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

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
Jeff Clavier
Charles Hudson
Stephanie Palmeri

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

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
2004 2007 2011 2014
“Super-Angel” “Super-Angel”
Fund
Micro-VC Fund

The 2014 Funding Ecosystem
7/1/2014
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 ;-)

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

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

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?

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

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

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

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

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”

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

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

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

If I could write to my younger self
Don’t say No to , Asshole!

Good luck, and thank you!
www.softtechvc.com
@softtechvc

But wait!
There is more.
(Yeah, I have always wanted to do this)

SoftTech VC IV closed at $85M

$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
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
2004 2007 2011 2014
“Super-Angel” “Super-Angel”
Fund
Micro-VC Funds

Thank you!
www.softtechvc.com
@softtechvc

[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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