Which early-stage startup strategy is the best?

Bambi Francisco Roizen · November 2, 2011 · Short URL: https://vator.tv/n/1e29

500 Startups, AngelPad, Javelin Ventures, K-9, Cendana Capital discuss at Venture Shift

The average venture return over the last 10 years has been a negative 4%, said Michael Kim, founder of Cendana Capital, a venture fund that invests in early-stage VC funds. With that encouraging backdrop, what is the best investment strategy early-stage investors should pursue? 

That was the late-night panel topic discussed at Venture Shift SF at Cafe Du Nord in San Francisco. The panelists discussing that topic were AngelPad's Thomas KorteDave McClure of 500 Startups, Manu Kumar from K9 Ventures, and Jed Katz from Javelin Ventures. Michael acted as moderator.

(Note: Vator and Bullpen have taken the popular event to NY. Venture Shift NY is around the corner on November 17. We'll have investors from First Round, FirstMark, TechStars, RRE, GRP, and more, as well as Bill Chasen of Turntable.fm and Barry Silbert of SecondMarket, and many more. Get your tickets here.)

Here's some highlights of the different strategies among these seed- to early-stage investors.  

Dave McClure of 500 Startups: Strategy - "diversified." The fund looks to make up to 100 investments in a year, with the understanding that "most" companies will fail (as they typically do across the board). Not surprisingly, Dave has little time to spend with each company. Dave will look to invest about $50,000 to $100,000 to prove out a startup's thesis and reach milestones. He'll do follow-on rounds with companies that are hitting those miletsones. Dave focuses more on M&A exits, as opposed to big billion-dollar exits. To this end, he's not as worried about being diluted by later-stage funds getting in on the deals. He believes many founders will be inclined to sell their company for $25 million more often than not.

Jed Katz of Javelin Venture Partners: Strategy - "traditional." Javelin invests in about six deals a year, committing anywhere between $200,000 and $2 million. Jed will only do seed investments if he and his partners are certain they will follow on with a Series A round. Unlike 500 Startups, Javelin's team spends "a lot" of time with their founders. 

Manu Kumar of K-9 Ventures: Strategy - "selective."  Manu makes four to five investments a year, and commits anywhere between $100,000 and $200,000. He's looking for home-runs. Because Manu is looking for big wins, he also doesn't invest in any company that's valued at $5 million or above. 

Thomas Korte of AngelPad: Strategy - "incubator."  The group invests in 40 companies a year and is always the first money in. Entrepreneurs spend three months with AngelPad. Those entering the program receive $20,000 from AngelPad and $100,000 from two un-named VCs who've backed AngelPad.

Watch the panel to learn more about what these gents think about syndication and exit dynamics as well as ownership stakes as their portfolio companies start raising later rounds of capital.  

(Don't forget to catch the next Venture Shift strategy panel at Venture Shift NY this November 17. Buy tickets before they sell out. Register here.)  

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Bambi Francisco Roizen

Founder and CEO of Vator, a media and research firm for entrepreneurs and investors; Managing Director of Vator Health Fund; Co-Founder of Invent Health; Author and award-winning journalist.

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Bullpen Capital is second round investor who invests in companies previously seeded by the Super Angel funds.


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Dave McClure

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Jed Katz

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Jed Katz is the Managing Director of Javelin Venture Partners. One of the pioneers of online commerce, Jed has spent his 20 year career developing, advising & investing in early stage tech ventures.