107. Reinventing Venture Capital, Part 1 (Bryce Roberts)

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Bryce Roberts of Indie VC & OATV joins Nick to cover Reinventing Venture Capital, Part 1. We will address questions including:

  • Bryce Reinventing Venture CapitalCan you walk us through your background and how you became involved in startup investing?
  • As a pioneer in early-stage investing 10 years ago, what was the original investment thesis at O’Reilly AlphaTech Ventures
  • Can you talk about your experience at OATV and how that led to the launch of Indie VC?
  • Can you give us an overview of what you’re doing and what you’re not doing w/ Indie?
  • What are the biggest differences between Indie and more traditional venture funds?
  • What is the structure of the investments and how are the economics of your investments different from a traditional term sheet or convertible note?
  • Can you walk us through a simple example of the economics and how that would play out in a couple scenarios?

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Investor Stories 49: Why I Invested (Polovets, Collett, Benaich)

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On this special segment of The Full Ratchet,

the following investors are featured:

  • Leo Polovets

  • Mike Collett

  • Nathan Benaich

Each investor describes a situation where they did

decide to invest, what the key factors were that led

to “Yes” and how that investment has worked out.

FULL TRANSCRIPT

Mike Collett Why I Passed on a Startup


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The Ecosystem Network Effect

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We often talk about startups that are leveraging network effects.  Some investors, like Union Square Ventures, have built some of the most successful firms with a network effect thesis.
 
For those new to the concept, a simple way of thinking about network effects is that the value for all users of a product increases as more use the product.
 
In the past, I’ve written about data as a network effect and how companies like Google and Netflix are ever-expanding their lead beyond competitors due to their superior data.
 
And Network Effects are so prized b/c they:
-Create barriers to entry… making it difficult for competitors to enter
-Create barriers to exit… making it challenging for customers to leave
-Drive more value for all constituents as they grow… both the company and it’s users extract more value and receive greater benefit as the number of users increase
 
and this all contributes to the creation of monopolistic, winner-take-all businesses.
 
And during today’s discussion, I couldn’t help but think of Network Effects in the context of a startup ecosystem.
 
Imagine for a second a large web… there are many nodes in this web and lines that connect these points to each other.  And lets pretend each of these nodes represent a major stakeholder group in the startup ecosytem… for example Startups, VC firms, Angels, Incubators, Service Providers, etc.
 
One of the key questions when discussing network effects is:  “At what point are there a sufficient number participants, so that each added participant creates more value for all?”  This is the “critical mass” question.  In an ecosystem’s infancy, if there are only a handful of people thinking about startups, there’s just not enough volume to justify the existence of key nodes.
 
As I consider this visual, a few things become clear:
-The number and quality of nodes is critical
-The number and quality of connections between those nodes is critical
-And the rate at which these nodes and connections are increasing is critical
 
There are companies, here in the Chicago ecosystem, that are working on this specifically.  Startups like BuiltInChicago that are creating the online connectivity and Hubs like 1871, connecting various nodes offline.
 
But what is the key value driver? Read More…

106. Underserved Startup Ecosystems, Part 2 (Stuart Larkins & Ezra Galston)

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Today we cover Part 2 of Underserved Startup Ecosystems with Stuart Larkins & Ezra Galston of Chicago Ventures. In this segment we address:

  • Their opinion on why the majority of HNW accredited investors have never invested in venture.
  • How Chicago ventures has been so successful yielding follow-on funding for their portcos… having been ranked the 2nd seed fund in the country for follow-on funding by CB Insights.
  • Stuart & Ezra’s take on how the role of VCs will change in the coming decade as these ecosystems evovle.
  • Advice they have for entrepreneurs and investors working in these ecosytems.
  • ezraand we’ll wrap of w/ their final thoughts, my takeaways and a tip of the week.

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105. Underserved Startup Ecosystems, Part 1 (Stuart Larkins & Ezra Galston)

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Stuart Larkins & Ezra Galston of Chicago Ventures join Nick to cover Underserved Startup Ecosystems, Part 1. We will address questions including:

  • What do you think are the key ingredients for a startup ecosystem?
  • In what ways do you feel that some ecosystems are underserved?
  • Can you talk about some specific ecosystems that you’ve identified as underserved and talk about your efforts there?
  • Do you agree with Fred Wilson’s assertion that in secondary markets there’s a cat and mouse game of no local investors wanting to invest until a coastal institution steps up? How do you mitigate that concern?
  • ezraWhat do you feel are the main differences in working in these ecosystems vs those that are much more established, like the Valley or NYC?
  • How do you get involved and build awareness in an ecosystem outside of where you are based?
  • Do you think geo-focused funds can generate outsized returns, if so, why?
  • Is the investment thesis different for an underserved ecosystem than it would be for a more established ecosystem? And, if so, how?
  • Do you think that every ecosystem needs to have a distinct identity w/ distinct strengths? If so, why, and what are some of those ecosystem identities in the places that you work?

Read More…


Investor Stories 48: Why I Passed (Greathouse, Boyce, Huston)

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On this special segment of The Full Ratchet,

the following investors are featured:

  • John Greathouse

  • Peter Boyce

  • John Huston

Each investor highlights a situation with a startup that

they decided not to invest in and why it was that they

passed.

FULL TRANSCRIPT

Greathouse whats next

Boyce Why I passed on a startup for investment

John Huston Why I Passed on a Startup for Investment

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104. Cram Session, Episodes 37-40 (Nick Moran)

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Welcome back to TFR for another Cram Session. In these special releases, we have aggregated the takeaways and tips from previous episodes. In this installment, we will be recapping the following episodes:

 


Access is Everything

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In the recent interview where Colin Keeley interviewed me, he asked me for the most important lesson I’ve learned after 100 episodes and three years of investing… and my answer was Access. In today’s interview, Lindel also cited the value of access. In his list of six things he’s looking for in a VC fund manager, number one was: A Sourcing Advantage… How will the GP source and close better deals than other funds? What is their differentiation that provides that sourcing advantage? While Lindel values the relationship he builds with first-time fund managers, I’d imagine even the best relationships don’t result in investment, where no sourcing advantage exists.

The other night I was out to dinner w/ some friends. And the guy sitting next to me, who I was meeting for the first time, was proudly speaking of his investment in a Blackstone fund. He spoke as if he had some superior selection strategy… yet any of us have access to the public fund he was describing. I kept my thoughts to myself then, but I’ll share them now… that Blackstone fund that anyone can get in, is not the one the best investors get in. Those funds are closed to the individual investor. Only large institutions with big check sizes and standing relationships will get an allocation in their best PE and Hedge Fund products.

And this access limitation exists across investment classes. Rarely can the no-value-add investor get into the best investments. This is likely why the vast majority of high-net-worth retail investors in the states have never invested in venture capital… they can’t get access to the best-returning funds (ie. the Sequoias and Accels of the world), they don’t have Read More…


103. The Limited Partner, Part 2 (Lindel Eakman)

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Today we cover Part 2 of The Limited Partner with Lindel Eakman of . In this segment we address:

  • Lindel Eakman Venture Capital Limited PartnersDo you think that LP investment strategy is driving the strategy of individual fund managers? Why or why not?
  • What are the biggest challenges for limited partners?
  • How do LP’s differentiate and attempt to get an allocation w/ the best GPs?
  • What advice would you have for investors and first-time GPs listening to the show?
  • Any other things we didn’t discuss that you’d like to touch on regarding LPs?

Read More…


102. The Limited Partner, Part 1 (Lindel Eakman)

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Lindel Eakman of joins Nick to cover The Limited Partner, Part 1.  We will address questions including:

  • Lindel Eakman The Limited Partner Venture CapitalCan you walk us through your background and your path to becoming an LP?
  • Can you talk about your experience at Foundry Group and what you’re doing w/ FG Next?
  • Today we are talking Limited Partners… and we’ve discussed LPs in bits and pieces many times before on the program, but for those just listening to the program for the first time, can you start us off w/ a simple definition of ‘Limited Partner.’
  • What are the most common types of Limited Partners and can you mention the key players in the LP community.
  • Can you point out the largest, strategic differences between a large institutional LP vs a family office vs a single retail angel investor?
  • For a large, institutional LP, what percentage of AUM is allocated to venture and how is the rest of the portfolio divided up?
  • Are there VC-dedicated personnel within large institutional investors or do personnel focus across asset classes?
  • For large endowments and pensions funds… I’d like your perspective on allocation strategy. Do other types of assets compete against venture for allocation or rather do LP fund managers earmark a certain amount for private equity and venture and then individual VC funds, for example, would compete against each other for that allocation?
  • What are the weaknesses of setting an asset allocation target?
  • When an LP is assessing a VC fund manager, what are the key items factoring into their decision on whether to invest?
  • How does your assessment change for first-time fund managers?
  • How much does the fund size factor into the LP decision?

Read More…


Listener Feedback

Holly Cardew

As a founder, I suggest listening to @TheFullRatchet podcast and reverse engineer the thinking of investors #startuplife