20 VC 069 Jeff Clavier, King of Seed Funding @ SoftTech VC on Brad Feld, Fitbit and Standout Startups

Summary Notes


In episode 69 of the "20 minutes VC," host Harry Stebbings interviews Jeff Clavier, the founder and managing partner of SoftTech VC, a prominent seed VC firm in Silicon Valley. Clavier discusses his journey from a startup founder in France to a venture capitalist in Silicon Valley, highlighting the early-stage funding gap he observed, which led to the creation of SoftTech VC. Clavier shares insights on SoftTech's investment strategy, focusing on mobile, cloud, SaaS, consumer hardware, marketplaces, and healthcare, and emphasizes the importance of capital efficiency, particularly in his early investment in Fitbit. He also provides advice for startups seeking VC attention, stressing the significance of targeted investor outreach and leveraging strong introductions. Clavier reflects on the changing landscape of VC investments, the challenges of raising funds for hardware startups, and the future potential of wireless power charging technology.

Summary Notes

Introduction to Jeff Clavier and SoftTech VC

  • Jeff Clavier is the founder and managing partner of SoftTech VC, a prominent seed VC firm in Silicon Valley.
  • SoftTech VC has made 150 investments since 2004, focusing on early-stage companies.
  • Portfolio includes successful startups like Mint (acquired by Intuit), Brightroll and Milo (acquired by eBay), and others with acquisitions by major tech companies.
  • SoftTech VC is investing out of its $85 million fund four, with an average commitment of $850,000 in various sectors.

"Jeff is the founder and managing partner of Soft Tech VC, one of the most established seed VC firms in Silicon Valley. Having closed a 150 investments since 2004, he's an early angel investor in Web 20."

This quote describes Jeff Clavier's role and the achievements of SoftTech VC, emphasizing the breadth and success of their investment portfolio.

Jeff Clavier's Background and Entry into VC

  • Jeff Clavier is originally from France and began his career with a startup in the financial services industry.
  • His startup was acquired by Reuters after five years.
  • Moved to Silicon Valley in 2000 and joined Reuters Greenhouse Fund as a partner.
  • Identified a funding gap in the market for early-stage startups seeking smaller investments.
  • Founded SoftTech VC to focus on early-stage investments, filling the identified funding gap.

"I moved to the valley in 2000 to become a venture capitalist and I was a partner at the Reuters Greenhouse Fund, which was the corporate BC arm of Reuters."

This quote provides insight into Jeff Clavier's transition from entrepreneur to venture capitalist and his early role in the industry.

The Success of Fitbit and Early Investment Insights

  • Fitbit investment was made in 2008, during a time when hardware was generally avoided by VCs.
  • Jeff Clavier applied capital efficiency strategies from software to hardware, leading to the investment in Fitbit.
  • Fitbit's concept of a connected pedometer resonated with Jeff, despite skepticism from other investors.
  • The public's positive reaction to Fitbit at TechCrunch 40 confirmed the potential of the product.
  • Despite Fitbit's eventual success, each financing round was challenging, highlighting the initial resistance to hardware investments.

"And I had a hunch or question as to whether it would work for hardware companies. And I said, let's see whether it's feasible to build a hardware company on the cheap on a capital efficient basis."

This quote reflects Jeff Clavier's innovative approach to investing in hardware startups, which was unconventional at the time but ultimately successful with Fitbit.

"I had to beg Bradfeld to invest in the series A saving Fitbit, because without that investment from Brad, they would be dead."

This quote underscores the critical role that early investments played in Fitbit's survival and success, highlighting the importance of conviction and support from key investors.

Early Fundraising Challenges for Fitbit

  • Series B and C fundraising for Fitbit were difficult despite the company's impressive trajectory.
  • The market was not receptive to funding Fitbit at that stage.

"The series B or the series C were not easy, despite how remarkable the company is and how great their trajectory has been."

This quote highlights the challenges Fitbit faced in securing later-stage funding, even though the company was performing well.

Relationship and Credibility with Brad

  • Jeff Clavier and Brad were blogging buddies and co-invested as angels.
  • They shared both successful investments and misses, building mutual credibility.
  • Brad supported Jeff when he raised his second fund, which was one of the first micro VC funds in 2007.
  • This fund, which was relatively small at $15 million, invested in Fitbit and other early winners like Mint.

"So I had known Brad for a while... I had sort of built a bit of credibility with him... he was actually one of my great supporters when I raised fund two."

The quote explains the history and credibility Jeff had with Brad, which was foundational in convincing Brad to reconsider investing in Fitbit.

Convincing Brad to Reconsider Fitbit

  • Jeff used his credibility to urge Brad to take a fresh look at Fitbit.
  • Brad had previously passed on Fitbit but agreed to reassess after Jeff's persuasive email.
  • Jeff's email highlighted the early signs of Fitbit's potential success.

"And so I went back to him and I wrote him an email, sort of saying, if I have any credibility with you guys, please read this email. And those are the few reasons why I believe that Fitbit is going to be a massive company."

This quote demonstrates Jeff's approach to leveraging his relationship and credibility to persuade Brad to re-evaluate Fitbit as an investment opportunity.

Brad's Contribution and Recognition

  • Jeff respects Brad for his willingness to reconsider his initial opinion on Fitbit.
  • Brad's board service at Fitbit was instrumental in creating a successful company.
  • Jeff values the professional success and profits generated for investors over personal gifts.

"But what I respect Brad for is that despite the fact that he had already made a decision and formed an opinion on Fitbit, he accepted that he might have been wrong."

Jeff appreciates Brad's openness to revisiting his decision on Fitbit, which reflects a valuable trait in venture capital—flexibility in judgment.

Impact on Jeff's Funds

  • Brad's firm led a $9 million Series A in Fitbit after thorough due diligence.
  • Jeff's fund participated in this round and bought more shares through another fund.
  • Fitbit became a significant winner for both of Jeff's funds.

"They led a $9 million series A that we participated into, and we actually bought more shares of Fitbit from our other fund, fund three, which we had raised by then, which means that Fitbit is a mega winner for both our funds, fund two and fund three."

The quote details the successful investment outcome for Jeff's funds, emphasizing the importance of the Series A round led by Brad's firm.

Cutting Through the Clutter for VC Attention

  • Startups need to identify the most likely investors based on various factors such as company type, location, and market.
  • Jeff advises startups to research and reach out to the right VCs.
  • He describes SoftTech's investment focus, including B2B SaaS, marketplaces, and connected devices.

"So to get to us, first and foremost, and this is true for any vc, you want to understand, based on the type of company that you're building, the location of the company, the market that you're in, which are the five or ten most likely investors that you should be reaching out to."

This quote advises startups on how to navigate the crowded VC landscape by targeting the most appropriate investors for their specific business model and market sector.

Introduction to Core Markets and Investment Strategy

  • Jeff Clavier discusses the focus areas for investment which include industrial IoT, education tech, and consumer healthcare.
  • Emphasizes the importance of a strong introduction for startups seeking investment due to high competition and limited investment opportunities.
  • A personal recommendation from a trusted source can significantly increase a startup's chances of getting an investment meeting.

We're looking now at industrial IoT, for example, Internet of things. And then we have a few sort of sectors that we like a lot like education, tech and consumer healthcare.

This quote outlines the core markets that Jeff Clavier's firm is interested in, which are industrial IoT, education tech, and consumer healthcare.

So if your company sort of is part of those markets that I just mentioned, the next step that you want to go for is identify a connection, someone who basically knows you and can vouch for you with us.

Jeff Clavier advises startups to find a mutual connection that can introduce them to the investment firm, highlighting the importance of networking and personal recommendations in the investment process.

The Importance of Introductions and Network

  • Jeff Clavier explains the high volume of companies they review annually and the small number they invest in.
  • Introductions through a trusted source are crucial and provide a strong signal of credibility.
  • Startups without a personal introduction may struggle to get attention due to the prioritization of referred deals.

We get to see about 3000 or more companies per year and we only invest in 15.

This quote emphasizes the selectivity of the investment process and the importance of standing out among a large number of companies.

Like, for example, if one of my ceos says, those are two entrepreneurs I've worked with in the past, they're awesome, you absolutely want to meet with them. They will get in the calendar with extreme priority in the next couple of days.

Jeff Clavier illustrates the impact of a strong referral, particularly from CEOs within his network, on the likelihood of securing a priority meeting.

Seed Round Strategy and Runway Considerations

  • Jeff Clavier discusses his approach to seed funding, advocating for larger rounds to ensure an 18-month runway.
  • The aim is to allow startups enough time to develop their product, gain traction, and meet series A funding criteria.
  • Sector-specific requirements, such as hardware, may necessitate even larger seed rounds.

We've always sort of looked at an average of 18 months Runway as what it takes for a company to take the seed round, hire a few engineers, get the product to market, start building traction, do a few revisions of the product, and then hit some kind of a growth path that will sort of get it to clear series A hurdles.

Jeff Clavier explains the rationale behind the recommended 18-month runway, detailing the typical journey from seed round to series A funding.

And so we just want to make sure that our companies have the Runway to actually iterate and then clear the hurdles that series investors have in b, two b, in consumer and marketplaces.

This quote highlights the strategic reasoning for ensuring startups have sufficient funds to overcome various challenges and reach growth milestones that appeal to series A investors.

Role in Fundraising and Company Development

  • Jeff Clavier clarifies his role in supporting startups during fundraising.
  • His firm takes an active role in helping with various aspects of company development, including strategy and hiring.
  • Preparation for series A funding begins six months ahead of fundraising, involving building relationships with potential investors.
  • One-third of their companies receive preemptive funding offers due to the cultivated relationships with VCs.

And yes, we sort of do this sort of homework, which I mentioned that people have to do before they go and raise the seed round. We do it with them.

Jeff Clavier emphasizes the active involvement of his firm in preparing startups for the seed round, working alongside them to ensure they are ready for the fundraising process.

About a third of our companies actually don't go and raise around the round, just comes to them in the form of a preemption.

This quote reveals that a significant portion of the startups they work with receive preemptive investment offers, showcasing the effectiveness of their proactive approach to investor relations.

Investment Strategies and VC Preferences

  • Jeff Clavier discusses the importance of having a clear market map and understanding the investment history of firms.
  • Specific VC firms specialize in different sectors such as marketplaces, SaaS, consumer companies, and hardware.
  • The difficulty of raising early-stage capital for hardware companies is highlighted with the example of Fitbit.
  • Jeff Clavier expresses regret from VCs who passed on early investment opportunities with Fitbit, which now has a substantial public market valuation.
  • The efficient use of equity capital by Fitbit is praised, as well as its potential future growth as a publicly traded company.

"But it really depends where you need to take into account the other investments that firms have made, because typically most investors will refuse to make competing or overlapping investments."

This quote explains the necessity for venture capitalists to consider potential conflicts of interest with existing investments before engaging with new companies.

"Like a good example with hardware, you have just a handful of vcs who will be comfortable sort of taking an early stage risk with hardware companies at Series A and Series B's."

Jeff Clavier points out the limited number of VCs willing to take risks on hardware companies during early funding rounds, emphasizing the specialization and risk appetite among investors.

"And now they look at this $10 billion public market valuation and go, what the hell have I done?"

Reflecting on VCs' missed opportunities, this quote reveals the hindsight regret of not investing in Fitbit, which achieved a significant valuation.

Personal Insights and Advice

  • Jeff Clavier shares his favorite book, "Dune," which influenced his perspective on the world and innovation.
  • He advises entrepreneurs to pursue startups they are passionate about, as the journey is challenging.
  • The best aspect of being a VC for Jeff is the opportunity to see the future through the ideas of entrepreneurs.
  • Jeff Clavier recently invested in a wireless power charging company, attracted by the innovative technology developed at MIT.

"June? Because that's what sort of got me looking at the world through sort of different lenses and got me interested in innovation."

The book "Dune" is cited as a personal favorite for its impact on Jeff Clavier's worldview and interest in innovation.

"Only go for a startup that you're truly passionate about because so hard that doing a startup because it's cool or because you see your friends sort of doing it is the wrong motivation."

This advice emphasizes the importance of genuine passion in pursuing a startup, highlighting that superficial reasons are inadequate for the inherent difficulties of entrepreneurship.

"I get to see the world or the future through the lenses of entrepreneurs who sometimes have really crazy ideas."

Jeff Clavier enjoys the visionary aspect of his role as a VC, evaluating the potential of groundbreaking ideas from entrepreneurs.

"So those two guys out of MIT have invented using a technology which has been refined at a lab at MIT, where in three years from now, you'll have a device."

This investment decision was motivated by the innovative wireless power charging technology developed at MIT, showcasing Jeff Clavier's investment in forward-thinking technology.

Podcast Promotion and Support

  • Harry Stebbings promotes the blog associated with the podcast, where listeners can find resources mentioned in the interview.
  • He also endorses Hiring Screen, a company that helps create attractive careers pages for businesses, and offers his personal assistance to potential customers.

"And as always, you can find all the items and resources mentioned in today's show on the blog at Ww dot the twentyminutevc.com."

Harry Stebbings provides listeners with a resource to further explore the content discussed in the podcast.

"So give your company the careers page it deserves, with your logo and job descriptions being powered by the smartest and fastest algorithms in the business."

The promotion for Hiring Screen emphasizes the importance of a professional and appealing careers page for attracting top talent to a company.

"And if you have any questions, I'd be happy to help in any way. So drop me an email at Harry at the 20 minutes@vc.com."

Harry Stebbings offers personal support to his audience, encouraging engagement and providing a direct line of communication for assistance.

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