NEWS: Silicon Valley Venture Capitalist Shares Tips and Insights
The venture capital model has evolved over the past few decades. VC firms used to wield tremendous power as gatekeepers. But they’ve become hyper-specialized. Combine that with a private market flush with capital and the power position has shifted to entrepreneurs, who are increasingly getting to chose who they want to work with.
That was the message relayed by Tyson Clark at an event at the Cove, (the home of Applied Innovation, UCI’s innovation center) on May 2. It was the second event in Applied Innovation’s VC Speaker Series.
Clark is a general partner with GV, formerly Google Ventures, with HQ in Mountain View. He focuses on enterprise technology, especially companies in the software-as-a-service (SAAS) and data center infrastructure spaces.
The event was sponsored by the Irvine branch of TriNet, and the Irvine office of Knobbe Martens. The interview was facilitated by Glenn Chisholm, co-founder and CEO of Obsidian Security, with HQ in Newport Beach.
GV is increasingly trying to invest outside of Silicon Valley, Clark said. In SoCal, GV has a full-time investor in Los Angeles.
Tips for Entrepreneurs
Clark gave the following tips to the entrepreneurs at the event.
- VC firms have become more specialized. It’s up to entrepreneurs to find out what VC firms focus on, whether it’s AI, social media or cybersecurity, for example. This prevents the need to go up and down Sand Hill Road in Menlo Park, as the adage goes, knocking on door after door. Sand Hill Road is a highly-concentrated area of VC firms in Silicon Valley.
- Seek out VC firms that are stage-appropriate. You don’t want to have to work to convince a firm that serves a higher stage to invest in your company.
- Look at how much the partners commit to being on the boards of the startups they invest in. Younger partners tend to hustle more, Clark said.
- There’s no set time when a startup should start raising VC money. Each case is unique. GV looks for “engagement momentum,” including daily active users of an app or a website – or, for an enterprise company, the number of users who stay logged on for more than an hour per day. If it invests, GV will then work with companies to achieve “engagement profitability,” getting customers to stay and pay.
- ICO’s are here to stay. “You’d be an ostrich with your head in the sand if you think ICO’s are going away,” Clark said, adding that they act to democratize capital to help level the playing field. ICO’s are initial coin offerings, similar to IPO’s, but where funds are raised for a new cryptocurrency venture. Because this market is barely regulated at this time, Clark warned that it’s dangerous for unaccredited investors, he said.
At the federal level, there are no current regulations banning ICOs specifically, although ICOs are expected to be registered and licensed.
GV is the VC arm of Alphabet Inc. (formerly Google, which is now a subsidiary) and launched in 2009. It’s invested in more than 300 companies.
Team members seek high returns but also keep an eye out for companies that are trying to make the world a better place, such as GV’s $50 million investment last year in Soylent, a company that makes nutrient-packed liquid meal, and other related items and accessories.
GV complements another division of Alphabet, CapitalG, formerly Google Capital, which is more aligned with the private equity model. In 2015, CrowdStrike, a cybersecurity company with HQ in Irvine, closed a $100 million round led by Google Capital.
GV typically invests between $5 million and $30 million, with the sweet spot in the $10 million-$15 million range, Clark said.
It typically invests $500 million a year. While it’s amassed a large reservoir, some is reserved for follow-on investments in companies GV has previously invested in.
Typically, 40% goes to life science, 30% to enterprise/SAAS, 20% to consumer-oriented products and the remaining 10% to “other” – a category including agricultural tech and “frontier tech,” like robotics and drones.
In terms of deal flow, each of the 10 investors at GV typically does three to four deals a year, a rapid pace comparatively, Clark said.
Lots of Attention
Investments are a package deal, as GV has several teams with varied expertise to help startups grow and scale.
“We have a pool of resources to ensure that entrepreneurs are getting the attention they need,” Clark said.
There’s a team of user experience and user interface experts to help startups work through challenges with their products. There’s a talent team to help startups recruit and build up their internal infrastructure. There’s a team to connect startups to Fortune 500 companies. And, there’s a group of data scientist and machine learning experts to assist in the growing field of AI, which Clark called an “exciting and scary thing.”
Exciting for entrepreneurs, because with AI, anyone anywhere can mine data to find information about Silicon Valley capital. Scary for VC firms – which are more and more starting to integrate AI into their research – because there tends to be bias in the historical data that AI gathers and spits out in the form of predictive analytics. (Predictive analytics uses a slew of techniques, like machine learning and data mining – to examine current and historical data to predict the future and help companies gain a competitive advantage.) The caveat is that the historical data could continue the trend of a propensity of white males in Silicon Valley getting funded, Clark said.
“Using AI is harder than it sounds,” he said.
The VC market is flush with capital, as firms had a banner year of fundraising in 2017. Lower tax rates are part of the reason this white-hot fundraising is expected to continue through 2018, according to news reports. Other trends include increasing exits, massive deals and improved diversity.
This year is likely to see increases in both IPO’s and M&A’s. Because so many deals last year involved more than $100 million at a time, 2017’s overall VC trends were heavily influenced by the mavericks leading the pack, which is expected to continue this year, according to news reports.
And, the combination of increased public attention to gender equality and the reservoir of un-invested capital is expected to improve diversity this year. Historically, as Clark alluded to, the recipients of VC have been middle-aged white males.