Entries Tagged 'vc' ↓

Wednesday I attended Rick Segal’s VC Roundtable in Montreal. Rick is a partner at JLA Ventures, a venture capital firm specializing in technology and software. Their last fund was one of North America’s top performers (top 5%), and they should shortly open their next fund.

Over the course of 2 hours, he went over venture capital basics and a brief overview of their working process.

JLA’s differentiators:

• Coders. They have techies on staff, and will try your beta software.
• They want to take you out for lunch when you’re still writing a prototype, before you even get angel money.
• Due diligence happens *before* signing a term sheet.
• Deals are made by partners, as long as their other partners don’t have strong objections. This is different from consensus, multi-layered approvals or vote-systems common with some VCs

Because there are a few mistakes companies can make early on that will torpedo their chances of ever making it, I’d recommend talking to them early on. One other point worth mentioning here is that JLA has made a few smaller investments - that is, small by VC standards - in businesses like B5 Media and Tungle. Rick lovingly referred to these as ’science experiments’: smaller bets in an emerging market that are very uncertain but should help them understand that space.

I bet those two experiments will be incredibly successful.

Some of my take-aways probably apply to all VC businesses:

• “Lifestyle businesses” need not apply. While making $5 million in annual revenue might be fantastic for an entrepreneur, they want companies that will sell for 25-100 million. Companies usually sell for 1.5 to 2 times revenues.
• Target investments have to have a ‘liquidity event’ within 5 to 7 years. VC’s have to repay their investors too, so you have to be prepared to see your baby bought, merged or sold on the public market.
• “pre-money valuation” is usually 3-5 million.
• Keep track of who owns the company - including your mom, and that designer or coder in Hungary.
• Ask angels for convertible debt, not equity.
• Don’t call yourself the CEO: those get replaced. A founder gets to stick around on the board.

If memory serves, they met over 850 entrepreneurs last year, and have funded 4. Some of those 850 are still being considered, but most were told ‘no’. Those odds appear quite similar to those of getting funded by most VC’s.

When AngesQuebec announced $750k of funding from the Québec government, I asked what the justification was for giving money to already wealthy investors.

Austin Hill is one of the network’s members, as well as one of Standout Jobs’ 3 founders. I pinged him, teasing him about getting government financing. He argued that while he’s generally opposed to the idea of subsidies, it makes sense in this specific case. In our discussion, a few facts came out that changed my mind about the project:

-$750,000 is over 3 years, after which the network should be self-sustaining
-AngesQuebec aims to have a network of 200 angels
-Over the next 5 years, $50 million should be invested in 120 companies, creating 800 jobs
-Other angel networks have gone bankrupt trying to bootstrap from member fees.

AngesQuebec is a non-profit, trying to build a public infrastructure good - something markets tend to fail dismally on. They are currently all volunteer run, and seeking their first paid staff. Hopefully this hire can improve communications and start the process of recruiting angels in order to grow to a sustainable size.