Nick: You know, while we’re talking about entrepreneurs, are there any problematic issues or, or maybe trends that you’ve observed on the founder side?
Dave: Well, I think maybe what you had identified in that, you know, a lot of founders may not have been around for the last downturn, they may not have seen harder times in raising capital. I think, you know, founders always have challenges. I don’t know that anything is necessarily specific to the upside of, of the market, you know. If you’re competing for customers and you’re trying to get a business off the ground, you have a lot of different challenges to face in terms of how you, you know, make product, how you acquire customers, how you manage and recruit your employees. I think possibly one thing that we’ve seen is, you know, a lot of use of convertible notes with higher valuation caps. There has been a trend for a lot of people to raise, you know, more than a million dollars, maybe up to two or three million dollars in some cases on convertible notes structure. When they, if and when they eventually get to an equity term sheet, the conversion of that capital into shares may not always occur with reasonable expectations.
Nick: Yep
Dave: And so they may need to really look at the math and understand how those convertible notes turn into, you know, shares. They may, you know, be expecting that they’re only giving up 10, 20% when they end up giving up more like 30% or more in some cases.
Nick: Yep
Dave: Probably even more of a concern than that is if they don’t ever convert. And that they’re raising dead capital and just never getting to an equity round. And so, you know, I, I don’t know that these are new problems. I think there’s, you know, always for many founders understanding term sheets, whether they’re convertible notes or equity, a lot of times it’s their first time and they certainly don’t see those terms as often as the investors or the venture capital investors do. So they are at a little bit of a disadvantage just by not being familiar with things operate. First timers are going to go through some had lessons and, you know, hopefully they learn.
Nick: Yeah, sure. So #Dave, I’d like to hear who you think might be one of the most misunderstood people in the venture ecosystem?
Dave: Who may be one of the most misunderstood people in the venture ecosystem? Me.
Nick: That’s why I’m asking
Dave: Most misunderstood. Well, I think, you know, there’s some interesting folks out there who are sort of pushing the envelope, at least on venture. You quoted #Jason Lemkin before. I think he’s one of the smartest guys out there. We’ve been co-investors in a few companies together. I don’t know if he’s misunderstood but I think, you know, he’s one of the guys I would probably be watching over the next few years. I think he’s going to be a real super star, and how he sort of promotes and, you know, identifies companies of interest. I think #Jason Calacanis is a little bit of a volatile figure and sometimes people may view him both positively and negatively. Maybe #Mark Cuban also, I think people put in that category. I don’t know. I think there’s a lot of colorful figures in venture, just like there are in other industries and, you know, we, we tend to try and promote and market ourselves, that’s one way that we get access to deal flow, that may be misinterpreted by some folks in the market. But I think it’s not, it’s not terribly unusual that people will try and market themselves differently from others in order to get access to, to companies.
Nick: You’re too generous, #Dave. I was hoping to serve that one up so that you could tell us all why you’re misunderstood.
Dave: Well, I, I think I probably tend to be a very loud and obnoxious voice. And sometimes I’m likely to use profanity to attract attention. But hopefully our investment strategy is one that’s based on logic and data, not just based on kind of sound and fury.
Nick: Well, I, I, we all appreciate the sound and fury too, from my perspective at least
Dave: I , I think you, as I like to say, it’s useful to have a voice that’s heard
Nick: Absolutely. So on that point with, with #500 as an accelerator, how do you feel like you guys differentiate versus other accelerators?
Dave: Well I think we’ve, you know, done a lot of work in the last 4 or 5 years to hopefully, you know, carve out our own space. I think we, you know, probably compete with #Techstars and #Y Combinator most prominently as national or global programs. I think like we mentioned, focusing on marketing and internet marketing and customer acquisition is one of the areas that we try and emphasize where we’re different. We have about 15 to 20 people on staff who do nothing but, you know, internet customer acquisition and consulting. We’re in Silicon Valley, that’s kind of one of the places where we feel we’re connecting with other companies and investors and other entrepreneurs. That’s not necessarily different than #Y Combinator but we both are right in the heart of where a lot of other activity is. I would say two of the things where we’re different is that we are pretty extremely international. So both our team and our investments, about a third of a team and about a third of our investments, are made outside the US. Our team comes from about 20 other countries. We invest in about 50 or 60 countries. That’s a really, really big part of what #500 is all about. In addition to international investments I think we’re probably one of the more notable investors in women and minorities in the US but just generally, I think, you know, a more diverse portfolio, again both our team and our investment strategy is a real big believer in diversity in almost every kind of level.
Nick: Right. Any other comments on challenges in the venture environment that you’d like to see changed going forward?
Dave: Well, I think, you know, venture capital itself is challenging. I think probably not more than half and in fact maybe only a quarter of, of venture capital funds or investors are successful in getting to a substantial return on their investment. People in the industry talk about top quartile or even top decile performance. I think it’s hard to be consistent, a consistent top performer in venture. There’s probably not very many venture capital funds that are consistently, you know, winning three times in a row. That’s probably less than 10% of the industry. Again some of that I think is based on how we construct portfolios, some of that is based on not being really differentiated. But I think we need to continue to challenge ourselves to be just as innovative as the industries we invest, invest in. And whether that’s, you know, working harder to find companies, working harder to help companies, maybe not paying ourselves quite as much as the traditional VC who sits on Sand Hill Road and, you know, takes a lot of money and management fees. I, I think there’s a lot of innovation that can be, you know, done in the industry. I think VC companies like #First Round Capital may be at a Series A stage. You know, #Google Ventures and #Andreessen Horowitz and a few others at the later stages. And, you know, others like #Y Combinator and #Techstars and ourselves, that’s sort of the accelerator in seed stage. We’re all I think doing interesting and differentiated work that’s not maybe the traditional structure for venture. I think a lot more non-investment services offerings are definitely part of where we’re headed. I think, I think you’re seeing, you know, the, the generalist VC that’s probably going away. You’re going to have more sector focus and specialization in venture, whether that’s, you know, at the accelerator stage or at the late stage. I think you’re going to see a lot more services that might be helping with business development or recruiting or education, maybe marketing, that are specific to each stage and area. So I think, I think that’s a good thing. And I think you’re going to see a lot more competition and differentiation over the next few years.
Nick: Yeah. And while we’re talking about some positive things, what’s, what are some of the, the more positive trends or things that you see currently transpiring or, or happening in, in, in the recent years?
Dave: Well I think as much as I might hate to admit it, entrepreneurs are getting smarter. You know, there’s a lot of first timers out that continue to have to learn lessons. But the lessons that they learn might be, you know, more available and visible in the market. They can, you know, see information on the, the trade publications like #TechCrunch and others. They can raise money online via #AngelList or #Kickstarter or #Indiegogo. Or they can use other online platforms like, you know, #Quora or other, you know, social platforms to exchange information. So I think the first timers tend to learn faster. There’s certainly a lot more infrastructure and plumbing available for people to build stuff on top off. So things in general I’d say are a lot cheaper to build these days than they were 5,10,15 years ago.
Nick: Yep
Dave: And I think you’re seeing this spread of kind of accelerators in seed capital around the world, not just in the US but globally as well. So access to capital, although it still may be challenging in some parts of the world, continue to get better and better. And as you see the consumer and business markets moving more and more online globally. I think the opportunities are just, you know, exploding all over the place. There’s a reason that we’re going after venture internationally. And it’s frankly just because there’s more market opportunity available there. Most, most of the growth that we’re going to be seeing over the next 10 years is not going to be happening in the US, it’s going to be happening in places like South East Asia, in India, in Latin America, in Africa and the Middle East. Most of those populations are still not at, you know, 50 to 100% internet penetration. There’s still a ton of growth that’s happening. There’s still a ton of online payments and option. So it’s really, you know, it’s pretty exciting when you think about, you know, the market opportunities are expanding, the cost of building platforms is going down, and generally we think the education opportunities and experience of entrepreneurs is going up. Those are all factors that are moving in our favor as investors. And, you know, for those willing to venture outside Silicon Valley or outside the US, it may be a little bit risky and rocky the first few years, but for those who are willing to, you know, invest that time and money, I think it’s going to pay off dramatically over the next decade.
Nick: Well despite all the opportunity internationally, I hope your, your geeks on a plane makes a stop here in Chicago at some point.
Dave: Well I, I’d certainly love to visit Chicago at least in the spring and summer and fall. I’m not so sure about the winter. But hope to be by the windy city again sometime soon.
Nick: I moved back here 3 years ago and I think it’s taken me the past three years to re-adjust to the winters. #Dave, if we could address any topic related to startups or venture, what topic do you think should be addressed and who would you like to hear speak about it?
Dave: There’s a lot of people that I respect in the industry who I think have a lot to add.You know, some of my investors and mentors, #Brad Feld, #Fred Wilson, #Mark Andreessen, #Mitch Kapor have all been amazing. I, I think those folks have, you know, really, really great perspectives. #Mark Suster is another person I, I hold highly a lot of respect for. Maybe if I were going to highlight a few new voices out there, I think #Jason Lemkin is kind of one of those. I think I mentioned him before.
Nick: Yep
Dave: # Aileen Lee at #Cowboy Ventures I think is pretty interesting also. But I might just, you know, promote a woman on our staff who’s just getting started and #Monique Woodard is going to be working in a fund that’s focused on black and hispanic entrepreneurs in the US. She’s a black woman herself, and I think we don’t really get to hear a lot of investment opinions or voices from folks who may be aren’t the more typical venture investors. So as much as I like to respect a lot of white male predecessors who have been around for a while, I think hearing from some other voices of color and diversity are important as well.
Nick: What startup investor has influenced you and inspired you the most and why?
Dave: Well, that’s hard to pin down to one person I think. You know, I think #Paul Graham certainly has been a huge influence from #Y Combinator. #Brad Feld and #David Cohen at #Techstars.
Nick: Yep
Dave: #Josh Kopelman at #First Round I think is probably one of the most thoughtful people out there. I think he’s really built a tremendous firm. Very, very thoughtful and how he, kind of constructs services that are helpful to his portfolio. Yeah, I don’t, I don’t know if I can point out just one. I think that really there’s a lot of people out there that have been thoughtful and we’ve tried to draw in bits and pieces from a whole lot of different people out there. But I think it’s important for everybody to kind of come up with their own sort of unique approach and strategy. I think there are lessons we learn from everyone out there. But, you know, you should be your own artist and try and come up with your own sort of unique flavor and strategy for what you’re going after.
Nick: And then, just to wrap up, #Dave, what’s the best way for listeners to connect with you?
Dave: Well I’d, I’d love to try and talk to as many people as possible, but I’m not always the person on our team that people should be pitching. In fact I’m usually out there trying to raise money than I am trying to invest it. There’s probably over 30 people on our team who are making investment decisions. Any of our founders and mentors are also great places to connect with. A lot of times, you know, we like to hear the people connect through our portfolio, or people who are, you know, familiar with the industries that they’re going after, mentions #500 and mentions me in a way that’s interesting, and hopefully not too much ass kissing. But again it’s probably easier to get a hold of other people at our company than it is to catch my attention. And like I said, I’m not the only one that writes cheques. We have 30 people who are doing that.
Nick: Awesome. Well, #Dave you’ve been a, a big inspiration to me for a long time from afar, and continue to be colorful, continue to be vocal and I really appreciate you sharing the time with us today.
Dave: You bet, thanks for having me
Are there any problematic issues that you’ve observed w/ founders?