182. Market Cycles, Escalating Costs to Start Up, and the Micro VC Surge (Jeff Clavier)

182. Market Cycles, Escalating Costs to Start Up, and the Micro VC Surge (Jeff Clavier)
Nick Moran Angel List

Jeff Clavier of Uncork Capital joins Nick to discuss Market Cycles, Escalating Costs to Start Up, and the Micro VC Surge. In this episode, we cover:

  • In 2004 you started making angel investments in emerging Web 2.0 companies and at that time, only a handful of individuals backed entrepreneurs in the internet space…What was your first investment and how did you get involved in the space? 
  • What’s the story of the founding of SoftTech–now known as Uncork Capital. 
  • What led to the rebrand from SoftTech to Uncork? 
  • The investment focus/thesis of Uncork. 
  • You mentioned…FitBit, EventBrite, and Sendgrid…it’s striking how different each of these businesses are…How you are able to get conviction and understand key success factors across different sectors with different models and overall profiles? 
  • How have the market cycles affected VC, your fund strategy, raising capital and the impact on portfolio companies? 
  • What are the most common mistakes you see early investors making? 
  • With the 600+ micro-VC funds now…is the stage over capitalized? 
  • Is it more expensive to build a startup today than 10 years ago? 
  • Being that you are from France…in your estimation, what have been the primary differences in funding European based startups vs. those in the States? 
  • Said to be one of the most helpful investors in the valley… what are some of the specific ways you get involved? 
  • On the firms website it talks about your “No Playbook” and “No Bullshit” approach that you’re not delivering “prescriptive formulas on how to build or scale” but instead developing custom plans, one on one. Tell us about these custom plans and the key elements. 
  • How Jeff balances time and energy with so many portfolio companies.

Guest Links:

Key Takeaways:

  1. Jeff’s first investment was with Truvio, a video platform before the days of YouTube. He invested in 2005 and held them in his portfolio for just 10 months before they were acquired by AOL and Fox Interactive for $50M. 
  2. SoftTech VC was founded on the idea of providing entrepreneurs with more options through writing smaller checks. During this time, VC’s were only looking to invest in the millions and angel’s were not extremely active. Jeff began by investing a couple thousand dollars at a time of his own capital, and after 3 years of founding SoftTech, they raised their first fund of $15M.  
  3. The rebrand from SoftTech to Uncork Capital was brought upon by some confusion that they were only investing in software companies. Uncork was the perfect fit to embody the “uncorking” of potential and innovation in startups, along with the fact that Jeff is a wine connoisseur himself. 
  4. Uncork’s thesis has evolved from focusing on consumer internet opportunities, then over time adding B2B and marketplaces, to today where their primary focus is on SAAS, B2B software and the new addition of frontier tech.
  5. Although the firm’s portfolio includes companies across many different sectors, Jeff looks for the same basic fundamentals in order to achieve conviction before investing – Founder market fit, a strongly differentiated product and large economic opportunity.
  6. Jeff shares how going through extreme market cycles has developed his fund strategy and allowed him to develop a comprehensive playbook, if and when a market swing arises.  
  7. The importance of pricing and initially setting accurate valuations. Inaccurately pricing the first round hurts the investor and is also not setting the founder up for success. In a situation where the startup does not grow into their valuation, finding new investors will be difficult when they’re overpriced. 
  8. The rise of Micro-VC’s proved that it is feasible to build something new in the venture space and created an abundance of new opportunities. Prior to this, raising your first fund would take years with great difficulty, now it’s not uncommon to see the first fund raised in just a couple months.
  9. Jeff shares 2 key elements of becoming a great investor – learning how to operate a company by first being an operator and gaining knowledge through the experience of investing your own money. 
  10. One mistake Jeff see’s as not only a disservice to the investor but also the founder is investing on the spot without doing due diligence appropriately. Founders are not in need of quick yes’s but someone with conviction, expertise and experience in order to help build the company. 
  11. With there being 600+ Micro VC funds, at the seed stage, Jeff has recently seen less companies being funded and companies that are being funded, raising higher dollar amounts. The challenge he see’s here is, where will the returns come from to justify there being 600+ Micro VC’s? 
  12. Due to the explosion of tech companies like Uber, Lyft and Google, hiring tens of thousands of people, the competition for talent has become extremely cutthroat, making it increasingly expensive to build a startup today. 
  13. In today’s expensive talent market, startups are able to rely on small, tight-knit engineering teams and drive motivation through equity or good salaries but as soon as they raise series A or B, they’ll be faced with 2 options – either be willing to “pay up” or diversify. 
  14. Jeff spends time with his portfolio companies not only reacting to difficult situations but also anticipating them and providing mentorship proactively. He finds it critical to maintain a high level of responsiveness especially at the early stages.