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)
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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.

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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.  

Transcribed with AI:

0:03
welcome to the podcast about investing in startups, where existing investors can learn how to get the best deal possible. And those that have never before invested in startups can learn the keys to success from the venture experts. Your host is Nick Moran, and this is the full ratchet

0:23
Welcome back to TFR today Forbes

0:25
Midas list veteran Jeff Clavier joins us. Jeff is the Founder and Managing Partner of uncork capital A seed stage VC firm based in Silicon Valley. In today’s interview, we discuss just beginnings in the industry and what led to the current success of uncork capital. His days as an early angel investor in web 2.0. The founding of uncork capital as one of the very first micro VC funds, the investment focus at unqork and its evolution, the effect of the 600 Plus micro VC funds that have emerged if the stage and or asset class is overweighted. How market cycles have affected the venture space? Why it’s more expensive to launch a startup today than it was 10 years ago, the firm’s customized approach toward helping companies and finally we wrap up with Jeff’s thoughts on how he balanced his time and energy with the demands of the many portfolio companies they serve. Here’s the interview with the great Jeff Clavia of uncork capital.

1:31
Jeff Clavia joins us today from Palo Alto. Jeff is founder and managing partner at uncork capital. One of the original seed VC firms in Silicon Valley, uncork capital has over 200 plus investments to date, including Fitbit, Eventbrite, mint and Bleacher Report, among others. Jeff, of course, was born, raised and educated in France and has spent more than 16 years in enterprise software as an entrepreneur, executive and venture capitalist. He is one of the OGS of the micro VC movement, and is a veteran of the Forbes Midas list. Jeff, welcome to the program. Nick,

2:04
it’s a pleasure. Thanks for having me.

2:06
Absolutely. So you started angel investing in 2004, investing in emerging web 2.0 companies. And at the time, you know, there was just a handful of folks that were were backing these early stage entrepreneurs in the internet space. Can you talk about the first investment you made and and how you first got involved? Sure.

2:24
So the first investment was a company called True vo T RU. VO it was a video search engine before YouTube. So just let that sink in, you know, internet before YouTube, trying to sort of find the videos. Wow, two awesome co founders company was building this sort of search engine that was finding videos inside web pages so that you can do a search of, you know, any sort of video you were interested in. Company built a awesome technology, mostly on the crawling side and got acquired by AOL N Fox Interactive, both wanted to acquire the company. So they were acquired for 50 million in in 2005. I invest in 2005. So there was a company I held in the portfolio for 10 months and three weeks. Wow. And it was a 17x return in first investment in one year. First investment.

3:20
I guess you’re on the right track.

3:21
Well, you can you know, either. Be smarter be lucky, I was lucky. Yeah.

3:26
So how did you get involved? How did you first meet them and decide that you wanted to invest?

3:32
So I had made the decision to be a full time enjoying investor means me 2004. And we sort of let our network know that this is what I was doing. And before that I had been a more traditional VC for four years. And my beloved wife was working with the wife of the CTO as a volunteer at school. And when they were sort of chatting about what the husbands were doing, and loan, my friend’s wife said, Oh, my husband is doing a startup and my wife said, Oh, my husband investing in startups, you get the they should meet. And that’s how the whole connection sort of happened. So beyond a very successful story, there’s a very strong woman who was involved and that’s, you know, yet another proof.

4:18
Wow, amazing. So how did that lead to sort of the founding of soft tech, now known so uncorking?

4:25
Yeah, soft Tech was born a few months earlier, the idea was heard there is definitely a shift in the ecosystem in terms of entrepreneurs needing to raise capital. That was essentially the, you know, a few $100,000 to get them going. And there was really no product in the market to sort of fund them VCs were looking at investing a few million dollars angels were not, you know, super active in in those years after the first internet sort of collapse and I just jumped in with my own capital investing, you know, 25k here 50k There from from our own savings for the first three years of, of Softech, non quark. And then in 2007, that raise one of the very first institutional Fund, which was a small $15 million fund that we announced that TechCrunch 40, in in September of 2007. And people said, Why the hell would anyone raise this such a small fund? And Why would, why would any entrepreneur, you know, sort of take money from such a small fund, but that was sort of the beginning of the whole craziness that we see now. Wow.

5:37
And so that was always sort of Valley centric, or, you know, were you investing across the country in Europe?

5:45
Yes, it was really sort of old school VC, meaning, I was pretty much investing in things that could drive to so Palo Alto, San Francisco, it took me a few years to make my first investment sort of outside of the valley, I did the investment in Seattle, in an open source company in 2007. And then, another investment in New York, which was my first investment in New York, in 2008. The idea was, hey, we invest super early, sometimes I was writing the first check for the company to essentially incorporate get a tax ID or open a bank account and get a check. And so that kind of early stage nature required to be sort of face to face spend a lot of time helped the company sort of build up in the early days. So I decided to do it locally. Got

6:37
it. Got it. And what led to the rebrand

6:41
after 13 years. Well, I mean, to be very candid, Softech had never been sort of a great brand, I mean, became something very well known and, you know, meaningful in the market. But so that vc.com, you know, that’s basically how I came about the the name in the URL, my lawyer in in May of end of April, early May 2004 said, Hey, we need a name because they need to incorporate this thing. And so I just checked SoftTech vc.com, on good idea, or whatever the domain name, so registration service I use, he was available and stuff like this, he was born. And over time, the challenge of stuff ADC being not super clear in terms of values and branding was that people sort of assume that we’re doing software only, and software only was actually the name of the blog. I started back in 2004, as one of the first VC blogs. And, you know, I was one of the first investors in Fitbit. I’ve done a lot of nun software kind of investments. And over time, it became confusing. And I think two years ago, Softbank announced the Vision Fund, and then Softbank and Softech sort of wasn’t really confusing, because they are very different when people were like, so wait, you guys sort of affiliated you have like 100 million or 100 billion? And are you working for NASA, or it became sort of a mess. And one day, we did a sort of a brand survey of Softech. And, you know, with those results, we couldn’t hide, you know, what we heard is a we like you but you know, stuff, tech sucks. And so we went through, you know, a proper naming exercise. And Stanford professor helped us sort of find uncork, and we thought it was both a great brand for a seed stage venture, but it’s also something which is, you know, active and younger and joyful. You know, it’s the energy that comes out of a bottle when you open it, that’s, you know, uncorking sort of innovation, and the potential of companies and you know, as a side, sort of Wink, wink, I have a big passion for wine, so uncork capital, when we announced it with two people who knew me, they were like, oh, yeah, this is absolutely,

8:58
absolutely perfect. Yeah, it’s, I’ve heard that you appreciate a nice glass of wine. So it seems fitting

9:05
it is, but you know, it’s not. We don’t invest in wine or wine technology or things like that. It’s really about, you know, sort of a broad range of startups that we’re excited about. Good.

9:16
So has the the thesis or the investment focus has that evolved over the past? Shoot, you’ve been doing this for almost 15 years, almost 15

9:25
years, indeed, May 1 will be the 15 year anniversary. At the beginning, I was really focused on consumer internet opportunities. That was the bulk of what I did in the first, you know, three, four years. Then I started adding a bit of b2b and marketplaces. So even bright was one of my first marketplaces. SendGrid was one of my first sort of b2b SaaS investment. Fitbit was the first hardware investment had ever made in 2008. And so over time, we added a bunch of different categories. And I think in the last Few years, we’ve really shifted from consumer to sas b2b. So now if you look at Fun five, which is our current 100 million dollar fund, you know, 50 60% of what we do will be some kind of a size b2b kind of enterprise software, Developer Tools, mobile application stack kind of investment, we still do a bit of marketplaces, bit of consumer healthcare, a bit of Canadian hardware. And within five, we added frontier tech, so bit of AR, VR, robotics, space tech, AI, a bit of blockchain kind of technology. But in for us, once your tech is really tech, which won’t have, you know, a consumer adoption or market adoption proof point, by the time there is a series and so it’s much more like, we’ll raise on the strength of the team and technology. And, you know, we’ll have a delayed market proof, because that won’t happen for another couple of years. But the main focus now is really so SAS,

11:07
you mentioned some of these different sectors and some of these different types of startups. And you cited Fitbit, Eventbrite and SendGrid. It’s striking to me how different each of these businesses are, you know, I’m curious, how have you been able to get conviction and also understand, you know, maybe what the key success factors are across startups with very different profiles, maybe in different sectors, with different types of business models?

11:33
Sure, I think if you look at what we do, as early stage VCs, we’re gonna look at a bunch of characteristics of the startup, the main ones being, you know, founders and their experience, experience expertise, and what we call sort of founder market fit. So do expect this founder to work in this kind of technology, or sort of functional sector to product, how strong differentiated much better compared to anything else. So if you’d say, brand new market entrants, like Fitbit was, is this sort of a compelling value proposition where we feel that if they succeed, they could actually build a big company, and then market opportunity, which is sort of the same is there like a very large economic opportunity to create, if the company sort of gets to some kind of a successful level of execution. And as long as those three characteristics are satisfied, then we can sort of decline it to the different sectors, I think hardware is exceptionally hard to be able to success. So into just because of, you know, how hard it is to build a successful hardware sort of solution from a design manufacturing sourcing, you know, scanning standpoint, it’s it’s horrendously hard. And to be very candid, when I invested in Fitbit has, you had no clue how hard it was going to be? I think, James and Eric, the founders of Fitbit didn’t really have a clue either. So we all sort of, you know, got lucky that we we succeeded, and, you know, got to a successful outcome. I think for SendGrid. It’s this notion that this is a piece of infrastructure that is used, and at the time was really sort of mostly used in E commerce, for, you know, all those confirmations, confirmation emails that you were getting from marketplaces, or E commerce operators. So to me, SendGrid was a way to aggregate the technology requirements of E commerce and make sure that we could scale across several different sectors and opportunities by just focusing on that level of infrastructure. And after that, we’ve done a lot of SendGrid of so companies that aggregate you know, the technology requirements of a given sort of industry or sector, and even bright was slightly different. A, I knew that the founders were extremely strong, but in 2007 2008, I, so I don’t know, maybe 10, even write emails per day left in my inbox for all the events that were happening in the ecosystem. And I was like, What the hell everyone is using Eventbrite. This company has been doing well. And, you know, figured out how to get an intro to the den CEO, Kevin Hart’s was then being replaced by his wonderful wife, Julia CEO, and basically pitched him hey, you know, you guys raising money, you can invest. He wasn’t at the time, but a few months later, he ended up raising in December of 2008, at the worst possible time, when the market was just absolutely crumbling. He was trying to raise a bit of money to survive. And so I invested and you know, was part of a small round that gave him you know, for capital to survive until the series A that Sequoia Capital did. Speaking of

14:53
some of these market swings, you’ve been doing this a long time, and you’ve kind of stayed in this micro VC segment I think your your recent fund is 100 million. Yes. So can you talk about how some of these, these market ups and downs have affected your deployment strategy? If at all, I’m sure it affected fundraising to some degree, although, you know, the early successes that you’ve had, I’m sure have attracted a lot of institutional LPs. But can you talk about what it’s been like to weather these, these storms in the market and how it’s affected the startups that you’ve worked with? Sure.

15:28
So I’ve gone through two cycles, right, 2002 1008. And I think those were, I mean, there’s always been sort of me cycles and moments where, you know, it was a bit harder to raise, and people were not too sure, whatever. But those were sort of brutal, where literally, money dried out from one day to the next, when VC firms stopped looking at any new opportunity and focused on what we call in the industry portfolio triage, which is basically looking at, you know, all the companies you have in the portfolio, what is their cash situation? Can they, you know, make it to breakeven, by firing 20 3050 70% of their resources, do you have a situation where you have, you know, a great team, which has traction, which is about to run out of cash, and a company, which has, you know, potentially less interest or less, you know, interesting prospects, but has cash, and you would sort of merge the two, you know, to put the cash where the prospects are. And it’s really brutal. And I haven’t had to send a note to my portfolio founders, like we did back in, in oh eight, which was, Hey, cut costs to bare bones, because it’s not about growth, it’s just about survivals. Because we don’t know when capital is going to be available for you guys to raise new capital, and you should potentially assume that it’s never, right. So we’ve, we’ve we haven’t had those kinds of extreme situations for a long time. And that’s what worries me is that if you look at the micro VC industry, and a lot of the VC industry, as so many of these funds have just showed up in the last 10 years. And no one knows what those kinds of brutal downturns sort of look like. And I don’t wish to live another 2008. But if we have to, I have the playbook.

17:24
Interesting. So I think there’s more than 600 Micro VCs. Now, you cited Yes.

17:29

  1. Plus, there are some lists out there, which lists 700 firms, some have raised some I’m in the process of raising, I think we we sort of demonstrated is the first cohort of micro VCs, the DOJ is sort of demonstrated that it was actually feasible to build something new in the venture space, because things had been done a certain way for 2025 30 years. And we sort of figured out a new way to finance innovation with smaller checks and rapid prototyping of startups of sorts. And then, as we sort of showed up with our funds, you know, the people raised in, oh, 70809, then that’s, I would say, inspired a bunch of people who sort of said, Hey, this is sort of great, I want to do that as well. I want to make the transition from Angel investor, to VC and become a professional investor. I think, what happened, the LPS limited partners, people invest in funds, so the early performance of the early entrants and said, Oh, actually, this is interesting. And I want to be able to fund the next micro VC firm, right. And while it’s typically super hard to raise your first fund, which is you’re in absolute hell for a couple of years. Now you see people who raise a fund in a few months without actual sort of prior angel investment expands, which is great, because it gives a lot of people a bunch of opportunities. But I’ve always sort of thought that a, to be a great investor, you have to be an operator first, because that’s how you essentially learn how to operate a company and be I don’t know that it would have had the same success. If hadn’t invested my own capital for three, four years. You’re writing small checks and learn the pain of investment mistakes by just losing money. Right. And when you lose your own money, that’s when you that’s when you learn yet

19:32
we’re seeing a lot of folks maybe split off from larger firms specializing in maybe a or b rounds and raising their own funds and then moving earlier, right, investing in seed. Do you think that potentially they may be bringing the wrong playbook and maybe selecting the wrong startups based on their experience at different stages?

19:55
You know, to me what matters and I’m not saying that someone doesn’t have Any investment expense will be a bad investor. Look at Mike Mike Morris, right, I don’t think he had ever invested in TLT. He joined Sequoia and then boom, you know, one of the very best investors in the world. I think, to me, what matters is sort of the process and discipline of sourcing, doing due diligence and thoughtfully, so investing there is important and doesn’t really matter where you actually sort of got it, I think, learning as an angel with your own money, is a is a really good way of learning because of the pain, but especially if you end up investing at early stage. But if you come from a established sort of early stage firm that looks at series and series B’s, you essentially look at a set of filters and the additional filters that you will have at those stages, traction. So looking at where they are in terms of actual revenue, market penetration, early logos, customers, and so on, so forth, looking at unit economics, so how much it costs to get to a customer, how does the customer value increase over time, things like that, and essentially saying goodbye to a lot of those filters, because they just can’t apply to something at seed or precede. So to me, it’s more sort of the discipline, the the thing, which is challenging these days is that you, you have a lot of people who just invest on the spot without any sort of reference check, or without any due diligence call any sort of talking to customer figuring out the technology or whatever. It’s a disservice to their investor. But it’s also a disservice to the founders, because founders don’t need quick yeses. They need someone who has conviction and experience and expertise to build the company. And so too many times do I feel that people will sort of send what I would call paper plane term sheets, which is like, hey, you know, here is a term sheet and you’re worth blind, you know, the net result of this imbalance in supply and demand means that, you know, the valuations that early stage founders can come in these days are just ridiculous.

22:09
So aside from not doing the diligence, and not doing the checks and getting to a real convicted place, what are some of the other common mistakes that you think maybe some early investors are making, whether they be angels, or new entrants to micro VC? You’ve been doing this a long time, I’m sure that you’ve seen a lot of folks succeed and fail, what are some of those common mistakes or common traps that investors fall into? So

22:34
look at the end of the day for every 100 company that passed on and failed. And so I was right, there’s one which are passed on and that shouldn’t have. And so it’s always easy to say, well, you know, you shouldn’t do this, you shouldn’t do that. I think the problem is, to me, it’s because we only do, I’m going to invest in four companies per year, roughly right, three to four. And so we’ll map out my buffer. So we do 10 ish investments per year. And so every investment is important, everything is considered a thought through a due diligence, check and cross checked. And then we try and figure out what is the optimal and then acceptable price or valuation at which we choose to enter the business. And in this environment, most often wind up with acceptable because the optimal is been years, we haven’t invested at optimal valuations just because of the craziness of the market. And I think, because of started a long time ago, you know, TrueView, my first investment was at 2.5. Pre, when we invest in second grade, it was sub 2 million pre, if I recall the first the first round, which means that when the company sold for $3 billion, when they close the transaction with Twilio, that’s a real return that you’re looking at, right? Yeah, that’s an x plus, it’s 1000 on valuation, that on over investment brings to us a great outcome. And mispricing the first round. And that only hurts the company. Because you know, once you are surprised that 15 or 20, or whatever as your first round, well, you have to sort of build traction, launch the product, get revenue, and then grow into that valuation so that you can get maybe a 25 or 33. Yep, kind of round at Series A. And so that sucks, right for investors. And for founders, it’s actually not setting up for success, because if for some reason, they don’t grow into the valuation, then they have to go through a down round or figure out who’s going to invest but then they’re already overpriced, and so no one will touch them. And so it’s not, it’s not setting yourself up for success, to to raise it too high valuations pricing for perfection, right. And perfection never existed in startups.

24:52
So with this surge of VC funds that we talked about, as well as these growth funds that you also mentioned, Softbank, do You think that the asset class itself is over capitalized? And or do you think the early seed or seed stage is saturated? If

25:08
you look at the 2018 numbers, so we got $200 billion, invest in the US across asset classes. And for the first time in history, I believe you’ve over 60% of the dollars were in rounds that were a million dollars and up. And so there’s really been the massive influx of mega rounds led by mega funds. So mega rounds is over 100 million, then maybe a fund, I don’t even know what characterizes them together anymore. At seed stage, we’ve actually seen the both the dollar and the number of deals dropping, but the number of deals actually dropped faster, which means that less companies are being funded, but the ones that get funded, attract much larger rounds of financing. And if I look at in our own uncorked portfolio, I would say by now, you know, the average deal size is probably like 3 million out of which, you know, we’ll write a 1.2 to $1.5 million check. And this used to be sort of the old Series A, it’s partially due to the fact that it’s become way more expensive to build and scale those startups. But also, it’s tempting for founders to rebuy to market demand, where once you have a reputable lead, things go crazy, and everyone wants to invest, and suddenly you have all those funds will try to sort of get, you know, 250 or 100k, there 50k there just so that they can put in a bit of money, and try and go for the ride and not do anything. So the challenge is, I don’t know whether the early stage market is way over capitalized. But I don’t know where returns are gonna come from to justify the existence of 700 Micro VC funds on one side, it creates opportunities for founders to get funded. That’s great. But I know how hard it is to return the fund four or five or times or more. And, you know, it just requires a bunch of successes, inconsistency and I just don’t think that we’re going to see that across the entire ecosystem, because it’s just impossible.

27:15
You mentioned that it’s more expensive today to build a startup. Yes. What do you think that’s due to? I mean, I’ve heard the counter arguments from a host of people that say it’s, it’s getting cheaper and cheaper to build startups, but there are, you know, a lot of factors that are causing it to get more expensive talent being one of them. But can you talk about what factors are driving the cost to reach that series? Sure.

27:37
I mean, you mentioned it, right? Yes, it was, when I got started, it was 10 bucks, cheaper to be able to start up, and then became cheaper, even cheaper than that, thanks to AWS and cloud services, and so on, so forth, right. So there was a point in time where it was, like, not too expensive to hire talent and scale engineering teams and companies. And you were sort of really getting a ton of leverage on all the technology advances. The problem is that over the past three to five years, you’ve seen just an explosion of tech companies in terms of how many people they were hiring, like the 1000s of people that 10s of 1000s that Uber hired and Lyft hired and Facebook hired and Google hired and, and is just in one place in the valley. And there’s just not enough talent, even coming here to just justify the demand, which means that you have this cutthroat competition for talent, where you now see startups offering 200k salary to an engineer, and then the they call back and they say, Well, Google offered me thrown 50 or 400. And so it’s become prohibitive to compete in the talent market in Silicon Valley, New York, and to some extent, Boston, you just have to find a way as a startup CEO, how to do without, right. So at seed stage, what you’re going to do is you’re going to rely on this small, tight knit sort of engineering team, and you’re going to motivate people with a bunch of equity and decent salaries. But as soon as you raise a Series A or Series B, you’re in the market sort of trying to compete for talent. Either you pay up or you diversify and diversifying for us means either moving the engineering team opening a second engineering center, going partially or fully distributed. And more recently, we’ve actually sort of decided to open the aperture on our core geography. So we used to do Sikander in New York, Boston and live in Canada, or latest deals. We’re in Austin, Texas, in Dublin, Ireland in Israel. And we are definitely more open to split organizations where go to market is when in one of the call centers, but the engineering is wherever and wherever it could be. So thinking about the world leaders deals could be in Serbia could be in Spain. and could be in France could be in in geographies where there is competition, but not as as challenging as it is today. And so you can very

30:09
well, we’ve got plenty of precede startups coming out of Chicago that need seed funding, Jeff, so I can send them your way. I

30:16
mean, we don’t we don’t do precede per se and precede for us is a couple of founders idea and a tiny bit of code or not. And that’s kind of early for us. We prefer to wait for six to nine months and then fund them when they’re about to launch in the market. Yep, that would be sort of our sweet spot. And yeah, I mean, companies in Chicago that have appetite to build long lasting company with great ambition. Absolutely. Think of Us. Perfect.

30:44
Well, Charles Hudson, and I will do the pre seed round, and then we’ll, we’ll send them over to you for the next one. Dave? Oh. So you’re French, of course. And you just talked about these different regions,

30:56
mostly American with a French accent. Okay.

30:59
So you’re born and raised in France? Yes. So have you funded companies in France or Europe at large? And what do you think are the primary differences and funding startups located there versus the states? Actually,

31:12
we have not, what we’ve done is we’ve funded European entrepreneurs, we have a ton of them, that made it to the US and made the commitment to build a US company, but taking advantage of their upbringing to have potentially sort of cheaper or easier to recruit resources. And that’s how fromt has two French co founders and the worst CTO, so going back to France and opened a engineering center in Paris. And this isn’t our largest engineering center, the company in Barcelona, founders Spanish in the valley, but his entire team engineering team and product team is over in Spain, same thing for Irish company. And so there is a clear sort of pattern that we look for, which is commitment to the US market and having good market here to make sure that there is a broad global ambition, because sometimes less so now then maybe, you know, five or 10 years ago, but European founders used to be sort of focused on on building local companies in their home country, and then eventually, maybe sort of expand to neighboring countries. Whereas when the US you typically sort of trying to build something sort of bigger. And so that’s the common tray of our European founders, I would say, to answer your question on Europe, I think there isn’t as much of a difference. Now, the European ecosystem, both in terms of founding and funding has definitely caught up in the last few years, where there’s a much more active funding market with a bunch of quality funds at pretty much every stage except maybe growth, where they still rely on the on US funds to invest over there. But that’s an issue. And then entrepreneurship is no longer a nasty word as it used to be back in the day, you know, like in nighttime, you weren’t entrepreneur because you were incapable of finding a job. Right? And definitely, you had to start your own company. When I mentioned to my father that was going to be an entrepreneur, he looked at me and said, I don’t understand you’ve always had good grades. Which was true, but it was besides the point. And you know, we’re talking 2530 years ago, right. And so now, a lot of people are just going straight to founding the companies joining startups. And it’s no longer sort of seen by parents way too risky to be joining a startup, because it’s always that concern, like, you know, why don’t you sort of join IBM or whoever, so that so you have a job for life, this is no longer sort of what, what people sort of think about, because there’s been successes, because we talk about it, because we celebrate entrepreneurship and accept failure, which was also something that was holding back the European ecosystem, I think it’s become way more acceptable to try and succeed or try and fail. And that’s okay, you sort of get back up and read again.

34:08
Jeff, you’re said to be one of the most helpful investors in the valley. Can you talk about some of the specific ways that that you get involved with your portfolio companies?

34:17
I think it’s sort of the old fashioned way of sitting down with entrepreneurs and trying to understand what their issues list is and what you can help them with. I think the challenge is you can’t you can’t fish for entrepreneurs, you have to teach them to fish. So it’s both a, you know, let me try and help you avoiding mistakes based on things that I screwed up myself or have seen screw up in the portfolio. So it’s kind of a bit of a fencing kind of job. It’s a lot of mentoring, lots of development, because we’re going to work with those entrepreneurs for a 10 plus years. Our average time to IPO in the portfolio is eight years. So you know there’s a major difference in gap between what you do as the founding CEO of a startup at t zero and what you end up doing, you know, 10 years later when it goes public. So there is a lot of personal development and you to try and figure out both react to issues and try and help the founders anticipate you spent a lot of time with them face to face on the phone over, I am emailing and, and trying to sort of really smooth the job as much as possible. And it can be related to helping sort of make a hiring decision or convince a critical hire to join or introducing a critical hire could be obviously sort of helping with the next round of financing, finding a customer, figuring out the elements of the product strategy, sort of giving feedback on personal issues, thinking about culture and personal development, trying to help one of my companies buy a domain name, because they’re rebranding, and I just happen to know some people who could help out. I mean, there’s, there’s never anything sort of too big or too small for us to try and get involved in. And, and we have to do it fast. So, you know, I look at my inbox as this sort of gigantic control tower of issues that my founders are so meaning to me. And my goal is to treat them as quickly as possible, because any, anytime I save them is critical, because for startups, everything is based on the runway that they have. And if you lose one or two days doing something, you will basically burn one or two days of cash.

36:31
Yeah, on the website you talk about there’s no playbook, you know, there’s no bullshit approach from you guys. You’re not trying to apply prescriptive formulas, but everything is custom.

36:41
Yeah, because everything is sort of different. And you know, sometimes you will try and bring proven playbook. And you will sort of ask a established founder or VP marketing or VP sales, to help them with their early go to market strategy. Because that’s, you know, in some cases, it can be applied. But every startup is different based on their specifics. And so you have to be very careful to not go too fast on pattern matching, saying, Oh, I’ve seen this pattern, two or three times, boom, that’s just supplied, it’s it has to be more subtle than that. So

37:15
doing doing quick math, here, you invest in three to four companies a year, the average time to exit approximately eight years. So at any given time, you might have 24 to 32, portfolio companies that you’re working with closely. Now, some of those graduate on to you know, subsequent stages. So I’m sure you to some degree, you know, other people are also playing a key role. But this, you know, I’m dealing with this right now, because we just added, we’re at 17, portfolio companies now, I think we fancy ourselves is at least attempting to have the highest net promoter score of anybody on their cap table. But that also comes with a cost, the cost is time and a lot of energy and effort. And it’s worth it. But as you know, the portfolio companies expand, it gets difficult. So can you talk about how you’ve been able to manage a cycling portfolio of of many companies and serve all these these different founders?

38:10
Sure. And you know, having a super high NPS as a, as an investor is super important, because that’s a guarantee of future deal flow. And also future wins goes when a founder has several term sheets, which is pretty much every time, you know, in this environment, they do their own due diligence, and they go to portfolio companies, the ones that have been successful, the ones that have been less successful, and they ask, how did the investor behave, when things were great, and where things were not great? Oh, not so great. And making sure that you don’t abandon all your children, when they stop being the most successful is super important, right. So the way we apply over time is at seed stage, were really sort of all in and we spend a lot of time with each and every possible company, we have set times allocated to each company, both in terms of calls face to face board meetings, and so on, so forth. So we make sure that this time is blocked and locked in the calendar for them. And then whenever there is a request, whenever there is a need, we just jump on it. And the more time we spend, the higher the quality of the execution, the better. The outcome post seed round means that we can raise a great series at both in terms of size, but also in terms of who leads the round. And if you can get stuck or at investor in the series, a surround and board seat, then your job is not done. But at least someone is going to take over that prime responsibility of supporting the founder, both the founders and building the company. By then you become obviously subrogated to that series investor but you’re basically sort of hand over the keys and say, hey, I’ll be I’ll be behind you and it will sort of Keep on sort of working in something that series B something, it’s your see. And over time, you will be able to disengage and figure out with your portfolio founder, what are the key things that you want to work on with them. And so, I will take the board seat in a lot of my investments, I have six to eight boards maximum, I will always roll off the board between the series and the series B, depending on the on the company and its maturity, with that will always be gone by the time the series B is raised. And then as I continue my engagement with A and C or D levels of companies, it’s much more a not as frequent. So you know, a series B Company will start chatting every couple of months, a Series C will be sort of every quarter. But then the types of questions that we’ll discuss will be, you know, quick updates about the company. But I will typically focus on personal and organizational development to figure out that they’re thinking sort of long term that they have brought in chief of people that they think about actually improving themselves working with a coach, things like that. So that I don’t repeat the word that the series in the series people members will wave deeper and trenches do. And I can reserve focus on other things. And so, yes, you’re right, we deal with a lot of companies, because it’s to work with companies from fun to so it’s the 2007 2010 Vintage fund idea with companies which are 10 plus years old. And the kinds of challenges are sort of different.

41:31
I can imagine. I mean, there’s a lot of directions, we could go on with that. But all right, Jeff, if we could cover any topic here on the program, What topic do you think should be addressed? And who would you like to hear speak about it? I

41:42
think early stage go to market. And so sales and marketing is always sort of for b2b startups is always sort of something that needs to be taught more, because it’s, it’s a dark heart, everyone sort of tries to get their sales and marketing strategy off the ground, and so miserable sort of sled for a bunch of months, and sometimes year. And so getting getting someone who could say, Hey, here’s your go to market strategy from zero to 12 months, or from zero to a million dollar ner probably be really interesting for your audience. Love

42:16
it. Is there anyone in particular that you can think of?

42:22
Unfortunately, no. We’ve had, we’ve had a few people, we’re pretty good at it. But it’s something that I would definitely so want my CEOs to be exposed to. Because that’s essentially what we ended up doing that being sort of experts. I mean, you could always sort of bring in, like, for example, the other day, we had the great pleasure of hosting Lauren vrlo, who was the VP marketing at box in my office to do a roundtable on marketing strategy. And she is incredibly awesome. And so she talked about the different ways you sort of build and scale your marketing strategies. And so something like that, but really focusing on you know, the Zero to One would be really interesting. Love

43:05
it. Jeff, is there an investor that’s inspired or influenced you most?

43:11
Oh, probably Brad Feld. So I’ve known Brad, for a long time actually met Brad when he was at Mobius. And it was at a writer is in 2000. But then, you know, he was an active blogger starting, I think, in 2003 joined the ranks of the VC bloggers. So it was like, you know, five or 10 people at the time, starting in, in 2004, writing this blog called software only. And so we became blogging buddies. And then we started doing Android investments. And he encouraged me to sort of raise a fund. He was one of my first LPs. And I sort of forced him to invest in in Fitbit turned out okay for him. He’s one of the most thoughtful and smart investor to have had the privilege to work with. And, you know, he’s both a friend and a mentor to me. It’s

43:58
great, maybe the most helpful person to me, or one of them, for sure. And then finally, Jeff, what’s the best way for listeners to connect with you?

44:05
So I’m at Jeff on Twitter, je FF so it’s easy. And, you know, if we become friends on Facebook, you’ll see pictures of snow wine, and you know, every now and then sort of portfolio. But I actually don’t tweet as much as I used to. I’m kind of busy these days.

44:23
Well, Jeff, it’s been a huge pleasure. I’ve been a fan of yours for a long time. And it’s great to finally have a chance to sit down and hear the backstory. So I appreciate the time.

44:32
That was a pleasure. And thank you so much.

44:39
That will wrap up today’s episode. Thanks for joining us here on the show. And if you’d like to get involved further, you can join our investment group for free on AngelList. Head over to angel.co and search for new stack ventures. There you can back the syndicate to see our deal flow. See how we choose startups to invest in and read our theme uses on investment in each startup we choose. As always show notes and links for the interview are at full ratchet.net And until next time, remember to over prepare, choose carefully and invest confidently. Thanks for joining us.