My coauthor Scott Allen and I continue to write about online networks, but for simplicity we’re not doing it here at TheVirtualHandshake.com. To keep up with our research, visit Teten.com and ScottSocialMediaAllen.com for our current writing.
Assembling a WordPress Website
My mother and I met Daniella Norwood, the owner of ella j designs, and her husband Brian Bigda at a Lean Startup Machine weekend at which I was a judge. She did a great job redesigning my mother’s site, DancetimePublications.com, so I hired her to do a redesign of Teten.com and TheVirtualHandshake.com. I’d love your feedback on the site. I definitely recommend hiring Danni for your WordPress needs.
David’s RFP included:
- upgrading Teten.com and TheVirtualHandshake.com to the latest version of WordPress,
- modernising the design of both sites,
- making both sites mobile and social-media friendly,
- changing the commenting system from DISQUS to Livefyre (ff Venture Capital portfolio company),
- migrating from AWeber to MailChimp, and
- fixing some existing errors.
A New Website Design
While I am “a creative type”, I am not a graphics designer. I prefer looking at the WordPress Codex than color palettes. Instead of spending hours upon hours searching through all the wonderful themes that are available, I decided to use the eleven40 theme from StudioPress.com because of its responsiveness and modern design for both sites. I have been using StudioPress for a long time and love the Genesis framework and the beautifully designed child themes. They also have great support in their forums and an active development community.
We changed the color scheme of teten.com to green, in order to match the color scheme of ffvc.com. Besides the color change, the biggest change to teten.com was the homepage layout and using it to feature the lastest blog posts.
New Website Functionality
The first thing I did was create a development site running the current version of WordPress (the original site was running 2.8) and import the xml file. Next was to set up the theme layout and create the main navigation. Once that was set, I added the plugins and configured the settings.
WordPress continues to improve and a lot has changed since the 2.8 version. Because of added functionality I was able to remove a lot of plugins such as Advanced Permalinks, Page Link To, and Plugin Manager. Since StudioPress has built in SEO, I was able to remove other plugins like SEO Title Tags and All In One SEO.
David wanted to focus on newsletter sign up and social media integration. In addition to the sign-up forms on the sidebar and footer, we added OptinSkin to the ends of the posts to integrate the signup with social media. This was my first time using OptinSkin and I really liked how easy it was to customize and the variety of options that are available.
Being mobile-friendly was also a main consideration and in addition to using a responsive theme, we also added WPtouchPro to the plugin mix since David had already purchased this. While WPtouch is a great plugin, the Pro version is worth it to really customize the user’s experience.
The Final Product, Two Redesigned Websites
The whole process was made easier since David had very detailed requirements. Some of the problems with the old site, such as inconsistent headers and problematic spacing, were easily fixed just by switching themes and upgrading WP.
We did run into some trouble with the content of the posts and pages. I was not able to copy the original database due to an error with the size of the database, so I used the xml file downloaded from the original site. I found this to be a good option especially since the old database was not UTF-8 encoded.
As a final touch, I introduced David to ManageWP, so he can more easily manage his WordPress sites. I just started using ManageWP and so far it has worked out really well. It is a great service with fantastic customer support.
I would love to hear any feedback.
I gave a talk today as part of TEDx Silicon Valley on “Online Dating is the Future of Your Business”. Here’s the video and an expanded version of the slide deck.
In the talk I discuss how some of the successful online dating startups are models for new businesses, many of which in various ways help businesses get more and better clients. Specifically, I discuss some of the interesting companies in the dating space — True, BeautifulPeople, 420Singles, HowAboutWe (portfolio company), STDSter (a dating site for people with sexually-transmitted diseases), ignighter, InterracialSingles, AshleyMadison (a site for finding a mistress) — which are models for some of our portfolio companies: Identified.com, Voxy, 500px, LocalResponse, Hashable, ThinkNear, and InfoChimps.
I’d greatly value your feedback!
I am delighted to announce that I’m joining ff Venture Capital as a Partner. Official blog post and more details here. In addition, Michael Yavonditte, CEO of Hashable, is joining as a Venture Partner.
Since 1999, ff has made over 100 investments in over 35 companies, and from the beginning has been highly focused on generating industry leading returns. Among the firm’s most successful seed investments that have reached maturity are Cornerstone OnDemand (which raised $137m in a March 2011 IPO, ticker CSOD) and Quigo Technologies (sold to AOL for a reported $340m). We have a large crop of exciting growth companies that are starting to come into their own.
I’ve known John Frankel, the firm’s founder, for a year and a half. I’m very impressed by the organization he’s built and his track record. I’m honored to be the second partner in the firm’s history.
Before making the decision to join the firm, I did some research on early-stage tech investing as an asset class. What was striking was what an attractive asset class it was. Although any given early-stage company is quite risky, when aggregated across a large portfolio, returns are very attractive. There is also low correlation to risks that investors inherently have in most of their other investments, e.g., interest rate volatility, exchange rates, macro factors such as unrest in the Middle East, commodity fluctuations, unfunded pensions, etc. In addition, angel investments historically have a low correlation level with other asset classes, given the nimbleness with which small companies can adjust to changes in the economy, and the great diversity of companies in the typical early-stage portfolio. As a result, various analyses have shown annualized returns of 18-37%, 27%, and 30%.
As part of my new role, my mandate is to continue the institutionalization of the Firm, accelerate the growth of our portfolio companies, and look for great entrepreneurs and companies with which we can work. In addition, we’re extending our successful summer intern program and looking for some fall interns . If you know of any companies or people with whom we should talk, please be in touch!
Peter Lehrman of AxialMarket posted on his blog this must-read Powerpoint on the evolution of private equity deal sourcing. I definitely agree with the points he makes here. Most interesting are his estimates of the cost for different methods of deal sourcing. We discuss in more depth a lot of these ideas in The Virtual Handshake.
How a Private Equity Fund Uses Social Media for Building its Investment Pipeline and Raising Capital
Most private equity funds (and the equipment finance industry) are well behind the VC industry with regard to their use of social media. Jeff Bussgang, General Partner, Flybridge Capital Partners, calculates that of the approximately 1,000 venture capitalists in the US actively seeking deals, 10-15% blog. Sarah Tavel, Senior Associate, Bessemer Venture Partners, calls this blogging and posting of internal analyses "venture capital’s freemium model."
We think that increasing numbers of private equity investors will devote more energy to their social media efforts. Private equity investing is a relationship business, and the only relationships that really matter are with the relatively small number of LPs, entrepreneurs, executives, and intermediaries. As more of our personal relationships move online, social media becomes a very cost-effective way to strengthen a firm’s corporate relationships.
Among the few PE funds with an outreach in social media I would include Duane Street Capital, 2xPartners, Healthpoint Capital , and Riverside Company. Another I recently learned about is MCM Capital. Bobby Kingsbury, Business Development Officer, MCM Capital Partners, was kind enough to provide a case study of his efforts in this area. I interviewed him via email:
Q. What is your social media strategy?
At MCM Capital Partners we have implemented Facebook, LinkedIn, an RSS feed, and a weekly blog into our website in order to promote our brand, increase search engine friendliness, expand our deal referral network, and enhance relationships with those already in our network. Additionally, we are tactically using social media tools to augment our communications to our current LP’s, prospective investors, entrepreneurs operating businesses within targeted industries, investment banks and intermediaries. Each communication method employed and its content is viewed through the lens of "how does this help our firm" and "how does this improve the likelihood someone will find us?"
Although we are still learning the intricacies of social media, we have been making extensive use of social networking sites to announce LBO transactions, promote our blog and email newsletter, recruit and evaluate potential CEOs for portfolio companies, as well as develop and create new relationships within the M&A community. Concurrently, we are using our blog to help with search engine optimization, place new contacts into our CRM (Goldmine), and to differentiate ourselves from other firms in our industry by providing value added content to our website.
For SEO purposes, we chose to focus on searches on the following terms: micro-cap private equity fund, leverage buyout, Cleveland based private equity, lower middle market, leverage buyout firm, management buyout, etc. We chose these terms based on relevance and by researching our SEO rank on each search engine, then targeted those keywords in which we ranked in the top 100.
We chose to use the top 100 because it was an achievable goal. Given our time budget of 1 blog post per week, and given that it’s most important to be on page 1 of Google (slots 1-10), we thought that moving from slots 100 and below to slots 1-10 was much more doable than moving from slots 101 and above. The largest behavioral jump, measured as a percentage-change, is from the top of page 2 to the bottom of page 1. According to Chitika, a search based online advertising network, going from the 11th spot to the 10th generates a 143% jump in traffic, proving a very small percentage of users click through to the second page while searching online. Ultimately, we want our website to be ranked in the top four for these terms, as the top four terms in a Google search account for 70% of all web traffic.
Here are a few of the steps we have taken:
Embedded in our website through WordPress, we started a weekly blog about four months ago. We use our blog to help with our search engine optimization, automating the addition of new contact information into our CRM, as well as providing value-added content to our readers (LP’s, entrepreneurs, investment bankers, intermediaries, etc.). In regards to search engine optimization, we created 5 blog categories (Best Business Practices, Private Equity Related News, MCM Perspective on Macro Economic Conditions, Investment Perspectives, and MCM Specific News) relevant to our target audiences, as well as a list of at least 20 keyword phrases to be incorporated into our posts. After a blog is written, we use Friendfeed to automatically post the new blog to our company Facebook, Twitter, and LinkedIn pages. The RSS feed helps track new readers and automatically places them into our CRM after readers fill out the required information. In addition, in order to comment on a particular blog we have implemented a form. Visitors fill out the form and their information is again directly placed in our CRM, helping us manage new contacts and track new visitors to our blog.
We are in a relationship based business, and we need to leverage those relationships. Each of us have our own LinkedIn profile and MCM also has a company profile page. I have encouraged each of my colleagues to spend 5 minutes a week building up their network with value added contacts. In five minutes they can add 10 to 15 new connections, which increase our reach and will enhance current relationships. We have added a WordPress blog widget to each of our profile pages and our company profile page in order for our contacts to easily view each new post creating more top of mind awareness for MCM. Any updates or deal closings within our firm are also sent out to each individual and each group in our network through LinkedIn’s own weekly update email. Additionally, LinkedIn has become a great resource to grow our list of C-level talent for our future and current portfolio companies.
We created a Facebo
ok page for our firm where we post our acquisition criteria, MCM updates, current ongoing searches, recent blog posts, a calendar for visitors to keep track of important dates such as our annual CEO summit and shareholder meeting, pictures of portfolio companies, and we have also added a tab which allows visitors to sign up for our email newsletter under ‘Join My List’. Posting regular updates relating to our business and activities reminds our friends or followers who MCM is, what we do and either to use our services or refer one of their friends or colleagues who might be looking for an equity partner.
We send out a monthly email newsletter using Constant Contact to over six thousand investment bankers, lenders, intermediaries, and current and potential LPs every month, keeping them apprised as to types of businesses we are looking for as well as any deal announcements or updates within our firm. We have placed links to Facebook, LinkedIn, and an RSS feed in our newsletter along with a link to each of our personal LinkedIn pages next to our name and email address. We also added a section at the bottom of the newsletter for blog post of the month to help promote our blog. After a newsletter is sent, we click on the LinkedIn, Facebook, and Twitter widgets on the top banner of the email and tweet it, Facebook Like it, and add it to our LinkedIn page in order to reach our contacts that may not have received the newsletter via email. Using Google Analytics, we have seen a dramatic spike in traffic to our site each month the day of and a few days after our email is sent, demonstrating the efficacy of the newsletter.
Everyone at the firm has links to our RSS feed, LinkedIn, and Facebook accounts embedded in their email signature to help create more awareness and again drive traffic to the blog and our social networking sites.
We have placed Google analytics into our website in order to monitor traffic, referral sites, keyword searches, unique visits, etc. I go over the statistics every month to see where traffic is coming from, where we rank with certain key terms, how long visitors spend on certain pages, and who exactly is coming to the website, in order to adjust our SEO campaign, write relevant blog posts, and provide value added content to our website.
What results have you seen so far?
While neither traffic nor time spent on our site is the true measure of efficacy of our social media campaign, it indicates we are increasing brand recognition and awareness. The real measure of success while we continue to develop our campaign will be transforming our brand recognition and awareness into an increase in deal flow, attracting new investors and talent to our firm, developing relationships with entrepreneurs in our target markets, and helping separate our firm from our private equity brethren. It is too early to provide definitive metrics on increased deal flow or inbound inquires from LP’s attributed to our social media campaign, but we are confident that social media will continue to play a huge part in the marketing success of our firm.
That being said, I will provide a few metrics we have been tracking since the inception of our social media efforts in July of 2010. Our deal flow increased by 150% in total from July to October, but we cannot say it was solely attributed to social media. Clearly there was pent up demand over the prior two years making it difficult to measure the efficacy of our campaign thus far. Further, we have only had two inquires from LP’s, but coming from a base of zero any number is a huge jump. Overall traffic to our site has increased 14% on average each month. Referral traffic, (traffic coming from other websites including our blog, LinkedIn, Facebook, and email newsletter) has increased 119% over the last three months, and visitor’s average time on our site has increased from 1 minute and 32 seconds to 3 minutes and 5 seconds.
Some other quick stats over the last 30 days derived from Google Analytics: we have averaged over 51 absolute unique visitors to our site per day (80% of our total traffic came from new visitors who have previously never been to our site), visitors averaged 3.75 pages per visit, and 69% of our visitors came from search engines (Google, Yahoo, and Bing), 18% came directly and 13% came to our site through our blog or social networking sites.
Most of our traffic is from new visitors:
Search engines are critical for our traffic:
Q. What are MCM’s professionals’ policies on inbound LinkedIn inquires from:
1. people you don’t know at all
A. If we do not know a person, but are familiar with their firm and they are currently an employee we will accept their invitation. If we do not know the person or their firm we will check their profile and company’s website to see if we would have a mutually beneficial relationship and accept or decline the invitation accordingly. Complete strangers, when we do not know them and have not heard of their firm will always be ignored.
2. people you don’t know but want to know (e.g. potential LPs)
A. LPs or people we want to know who contact us will almost certainly be accepted. We will follow up with a note and try to schedule an introductory call in order to provide more information on our firm.
3. people you barely know (met once for 2 minutes) –
A. Same principle as with people we don’t know; we will see how much utility the relationship will have for our firm and accept or ignore the request accordingly.
We generally will accept invitations from most firms, as the contact or their network will most likely be beneficial for MCM. What most people do not know is that anyone can look at your network (with the default LinkedIn privacy settings) and then inundate your contact list, with inbound inquires unless you change your privacy settings. At MCM we try and protect our network contacts, and have changed our privacy settings so our con
tacts cannot view the rest of our connections list. We continually manage the privacy settings on our LinkedIn pages to prevent any leakage of personal information and limit access to LinkedIn users not in our network.
Q. Similarly, what are MCM’s professionals’ policies on inbound Facebook inquiries from people in the categories above?
A. I would say it is pretty similar to LinkedIn, but at the same time anyone can Facebook-Like our page so it is a little more difficult to manage the contact list on Facebook. I monitor the page a few times a week and receive a weekly email from Facebook updating me on our page activity. Here is an example of the weekly update from Facebook:
Q. What tool(s) are you using to pull data in from your social media system into your CRM?
A. Each CRM has its own code for forms in order for contact information to be transferred into the database. Sometimes you can manip
ulate the form and other times you are stuck using what your CRM provides which possibly will not encapsulate all the data you are looking to obtain. We use Goldmine, and it was a challenging process to say the least.
Q. What is your policy on adding emails to your email database; do you add the emails of everyone you meet/who emails you, or wait for people to proactively register on your site?
A. We do not add everyone we meet or everyone who emails us, but we certainly do not wait for people to proactively register on our site. At the end of the day it’s a numbers game, and if we feel the person has an opportunity to add value to our fund they will be added to our database and sent our monthly correspondence, unless they unsubscribe.
Q. Who built your website?
A. Point to Point Inc., a Cleveland based interactive marketing firm has implemented our blog into our website and is in the process of transferring our entire site into WordPress. This will allow us to make changes ourselves in real time and also will allow me to control and adjust our SEO campaign as needed without having to understand or learn how to write HTML. The changes made are instantaneous and can also be undone if a mistake is made.
Q. What other tools/technologies are you using?
A. I have created an email archive page using Constant Contact in order for people to view previous communications we have sent. It’s also another way for someone to ‘Join our List’ if they receive the communication thru a social networking site.
Q. What steps are you taking for proactive marketing, as opposed to reactive marketing? Are you proactively reaching out to your viewers on a targeted basis?
A. Everything we are doing right now with our e-marketing campaign is proactive and we are reaching out to our viewers on a very targeted basis. We know our prospective audience uses search engines and social media sites to find relevant information, so we develop content (onsite and off) that is relevant to both the engines and the users. For example, we have a blog category entitled ‘Investment Perspectives’ in which we share our investment theses around certain industries of interest. The investment thesis gives MCM credibility and resonates with entrepreneurs and the intermediary community, as it illustrates forethought as to the types of businesses we are searching for in a particular industry. We realize with our e-marketing initiatives we are currently thinking a little outside the box given the dynamics of our industry, but I believe we will see a paradigm shift in the not too distant future in the ways in which PE firms market to the deal community.
Q. Are you soliciting directly to potential investors and targets who didn’t approach you? If so, how if at all do you use social media to make the cold call easier?
A. That is a very good question and one we have talked about internally as we prepare to raise our third fund in the coming months. We are planning to reach out to a number of potential investors and targets using LinkedIn. Sending InMail to potential LP’s with a brief introduction of our firm will break a lot of the ice and also help alleviate some of the awkwardness and unfamiliarity of a cold call. During the exchange of InMail we will be able to determine if our interests align with the prospective LP and proceed accordingly. Going forward social media will hopefully turn what used to be a cold call into a warm lead.
Q. How much time (launch and ongoing) and money has the social media initiative cost you?
A. We do not track time like a law firm, but the efforts spent to continue our e-marketing initiatives have been significant and are shared throughout our firm. It takes a total team effort to create, edit, post and continually update and monitor our blog, SEO campaign, and social media sites. I have been very fortunate to work with colleagues who understand the importance of our e-marketing campaign and have given it their full support. It has taken a lot of time and we had to learn how to walk before we ran, but I believe it will continue to be beneficial and pay huge dividends on a go forward basis. In the future I could see hiring someone full time solely to work on our e-marketing campaign, as four of our professionals collectively spend on average 15 to 20 hours a week on our social media outreach, depending on the time of the month.
Q. Some funds are concerned that increasing visibility will attract inappropriate deal flow, a deluge of job-seekers, and other people who want to suck up your bandwidth. How do you mitigate that cost of being more visible?
If we felt that the attention we were receiving was irrelevant or hampering our day to day initiatives, we would take steps to improve our process to make it more relevant to our desired audience. We have not had to deal with an influx of spam-like inquiries thus far, and truly do not anticipate it as we control our connections. Our goal through our entire e-marketing campaign is to gain relevant visibility, but I would be more than happy to spend a few extra minutes a day reviewing the inappropriate deal flow and deluge of job seekers as it means MCM is becoming more visible. It doesn’t hurt to spend a little time answering a few questions or sending an email with our acquisition criteria in order to prevent inappropriate deal flow in the future. You never know where that person may end up that is seeking a job or what deal that intermediary may show you next.
Congratulations to the team at Grouply on their sale to Oodle! I’ve been on the Advisory Board of Grouply since its very early days, and am an enthusiastic user. It very significantly increase my efficiency by allowing me to monitor more online communities than I could otherwise keep an eye on.
I have to admit I was surprised that Yahoo/Google didn’t either acquire them or copy all their functionality, given how dramatically Grouply increases the functionality of traditional Google/Yahoo groups. However, lately Yahoo at least seems to be focusing much more on shedding assets (and sometimes people) than on acquiring them.
Free release below:
Oodle Acquires Grouply
Oodle announced today that it has acquired Grouply, the online hub for social groups that offers features for building customized social networking groups. Oodle, a pioneer in social commerce, is reinventing the online experience for "classifieds" by building a social marketplace.
The Grouply platform and the groups hosted there will continue to function as before.
“Affinity groups such as mother’s clubs, neighborhood groups, and alumni organizations can be hot spots for trading activity,” says Craig Donato, CEO and founder of Oodle. “People care about who they are transacting with and would prefer to deal with others they know or who share their interests. With over 500,000 active groups, Grouply is a leading platform for interest-based social networks and is a natural partner for Oodle.”
The majority of Grouply’s employees will move to Oodle.
“Oodle is the perfect fit for the Grouply team and a great place for us to continue our mission of allowing people to build groups that share specific interests,” said Mark Robins, Grouply founder and CEO. “We look forward to working with our partners at Oodle to introduce some exciting new products.”
Oodle’s Marketplace lets users easily buy, sell, lend and give with other friends, friends-of-friends, and other real people in their local community. It is available on Oodle, Facebook and the iPhone. Financial terms of the transaction were not disclosed.
Oodle is a pioneer in social commerce and brings a social experience to the local online marketplace. Users can easily buy, sell, lend and give with friends, friends-of-friends, and other people in their local community. Oodle’s Marketplace, which has over 14M unique monthly users, is available on Oodle (www.oodle.com), Facebook (apps.facebook.com/marketplace), iPhone & Android phones (www.oodle.com/mobile) as well as dozens of other local partner marketplaces. Oodle is available in the United States (www.oodle.com), Canada (canada.oodle.com) & UK (www.oodle.co.uk).
Grouply is pioneering the “social group” – a new type of online community that combines the best features of social networks and online groups. Social groups offer the social interactivity, media sharing, and modern design of social networking sites like Facebook; and the rich discussions, popular email interface, and people-discovery opportunities found in traditional online group systems like Yahoo! Groups. Grouply gives existing Google (NSDQ: GOOG) and Yahoo! (NSDQ: YHOO) Groups an “extreme makeover” including a fully customizable website, and active Google and Yahoo! Groups users can access all their groups in one place on Grouply.
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/Hunch.com
Doug Atkin – Guggenheim Partners, former CEO Instinet
Jeff Stewart – founder, UrgentCareer; Mimeo; Monitor110
John Frankel – ff Asset Management
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.
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.
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.
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.
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.
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.
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.
Have prices gone up? That’s the measure of a bubble.
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%.
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.
Entrepreneurs do better running these funds.
New hot thing: convertible notes which change in valuation over time.
Most seed valuations are at the $5m level.
Do most investors care about valuation and dilution or the quality of investments coming in? Study says yes.
Most of these companies have binary outcomes, so arguing over valuation with a value-added investor is irrelevant.
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.
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.
It’s important to remember that many seed funds are largely based on owners’ own money, not outside investors.
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.
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.
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?
This is being corrected, but it takes time.
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.
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.
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.
The collapse of asset prices elsewhere is making VC overweight.
I’m not sure there’s too much money; I think there’s too much money pursuing information technology deals.
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.
Facebook has raised $700m, but $650m of that are secondary sales by friends and family.
How do you feel about collaborating with other angels, seed funds, and VC firms?
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.
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.
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.
What is your investment style? Which sectors are you most interested in?
I like really early investments, especially in B2B and ad tech.
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.
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.
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?
I prefer to give a NO early.
Core of this country is the entrepreneurial spirit.
Everything begins with a conversation.
Why should entrepreneurs choose you?
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.
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.
Set expectations, tell people what you’re good at.
He’s best at dealing with banks/finance: it’s his expertise.
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.
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.
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.
Known as "DST" deals. DST is about to go public on the NYSE.
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.
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?
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.