35. Developing Startup Ecosystems & High-Touch Screening (Eric Gasser)

The Full Ratchet Podcast on iTunesNick Moran Angel List

Eric Gasser joins Nick to discuss startup ecosystems and how his high-tech & high-touch screening process works at the Tech Coast Angels. We will address questions including:

  • Gasser EcosystemsCan you start off by talking about the startup funding environment in Sand Diego a decade ago and where it has evolved to today?
  • From your standpoint, what are the key components necessary to create a healthy startup ecosystem?
  • Do you have a position on whether it’s the capital or the entrepreneurs that are first necessary to catalyze an ecosystem?
  • Some areas that had very strong venture ecosystems 10 years ago have either declined or have lost a significant % of their share of startup funding. Any thoughts as to the factors that may adversely impact regional ecosystems after they have been established?
  • Do you think that regional ecosystems will increase in importance or decrease in the coming years as barriers to capital have decreased?
  • What thoughts or advice do you have for investors in smaller markets trying to establish and build their startup ecosystems?

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Guest Links:

Key Takeaways:

 

1- Connectivity of Capital Sources and Entrepreneurs

Eric cited a key factor, for the success of the San Diego Ecosystem, being the collaboration between key players. When an entrepreneur is raising a seed round or a series A, it is clear where they need to go and who they need to speak with. When investors review a startup, regardless of whether it’s a fit for them, it is clear how to direct that startup and who to link them up with. This seems to be a very supportive ecosystem where many are working together and not against each other. Often we think about deal-flow as a competitive advantage and thus it becomes competitive. But, today’s material can show that organization and collaboration between the investment community and entrepreneurs can move past a zero-sum game to more value creation for all.

2- The Mismatch of Expectations

Eric talked about the great businesses, up and down the coast, that fall into the lifestyle business category. They are very promising businesses that should be supported and encouraged. But he did cite that there’s often a mismatch of expectations with the startup founders. While these are great businesses that are have high potential to grow, an investor needs to make, at least, a double-digit multiple on their investment. With most lifestyle businesses this will never be the reality, so fundraising for equity is not the ideal path. For both investors and for founders, we all need to understand each others expectations. It can be much less painful if the discussion is had, upfront.

3- Three Types of Investors

Eric’s advice here was for startups to understand what types of investors to target and how to position themselves with each. It seemed to him that there can be a lot of time and effort wasted with a shotgun approach toward raising capital from early-stage investors. Are you targeting people with experience in the sector or vertical? Do they need to intimately understand and have felt the problem being addressed? Or is the startup providing some sort of benefit to society that may get a critical mass of passion investors behind it?

Eric’s three example investors included:

The Passion Investor
The Industry Investor and
The Academic or Analytical Investor

So, to paraphrase Eric, when a startup is asking for money, they should’nt be asking how many deals you’ve done, they should be asking what types of businesses have you invested in and are passionate about. We often think about passion when it comes to founders, but this plays both ways.

 

 

Tip of the Week:   The Value-Add or the Value-Suck

 

FULL TRANSCRIPT