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Video interview with Jeff Clavier, Founder and Managing Partner of SoftTech VC. SoftTech VC is one of the most active seed stage investors in Web 2.0 startups. Since 2004, Jeff has invested in more than 80 consumer Internet companies in areas like social media, monetization, search, gaming or B2B/B2C web services. These investments are typically located in Silicon Valley, New-York and Boulder. With over 20 years of operational, entrepreneurial and venture capital experience, Jeff is able to add relevant perspective and value to his companies as they grow from inception to maturity, and hopefully, success. Jeff was born, raised and educated in France, earning a MS in Computer Science and a research degree in Distributed Computing. You can find Jeff @ his blog Jeff Clavier’s Software Only and on Twitter @Jeff
Transcript follows & video above. This is Part II of the interview.
- Cindy also says:’ VCs tend to say that they back the person, not the idea. But if they always back the same kind of person — male — then women entrepreneurs have a better chance of getting funded when they have something that’s actually working in the marketplace.’ Do you agree that women need to have their business developed before they can achieve funding?
For people like me who invest in consumer internet, it’s what we expect from everyone. Of the 90 investments I’ve done over the past 6 years, I could point to maybe 2 where I’ve actually funded the powerpoint. The guy who sort of said ‘Hey, I’m going to do this!’ & I sent him a check. In both cases that I can think of those were people I had actually met & worked with before & knew. Execution is a very big part of the risk of a startup. So just saying ‘Hey I can go build this’ doesn’t really mean much. And in this current environment not only is building but actually distribution. So figuring out how you can actually acquire customers. You might have the best product in the world but if you can’t find a way to actually get in front of people, it’s not going to work. So figuring that out early on is part of the hurdle. So people that come here will show 2 things. One is working product prototype, sort of alpha version & then I would expect to have a minimum set of validation tests that will prove that those people have figured out customer acquisition & the funnel that those users will go through to become part of the service. And if you don’t have that then it’s going to be tricky for you. And once again male/female it doesn’t matter!
Great, that’s really pragmatic advice thank you.
- Often advice for sourcing venture is equated with dating, implying that there is a matching that needs to happen with entrepreneur & investor. Have you noticed a general psychological profile of venture capitalists and also of entrepreneurs that promotes the attraction & synergy between them to develop a great startup?
I do believe that there is a notion of a great match or matching happening between investors & entrepreneurs!
Because it’s a long relationship, if you invest, really & you have to get along?
It’s 3,5,10 years sometimes. I’ve got friends who’ve been on boards for 12 years. If you think 12 years on a board? It’s crazy.
Some marriages don’t last that long!
Exactly. That’s why many entrepreneurs fail because they don’t go through the very important step of doing their homework & figuring out what’s the match? It’s not like figuring out the profile like you do on eharmony or whatever. Out of those 400 firms that exist here in Silicon Valley: Which ones do early stage consumer internet? Are interested in this particular market? Have done deals in the surroundings of the market I’m addressing? Not completely overlapping because otherwise it’s too close! You want to come up with your list of 10 to 20! It’s a sales job! So you figure out your 10 to 20 prospects that you should be going to. You do your homework; you look at per firm who would be the partner you should be addressing. And then figure out through the network who you have the closest relationship with and you tag those. Because this is where the highest likelihood of success will happen. I see too often entrepreneurs who just waste their time in cycles who just send random either business plans or trying to reach out to you & end up with people who are just the wrong people to talk with & by definition they fail. Whereas people who are very, very precise about who they should be talking to, have more success. When I go & help my companies to raise their next round of financing, I’m not blasting an email to my hundreds of contacts in the vc world. I basically figure out who are the 3 or 5 firms who are most relevant. Then I will go myself to ping say hey x company doing this, this is the progress, this is why I think you could be interested, do you want to meet? And that just lowers the hurdle for those guys to get at me. So you have to think about it that way.
And when women entrepreneurs, or any entrepreneur, come in is there also another piece that happens if they’ve done that homework. I think that’s fantastic, pragmatic advice that you’ve given. Is there another piece then that they have to match with you in some way? I guess on a personality level if you’re going to be working with them for a long time? Or interest? Is there anything else that they need?
I’m just trying to be pragmatic on that. I always appreciate when it’s clear that people have done their homework & know my portfolio or they understand the kinds of things I do. We understand that you like this or that. I like that they’ve done their research which means that I’m not a random investor on their list. Which means that they’re actually coming here for a reason. Personalization. But to be honest it’s not really necessary because at the end of the day it’s a job to go fund raise & I’m one of the guys that they should reach out to. So you don’t want to try & change who you are to fit someone else. Basically I tell people, when I can feel there’s potential interest on my part to work with them, I try & give them the low down on what that means to work with me over 5 to 7 years. I say you should talk to people who have done that & still alive. Absolutely the entrepreneur should do as much due diligence on the investor as they do on the entrepreneur. We sell as well, so we say hey we’ll do this & we’ll do that & we’ll help here & we’ll help there. Make sure that people who have actually been in the portfolio for 3 years, 5 years, 6 years say yeah it’s what he’s doing! But be yourself, be true to yourself, don’t try & project something different than what you actually are because at some point it’s going to show up in the due diligence. So if ever people say well what if I’ve failed in the past or whatever or I have this issue in my career. I would say just be up front about it & mention it. Don’t throw it out in the first 30 seconds or first meeting but be really sort of plain & honest about what you’ve done & if you’ve failed that’s fine!
So a little bit of authenticity and again very different than in Europe as we were saying. Because if you actually expose the failure you’d be out the door real quick.
Because at the end of the day unfortunately we cannot spend that much time trying to read people. So sometimes you have this great meeting but there is something which bothers you in the back. There is something that doesn’t quite work out or whatever. And you try & drill on that during the due diligence. And unfortunately if there is one thing that you haven’t been completely open about & we find it, you’re gone!
Because it would be a betrayal & some sort of lack of trust would build up?
Basically trustworthiness & work ethics is the number one characteristic that we expect from entrepreneurs. And if you don’t obey that at the beginning of the relationship, then it’s not going to work.
Yes how it starts is how it will finish, that’s very true! That’s very good advice thank you.
- In the dance with an entrepreneur both in the decision making process of funding a startup & then in working with those startups what are the necessary qualities that make a good venture capitalist. Some of the talents mentioned: Would you trust your gut instincts & feelings that happen within the relationship with the entrepreneur as signs about what’s happening in the business, in the startup? Or would you ‘manage by influence or persuasion’? What’s your preferred route?
So as a former entrepreneur & executive, the challenge for us comes from the prior background is that at the beginning you tend to project yourself into the startup. So you tend to say hey this is how I would do this. And that’s really bad because by definition you’re not part of the startup. So we are in the service business. We’re here to help support, influence & every now & then when things don’t work then cut people. But that happens not as often as people tend to mention it. So my approach is to expose my thoughts This is what I think. These are the questions. This is what we do. But at the end of the day I don’t run the startup. So if I have a very, very strong bias towards something then I will strongly express what I think. And if it comes to a clash because of a disagreement then we’ll deal with it. But it’s very, very rare to be honest.
So you’re negotiating really with the founder?
It’s not really negotiating. It’s just saying look ‘I’m not running the business but I’ve been doing this for 10 years & over 10 years I’ve seen that this works & this doesn’t work. That’s what I’ll use very often, my experience. That’s why it takes so long to be a good investor because you need the background & the experience & a bunch of failures, to be honest. Khosla told me ‘It takes 10 years & losing $60 to 100 million in investment to figure out whether you’re a good investor or not.’ I’m there in terms of lengths of investing but not in terms of money lost by far, thank God. Losing $100 million when you invest at this stage that would be hard. The point is that you draw from your experience & say hey in that case, in that case, in that case we’ve seen this working & in that case it failed. So let’s try & take advantage of that experience. But at the end of the day it’s much more, let me try & help you, support you, give you access to people who can give you a practical point of view to help you.
So it’s like advice & mentoring, that would be the tactic?
It’s much more mentoring. If ever we really disagree & I know you’re heading for the wall, then we’ll have a stronger conversation with a lot of expletives involved. But the whole point of the relationship is to build trust where I trust you as in I think that you’re able to run the company. If you tell me this is what we’re going to do, then I might question it, I might try & gather some background information to what led to this decision. But at the end of the day I’ll support you. Or if I think it’s stupid then we’ll definitely discuss that. But my goal is really to de-risk the execution part.