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Seed Capital From Angel Investors: Jason Stoffer, Principal at Maveron (Part 5)

Posted on Sunday, Jan 23rd 2011

By guest authors Irina Patterson and Candice Arnold

Irina: What are the usual exit strategies with your portfolio companies?

Jason: Acquisition or IPO. It’s no different from others. We do our best to understand who the strategics are and get to know them within the sectors we invest in.

Irina: Do you have an idea when you want to exit?

Jason: Like most venture funds, we have a 10-year fund life and a five-year new investment period. So, we’re very clear with entrepreneurs that we want to make sure that we’re aligned from the get-go, that the liquidity time horizon, ideally, would be eight years or fewer. We understand that sometimes it extends beyond that, but we want to make sure the entrepreneur understands our limited partner’s needs from a liquidity standpoint, and we try to be aligned going in.

Irina: Is there any number you have in mind, such as 10x over five years?

Jason: We always want 10x over five years, but there’s a sliding scale. When there’s a business that has $30 million in revenue, return expectations clearly are lower than for something that’s a PowerPoint because you have to take into account the commensurate risk.

Irina: Do you see anything in the venture capital world that can be improved?

Jason: I don’t think I can add much that hasn’t been said already. What’s most important to us is great entrepreneurs. Capital efficiency is critical. Investing $20 million in a company where the economics don’t work is not something that Maveron as a firm is interested in doing.

It’s still an industry where the median return’s in the red and where there’s too much capital chasing too few great entrepreneurs. I don’t think there’s a lack of ideas. I think what’s always been the barrier to having more companies with great exits is more great entrepreneurs. So, our focus is on developing relationships with great entrepreneurs and helping them to achieve their dreams.

Irina: You said earlier that sometimes you proactively find entrepreneurs. Where do you look for them?

Jason: We’ll ask all of our existing portfolio company CEOs who are three people we should meet, and invite them to a cocktail party. We’re constantly out there, whether it’s at conferences, networking events, and so on.

When a company goes public, I’ll reach out directly to the executives on the proxy statement and get to know them. A lot of times, people, once there’s a liquidity event, want to get out of there. I think there are a lot of strategies for finding great entrepreneurs.

It’s an investment in time and an investment in people, especially when there’s not an investment directly attached to them, that I’m looking to make.

Irina: What do you think entrepreneurs can do better?

Jason: There’s so much stuff out there in terms of, What should a venture pitch deck look like? How do you structure an early stage company? What should the legal documents look like? Everything’s out there for you now.

Entrepreneurship, especially when someone seeks to get venture returns, is hardly rational. You’re backing a team of two to five people early, under the dream that they’ll become a $1 billion company.

You have to have a certain mindset to be able to dream big and then execute the day to day. The other big difference is, a lot of times within the confines of a big company, you do one thing really well. An entrepreneur needs to be a jack-of-all-trades, do a lot of things well enough, and also have the ability to make lots of decisions quickly and pivot, as opposed to getting caught within any one decision.

Irina: What are your personal day-to-day challenges?

Jason: The major things that I focus on are doing everything I can to help our entrepreneurs to create equity value for their companies and build enduring businesses. I think that’s the first bucket.

The second bucket is focusing on increasing the breadth and depth of Maveron’s ecosystem within our targeted sectors, so meeting and building relationships with great people within Web-enabled consumer services, education, and wellness.

The third bucket is finding great new entrepreneurs to bag. All three of those are challenging. It’s what I work at getting better at week after week and year after year.

This segment is part 5 in the series : Seed Capital From Angel Investors: Jason Stoffer, Principal at Maveron
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