E314: Jeff Clavier founder and Managing Partner, SoftTech VC -TWiST

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It’s our first TWiST Live! Jason travels to San Francisco to talk with Jeff Clavier in front of a live audience! The two talk about the current Venture Capital community and Jeff’s experiences as a reputable investor.

Read the full transcript

 [ time codes begin at start of interview ]
1:00: Jeff: I invested my own money for 3.5 years until 2007
1:15: First investments were?
3:15: How many investments have you made?
4:00: What is your pattern recognition now, things that make you say I have to invest?
5:30: What makes you immediately say, “I cannot wait till this meeting ends?”
7:00: Emotion can impact entrepreneurs and VCs
8:00: Christmas – tell me what that means
10:00: Series A crunch – Sarah Lacy’s great article (Jason calls it a random act of journalism). Seems to be real, right?
12:30: What exactly is happening? We’re seeing acquihires.
13:30: Better to have a Series A crunch than drought of angel investors? If you had to pick one?
15:00: Because the standard has gone up, those who get an A round are going to be strong companies, right?
17:00: Y Combinator now pulling back on the number of companies – was it overwhelming as an angel to process?
18:30: How did you perceive the “free money” for YC startups when it was announced?
19:30: Did people know Sequoia backed YC?
21:30: Where are we today – everything being valued so low, seems like the angel bubble is over, the valuation bubble?
23:00: Jason: If a Mark Pincus or Ev Williams shows up, you’re not going to care about the valuation
24:00: Did we ever see chickens come home to roost with convertible notes?
26:00: What do you think you do particularly well as an investor?
27:30: You invested in Mint before or after TechCrunch 40?
28:30: What was it about Aaron that made you want to invest? Was it your best or one of your best investments ever?
30:00: 17 or 18x return on Mint, Jeff confirms
30:15: Does a win like that make you want to invest in 10 more companies?
31:00: What are your expectations for investments, do you have a thesis about that?
32:00: SendGrid – the most successful of all TechStars startups, yes?
32:30:  A company I invested in is not doing well and wants to be intro’d to an important contact. This must have happened to you, how do you handle it? [ Jeff: you say no ]
34:30: How much of your time is getting them to the next round?
35:30: You must have faced an acquihire where you get hosed but the founders did well — how do you handle that?
37:30: Jeff on his fellow micro VCs: Even though we have our own funds, we don’t compete
38:15: What are the worst traits of VCs you’ve seen that entrepreneurs should be wary of?
39:45: VCs behave better now because there’s more transparency?
41:45: What do you think of Dave McClure?
42:20: Chris Sacca?
42:45: Naval?
43:10: Mike Arrington? or MG Siegler

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Full Transcript

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TWiST title sequence.

Jason: two or three years. I assume, some people have seen the show? A couple of people. Everyone has seen it. Great. Awesome. So, we were thinking, over the summer, “Why do we do the show? Why do we do the Launch Festival, in March?” We came to the conclusion, we do this, really, because we are very interested in founders and startups, entrepreneurship and technology. Obviously, we’re passionate, about that space. The team of, about, 5 people, who work full-time on these projects, with me. But, we also do it, because, we want to try to see, as Naval… anybody see, Naval, on the program? The Naval interview. One of the best guests, we ever had. He said something, very, interesting on the program, which, was, he was trying to become the most helpful, he could, to startups. I thought, “Wow. That’s a great mission. I’ll just steal that.” So, we’re trying to do the most, we can, to be the most-helpful. Some people thought it would be great to get together, with the audience. This, is the first time, we’ve done it. Phil, from Evernote, will be back on the program, January 11. We’ll give you guys, first shot, at the tickets. Hey, Kirin, can we make sure that happens? Email, these folks, first. Since, you guys are coming to the inaugural event. Tonight, is going to be like any other episode, of the show. Jeff, and I, will have a conversation. It will last, as long as, it’s interesting. You guys will get to ask questions, too. Which, will be a first, for the show. Hopefully, we won’t have any technical issues. Jeff, was nice, enough, to offer lunch, to one of the people who come. You all have raffle tickets. Somebody, will get to have lunch, with Jeff Clavier. Which is, what we would call a BFD. A Big “F”ing Deal. You get to have lunch. And, you’re paying for that lunch, correct?

Jeff: Yes.

Jason: It’s going to be at a good place?

Jeff: Of course.

Jason: Yeah. It’s going to be a good place. I suggest, you pick a real expensive sushi place. Alcohol’s included. You’re french.

Jeff: Then, it has to be dinner.

Jason: Then, it has to be dinner. It’s been officially, upgraded to dinner.

Jeff: It’s an option.

Jason: It’s an option. O.K. We’re live-streaming this, of course. I’m going to have to have to do some Thank You’s and do some ads. Actually, some people like, when, I read the ads. Let me start by, first thanking, my friends at RocketSpace. They’ve been, really, nice to me. When I tweeted, one day, that I needed to tape some episodes, here. They gave me the space, right up there. In that nice, little loft, up there. Of course, they did it free, of charge and were, incredibly, graceful. They did this, all for us, as well. They took it upon, themselves, to buy those $3 italian sodas. Put out the little flags, on the cheese, 18 different types of ham. I think, you can see the diligence, that RocketSpace, put into this event. Which, is the same diligence, they put into hosting the startups, here. Which, is why they’re perennially sold out. This, is the best place you could ever hope to start your company. So, let’s give a big round of applause, for our friends, at RocketSpace. Really, a class act, for hosting the event. They made it so easy, for us. Also, I want to thank, my friends at New Relic. Who provide server monitoring, on email. Really, simple to use. SkullCandy, Spotify, Nike, Zillow, Vonage. All these great people use it. I use it, at my companies. NewRelic.com/ThisWeekIn. You go get a free t-shirt, there. One of the free, ThisWeekIn Startups t-shirts. And, MyTurnStone. Which, is very interesting. I, actually, found out about MyTurnStone, when, I came here. I said, “These are gorgeous desks. I need to get desks, like this, for my office.” We bought, a bunch of these, for our office. They wound up sponsoring the program. They do a great job. Big thanks, to New Relic and MyTurnStone. Big round of applause, for those guys. Thank you, everybody. Thank you. My guest, today, is a prolific angel investor. And, has been doing this for a while. Actually, when I met him, there weren’t any angel investors. It was so early- 2004, 2005- when, you started investing. That was a really down time, in the internet business.

Jeff: Yep. Nobody wanted to invest.

Jason: Nobody wanted to invest, in 2004, 2005. This, was coming off of the horrible crash, of 2000. The terrible tragedy of 2001. People thought, the internet was a bit of a fraud, at that time. You didn’t. You leaned, into it. I guess, you raised a fund, at that point? You had your own money, that you were investing?

Jeff: No, no. That was my own money. Quick background: I was born, in France. I’m, obviously now, a U.S. citizen. I’m a CTO, by training. I did a startup in the financial services market, which, was acquired, by Reuters and stayed for a while, until 2000. When, I made a move to VC. Very, bad timing. Because, it was at the end of 2000, not the beginning. I was a traditional VC, for four years. Then, in 2004, left the fund to start SoftTech. Like you said, at that time, no one wanted to invest, in consumer internet. No one wanted to fund, the consumer internet fund. So, I just invested my own money. Putting my money, where, my mouth is, for about 3 and a half years. Until, 2007, when I raised one of the first micro-VC funds.

Jason: Some of the first investments, were?

Jeff: Buzznet, in Los Angeles. That was one of my first investments. Feedster. Which, was this RSS engine. They’re all gone. There was a time, when, RSS search engines were actually popular.

Jason: That was a really interesting time. How many people remember, being at a conference, and looking at laptops and seeing, everybody had Technorati out? You search technorati. Anybody, remember that? Nobody, remembers that? A couple of people, nodding.

Jeff: They weren’t born, yet.

Jason: It is a world, away. At the time, there was no Twitter, no Facebook.

Jeff: Blogs.

Jason: There was just blogs. People, would be on Technorati or Feedster, typing in the keyword. We’re at Les Blogs. Or, we’re at this conference, Ted Conference, or whatever. Looking for somebody, who had written a blog post.

Jeff: Yep. Those were the days, where, we thought that, everybody was going to be blogging. Therefore, we needed a new search engine or set of search engines, cause, Google wouldn’t cut it. Turns out, we were wrong. But, just a few months, later, I invested in Truvio, which, was my very first, sort of, success. Which, was one of the first video search engines, back in 2005. Before, YouTube, essentially. So, yes, there was a video world, before YouTube. Those guys were acquired by AOL, after 11 months. There, was a massive return, for me. That put me on the board of people, who were successful. I was lucky, to get into a bunch of good deals, that ended up being acquired, early. At that time, people were talking about, “Built to Flip.” If, you remember this term.

Jason: Right. Absolutely.

Jeff: No. They were not built to flip. They were just acquired, pretty early, by a bunch of aggressive guys, who wanted to move from Web 1.0 to Web 2.0. After, 3 and a half years, I had the opportunity to raise a fund. A $15M fund, that became one of the first micro-VC funds.

Jason: How many angel investments have you made, to date, since starting in 2004, with your own money? I guess, you’re on to 3 funds.

Jeff: 1, 2, 3 funds. Yeah. We’ve closed 132 investments. We have 3 more, in the pipe, for closing.

Jason: That’s over a, what? An 8 year period, or so?

Jeff: 8 and a half years.

Jason: That’s a dozen, a year. Something, to that effect? A little more?

Jeff: When, I was an angel and I was in… I was doing about 8 deals, a year. After raising a find, I’ve been doing, pretty consistently, 20 investments, a year.

Jason: What’s your investment thesis? Now, that you’ve done 130 of these, and you’ve got enough time under your belt, that, you’ve seen things get totally wiped out. Like, this premise of, “We need another search engine, for blogs.” Because, at that time, Google wasn’t indexing blogs. Actually, Google didn’t update the index, for weeks at a time. So, the concept of real time search engines, didn’t exist. What is your pattern recognition, now? When, you get into that meeting, with an entrepreneur, what are the things that, immediately, make you say, “I got to invest, in this. This is going somewhere. This has a good shot. I got to write a check, right now.”

Jeff: Holistically, what we look at is, what are the platform technology changes, that, a startup can actually leverage to create a major disruption. Disruption of an existing market or creating a new market. What we look for is, someone who is tremendously passionate about something. Whether, an idea that they want to go and spend the next 3, 5, 7 years of their life building and, hopefully, turning into a major success. For us, the 3 things, we look at is: Tremendously smart, passionate, dedicated founders. A great idea. A concept, we think is, definitely, different. We don’t like the, “It’s kind of, Instagram, with a twist.” Which, unfortunately, we hear a lot about, these days. Then, something we think can be significant, if all the stars aligned. It’s, tremendously, challenging to execute, in this environment. It’s not easy, to build something at scale. But, if you get there, then, it has to be a company, which can be worth billions of dollars.

Jason: Tell me, what makes you, immediately, say… I’m starting to have this experience now, since, I’ve started doing a little angel investing, myself, in the last 3 years. I cannot wait till this meeting ends. There is, absolutely, no way I would ever give this person $20. Because, I absolutely know they would burn it and it would never see any return. There’s gotta be some red flags, that, you see a big sign, go on top of somebody’s head, like, “Get me the “F”, out of here.” What are those signals?

Jeff: This is a, pretty, exaggerated push back, that Jason is describing.

Jason: You have those moments, where you’re like, “This has gotta end. This is not going, anywhere.”

Jeff: Sure. The challenge, I think, for us is to avoid to apply our pattern recognition, too quickly. Because, obviously, we’re trying to detect those signs, that will tell us early on, “This is not going to be, for us.” Sometimes, after ten minutes, you know, this is for you. Then, you spend a couple of weeks, of due diligence, to make sure that your, initial, hunch is correct. Sometimes, you think that it’s actually a disaster, it’s not interesting, but, there is something that happens, during the meeting that captures your attention. At the end, you go, “I thought, I was going to hate it. It’s, actually, more interesting, than I thought.” You try and avoid… especially, when you’re tired, in a bad mood, whatever. Like, today. By 2 PM, I have to send them an email, to apologize. I was really a bit of a wreck. So, I don’t think I applied my filters, the right way.

Jason: Emotion can impact, entrepreneurs and VCs.

Jeff: Sure. We’re human, at the end.

Jason: We’re human. Yeah.

Jeff: The negative patterns would be, someone who isn’t crisp about the vision. What they want to build. The product they want to try to put on the market. How they’re going to go and acquire users, retain users. What, sort of, questions are they asking, themselves about the initial focus or target, of the company? That’s a killer. Talking to me about, “In three years, we will be acquired, by Google. You will make, at least, 5X your investment.”

Jason: What does that, even, mean? You’re not in control of Google.

Jeff: It means, you’re a short-termist. You’ve, barely, started and you’re already thinking about the exit. What the hell?

Jason: You need to be focused, on the product. Like, you’re saying. This crispness of… What does that mean. Crispness. Unpack that, a little bit.

Jeff: That means, someone, who basically, pitches us… I had that recently. I was, in Boulder, for TechStars. They’re a great accelerator, over there. I met a team, from Ubooly. The CEO, Carly’d, just give me the pitch, give me the demo, of that. It’s, basically, a plush, in which, you stick your iPhone 4, 5, 3, whatever, running an app, that becomes the face of a character. Obviously, it’s focusing on the 4-12 year-old demographic. The story and the way she was presenting. The toy itself. I had the plush, in my hand, playing with it, was a mix of cute and super powerful. She’s, just, a master at selling her concept. Carly and her husband… a lot of investors, hate husband and wife teams…

Jason: That is a red flag.

Jeff: For some. I’ve been, very, privileged to work with Kevin and Julia Hartz, at eventbrite.

Jason: Eventbrite, is huge.

Jeff: I’ve been working with, Victoria Ransom and her fiancé, at WildFire. On which, I made a lot of money. So, I have no problem, what soever, with husband and wife teams. That team is, just, awesome. At the end of that meeting, which, was supposed to be a brainstorming session, where, I was going to mentor them. I basically had, already, made the mental steps of, “You guys are in a plane, next week, to get in front of my partners. We can grab you and be your leads before demo day. That’s when you, just, feel there is something there, and it is yours.

Jason: Let’s talk about a topic, we’ve been reading, a lot, about on the tech blogs. Let’s face it, the tech blogs are written by journalists, who, in a lot of cases, have never run a company, or, have ever invested in a company. So, they’re not going to have the perspective you’re going to have or I’m going to have, having done it, a couple of times. There is this series A crunch, that keeps coming up. Sarah Lacy, actually, who really knows what she’s talking about, wrote a really good piece. I thought it was very thoughtful and, extremely, well-researched. In the old journalism kind of way. Where, she picked up the phone and she talked to people. Just crazy. Talk to ten people, on the phone and ask them, what they thought.

Jeff: What?

Jason: She did. Yeah. It was a random act of journalism. It’s crazy. It seems to be real. Does it not?

Jeff: Sure. I think, I had a long conversation, with Sarah, a couple of months, ago. Where, she said, “Everybody talks about it. But, I can’t see any evidence, of the series A crunch.” At the end of the day, you don’t need to be a genius to predict, two years ago, that there was going to be a series A crunch. You have, just, a set number of funds, that invest at series A stage. Their capacity might be 100 or 200 series A’s, a year. The number, actually, doesn’t really matter. Let’s say 500, to be optimistic. On the other side, you have thousands upon thousands of companies, which, are seed funded. By, micro VCs, by traditional VCs, angels, coming out of accelerators, so on and so forth. The capacity of the series A world, hasn’t changed. Hasn’t increased. If, at all, it has decreased. You have thousands, here. You have hundreds, here. Therefore, there’s a crush. The problem is, at the same time, we’re trying to have, so many, companies funded at seed, the bar that the guys, at the A level, are going to put on the startups, is going to increase. What you need to pull in the seed startups, within 18 month, of your round, is much more. In terms of, traction. In terms of users. In terms of retention. In terms of, whatever your KPI is, it’s just harder.

Jason: KPI, for the people who don’t know.

Jeff: Sorry. Essentially, the metric that is going to…

Jason: Key Performance Indicator.

Jeff: Key Performance Indicator. That is going to determine whether, your statistics swell or not. You can’t whine about it. You can, just, live with it. Understand, that the bar is higher.

Jason: We’re not seeing tons of these angel companies wipeout, yet.

Jeff: Sure.

Jason: But, they’re sort of silently, wiping out? What, exactly, is happening? We see, obviously, acqui-hires.

Jeff: Acqui-hires happen. You, always, celebrate success. You don’t go all out, saying, “I just bombed.” So, people, by definition, will do it, very quietly. So, yes, the lucky ones are acqui-hired. The other, just, disappear. I recently had a conversation, with the VP of Com Dev, of Salesforce. Who, told me, they were just bombarded by people trying to get a soft landing, for their companies. At the end of the day, it’s very Darwinian. Either, you succeed and you go through a series A or you don’t and you crash and burn.

Jason: Not, that big of a deal. Is it better, to have a series A crunch, than, to have a drought of angel investors? If you had to pick one?

Jeff: Angel investors, the flow of money, that comes at the angel side, is either, personal wealth. A lot of people who have made a lot of money, at Facebook, Twitter, and the few IPOs, that have happened, recently. Even, Google. The Googlers, are pretty active. So, there’s no end, to this one. Even if, someone loses, a couple hundred K, and they’re worth a few tens of millions, it doesn’t really matter. What is, actually, not extensible, is the money that is available at the A. Because, it’s controlled by limited partners and those guys are, only, interested in putting more money in VC. So, there’s not really the notion of, one or the other. What’s going to happen is, the crunch at A is going to remain. At some point, people will either decide, not to go and be angel investors, anymore, because, it’s not fun and they’re losing money. That’s going to happen.

Jason: That’s starting to happen, already.

Jeff: Absolutely. Or, they will keep on, pouring cash into startups, because, it’s cool. That’s the one difference, between, you and I, starting to invest, in 2004, 2005, 2006. Where, we did it, because, we really wanted to support entrepreneurs. Where, now, you invest in a startup, because, it’s as cool as having an expensive car.

Jason: That is part of the vibe.

Jeff: It’s true.

Jason: And entrepreneur’s benefit, from it. But, because, the standard’s gone up, I think this means that the people who do get that A round, these are going to be, pretty, darn strong companies. Which, means it’s good for the ecosystem, in a way.

Jeff: The only issue, in all this, is the fact that you have so many people who can be entrepreneurs. That’s great, because, that means everyone gets a shot. That’s really positive. That means we’re really short of talent. It’s hard to, really, hire top people, in companies that are succeeding. So, the bench for, even, strong startups, isn’t as strong as, they used to be.

Jason: So, translation: some of the people starting companies, that might not be their best role, in the ecosystem. Their best role, might be, to be the 2nd, 3rd, or 4th person, at another startup. That startup will, collectively, be stronger.

Jeff: What would have happened, five years ago is, they would have been number 3, number 4, number 5, of a strong startup. They would have learned the entrepreneurial, on the job, at that startup. Then, whatever they do next, would have been, actually, interesting because they would have been trained. Instead, they go ahead, and start by themselves. Which, to be honest, some have been very, very successful. I remember, Aaron Levie, at Box. Do you remember, when, he arrived, in the Valley? He was, like, 20 or 21. 20, cause, he couldn’t drink. I remember. It was, sort of, amazing this vision he had for a 20 year-old, with Box. He executed on that. He’s now…

Jason: Unstoppable.

Jeff: … unstoppable and very funny. If you follow him, on Twitter.

Jason: He’s hysterical, on Twitter.

Jeff: He built a very strong company. Nothing should have prevented him, from getting a shot, at being an entrepreneur. Which, is why, it’s always positive that everyone gets a shot. The problem is, the consequence for the ecosystem, aren’t always super positive.

Jason: Let’s talk about the recent announcement, that Y Combinator is pulling back, that they’re pulling back the number of companies. They had, over 80, at the previous class.

Jeff: 82.

Jason: It was, a little bit, overwhelming, as an angel investor, to process?

Jeff: Sure. You were brain-dead, by 50. You were about to shoot yourself, by 75. The last seven, which is, whatever.

Jason: Yeah. Nobody can remember. I guess, Paul, took that to heart. Really, seeing if… He said, in his Post. “We tried, to push the envelope.” Pulled back. Then, also pulled back, a little bit, on the…

Jeff: On the funding.

Jason: Yeah. What people were calling, in the industry, free money. Did you agree with, the Yuri Milner… I know, obviously, I’m not casting aspersions, on Yuri Milner. Nor, would I ever do that, to anybody, who is, especially, russian. You never know.

Jeff: Why do you say that?

Jason: I don’t want to get whacked, here, or anything, No. In, all seriousness, it seemed like a very generous thing to do, to invest in every single company, coming out of Y Combinator. It, also, seemed very savvy. How did you perceive that, as an angel investor? Who spends all this time, with startups, trying to make a decision, that, someone with a bigger bank roll than you, said, “I’ll take, everything.” What was your emotional reaction, when you woke up, that day and said, “I’m going to the event, with a process, to try to decide and another person, is saying, “I don’t even have to go to the event. I’ll take, everything”?

Jeff: I was… Remember, that Yuri, wasn’t the first. Though, she put this, together. It came, originally, from the VC/angel, Ron Conway. Who, I have tremendous respect for.

Jason: Sure.

Jeff: He went, like, WTF. I think, I can’t say ,”What the “F” word.

Jason: Sure. You can say fuck.

Jeff: OK. So, “What The Fuck?”

Jason: I think so. It’s the internet.

Jeff: I thought, I was told, “Avoid the “F” word.”

Jason: It’ll cost you $10, in the swear jar. It’s OK.

Jeff: I knew I was gonna get caught. So, the whole notion of funding, by default, all those companies, was strange. At the same time, if you look at, the performance of YC, as an investment. It’s actually been, really, really good. The guys who invested, in YC, are going to make bank.

Jason: Sequoia, was famously, the secret money, behind YCombinator, in the early days.

Jeff: It wasn’t secret.

Jason: Well, it wasn’t talked about. Did people know about it?

Jeff: I knew about it.

Jason: You knew about it. Did people here know that Sequoia backed, the early days? I see a lot of nos. I see some yes.

Jeff: There was no surprise, at least to us, in the ecosystem. The point is, it’s a different investment strategy. We pay a great deal of attention, to selecting one, maybe, two companies, per batch. Go, through the process, do reference checks, negotiate the terms. The expectation has been, that YC’s always, there. We always, bring them there. Sometimes, it works. Sometimes, it doesn’t. We just want to have, what we think is the best startup, in the batch, in the portfolio. Others say, “On average, YC companies, kill it.” If, we have a shot, by being an investor, to start monitoring the next DropBox or the next AirBnB. Then, we’ll be able to pile in. As soon as, we see the inflection point. It’s, just, a difference of investment strategy. I’m not saying, that it’s bad. I certainly, would not do that, and if I did that, my own, sort of, investors would shoot me. Cause, that’s not what I’m paid for. I’m paid to select the potential next DropBox or AirBnB, in the batch. The issue, though. As more and more, cash was made available to YC companies, then, ended up with 150 grand. Free money. No questions asked. You started having startups, that were two people, lasting for a year or year and a half. Iterating, on their ideas. Therefore, a bunch of, YC companies, became: Not really dormant. Not really doing, anything. I don’t think, it’s good for them.

Jason: Zombie companies. People, call them.

Jeff: Yeah. Zombie companies, with 150 grand, in the bank.

Jason: Going sideways. So, when, you look at the space, today, where are we at? We’ve had this big, grand debate, going on. Is there a bubble? Is there not? The stock market is valuing companies, technology companies, extremely low. As, Marc Andreessen, correctly, pointed out. 8 times, 10 times revenue. Google, Apple. Everything’s being valued, so low, on a multiple. It seems like, the angel bubble, is over. Will you disagree? The valuation bubble, is coming, maybe? I’ve heard valuations. I seem to be…

Jeff: Valuations are coming down, a little bit. But, I still have people asking for, outrageous numbers, right from the get go. I still see startups, starting their fundraising. Then, a few weeks later, wrapping up their fundraising. I haven’t seen, a dampening of the enthusiasm, at the angel stage.

Jason: Maybe, it’s not increasing. It’s not going down, tremendously, it’s not increasing. When, you started angel investing, those first couple of companies, what were the valuations, like?

Jeff: Typically, they were in a the 2 to 3 pre, range.

Jason: $2M to $3M pre. And, the last handful of deals, you’ve done, are in the… what did it peak out at?

Jeff: 5, 6, 7. With a couple of outliers, above ten. But, for companies, which have made a lot more progress, or, with repeat founders. Where, you look at the track record, of those guys, and you almost, just give them a check. Then, ask, “What do you do, again?”

Jason: So, If is Mark Pincus, shows up. Or, Evan Williams, shows up, you’re not going to particularly, care about the valuation. You’re going to care about getting into the deal?

Jeff: Potentially. If you believe, they can actually do it, again. Yeah. For us, I would say the range, right now, that we expect, when we price, is between, 4 and 6. If, we get into forensics, it’s pretty expected range. Sometimes, we have to show flexibility. So, we’ve done, 7, 8 pre, when we felt we need to.

Jason: Big controversy, early on, with convertible notes. They’re all going to come due, in two years. They’re going to cause, all this chaos. Ron Conway, was originally, I guess, against them. Other people, came out publicly. Fred Wilson, I think. People seem to change their mind, about that. Do you care, either way, if it’s a price round, or not? Did we ever see these, sort of, chickens come home to roost. With, the convertible notes, having to be negotiated. Does it not matter? If a company got to the at point, and could’t raise money after, what ever it is, 2 or 3 years, you’re going to wind it down, anyway.

Jeff: From worst standpoint, we have always, been clear that we would never, ever, ever invest in a convertible note, that wasn’t capped. By definition, I will never invest, not knowing the valuation, at which, I would put in my money. So, for us, a convert note with a cap, or, an equity round, is sort of the same. We always prefer to put money in the pre- round. That creates a board. That creates structure. There’s a set of documents, that define investor rights. When, we do a round, we always go through more due diligence, on the legal side. Make sure that the EB3 elections, have been done. The company is better off. To be honest, with series C documents… it’s $5K to do a note. It’s $10K, $12K to do round. Might as well, do a round.

Jason: Is there a diffusion of responsibility, that happens, when there’s a convertible note?

Jeff: Yeah. Not when, we invest. We’re always, the largest or second largest investor. The average investment, for us, is in the $500K. There is a risk. When, you put a simple note together, no one really leads. The company decides the valuation. Everyone goes, “It’s all right.” No one feels responsible for support of the company. So, when, the shit hits the fan, which happens, all the time, there’s no one to pick up the pieces and say, “OK, This is how we’re going to solve this situation.” For some reason, when you put a round together, this doesn’t happen, as much. What you want, though, as an entrepreneur… let’s say you’ve raised $1.2M. You don’t have 12 people, at $100K or 24 at $50K. You want one or two players. Investors, at $300K, $400K, $500K each. So, that those guys are really motivated to help you. You know. Money is sort of necessary. It’s, really, not the value, that we investors will deliver to you. Hopefully, we’ll do much more, for you.

Jason: What do you see your value proposition… not just your firm, but, you yourself, Jeff? What do you think, you do particularly well, as an investor?

Jeff: I think, over the years, you learn about patterns. Both, of success and failure. Sometimes, it’s an interesting discussion, with a founder, to say, “I’ve been down this road, before. This is what’s going to happen. Avoid making that mistake.” Unfortunately, it feels like founders have to make that mistake, themselves. To realize, we were right. It’s like, when, children get told by their parents, “Don’t do this,” and they do it, anyway. I’ve done that. What do we do particularly well? I think, it’s support the company on the product, marketing, BizDev, early scale. I think, we’re pretty good at helping the companies, over the first 18 to 24 months. Navigating the launch. Navigating the early scale. Getting the thresholds, the hurdles, figured out. Then, raising their series A. After that, once, we have gotten a great investor involved, we’ll step back. We’ll still be involved. We’ll still help. We’ll still support. But, the keys will be in the hands of the series A, VC. Being able to replicate that. Still, being super helpful to companies, when, we have 75 or more companies, that requires, a bit of discipline.

Jason: You invested in Mint. Was that, before or after, they won the first TechCrunch 40?

Jeff: That was before. That was a year, before. I committed, to Aaron, in July of 2006. We closed the round, in September, I think. Then, we were on stage at TechCrunch 40, at that time.

Jason: 40. Yes.

Jeff: TechCrunch 40. You were there. I was on the VC panel, announcing my fund. I was wearing a Mint t-shirt. Which, was sort of, like, “Hey, make Mint win.” Mint, actually, won.

Jason: Yeah.

Jeff: I remember him saying, “Where the fuck is the shirt?”

Jason: Actually, in those days, Mike, and I, would write down, on a piece of paper. We were partners, in the conference. Who our number one was? Who our number two was? Then, we would flip them over, at the same time. That year, we both had Mint for number one. That’s how we decided the winner. We didn’t remember that we had to pick a winner. What was it about, Aaron, that you fell in love with? That made you want to invest. I’m going to guess, that’s your best investment, ever? Amongst the top 2 or 3, in return?

Jeff: Definitely. It’s one of the best. It’s not the best. Aaron, was a solo founder. A solo founder, is kind of tricky, because, it’s a very lonely journey. To build a startup, on your own. Not have someone to chat about, to share ideas and emotions, and everything. Aaron, was exceptionally, disciplined. He had essentially, spent a year, working 18 hours, a day. Building the first version, of Mint. He had this crisp vision about, the fact that no one… MicroSoft, at that time, still had money. Intuit, with Quicken, were not delivering the kind of experience that modern personal finance website, should deliver. That’s what Mint, was promised to deliver. I thought it was extremely compelling. I had to write a check. It was so obvious, to me, by the end, that I was going to do it. I didn’t commit, on the spot. But, very shortly, thereafter.

Jason: What was the return like, on that one? That sold for $300M or $400M.

Jeff: No. It was $170M.

Jason: Oh. Only $170M. I’m sorry. Only, $170M.

Jeff: Because, we were angels and invested, very, very early, at the low valuation.

Jason: You were in at a $3M or $4M valuation.

Jeff: You said that. I didn’t. But, yeah. Round about.

Jason: I’m going to guess. You said, before, $2M, $3M, $4M was the valuation. At that time, the average.

Jeff: It was 17, 18X.

Jason: That’s gotta be incredible, as an angel investor. When, you have one of those big wins. It, just, makes you… what? When, you have a win like that, does it make you want to go out a invest in ten more companies?

Jeff: No. I think, it validates, that, every now and then, it works. Hopefully continues. It makes the wife happy. Cause, the first three and half years, we put in $1M, of our own money, in a bunch of startups. At some point, you have to get the money to come back. Otherwise, you have explaining to do. Luckily, A, my wife is exceptional. B. The Truvio deal was so good, that it returned a lot of the money, that we had committed but not even spent. Before, we actually, had to spend it. It was a very comfortable situation.

Jason: What is your expectation, in terms of, the number of outcomes you’re going to have, per ten investments? Do you have a thesis, about that?

Jeff: If I look, historically, the traditional VC expectation is that you’re going to lose 30% of your investments. I think, we’re closer to 20%. But, not everything that can screw up, has screwed up, yet. In the sense that, we still have a young portfolio. Skewed, actually, to the young stage. We have a number of companies, which, have gone through their series A. That’s the good news. There’s also a series B crunch. No one talks, about that one. It’s actually there. We want to see those companies go through their early funding trajectory. Then, figure out how big the outcome can be. That’s where, I’m super stoked, about eventbrite. Fitbit, is absolutely, fucking crushing it. A company, called, Gnip. is also making enormous progress.

Jason: Gnip, is TechStars, too?

Jeff: Gnip was in Boulder. But, not in TechStars.

Jason: SendGrid. Which, is the most successful, of all TechStars companies. From what I understand.

Jeff: To date. All those guys are in the portfolio. We’ll see, which ones are the first to go public. Which, ones will be a great outcome. But, it’s still, years away. You have to be patient.

Jason: Let me ask you a question, that I’ve just started to face, early, in my angel investing career. Which, is, a company is really not doing well. They want to be introduced to Mark Cuban or Roelof Botha, at Sequoia. Whoever, it is. Somebody at Excel. Benchmark. Some very important contact. But, you no longer think, that they’re going to make it. This must have had happened to you. How do you handle that? I don’t know the answer, to that.

Jeff: The answer is no.

Jason: Just, no.

Jeff: Well, You explain.

Jason: Please, explain it to me. “Hey. I’m Jason. My companies failing.” Explain to me.

Jeff: You say, “No.” You stop. Essentially, we don’t wait for companies to start crashing and burning, before we have a conversation. We’re in regular contact, with our companies. We help them figure out, what the hurdles are. What the issues are, on execution. So on and so, forth. We, sort of, know. Unfortunately, whenever we feel we have the others signs of failure, we rarely, are wrong. At some point, we’re going to have a discussion around, “Look. This isn’t working. Based on all the data points, we have. You’re just not going to be able to raise a series A. As opposed to trying to raise a series A, lets go and find you guys a landing spot. Acqui-hire. Acquisition, whatever. Or, in some cases: shut down the company. You guys are home free to do, whatever you want. The promise, the commitment, I’ve made, to my peers, in the VC world. Which is, pretty simple, I will never put, in front of you, a company that I don’t believe, has a shot at succeeding. Sometimes, they might not like the investment. They might not figure out, this is a big opportunity. Never, will I lose your time, with something that isn’t worth it. So, 132 investments. 30ish are sort of disappearing. Some, being acquired early. Means, that we need to find 80 investors, for 80 companies in a series A. Unfortunately, that…

Jason: How much of your time, does that take? How much of that, is your job? That following on funding. Getting those companies over to the A. To the B.

Jeff: Depending on, it ebbs and flows. I would say, between 10% and 20%, of my time is spent on working on financing companies. We’ve just gone through seven series As and Bs, over the last quarter.

Jason: One of the things, I’m seeing in the market. Aqui-hires, where, the founders get really nice chunks of change. From, Mark Zuckerberg, or somebody.

Jeff: Some do. Not all.

Jason: Nice chunks of stock options. Let’s say. But, the investors get hosed. As one investor, said to me, “Zuckerberg, said explicitly, “Who cares about your founders? I’ll get you a bunch of shares, in Facebook. Don’t worry about your investors, not founders. Told the founders, this. They winded up, not doing that. This story was told to me by one of your peers. What do you think… you must have faced this, sort of, acqui-hire, where, you get hosed. But, the founders do really well. How do you reconcile that? Because, you also have your LPs, now, that you have to service.

Jeff: Founders, also, have a conscious. What we have done, more often than not, is, let’s say, there is value in the company. Yes. The founder and the employees, will get stock options, and so forth. I’ve actually seen, a lot of our founders fighting for us to get our fair share. Which is, either, respect the cap table and the waterfall. Which, basically, defines how the money is to be split. Or, make sure that we can at least, get money back. The challenge, is that acqui-hire, considerations, have dropped like a stone. Since… three or four years ago, you could sell a company to Twitter or Facebook, or, Groupon, and, actually, make a lot of money, for what was a failed company. Right now, it’s just a few tens of thousands, per developer, in options. Investors, pretty much, get nothing. At the end of the day, it’s our responsibility to try and soft land our companies. If, the acquirers has a pattern of always screwing us, we’ll try and go to them, last.

Jason: So, they earned the reputation of, “Maybe, I’ll go to the person in the corporate development office, who is going to be reasonable, first. So, there’s a little bit of a self-correcting mechanism, going on.

Jeff: Sure. We, sort of, exchange tips, all the time. A lot of the micro VCs, started as angels. All my peers, when, there was like, 10, 12, 15 of us, investing. That’s how all these people, sort of, became the super angels. So called. Even though, we all have funds, we never compete. Because, we have our own, different strategies, we try and work together. Whenever, we got pretty badly screwed, either, by a VC in the next round or by an acquirer, a lot of people know about it.

Jason: Reputation matters.

Jeff: Sure.

Jason: What’s the craziest thing, you’ve seen a VC do? Bad behavior-wise. You don’t have to mention the VCs name, but, you’ve seen a lot of bad behavior. People hear about it. We’ll go on to entrepreneurs, next. What’s the worst trait of VCs, that you’ve seen, that entrepreneurs should be wary of?

Jeff: VCs trying to win a deal, at all costs. Throwing crazy valuations. Really, doing everything and anything, they can, to win a deal. Getting the deal. Then, backing off of it.

Jason: Like, not being engaged? Not helpful?

Jeff: Not fulfilling. Essentially, signing the term sheet then, then, saying, “We won’t actually invest.”

Jason: Wow.

Jeff: Do everything to get the deal.

Jason: This has actually happened?

Jeff: Oh, yeah.

Jason: That’s extremely rare, though. That someone would send a term sheet, then, not close.

Jeff: That should be very rare. Whoever, did that to me, should have a horrible reputation. The problem is, they actually, do that. I heard afterwards, the guys who did that to me, in the portfolio, actually, had a pattern of doing that. Doing everything to win the deal. And, backtracking out of their commitment. But, because, there aren’t that many firms, doing series A’s, and, other-wise they are a good investor, their reputation hasn’t taken a hit, yet.

Jason: It could take a little while.

Jeff: No one goes public, with it, obviously.

Jason: There is a lot more transparency now, than there was, when you started?

Jeff: Oh. Sure.

Jason: That’s helpful. VCs behave better, because, of it?

Jeff: I do think so. Yes. There are, now, watchdogs, of sorts. That will call them out. At some point, that story is going to come out. This is going to be sort of interesting. As we say, in french, “Revenge, is a dish that gets eaten cold.”

Jason: Very nice.

Jeff: We’ll see. When, I started, there, was Fred, Brad, David Horning. Sort of blogging. The tens of VC bloggers, that followed in their footsteps, me included, I think, helped really removing this aura of mysticism around VC terms and VC behavior. I think, VCs, now, have to behave much more… what you would expect them, essentially, to do. But, I’ve still witnessed, pretty damaging behavior, from them. Then, you have to go back to the other investors, you said no to, “Sorry guys. We said no. Actually, we’ll take the term sheet back. If it’s a bit lower, the price, the terms are harsher, we don’t have a choice. Go for it.”

Jason: I’m going to take your questions, in a minute. So, if you have a question… do we have a microphone? We do have a microphone. You just raise your hand and Kirin, will run over there. Please, don’t feel the need to plug your company. Or, sell your legal services and put a special ad, in there. I always give that disclaimer. There’s always that guy who does it. You know the guy, who’s like, “Hey, Jeff. Staffing is so important. My company, Acme Recruiting, does an amazing job, with a flat rate. What do you think of flat rate fees, for recruiters?” It happens, every time, right? So, I have this pre-emptive thing: don’t plug your company. You can say, your companies name and have a great question, ready to go. Let’s do some words association, with your peers. Dave McClure? What do you think? I’m going to say the super angel. You tell me what you think, of them. Dave McClure?

Jeff: First and foremost, Dave has been a very good friend of mine. For a long, long time. I respect that he’s basically different. Going out there with a completely different strategy. Doing 200 investments, a year. When, I do 20. Investing, all over the world. When, I only invest in Silicon Valley, New York, Boulder, and Southern California. At the end of the day, performance and returns, will define who is right and who is wrong. But, certainly, he has helped, tremendously, develop entrepreneurship world-wide. I respect him, for that.

Jason: Chris Sacca.

Jeff: Sacca, is awesome. And, he’s very very successful, if you look at… I don’t know how he does that, to be honest. He’s always done a few, off the wall, kind of strange investments and they end up paying off. Obviously, he’s killed it, on Twitter. He has this approach, which, is pretty unique. I respect him, as well.

Jason: Naval.

Jeff: AngelList. Naval. I’m not going to say that much bad, on my friends, just FYI. Naval, really, gifted investor. Who’s done really well also, on Twitter and others. AngelList, is a service, to the industry. Which, is real important.

Jason: Mike Arrington.

Jeff: I haven’t seen much of Mike. The Crunch Fund is a bit like…

Jason: Or, M.G. Sielger.

Jeff: I’ve seen M.G., last week. They’re out there, building a very large portfolio of investments, at different stages. Once, again, we’ll see how they do. We’re sort of focused on, being the first money in. Investing in series C or series D, at hundreds of millions, in valuation, doesn’t mean much for us. They’re doing it. We’ll see.

Jason: OK. Questions, from the audience. Kirin, run one over. Wow. Lots of questions, good. Keep it nice and succinct.

Guest: Sure. Hi. My name is Romel Fox. My corporation is Sumitra.com, Inc. Hi, Jeff. You mentioned, the bench for entrepreneurial talent, isn’t that deep. Have you ever found the occasion to invite foreign nationals to come to Silicon Valley, to create a company?

Jeff: The issue is always, a visa issue. To us, as long as you’re local, it doesn’t matter whether, you speak english with a funny accent. Therefore, the definition of a local company, is actually pretty broad. The problem is, we never fund a company, to move it. We’ve done that, a couple of times. It’s always, sort of, a big issue. Unfortunately, The “U.S. isn’t as forthcoming with foreign entrepreneurs, as it should be. We should, essentially, roll the visas. That, anyone who’s french, from the UK or from anywhere, wants to build a startup, here. Should get a visa, immediately.

Jason: Why hasn’t Obama, after coming to the Valley to raise tons and tons of money…

Jeff: I know right.

Jason: … absolutely, drops the ball on this one. Chris Sacca and Shervin. Those guys raised millions of dollars, from rich VCs and founders, here, in the Valley. Everybody’s got a picture of themselves, with Obama, who’s sold a company. It’s ridiculous. Path is one big Obama stream, before the election. He can’t figure out our best… our most pressing issue, he’s done nothing.

Jeff: So, here is the issue. We’ve been working on the entrepreneur visa. For about three and a half years, now. I think, for once, it is an issue that everyone agrees, needs fixing. Both, republican and the other side. It’s fine. They won’t support it. The problem is that, there is always someone who tries to tweak the low, or the proposal, at the very last minute. The last time, we thought we had a shot. What someone did was, take the 55 minority visas and replace them with entrepreneur visas. That is what Obama, said, there’s no way I’m going to remove those visas. I need them. As opposed to, adding 55,000 visas. The other issue is we have the entrepreneurship visa, part of the more comprehensive immigration reform, which, deals with ten million people who don’t have legal papers. No one wants to take a little issue and psst. pass it.

Jason: Right.

Jeff: It’s not so much of a big deal. The brits, to their credit, heard about the visa concept. Looked at it. Studied it. Within, 6 months…

Jason: Stole it.

Jeff: Yeah. Pretty much. They put it in place. They have it.

Jason: Now, founders can go to London and get going.

Jeff: Yeah. London has been, extremely, forthcoming with european entrepreneurs. Any entrepreneurs. It’s actually a really good place to start a company, in europe. It’s kind of expensive. At least, they’re really trying hard to fund old infrastructure, to make London a real entrepreneur powerhouse.

Jason: Obama, did that with both sides of the aisles, get The Startup Bill passed. It Does crowdfunding.

Jeff: Sure.

Jason: That’s a good thing. You would never invest in a startup, in France, would you? That’s a No, by the way. When, you have a pause for 30 seconds, I don’t need to hear the answer. Look. Loic left. Look at the tremendous success, which, you invested in Seesmic, and he just sold LeWeb. Loic has had, tremendous success. He’s only been here for five years. You’ve had tremendous success.

Jeff: Yeah. After, being here, 12 years. The thing is…

Jason: You could never do that, in France.

Jeff: Dernier was free. Jacques-Antoine Granjon, with Vente Privee. There have been, a few successful and intense startups.

Jason: Vente Privee is amazing.

Jeff: It’s true, I haven’t invested in France, for a long, long time. It’s very challenging. I was chatting with them, at LeWeb, last week. We were welcomed by the prime minister, who did a speech about what he was doing for the french startups, or whatever. Then, suddenly, he turns to Louic and I and goes, “Those in Silicon Valley, should consider coming back.” We had like, 100 people watching us.

Jason: The Press. Le Monde. Let’s do another question.

Guest: So, Correlations Ventures is taking away the human element of venture investing, by being the data driven aka moneybag, of venture. What are your thoughts, on that model? Ia there going to be more shifting?

Jason: I haven’t even heard of this. Correlation Ventures? I haven’t heard of them.

Jeff: Once, again. We’ll see in ten years, how well they do or don’t. I don’t believe in volleyball, in early stage investing. We try and collect a lot of data and so forth. We can never weight something, more than another. So, having this big spreadsheet, that tells you whether to invest. I don’t know how to do that. Those guys are smart. They came to see me. I said, “Look. If, you’re successful you’ll prove me wrong.”

Jason: Time will tell.

Jeff: This is, sort of, an art. It’s a craft. It’s not something you can just industrialize.

Jason: One, of the factors, I’ve heard from many VCs, entrepreneurs, with immigrant parents. Do you see a tend, there? If, the person comes from immigrant parents, they work harder, they want success more? They’re more driven? You’re more likely to invest, in that kind of person? Or, more interest, in them? Do you see a pattern? That’s sort of old wisdom.

Jeff: Yeah. It’s old wisdom, understanding the value of work, the education. I don’t think, this is a major trait, that we’re looking at. I think, there is a potential correlation in entrepreneurs we’ve bagged. We’ve never think about that.

Jason: Going in. It’s not like a thesis, or anything. Next question?

Guest: Hi. Michael, from Epiblogger. I wanted to ask, a little more, about this, so called, series A crunch. I’ll give you my opinion and ask yours. I’ve seen other VCs speak about it. I’ve read Fred’s blog. I’ve read the thing, recently, from ReadWriteWeb. I get the feeling that it’s nothing new. I don’t think, VCs, good ones like yourself, would invest in crappy startups. There’s so many new startups. I’ve went to a few parties, around town. Tons and tons. A lot of them, do frivolous kind of stuff. Some silly… it’s cool for like two seconds, then, you think forward and it’s not that cool, after all. Do you think, it’s a self-fulfilling prophecy, more, like the media is saying, that people are trying to pop the bubble, desperately? Or, do you really, think there’s a crunch, that’s more pronounced, now. Because, of a lack of… because of fully engaged funds or it’s a matter of thrill pit. For example, that so many startups, here, it makes sense. Like, Canada, where I’m from. There’s less startups, but, they tend to be more careful about what they…

Jason: Yeah. What do you think? You said the benchmark has gone up.

Jeff: Yeah. The benchmark went up, because, of the number… There are so many companies, which, will be funded. There are a lot of good companies, coming up for funding. Only, the best get funded. I agree, with you. It’s nothing new. It’s just that the funnel, that comes out of the seed world, is much, much, much more bigger. 2X. 3X. 4X.

Jason: The same number of people will get funded. But, more people, will not get funded?

Jeff: Yes.

Jason: People, who would have previously made the cut, five years ago, will not make the cut, today, for the series A?

Jeff: That is true. So, you will see alternate sources of series A develop. Whether, corporates will start doing series A. You will start seeing…

Jason: Google Ventures.

Jeff: Yeah. Though, Google Ventures, is kind of, a real VC.

Jason: They’re real VC.

Jeff: Some media companies. Some real surprising companies, will sort of do series As. Whereas, typically, were coming in, to them, maybe series B, series C.

Jason: So, strategics?

Jeff: Strategics. Yeah. You will see, sometimes, a gang of micro VCs, putting together a series A. We done one of those. We’re actually, pretty excited by the company.

Jason: A syndicate?

Jeff: Yeah.

Jason: Can you say, which, company that is? Or, is that too soon.

Jeff: We haven’t announced. It’s in Southern California. But, we haven’t announced it, yet.

Jason: Wow.

Jeff: Aren’t you an investor?

Jason: If, this situation were to exist, and, you were syndicating a bunch of folks together, that would be 10 VCs, at $250K each? Or, 12 VCs at…

Jeff: There will be 3 or 4 micro VCs, at $850K to $1M. That’s a pretty substantial commitment, for us. The idea is, it’s seed plus A, in one go. From a commitment standpoint. We end up with, $850K, in the company. As if, we had done a $500K investment, at the seed level. Then, a $350K investment, at the A. But, that will be at the margin. So, you won’t see a way to increase, in a major way, the series A capacity. That might be 10%, or whatever.

Jason: Some people can also try to make their company profitable.

Jeff: Sure.

Jason: It could change the philosophy. Instead of trying to get scale, try to get customers, earlier in the process.

Jeff: It’s always an issue of, if you can grow, as fast… One of the questions, we always ask is, “What is capital, allowing you to do?” Except for paying for engineers and so forth. If, the answer is, “I’m growing as fast as I can. I’m acquiring customers, as fast as I can.” You don’t need money. Growing, the old fashioned way, which is, growing the BT, then, going on cash flows, is not really the way, Silicon Valley, is typically building startups, but, it’s a great one. Look at GitHub. There first round was $100M. That’s like a crazy $700M or $800M valuation.

Jason: Well done. Next question.

Guest: Hi. David Cheng, from VendorStack. Jeff, do you ever make investments in competitive spaces, to your existing portfolio? How do you feel about people who do?

Jason: Great question, by the way.

Jeff: Let me make sure, I understand. I have a company, in a space. Then, someone pings me about an investment, in the same space?

Jason: You have SendGrid and somebody comes along with the disruptive product that’s going to disrupt the hell out of SendGrid. What do you do?

Jeff: I will, immediately, point to the fact, that, I’m an investor, in SendGrid. Unfortunately, I won’t be able to proceed. With a meeting or even considering investment. We have a pretty wide definition of competition. If, it’s clearly competition, it’s not possible. Even, if it’s an overlap, we will politely decline. Because, we know that SendGrid will go much beyond, what they do, today. Because, they have to scale and become a bigger company. We’ll create some kind of whitespace, around all of our companies and makes sure, no one touches that white space.

Jason: What happens if, one company in the portfolio pivots… which, happened to Marc Andreessen, with Instagram and another photo app, What if another one pivots, then, all of a sudden you have a conflict. Then, what do you do?

Jeff: It actually , happened to us. Two companies, doing two things, completely different. They both pivot, into the same space. And, you feel like going, F%#k. What we ended up doing was agreeing that, the second CEO pivot into the space of the existing company. We would work with him, for the period of time of the pivot. It was a completely fucked up situation, because, the two CEOs are two good friends of mine. I had to say, to the second one, cause, he was just pivoting into, what the other…

Jason: He was second, to the idea.

Jeff: He was a second, to the idea. We, sort of, agreed I couldn’t work with him, on that. For, nine months, basically, I didn’t hear from him, because, he was trying to compete with my other company.

Jason: Wow. Let’s take another question, These are good questions, by the way, I have a smart audience.

Guest: The first question is, would you tell your seed startups, your metrics for series A? Or, does that really govern your seed funding thesis?

Jeff: When, we invest, we have to ask ourselves, now, what are the hurdles, that are going to be in front of this company. What do they need to clear, to be successful, at a series A, 18 months, from now. We have to ask, ourselves, if we think, they have a shot at it. The problem is, we don’t know. I think, we’re in a better place, than entrepreneurs, to have an educated guess, but, we don’t know what it’s gong to be. Once, you pass the series A, you will see what the hurdle was. The hurdle is a moving target. Unfortunately, all opportunities are not evaluated, in isolation. It depends on, what else you’re looking at. I had one of my companies… which, I’m very excited about. I think, has a real shot, at building a big company. It got turned down, by a friend of mine, who said, “Look. They are number, top three, in the funnel. The bad news is, we’ll only be funding number one. Depending on the timing that you reach a given firm, you might be number one, number two, or, number three, in the funnel. That… you can’t do much about it.

Jason: Let’s take another question.

Guest: The other question, I have, is this talk going on, about enterprise software. Some of us, who are older, kinda like, enterprise. However, we can no longer go to series A. What they are looking for is, a little bit, higher. For, seed…if you’re not doing some, little, web 2.0 conversion… you need a little bit, more money and a much more educated VC. What do you think, of the shift in the market? To the more enterprise software.

Jeff: We’ve always done, B-to-B investments. We’re spending, more time, looking at, a lot of, consumerized IT. Consumerized IT has some of the traits that you pointed out. Which is, you’re building a real product, that is going to be solving an enterprise problem. What you ned to figure out is, how do you validate, your ability to create demand? How you’re going to acquire customers? Whether, there are any tricks that you learned, on the consumer side, that can be replicated, on the enterprise side. We’ve seen a few of those. We’ve made, quite, a few investments, this year, in that.

Jason: It’s like ground-up IT. From, the bottom up. The people’s IT. DropBox, Box, Yammer. Starts with somebody in a department, saying, “I need a solution, I used it.” Then, the IT department finds out about it, later, that 17 different people, in the company, are using it.

Jeff: It’s about cloud-based delivery. Sort of, Bring Your Own Device. You have it, on your phones, and so forth. We just have set our infrastructure, today, available to us, that enables consumerized IT, in a way that was not feasible, five years ago. I’m, actually, an enterprise software guy. I spent 12 years, of my life, building enterprise software. It was horrible, to see those sale cycles. Having to convince CIOs. That’s what we’re trying to avoid. In terms of, what we fund, in that space.

Jason: Let’s take another question.

Guest: Hey, Jeff. It’s Alex Marino, from Tennis Round. Switching gears, a little bit, to consumer internet startups. What do you prefer, to invest in? Traction or revenue?

Jason: On the consumer side, the question is, traction or revenue. Or, something else.

Jeff: We’ll want to, essentially, understand how the traction is being generated, and, where the revenue is coming from. Whether, this is something that, truly, you can retain. We’ve seen, over the past six months, startups just shoot through the roof, in terms of, numbers. They had figured out a way to leverage Facebook or Twitter, or whatever, to get a viral loop. Sometimes, with pretty aggressive techniques. They raise their round. Then, a few weeks, later, they drop. Sometimes, to 95% of their original traffic. Which, hurts. It’s worse, than Groupon. We, really, want to understand, whether, there is organic retention. Something, that gets users back, everyday. Several times, a day. Or, every week. Several times, several times a week. Because, they need the application. They want to use it. I would say, traction, is typically, what we look at. If, there is revenue, someone has figured out, both, the traction and the revenue. In the consumer world, it depends, too much. Ecommerce, will be, most likely, revenue. If, it’s traditional social media, kind of thing. It will, likely, be…

Jason: 1,000 people, paying $10, for an app or 1M people, downloading it for free. Which, one do you want to take the meeting with?

Jeff: Typically, a million.

Jason: You’d go for the million?

Jeff: Yep.

Jason: A hundred thousand downloads. A thousand people paying $10. Which, one do you want to take the meeting with? You can, only, take the meeting with one.

Jeff: I would take both.

Jason: Nope. This is a test. You can, only, take it from one.

Jeff: It depends, on from where…

Jason: Now, you’re thinking about it.

Jeff: Yeah. Paying for downloads, is easy. Getting organic downloads, is hard. If, someone can get the downloads, get the activation loops, then, two weeks, later, still has 60% or 70% retention, on those users and the cohorts, look good, we’ll take a meeting.

Jason: In other words, he’s got a well thought out process. He’s going to drill down and do due diligence. Let’s take two more questions. Then, drink.

Guest: Hey, Jeff.

Jason: Go ahead.

Guest: Curious. You mentioned, before, the conversation you sometimes have to have with entrepreneurs, about things that are just not working. We need to consider an acqui-hire, shut it down, do something. Whatever, else, you want to do. Tell me about those conversations. What are those like? What have you learned, over the years, in having those conversations. When, you make those softer landings.

Jason: That’s a great question.

Jeff: It’s a great question. I can’t think of that conversation, happening as a shock to the CEO. Meaning that, I know it’s not working, because, he knows it’s not working. We’ve tried everything, we know. We’ve changed the product. We’ve looked at the data. We’ve evolved, a few things. Maybe, we’ve changed a couple of developers and so forth. At, the end of the day, it’s not taking off, because, it’s not as good as an idea, as we thought. Once, we’ve gone through all the things, that might have worked, then, we’ll just say, “Look. Clearly, the bar was here, for you. At the very least. We’re here. There’s no way, this is going to work. Let’s figure out how to end this. Sometimes, it’ll be, “Dude, we have six months of cash left. By definition, you can still iterate, and try new things. If, you feel that this is done, feel free to say so.” Whenever, you raise money, from an investor, there is this commitment, to us, that you will bust your ass and work super hard. Trying to turn this into a success. But, if we see that, it’s just not working, we’ll try and…

Jason: You want to free the person. You don’t want to see somebody suffer through something, you know is not going to work. You’d rather get the 20¢ back on the dollar and put it towards the next deal.

Jeff: It’s not the 20¢, on the dollar.

Jason: Or, the person moving on.

Jeff: Yes. I’ve had that conversation, very recently. With, an entrepreneur, I’d been working with for two years. I really love those two guys. The CEO and the founder. They are awesome. I would look, very, positively at what they do next. We tried something, it didn’t work. They pivoted, into something which tried to get traction. But, we haven’t proven, yet, this is something, that potentially, is going to yield a big company. I’ve already, given them an extension, a bridge. I never do that twice. So, I said, “What do you want to do? We can try to cobble something together. Find someone to lead another bridge. But, if you’re not into it, if you’re not convinced this is going to work, and build a big company, otherwise, I’m going to let you go free. We’ll lose $600K, $700K, which, sucks. At the end of the day, that’s our job. It’s trying super hard, for two years. It’s just not there. I think, our ability to say, “Look. It isn’t working. Just, let it go. We’ll help you do it, as properly and as cleanly, as possible.” There’s nothing worse, than a hard landing. Where, you have creditors and potential law suits. That’s pretty horrible. We’ll definitely, be on the front of that.

Jason: If you’re not having people, completely, wipe out, you’re not really, investing in the right company’s, are you? You need companies… you said, early on, you’re looking for disruptive things. You’re looking for things that are going to change the world. If, somebody’s going to try to change the world, it’s got a good chance that rocket could go off course.

Jeff: Oh, sure. If you’re not ready to fail, you will never do big things. That’s true, on both sides. Every time we invest, we know we can, potentially, get wiped out. The cost of failure.. which, is basically, how much we lose, when a company blows up, is now, half a million bucks. Recently, we had to write off, a $800K investment. I hate it. I have two guys, two co-founders, who have spent two years, trying hard at building something. It didn’t work. I have no regret, whatsoever. The worst is, when, you invest in an idea, which, for a very short period of time, sometimes, because, you’re pushed to make a decision very fast. You go, “It might work.” The next day, it’s like, “Fuck. What have I done?”

Jason: Right.

Jeff: Those are the ones, which, are very frustrating. Otherwise, failure is what we do, day to day.

Jason: Well, you’re not going to do great things, if you’re not willing to risk failure. That was very well said. Everybody, big round of applause, for Jeff Clavier. It’s really, well done. Great job, Jeff. Let me thank, the folks here, who’ve really helped out. Kirin Kalia, is managing editor, managing chief… she runs Launch.co. If, you guys read, Launch.co. She manages the show and does an amazing job. Big round of applause, for Kirin. Brandis and Jesse, on the gear over there, every week. You get that beautiful sound, from these great microphones. It’s not done, without a lot of effort, by Brandis and Jesse. Big round of applause, for them. In the back, Jason Demant, paying the bills. He’s our head of sales and gets all these great sponsors. Big round of applause, for Demant. Then, I’ll wrap up all this great applause, with a big, big thank you, to our friends, here, at RocketSpace. Myturnstone, who actually, furnishes this place, with gorgeous stuff. New Relic, for being our sponsors, tonight. Making this possible. Great job. Thank you, some much. RocketSpace, especially, well done. I want to thank the audience, particularly. Because, you guys did me proud. Great questions. Really, honestly. I could’ve stopped the interview, half an hour earlier, and let you guys ask the questions. How many people, here, have watched more than, five episodes, of the program? May I ask? How many people have watched more than 25 episodes, of the program? Holy cow. I’ve got super fans. I’ve got to tell you. Don’t lie, how many people have watch over 50? OK. You people need to get a life. I gotcha. I’ll tell you. Some of the best moments, I’ve had over the last 3 or 4 years, is the privilege of being involved in these conversations. Great venture capitalist. Great angel investors. Great entrepreneurs. This show, is like, my favorite moment of the week. Getting to see you guys, here, live. The people who watch the show. Really, it’s very touching, to me, to have you guys come out for the show. I hope we can do this, every month. With bigger and better guests. I really appreciate all you guys who tweet and everything. Ask and harass people to be on the show. I particularly, like that move. So, the people who are out there, harassing Marc Cuban, Elon Musk, and Mark Pincus. All my friends, who haven’t been on the program, yet. Keep harassing them. When, you see them live, in person, tell them, “Why haven’t you been on the show?” That’s always great. If, you see somebody walking down the street. If, you see Chris Sacca or you see Jeff, just, yell at them, “I heard you on TWiST. You were on TWiST.” Just, yell at them. It’s really funny. They come to me…

Jeff: It’s much better than, “Ay, I saw you on Bravo.”

Jason: Yeah. That’s bad. Thanks, everybody. Great job.

Jeff: The raffle.

Jason: Oh. The raffle, yes. Big round of applause, for RocketSpace. Give them, one big round. Now, somebody’s going to win, either, lunch or dinner. Depending, on the situation. I should pick, here. You told me it was the one, bent over on the ear. This one? The one that you bent over n the side, before. Here, we go. Your ticket number is… The first number is zero. The next number, is 8. I think, everybody, here, has 08 as their first number. 5. 5. Raise your hand, if so far, you’re doing good. Oooh. It’s going to be good. 2. Raise your hand, if you’re good. There’s only one left. It might be between, just three people, here. The last number is 1. You won. Awesome. Well done. So, lunch or, potentially, dinner. If, you play your cards right, with Mr. Jeff Clavier. One more time for, Mr. Jeff Clavier.

Jeff: Thank you. Join me, for thanking, Jason for being such a graceful host.

Follow On Twitter

Jason: @jason
Jeff: @jeff
New Relic: @newrelic
Turnstone: @myturnstone

Special thanks to the members of the TWiST Backchannel Program!

Executive Producers

Producers

Associate Producers

  • Brad Pineau
  • Kat Ganesan
  • Nicholas Christian
  • Mau Frontier
  • Kyle Braatz
  • Serena Ehrlich
  • JD
  • Alex Lotoczko
  • James Kennedy
  • Benoit Curdy
  • Asher Nevins
  • Mike Kaltschnee
  • William Doom
  • David Lee
  • Jake Kerber
  • Sarp Coskun
  • Giuseppe Taibi
  • Tyrone Rubin
  • Keno Vigil
  • Paul Peters
  • Jamal Waring
  • Nick Ostroff
  • Alex Binkley
  • John MP Knox
  • Bryan McCormick
  • Marcos Trinidad
  • Allen Cordrey
  • Daniel Mich
  • Joshua Rosen
  • Grant Carlile
  • James Smith
  • Christopher Rill
  • Elliot Myhre
  • Nihon Giga
  • Nathan Gielis
  • Greg Meadows
  • Rick Cartwright
  • Jacques Struwig
  • Robert Ward
  • Adam Gering
  • Shelley Gaskin
  • Jim Shute

Supporters

  • Ryan Hoover
  • Michael Cranston
  • Josiah Thomas
  • João Fernandes
  • Petrus Theron
  • Michael Wild
  • Dale Emmons
  • Tim de Jardine
  • Alejandro Vasquez
  • Milan Babuskov
  • Chris Rowe
  • Nelson Melo
  • James Dawson
  • Toddy Mladenov
  • Daniel Torres
  • Chris Macke
  • Piotr Zuralski
  • Armand Konan
  • Brian Vogel
  • Paul D
  • Jennifer Sun
  • David Kolb
  • Sue Marrone
  • Eugene Granovksy
  • Will Blackton
  • Ryan Dodds
  • Brett Arp
  • Jason Cresswell
  • Edwin Orange
  • Daniel Bradley
  • Shawn Daniel
  • Priidu Kull
  • Patrick Desroches
  • Alex Lam
  • Paul Secor
  • Ryan Urabe
  • Madhu R.
  • Paul Ardeleanu
  • Ian Thomas
  • Manny Alarcon
  • Charlie Osmond
  • Christopher Smitley
  • Roshan H.
  • Barcy Cordrey
  • Matt Beaubien
  • Matthew Smith
  • Oscar Bueno
  • Tim Hoyt
  • Ian Gerstel
  • Taphon Maddison
  • John Bradley
  • Luigi Armogida
  • Dave Ferrara
  • Janus Lindau
  • Chris Mancil
  • TR Ludwig
  • Giles Thomas
  • Jason Cartwright
  • Michael Del Borrello
  • Joshua Rosen
  • David Karlberg
  • Marcus Schappi
  • Justin Furniss
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  • Robert Haydock
  • Dan Sfera
  • Flaviu Simihaian
  • Kiko Cherman
  • Chandra Siva
  • Kasper Andkjaer
  • Zach Woodward
  • Chris Galasso
  • Chad Olsen
  • Michael Grabham
  • John Shiple
  • Gregory Hoffman
  • Chris Rickard
  • Eskil Steenberg
  • Jay Moran
  • Karim Sarkis
  • Michael Davidovich
  • Petru Marchidan
  • Sam Drzymala

 

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