Zelkova Ventures

I recently had the honor of moderating a New York Entrepreneur Week panel entitled Raising Seed-Stage & Angel Investor Capital in Today’s Environment.

The panel consisted of four early stage investor: Dave McClure of 500 Hats/Founders Fund, Geoff Judge of NY Angels/Metamorphic Ventures, Owen Davis of NYC Seed and Brian Cohen of NY Angels.

We wanted to avoid the bullshits softball questions that are usually asked at these events and you already know the answers to; I think I was successful.

A few of the key takeaways were:

The market for early stage funds much more vibrant than 12 months ago and there is plenty of capital out there.

1) The biggest pet peeves of the panelists when seeing pitches were as follows:

a) Not explaining the problem you are solving and just focusing on the product/service.

b) Glancing over the competition and not looking at the entire ecosystem of competitors.

c) Lack of customer understanding and customer interaction

2) The inevitable question around how do I contact an investor came from the audience and while views were mixed on the best way, it was unanimous that an intro from a mutual friend, colleague, partner, etc is by far the best!  Some investors will look at ‘cold-call’ emails but increase your chance of getting thru the noise and get an reputable intro!

3) When posed the questions around what the panelists have learned from the one that got away (the investment they regretted passing on), the lessons learned included:

a) Don’t overly obsess with the concept if the team is kick ass and the idea decent they’ll figure it out.

b)Don’t drag your feet if you see something great don’t be afraid to jump in (this goes for investors and entrepreneurs).

Lastly, the topic of valuation came up and Dave McClure brought up a contrarian view on valuation; but it makes great sense. In essence the view was start low and get investors excited once you have a few that are interested (and vice versa) let them bid up the round.  This avoids the situation where your price investors out from the get go with sticker shock.

Recently Jason Calacanis turned me on to audio books via Audible.com and I have to say i’m really enjoying it.  So far I have listened to two books First In Thrist by Darren Rovell and Trade-Off by Kevin Maney, and currently on my third.

I have been listening to the books on my commute to and from the office and I find that I no longer care if the subway is taking a little more time or if Bloomberg’s plan to make the city more congested is working.

The audio format is great for those books that you can continue reading if you skip a chapter or two.  For me they work great for biographies and general business overviews.  I don’t think the audio format is as good for highly technical books as if you space out the audio keeps going, unlike actually reading and you may miss important parts.

In the future I expect to see more interactive audio books including features like  search, sharing, graphics, commenting, etc.  All these features will help to improve the overall experience and grow the usage base.

Overall I highly recommend audio books for anyone who has a commute and doesn’t feel they have time to ‘read’ you will find yourself getting thru a few books a month and your blood pressure much lower!!!

I tend to hate receiving voicemails and almost never leave them. The majority of the time the voicemail tells me the same thing that the missed call does – you want to talk.

Today I received this voicemail (the name/number are beeped out).   

Now in order for me to return this call I need to spend time googling the phone # to see if its a telemarketer (in which case no call back) or a legit entrepreneur.  In the case of a entrepreneur the first impression ins’t great!

I understand that there are some circumstances when you need to leave a voicemail, such as calling a landline, lack of access to email, dont have any other way to contact the person, etc.

When you are leaving a voicemail for someone who doesn’t know you, keep it short and sweet and speak clearly.  From a content perspective include  who you are, a few words on what you are calling about and leave your number twice!  Keep the voicemail to less than 30 seconds!

A special thanks to Sean McCann @sea for helping me beep out the name / phone number of the auto file and thank you to everyone else who offered help.

Two and a half years ago when we launched Zelkova and made our first investment (Ribbit) I received a stack of closing documents and while I knew many of the high-level concepts (valuation, liquidation, voting, etc) there was a lot more in there that I wanted to understand better.

I immediately ran over to Barnes & Noble and purchased Term Sheets & Valuations by Alex Wilmerding.  This book has become my go to guide whenever I have a question about different ways of structuring a term or how a term sheet is being structured.  The book explains every part of the term sheet and provides examples of investor favorable, entrepreneur favorable and middle of the ground drafting.

This is a must read book for anyone who is out raising money and is a handy guide for VC’s who want a quick reference.

One question that we are regularly asked is where do we find our deals or how do deals find us? We track all deals we “see” at Zelkova, along with some basic data points. I define a deal we ’see’ as one where I have at least a one-hour conversation with the team. In the past two plus years we have “seen” more than 500 deals, and here is how the stats break out:

The above chart is only interesting in that it gives a sense of where VCs (Zelkova in this case) get their deal flow from. The chart below, which shows the sources of our approximately 15 investments over the past two years, is more interesting.

Some takeaways by category:

Event or Conference
We attend several great events each year. Some of these include TechCrunch50, Open Angel Forum, Under the Radar, The Hatchery, AlwaysOn and many others I’m missing.  Given the vast number of companies we see each year at these events, it makes sense that a good portion of our investments are from these sources. We tend to always try to attend the events that have a heavy screening process, providing quality deals for us to look at.

VC / Advisory Group
As you can see, this category is “over-weighted” in the number of investments as compared to source of deals. This isn’t surprising to me, as we tend to do syndicates (almost by rule). It’s not about a herd mentality, it’s about a probability of success mentality. First and foremost, we want to find deals that will be able to close funding, and partner VCs are critical to this. Secondly, other VCs help drive success, bringing more minds to the table and more resources (contacts, ideas, capital).

Friend / Family
This category is mostly self-explanatory. It includes not only friends and family but also includes colleagues we have worked with in the past.

Cold Calls
The lack of any investments in the cold-call space has nothing to do with a bias or a “club.” Most of the cold calls that come in are outside of our area of expertise, but we take the time to speak with the teams. We feel it’s a duty of ours to help entrepreneurs, if what they do is remotely close to what we do. (Note: for each entrepreneur we speak to, we get about three or four that are totally outside of our areas of help). It’s also no secret that a warm introduction is much better than a cold call. Less-experienced entrepreneurs will try the spray-and-pray method; more-experienced entrepreneuers will try to connect to us through one of the other channels – through another VC or at an event.

Existing Investments
As you can see, we haven’t funded any deals through existing portfolio companies — yet. I accredit this to the fact that we are a relatively new fund (two and a half years old) and many CEOs are very cautious in recommending companies to look at. The lack of investment from this source isn’t surprising given the fact we have only “seen” around 15 – 20 deals from this source.