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Frequently Asked Questions.
How do I submit a business plan for your review? What do you look for in an investment? What stage investments do you make? What valuations do you look for? Why are you different than a VC? Do the VCs like working with the Inventures Group? Are you like an “Angel”? Like an “Incubator”? How does executive search fit into your model? Will you sign my Non-Disclosure Agreement (NDA)? Will you join my Advisory Board?
How do I submit a business plan for your review?First, you should read this FAQ thoroughly. If you’re still interested, the procedure is documented here.
What do you look for in an investment?Must haves: smart, nice folks, significant technology, identifiable (ideally quantifiable) customer value. You also need to be here in the Bay Area (unless you're Red Hat). It helps a lot if we’ve worked with your team before, or know someone who has. We value intelligence, personal values and attitude over experience. We have a “no a$$holes” policy - so if you are one of those, even a genius with a perfect track record and sure-fire business plan, we wish you the best of luck, albeit elsewhere. The technology has got to be hard to implement and significant. We don’t care about explicit “barriers to entry” (okay, we care a little), but if the thing is basically trivial, how much fun will we really have building it? If pressed, we’ll admit to being a software firm, and greatly prefer software projects or hardware/service projects with huge software components. Our favorite technologies are in the messaging and messaging-related areas (e-mail is our favorite app) and heavy infrastructure (operating systems, communications software, software-based “horizontal” services).
What stage investments do you make?Early stage. 90% of our investments are alongside the first round of venture capital. We will very occasionally do pre-venture investing, but only as loans which convert to equity in a venture round. We do follow-on financings, but often below our pro-rata share. In that sense, our equity position tends to track the employees', not the investors'.
What valuations do you look for?Since we generally co-invest with VCs, we let the VCs opine on your company’s valuation (they are very good at this - we're not) and then participate on their terms. Having said that, most of our investments have pre-money valuations below $10,000,000.
How much do you invest?Most often in the $100,000 - $1,000,000 range. We keep the amount (and ownership percentage) low enough so as not to infringe on the venture investment/ownership. We are “small potatoes” by design. As is customary, we often get additional common stock for supplying a very active director. We can talk all about the financial and legal details later, but it isn’t a big deal for us, generally. We try to “tread lightly.”
Why are you different than a VC?There are four structural reasons why we’re not a VC firm: 1) We do not invest other peoples’ money. This permits us to work with any company, even those which might not be “billion dollar” winners (although we love it when that happens, too!). 2) We generally invest only a fraction of what a typical VC firm invests in any given round. 3) We ruthlessly limit the number of companies with which we work. We have never been on more than five simultaneous boards. If you need us to attend product reviews, help screen lots of marketing candidates, beta test the new version, or go with you on a customer visit, we’re delighted to do that. 4) Companies hold parties in our back yard. One CEO lived in Eric’s house for a while. Its personal – we actually do this for fun (really!)
Do the VCs like working with the Inventures Group?We positively hope so! You should ask them. We go way out of our way to ensure this. For example, we invest alongside (not in advance of) our VC partners – leaving them to value the investments (they are very good at this). We also keep the amount invested modest (by VC standards) so as not to unduly infringe on the VC’s ownership position. On the other hand, we’ll take fiduciary responsibility and join the board, which helps to spread the workload around (they are very busy). Plus, we’ll buy lunch whenever they ask.
What VC’s do you work with?We’ve been blessed by good relationships with many firms and would be delighted to work with most top-tier venture firms. For a variety of reasons, our portfolio companies have most often been funded by Benchmark Capital, Kleiner, Perkins, Caufield & Byers, and Mohr, Davidow Ventures – firms we’re particularly grateful to and fans of.
Are you like an “Angel”? Like an “Incubator”?Alas, there are too many variants of those to give a crisp answer, but generally – NO, we’re not like either of those. There are some really great angel investors in the world – and we love to work with them. Many “angels” do their investing on the side – we do this as our full-time, all-consuming jobs. Some angels are only about raising money: we don’t view our role as helping companies get funded (which we do) and then walking away (which we don’t) – we’re in it for the long haul. We’re not like incubators who typically extract a very significant ownership position by providing lots of infrastructure and some working capital. Any infrastructure we provide (soda, junk food, computers, network bandwidth, places to crash) is on us and we buy our stock just like anyone else. If the "bubble" incubators were trying to be get-rich-quick schemes, then Inventures is more like a lose-money-slowly scheme. We need to be successful so we can keep making new investments and having fun.
How does executive search fit into your model?Glenn works closely with us on evaluating early stage projects and helping to bring key talent to companies that we are evaluating for funding. Often, getting a key executive or architect involved in a pre-funding project will significantly enhance the project's potential. Glenn maintains a significant network of contacts that are interested in formative stage projects. At one of our companies, Glenn placed 22 of the first 26 employees, including the CEO and the founding engineering team! Glenn also performs executive search assignments on a retained (traditional fee for service basis) by funded companies within the Inventures Group portfolio as well as projects funded by other top venture capital firms.
Will you sign my Non-Disclosure Agreement (NDA)?Sure, but once we’re both serious about working together. As a matter of policy, we don’t sign NDAs just to read your business plan. We’re not trying to steal your ideas (if we did that, no one would ever want to work with us. And besides, NDAs limit disclosure, not idea theft). It's just that we get hundreds of plans and we don’t have the bandwidth to review everyone’s NDA legalese. If you don’t trust us, please don’t send us your plan.
Will you join my Advisory Board?We know this works for some people, but we've not had great success with being on Advisory Boards. We really like to have more "skin in the game" and have found the Advisory Boards to be sort of a halfway commitment. Although this is probably an indictment of our own abilities, we're generally not advisory board sorts of folks. Sorry. |
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