Panel on Super-Seed Funds at Harvard Business School Club of NY


I took some notes on last week’s Harvard Business School Club of New York panel on "Super-Seed Funds — Back to the Future." Eugene Radin of Concept Clinic edited the notes and merged in his own.  Incidentally, congratulations to Doug Atkin, Tony Berkman, Steve Miller and the rest of the Majestic Research team on their sale (announced today) to ITG!



Steve Brotman – Managing Director, SAVP



Chris Dixon – HBS, Founder Collective/

Doug AtkinGuggenheim Partners, former CEO Instinet

Jeff Stewart – founder, UrgentCareer; Mimeo; Monitor110

John Frankelff Asset Management

Select Biographies


Doug Atkin

After graduating Tufts, became first employee of Instinet in 1984, spent 20 years there.

Did a lot of investing in financial firms through his work at Instinet.

Ran a few companies, most recently Majestic Research.


Steve Brotman

Raised $1m, mostly his own money, in late 90s. His first investment was in LivePerson, which went public in 18 months. Money started pouring in ’99. Collected a return of 3.5x investment, which put him in the top 1%.

In ’04-’05, partnered with Greenhill Ventures and raised $100m. Greenhill raised $2b. Currently spinning off from Greenhill, due to recent regulatory changes. We’re very pleased about the spinoff, because the move will provide more freedom.


Chris Dixon

Co-founder of Hunch.

Personal investor in early-stage technology companies, including Skype, Foursquare, Stack Overflow, TrialPay, DocVerse (acquired by GOOG), Invite Media (acquired by GOOG), Gerson Lehrman Group, ScanScout, OMGPOP, BillShrink, Panjiva, Knewton, and a handful of other startups that are still in stealth mode.

Co-founder of Founder Collective.


John Frankel

Back in 2007, VC’s invested in 3,500 companies, with $26-30b. Angels put in $26b in more companies (excluding friends and family). Roll to 2008: amount of money invested by VC’s dropped to about $16b, but angels are at about the same level.

Recently spoke with one of the largest VC funds: they did an analysis of all the super-angels, which determined that over 1,000 companies had received capital from this population. They said that’s terrible for their business. He countered: I don’t know if those 1,000 investments came from the pool that gets money from VC’s or the pool that gets money from angels.

Panel Discussion


Steve Brotman

What are your thoughts on the recent popularity of early stage investing?


The panel unanimously agreed that this method of raising money has gained much more attention lately, and is growing as a viable source of seed investment for entrepreneurs.


Chris Dixon

Two contradictory forces: funds are getting bigger, but the amount of money needed to start a tech company has dropped.

Funds like his earn money only if they get returns for their investors, just like the entrepreneurs. Average top-tier VC investor at Greylock makes a few million/year just for showing up (referring to management fees).

Seed funds offer more flexibility than VC’s.


John Frankel

Angels invest in far more companies and spend approximately the same amount of money as VCs.

Angels may be threatening to traditional VC’s.

More people are interested in starting companies, especially young people, who view entrepreneurship as a viable direction for their lives.

Very low burn rate for many companies which they invest in.

Economic recession has created more companies, and larger, established companies are more interested in unique/new ideas, which offer more opportunities for exits.

It has become more difficult to pick winners in the large field of opportunities.


Steve Brotman

Have prices gone up? That’s the measure of a bubble.


Jeff Stewart

Study of six angels: returns were in the range of 18-30% across all the different pools of angels (average returns 30%; lowest 18%.), but 60% of the investments went to zero, So you’re getting all the returns from ~5% of the funded companies.

This is not a bubble, but a non-correlated asset class, with great returns!

Need to invest in many companies given the expectation of most investments returning 0%.


John Frankel

There are natural barriers to more money going into this asset class.

You need to start putting together a larger portfolio, which is hard for angels.

It is also difficult for VC’s to reach "down."

Only a small group of people will be able to dedicate next 10 years to managing this type of fund. They have to be financially self-sufficient.

People who’ve launched companies, and are investing in their own domains have higher returns.

More due diligence correlates with higher returns. They don’t simply write checks: active involvement also raises returns. Only a small (but noisy) group are doing this type of investing.

Smaller funds outperform larger funds.

Smaller teams launch/run successful companies.

Entrepreneurs get the difference between "smart" and "dumb" money.


Jeff Stewart

Entrepreneurs do better running these funds.


Chris Dixon

New hot thing: convertible notes which change in valuation over time.

Most seed valuations are at the $5m level.


Steve Brotman

Do most investors care about valuation and dilution or the quality of investments coming in? Study says yes.


John Frankel

Most of these companies have binary outcomes, so arguing over valuation with a value-added investor is irrelevant.


Doug Atkin

15 years ago, getting money from a name-brand VC would add a lot of credibility to your business. It was like getting backing from a top investment bank. This is changing now.


Chris Dixon

Disagrees: our core argument is that an entrepreneur will take less dilution over time by getting the initial investment from angels.

We’ve sold two companies to Google in last three months.

Suggestion: find funds which will help you build your business, not give you the most money.

Seed funds may value companies higher than VC’s, since VC’s spend most money in later rounds and it benefits them to value companies lower in the beginning.


Jeff Stewart

It’s important to remember that many seed funds are largely based on owners’ own money, not outside investors.


Chris Dixon:

Disagrees: investors’ money just as motivating as personal.

They get rich off of returns, not management fees, so goals are aligned, because they only make money if their companies do.

This works as long as fund managers make most of their money from success of the companies they invest in.

Should take attitude of hedge funds, and invest more, not less. Do so because they don’t believe in most companies, expect failures.


John Frankel

Goal alignment is key – better for entrepreneurs to work with peopl
e who are committed to managing their seed fund for the usual ten-year lifespan.


Steve Brotman

What are the differences between these classes of investors?

VC’s are so big that they are more like asset managers. Why hasn’t there been a market correction?


Chris Dixon:

This is being corrected, but it takes time.


Jeff Stewart

Ask if the VC is getting paid to put money to work or just to manage it.

We don’t believe in putting in too much money, e.g., in a capital-intensive industry like nano tech.

Also, entrepreneurs don’t really need VC’s to start companies, since less money is needed, and scaling technology is much easier now.


John Frankel

You should also ask: is the VC going to be there? An angel can move around, take new roles. A VC is institutional; the individuals move around.


Chris Dixon

We have a $50m fund with a 2 and 20 structure.

A lot of this discussion comes down to fund size.

1/3 of our fund is the principals’ money.


John Frankel

The collapse of asset prices elsewhere is making VC overweight.


Jeff Stewart

I’m not sure there’s too much money; I think there’s too much money pursuing information technology deals.


John Frankel

Google only ever raised $25m.

Google’s of the next generation may only need to raise $3m and won’t need to do it through VC’s.


Chris Dixon

Facebook has raised $700m, but $650m of that are secondary sales by friends and family.


Steve Brotman

How do you feel about collaborating with other angels, seed funds, and VC firms?


Doug Atkin

Won’t invest into companies without other investors with industry specific expertise.

You have a much higher chance of succeeding with more smart people around the table.

Expertise grows revenue rapidly.

Average revenues $1-5m in the companies he invests in.


Jeff Stewart

My investments are usually in the $25k-$100k range. I don’t have time to support a company at that level.

Needs other investors to feel comfortable, help with due diligence. Angel investing is a team activity.


John Frankel

No collusion when negotiating terms, however someone has to take a leadership role in an investment.

I’ve had two deals in the last two months with documents that didn’t make sense, because everyone relied on everyone else.

You can find a great group of investors who can help you.

There’s an idea of social proof: if A and B invest, I should too. That can lead to very lazy thinking. I believe that I shouldn’t do a deal that’s hot; I like the road less traveled.

Strategically find a group of investors who can help you. A fund is an expertise network.


Steve Brotman

What is your investment style? Which sectors are you most interested in?


Jeff Stewart

I like really early investments, especially in B2B and ad tech.


John Frankel

I will consider anything that will provide good returns. Really intrigued by how people leave footprints online though social media. Klout is people-ranking the web in the way that Google does page-ranking.


Chris Dixon

I am primarily interested in information and advertising technology. However, I just did two deals in the robotics space.

Often invests pre-product.

Stays away from theme investing.

Companies are expected to change direction; he ultimately invests in people.


Doug Atkin

I invest almost exclusively in financial technology. Anything with an exchange.

He won’t invest in businesses outside of his sphere of influence (experience).

Financial services industry has been slow, difficult to change in the past. The last couple of years have changed things.


Question from the audience

When should an entrepreneur approach them?


John Frankel

I prefer to give a NO early.

Core of this country is the entrepreneurial spirit.

Everything begins with a conversation.


David Teten

Why should entrepreneurs choose you?


Chris Dixon

You have to prove you’re helpful. I don’t bother with a speech, I just give a list of references.

He invests in people. Looks for people who have created something (ex: products).

Suggestion to entrepreneurs: call companies in which I invested, ask them about the experience.

When I hire people, I do the same thing: I say call people who worked for me in the past.

The only way to be successful is to be consistently helpful.


Jeff Stewart

Only you can make it happen, angels (investors) won’t. Use a group of angels. Don’t depend on them too much.

He has said "no" to deals he liked due to lack of time.


Doug Atkin

Set expectations, tell people what you’re good at.

He’s best at dealing with banks/finance: it’s his expertise.


Chris Dixon

In our fund, we focus on team-building and follow-on financing.

60 investments give us a lot of insight into who’s doing the next round and at what price.

At about a third of the companies we’re invested in, we’ve introduced founders to one another.

We rarely take board seats.

Generally uninvolved in product building. Won’t micromanage the product.


John Frankel

This is a relationship business. You’re going to be working together for longer than the average marriage lasts in this country.

Work with people you like.

Larger VC’s have a reputation for being arrogant — and it’s probably justified.

Suggestion: don’t lose control of your company.


Steve Brotman

It’s incumbent on entrepreneurs to find the right fitting VC.


Question from the audience

Comment on recent phenomenon of funds established to invest in late-stage tech deals, ex: Facebook/Felix Investments.


Chris Dixon

Known as "DST" deals. DST is about to go public on the NYSE.


John Frankel

There’s a big movement in New York to build up entrepreneurial culture — a sense of coming from behind Silicon Valley. Unlike Silicon Valley, we have finance, fashion, media, etc., which are all being disrupted.

Our model is that we put in more capital into our winners. Maybe 50% of the companies fail, but they don’t burn up 50% of our capital.


Chris Dixon

Rounds which we participate in are typically $300k-$1m. We typically put in $100-$500k.

We usually don’t invest in the second round, but will get involved in helping the company raise money.


Question from the audience

What are the characteristics of a team that gets a yes?


John Frankel

We want people who are honest with themselves, even if they are somewhat delusional. Have been successful in the past, can form a team.

We invested in ClearPath Immigration, which wants to be TurboTax for immigration. The founder ran immigration for Department of Homeland Security. He has big domain expertise.

Will the person grow up as the company grows?

When you give money to a money manager, you want that person to navigate the financial markets. That’s what I want in the entrepreneur.