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[PREMONEY 2014] Soft Tech VC >> Jeff Clavier, "What I Learned Seed Investing Over the Last 10 Years"
1. What I Learned Seed
Investing Over the
Last 10 Years
Jeff Clavier
Managing Partner, SoftTech VC
Pre-Money Conference - Jun '14
2. Brief bio
ā¢ Jeff Clavier (@jeff)
ā French born
ā C/C++ & Distributed
Computing Hacking
ā CTO at Financial Services
startup in 1989
ā Acquired by Reuters in 1993
ā āTraditionalā VC in the
Valley since 2000
ā Angel/Seed Investing since
2004
ā¢ SoftTech VC (@softtechvc)
ā 10 years old
ā 150 investments
ā 30+ exits
ā $2B in follow-ons
Pre-Money Conference - Jun '14
Jeff Clavier
Charles Hudson
Stephanie Palmeri
4. Flashback: Ten years ago
ā¢ Early days of Web 2.0
ā¢ Blogging was the new
hotness
ā Remember RSS readers?
ā Commenting and
quoting posts was the
engagement
ā Growth hacking meant
āgetting a blog post on
top of Techmemeā
ā¢ Seed rounds were
smaller, Series Aās
were$1M to $2M
ā¢ It required a dozen angels
and a few funds to fill
these rounds
ā¢ Syndicates were based on
who you knew, not who
was most relevant
Pre-Money Conference - Jun '14
5. 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
āinstitutionalā 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
āSuper-Angelā āSuper-Angelā
Fund
Micro-VC Fund
6. The 2014 Funding Ecosystem
7/1/2014
Pre-Money Conference - Jun '14
Pre-Seed
< $500K
ā¢ Bootstrapping/Friends and family
ā¢ Pre-Seed Funds and pre-order/crowdfunded campaigns
ā¢ Incubators and Accelerators (YC, Techstars, AngelPad, SeedCamp)
Seed
$1.2 to $2.5M
ā¢ Syndicates of micro-VC firms, angels and (potentially) traditional VCs
ā¢ AngelList and Crowdfunding services as alternative or āfill upā opportunity
Series A
$5M tp $15M
ā¢ One traditional VC, with micro VCs investing pro-rata and adding strategic angels
ā¢ Family Offices, Strategics, Micro-VCs + Crowdfunding pools as alternative
Series B
$10M to
$20M
ā¢ Another traditional VC (or two), with insiders coming in for pro-rata
ā¢ Same mix as Series A for alternatives
Growth
$20M to
$100M+
ā¢ Mix of traditional/growth VCs, PE firms, hedge funds. In parallel, secondary
transactions.
ā¢ Alternative: direct co-investments from LPs, hedge/mutual funds, cash rich corporates
7. What I Learned Seed
Investing Over the
Last 10 Years
Disclaimer: your own experience may
vary ;-)
Pre-Money Conference - Jun '14
8. 1. Success + Reputation = Dealflow
In order to get access to the best deals, you
donāt have to be nice ā 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
9. 2. You need a clear āshtickā
ā¢ Critical with both entrepreneurs and LPs
ā¢ CBInsights listed 135 micro-VC firms in a
recent study. 135!
ā¢ Unless you have an established brand
and track record, you need a
differentiated strategy:
ā Geography, sectors and industries, stage,
value-add, infrastructure and ecosystem
Pre-Money Conference - Jun '14
10. 3. Be explicit about your investment criteria
ā¢ Apply your investment
thesis as absolute filter
ā Sector, Location,ā¦
ā¢ How we summarize our
criteria?
ā¢ Answer Yes to:
ā Like these founders? Are
they a particular fit for this
market?
ā Are you passionate about the
product?
ā Do you LOVE this deal?
ā¢ When you start investing, youāll
love each and every deal
ā Is it fundable in 12 to 18
months?
Pre-Money Conference - Jun '14
11. 4. Clear signs a deal is not for you
ā¢ āThey don't know what they don't knowā
ā When you have that feeling about founders, itās time to
move to the next deal in the funnel
ā¢ As you due diligence founders, markets and
customers, every piece of information you collect
should make you increasingly excited
ā¢ Over time, youāll develop a āspidey senseā that will
tell you something is off ā every single time I ignored
it, I lost my capital
Pre-Money Conference - Jun '14
12. 5. Unique ideas no longer exist
ā¢ The notion of a āunique ideaā has pretty much
disappeared
ā Itās all about executing better, faster and bigger
ā Competitors will pop up within weeks of your
launch
ā And they will get funded
ā For investors, that means you can also wait for the
right team
Pre-Money Conference - Jun '14
13. 6. Beware of the āQuick Passā
ā¢ Whatās common to all these companies?
I passed on all of them because they did not feel
interesting or performing ā or I was ātoo busyā
ā¢ How do you avoid the āQuick Passā?
Ideally youād keep an open mind as to the merits of
every opportunity, especially if founders are legit and
you respect the referrer
PS: Itās really hard ā still making that mistake too
often
Pre-Money Conference - Jun '14
14. 7- Think value add when syndicating
ā¢ In this environment (135 micro-VCs, 100s of angels,
1,000s of retail investors) capital is REALLY a commodity
ā¢ Value add (experience, connections, expertise, brand
name) will be paramount to get you in a deal
ā¢ Building a strong syndicate that helps fix the
shortcomings/challenges of founders is key
ā¢ Thatās why party rounds are so atrocious ā no one
cares, no one helps
ā¢ Smart founders will optimize for āInvestor Market Fitā -
when they have several options
Pre-Money Conference - Jun '14
15. 8. Founder accountability is key
ā¢ Too often investors think keeping portfolio cos
accountable is not being founder friendly ā thatās wrong
ā¢ Agree early on a reporting schedule and a simple one-
sheet template
ā Summary of progress against plan / Highlights / Lowlights /
KPIs / Cash on hand & Runway / Key asks to investors
ā¢ Especially important if there is no board, and founders
are first timers
ā¢ Once you realize something is off, it is most likely too
late ā runway rarely allows for a āwarm rebootā
Pre-Money Conference - Jun '14
16. 9. Beating the Series A/B Crunch
ā¢ We had 18 companies raise $200M in A/B rounds in
the last 8 months
ā¢ Suggestions
ā Have a clear āHot or Notā map for sectors you invest in,
and understand runway implications for the Notās
ā Early on establish and validate hurdles to clear in order to
get the next round
ā Pre-market early with the āmost likely/best fitā group of
investors
ā Even great, promising startups require solid runway
Pre-Money Conference - Jun '14
17. 10. Recycling does matter
ā¢ Say you have a $50M fund, and you need to deliver a
4X gross return. About 25% will go to management
fees and costs.
ā¢ To produce a $200M total return, youād need a 5.5X
performance if you donāt put āfees in the groundā
ā 200 / (50 * (1 ā 25%)) = 5.5
ā¢ Recycling means that you donāt distribute all
proceeds back to LPs, or use your clawback clause
ā¢ Cashflow/distribution optimization is tricky
Pre-Money Conference - Jun '14
18. 11. Without systems, you will drown
ā¢ The volume of deals is such that a real CRM is
unavoidable (Sevanta)
ā¢ Contact management is God awful (RelateIQ)
ā¢ Need a scalable back-office for financial/LP reporting
and audit (VMS)
ā¢ Most community tools suck (GroupTie)
ā¢ On top you need: fund website, community
management, social media, events management
Pre-Money Conference - Jun '14
19. If I could write to my younger self
Donāt say No to , Asshole!
Pre-Money Conference - Jun '14
20. Good luck, and thank you!
www.softtechvc.com
@softtechvc
Pre-Money Conference - Jun '14
21. But wait!
There is more.
(Yeah, I have always wanted to do this)
Pre-Money Conference - Jun '14
22. SoftTech VC IV closed at $85M
Pre-Money Conference - Jun '14
23. $85M SoftTech VC IV Primer
ā¢ 50 seed deals over 3 years
ā¢ $500K to $1M+ per initial
investments
ā $35M = 50 deals @ $700K
ā¢ $50M allocated to Series As
and Bs follow-ons
ā¢ Geos: SF/SV, NY, SoCal,
Boulder, Toronto
ā¢ Target ownership: 7 to 10%
ā¢ Always syndicating with
peer micro-VCs and angels
ā¢ Sectors
ā¢ New Areas: VR/glasses, BTC,
drones, Digital Health
Pre-Money Conference - Jun '14
24. 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
āinstitutionalā 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
IIIās 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
āSuper-Angelā āSuper-Angelā
Fund
Micro-VC Funds