Adam Jackson | Entrepreneur, Investor, Advisor

This perspective is from the smaller seed / angel investor perspective.

Panel: Dave McClure, Joyce Kim, Ryan Pipkin, David Troy

• Downturn has been worse for VCs than for startups (harder for VCs to raise money relative to the valuation hit for startups)
  VC as an asset class has performed terribly and many of their LPs are “overweight” in the class.  All bad for VCs
• Lots of VCs will be disappearing over the next few years.  The good ones will survive (CRV, August, etc)
• New environment:
  - more focus on getting revenue, get to break even cash flow
  - get to sustainability on the Series A so you don’t have to raise money later (usually won’t be the case)
  - Seed Funds (SoftTehc, Maples Investments), and Incubators / Angels (YCombinator, TechStars) are gaining traction in this environment
  - much cheaper to prove concept these days – < $50k 
• Troy – making 100-250k investment in 1-3mm pre-money companies in BWI area only
• Pipkin – makes software that helps angels manage / syndicate their deals.  
• Angel Capital Association: 160 member organization of angel investor groups
• Due diligence process is much more arduous now
• Startup valuations down 33-50% on average in the Valley
• VCs taking 50% longer to close investments, on average
• Legal:
  - not a lot more convertible notes going around (except for McClure)
  - they’ve started capping these notes (cap the Series A valuation) in the last year and a half
  - terms are very pro-investor.  Less term sheets, less room for negotiating
  - easier to take a board seat on A round or get a liquidation preference
• Series B’s are impossible to do right now.  Best you can do is likely 50% down round or worse.  Many are dying now – too speculative.
• Trend for Micro-Seed ($0-$100k to get a prototype built and start proving a market):
  - panel is bullish on micro-seed model
  - Pipkin:  there may too many micro-seed incubators out there, Paul Graham has a secret sauce 
•  Troy:  You have just as good a chance at good returns in a small startup than you do in the public markets
• Panel agrees outlook for Angels are looking much better than VCs right now, at least from an ROI perspective
• Kim:  Seed round expectations have completely changed.  Try-and-see not as viable now – must be building a real business.  Less R&D investments.
• Is there still room for no-revenue, pure-growth companies in the VC model?
  - Kim – not really, unless it is a proven entrepreneur
  - McClure – seed yes, VC less so
  - Concensus: we must be at break-even by next round.  We’re basically bankers now.  
• Net-net:  Fail fast and move onto the next one.  Don’t waist too much money proving/disproving what you think will work.

Startonomics / Startup Metrics:  (Dave’s AARRR)

• Acquisition:  what channels do customers come from?
• Activation: do they have a good 1st experience?
• Retention: will they come back?
• Referral: do they tell other people (net promoter score)
• Revenue: will they pay / how to make money?

       – crucial for startup to track these things to take some of the risk out of the business for their investors.
       – We’re seeing the professionalization of the low end of the investment market

Q: How do angels feel about a quick exit at a smaller valuation (as opposed to the larger, follow-on deals ending in larger exits)
A: There is more of an oppty for angels and seed funds for deals like these since the VCs aren’t interested in them.  It really depends on the fund size … all about ROI.  Someone managing a 10mm fund would be happy with a smaller exit. 

The slides: