Seed Capital From Angel Investors: Jeff Clavier, Founder And Managing Partner, SoftTech VC (Part 5)

By guest authors Irina Patterson and Candice Arnold

Jeff: Then I look at the product, the concept, is it differentiated? Have I seen ten or twenty versions of this thing in the past? Is it unique? How defensible is it? How replicable is it? Is it something that people are going to look at and say, “Duh, it’s obvious.” They could be doing the same thing.

How can they grow this thing? Is it like, “Well, I’m going to have grow each user one at a time spending money using traditional marketing techniques? Or do I have a shot at using customer referrals and viral link-ins?

And then I’ll consider the market. Is it feasible in, say, three, five, or seven years to build a company that’s going to go to $50 million or $100 million in revenue and not be the only player in the market? If you own 50% of the market and you’re a $100 million company, then that’s interesting.

So, I figure out the market opportunity, is it big enough? There are a lot of really interesting companies out there that will max out at $20 million in revenue.

And they might be fantastic investments for personal angels, but those of use who manage funds need to have a return. Anything we touch has to be able to produce a potential ten times return, given how risky our investments are and how many failures we get.

By definition, when you take risks the way we do, you fail. Given all of that, how can you build a team that really has a scalable product into an interesting market? That is the ultimate question for us. If the answer is, “Yes, I believe that this is going to work,” then we’ve mastered it.

Irina: How do you conduct due diligence?

Jeff: Because we invest so early, there’s often not that much we can do due diligence on. Are you going to due diligence the founders? Are you going to spend time talking to people who know you and know them?

Obviously, they will give you some reference names which will also be within our network, to figure out who knows them and who you’re going to ask about them.

You’re going to play with the product. If it’s something that’s already up and running, you might ask one of your CTOs – that’s what I do. I’m asking my CTOs to take a look at the product and give me a feel for whether it’s designed properly and if they like it.

In terms of the market, in some cases I might talk to industry insiders and say, “There’s an opportunity, what do you think? How would you approach this? Does this sound like a good idea? Have you seen something similar?” And form a point of view as to whether this is an interesting opportunity within two weeks, max, of meeting, I decide. Typically, if I can’t make up my mind within the first two weeks, then it’s probably an investment I shouldn’t make.

This segment is part 5 in the series : Seed Capital From Angel Investors: Jeff Clavier, Founder And Managing Partner, SoftTech VC
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