66. From Angel Group to Venture Fund, Part 2 (Maia Heymann)

The Full Ratchet Podcast on iTunesNick Moran Angel List

Today we cover Part 2 of From Angel Group to Venture Fund with Maia Heymann of Converge Venture Partners. In this segment we address:

  • Maia Heymann Angel Group Venture FundWhat are the reasons why this structure attracts more great entrepreneurs?
  • Have you found that you can move faster from the time you receive a deck until the time you cut a check?
  • Was there a catalyst or something that prompted this transition from Common Angels to a fund-based model with Converge?
  • What will be the primary differences between how things were done in the angel group and how things are done at Converge?
  • Do you plan to do seed and follow-on rounds through Converge or will the fund focus on one-stage only?

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Key Takeaways:

 
1- The Three Primary Advantages of the Fund-Based Model
 
In this interview, Maia discussed the three legs of the stool for Converge Venture Partners and how these provide additional advantage beyond that of they angel group. The three elements were:
 
1. A dedicated pool of capital
2. Full-time investment professionals
3. A broad network of venture partnersWith regards to the first leg of the stool, a dedicated pool of capital; this has enabled Converge to write larger checks, give entrepreneurs a clear indication of check-size and has resulted in a much faster time-to-close. These benefits have helped significantly to attract more high-quality dealflow. And the dedicated fund allows for reserving and staging capital in a structured way. As much as angels may plan to stage capital, exogenous factors often impact indiiduals’ plans.On the second leg, full-time investment professionals, now Converge can actively source and evaluate dealflow, while having committed individuals that understand the private capital markets. It’s clear that the investment focus can shift to being much more strategic, rather than opportunistic w/ a full-time team.Finally, the third leg of the stool had to do w/ the network of LP venture partners. Maia talked about how entrepreneurs don’t just want capital, they want expertise and connections. Connections to prospective customers, new hires and partners. As she explained, capital is no longer a differentiator and this group of individuals provides many advantages beyond the standard angel group or venture fund, which is what we cover in Key Takeaways number 2…
 
2- The Active LP Fund
 
When we think about most venture funds, they operate as a blind pool. The limited partner, LP, invests in the venture fund manager and then that manager has discretion to invest in what they wish with limited to no involvement from the LPs. But Maia’s message today was a significant departure from the traditional model. Her’s was one of active and engaged participation by the limited partners. And it makes sense that she was able to orchestrate such a dynamic b/c they started as angel group with interested and passionate investors… those that were return oriented, but also enjoyed the process of finding, analyzing and selecting startups. And b/c they have such an engaged LP base, they are now able to better vet, manage and help more of their portfolio companies.
 
 
3- The Entrepreneur is the Customer
 

A subtle mindset observation that Maia made early on w/ Common Angels was that the angel group members felt as though they were the customer. They are paying the dues and cutting the checks for entrepreneurs. It’s natural for those that are spending the money to feel as though they are the customer. And she saw this as a major flaw in the model because the investor is not the customer; the entrepreneur is. She said:

“Everyone’s money is green… Who drives the value? Who creates that return on your investment? It’s the entrepreneur. When you start to think about the entrepreneur as your customer, a lot of things change.”

This was a great reminder for all of us. As Tom Tunguz mentioned in episode 46, we are in the financial services industry w/ an emphasis on services. Investors serve the entrepreneur and the entrepreneur creates the value.

 
 
 

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