Posts Tagged: investing

How we can improve the odds of finding unicorns

It was my first day at Version One when I realized that finding “VC-fundable” startups would not be easy.  Aileen Lee, founder of Cowboy Ventures, posted a brilliant analysis on why VCs have to look for billion dollar companies (“unicorns”) to deliver acceptable returns, and how rare it is to invest in one: “The odds are somewhere between catching a foul ball at an MLB game and being struck by lightning in one’s lifetime.”

However, despite these kinds of odds, I’ve learned there are several things we can do to improve our chances of finding the elusive unicorns:

1.  Data helps filter through the noise.

With nearly 30,000 startups on AngelList, there’s a lot to sort through. Nowadays, we can learn virtually everything about a company online, from its tagline to founder backgrounds, fundraising history, current investors, and social media traction. However, while data is ubiquitous and free for the most part, it is also fragmented, inconsistent, and seemingly disparate. This makes it laboriously difficult to identify rising stars and make comparisons within a specific vertical.

Fortunately, web apps like Mattermark, DataFox, and PitchBook wrangle, clean and organize the data so that we can focus on analyzing it. We can whittle down those 30,000 companies to a more manageable number by filtering for business models, regions, state, co-investors, Twitter mentions, Facebook likes, LinkedIn connections, iTunes downloads, unique website visitors, and/or other criteria that align with our investment thesis.

2.  Be thesis-driven.

We are often asked what industries we invest in, but it is more important to have theses on business models that serve as strong filters. At Version One, we have 6 investment themes (and more to come – stay tuned):

  • Vertically integrated commerce.  Controlling the entire supply chain brings unique product lines directly to the consumer at lower prices and better margins.
  • Vertical SaaS.  This approach helps capture the market more quickly with lower CAC and capital requirements.
  • Online education.  Mobile and social product experiences are making learning more affordable, efficient, engaging and effective.
  • Hardware renaissance.  Numerous innovations (e.g. Raspberry Pi, Arduino, etc.) are making it easier to develop hardware products.  We are interested in platforms that power this space.
  • Mobile marketplaces.  The ubiquity of mobile makes it quicker and cheaper to connect buyers and sellers.
  • B2B marketplaces.  There has been a lot of focus on B2C marketplaces, but there are still tremendous opportunities left in the B2B space.

3.  Manage your time wisely.

We challenge ourselves to think about tools that we can use to organize and manage our meetings, events, pipeline and readings.  To reduce redundancy in deal flow, for instance, we collaborate online as much as possible with web apps like RelateIQ.  To consume content quickly, I am a power Feedly user and Twitter discoverer.

4.  Be kind and generous.

When most of your time involves working with others, perhaps the most important thing you can do is build genuine relationships.  Because every meeting is a learning opportunity, I make the effort to thank others for their time by being generous with my own.  With entrepreneurs, I try to provide thoughtful feedback, always remembering that they are hardworking individuals with the courage to build a company.  With colleagues, I take note of their interests and share articles or startups with them.

Also, in a world dependent on introductions, I often thank those who make them on my behalf.  For example, in addition to writing the common email line, “Thanks for the intro to Cassidy, David (moving you to bcc)”, I follow up with the “Davids” after meeting the “Cassidys” with notes like “Hi, David.  Thank you for connecting me with Cassidy.  I learned about x, y, and z from her.”  This is a tangible display of appreciation that helps keep me in mind for future connections and deals.

Since writing my blog post on “Why VC is a perfect fit for me” on my first day, I have enjoyed every moment of this work.  I owe this to everyone who has contributed to my learning.  Thank you.  Now to get back to looking for unicorns…

The best way to approach investors: four tips

When you’re on the hunt for funding, it’s natural that you want to get things moving as quickly as possible. However, identifying and approaching the right investor should be a measured process. Blasting the same quick email to a dozen investors will never work in your favor.

The average investor receives hundreds of pitches each month – making your approach all the more critical. In my experience, there are four key ways to improve your chances when approaching investors:

1. Get a warm introduction from a trusted source

Identify the strongest “in” to the particular investor. This often means not jumping on the first person who can introduce you. The best introductions come from people who have brought good deal flows to investors in the past. Savvy entrepreneurs put in the time doing their due diligence on potential connections and then ask the strongest connector for the introduction.

Speaking of referrals, you don’t want to be introduced by an investor who has passed on you. Whenever one investor gets a referral from another investor, their very first question will be “are you investing?” As the entrepreneur, you need the answer to help, not hurt, your case. The one exception to this rule is if the investor making the introduction has a completely different investment focus than your company and there’s a clear reason why he/she is not investing.

2. Build a relationship over time

If your network isn’t strong enough to provide a warm introduction from a strong source, you’ll need to build your own relationship with the investor over time. Interact with the investor through social media: follow them on Twitter, read their blog and make thoughtful comments. However, never comment on a blog post just for the sake of getting your name out there. Only comment when you’ll be adding value and relevance to the conversation.

3. Ask for advice, rather than money

Most investors are not looking to write a check right away, so you should get in touch with them well before you are raising a round. Initially, you can approach an investor soliciting advice on something specific, such as feedback on your marketing & sales approach, business model, or long-term product vision. Then, if it makes sense, execute on the investor’s feedback and circle back after, always showing your appreciation for their guidance.

4. Be personal

The most important rule is to only target investors when your company fits their specific area(s) of focus. Otherwise, you’ll be wasting your time (and theirs). Research a potential investor’s current portfolio. Read their blog posts and Twitter stream. And, when you do reach out, be specific in your communications. Just like in the job search, generic emails that could be sent to anyone are ineffective. Show how you understand each investor’s areas of interest, strategic vision, etc.

Final thoughts

If you choose to seek funding, remember that it takes patience, and lots of preparation. There’s rarely a shortcut to easy money, so be ready to develop your strategy and put in the time.

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So where are the Canadian super-angels?

Everybody talks about the emergence of super-angels and micro VC’s and how they fill an important role in a startup world that has smaller and smaller funding requirements. So when I check Angellist, the most important directory of angels in North-America and Europe, I only find 3 Canadian angels (of a total of 350 registered on the site), two in Vancouver (Danny Robinson and myself) and one in Edmonton (Kevin Swan). So where are all of the other Canadian (super-)angels? Would love to get a complete list together so please leave their names and some of the investments they did down in the comment section. I will then make sure to pull together and publish the complete list and point the AngelList guys to this as well so we get a better representation on the Canada side.

Update:

In addition to the comments below I received quite some feed-back via email and the situation in Canada can probably be best described by “many people with money but not many professional angels that can help a startup to a proper Series A round or to profitability”. This is something that will hurt our startup ecosystem a lot over time (even worse than not having enough VC’s as angel investing is even more local business than VC investing is) and needs to be addressed – thoughts on that to follow in a separate post!

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New investment: Empire Avenue, the world’s first influence stock market

Image representing Empire Avenue as depicted i...
Image via CrunchBase

With the explosion of social media in the past few years, we now have millions of people broadcasting and curating information on a daily basis, making personal recommendations and endorsements to their friends and followers and creating personal brands on the Internet. But with that explosion of small “media outlets” it is getting harder and harder to identify what the really important people are that one should listen to. At the same time, those influential people want to know what their personal brand is worth.

In comes Empire Avenue, the first world’s first influence stock market. Empire Avenue is partly a stock market, partly a game. It is fun, addictive and has attracted over 15,000 members during their closed beta. Over 750,000 virtual share trades have occurred on the site in the past three months with a total value of over a 500 million Eaves, Empire Avenue’s virtual currency. As the site scales up, stock prices will provide valuable signals to information seekers (who are the influential people in my community that I should follow?), advertisers (who can credibly endorse my brand?) and the influencers themselves (what is my personal brand worth?).

The company not only has some early traction but they also have a superb team that knows how to build great products with minimal resources. So I am very happy to announce today that W Media Ventures just lead a seed round for the company that will provide the necessary means to accelerate the growth of the site.

And by the way, I think you should now go the Empire Avenue site and buy my stock – at 14.88 eaves it still looks like a steal to me…

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Video interview with Andrew Warner of Mixergy about…

…AbeBooks, W Media Ventures, entrepreneurship and investing. Enjoy! (And thanks to Andrew!)