[PREMONEY 2014] Soft Tech VC >> Jeff Clavier, "What I Learned Seed Investing Over the Last 10 Years"

What I Learned Seed Investing Over the

Last 10 Years

Jeff ClavierManaging Partner, SoftTech VC

Pre-Money Conference - Jun '14

Brief bio

• Jeff Clavier (@jeff)

– French born– C/C++ & Distributed

Computing Hacking– CTO at Financial Services

startup in 1989– Acquired by Reuters in 1993– “Traditional” VC in the Valley

since 2000– Angel/Seed Investing since

2004

• SoftTech VC (@softtechvc)

– 10 years old– 150 investments– 30+ exits– $2B in follow-ons


Jeff Clavier

Charles Hudson

Stephanie Palmeri

Flashback: Ten years ago

• Early days of Web 2.0• Blogging was the new

hotness– Remember RSS readers?– Commenting and

quoting posts was the engagement

– Growth hacking meant “getting a blog post on top of Techmeme”

• Seed rounds were smaller, Series A’s were$1M to $2M

• It required a dozen angels and a few funds to fill these rounds

• Syndicates were based on who you knew, not who was most relevant


How we built our footprint

SoftTech VC I($1M, 24 deals)

Goal: Build initial deal access and reputation as a value-added investor

By: Hustling, Blogging, Networking, Investing personal capital

SoftTech VC II($15M, 65 deals)

Goal: Establish “institutional” angel model

By: Focusing on access as we defined investment strategy, syndicating, building brand and top dealflow

SoftTech VC III($55M, 55 deals)

Goal: Execute on a refined, repeatable seed strategy

By: Building ownership in a select group of companies, and expanding the footprint of the firm


2004 2007 2011 2014

“Super-Angel” “Super-Angel” Fund

Micro-VC Fund

The 2014 Funding Ecosystem

04/07/2023Pre-Money Conference - Jun '14

Pre-Seed

< $500

K

• Bootstrapping/Friends and family• Pre-Seed Funds and pre-order/crowdfunded campaigns• Incubators and Accelerators (YC, Techstars, AngelPad, SeedCamp)

Seed

$1.2 to

$2.5M

• Syndicates of micro-VC firms, angels and (potentially) traditional VCs• AngelList and Crowdfunding services as alternative or “fill up” opportunity

Series A

$5M tp

$15M

• One traditional VC, with micro VCs investing pro-rata and adding strategic angels• Family Offices, Strategics, Micro-VCs + Crowdfunding pools as alternative

Series B

$10M to

$20M

• Another traditional VC (or two), with insiders coming in for pro-rata• Same mix as Series A for alternatives

Growth

$20M to

$100M+

• Mix of traditional/growth VCs, PE firms, hedge funds. In parallel, secondary transactions.• Alternative: direct co-investments from LPs, hedge/mutual funds, cash rich corporates

What I Learned Seed Investing Over the

Last 10 Years

Disclaimer: your own experience may vary ;-)


1. Success + Reputation = Dealflow

In order to get access to the best deals, you don’t have to be nice – you just have to be really good, which sometimes means making harsh decisions and passing quickly and explicitly on opportunities


2. You need a clear “shtick”

• Critical with both entrepreneurs and LPs• CBInsights listed 135 micro-VC firms in a

recent study. 135!• Unless you have an established brand and

track record, you need a differentiated strategy:– Geography, sectors and industries, stage,

value-add, infrastructure and ecosystem


3. Be explicit about your investment criteria

• Apply your investment thesis as absolute filter– Sector, Location,…

• How we summarize our criteria?

• Answer Yes to:– Like these founders? Are they

a particular fit for this market?

– Are you passionate about the product?

– Do you LOVE this deal?• When you start investing, you’ll

love each and every deal– Is it fundable in 12 to 18

months?


4. Clear signs a deal is not for you

• “They don't know what they don't know”– When you have that feeling about founders, it’s time to

move to the next deal in the funnel• As you due diligence founders, markets and

customers, every piece of information you collect should make you increasingly excited

• Over time, you’ll develop a “spidey sense” that will tell you something is off – every single time I ignored it, I lost my capital


5. Unique ideas no longer exist

• The notion of a “unique idea” has pretty much disappeared– It’s all about executing better, faster and bigger– Competitors will pop up within weeks of your launch– And they will get funded– For investors, that means you can also wait for the

right team


6. Beware of the “Quick Pass”

• What’s common to all these companies?

I passed on all of them because they did not feel interesting or performing – or I was “too busy”

• How do you avoid the “Quick Pass”?Ideally you‘d keep an open mind as to the merits of every opportunity, especially if founders are legit and you respect the referrerPS: It’s really hard – still making that mistake too often


7- Think value add when syndicating

• In this environment (135 micro-VCs, 100s of angels, 1,000s of retail investors) capital is REALLY a commodity

• Value add (experience, connections, expertise, brand name) will be paramount to get you in a deal

• Building a strong syndicate that helps fix the shortcomings/challenges of founders is key

• That’s why party rounds are so atrocious – no one cares, no one helps

• Smart founders will optimize for “Investor Market Fit” - when they have several options


8. Founder accountability is key

• Too often investors think keeping portfolio cos accountable is not being founder friendly – that’s wrong

• Agree early on a reporting schedule and a simple one-sheet template– Summary of progress against plan / Highlights / Lowlights /

KPIs / Cash on hand & Runway / Key asks to investors• Especially important if there is no board, and founders

are first timers• Once you realize something is off, it is most likely too late

– runway rarely allows for a “warm reboot”


9. Beating the Series A/B Crunch

• We had 18 companies raise $200M in A/B rounds in the last 8 months

• Suggestions– Have a clear “Hot or Not” map for sectors you invest in,

and understand runway implications for the Not’s– Early on establish and validate hurdles to clear in order to

get the next round– Pre-market early with the “most likely/best fit” group of

investors– Even great, promising startups require solid runway


10. Recycling does matter

• Say you have a $50M fund, and you need to deliver a 4X gross return. About 25% will go to management fees and costs.

• To produce a $200M total return, you’d need a 5.5X performance if you don’t put “fees in the ground”– 200 / (50 * (1 – 25%)) = 5.5

• Recycling means that you don’t distribute all proceeds back to LPs, or use your clawback clause

• Cashflow/distribution optimization is tricky


11. Without systems, you will drown

• The volume of deals is such that a real CRM is unavoidable (Sevanta)

• Contact management is God awful (RelateIQ)• Need a scalable back-office for financial/LP reporting and

audit (VMS)• Most community tools suck (GroupTie)• On top you need: fund website, community

management, social media, events management


If I could write to my younger self

Don’t say No to , Asshole!


Good luck, and thank you!

www.softtechvc.com@softtechvc


http://www.softtechvc.com/

But wait!

There is more.

(Yeah, I have always wanted to do this)



SoftTech VC IV closed at $85M


$85M SoftTech VC IV Primer

• 50 seed deals over 3 years• $500K to $1M+ per initial

investments– $35M = 50 deals @ $700K

• $50M allocated to Series As and Bs follow-ons

• Geos: SF/SV, NY, SoCal, Boulder, Toronto

• Target ownership: 7 to 10%• Always syndicating with

peer micro-VCs and angels

• Sectors

• New Areas: VR/glasses, BTC, drones, Digital Health

How we built our footprint

SoftTech VC I

($1M, 24 deals)

Goal: Build initial deal

access and reputation as a value-added

investorBy: Hustling,

Blogging, Networking,

Investing personal capital

SoftTech VC II

($15M, 65 deals)

Goal: Establish

“institutional” angel modelBy: Focusing on access as we defined investment strategy,

syndicating, building brand

and top dealflow

SoftTech VC III

($55M, 55 deals)

Goal: Execute on a refined, repeatable

seed strategyBy: Building ownership in

a select group of companies,

and expanding the footprint of the

firm

SoftTech VC IV

($85M, 50+ deals)

Goal: Iterate on Fund III’s

model, expanding post-seed

when appropriate

(Seed Prime, Series A)

By: Building and

maintaining 7% to 10% ownership

through initial rounds of financing


2004 2007 2011 2014

“Super-Angel” “Super-Angel” Fund

Micro-VC Funds

Thank you!

www.softtechvc.com@softtechvc


http://www.softtechvc.com/

[PREMONEY 2014] Soft Tech VC >> Jeff Clavier, "What I Learned Seed Investing Over the Last 10 Years"

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Transcript of [PREMONEY 2014] Soft Tech VC >> Jeff Clavier, "What I Learned Seed Investing Over the Last 10 Years"