News
Category Archive for Industry
Simplicity, Clarity, Alignment: Welcome Series Seed
March 1, 2010
With today’s launch of Series Seed Legal Documents, the early stage venture industry just got a lot simpler, and a lot better.
Our good friend Ted Wang from Fenwick and West has been working on this initiative for a very long time, and Ted has long been passionate about innovating and streamlining the process of closing Seed and A-round financings. The new documents are a universal, “open-source” set of deal closing documents, and importantly they are supported by the top attorneys and legal professionals at multiple firms across the valley.
The docs are all that’s required to close a standard Seed/Series A venture capital financing. They include the most important provisions of legal docs for early stage companies, plant the flag on issues squarely in the clear and fair category, and (importantly) throw out much of the un-necessary provisions found in most legal docs. Because the docs are simpler and cleaner, the legal costs for closing a standard, clean Seed/Series A round will drop dramatically. This is good for Founders and investors alike, and it’s good for our industry. Ted and his group call these “Series Seed” legal documents, and True and a handful of other early stage investors have joined on to help launch this initiative. You can find the docs here.
At True, we’re committed to simplicity, clarity and alignment. Since we started our firm in 2005, we’ve designed and led over 45 Seed and Series A financings with these principles in mind. Since day one, all of our docs are clean and simple: no tricks, no onerous voting provisions, no multiples on liquidation preference, no participation, no board control, yes generous founder vesting and yes ample acceleration for Founders upon change of control. One of our Founders eloquently told a roomful of our LPs that True “doesn’t do any of that sneaky VC sh%t.” They might have been surprised by the word choice, but believe me they liked the sentiment ☺.
We’ve been practicing the principles of the Series Seed for the 4.5 years, so our actions speak much louder than our words, but both action and words greatly support this initiative because it’s good for Founders.
Ted and his team have taken a complicated set of documents and applied good legal judgment and pragmatic business thinking to them. Broad adoption of Series Seed documents will result in lower legal costs for the early stage market, more efficiency and much greater value creation because more of a deal’s proceeds will be used for company building. At True we’ve aggressively pushed the legal costs of closing a small seed round ($250K) to $10K total (i.e. $10K for both sides). Normally these costs total over $30,000, which is ludicrous in the context of a $250K raise.
We’re proud of this innovation and these savings, but there are more important benefits than cost. Simplicity re-affirms trust. Clarity lets everyone see in the plain light of day how a deal works in all scenarios. Alignment creates value for Founders and investors alike, and a set of standardized docs helps our industry focus more of our time on what counts: engaging phenomenally talented people to build products that change the world.
We’re very pleased to support Ted and the Series Seed, and we encourage Founders everywhere to consider forming their Seed/A round deals with this simple, Founder-friendly approach.
Looking Back on 2009
January 5, 2010
It was the worst of times. It was the best of times. 2009 was a year to remember.
We’ve been reflecting a lot during the past few days on 2009, and the past year was by far our busiest and most impactful year in our firm’s four-year life. Like the rest of the industry, we entered early 2009 with questions and doubt. It was a scary, unnerving time with venture firms publicly announcing no new investments, and everywhere you looked were reminders or admonishments to let “good times rest in peace.”
Both sides of the venture capital equation, investors (limited partners) and entrepreneurs, were under tremendous financial stress as the world around us all had changed. For True, the timing of the meltdown created opportunity and significant risk, because we had just successfully closed our second fund in September 2008, literally 48 hours before Lehman Brothers failed. Although we were incredibly lucky because we were in a position to invest, expectations and tensions were high given that the financial world had changed so dramatically.
As a young start-up ourselves, we knew that the path of least resistance would be to follow the crowd and play it safe while the downturn worked its way through the economy, but what would be the opportunity cost for that strategy? In order to figure this out, we went straight to the very heart our model: our Founders. After spending considerable time with each of our Founders and their teams, it became abundantly clear that despite the global economic turmoil, our sector (very early stage technology) was undergoing a fundamental resurgence. The largest trends in technology were creating substantial new markets, in which start-ups had significant opportunity, and these trends were minimally impacted by the global credit/liquidity crisis.
Core innovations in internet-based technologies over the previous ten years were beginning to manifest themselves into large segments. These segments included the social and real-time web, cloud computing infrastructure, mobile products and services, enterprise 2.0 and even new computing devices and hardware. Though a prolonged recession and curtailed consumer spending would eventually impact these segments, in reality these markets were extremely nascent, and, in our view, it was time to build for the future.
We thought 2009 was particularly timely for True because of our very early stage strategy. It’s basic, but it’s true: early stage venture capital has a 5-10 year investment period, which means today’s investments are not directly correlated with current market conditions. The idea of an early stage venture firm cutting its investment in 2009 made no sense to us. For example, it just didn’t stand to reason that because the world was reeling from a (severe) housing and credit crunch, enterprise IT wouldn’t undergo massive re-architecting over the next six years.
As we concluded our research, we formed a thesis: our strategy of investing behind truly great entrepreneurs in early stage technology businesses who are highly capital efficient was well timed for the 2009 market.
We took a deep breath and decided to double down. In January 2009, we doubled our forecast for new deals, and we encouraged our portfolio to become more aggressive in the downturn.
For new deals, True closed 21 new investments in 2009, which compares to 14 in 2008 and 10 in 2007. We can be judged by the company that we keep, and we are fortunate to have invested with an incredible group of entrepreneurs such as Tim Young at SocialCast, Peter Rojas & Ryan Block at GDGT, Howard Lindzon & Soren Macbeth at StockTwits and Jack Abraham at Milo.
(Click here to see a full list of our portfolio.)
Simply making more new investments, however, was not enough. We also had a large portfolio of existing companies that could use our dollars to make the downturn their advantage. We set aside approximately $20 million of our reserve capital to invest in the existing portfolio with an emphasis on making the strong stronger. We believed 2009 would be a good time for our break-out companies to further their lead. Many of these companies took advantage of our reserve capital to acquire competitors (who were distressed), grow market share, deepen product teams, and hire sales folks. We structured our investments as friendly bridges to future rounds, as our intent was not to take advantage of the timing to buy more equity but rather enable our strong companies to get stronger.
We’ll know the real results from our actions in 2009 over the next 5+ years, but the early results of these moves look incredibly promising.
To cap off a big year for the firm, we were recently nominated for the Crunchies for Best VC Firm of 2009, and two of our portfolio companies, Milo and StockTwits were nominated for Best Startup or Product and Best Social App, respectively. We are honored to have been nominated by the industry, and we think this is really a reflection of the great entrepreneurs in the True family. Our mission at True is to help make an entrepreneur’s dream come true, and we founded our firm on the core belief that all power, creativity, and energy in the venture capital ecosystem starts (and ends) with the entrepreneur. We have a total of 51 investments in the portfolio, which equates to 92 Founders and 483 employees. This is an incredible group of people, and each of them has endowed us with their faith and confidence. Our Founders are our biggest source of inspiration for our firm, and their efforts and energies are most responsible for our success.
Thank you to everyone who helped our efforts in 2009. It was a very busy year, and as entrepreneurs ourselves, building True has been and continues to be incredibly gratifying.
Now is not the time to rest on our laurels. Venture capital needs more innovation, and we have an ambitious agenda for the years ahead.
We look forward to working hard for you in 2010 and beyond.
Happy company building!
Venture is Back, Baby
December 2, 2009
Over the past few weeks we’ve seen extremely high activity in new venture investments. Starting in September, we witnessed the return of multiple term sheet deals, short fuse situations, and a renewed urgency to most fund-raisings. I heard last week of a hot late stage deal attracting ten (yes 10) term sheets. It’s a really great company, but just one quarter ago that number would have been much lower. FastCompany’s Q3
The same VCs who hunkered down in January were back in the game in September, and they were back in force. We call the rise in new investment activity, “back to school investing”, and it represents a significant return to health after the prolonged hiatus that started in Q4 2008 with the infamous “RIP Good times” slide deck.
Venture is back. And it’s back because of one word: exits.
In Barron’s this weekend, Michael Santoli quoted a March 2007 Speech by Fed Reserve governor Kevin Warsh in which he said “Liquidity is confidence.” Exits mean liquidity, and liquidity brings confidence to GPs (and LPs), which spurs investment.
Just as analysts and pundits were decrying the “end of the venture experiment,” 2009 was quietly becoming an extraordinary year for venture exits, both in IPO and M&A form. Early 2009 venture-backed IPOs of OpenTable, SolarWinds, and more recently Ancestry.com (ACOM) and Fortinet (FTNT) have held up in the aftermarket, and more significantly these deals have demonstrated the public market’s desire for growth and comfort with small(er) company risk. There are rumored to be between 50-100 venture-backed companies that plan to file in Q1 2010. Speculation for 2010 IPOs also includes some game-changing companies, most notably Facebook, LinkedIn, and Zynga.
I was recently in group of VCs when someone asked who at the table had a privately held company in their portfolio with over $100mm in annual revenues? All of us raised our hands. I later asked this question of another group of GPs and got a similar show of hands. Even in our young True portfolio, where the median company age is only 2.5 years, the portfolio turned in a strong Q3, generating over $50 million in revenues. Across the valley, there is huge pent
Another reason for optimism is the recent increase in venture-backed M&A activity. We believe this will accelerate dramatically in the coming months because large cap tech currencies are up, layoffs have made these same companies lean and mean, but it’s also made them hungry.
Simply put, November 2009 looks a lot better than November 2008 if you’re a public tech company. Have a look at the 1-year charts for ORCL, MSFT, ADBE, YHOO, GOOG, AAPL to see the market cap’s steady march up to the right. But ‘08 and ‘09 were also times of RIFs and cost cutting. Think back to the headlines from last year of Google
These layoffs have two implications for private company M&A: the first is that by now, most large tech companies have reduced operating expenses dramatically and conserved or generated cash. 2009 was a year of focus, which meant curtailing ambitious new initiatives and reducing R&D spending. These efforts are good to get things cleaned up, but they present a big problem for the future, because big tech needs innovation to grow, and innovation happens fast these days. Many of the most exciting developments in tech are coming from young innovators who are leveraging newer architectures such as web 2.0 and real-time web. Marry those technologies to new distribution channels like Google & Facebook and lower friction sales models like on-demand. New technology, new business models, innovation.
M&A will involve younger companies in the next 12 months, because big tech needs the new stuff, not the old. Electronic Arts buying Playfish for over $400 million, Google’s $750 million purchase of Admob and Intuit buying Mint for $170 million are three recent examples. This should be another good thing for VCs.
Much like the health of the IPO window, the coming M&A Tsunami creates liquidity to the venture business, which will restore confidence in the logic behind the venture capital model. Though admittedly venture takes time, GPs at the “ground level” are seeing this now and acting rationally to deploy capital into this period.
2010 is shaping up to be an extraordinary time for venture capital and by extension, Silicon Valley.
Welcoming Andreessen Horowitz
July 9, 2009
This week Marc Andreessen and Ben Horowitz announced their new $300 million venture fund. This is really good news for the very early stage venture market. It’s yet another visible indicator of the ongoing reinvention occurring in venture capital, and it represents a significant step in the re-emergence of institutionally-backed early stage venture capital. We’re excited to have Marc and Ben working in this segment, and the addition of more talent and resources in the early stage market is great news for entrepreneurs.
Our mission at True is to help entrepreneurs realize their dreams. In 2005, we spotted an opportunity to build a firm that was more adaptable to the needs of today’s entrepreneurs. We innovated by re-defining the relationship between investor and entrepreneur in a fundamental way, simplifying previously complicated structures, and amassing talent and resources to ease the specific process of starting and building a new company.
We did all of this as former entrepreneurs ourselves, and our overarching goal was to re-align capital with creativity. At True, we firmly believe that the entrepreneur is the center of all power, creativity, and wealth creation in the venture capital model. Our firm and our deals are designed with the entrepreneur as customer.
When we launched in 2005, there were only a handful of super-angel investors in the very-early market: Ron Conway, Reid Hoffman, Ram Shriram, Josh Kopelman (then with his evergreen funds) – to name a few. Institutional capital was scarce, and this was a problem because entrepreneurs had fewer resources in the beginning, and less choice
The great news for entrepreneurs is that this is changing rapidly. Since 2005, we at True have raised 2 institutional funds totaling approximately $375 million, Josh and the team at First Round closed on an institutional fund, as did Stewart and Gilman at Alsop-Louie, and Brad Feld at Foundry. Back East, Spark and Union Square Ventures have each raised two institutional funds, and Alan Patricoff started Greycroft. In addition, many very talented angels such as Mike Maples, Jeff Clavier, Ron Conway (Baseline and Ron’s other angel investments), and Paul Graham at YCombinator have raised institutional dollars.
We estimate that there is now well over $1 billion of institutional capital available to startup entrepreneurs. Make no mistake, there are many talented groups willing to write checks as small as $50K to get a good team and a good idea off the ground.
This could not have happened at a better time. The combination of great entrepreneurial talent, high capital efficiency, widespread broadband infrastructure, and the maturity of mobile and social computing platforms has resulted in tremendous product innovation and massive market opportunities. True witnessed this dynamic first in our consumer investments like Meebo, Automattic, and Sphere, but, since 2005, we have also seen Moore’s law blast away cost in enterprise 2.0, infrastructure, and hardware. We have steadily expanded our investment focus and products into these markets, and we are about to close on our second hardware investment this month.
We are fortunate to live in an incredibly disruptive time.
Which brings us back to reinventing venture capital. The best entrepreneurs want less from VCs today: less capital and fewer constraints in order to take more risk earlier. But the the best are demanding more in terms of new products, services, alignment, attitudes, and business practices from their investors. This means new expectations around board roles and responsibilities, more flexible deal structures, aligned efforts to add value, broader syndicates that amass the resources and participation of multiple groups and multiple angels. This means innovation in venture capital.
We’re excited about the arrival of Andreessen Horowitz to this segment because it means more choice and power available to the early stage entrepreneur. More talent, dynamism, and focus on these challenges will help us all to better serve our customers (entrepreneurs), more quickly modernize the early stage capital markets, and foster fundamental innovation. In removing barriers to entrepreneurial creativity, we will reinvigorate the US economy.
If you are an entrepreneur today, this is an historic time to chase your dreams. With over $1 billion in fresh seed capital in the very early stage market, what are you waiting for?
The True Story
June 26, 2009
Connie Loizos at PE Hub dropped by the Pier yesterday to chat with Jon about the True investment strategy.
GigaOm Pro Launches
May 29, 2009
Yesterday GigaOm boldly launched GigaOm Pro. As detailed in his introductory post, Om has long envisioned this step as an essential piece in the evolution of the business & technology media landscape. Blogs have proven to be incredibly powerful in breaking news and stimulating conversation around a topic from thousands of thoughtful perspectives (Katrina, Mumbai, Sully’s Flight). In this manner, blogs have changed the media landscape forever.
But in our assessment, the potential of blog-based media is still in it’s infancy, and there remains tremendous opportunity for new media companies to go deeper on topics, create longer form, more in-depth discussions of important trends, and follow stories over time (much in the way that traditional journalism has famously done in news papers . . .think the Washington Post’s coverage of Watergate over multiple stories and months of doggedly pursuing a thesis, or their more recent series on Walter Reed Hospital – both examples top of mind as they were so eloquently discussed this past week at D7 by Katharine Weymouth and Arianna Huffington). Instead of just breaking the news, the best of traditional journalism has often change our world in long form and over a series of stories.
New media has this potential, but to succeed it will require combining all of the hustle and speed of today’s bloggers with new product attributes. Longer-form journalism online requires different packaging, an analytical perspective, significantly different form, and the fostering of a community engaged over the duration of a story or trend’s analysis. Most importantly, in order to produce and enable this type of discussion, new media companies must possess a culture that believes in journalism first, page views last.
We’re surely biased, but we believe GigaOm is incredibly well positioned for this opportunity. The company has successfully built and scaled a network of sites in our industry’s most significant sectors. The talent on the editorial team has broken important stories, established a credible voice in our ecosystem, and consistently produces fantastic analysis. Most importantly, GigaOm has been built on an ethos of journalistic integrity. For everyone who knows and reads Om and his team, it’s overwhelmingly clear that they are first and foremost journalists (and very good ones).
But there is more to do. A longer, more thoughtful conversation is waiting to be had, and GigaOm has just started it.
We’re excited to see Om and Paul evolve the media landscape with GigaOm Pro. Congratulations to the entire team on a really well executed product launch, and congratulations on so boldly evolving our industry.
Congrats Josh and First Round
May 26, 2009
Great Businessweek article on Josh Kopelman and the new early stage market. Congrats, Josh and team, on a really terrific piece. The article does a great job of showing the raw energy and activity occurring today in what we call the “Very Early” market. At True, we have just had the most active nine months in our history with respect to new investments. Our companies are launching faster than ever and generating more revenue sooner. We are seeing better and better talent starting companies. The downturn is creating disruption and dislocation across the tech landscape, and only the creative and bold investors like Josh, ourselves, and a some others (see below) are poised to capitalize on it. It is an exciting time!
It is also wonderful to see that the mainstream media is beginning to pick up on the disruption and innovation occurring in the venture business. Many of us started our firms back in 2005-2006, and we recognized that there were challenges and opportunities to the traditional early stage venture model. The combination of growing fund and firm sizes was leaving Sand Hill Road ill-equipped to and uninterested in investing in the beginning phases of startups like Meebo, Automattic, Facebook, Twitter, and others. A band of smaller funds filled this gap, which appears to be widening as Moore’s law begins to invade every corner of the tech world which results in dramatically lower startup costs.
The Very Early stage market is vibrant these days. In addition to those mentioned in the BusinessWeek piece, our friends at Alsop-Louie, Jeff Clavier, Brad and the Foundry crew, Naval at Hitforge, the Founders Fund, OATV, Greycroft, and USV in NY are all busy building firms in this segment. This is exciting, because these are incredibly talented entrepreneurs and investors who are working tirelessly to create more choice for entrepreneurs and foster creativity and innovation.
Congrats, Josh, on a really great article, and thank you BusinessWeek for shedding light on the entrepreneurs and the ecosystem that are so vital to the future to the US economy.
Walking The Walk
May 1, 2009
Bernard Lunn of Read Write Web interviewed True’s Phil Black to initiate his weekly series of interviews with venture capitalists. He wrote, “We chose True Ventures to kick off the series because it closed a Series A deal for Syncplicity in the dark days of October 2008, earning it a spot on our A-Team. When it closed a second Series A with LoopFuse in February 2009, it joined a very small contingent of VCs that have done two Series A deals since the financial meltdown.”
Today, Bernard posted an article on the current state of early-stage investing in the midst of this economic downturn. He lists VC “Double Hitters,” 11 firms that have done two or more Series A deals since October of 2008. True has invested in five Series A deals since October 2008. As Jon Callaghan said in an earlier blog post, “we remain open for business and are investing actively right now because we believe that true innovation takes years to develop, and now is an excellent time to build a company.”
Listen to Reid Hoffman: Let Our Startups Bail Us Out
March 3, 2009
We couldn’t agree more with Reid’s analysis and recommendation on Washingtonpost.com. We’re glad to see one of the brightest minds in the Super Angel/Founder market space leading in this debate.
Lots of text spilled last week among VCs and Thomas Friedman about his proposal for government-sponsored entrepreneurship. Details aside, let’s face it: Q1 funding numbers look even worse than Q4, according to PEHub, and from where we sit, Reid is right that investment dollars are basically not flowing into early stage innovation at the time when it’s needed most. At True, we would rather see the Obama adminstration spend time creating the industries of the next industrial revolution versus propping up industries of the last industrial revolution. As previously posted, this is an issue of national significance.
We remain open for business and are investing actively right now because we believe that true innovation takes years to develop, and now is an excellent time to build a company. Great talent is available, input costs are low, but most importantly the noise has been silenced in a number of very important, large markets, so entrepreneurs have time. We put our money with small teams of exceptional people that see the world as it can be and strive to create. In our world, a small smart team can build tremendous value with small amounts of capital (particularly in a time like this).
Let’s hope more of the Valley can join this discussion and convince Washington to enact some sensible steps (such as those proposed by Reid) to put government dollars and attention where it could have the biggest, longest lasting impact: in the hands of our most talented entrepreneurs.
Thank you Bart Schachter
February 26, 2009
Wonderful post by Bart Schachter over on PEHub on the continuing Thomas Friedman & VC saga. For the record, we’re squarely in Friedman’s (and Bart’s) camp.
The world needs more support for entrepreneurs and innovators, not less.
Well done Bart.
Lately:
RSS FeedArchives:
- March 2010
- February 2010
- January 2010
- December 2009
- November 2009
- October 2009
- September 2009
- August 2009
- July 2009
- June 2009
- May 2009
- April 2009
- March 2009
- February 2009
- January 2009
- December 2008
- November 2008
- October 2008
- September 2008
- August 2008
- July 2008
- June 2008
- May 2008
- April 2008
- March 2008
- February 2008
- January 2008
- December 2007
- October 2007
- September 2007
- August 2007
- July 2007
- May 2007
- April 2007
- March 2007
- February 2007
- January 2007
- December 2006
- November 2006
- October 2006
- September 2006
- August 2006
- July 2006
- June 2006