[PREMONEY 2014] Soft Tech VC >> Jeff Clavier, "What I Learned Seed Investing Over the Last 10 Years"
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[PREMONEY 2014] Soft Tech VC >> Jeff Clavier, "What I Learned Seed Investing Over the Last 10 Years"

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"What I Learned Seed Investing Over the Last 10 Years"

"What I Learned Seed Investing Over the Last 10 Years"

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[PREMONEY 2014] Soft Tech VC >> Jeff Clavier, "What I Learned Seed Investing Over the Last 10 Years" [PREMONEY 2014] Soft Tech VC >> Jeff Clavier, "What I Learned Seed Investing Over the Last 10 Years" Presentation Transcript

  • What I Learned Seed Investing Over the Last 10 Years Jeff Clavier Managing 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 7/1/2014 Pre-Money Conference - Jun '14 Pre-Seed < $500K • 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 referrer PS: 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
  • 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 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 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
  • Thank you! www.softtechvc.com @softtechvc Pre-Money Conference - Jun '14