Editor's note: Our 6th Annual Vator Splash LA conference is coming up on October 13 at the Loews Hotel in Santa Monica. Speakers include Mark Cuban (one of the hosts of Shark Tank and owner of the Dallas Mavericks); Brian Lee (Founder & CEO, Honest Company); Leura Fine (Founder & CEO, Laurel & Wolf ); Nick Green (Co-Founder and Co-CEO, Thrive Market); Tri Tran (CEO & Co-founder, Munchery); Adam Goldenberg (Founder & CEO, JustFab); Andre Haddad (CEO, Turo); Mike Jones (Founder, Science) and many more. Join us! REGISTER HERE.
There has been a big debate over the last few years over whether the Series A crunch is real or not. What everyone can agree on, however, is that there are definitely more seed and early-stage funds now than ever before, and more people willing to give money to young companies looking to make it big.
In this edition of "Meet the VC," we interview Owen Davis, managing director of NYC Seed.
Owen is currently Managing Director of NYC Seed, a seed stage venture capital fund in New York City. Owen has worked in all aspects of the online world, including work with early versions of AOL and MSN. He created one of the first 200 web sites on-line and founded Thinking Media in the summer of 1995, an online marketing firm which pioneered client-side tracking of pages and advertisements, which has become the standard method for online measurement. He co-founded Sonata in 1999, a wireless company that provided location-based services and marketing to cell phones. Owen also co-founded, Petal Computing, a firm that developed software which allowed large numbers of commodity PCs to act like a single unit, useful in industries ranging from image rendering to pharmaceuticals.
Owen is the author of various patents in Internet methods and technologies. He is also the author of the book Instant Java Applets, available from Ziff-Davis Press. He is an original member of the World Wide Web Artists Consortium, and served on that group's original board. He was also an original member of the Board setting online advertising and media specifications and has served as Managing Director of the Wireless Advertising Association. Owen was named various times as one of the 100 Top Internet Executives in New York by The Silicon Alley Reporter and most recently was named one of the 100 most influential people in Silicon Alley for 2008. He received his bachelor's degree from Brown University and an MBA from Columbia Business School.
VatorNews: Tell us a bit about your background. What led you to the venture capital world?
Owen Davis: I was a serial entrepreneur through three relatively technical companies. The first had to do with advertising and metrics. The second with location-based wireless. And the third with early cloud computing and infrastructure.
In 2007-2008, I noticed a big gap in the landscape in New York for what I would term “rigorous capital” between the lower end (zero dollar) to the Series A round. I was lucky enough to get in touch with lots of people, and through a collaboration with a lot of different folks we launched NYC Seed. And that was The New York City Investment Fund, New York State, NYU, and a bunch of other people around the table that allowed us to have a great touchpoint in New York. We had a number of great advisors from VC funds in New York.
Since that time, we’ve invested in 31 companies, funded another 20 through three accelerator programs, and we’ve had a number of great companies come out of the portfolio: Enterproid, Ticketfly, Datadog, SeatGeek, Enigma, Magnetic, and on and on and on.
VN: What do you like to invest in?
OD: We have a refined focus, which I’m calling the “new full stack.” I’m very interested in B2B and enterprise software. That’s where the real intelligence is going to sit. The new full stack is the various layers coming to fruition that people will utilize, that will make our world smarter, more real-time, and more automatic.
What does that mean? It means a real-time data layer. A much more sophisticated and more accessible predictive analytics and machine learning layer. The AI stuff—you don’t have enough data to make a full decision but you want a high degree of confidence—that’s another layer. The new interfaces of text to speech in terms of Alexa or engines interpreting emails and being able to add meaning to those things. Finally, the applications that sit on top of that.
And so all of those things, whether it’s the application that utilizes it or each of the individual layers to enable it, are very interesting to me and are my new focus for the next fivers..
VN: What are your categories of interest?
OD: There are not any particular categories but it’s primarily B2B and enterprise. I’m in New York, and there’s a lot of fintech happening, there are big buyers of software, which is great.
Technologies that are horizontal span any number of industries, obviously. Everyone needs a database, right? What we’re really talking about real-time decision making, and where does real-time decision making change the face of the game? And that is one of the most compelling ways I’ve been thinking about the market and trying to identify areas of real-time decision-making that will literally change the game.
If people could manage risk at a large bank every second in real time it certainly would have an effect on how they run their business. It’s not doable right now just because of the massive amounts of data but it will be doable at some point, and you can think about any number of different things that have to do with that idea—the idea to be able to aggregate and automate decision-making around a data set.
You can think of Uber as an early version of this: you push a button, it matches you to a car that’s close, and in a relatively short amount of time it comes to your door. That is a really early example of that closed loop, which are going to exist everywhere inside companies, automated processes, and all of those things. That’s one of the guiding principles.
VN: What kind of traction do you look for in your startups? Are you looking for a number of customers or order volume?
OD: You gotta be able to build something. Customers aren’t important yet [at the seed stage], but an idea is not good enough either.
A real product that really works and the right orientation about a go-to-market strategy. Where do you get started? You could have a view of the world—”everyone needs our software!”—but you have to start somewhere. You have a good sense of not just what the product does but where you’re starting and the particular use case for your first set of customer, which may not be the biggest use. If you don’t get to phase one, you won’t get to phase two.
Can it go somewhere? Does it have a broader reach? Does the team understand the broader reach? Are the steps they’re thinking about a means to an end? They understand that there is extensibility and creativity and a sense and vision around where things can go. Those things are really important.
Obviously, who the person is, what the team looks like, all the other pieces need to be there. In terms of revenue, certainly no expectations at all. It’s nice if you have pilot customers. You need to know who you need to talk to. It’s not an R&D project. There’s a real commercial application. And you have that commercial sensibility as opposed to you think it’s a cool idea and you’re building software to solve this problem that you’ve seen. That may be useful, but it also has to have an external view of what actual customers will need, and meet that need.
VN: What would you say are the top investments you have been a part of? What stood out about those investments in particular?
OD: We have so many good companies in our portfolio. We’ve been so lucky. Ticketfly got sold to Pandora. Enterproid (Divide) sold to Google. Visual Revenue sold to Outbrain. Olapic sold to Monotype. These were early exits for us, and yet we still have many companies left in the portfolio; some of the biggest exits are to come. Datadog is in the portfolio, one of real enterprise poster children in New York and they came through our summer accelerator way back when. SeatGeek we were an early investor in, and they’re killing it with real intelligence in terms of the ticket world. Enigma is doing amazing things in terms of next-generation data.
And those are just a few. We have 16 active companies left in the portfolio, so there’s a lot going on.
VN: These days a seed round is yesterday's Series A, meaning today a company raises a $3M seed and no one blinks. But 10 years ago, $3M was a Series A. So what are the attributes of a seed round vs a Series A round?
OD: Seed rounds have a wide spectrum. One way to think about it: you move from “people give you the money because they believe in you” to “people give you the money because they believe in you and the business.” Ultimately, when you get listed on the New York Stock Exchange (NYSE), they sort of believe in you but they don’t even know who the hell you are and certainly believe in the business—that’s all the way on the other end. Imagine your mother on left side, who says, “I love you. Oh, you’re starting a lemonade stand? Awesome, here’s money.” On the other side is a day trader on the NYSE who says, “I don’t care who you are but, man, this is a really good company. I want to buy some shares.”
That’s the spectrum you’re dealing with, so obviously if you have product and a really good idea of how to bring it to market and ability to do that within the team itself, those are the criteria. By the time you get to Series A, you’ve proven there's a list of customers that is repeatable, so they can use the same product in one more than one spot. That makes Series A investors say you have product, a market, it’s repeatable, it’s not a new product for every customer—so you’ve captured something important—and you have real revenue coming through the door. It’s not quite scale but you’re clearly on your way to being more focused in terms of the market.
Whereas with seed you’re still learning, still sorting through big questions, but you’ve got some focus, some product, some sense of who wants it and needs it, and you’re trying to get your initial plumbing done to get going with your initial customers.
VN: In 2015, there was a lot more money going into late-stage deals than during the heyday back in 2000. So do you think we're in a bubble or is this the new normal?
OD: Historically, people going public gained access to capital not available in other ways. Because of the technology shift of our world and much later stage investors, it’s appealing, there are needs for capital at much larger scale, what used to be reserved for private equity is taking venture risks. Whereas technology used to be a geeky little side thing in the 1970s-1980s, now it’s central to the future of economy.
There is much more later stage capital available to companies, which means you don’t have to go public as soon as you needed to in the past. Now, one can say if you’re running a company, there are benefits to having public currency, there are debt shareholders, and going public allows the ability to exit. But at the end of the day it’s a much different landscape than even 5 or 10 years ago. It’s a decision that CEOs need to make—whether to go public or not.
Look at Uber: normally, a company of scale and size of Uber would’ve been public 10 years ago. I’m an early-stage investor and I know that running a business is really hard. So the idea of delaying not being public—there’s plenty of positive but also plenty of negatives. Markets are unrelenting even when you’re working through difficult things..
VN: How long is your due diligence period when choosing to invest in a startup, and how do you conduct your due diligence?
OD: Normally, it’s two months. We don’t do the overnight—that’s just not happening. Look, it may be a great deal but there’s a limit in terms of getting to know the founder, working together, and all those things. I do think the minimum is two months, but sometimes it’s longer. These days, it’s hard because of the competition and landscape. Deals get done, there’s a lot of money available. So you do have to be cognizant of that. But there are plenty of times where I’ve met folks over a period of 6-12 months to see them work stuff out, pivot, and change direction.
VN: What is the size of your current fund? And where is the firm currently in the investing cycle?
OD: The new fund is going to be $50 million. We’re hoping to close by end of year.
VN: What is the investment range? How much do you put into each startup?
OD: $1 million to $1.5 million.
VN: What percentage of your fund is set aside for follow-on capital?
OD: Most likely 50 percent.
VN: What series do you typically invest in? Are they typically Seed or Post Seed or Series A?
VN: In a typical year how many startups do you invest in?
VN: What do you like best about being a VC?
OD: It’s extremely challenging because if you’re going to be doing it correctly you need to stay informed and involved—you want to be useful. And being useful for really smart people who are already super motivated and experts in their area is very challenging. So you need to make sure you’re recruiting, making sure you’re in touch with follow-on financing, staying in touch with customers, understanding certain models, and at least have an understanding of technology and strategy. It’s any number of different things. And then trying to synthesize all that’s come before in past investments, past failures, past successes, ways people do stuff. That’s part of the challenge and greatness of it.
Ed. note: Our 6th Annual Vator Splash LA conference is coming up on October 13 at the Loews Hotel in Santa Monica. Speakers include Mark Cuban (one of the hosts of Shark Tank and owner of the Dallas Mavericks); Brian Lee (Founder & CEO, Honest Company); Leura Fine (Founder & CEO, Laurel & Wolf ); Nick Green (Co-Founder and Co-CEO, Thrive Market); Tri Tran (CEO & Co-founder, Munchery); Adam Goldenberg (Founder & CEO, JustFab); Andre Haddad (CEO, Turo); Mike Jones (Founder, Science) and many more. Join us! REGISTER HERE.