VCs don't need $500M exits, but it doesn't hurt

Krystal Peak · July 20, 2012 · Short URL:

A panel of VCs at Venture Shift SF tackled what it takes to get funding in today's market

There is a lot of talk about if it is easier to invest now than five years ago and the panel of VCs and and tech executives pulled together for Venture Shift sure had some heated opinions about that topic. To moderate the panel was digital media investment banker for Ackrell Capital, Ezra Roizen.

Meet our panel: 

Thomas Korte: founder of AngelPad, which helps 12 companies every six months. AngelPad has worked with 50 companies and is in the process of seeking another 12.

Noah Doyle: managing director at Javelin Venture Partners. Javelin focuses on seed to Series A investments and makes about one investment a month.

Ann Miura-Ko: co-founding partner at Floogate where her investment have included e-commerce, security and big data. She currently sits on boards of ModCloth, Refinery29, Wanelo and CSS. Her firm focuses on early stage or very early stage investmements.

Micheal Neril: is the director of Webb Investment Network and heas led 40 investments for early-stage companies.

Alexander Mouldovan: VP of product management at Marketo after co-founding Crowd Factory and eventually getting acquired by Marketo.

Stacey Bishop: managing director of Scale Venture Partners. SVP focuses on companies that already have a product in the market and are ready to scale or head to IPO.

Here are some highlights from the vibrant discussion:

Ezra: Five years ago we started seeing people that had never raised venture capital and were popping out of nowhere. It was almost unheard of, but those companies would just have one owner and were now finally at a stage to raise more funding.

AMK: I looked at the numbers before I came here to really get a feel for the state of investments. About 1500 tech companies got some professional fundraising done in any given year. There were roughly 15 companies getting $500+ million. When you run further up the ladder you see 7-8 companies got more than $750 million. You have to then remember that we qualify a thunder lizard as a company banking $500 million or more.

TK: We look at a very different area and time in these companies' lives. We have to put a lot of money to work and spread it out to see what blossoms. When you look at the earlier stage that I play in, you invest in these companies and you go for the companies that have the chops to grow into large companies, its just not all of them.

The returns are interesting though. It is pretty hard to continue raising funds if you only look at the big companies and big wins.

Ezra: Socialcam and Instagram were huge wins with small teams – Are we seeing a different world of what it takes to make it?

MN: Those are firecrackers. We can be successful with the $50 million exits. If I can be part of one of the 20 companies that exit at $150M and the mortality rate is 25-30% then . . . we can still be successful without those huge wins. I don’t need the firecrackers, but when I get them, it becomes really interesting.

TK: Making your money back now is relatively easy. The earliest investors usually get their money back. It becomes less risky than it was earlier when you had to put up so much money. Now, there is less of a risk because someone will take these smaller companies and incorporate them in their big enterprise -- like Facebook, Google, etc.

I tell every company that your big investment is hiring great engineers that will make for aqui-hires and give you security.

AMK: I would argue the hogging of engineers to protect your company ties up a lot of great talent and is not fair for the companies really trying to make a difference and build great things. Then all these companies building little apps have these great designers that aren't doing great work elsewhere. I don't agree with that.

Ezra: Did the Series A crunch affect you?

ND: Part the big picture is that the statistics are not capturing all the smaller acquisitions that go without filings. There is that element of the market to look at.  I think what we try to do is really make sure that the entrepreneurs have the talent and passion to take it to the next level regardless. Then if an offer comes along that is great for them at the time, then they are equipped either way.

SB: We convince companies to take our money and hire a lot of sales people. We have to take their numbers and prove that spending like mad for some companies with a great systems is a winner.

We are looking to build the big companies with $500M+ exits.

Omniture was way under optimizing their process before we invested but then you see what a value it is to deliver those results.

Ezra: Is Marketo using your products as well as your team?

AM: Both our product and our team.  I am extrememly happy with the outcome. We got the best of both worlds. We got to take a lot of risk off the table and offer our investors a good return once we perform the exit.

Ezra: Is it harder or easier to be an investor than 5 years ago?

TK: It is easier. I look at very early stage and get 2,000 applications for 12 spots at AngelPad.

ND: The tools and infrestructure are much better now and give us more to work with.

AMK: It's more exciting for us, not easier. We ask what it takes to be a 3X-return investor and we see that only 3% ever see that. It doesn’t matter what your strategy is, you have to be world class.

MN: It comes down to the entry points. Ultimately you can control the entry points, not the exit points. The entry points are what will change your returns.

SB: I think it is easier since so many companies are doing so well on less funding. There are all these freemiums that have space to grow up and then take funding.

Ezra: Tough time to be an entrepreneur?

AM: It is easier to get a company off the ground without much funding but there is the noise factor vying for a limited resource. You also have to be evaluating a lot more factors too.


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