This week, InSITE fellows met with David Lee in our third Leadership Breakfast of the year. David is an angel investor at SV Angel, which focuses on early-stage consumer media companies. He founded SV Angel in 2009 along with Ron Conway, “the man who has placed more bets on Internet start-ups than anyone else in Silicon Valley.” David is a founding InSITE fellow — he joined InSITE in 1999, our first year in existence.
Our conversation touched on four main themes –
1. SV Angel’s investment philosophy:
David Lee and Ron Conway follow a portfolio approach, placing many small bets ($20-200K) primarily in consumer technology – broadly defined to include the consumer internet and mobile apps and services. 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 primarily 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. It manages its portfolio by only getting involved at inflection points and only when the entrepreneur asks: key financings, bus dev deals, M&A, etc. And by working with as many of the best people as possible, SV Angel is also helping build the entrepreneurship ecosystem, which benefits the entire industry and spurs innovation.
2. Why invest as an Angel?
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.
However, being an angel investor and doing everything in your power to help your investments succeed can be a very demanding job. Many other jobs pay better. You shouldn’t do this unless you love it more than anything. What’s the attraction for SV Angel? As Ron says, “When you talk to young passionate entrepreneurs, they are telling you the future.”
3. What is the Next Big Thing that entrepreneurs are talking about?
The social/real-time web is still in its infancy, yet the companies spearheading it are incredible: Facebook, Groupon, and Zynga all record thefastest growth in the history of corporations. These companies are changing the way we do everything. They are even massively disruptive to the previous generation of online successes. Twitter, for example, can block Google from indexing it with just a line of code (although they currently have a commercial deal in place).
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. How do you become an investor in the best companies with so much competition?
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 advise doing anything for the founder that helps the team grow, from advising on financings and other key events to dry cleaning. Entrepreneurs always remember the value you’ve added in the next round of funding.
Working with the most passionate, capable, and intelligent people is always incredibly valuable, even if the particular company fails.
Tech entrepreneurs talk more than any other industry professionals, and the ecosystem always knows when you’ve created value for great people. Moreover, the best people attract others like them. Even if a company headed by amazing founders fails, they will have gathered the best people available, and their future projects are far more likely to succeed than the average entrepreneur’s.
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Thank you, David, for joining us and sharing your ideas and philosophy.
I hope that current fellows can follow in David’s footsteps and do for NYC what he’s helped accomplish in Silicon Valley — create a supportive, innovative, and globally disruptive environment in which entrepreneurs can build the future.
Ben Zhuk, InSITE Senior Fellow, Columbia MBA 2011