6 Months ago I made the switch from Entrepreneur to VC and joined Corigin Ventures, an early stage Venture Capital firm in New York. Since then we’ve invested in 5 companies, added a new team member and have seen big wins for some of our portfolio companies (more announcements coming soon!). As I take a step back and reflect on my first 6 months, here are 6 observations:
1. Seed Investing in NYC is Collaborative — Although Series A and later stage rounds are competitive; seed investing here in New York is very collaborative. Aside from the few large seed funds that can take up entire rounds, I’ve found that other investors are helpful in sharing deal flow, thoughts on companies or verticals and even life advice.
The VC community in New York is very tight knit and I love it. I owe a huge thank you to dozens of young VCs (both in and out of venture) for making my career and city transition so seamless. I especially want to thank Sumeet Shah, Katie Bolin, Julian Moncada, Andrea Hippeau, Chris Pallotta, Todd Breeden, Ryan Darnell, Steph Weiner, Tim Devane, Adam Carver, Heston Berkman, Ash Egan, Jeff Prober, Sutian Dong, Katie Frankel, David Rogg, Jay Thakrar, John Lanahan, Zak Schwarzman, Shayne Veramallay and Mike Falb. The list goes on and on, but the point is that I’m extremely grateful that the NYC startup community has made this an easy transition and an awesome first 6 months.
2. Feedback Loops are Painfully Long — As an entrepreneur I worked day in and day out to build something. When building you see results quickly in the form of progress on new products, acquiring new clients, increasing revenue, etc, etc. This happens on a daily, weekly and monthly basis. However, on the venture side it’s a bit different. Seeing immediate results is nearly impossible and knowing how good you really are at this job won’t take place for quite a few years. You can quantify short term leading indicators for yourself and your companies such as number of leads, number of views on a blog post, returns on paper and more, but the reality is that it’s just different. I’m sure that some of this will change with time as I learn from our wins and losses, but this is all part of starting up in venture.
3. But a Win for a Portfolio Company Feels Really Good — While I complain about the long feedback loops, one way to fill that void is to help portfolio companies more often, or to have them experience a big win. My favorite example to date is the time that David and I spent a couple weeks working with one of our companies to improve their pitch narrative and deck. Following the multiple rounds of edits and a few intros to investor friends of ours, the company raised more than they had set out to. In addition, the Founders later thanked me on a train ride together, noting that the improved messaging has helped in both sales and recruitment. Even though this was all about them being awesome and executing, it’s this type of feeling that makes me love my job.
4. Conviction is a Funny Thing — In any line of investing you have people that are right and people that are wrong. While everyone can make comments in hindsight, it’s funny to hear the extreme variance in conviction around certain startups, ideas and Founders. No one has a crystal ball, but VCs are trying to predict how things are going to pan out for a startup in the future. As a result, people’s visions are often very different from one another, both inside and outside of firms, which makes for interesting conversation. This is exactly why Founders need to be resilient after getting a “no”, because the reality is it only takes one investor with conviction to make things work out.
5. Valuations are a Little Crazy — A company is only worth as much as someone is willing to pay for it, but that won’t stop me from saying that some of these early stage valuations are a little out of whack. According to PitchBook, the median Series Seed pre-money valuation in 2014 was $5.9M, which was an increase from $3.2M in 2010. Although the demand is there now, if these investors don’t achieve their desired returns in a few years then something has to give. I know that the “Babe Ruth” effect in investing is real, but when some companies are exiting for $20–30M the difference between a $3M and a $6M valuation is as well.
6. Brand is King — Up and coming venture funds are faced with the challenge of creating a strong brand, which in turn will help them with deal flow. This is especially important at the seed level where some firms do it with great content (NextView Ventures), some with incredible returns (Lowercase Capital) and others with a unique value-add business models (Work Bench). With that said, I think it takes a combination of at least the first two.
I’m impressed on a daily basis with the personal brands that investors likeBrad Feld, Mark Suster, Fred Wilson and Marc Andreessen have created. Each one of them has done a great job of expressing their thoughts without worrying about the Internet’s opinion. They also uniquely position themselves in an entrepreneur’s mind and relentlessly work to get their name out there.
Moreover, on the returns side, I believe that new funds have to take additional risks to try and find that one big winner. It starts with building up your proprietary network and uniquely positioned brand, but then it’s about not being afraid to place some bets where other big name firms wont or can’t. In an industry/stage where the odds of an investment being successful are so low AND one or two homeruns can make your career/brand, I deem these things important.
As I review what I’ve done and learned, I’m excited about the changes in my personal strategy moving forward. Over the next few months I’m excited to explore the world of digital health, mobile marketplaces, the Internet of Things and the de-urbanization of the on-demand business model. If you know of any interesting companies working in those verticals, or any others that you think are just worth a look, give me a shout at JShuman@Corigin.com or@BoatShuman.
Thanks for reading and feel free to share observations from your own personal experience.