizing that a lower growth return may sometimes have a role. Instead of a binary judgment, he thinks in probabilities and may vary the amount invested. He says the size of his funds reduces pressure to lead every subsequent round.

When concerns arise about a founder's performance, he prefers frequent, problem-focused conversations rather than meetings devoted to updates. He recommends describing the facts, acknowledging difficulty and treating the issue as a shared company problem. The team may need to reallocate responsibilities or add support, with a window to improve and respect for people's dignity.

Chalfen says parenthood was one influence on his empathy, but personal setbacks also changed him. He describes his father's sudden death, the dot-com bust, divorce and leaving Apax. Those experiences made him more attentive to what people in the room are feeling rather than simply delivering an analysis.

He acknowledges that ego was a problem earlier in his career, when intense deal volume and personal pressures affected his relationships with peers. An experienced colleague advised him to calm down and consider his behavior toward colleagues. He later came to see leaving Apax as a difficult issue of fit as the firm changed.

During the dot-com bust, he recommended against funding a proposed combination involving two entrepreneurs, including Mark Suster. He says one went on to build a business, making the decision painful, while the companies where Apax concentrated capital ultimately became larger. The lesson was to be clear with founders when a business falls below other capital priorities.

He thinks candid communication can be difficult in a relationship-driven industry, where referrals and fast syndicates create incentives to smile and nod. He hopes slower market conditions might encourage more direct conversations, a hope expressed in 2022.

Chalfen looks again at non-obvious opportunities if he can imagine a genuinely different business becoming important or dominant. A crowded product with few barriers to competition is less compelling to him than a distinctive view of technology and the value delivered to customers.

He distinguishes businesses with strong potential economics at a moderate scale from those that must become enormous to achieve attractive economics. In his view, some companies were priced and funded in the preceding years as if they were ready for huge scale, creating excessive costs before the evidence was there.

As an example of a different model, he recalls The Foundry producing approximately 35% to 40% margins for a decade while growing and requiring no further capital. These are his historical descriptions; he acknowledges the investment profile may suit some funds better than very large ones.

Good unit economics, as he defines them, give a company a possible path to growth without permanent dependence on outside capital. At the earliest stage there may be no proof, so he tries to imagine the operational levers needed to make those economics work and assess whether the required conditions are likely.

He has made mistakes backing service businesses expected to automate their processes into software. Enterprise customers may still want vendors to provide hands-on service, making the transition difficult even where automation seems technically possible. That customer need can keep the economics different from what an investor initially expected.

Chalfen says he limits fear of missing out by accepting the constraints of a solo model. Chasing every deal would leave less time to support founders. His confidence in his selection process helps him accept missed opportunities, although his strategy still has to produce returns for limited partners.

He considers formal boards of limited value at seed stage: frequent calls can help founders address problems immediately instead of waiting for a meeting. Boards become more useful as plans and organizations mature, but he believes too many spend time reporting rather than resolving strategic issues.

His preferred process is to circulate facts early, clarify factual questions, reprioritize the agenda and focus the meeting on the largest problems. Board members should also identify who around the table has the relevant experience or network to help, rather than offering unnecessary introductions.

A common mistake, he says, is failing to distinguish a question from an opinion or advice, and failing to state how strongly an opinion is held or whether one has relevant expertise. Those distinctions matter for experienced and young investors alike.

As a company matures and builds a strong management team, Chalfen often spends less time with it; the team can involve him when his perspective is useful. He argues that founders should determine when they need investors' help, rather than investors demanding time merely to feel useful.

He proposes that board rights should expire after a period unless a company chooses to invite the investor back. For board preparation, he wants a founder and board to agree on the important problems, including issues that may appear in three to six months, rather than focusing only on the length of a presentation.

Stebbings suggests gathering board members' views separately to prevent a prominent person's opinion from dominating. Chalfen supports intellectually honest disagreement. Both emphasize that founders should be able to act in shareholders' interests rather than constantly seeking permission for ordinary decisions.

Among venture partnerships' weaknesses, Chalfen cites founders having to repeat their story to successive groups and internal structures that favor stability over dissent. He says decision processes may need to change as firms evolve, without assuming there is one permanently correct structure.

He sees no inherent problem with US investors backing European seed rounds if the investment matters to them and they are willing to work across time zones. He would be happy to co-invest with a suitable US firm, he says.

On selling an appreciated position, he argues that managers should compare expected future returns and the time to liquidity with alternative opportunities and clients' needs. Selling too early can be a mistake, as can holding without reexamining the decision. His hypothetical multiples are investment estimates, not assured outcomes.

He broadly agrees that automatically investing pro rata can be lazy, but notes practical constraints: a company may need room for a new investor, and not every fund can invest more than its pro rata share. The available right and the best decision are not necessarily the same.

In difficult periods, Chalfen says that doing one's best, treating people kindly and admitting mistakes can reduce unnecessary tension. He wants more mentorship in venture: access to information has grown, but young investors still benefit from talking through choices with experienced people.

For a recent publicly announced investment, he names Oplee, a marketplace for food and drink ingredients. He says the team also sees an opportunity to use data to make supply chains more transparent and predictive. Those are the company's ambitions and his investment thesis, not established results; Chalfen Ventures has an interest in the company.