Google Ventures plans on 80 seed deals a year

Partner Joe Kraus on Kabam, mobile gaming, local, and Google Ventures investment thesis

Google Ventures has been one of the more active Silicon Valley investment firms, having made some 50 investments since 2009. It also has a pretty good exit under its belt with ngmoco, a gaming startup that sold for $400 million at the end of 2010, months after Google Ventures invested. More recently, the VC led an $85 million investment in Kabam, a gaming company focused on hardcore gamers. Joe Kraus, who joined Google Ventures as a partner in 2010, went on the board of Kabam as well.

Recently, I sat down with Joe, whose better known for his experience on the other side of the investment table. Joe founded Excite, one of the first search engines, which also became one of the first Internet companies to go public in 1996. Joe went onto find JotSpot, which he sold to Google in 2006. After Joe's earnout was finished at Google, he decided that it was time to try his hand as an investor.

Here are a few highlights from our interview:

- Mobile gaming is an attractive market as social gaming is obviously flourishing: "I'm a big believer that startups can't create their own momentum," said Joe. "We thought there would be 10 times more smartphones, and that led us to invest in ngmoco."

- Joe considers the "local space" attractive, but has had many reservations. Entrepreneurs have been talking about the opportunity in local for years, he said. With the rise of mobile, local appears more real today, but the challenge is that local businesses still need feet on the street, said Joe. "It's always been a feet-on-the-street business." 

- Why Kabam? Joe explains that the gaming market is $46 billion and $23 billion is generated on the console. The bulk of the revenue comes from hardcore gamers, he said. Casual gaming is a lighter-touch, lower-engagement experience. Hardcore gamers spend more time playing games and spend more money, said Joe.

- Google Ventures led a $600,000 investment in Law Pivot and about $42 million in WeatherBill. What's Google Ventures' sweet spot? Google invests in seed, Series A and B, as well as later-stage, said Joe. For seed-stage deals, Google likes to "divserify," which is another way of saying Google Ventures likes to be prolific. The venture firm plans on investing in 80 seed deals this year. They're earmarking $100k to $150k in deals that will ultimately raise $500k to $1 million in seed funding. While Joe won't disclose how many deals have been seeded, some startups they've invested in at this stage include, Hipster, Smarterer, Shopobot, Copious and Schematic Labs. For Series A and B, Google Ventures plans on 20-plus deals with investment amounts of $3 million to $10 million. The venture firm also plans on four to six later-stage deals, with check sizes between $10 million and $40 million.

-- What differentiates Google Ventures from other venture outfits? Typical VCs want to help entrepreneurs find senior managers and partners. But entrepreneurs really need access to worldclass developers, designers and engineers, said Joe. As an entrepreneur, Joe knew that fundamentally, how his product looked determined how he could get traction. He didn't need senior managers. "I needed worldclass engineers," he recalled. To that end, Google Ventures focuses on helping entrepreneur develop their product, and recruit top talent. "I believe startups go through desert phases, when nothing feels like you’ve discovered the machine  that’s going to print the money," he said. "What you need is great engineers to explore vast quanities of desert."

-- For seed-stage investments, Google Ventures focuses on investing in teams more than the product.

-- Google Ventures does not invest for strategic reasons. It's independent from Google and only invests for financial returns.