On a recent visit to NYC, David Lee, an angel investor at SV Angel in Silicon Valley, spoke with NYC-based InSITE (http://insiteny.org) about investing and developing a startup ecosystem in New York. The conversation touched on four key themes:
1. When investing, cast a wider net.
SV Angel follows a portfolio approach, placing many small bets ($20-200K) primarily in consumer technology. Casting a wider net across a focused sector enhances your chances that you’ll be involved in whichever great idea next catches fire. Because trying to pick the next huge success at the seed stage is very hard, they focus on the entrepreneur first when evaluating an opportunity. However, investing widely doesn’t mean that one can’t invest intelligently. SV Angel sees 3-4 new opportunities daily and invests in 1 out of 30.
2. Raising a small fund to act as a ‘Super-angel’ gives you more options to develop a great startup community.
As a VC, you can be constrained by your Limited Partners (LPs) and their investment goals. When you’re managing a fund with institutional investors, you can’t follow your instincts on each deal (for instance, investing far more than your typical limit), as it could wreak havoc on investors’ overall portfolios. Being an angel mitigates this agency problem and lets you pursue opportunities as they arise while keeping in mind the ultimate goal of producing outsized returns. On the other hand, being an angel investor and doing everything in your power to help your investments succeed can be demanding. It’s worth it only if you have a passion for entrepreneurs and the community.
3. The Next Big Thing Silicon Valley is focused on: Real-time + Mobile
This real-time/social world is converging with the mobile market. Whether by coincidence or design, David said that the best I/O device to create, share and consume this new type of “social, real-time” data is the mobile or edge device. Most people in the world now have a mobile device — there are over 5B active mobile subscriptions, and 1B mobile data subscriptions. Many people are using their mobile device as their main conduit to the digital world, and are creating and sharing real-time content. This convergence is just beginning, and is the major life-changing technology trend to watch.
4. Find the companies that matter. Then do everything you can to help them succeed.
Marc Andreessen says that in any business cycle, there are only 10-15 tech companies that matter. SV Angel tries to invest in those companies, though they’re an infinitesimal share of all startups and it’s impossible to tell in advance which companies will eventually “matter”. To invest in potential tech franchises like Twitter and Foursquare, SV Angel tries to add value immediately and aggressively, working full-out even if they’ve invested a small amount, or nothing at all. They’ll do anything for the founder that helps the team grow, from advising on financings to dry cleaning. Entrepreneurs always remember the value you’ve added in the next round of funding.
Tech entrepreneurs talk more than any other industry professionals, and the ecosystem always knows when you’ve created value for great people. Even if a company headed by amazing founders fails, they will have gathered the best people available, and their future projects are likely to succeed.