Seed Capital From Angel Investors: Jeff Clavier, Founder and Managing Partner, SoftTech VC (Part 7)

By guest authors Irina Patterson and Candice Arnold

Irina: Do you think about the return you would like to have over a certain period?

Jeff: I don’t really think about the term in terms of time because you can’t force exits, you can’t precipitate things. You can’t say, “Hey, I want this performance over this period of time.”

What I need to convince myself of is that if I look at a business and say, “Hey, based on the valuation that I invest in, can I see a ten times return at some point in the future, five, seven years,” it doesn’t matter, because I believe that there is scale in what I see in that business.

My most successful investments have done better than ten times and some of my other exits haven’t done ten times.

Essentially, the way I ask myself the question is: What does it take for this company to produce a ten times return, and do I believe that they can achieve that within five to seven to ten years? If the answer is yes, I can see a path in the future where I could actually get a ten times return and it looks like an interesting investment, then I will do it.

Obviously, ten years is kind of long term; the typical execution of a company from inception to exit is seven years these days.

Irina: At what stage of a company’s development do you usually invest?

Jeff: It’s a team with at least a prototype that they have built with minimum customer validation. Meaning that it’s a product that has been in alpha or in some kind of testing which has either been developed with customer input or validated with customers so that’s it’s not completely an idea in a vacuum.

When I was doing personal angel investments, I did a couple of investments on an idea, you know, just a PowerPoint, it was with entrepreneurs I had already worked with. If a brand new entrepreneur comes and says, “I have a fantastic idea. Give me money to build it.” Actually, I don’t do that.

Irina: Do you think the total available market should be a certain number?

Jeff: Well, the way I back off into the term is, Do I see this company being able to produce revenues of $500 million using the sort of trajectory of customer acquisition, traction, monetization, retention and so forth, based on what they do? Do I see them producing this sort of revenue?

If the answer is yes, and they are not the only player in the market – you know, you see at least a $1 billion or $2 billion market.

For example, when you say that real estate is $35 billion – I’m making this up – but you have a company that is doing only a small portion of the real estate food chain. Obviously, they won’t be addressing a $35 billion market. Very early, you’re trying to figure out the total addressable market for a company that is just starting and hasn’t started scaling, which is very tricky.

So, I’m much more looking at bottom-up, which is, What does it take to get the company to $200 million–$500 million rather than top-down, which is, This is the total market and slicing and dicing them to get to something the company can actually address.

This segment is part 7 in the series : Seed Capital From Angel Investors: Jeff Clavier, Founder and Managing Partner, SoftTech VC
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