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500 Startups, Felicis, Floodgate, Javelin, AngelPad, SoftTech, Google Ventures, Greylock Ventures
This Wednesday, Vator and Bullpen will hold its first-ever Venture Shift event, a gathering of top-notch investors, angels, and entrepreneurs to explore the changing dynamics of the venture industry. One of the factors disrupting the status quo is the new capital flooding the early stages.
To this end, two panels will be focusing on how the new sources of funding have turned the venture ecosystem on its head, and which early-stage strategy is the best.
In preparation of those particular panels, Ezra Roizen suggested I create a cheat sheet for readers and attendees, given the number of interviews I've conducted with the new faces of venture capital. So, I decided to provide this cheat sheet - a look at several early-stage micro-venture capitalists I spoke with in the recent past. Here you can get an idea of their investment philosophies.
Jeff Clavier is the founder of SoftTech VC, which closed a $35 million round at the end of last year. He invests in 20 companies a year, applying "extreme discipline" on the sectors invested in and valuations paid. He focuses on building ownership in companies. At the seed stage, he tries to acquire 10% in a startup, if he leads a round, or 5%, if he follows in the round. Jeff invests between $100,000 to $500,000 in a $1 million to $1.5 million round. What does Jeff think of home runs? "As to home runs, we don't know," he said, in a recent interview via email. "But our basic assumption is that every opportunity has the ability to turn into a sustainable, scalable business that could generate10X our initial investment. Short-term flips are not interesting to us, though sometimes our companies get acquired early and we support our founder's decision (like Tapulous [Disney] and Milo [eBay])."
Dave McClure is the founder of 500Startups, a $30 million fund. His philosophy in early-stage investing is to invest in about 100 companies a year. Dave has a "diversified" portfolio strategy approach, betting that 20% to 30% of the companies will be successful enough to have his participation in a follow-on round. What Dave brings to the table is founder-friendly expecations. "We're more open to busineses that don't have to be homeruns," said Dave, explaining that the M&A market has changed in favor of more exits. A lot more non-tech public companies that are consumer facing will feel a lot of pressure to understand online channels, search and mobile. They'll be willing to spend $50 million to $100 million to acquire that knowledge, he said. Dave said he's willing to invest in companies that can generate revenue of $1 million to $3 million in its third year of operation, and have a post-money valuation of $10 million.
Mike Maples, Floodgate - Spotting Thunder Lizards interview
Mike founded Floodgate, which manages $75 million. He invests in startups seeking $200,000 to $500,000 on the low end to $1 million at the high end. Mike's philosophy is to hunt for Thunder Lizards. In other words, he's looking for home runs. There are a couple reasons for this: His own personal quirkiness and because high-tech is a winner-take-all business, he said, adding that winners have such disproportional success, only rational people would chase Thunder Lizards. Think of a company with a $150 million exit, he explained. A person would have to sell one of these every year for practically a decade to make that equivalent to a billion-dollar exit. It sounds rational, indeed. But it's a low-probability game that Mike is playing. Between 2003 and 2009, some 1500 startups received investments each year on average, according to his research. And, of that batch, eight had exits over $750 million and 80 had exits over $50 million. But that's not stopping him.
Javelin Ventures manages a $105 million fund. The San Francisco-based venture firm invests in businesses that are exceedingly capital efficient that can make great progress with about $1 million, in order to demonstrate customer traction and revenue, well before raising millions of dollars. As Noah puts it: "We really look for businesses that have a differentiated set of intellectual property in innovation - usually a technical innovation - at the core. But it could just be a differentiated approach to social networking or to a market space that nobody has taken before. And, a business can be built around that IP where there is a large market potential, such that productization can be done quickly and early proof points can be generated but if that makes progress, the market depth is really there."
Aydin, who started out as an angel investor, founded Felicis Ventures, which he calls a "super angel" fund. In four year, Felicis has made investments in more than 60 companies and has had 16 exits. Aydin looks for small, scrappy, cash-efficient teams with great IP, and typically in the consumer Internet space. He'll commonly invest between $25,000 and $100,000.
Joe started at Google Ventures in 2010. Google Ventures invests across the board. at the seed stage, the VC firm plans on investing in 80 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.
Thomas is the founder of AngelPad, a mentorship program launched in 2010 by ex-Googlers, including Thomas. AngelPad invests $20,000 per startup and takes about a 5% ownerhip stake. For that ownership stake, the partners also provide mentorship and office space for 10 weeks. How does AngelPad differentiate itself? "The idea that everyone can do it themselves is like saying we don't need universities," Thomas said, explaining that incubators are helpful in providing needed advice and guidance, beyond financial support. There's not as many incubators as there are firms that just provide the capital, he added.
David Thacker, Greylock Discovery Fund - Interview
David works as a venture capitalist at Greylock, which recently launched a fund focused on seed-stage investing. The $20 million Discovery Fund places as little as $25,000 into startups. The investment decision process is also expedited as partners can make decisions on their own without having all the partners sign off. If you're lucky enough to sit down with a Greylock partner, you might get an answer within 24 hours. "Rounds come together quickly," said David, referring to early-stage investment rounds.
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