Venture Studio (13): Jeff Clavier, Founder SoftTech VC (or, "A Well-Tempered Clavier")

This is Episode (13) of Venture Studio

I sat down recently to speak with with angel investor turned MicroVC, Jeff Clavier, @jeff, founder of SoftTechVC I, II & III on a recent visit of his to NYC. (My thanks to the great people at Polaris Ventures' DogPatch Labs down in Greenwhich Village for hosting our talk.)

Jeff is a fascinating guy who saw a special opportunity in 2004 to invest in capital-efficient Web 2.0-type companies and got into angel investing in a big way, investing his own money in 20+ companies. He turned out to be enormously gifted at it. Hearkening back to my recent Series on Angel Investing, he most certainly skipped the "Mug" phase that Mark Suster and I have joked about. 

He then had the opportunity to raise a small fund and thus became what the press like to call a "Super-Angel"- but what really is more aptly-named, a MicroVC. After 65 investments in this Fund (SoftTech VC II), he has now launched SoftTechVC III, (aka "the real-deal"as he jokingly called it) which will still be a "small" fund, but certainly considerably larger than II.

It was great to hear Jeff's perspective on early-stage investing, the market segments that interest him these days and how he has evolved over the years as an investor. Enjoy.

:26  -  A little background on @jeff & how he first got into angel investing

1:19 -  Raising his first micro-fund in 2004, which was $15M in size

1:43 - The pioneers in the MicroVC space, including Josh Kopelman

2:23 - On making 65 investments in SoftTechVC II w/10 exits already(!)

3:05 - Launching SoftTechVC III & venture partner Charles Hudson

4:14 - What types of companies/sectors will III be investing in? (See Matrix)  Listen carefully here about Jeff's approach to various sectors

6:02 - After 99 investments & reaching this level- what changes in your approach?

7:21 - Epic Line: "In our business there's no pride- we basically do whatever it takes to help our companies"

7:31 - Jeff's perspective on acquisitions (of which he's had 17!) and how he works w/his portfolio company entrepreneurs in this regard

9:01 -  Has he noticed network effects amongst his portfolio companies?

9:55 - Jeff invests in a bunch of NYC companies- what are his thoughts on NYC?

11:11 - What are the biggest challenges for him?

12:47 - What's an average day like for Jeff?

SOFTTECH VC III (so far)

                  

               

I Am Incubator

This is part of my Series on Entrepreneurial Culture.

The leading dramatis personae of the early-stage tech ecosystem are well established by now in the mainstream collective consciousness. High-tech wunderkind entrepreneurs are of course the most recognizable of the various archetypes, but nowadays once obscure protagonists with strange appellations such as hacker, combinator, seed-stage VC and angel no longer generate quizzical looks and raised eyebrows when others point them out at cocktail parties or gush about them in the mainstream press. The newest hero/villain cast member is of course the so-called “superangel” who one immediately associates with Silicon Valley Olympians such as Ron Conway, Jeff Clavier, Aydin Senkut, Keith Rabois, Chris Sacca, Dave McClure, Mike Maples and others. If the production were an opera, these men would certainly be the tenors and would be seen furiously making out checks by the hundred to web-native entrepreneurs, enjoying great feasts (sometimes replete with petty human dramas) at restaurants like Bin 38, and occasionally hurling lightning bolts at one another in fits of pique, (or thunderous indigestion).

There remains, however, another sort of actor altogether in this early stage landscape of ours. He dwells far from this rarefied air and his profile is yet obscured and shrouded from public view.  In the aforementioned operatic production, he would most certainly play the the phantom.  And what is it that he does? Ensconced in dank subterranean forges these Hephaestus-like practitioners hammer-out out from the mute schist of their environments the vaguest and earliest impressions of ideas and technologies some of which will one day appear as these same companies that superangels will foist with lavish checks. Yet the work of these shadowy figures is so nascent as to sometimes resemble the proverbial cave-art of our most ancient forbears.

I am one such troglodyte.

Another appellation is of course, “Incubator”. Or, as I thought I heard Russell Crowe say to the very Emperor’s face at the center of the gladatorial arena:   

“I Am Incubator”

Among my brethren and sistren in incubation I count the folks working at places like idealab, betaworks, alleycorp, as well as certain current and former university venture lab specialists I hold in high esteem. These modern-day alchemists are constantly mixing, tweaking, stirring and coalescing the incipient ideas, technologies, nascent teams and pre-seed capital that form the raw ingredients of what they hope will become valuable companies one day.

In this mini-series I will be shining a light on the sorts of activities with which we are engaged. I’ll be sharing some lessons learned from my own entrepreneurial life, which, between my solo ventures and work within Columbia University, has led to the incubation of a few dozen companies by now. But I’ll mainly be drawing from conversations I'll be having with some of the real heavyweights in this field who have achieved great things and have some remarkable stories to share.

With this said, I shall now retreat to my lair from whence I shall write my next piece. :)

For Part 27 in in this Series, click here

Angel Profiling (4): The Wild and Wooly (and Expanding) Angel Universe

 This is part of my Series on Angel Investing.

In the first post of this mini-series I pointed out that the landscape of angel investing is quite sprawling and diverse with many constituents. In fact, many are calling 2010 the "Year of the Angel", although this is often uttered ironically by those who believe we are witnessing (and participating in) a seed-stage bubble these days with requisite inflated valuations. During my recent interview with him, Mark Suster made the classic remark that "everyone is an angel today" and it's true. The Venture Hacks Angel List seems to be adding new angel investors by the hour!

So bubble or not, as promised, below is an infographic that illustrates this rapidly expanding and overlapping angel universe in a tongue-and-cheek manner. The entire wild and wooly cast of characters are represented below including the aforementioned "Susterian Mugs", the ubiquitous Friends and Family investors, the two varieties of Maniacs, the Celebs and of course, the so called "Pro-leaguers" or nearly extinct "SuperAngels" (most of whom are now running their own micro-funds).

The full dramatis personae are as follows:

Friends and Family supporting "our own": The largest contingent of all pumping $60B/year into startups

"Mugs" who don't know what the heck they are getting into and don't realize it (me circa 2001)! 

Maniacs Tilting at Windmills who don't know what they're doing, realize it, and don't care

Maniacal Wisemen Tilting at Windmills Although these guys are maniacs, there is a method to their madness. They are trying to fund companies that will make a massive and positive difference in the world and solve important problems and carry their checkbooks with them. Paige Craig is one such dude.

"Weekend Warriors" of varying skills and motivations, (this includes participants in Angel Groups)

Entrepreneurs Giving Back and supporting the younger generation

Celeb Angels Ashton Kutcher, Will.i.am, etc.

VC Angels VC's who do some angel investing on the side

Professional Angels (the pro-leaguers or "super-angels" who more and more are becoming micro-VC's)

What I call "Dark Angels" These characters are not often seen in the light of day. They are elusive, shun the spotlight, and yet appear somehow through various corporate vehicles on the cap tables of many of the top-tier funded companies out there. The further I've descended into the rabbit hole of angel investing the more I run into these figures. It's amazing really as the few I've met are serious bad-asses with deep domain expertise that just like to keep a low profile for whatever reason. The last "dark angel" I met showed up at an evening meeting the CEO had arranged a few weeks ago wearing darkly- tinted glasses and hardly said a word. To me this is the most fascinating category of all.

Angel Profiling (3): So Are Super Angels Extinct?

This post is part of my ongoing Series on Angel Investing. It was also republished on Fortune Finance, where I am an occasional contributor.

As we all know by now, all the major-league superangels have pretty much raised their own small funds of late. Conway’s got SV Angel, Senkut runs Felicis, Maples runs Floodgate, Sacca’s got lowercase capital, McClure of course runs 500 Hats, and Dixon’s one of the crew at Founder Collective. Many of them of course still get called “superangels” by entrepreneurs, VC’s and by the media- and I’m certainly guilty of doing this as well.  Recently, though, two guys I respect a great deal, Jerry Neumann and Mark Suster, have been quite adamant about why doing this is just wrong. Jerry actually took me to task in a very gentlemanly way here and we discussed it again in a recent one-on-one conversation. Mark of course came right out and called the superangel an extinct species when he recently spoke up at Columbia! I think he was only being slightly tongue-and-cheek.

Their main point is that once superangels actually start investing via these small funds, (thereby accepting other people’s money), they are officially VC’s and there are no “if, ands or buts” about it! Mark told me there’s absolutely no nuance to this issue when I asked him this recently.

So why does this even matter and who cares? I guess the deeper, "meta-level" importance of what they are saying is that no matter how great/prominent an angel you've been in the past, once you're managing LP money you can no longer 'masquerade' as a touchy-feely angel who is "all about the entrepreneur" in that you have a very strong fiduciary obligation to your investors. Nor should you be "calling-out" traditional VC's publicly as if you are really any different for that matter.

My take on this is that there is actually an important nuance to all this. In several of these funds what has actually happened is that a bunch of angels have joined together and thrown some capital into a fund structure. And sure, yes- it is a fund structure because they want to incentivize the guys who are actually running the operation on a day-to-day basis. But in my view there being a fund structure is not solely determinative of “what they are”- rather, what is determinative is how the investors in these vehicles see each other and their respective roles. In some of these funds the atmosphere is still all about a bunch of friends and fellow angels pooling some of their capital and letting one of their own (usually someone quite prominent) manage the day-to-day operations of what are essentially angel investments. The mentality and the incentives have not really changed too much just because there is a fund structure. So my point is that some of these groups are actually more like an angel groups than a venture capital fund. Most venture funds have some institutional investors (pension funds, university endowments, family offices) as LP’s. In the case of some of these “superangel vehicles”, it’s just a bunch of friends/fellow angels doing their thing without any hierarchies (ie. no MD's, Principals, Associates, etc.). The mentality is often “this is a good vehicle for me to support entrepreneurs, have fun and make some money with my friends”. Unlike a traditional venture fund, no one is making their living off the management fees- in fact- these fees often go into the basic expenses for administrating the “fund”.

I know I’m going to take some heat for this, so let me be clear. What I am saying is that some of these superangel funds may structurally resemble traditional VC funds, but they are something altogether different- and more akin to an angel group. I do believe that such entities merit a separate classification in our minds than traditional VC. I am also expressly not endorsing certain broad-brush critiques of VC motivations I have been hearing all year- in fact I disagree with almost all of them. In my opinion, VC motivations are really tied entirely to the quality and caliber of the people you are dealing with at the various funds.

I therefore declare that reports of the death of the so-called "superangel" have been greatly exaggerated.  In fact I would submit that in Darwinian fashion he has mutated somewhat to adapt to the necessities of an evolving entrepreneurial ecosystem.

For Part 4 of this mini-series, click here.

Angel Profiling (1): A Moveable Feast of Mugs, Maniacs and Masters of the Game

        

  

 
 
This is part of my ongoing Series on Angel Investing.

Mark Suster, one of the best VC bloggers out there, recently put out his own five-part series on Angel Investing. As usual, (despite running a big VC fund, Launchpad L.A., hosting This Week in Venture Capital and being a family man), this latest series of his was totally comprehensive and got to the very heart of the subject.  As one who has been an angel since 2001 and an author of my own much more primitive series on the subject, I devoured Mark's efforts and had much the same experience as Howard Lindzon- who likened reading these posts to being on a roller-coaster ride!   

Prior to the posting of his recent series, I always got a kick out of Mark's various off-the-cuff comments about Angel Investing in which he referred to it as a "Mug's Game". I knew from first-hand experience what he was talking about but it wasn't until he authored his series that he elaborated on this general opinion. Anyway, he lays out five major pre-requisites for becoming a great angel investor. Without the following, Mark is essentially saying- you are either sh*t-out-of-luck or a plain Mug. (yes, this is meant to be tongue-and-cheek).... Here they are:

• Access to the best dealflow... (being at the "right poker table")
• Possessing the requisite domain knowledge
• Having strong relationships with VC's
• Possessing deep pockets (so you can follow-on and avoid being crushed)
• Having access to the eventual buyers of these companies

He is no doubt correct, though I pointed out to him that one also needs to account for a wide swath of angels who are involved for different reasons. He agreed and elaborated on this towards the end of this post.

Anyway, his series and our exchange inspired me to provide you with a fuller picture of the angel community. Therefore, in this mini-series of my own I intend to elaborate on the subject of angel investing and to give fledgling angels and others interested in this space the opportunity to learn more about who we are, (it's extremely varied and diverse!), how you become an angel, and what the general options are in this landscape.

So let's commence some Angel Profiling, shall we?

 To begin, cast your eye over the photos above that headline this post and in the upper levels you will see the faces of some of the "pro-level guys" as I call them. Many of these guys all have the qualities and attributes that Mark laid out in his series, which, for reference purposes, we'll call the "Susterian qualities". I'm talking about Ron Conway, Aydin Senkut, Mike Maples, Jason Calacanis, Jeff Clavier, Chris Sacca and others. Just in the last few days some of these elite "super-angels" have been accused by TechCrunch's Michael Arrington of holding secret gatherings in order to collude and drive deal terms in the Valley. Dave McClure denied it here, but Ron Conway, who was not at the dinner, unleashed on some of his fellow elites with this email TechCrunch recently got ahold of. The press is calling this fascinating episode: AngelGate!

But who are the people in the photos on the bottom row below? No doubt, here are the "Mugs" that Mark refers to... I, for example, am the guy getting his ass kicked in the bottom right-hand photo and the people "cramming me down" are some venture capitalists joined by some angry co-investors on a British deal circa 2001 when I first got started.

(yes- any first-time readers- (and Mom perhaps)- I am kidding...)

The reality is that angels come in all sizes and shapes and with varying motivations and goals. There is actually massive diversity in our ranks. Are there some Mugs among us? Sure there are. I was one myself when I got started no doubt. Are there some maniacs out there as well? Damn right there are! But there's a whole swath of angels in the middle, many of whom have a good idea of what they are doing and why they are doing it and, though not in the pro-leagues- are "in control of themselves" so to speak.  Here are some News Flashes for you that the mainstream press hardly ever takes note of:

• Not all angels live in Silicon Valley!
• Not all angels are interested in consumer internet companies!
• There are vibrant angel communities in NYC, Boston and in other cities around the US!
• Angels account for 90% of all start-up funding in the US!
• Angels put up $20 Billion a year into approximately 50,000 startups!*
• Friends & Family put up an estimated $60 Billion a year into startups!*
• There are an estimated 225,00 angels in the United States*
• There are currently ~300 active angel groups in the United States*

            *Source: Angel Capital Association

Furthermore, Angels have all kinds of reasons and motivations for investing. You can pretty much categorize us as follows:

• Friends and Family supporting "our own"
• "Mugs" who don't know what the heck they are getting into and don't realize it (me circa 2001)!
  
• Maniacs Tilting at Windmills (who don't know what they're doing, realize it, and don't care)
  
• "Weekend Warriors" of varying skills and motivations, (this includes participants in Angel Groups)
  
• Entrepreneurs Giving Back and supporting the younger generation
  
• Celeb Angels (Ashton Kutcher, Will.i.am, etc.)
  
• VC Angels (VC's who do some angel investing on the side)
  
• Professional Angels (the pro-leaguers I have mentioned above)

In the coming mini-series I am going to round-out this fascinating landscape with various posts which will include but are not limited to a map of the overlapping and concentric circles of the angel landscape, a list of angels who blog, and a description of the ones I call the "Dark Angels". Stay tuned!

For Part 2 of this mini-series, click here.