Add to iTunesJeff Clavier - Founder & Managing Partner SoftTechVC
Introduction
On today’s episode of Read/WriteTalk, I sit down with our first venture capitalist on the show. Jeff Clavier is a good VC to start with. He has been investing actively in web 2.0 companies for a few years and has developed a great early track record. We talk a little about the types of deals he is most interested in and how he makes decisions. He also ends the interview talking about the most critical success factor in every deal - hint it isn’t the technology or the market. I hope you enjoy the interview.
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Transcript
| 0:45 | Sean Ammirati: Jeff, thanks for joining me today. Would you mind just starting by giving us a little bit of your background?Jeff Clavier: Sure. Hi. Thanks for having me. My name is Jeff Clavier. I am the managing partner of SoftTech VC which is a seed stage firm, a venture capital firm based in Silicon Valley. I invest in very early stage consumer internet companies. We call that web 2.0 now. I’ve been doing that for 3-1/2 years. The first three years was actually on my own, investing my own money as a business angel.At the TechCrunch 40 Conference two weeks ago, I announced the formation of my own firm; a $12 million seed fund which will invest anywhere from 100 to 400k in the first round of consumer internet startups. The goal is to do about 30 to 40 investments over the next three years. So I’m definitely going to keep busy. |
| 01:32 | Sean Ammirati: Let’s start with that first portfolio. You are very successful; at least what the press releases said and things like that. I’m curious kind of how you picked on the companies that were in that fund.Jeff Clavier: So, I’ve done about 23 or 24 investments on my own between mid 2004 and mid 2007. How I picked, that’s kind of interesting. Sometimes, it is just meeting entrepreneurs and liking them and their ideas and their concepts, and just spending a bit of money on backing on them.In other cases, the world needs a new Quicken online web 2.0 version, and that’s why I invest in Mint. I really like Aaron, the CEO, but Mint came to me as something which was a must-have. So I’ve decided to fund it.In some cases, I just thought that they were good ideas, and I just jumped. So it’s not always a very linear thought process about spaces and buckets and features you need to develop. Sometimes just going on a whim and just liking the guys, liking the entrepreneur and deciding to back them. |
| 02:51 | Sean Ammirati: What’s the thing that surprised you the most from those first 20 investments?Jeff Clavier: The success. Out of the 23 investments or 24 investments, I already sold 5. I haven’t lost any, which is not going to last. Some of these companies are going to end up either crashing or not doing well or whatever. So I won’t have a track record where all end in sales.It has been amazing how well we’ve been doing at the portfolio over the last three years. It just shows that (a) because it’s very capital efficient to start and build and develop companies these days, you can definitely achieve a lot on not a lot of money. You can always sort of evolve your ideas and your execution if ever the initial idea you had sort of doesn’t work where you can always have a second one, a third one, fourth, five, six before you actually run out of money. So I’m pretty pleased with the overall performance of the portfolio. |
| 03:54 | Sean Ammirati: So talking about how big that has evolved now into the next fund, what are some of the things that are new about this fund beyond how you finance it? Any new areas where you think about focusing on investing in or things like that?Jeff Clavier: The first three buckets in which I was investing in, I modeled the word in buckets so that my three buckets in the first fund where social media and communities, search and discovery and consumer infrastructure.What I’ve added for the second fund are two new buckets. One is gaming. So it’s not sort of holistically building huge gaming companies that would go head-on and compete with World of Warcraft or Halo 3 or whatever. Those are extremely expensive games to develop. What I want is to find companies which are developing games, gaming platforms or gaming experiences on the cheap. Capital efficiency is sort of the number one characteristic of all the companies I have in the portfolio. You could say I’m cheap. |
| 04:56 | The other area is monetization. So I had a couple of advertising networks or advertising technology in the first portfolio, and I decided that because there was so much activity on this sort of service layer where consumers are being directly engaged, they made sense to go one layer below in trying to find ways to monetize that traffic, monetize that attention. What I do very often when I’m sort of confused about the space, like for example, the video hosting, video sharing space today which has a gazillion of different players, I’d go down one layer and basically invest in a company like BrightRoll which is a video ad network and, therefore, I have the chance to aggregate all that traffic and make sense of it. So monetization is really about technology and their networks.I’ve actually done two investments in the second fund along those lines. One is social media which I presented today at the conference which is an advertising network for widget developers, and the other is Active Athlete which is an ad network which is focusing on the sports category. |
| 06:17 | Sean Ammirati: Seth Goldstein was actually our guest yesterday, we had pretty good talk then.So we are the Graphing Social Patterns Conference. What is the role of Facebook in your fund?Jeff Clavier: Facebook for me is essentially a distribution mechanism. So, it’s a way for companies to put their key functionality, their key features, where the users are also because a lot of what I do has its social element. We expose some of the features through widgets, applications or whatever that we can go into the Facebook profile, but I don’t do sort of Facebook only applications or widgets because it’s a bit limited as far as I’m concerned. What I like is to use Facebook as a way to acquire users and essentially provide value to users. |
| 07:05 | Sean Ammirati: How would you contrast SoftTech VC with Y Combinator and the TechStars and some of the other things you are seeing in the space?Jeff Clavier: Y Combinator and TechStars, they are more incubators except that they are not exactly incubators because they have the selection process where they decide which companies they’re going to take on and providing them the tools and the guidance that they need to get to the next level. Typically, they will just take on people who have no track record and who it’s basically the first experience in the startup world and trying to get them through the process to become first time entrepreneurs in a sense of graduation. |
| 07:54 | So, in a few cases, I do that. Otherwise, I just look at some of those deals when they come for funding. I actually committed to fund a Y Combinator company which I won’t mention because it’s still not done, but if the entrepreneurs are good and the idea is good, then it’s a great process.There was a bit of controversy at the Web 2.0 Expo when one of my sort of statement was taken out of context where I said the Y Combinator was a rip off because we’re talking about valuations, and in a market where there are more multiple offers than the kind of valuation that entrepreneurs get from Y Combinator is actually low. Most of those guys are really happy with the program so I think it’s great. It’s all those people who would maybe not have the opportunity to get funding even from angels because the they are to early to sort of go through a process that give them the tools to talk to us in our language but also sort of mature the ideas and their products and services to a point where it’s actually palatable. |
| 09:27 | Many people are trying to figure out how to put us against the others like have angels or seed funds compete, and it’s really not the case. It’s really sort of almost a big and happy family because we all support each other, and we create syndicates on the fly. TechStars is run by Brad Feld who is one of my very good friend.Sean Ammirati: Thinking a little bit about the new two new categories again. You talked a little bit about the monetization one. What are the things that got you excited about the gaming space? |
| 09:47 | Jeff Clavier: Gaming is interesting to me in so far where you can actually build a lot of value in gaming companies on the cheap. So the cheap part is critical to me as I said. So when I looked at this investment of fund 1 called Kongregate, it’s basically the YouTube for Flash games where you can upload your Flash game and it gets played and ranked and commented and challenges happen between members of the community, and suddenly you have very popular games that rack up tens of thousand of hours. Obviously, the developers actually benefit from that attraction both from the standpoint of sort of bragging rights, having developed the most popular game on Kongregate. It does mean something to them. Eventually, they actually make money because we’ll be monetizing and rev sharing with those guys. |
| 10:44 | So what I like is that this is a passion centric community applied to casual games. So that’s how I got into the gaming category, and hanging out with a bunch of gaming executives and CEOs and startup guys, I actually thought that this was a really interesting motivating sort of industry which was undergoing some changes a bit similar to what the web has seen two or three years ago when we started talking about Web 2.0 and other stuff. So I see sort of the incumbent, the EAs and the large gaming companies actually not getting that well, the web, and so I think that there is a bunch of opportunities both in terms of gaming companies, gaming platforms, gaming experiences, gaming communities. I just wanted to send the signal to entrepreneurs that I’m actually looking at this pretty seriously. What they tell me is that there aren’t that many investors who actually focus on that. So it’s kind of a good differentiation. |
| 11:49 | Sean Ammirati: It’s great. On the monetization front as sort of a new focus for you as well, do you think that that’s part of a larger theme of entrepreneurs becoming more concerned and now is trying to monetize these eyeballs? Is it just that space maturing or is there something else that’s the impetus for people, for yourself and maybe other funds to try looking at funding more monetization businesses?Jeff Clavier: I think that if you look at the number of ad networks and ad technology which have been funded over the past couple of years, it’s actually pretty massive in terms of dollars. Certainly, you’ve seen a lot of acquisitions for very large amounts of money happening between Microsoft and Google and Yahoo. Like billions of dollars have been spent to acquire those companies. |
| 12:33 | I think that traditional advertising is certainly there and the volume of advertising is actually increasing double digit still now, but there is obviously a set of new opportunities. Tacoda, which is really behavioral targeting, was acquired by AOL for quite a large of amount of money as well. I think that as you go more towards personalization, you go towards behavioral targeting, you go towards recommendations, you go towards a number of social recommendations. There are new themes here that really pan out very well or blend very well with web 2.0 concepts but having really been pushed on the monetization side. So I think that some interesting technology, some interesting verticals will be developed. |
| 13:26 | Active Athlete is kind of an interesting story in that front, where what they do is they basically bring a set of advertisers who focus on people having active participations in sports outside the core sports; outside of baseball, football and basketball. They allow mid to long tail sites to actually get these advertisers, and it’s a very efficient relationship. If you look at the monetization networks that just don’t have that focus which allows them to be extremely relevant, and whenever there is relevance, whenever there is a good adequacy on the demographic, your CPMs, RPMs, any monetization metrics just go through the roof. |
| 14:17 | Sean Ammirati: You see a lot of deals obviously, and we have a lot of entrepreneurs listening to this podcast and on reading Read/WriteWeb. What would be a couple of things that you especially want them to think about if they were trying to get the attention of somebody like yourself?Jeff Clavier: I just want to say a special message to Richard. Richard, sorry about the Ruby Cup. We beat you guys. Never underestimate the French. Sorry. That was a personal message. I’m sure we’ll be beating the crap out of by the English. Anyway. |
| 14:53 | I think that as an entrepreneur who tries to get funding does both things. One is try and figure out; so the usual issue is: How do I get in touch with you? How do I make sure that I get your attention? So getting in touch is not enough. So yes you can send me a business plan at the email address which is on my website softtechvc.com. The truth is that this is not the thing which is sort of read in priority. What takes really a priority as far as I’m concerned is anything which is a trusted referral from someone I know who know that person and who can say, “Hey. I know that guy. I’ve worked with him” or “I’ve known him for awhile. I think that his site could be relevant to you and so you can either read that executive summary or that investor deck or presentation.” Please don’t send presentations which are more than 3-5 megabytes because the other day, my inbox imploded because someone sent me an 18-megabyte PowerPoint which is insane. I deleted it because I had to. |
| 16:07 | Use that trusted referral to just represent why this is relevant to me. I’ve tried really my hardest to put out there what I’m interested in, what I do, what I’m interested in and what I have invested in, what I do. So it’s pretty sort of easy to figure out whether you fit the bill or not. I’m always very open to hearing entrepreneurs’ ideas even if they are not a good fit for me. I try to sort of provide a few insights why I might not be the relevant person to talk to.The other thing is basically try and figure out which conferences I’m attending and trying and grab my attention. This is exactly what you did, right?Sean Ammirati: Yes.Jeff Clavier: You saw that I had Twitter, that I was coming to that conference and you sent me an email saying hey in Twitter. I don’t remember if it’s Twitter or an email.Sean Ammirati: Right. |
| 16:57 | Jeff Clavier: Anyway, here we are. We’re actually taping that podcast. It’s just a matter of figuring out when I’m here. Typically, I’m more available at conferences for 5 to 10-minute chats actually dedicating 10 or 15 or half an hour of my time in my office. It’s difficult to have someone come for 10 minutes. It’s just impossible. Whereas at conferences, it’s really okay.Sean Ammirati: I do appreciate you sitting down with us. One more thought kind of keeping along. You’ve seen a lot of deals and sort of what I think will be a good question. In addition to getting your attention from a funding perspective, now having seen 25 deals and obviously you’re a VC well before SoftTech, so you’ve seen a lot of deals in other capacities as well.Jeff Clavier: Hundreds.Sean Ammirati: Hundreds of deals. What are the kind of critical success factors that you’ve been able to pull out from the different deals you’ve seen? |
| 17:49 | Jeff Clavier: Passion. I think that when I see entrepreneurs who are really passionate about what they do that they have either relevant experience or passion, that they’ve been able to show me that they’ve really worked hard and spent their time and their money in putting something together that they really believe in, that they’ve gone around the industry to validate that idea or that concept or that prototype. This is something which I really respect. So, this is something I’m going to spend time on. I might just decide not to invest, and I’m just one guy with a small portfolio and a small fund, so I have to make those decisions, but I’ll try and sort of be useful and helpful in my comments or remarks or in a few cases, introduce maybe more relevant investors than I am. |
| 18:45 | So passion is really important to me. Essentially, it’s around the team. So how good I feel about the team, and can I project myself working with the team for the next 3 to 5 years because at the end of the day that might be what it takes, right? So obviously, how interesting the market is, how I differentiate the concept. Do I see something which has some of the elements of viral growth and natural virality. Is that an application which I believe in? Is that a domain which I’m interested in?I’ve decided most likely wrongly to not doing anything in music up until now. I’ve been investing for 7 years. I haven’t done anything in music. I’m actually just about to do my first investment in a kind of music related startup. For the longest time, I’ve said no. Why? Just because it was sort of confusing to me, and investing the time to figure out whether this is a segment in which I can actually find pockets of opportunities. The reason why I did that is because of the team. I really liked the team. I find those guys pretty smart. I think what they’ve done is really interesting. I’m just going to go for it. |
| 19:59 | I think the reason why I’ve decided to do this funding, the way I look at it really is that I bootstrapped my own startup for three years with my own money. I’ve gotten some validation on the market, some good points. I’ve raised my series A, which is happened to be $12 million series A. I’m only an entrepreneur funding other entrepreneurs as my business. I basically find teams I want to align with and fund. There’s really not so much that disconnect between the entrepreneur and the money as some people sort of seem to perceive.It’s really about the team, about their passion. The rest is important, but let’s put it this way. If I don’t feel the team then I’m just not going to do it. |
| 20:48 | Sean Ammirati: I think that’s a great comment to end on. Jeff, I really appreciate you taking the time to join me today.Jeff Clavier: Thanks for having me. |
Photo: Thomas Hawk Flickr
October 22nd, 2007 at 4:16 am
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