[premoney 2014] soft tech vc >> jeff clavier, "what i learned seed investing over the...
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"What I Learned Seed Investing Over the Last 10 Years"TRANSCRIPT
What I Learned Seed Investing Over the
Last 10 Years
Jeff ClavierManaging Partner, SoftTech VC
Pre-Money Conference - Jun '14
Brief bio
• Jeff Clavier (@jeff)
– French born– C/C++ & Distributed
Computing Hacking– CTO at Financial Services
startup in 1989– Acquired by Reuters in 1993– “Traditional” VC in the Valley
since 2000– Angel/Seed Investing since
2004
• SoftTech VC (@softtechvc)
– 10 years old– 150 investments– 30+ exits– $2B in follow-ons
Pre-Money Conference - Jun '14
Jeff Clavier
Charles Hudson
Stephanie Palmeri
Pre-Money Conference - Jun '14
Flashback: Ten years ago
• Early days of Web 2.0• Blogging was the new
hotness– Remember RSS readers?– Commenting and
quoting posts was the engagement
– Growth hacking meant “getting a blog post on top of Techmeme”
• Seed rounds were smaller, Series A’s were$1M to $2M
• It required a dozen angels and a few funds to fill these rounds
• Syndicates were based on who you knew, not who was most relevant
Pre-Money Conference - Jun '14
How we built our footprint
SoftTech VC I($1M, 24 deals)
Goal: Build initial deal access and reputation as a value-added investor
By: Hustling, Blogging, Networking, Investing personal capital
SoftTech VC II($15M, 65 deals)
Goal: Establish “institutional” angel model
By: Focusing on access as we defined investment strategy, syndicating, building brand and top dealflow
SoftTech VC III($55M, 55 deals)
Goal: Execute on a refined, repeatable seed strategy
By: Building ownership in a select group of companies, and expanding the footprint of the firm
Pre-Money Conference - Jun '14
2004 2007 2011 2014
“Super-Angel” “Super-Angel” Fund
Micro-VC Fund
The 2014 Funding Ecosystem
04/07/2023Pre-Money Conference - Jun '14
Pre-Seed
< $500
K
• Bootstrapping/Friends and family• Pre-Seed Funds and pre-order/crowdfunded campaigns• Incubators and Accelerators (YC, Techstars, AngelPad, SeedCamp)
Seed
$1.2 to
$2.5M
• Syndicates of micro-VC firms, angels and (potentially) traditional VCs• AngelList and Crowdfunding services as alternative or “fill up” opportunity
Series A
$5M tp
$15M
• One traditional VC, with micro VCs investing pro-rata and adding strategic angels• Family Offices, Strategics, Micro-VCs + Crowdfunding pools as alternative
Series B
$10M to
$20M
• Another traditional VC (or two), with insiders coming in for pro-rata• Same mix as Series A for alternatives
Growth
$20M to
$100M+
• Mix of traditional/growth VCs, PE firms, hedge funds. In parallel, secondary transactions.• Alternative: direct co-investments from LPs, hedge/mutual funds, cash rich corporates
What I Learned Seed Investing Over the
Last 10 Years
Disclaimer: your own experience may vary ;-)
Pre-Money Conference - Jun '14
1. Success + Reputation = Dealflow
In order to get access to the best deals, you don’t have to be nice – you just have to be really good, which sometimes means making harsh decisions and passing quickly and explicitly on opportunities
Pre-Money Conference - Jun '14
2. You need a clear “shtick”
• Critical with both entrepreneurs and LPs• CBInsights listed 135 micro-VC firms in a
recent study. 135!• Unless you have an established brand and
track record, you need a differentiated strategy:– Geography, sectors and industries, stage,
value-add, infrastructure and ecosystem
Pre-Money Conference - Jun '14
3. Be explicit about your investment criteria
• Apply your investment thesis as absolute filter– Sector, Location,…
• How we summarize our criteria?
• Answer Yes to:– Like these founders? Are they
a particular fit for this market?
– Are you passionate about the product?
– Do you LOVE this deal?• When you start investing, you’ll
love each and every deal– Is it fundable in 12 to 18
months?
Pre-Money Conference - Jun '14
4. Clear signs a deal is not for you
• “They don't know what they don't know”– When you have that feeling about founders, it’s time to
move to the next deal in the funnel• As you due diligence founders, markets and
customers, every piece of information you collect should make you increasingly excited
• Over time, you’ll develop a “spidey sense” that will tell you something is off – every single time I ignored it, I lost my capital
Pre-Money Conference - Jun '14
5. Unique ideas no longer exist
• The notion of a “unique idea” has pretty much disappeared– It’s all about executing better, faster and bigger– Competitors will pop up within weeks of your launch– And they will get funded– For investors, that means you can also wait for the
right team
Pre-Money Conference - Jun '14
6. Beware of the “Quick Pass”
• What’s common to all these companies?
I passed on all of them because they did not feel interesting or performing – or I was “too busy”
• How do you avoid the “Quick Pass”?Ideally you‘d keep an open mind as to the merits of every opportunity, especially if founders are legit and you respect the referrerPS: It’s really hard – still making that mistake too often
Pre-Money Conference - Jun '14
7- Think value add when syndicating
• In this environment (135 micro-VCs, 100s of angels, 1,000s of retail investors) capital is REALLY a commodity
• Value add (experience, connections, expertise, brand name) will be paramount to get you in a deal
• Building a strong syndicate that helps fix the shortcomings/challenges of founders is key
• That’s why party rounds are so atrocious – no one cares, no one helps
• Smart founders will optimize for “Investor Market Fit” - when they have several options
Pre-Money Conference - Jun '14
8. Founder accountability is key
• Too often investors think keeping portfolio cos accountable is not being founder friendly – that’s wrong
• Agree early on a reporting schedule and a simple one-sheet template– Summary of progress against plan / Highlights / Lowlights /
KPIs / Cash on hand & Runway / Key asks to investors• Especially important if there is no board, and founders
are first timers• Once you realize something is off, it is most likely too late
– runway rarely allows for a “warm reboot”
Pre-Money Conference - Jun '14
9. Beating the Series A/B Crunch
• We had 18 companies raise $200M in A/B rounds in the last 8 months
• Suggestions– Have a clear “Hot or Not” map for sectors you invest in,
and understand runway implications for the Not’s– Early on establish and validate hurdles to clear in order to
get the next round– Pre-market early with the “most likely/best fit” group of
investors– Even great, promising startups require solid runway
Pre-Money Conference - Jun '14
10. Recycling does matter
• Say you have a $50M fund, and you need to deliver a 4X gross return. About 25% will go to management fees and costs.
• To produce a $200M total return, you’d need a 5.5X performance if you don’t put “fees in the ground”– 200 / (50 * (1 – 25%)) = 5.5
• Recycling means that you don’t distribute all proceeds back to LPs, or use your clawback clause
• Cashflow/distribution optimization is tricky
Pre-Money Conference - Jun '14
11. Without systems, you will drown
• The volume of deals is such that a real CRM is unavoidable (Sevanta)
• Contact management is God awful (RelateIQ)• Need a scalable back-office for financial/LP reporting and
audit (VMS)• Most community tools suck (GroupTie)• On top you need: fund website, community
management, social media, events management
Pre-Money Conference - Jun '14
If I could write to my younger self
Don’t say No to , Asshole!
Pre-Money Conference - Jun '14
Good luck, and thank you!
www.softtechvc.com@softtechvc
Pre-Money Conference - Jun '14
But wait!
There is more.
(Yeah, I have always wanted to do this)
Pre-Money Conference - Jun '14
Pre-Money Conference - Jun '14
SoftTech VC IV closed at $85M
Pre-Money Conference - Jun '14
$85M SoftTech VC IV Primer
• 50 seed deals over 3 years• $500K to $1M+ per initial
investments– $35M = 50 deals @ $700K
• $50M allocated to Series As and Bs follow-ons
• Geos: SF/SV, NY, SoCal, Boulder, Toronto
• Target ownership: 7 to 10%• Always syndicating with
peer micro-VCs and angels
• Sectors
• New Areas: VR/glasses, BTC, drones, Digital Health
How we built our footprint
SoftTech VC I
($1M, 24 deals)
Goal: Build initial deal
access and reputation as a value-added
investorBy: Hustling,
Blogging, Networking,
Investing personal capital
SoftTech VC II
($15M, 65 deals)
Goal: Establish
“institutional” angel modelBy: Focusing on access as we defined investment strategy,
syndicating, building brand
and top dealflow
SoftTech VC III
($55M, 55 deals)
Goal: Execute on a refined, repeatable
seed strategyBy: Building ownership in
a select group of companies,
and expanding the footprint of the
firm
SoftTech VC IV
($85M, 50+ deals)
Goal: Iterate on Fund III’s
model, expanding post-seed
when appropriate
(Seed Prime, Series A)
By: Building and
maintaining 7% to 10% ownership
through initial rounds of financing
Pre-Money Conference - Jun '14
2004 2007 2011 2014
“Super-Angel” “Super-Angel” Fund
Micro-VC Funds