Month: August 2015

Investing in Investor updates While seed rounds often have 1-2 “lead” investors, participation from many investors at smaller amounts, commonly small seed funds and angel investors, is standard. Over the past few years, I’ve been a moderately active angel investor. Like most angel investors, I’m usually the smallest check on a cap table and post-investment value-add is admittedly reactive in nature. Irrespective of check size, one of my major pet peeves as an investor are companies that fail to provide regular investor updates. Recognizing that larger investors are usually in close contact with their founders, I know that following missive is primarily geared toward the lines of communication with smaller investors (for small seed rounds, this may mean all investors). Bluntly, it’s not OK to be opaque with the investors who have supported you while risk levels are at their highest. Whether as an active or silent partner, investors want to be part of the journey. More importantly, I think it’s a huge miss not to provide all of your investors with regular, effective updates. It’s impossible to optimize on your investor base without them. So what is the appropriate communication etiquette? 1/ All companies should send regular updates to their investors. The frequency is up to you based on what you think is appropriate for the business, but a normal cadence should be set. 2/ These updates should go to all investors, no matter the size of investor, with the following caveats: -There may be certain sensitive items that are only appropriate to discuss with only significant investors -As companies mature and scale, only significant investors with information rights should get these updates. 3/ A standard, succinct template should be used for consistency to aid ease of readership. In terms of length, think tweet storm vs. long form blog post. 4/ Updates should include the good, bad, and if appropriate, the ugly. Investors don’t want entrepreneurs that act as spin-doctors. Savvy investors will see past it, a chance to engender trust leaks away. 5/ Should include a clear call to action. Now most of the updates I get from founders are inherently positive, undeniably a function of the direct correlation of company performance to update frequency. Although it’s easy to shout from the rooftops when life is good, the best operators understand that the most critical investor updates occur when major challenges are present within the business. Investor updates also have the following benefits: 1/ They can serve as a forcing function for founders to momentarily untangle from the weeds and be introspective. This may inspire an idea around a new opportunity or allow you to identify a problem before it happens. 2/...

Reposting from my entry via CBinsights . You can follow me @samirkaji for more of my thoughts on VC and tech. The Past, Present, and Future of Micro-VC Although it’s been less than a year since I posted my primer on the Micro-VC market, there have been a lot of developments since then. Loosely, Micro-VC firms are venture firms that raise funds that share the following characteristics: < $100MM in size (although most are <$50MM in size) >80% of initial checks are invested in seed rounds Invest on behalf of 3rd party investors (LP’s) Over the past 18 months, I’ve met with over 150 Micro-VC managers of all sizes, geographies, and investment themes. Before I attempt to prognosticate where I think the Micro-VC market is headed, I want to share some of my recent observations. Growth, Growth, Growth The table below, leveraging data from CB Insights along with SEC filings, displays the growth in the number of Micro-VC firms over the past five years.   *7/30/15 -Of the 236 firms identified, approximately 50% have not raised a fund over $25MM. This number isn’t really shocking given the low barrier of entry at this size – the majority of these funds of this size are closed without any traditional institutional LP backing. -Over half are located in Silicon Valley, with NY, LA, Boston accounting for just under a quarter. Rising Bar for Institutional LP’s As noted above, nearly half of Micro-VC firms have little to no institutional LP capital. Institutional capital for the Micro-VC Market includes Endowments, Foundations, Corporates, and Fund of Funds. With respect to Fund of Funds, many institutional Fund of Funds have been quite active over the past couple of years in Micro-VC, including firms like Venture Investment Associates, Cendana Capital, Sapphire Ventures, Weathergage Capital, Horsley Bridge, Northern Trust, SVB Capital, TrueBridge, Greenspring, Legacy Ventures, Next Play Capital, and Top Tier Capital to name a few. Although many allocators are still exploring new Micro-VC managers, many have already placed their bets in the space, and the rise in numbers of new funds coming to market has made it virtually impossible to separate signal from noise. Special Purpose Vehicles (SPV’s) Due to capital constraints, Micro-VC funds often struggle to take advantage of valuable pro-rata rights in future rounds of their most promising portfolio companies. As a remedy, Micro-VC managers are now very actively forming SPV’s to enable pro-rata investing in top performing portfolio companies. Keep in mind that SPV’s don’t solve for fund level economics, but offer LP’s the ability to participate directly into portfolio companies at on reduced, albeit deal by deal economics. Thus far, most have been done through offline channels, but...