New investment models at MIT VC Conference



Ed Roberts, Chair of the MIT Entrepreneurship Center, is running a panel on “new investment models”.  I jotted down some notes, the main point of which is to present Kepha and Founder Collective and tell you what I really think of that continued Angel/VC debate.

 

Eric Hjerpe, Kepha Partners

Eric Hjerpe (formerly of Atlas Venture) runs through his strategy.  With $100M fund and $50M per partner, Eric says “he’s one of the big boys in the local market” but is keen to point out that they’re continuing to truly be early stage investors.  Their seeding program takes them down to $250K – $500K per check written, and that currently out of eighteen projects were invested, seven turned into “real companies” and the others died on the vine.  Eric’s point : “it’s better to know you’re going down the wrong path early on when you’ve spent $250K rather than $5M Series A”.  Bear in mind his focus is on infrastructure plays that take more capital.

Here are three USP’s Eric is pointing to:

  • “Every VC adds value.  We track ours.”  Kepha, says Eric, is the “only fund we know who tracks actual value-add contributions for each company, quarter by quarter”. As an example, Eric introduced two customers to his company OwnerIQ which are now contributing $1M in revenues
  • Unlevered: No associates, no principals – we do the work ourselves.
  • 24-hour SLA on all entrepreneur contacts and “directional feedback” in the first meeting.  We all know one of they key bugbears for entrepreneurs is that they never to get straight or fast feedback, so this is a great metrics to hold yourself to if you care about your entrepreneur audience.

Eric and Jo are clearly intent on demonstrating that even VC’s can hold themselves to the kind of SLA’s and behaviour expected from entrepreneurs.

Eric Paley, Founder Collectives

FC, says Eric, is a “$50M professionally managed seed fund” but differentiated by two key elements:

  • Created by entrepreneurs
  • Seed only, do not reserve money to follow companies

FC call themselves peer-to-peer capital, with six of eight partners still run companies today.  They’ll invest from $100K to $1M, are happy to lead deals and participate actively in companies.  Eric feels (echoing Chris Dixon’s strongly held position) that it’s FC’s great for entrepreneurs because there is inherently no signaling risk: “most people know that we do not follow, and they don’t expect it”.  FC has done over sixty investments in two years since launch.

Jules Pieri from DailyGrommet shares her experience of raising serious capital from angels only, and the benefits of doing that.  As Eric points out, her case is great but probably exceptional.  Sean Creeley from embedly comes from a different angle.  He started his company with $12K and used to get upset at the McDonalds employee for making more money than him.  After going through YCombinator, Sean raised money Betaworks, Sacca and Ron Conway and is not sure when and if he’ll ever need to go to to a VC.

The VC vs. Angel debate should die already. 

The real question is: “who (as a person) is in a position to take a strong position in supporting my project whilst:

  • feeling committed to my success (and somehow suffer if I fail, even if it’s just because their DNA does not allow failure)
  • deeply understand what I do (and can give me sensible advice and can help me figure out complex strategic questions)
  • able to deal with unshaped risk, uncertainty and lack of established long-term strategy (positing ignorance and making

Jules brings me back to reality; she went round the Boston VC community with an investment of Amazon in hand and did get very far…

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One Response to New investment models at MIT VC Conference

  1. Thanks for the shout out Fred. I thought you raised a great point and I wanted to hear more about that. I agree with you…the angel and VC debate is not that interesting. Having a broad range of people in my angel investor group has probably exceeded the “networking” resources of a VC fund, but it does have the downside of not being sure of follow on capital. I have been fortunate to gain that from my group, but it is not always the case. And I don’t expect this group to necessarily cover our next capital raise.

    One thing I realized after the panel is that I might have given people the impression that our angels are all people from my network. That was true for the first 10% of the $3.4M funding, but the rest were “strangers.” People who came in as the business progressed, or they saw me speak, or people like Nancy Peretsman whom I had sought to bring into the fold. (I had no idea she would someday be Groupon’s banker, though!)