Gate is actually the basis of the Vaux Logo
Despite focusing most of my writing efforts on my blog, and keeping up with the world via my twitter the year-end letter to Vaux angels is a tradition well worth continuing. I’ve cribbed the best of it here…
Discover. Develop. Deliver.
These three words are scrawled across everything I do for Vaux. They are three parts of my personal mission to success as entrepreneur and angel investor, which I had the honor of mapping out in a 2012 white paper for the Family Office Association “Angel Investing for the Family Office” . I took a hard look at the process of building a foundation on the long journey from inception to exit, and nowadays I plan my week based on these categories. I color code each meeting in my outlook. They might as well be scrawled on my bathroom mirror in lipstick. They are the cycle of life for Vaux les Ventures and the angels that have supported these endeavors for nearly 10 years. Here’s what these simple words mean to me:
Discover is about being very focused on what you can do well, and what markets will have an impact that can generate angel returns. Big market trends that people don’t yet see, or are unwilling to accept. Trends that will obviously converge, but no one knows exactly when. It means being early and brave, but it also means being patient to find the right mix that can sustain the long march. This is where the DNA of the business is set: habits formed early are virtually impossible to break. Many people in the business call this “deal flow”, and I did too for a while but I soured on the term as too many IB ‘s and VC’s (both of which I have been) over-use it. Having a well know criteria for how to invest and who to invest with seems to do very well in attracting the right types of people. So does being a good guy. But it’s about discovery as much as it is about network. And that discovery includes markets and their real problems as well as solutions and the best team to build them.
A recent example of this would be my work on WellAware, the mobile health solution. I’m as committed as ever to the trend of mobile devices having profound affect on health and wellness. And I truly believe that very simple data can have tremendous impact on lives. The Wellaware team did a tremendous job developing the platform for this theory to play out, but certainly overshot the MVP standard. What we need in 2013 is more cycles with large user bases to refine our solution, likely in the mobile environment.
Develop is where the entrepreneur (in anyone!) takes over: translating a vision for a product solution into a product itself, and testing it with users to see if the darn thing works. It takes tremendous amounts of courage, persistence and luck. Some attempts are ridiculously off the mark. Ironically, more often there are overshots than undershots when going for the minimally viable product. And users are rarely the viral dream everyone hopes for- more like a block-by-block struggle to get to a vantage point where people notice you. But more than product and users, the team is the big part of the develop picture. Entrepreneurs have a passion for building things are not always Schwartkoffs when it comes to leading people. And that is where the coaching and mentoring foundation is laid. Capital begins to show up at this point, as we have baked enough of the risk out of the opportunity for larger sources of capital to begin to show interest. That too is a major challenge in this phase, and if you grow fast enough, it never ends.
[Major edits here from the angel letter. Sorry, that's not public.]
The poster child for the develop phase is certainly TrustCloud, which just 9 months ago had product solution in search of a problem, no user base, and a team that had already endured a few pivots. Such are the risks of being early! But the saving grace was each of the founders used the sharing economy and saw what it could deliver, as well as its limitations. Something had to give, we thought.
And 2012 was full of such breaks, as TrustCloud found its core team, delivered a product and began building users at an impressive clip (10x from July to December) after the Wall Street Journal picked us up. Check out the product here, or the very impressive Facebook TrustCloud user group (which tracks bugs and promotes the product passionately). The Company rolls into the New Year with a new Peer Protect insurance product to couple with it’s ever growing number of sharing networks. Kudos to the indefatigable and imminently coachable CEO Xin Chung, who details the year here:
I shared keys to my NYC apartment on Airbnb, rides through San Francisco in a Sidecar, and my workload with TaskRabbits. I’m not alone– people worldwide are sharing more than ever with millions of room-nights booked, cars rented, and dogs walked by reputable strangers. The movement is called The Sharing Economy, Collaborative Consumption, or as Mary Meeker calls it, living Asset Light. (this is a great read! Don’t miss it!)
Flush with VC funding, the movement scaled fast in 2012– but not without growing pains: A quick look at recent sharing history would give anyone pause before sharing with a stranger. Home sharing market leader Airbnb had a redux of its 2011 EJ incident with the so-called airbed & brothel snafu where a Swedish apartment was literally pimped-out. Carsharing had it’s own collisions with the luxury carsharing service HiGear shutting down due to thefts, car sharer RelayRides’ liability issues with a fatality crash, and regulatory fines for on-demand ride-sharers.
These events highlighted that trust between strangers in peer-to-peer marketplaces must keep pace with their own rapid growth. In the offline world, hotels have long adopted star ratings, rental cars are licensed and insured by brands spend billions to give consumers confidence to buy. Since online, peer to-peer marketplaces powered by micro-entrepreneurs don’t have time to brand themselves or vet strangers, they are much less efficient as buyers and sellers waste time sizing each other up, figuring out a schedule and even haggling over price before committing. Trust can make these transactions much faster, and insuring the risk is something we look forward to. Read more at TrustCloud’s Blog.
Deliver is where all the hard work pays off. That would seem like a triumphant moment, and I’ll allow myself a few. But as I have matured it has become a little more bittersweet. Here are companies we have built from scratch, communities that started with a handful of people, angel capital that came in for under $1M pre money. And despite some intermittent liquidity opportunities, in some cases these companies have futures that remain bright(er). We have seen large that we turned down; we may see 2x-3x-4x from here (or of course, we may not). So parting with some or all of the ownership isn’t as easy as “see ya later”. It’s an asset, with a value that has to be managed detachment that is at arms’ length, hard as that may be. We also live in a world of high risk, so those precious few windows of liquidity opportunity have to be considered when they are open.
[More major edits here from the angel letter. Sorry, that's not public.]
In summary, I guess I feel every venture I have been involved with has contributed to the next. Things I have learned about the Discover phase have allowed for better Develop results. Those few short peeks at liquidity in Deliver have been viewed with a paradigm that allows the whole group to consider individualized risk and reward before deciding on liquidity. And of course, the success through the process has allowed us the opportunity to feed the beast, return to what we do best, and further diversify with another opportunity.
I am extremely grateful for the opportunity to work in the field that I do, side by side with talented entrepreneurs, backed by caring and value adding angels that ask good questions and have the patience to help realize the vision I had almost ten years ago. We’ll see great opportunities in each of the three key Phases in 2013. Drop me a line and we’ll discuss which ones best fit your criteria in the days ahead.
All my best in the New Year,