Posts Tagged: Dave McClure

After Angelgate, a good moment to go back to the basics

By now, everybody should have heard about Angelgate, from Arrington’s initial walk into the secret meeting of Silicon Valley super-angels to Dave McClure’s blog post as a response to Ron Conway’s email distancing himself from whatever was going on. A lot of drama during these past 3 days, too much drama in my opinion. And drama that had been building up over the past months with the ongoing discussion around super-angels versus VC’s. So after this crescendo, it might be a good time to take a step back and go back to the basics. And if you strip off all of the noise, a few simple truths emerge:

  • Entrepreneurs are king: they create the value, they are the customers of investors. And thanks to programs like YCombinator and generally lower capital requirements for start-ups, entrepreneurs are in a better position than ever before when it comes to negotiating deal terms. No investor – if super-angel or VC – will be successful in the long run if they do not respect entrepreneurs and treat them fairly.
  • Investors want to make a buck: as much as I wished that investors would only be in this game to be part of shaping innovation and helping entrepreneurs (as Ron Conway seems to be), it must be clear that they need to create significant returns and therefore need to protect their interests as well. A large part of angel investing is driven by passion for entrepreneurs and start-ups and not primarily by the need for financial return but this is unfortunately not a scalable system to bring more money into the ecosystem. We need investors that are driven as much by passion for entrepreneurs as by making a buck.
  • Angels and VC need each other: they are part of the same ecosystem and provide money and mentorship at different stages of a company life cycle – sometimes they compete for deals, most often not. So the ongoing super-angels versus VC discussion seems artificial.
  • Investors need to add value: it does not matter if you are a super-angel, a micro-VC or VC – if you don’t add value on a daily basis, you will neither have many successful start-ups in your portfolio nor get great deal flow in the future. So start collecting karma points!

The ecosystem is shifting – less capital is required, funds get smaller, new entrants have emerged, entrepreneurs have gotten more powerful – but these 4 truths were valid before this shift happened and are even more valid today. So let’s remember them, stop the drama and go back and build companies!

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My investment thesis

Fred Wilson’s blog post on Dave McClure’s investment thesis a few weeks ago reminded me that I needed to do a better job on spelling out my own. I had done some preliminary work when I started W Media Ventures almost 3 years ago but it was very high-level only addressing the sector (consumer Internet), the investment size ($50K-$250K) and the geography (Pacific Northwest / Western Canada). As I have learned a thing or two since then, I now have a much better understanding what kind of entrepreneurs and ideas I want to invest into. So here is what I am looking for:

  • Early-stage consumer internet / SaaS companies located in the Pacific Northwest / Western Canada. Geography is a must for leading a deal but I do co-investments outside of that area.
  • Large addressable and capital efficient market: company addresses a large market (hundreds of $ millions +) and does not require more than $1-$3 million in funding to become a $25-$50 million (exit value) company
  • Strong founder team with a visionary and passionate (yet coachable) CEO at the helm. Team must include at least one technical person who can actually build stuff.
  • Differentiated product: no “me too’s” and strong technical focus
  • Easy-to-understand business model that does not depend on scale and can generate revenues within 9-12 months from launch
  • Initial traction with – at the minimum – an existing prototype/alpha version that is currently being challenged by users

In reality, no investor will ever only make deals that fit 100% with their investment thesis but it is important to have a consistent set of criteria against which investment opportunities can be benchmarked against. So here is mine, looking forward to feed-back!

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Pitching day

The GROW conference has brought dozens of high-profile VC’s and super-angels to Vancouver which presents a wonderful opportunity for many local start-ups to get exposure to out-of-town investors. So today is “pitching day” jointly organized by W Media Ventures and Bootup Labs. 7 companies will take the stage: CompassEngine (location-based gaming platform), EmpireAvenue (influence stock market), Fitbrains (casual brain fitness games), Indochino (tailor-made suits over the Internet), Rival Apps (fantasy sports games), Summify (social news reader) and Weddingful (lead-gen for wedding vertical).

We are extremely excited to have over 20 investors from more than 15 funds attending the event:

  • Shawn Abbott, iNovia
  • Chris Albinson, Panaroma Capital
  • Chris Arsenault, iNovia
  • Jonas Brandon, Rogers Ventures
  • Roger Chabra, Rho Canada
  • Rob Chaplinsky, Bridgescale
  • Jeff Clavier, Softtech
  • JS Cournoyer, Founders Fuel
  • Rob Hayes, First Round Capital
  • Scott Jacobson, Madrona Venture Group
  • Paul Kedrosky
  • Anthony Lee, Altos Ventures
  • Mike Lee, Rogers Ventures
  • Jevon MacDonald, Innovacorp
  • Dave McClure, 500Startups
  • Maria Pacella, Growthworks
  • Tim Porter, Madrona Venture Group
  • Kalle Radage, BDC
  • Mike Satterfield, Yaletown Ventures
  • Aydin Senkut, Felicis
  • Jason Stoffer, Maveron
  • John Stokes, Montreal Startup / Founders Fuel

Thanks to all of you for coming – I sure hope that you will recognize that Vancouver and Western Canada are home to many exciting start-ups.

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What GROW means for the Vancouver tech community

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For the next 3 days the Valley descends on Vancouver for the GROW conference and you can feel a real excitement in the local tech community about hosting entrepreneurs like Tony Hsieh (Zappos) or Andrew Mason (Groupon) as well as investors like Rob Hayes (First Round Capital), Dave McClure (500 Startups), Jeff Clavier (Softtech) or Chris Albinson (Panorama Capital) here in town. Building a company outside of the hot spots of the Valley or NYC is sometimes a tough undertaking despite many success stories – entrepreneurs don’t have the same easy access to experienced talent, mentors or investors and have fewer opportunities to learn from peers. So having close to a hundred top notch tech entrepreneurs and investors coming into town gives the Vancouver tech community a real boost and will provide some fantastic learning and networking opportunities for entrepreneurs from here and the rest of Canada.

Big thanks to Debbie Landa from Dealmaker Media for organizing the event, really hope this will turn into an annual conference!

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Market stage: stop developing features, focus on activating and retaining users

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I finally got around reading Dave McClure’s investment thesis and agree with almost all he says. There is one especially interesting paragraph when Dave talks about the “market stage” which caught my attention as it has been the topic of discussion with a few of my portfolio companies as of late:

“Next, you’d like to be able to improve the user experience and engagement / retention, get them to increase their love for the product. If you can do this well enough, your customers will become your marketing… at very low cost. Even if you can’t get to strong word-of-mouth or viral marketing, you can still hopefully reduce customer acquisition cost by getting incremental social amplification. Regardless, your job is to discover SOME kind of scalable distribution channel that seems like it COULD be optimized to a point where it’s cash-flow positive at some point in the future. Hopefully this doesn’t take more than $1-2M and 6-12 months to figure out. But most of this spend should be on MARKETING channels & testing, NOT on adding more features… you can pivot to discover new customer use cases, but DO NOT keep adding features. in fact, you might want to remove them (see KILL A FEATURE). If it looks like you’ve got scalable distribution, even if not quite break-even, then double-down”

Product-driven teams often forget about the market stage and continue to add features and develop the product. But as Dave points out this is not where you create value at this stage in the life of your company (you should be even thinking about killing features instead). The “market stage” is really about scaling the existing business and more specifically about 4 areas:

  • Customer acquisition: how efficiently can you acquire customers at scale?
  • Customer activation: how do you move people from signing up to your service to actually using it on a regular basis?
  • Customer retention: how do you maximize the length of time that people use your service?
  • Viral loop: how do you get them to spread the word about your service / product to their friends?

Optimizing all 4 areas will literally require hundreds (if not thousands) of a/b tests for ad campaigns, landing pages, process flow, email copy, etc. and will take some significant attention to detail and metrics. But this is the only way how to scale an online business and entrepreneurs that don’t take this seriously will not succeed.

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