Jeff Clavier (SoftTech VC), Jim Lussier (Norwest Venture Partners), Vipin Jain (Retrevo), Jim Greer (Kongregate), Evan Williams (Twitter), and Raffi Amit (Wharton) discuss investors: venture capital, angel, and corporate.

Here’s the play-by-play….

AMIT (Introduction):
Macro Trends: enormous volatility in markets, credit crisis, economic slowdown, fear of inflation. Shorter technology cycles, intensifying competition.

good news: dollar is low, which means services are more competitive globally. new opportunities to innovate.

2007 was a very good year for venture capita. 2,695 deals totalling $30.3 billion.

Huge “overhang” of committed but undeployed venture capital. North of $80billion.

Bad news: takes much longer today than it used to to get to an IPO. (in 1998, it took 2 years, in 2008 it took 8 years). Implication: it takes more capital to carry a company to an exit event.

Uncertainty about timing of liquidity makes VC money more expensive and harder to secure.

What is a Business Model? a way of doing business. a network of economic exchanges. span both industry and firm boundaries. Includes:

- Structure
– activities
– network links
– sequences
- Content
– resources, capabilities
– goods and information
- Governance
– control of flow
– incentives for players

Summary…
- Business models define value creation and value appropriation
– key to unlocking value
– defines who you will be competing against
– key to strategy

In Today’s Panel….
What are the implications of the new realities?
How do advances in ICT affect design of business? (informatiorn communication technology)
- what roles do angels play?

JIM GREER
- Kongregate: user uploaded web games site (youtube for games)
- 5300 games uploaded by developers. monetization: share ad revenue.
- raised 9mil from angels, VC firm, and superangel

JEFF CLAVIER (second to left)
- invested in kongregate
- invests 250k, 40 deals in 2 year
- 18 deals in 10 months

VIPIN JAIN (left)
- Retrevo
- summarize information for consumers
- user interface innovations
- raised 12mil

JIM LUSSIER (#3 from left)
-70 portfolio companies
- 5 are in india, 2 in israel, rest in US
- covers broad space
- 650 million in current fund
- looking to disgust early stage companies

WILLIAMS
- Twitter
- raised 5mil in outside money
- raising a new round (that he can’t talk about)
- was launched inside another company and then incubated
- prior, raised money in other companies
- People ask: how much money do you need? It’s never about that. It’s how much can you give, get at a reasonable price, use appropriately.
- VC money: get if you know where you’re going. Angel money: when you havent narrowed down your options
- Angel money is the food that fuels you to build your engine. VC money is the fuel that you put in the engine.

GREER:
- institutional investors have more resources
- exception: in last round, Bezos, founder of amazon, wanted to invest.
- Angel: can be less responsive/involved but more candid/direct
- two venture firms participated in their angel round
- personal advice/connection in guiding choices was worth the premium price

LUSSIER
- typically investors own 50% of a company. return to investors last year was about 30billion. they also invested 30billion. return is 1X.
- first round investors; looking to put 3-10mil dollars and maybe split that with another firm
- seeing a reemergence of the angel investor
- “superangels”: jeff clavier, reed hoffman (sp??)
- entrepreneurs face a choice: at what point to they seek angels?

AUDIENCE: from sevenload
- for someone who got his merits in web1.0, it’s strange to hear emphasis on business model — in the last bubble, people didn’t care.
- main point: when an entrepreneur faces a VC, he needs to know Who he’s inflicting pain on. Whose business model will suffer from his business model.

AUDIENCE:
- intensive business model versus angels

CLAVIER
- you don’t start with angels all the time. you start with the proper capital, use rest of the opportunity…

JAIN
- need to find an individual who can emotionally attach to the problem

AMIT
- also: corporate investors. When would you consider them?

AUDIENCE:
- the value of the halo that comes with the money?

GREER
- Halo effect is real.
- There are firms that don’t mind pissing me off, but they probably don’t want to piss Reed off. They want more deals with him.

AUDIENCE
- people want to know about success of product. How can you quantify the success of a product?

CLAVIER
you can look at the metrics

AMIT
buckets of risk:
- company (managers, technology, product)
- market (willingness of buyers to buy)
- capital (ability to monetize, investors to have exit)

AUDIENCE: nicole lazzaro
- have a choice of incubating within business or going for financing to get interest

CLAVIER
- if you can avoid getting financing, dont get financing. avoid dealing with us.
- the minute you close on financing, you close on options

AUDIENCE
- don’t get money from VC that you’re hoping will buy you
- if you’re going to get one corporate VC, get three.

CLAVIER
- constantly confronted with teams who’ve raised 1-2mil but at different valuation
- seeing an “Angel Bubble”

AMIT
- corporate investors objectives: strategic and financial
- corporate investors invest once
- institutional investors consider subsequent rounds

AUDIENCE (writer at venture beat)
- when money is drying up, what milestones should you hit with your cash before you run out of cash?

GREER
- example: VC left during downturn because they weren’t willing to take risks. later company did excellent, but outcome was poor because funder left.

CLAVIER
- if an investor wants you to spend money, there’s something wrong there
- like to see 12 months of execution plus a few months of runway from an investment. if it’s less than that, they need to raise more money
- there will be companies being funded that shouldn’t
- “There was a time when there were just like 4 or 5 of us funding Web 2.0. That was a good time.”

LUSSIER
- “Raise more than you think you’ll need because sometimes you hit a bump.”

WILLIAMS
- “You always hit a bump.”
- There’s a rule: no matter how much you raise, you’ll always spend it in 12 months.

AUDIENCE:
- the biggest difference difference between angel and VC: VC has more toxicity in terms

LUSSIER
- founder knows the most about the business, owns 20-40% in stock
- founder needs to revest some of those shares
- why? because if he leaves, the company falls

AUDIENCE:
- CEO who’s sold companies.
- Have to find VCs you get along with
- as a CEO, you have to perform
- if you don’t perform, the money people will remove you
- if you need pay 9% more for a good firm, DO IT. It will make your life easier.

JAIN
- “Working with VCs is more like dating. When you first start there’s some excitement. There’s also some unknown, some skepticism. But you have to find that trust.

GREER
- in that scenario, you’re the woman. you’re pursued. you’re interested in commitment.

JAIN
- you have to find compatibility

AUDIENCE
- divorce is not a possibility
- venture money brings a need for an exit

LUSSIER
- people jump on funding before they should — it’s attractive. entrepreurs are tired. but they’re close to a higher valuation

CLAVIER
- [final notes about making wise choices]