Heidi Roizen (Threshold Ventures): On average our investment period is somewhere around 6-7 years. It’s longer than the average marriage in the United States. Take your VCs very carefully
26 Oct, 2020
Keith Teare is US Partner at Accelerated Digital Ventures. He is serial entrepreneur over the last three decades (RealNames, EasyNet and TechCrunch). Spent more than 20 years in Silicon Valley building companies and angel investing. Keith is experienced in helping European companies prepare for US expansion and approaching top tier US VC firms. He helps our portfolio companies think about their unit of value; their narrative; and their follow-on fundraising plans.
The truth is I got too old to do startups. The startup ecosystem is pretty ageist, and when you get to the age of 60 and you walk to a VC and say, “I’ve got this great idea,” the chances of you walking out with the check are very low. They assume that your company is going to take 10, maybe 15. years, and you’ll be 75 by then, and you may even not survive. Around 2010 I realised that I needed to think about different ways of engaging. I started a little thing here, in Palo Alto, – Archimedes Labs – and made some investments. The purpose of that was to reinvent myself as an investor instead of entrepreneur. And that was where the journey began, so it was basically how do I stay engaged with the startup ecosystem as I age.
Well you know I’m very-very biased in there. I really like startups that are tackling very big problems only. I get bored very quickly and have no patience for something you would think of as a business in the present. If somebody is the kind of person really focused on sales and tactically trying to grow revenue, selling to businesses – it may be a perfectly good business, but I would be bored by it, I wouldn’t be interested. I am really bias towards big ideas, game changing ideas, some transformative things, that are possible to do in the present. It’s got to be both big and practical. I start with that filter. And then the second filter is really about the people: are the people, who have this big idea, the kind of people who are going to stick with it when it gets difficult. Because it will always get difficult. That’s, probably, my two biggest criteria.
Well, it’s interesting. In some ways, I’m interested in everything, but my approach is not driven by a sector. You say, I’m interested in HealthTech others may say, that I’m interested in DeepTech. The way I approach it is much more structural. If you look at my career, in the 1980s I was interested in data, and collaboration, and networks. I lived in the UK then, and at that time there was no ethernet yet, and most databases were single user database run on dBase protocol, which could be used only by one user. There was no collaboration in data and no network, and I was obsessed with collaboration and data network. That lasted me through most of the 1990s as well. By 1993 those interesting networks and collaboration became an interest in the internet. And in 94 I started the first European consumer facing internet service provider – Easynet. That was really very similar interests as the first one, but now the platform was global. It wasn’t a company, but it was the world and people. If we jump forward to the late 90s, I became interested in internet web services, APIs and functionality you could deliver through the cloud. By around 2010, I only was interested in mobile, mobile only software, in particular. The segments are kind of verticals, and I’m really interested in the horizontals. I could be interested in almost any vertical if it is speaking to this horizontal transformation. Today I’m very interested in decentralized architectures, not only blockchain, but any decentralized architecture. I think, the internet was built for decentralization – the way it works, with the TCP IP and the domain name system, fault tolerance of the nodes at the edge of the network, IP version 6 which lets you speak to an Xbox which is in my house behind my local addressing system, for example. More and more that connectivity between devices that are distributed and the software that is on top of is the next thing.
I don’t have a geographic boundary. I wear more than one hat, so let me just be specific. Accelerated Digital Ventures, which is the fund I am part of in the UK, only invests in the UK. Many of the companies it invests in built by founders who are not British – they came to the UK due to the rights they had as a part of the European Union treaty and they built companies there. Those companies are UK companies. But here, in Silicon Valley, where I invest personally, I don’t have any geographical boundaries. One of my Investments is in Berlin, in Germany, a company called Infarm. I’ve met them when they were presenting to a startup competition in Tokyo, Japan. I often get asked to go and judge startup competitions, and the organisers fly me around the world, put me in a hotel room, and I get to meet startups from all over the world, from everywhere. I don’t really care where they are, I do care what they’re doing and what kind of people they are.
With ADV we typically enter as second or third investor. We have on occasion been the first investor, but it’s quite unusual. ADV is driven by the specifics of the UK funding ecosystem. The UK funding ecosystem is short of money, there is not enough venture capital, just like in many parts of Europe. Companies tend to get seed funding, and then it is hard for them to find their next investor. If you’re a seed investor, there’s going to be a lot more failure, because there’s just a lack of cash. So companies, which are quite decent companies, still fail. What a TV does is we partner with all of the very best seed entry funds and angels and we have capital that can come in, when their best companies need it. We deploy, usually, the second or third round, which these days is usually still a seed round or maybe an A round, because companies tend to do multiple seed rounds now. In my personal capacity here, in the Valley, I invest time and energy much earlier, sometimes when it’s a single founder with an idea, but I don’t invest money. I invest time and effort. I work with a founder, I don’t get paid and I don’t get any stock for the work I do. I work with the founder based on a plan, that we agree, and if the plan is successful, then I get stock based on the success.
I don’t invest personally money I invest time and energy. This might seem strange, but it’s a lot more valuable than money. The most I could invest in a company, if I was investing, is, probably, $25,000 or something. That would run out very quickly. The time and effort I put in is worth hundreds of thousands of dollars improving the product, training up the team, figuring out who the best investors would be, preparing the team to be able to get to the right stage for those investors – that’s a lot of work. To give you an example: when I first met Infarm, they were surviving on EU grants. Four years later they have raised over 150 million Euros. The value of what I did is way beyond any money I could have been invested.
It has to be a believable transformative idea, that is practical now. I use this metaphor of an unborn child. If you think of a pregnancy, most of it somebody doesn’t know that there is a child going to be born, but all of the things that would be required to produce a life are already growing and in existence. If you take that metaphor and apply it to startups, you can think of companies like Uber: everything Uber needed to exist, like private vehicles with drivers, IPhones or Android phones that could do billing and GPS and maps, and two-way communication between a driver and a passenger through the map – all of that already existed. All Uber had to do was to put it together and build a business around it. That’s an unborn child. Airbnb is another one. There were already people with private homes that they were prepared to rent, and all of the things required to display those homes and book them are already existed, but nobody made that business yet. I look for big ideas that are practical.
The first thing I should say is that 99% of credits for that go to Michael Arrington, who is the operating founder. He build that business from 2005 – from an idea. And the idea came out of a collaboration he and I were doing, when I was working at Archimedes Labs. Mike’s background was a lawyer in the tech business, so he was quite technical, but he wasn’t a technologist. In the 2005 Web 2.0 was a new idea, it basically ment software running in the cloud, providing services – supposed to portals and websites. Archimedes Labs wanted to invest in Web 2.0. Mike, in order to educate himself, started interviewing companies. He decided to publish the interviews and went and got the main and techcrunch.com to publish those interviews. Shortly after that he started publishing, he started having meetups, where the founders of those companies would come to his house and present their companies to each other. It was like lots of founders all talking to each other, Chad Hurley from YouTube was one of those, the founder of Pandora was one of those – lots of companies that became known later. What started as an educational effort turned into a meeting place and an ideas centre. Really that was all driven by Mike. When we say I was the founding shareholder that’s because initially TechCrunch was an Archimedes Labs entity, and Mike and I were partners in Archimedes Labs, and I was the majority shareholder in Archimedes Labs, therefore for a very short period of time I was de facto the majority owner of TechCrunch as well. As TechCrunch grew, it became obvious that this was Mike’s company. I always say this, but it’s worth repeating: I told him not to do it. I said, “Look, how big could it ever be? It’s just a blog and a meeting place. It’s not going to be that big, and you could do much bigger things.” And he strongly ignored me, went on and build it and five years later sold to AOL. I remained a shareholder all way around, but became a minority shareholder. So you can think of me as Mike’s mentor and business partner, but it would be wrong for me to take credit for TechCrunch.
Lots of them, actually. I think of one in particular: there was a company called Quixey, going back to 2010. Quixey was run by a guy called Tomer Kagan, who was a young Silicon Valley entrepreneur. At that time it was 3 years after the iPhone and about 1.5 years after Android; people were starting to use apps instead of the web. He came up with this idea of being able to search for applications based on what the application does, e.g., you can search for a spelling application for a 6-year old child, and it would come back with results which would say “On the iPhone this is the apps, on Android this is the apps, if you want to do it on the web, this is the web apps.” Basically, it organised all of the applications based on what they do. I was an adviser very early, when there were only two of them. They raised initially $5 million, then around $15 million, after about a year and a half they were valued about $200 million. Then Alibaba invested the evaluation of $600 million. It was a very dramatic journey. From the very first pitch I thought it was great. That one worked out quite well for me and my Archimedes Labs. By contrast, there’s another one that I also had a big response to – a company run by a Cornell University electrical engineering graduate called Idan Beck. Idan invented a digital electric guitar. It was a real guitar – with strings and electric – you could play it. But if you plug it into your computer, it became a MIDI instrument. And you could plug an iPhone into a socket on the guitar, so that became a computer, and as you play the strings, the synthesizer on the iPhone would make the sounds. From a technical point of view it was just very clever. He could manufacture these for about $200 in China – very high quality guitars – and sell them for $400. He presented it at TechCrunch Disrupt and, I think, came second. He presold about 2000 of those guitars during a Kickstarter campaign. Everything looked fantastic. He did get some initial fund, about 2 million dollars, and then he just couldn’t get any more funding and eventually it closed down. Falling in love with a concept and a founder doesn’t always mean it’s going up to work – sometimes it works, sometimes it doesn’t.
At ADV we really care a lot about teams. We want there to be a technical founder, because we think this is a technology world and, unless you have a technical co-founder, it’s really hard for you to do the things you need to do as quickly as you need to do them. We like there to be a strong business vision, so we need somebody who is thought through and can articulate, what is a company building and, if they succeed, what it will look like. Investors are investing in the future not into the present. You need someone on the team that can explain the future to you from their point of view. Many investors focus on the present. Good investors don’t, they focus on the future and they want to understand what it is you are building, and they’re not that interested in your traction. If somebody is interested in your traction, it almost always means they’re not a very good investor, because it is the thinking in the wrong way, thinking too short-term. So, technology and business vision. Then, depending on the stage of the company, it is the ability to execute whatever the business model is. Obviously, before you go to market, that’s mainly a product execution, after you go to the market it’s many sales marketing execution. You want to have an all inclusive team. When I am doing my work here, in the Valley, I don’t need a team, I really need the founder, or founders, to be credible and to have the ability to build a team, but they don’t need to have built it yet.
Neither one, both of them would be a problem on the start.
ADV has a platform approach to startup applications – a website called venturemarket.org. We have built that. It’s a software area but we collaborate with 15 other investment funds. We have startups to apply there and we review every application within 24-hours. Annually we see around 2000 applications. As a team, we break up into groups, and I might personally review about 400 applications, it is 1.5 a day, on average. We give feedback to every applicant, no matter what the feedback is – within 24-hours they get an email, that brings together feedback from at least three reviewers to tell them what we thought of their application. Some of those companies go onto funding, it is about 0.1%, which is 2 of those 2000 initial applications. Now personally here, in the Valley, I probably meet 4-5 startups a month.
I don’t scout at all. I have a very large LinkedIn followings and reasonably large Facebook and Twitter followings; the most people find me through there. I publish a newsletter called Venture Trends at the Archimedes Labs website. This newsletter has about 5000 readers weekly. Of course, they share it with people. It’s what I call “the magnet strategy,” it’s like the question of finding a needle in a haystack – the answer is a magnet. I put the magnet and the needle comes to. I’m the magnet, I make myself available – I write, I’m very public, and people reach out to me, then I filter the people who did it.
For ADV, I would say, the average is about 90 days. It can be much faster. We have two kinds of processes. The first process is qualifying the company to get a term sheet, and that’s mainly a qualitative process where we want to understand the team, the vision, the business model. We want to decide if we think that it’s capable of producing venture scale return, which means that any investment we do we want to believe that, theoretically, could return our entire fund, all £150m. If we invest £2m in a company and have less than 15% of this company, we have to believe that £2m could turn into £150m, which is 75x. Of course, that can only be possibly if this company’s business model could credibly take it to be worth about six times of that, which means over half a billion pounds in total value. They would need to have for us to get a refund back from an investment. Our preferable return on every investment is £150-200m. During our due diligence process we’re looking for an answer is could this company be worth a billion pounds within a reasonable period of time? The fund lasts for 10 years, so a company needs to be able to be worth a billion pounds in 7 to 10 years. If the company successfully gets to that due diligence, we issue a term sheet. Then the second level of due diligence starts which includes things like anti-money-laundering, know your customer, doing background check of the people, probably, legal contracts, etc. That’s the longest part, because the first part can take just 4-6 week, and the second takes the rest of the time.
There are two biggest red flags. The first one is that the idea is too small, which happens for two other reasons. Things, that are too small, are either too early or too late. Most often, too late. There are lots of entrepreneurs, who see something and come to you with the same idea, but they want to do it in a slightly different way. Usually, it’s too late, and an opportunity to be successful is already gone. The ones, that are too early, often more interesting, because a person is clearly thinking long term, but they’re just not realistic about what’s possible. In both of those cases you would lose your money. The key, really, is that the idea timing is correct and the idea is big enough. Reason number 2 is the team only capable of the idea, but you don’t believe they are capable of executing it. That’s the second reason you don’t invest. Then there’s lots of randomly other reasons – whether they are good people? Are they criminals? Are they too arrogant? We all like people who are humble, but big thinking, who understands that they will make mistakes, but are ready to learn from them quickly. There’s lots of personality stuff dealing with what makes a good founder.
I’ve got the chance to invest in PayPal very early, and I didn’t. I was also an investor in the founder of Uber, his name is Travis Callan. I was an investor in the company he did immediately before Uber. When he came to me with Uber idea, I said, “No.” It’s fine. You don’t really regret anything because if you’re doing something you enjoy and have good outcome, you don’t really deeply regret anything. But it’s definitely a mistake.
Infarm is pretty exotic. What does Infarm is it builds farming units that are digital. It’s like a growing unit that has water supply and LED lights, and you can plant without soil. You plant seeds and it grows to produce much more products than on the land, it can be many crops a year by each device. You can plug these devices together – each device is 2m by 1m – to create modular farms, that can be any scale: starting from a store, where you can put 3-5 of them to grow, say, greens, to a warehouse where there’s hundreds of those. It promises that by 2030 it will be able to feed 2 billion people, giving all of the greens they need using more than 1 million square metres of growing space. Lovely, isn’t it? That’s a big plan. Four years ago it was an idea with a prototype. Today they have over $250m of annual contract value with large supermarket chains, like Edeka, Metro, Carrefour, and others. And they are now in Canada, the United States, most of the Germany. They just made a deal with Marks and Spencer’s in London. They plan to become the biggest farming business on the planet in four years. That’s pretty exotic. And the founders are Israeli born brothers, who decided to go and live in Berlin and build the business there. So that’s pretty exotic as well.
I’d say the whole programmable DNA CRISPR business. In fact I would extend it to Life Sciences in general, because I’m not a scientist and I would make mistakes, believe a story that isn’t true and which science was wrong. But I’m fascinated by BioTech and the ability to look at cells and organisms, as if they were created and can be manipulated. It is almost like scientists can play God, literally, can look at a body as a machine and adjust it to make it better. Cybernetics, just with pure chemistry and biology. I feel the same about quantum computing. I like the promise of it because of its scale and ability, but I am just not educated and qualified to have an opinion about it.
Space exploration is more interesting, but I don’t think venture capital is the right source of financing these projects. It’s too capital-heavy and also too long term. Venture capital is good for things that can happen in 5 to 10 years. If the success period is longer than 5 to 10 years, then at least it needs to make serious progress toward a real business in 5 to 10 years. Space travel I think the timer rising is longer so it needs people like Jeff Bezos and Elon Musk, who can deploy capital at very large scale without needing a return.
Well they definitely should read venture trends (https://venturetrends.substack.com/). Talking about movies, I’m not a very serious person when it comes to movies. I enjoy entertainment films like Star Wars, Matrix and other science fiction films. I just watched the new series called Picard and I am reading Woody Allen’s biography right now, called Apropos of Nothing. Talking about blogs, it is TechCrunch for sure, because it is the best, most broad coverage, most in-depth coverage of what’s going on in the tech and investment worlds. I run a site seriouslyvc.com, where I auto publish posts from every VC blog that I subscribed to, it’s about 200 blogs. If you really want to know what’s going on in the venture world, in the startup world – that’s that. Also my newsletter is a curated list of maybe 50 stories every week from a much bigger list that is on seriouslyvc.com.
Penicillin. Cars. And aeroplanes.
I am a massive believer that the human race has an endpoint in terms of society construction. We become more and more social over time and we shrink the world. Everything we do is improving a collective ability through a division of labour. Things which allow us to stay alive and then allow us to move around are the first steps of what now includes Zoom. To me, I would draw a straight line between the car, the aeroplane and Zoom. They are all on the same continuum, making human beings able to cooperate. The second thing I believe in is that technology will drive production to be more more automated and human labour will eventually not be required. What people will do? We will do is what we call today hobbies. In other words people will still be very productive, they won’t just need to get paid for their efforts, doing things you’re enjoying doing today, The reason they won’t need to get paid is the price of almost everything will tend towards being free, as the cost of producing it tends towards being free.
I think, it’s both. As an investor, you’re forced to reflect on the changes that it will bring about. If you do not do that, then you’re not doing your job well enough. You have to reflect on the changes that it brings. This interview is a good example that we may have done the same to you before coronavirus. If you look on YouTube, you’ll see I’ve done interviews, for example, in Moscow face to face, but after coronavirus we only will do this interview on Zoom. So you have to reflect on change, whenever it is an opportunity or distraction. As Karl Marx said, it’s dialectics. Let the Old die and the New be born. At this moment we have the cooking pot, where this is happening, and the job of the investor and the founder of a startup is to figure out the future of being born. The same is true when I did say, I’m not a scientist, so before I say this, please, remember – I’m not a scientist! But I also think the human body is an amazing thing and it learns how to kill outside forces that threatening it. That’s what an antibody is. I do believe that one of the things that’s happening right now is that hundreds of millions of people are getting immune to coronavirus without help. I think, you can be optimistic even in the middle of a terrible crisis like this.
I’m never fully satisfied, it is a part of my personality. It’s very deep in me. I was raised in a poor family by my mother and I was the oldest child of 6. It’s almost like my whole life is trying to make my mother happy and feeling like I never quite got there. Even now, when I’m 65. I’m very healthy, I think. In England we say touchwood. I think, I’m going to be working for the next 20 years – at least. When I ask myself, “OK, what do I want to do?” I’m also very ambitious. I have few very specific ideas to do with venture capital that we tested in England with ADV, it is a particular, quite unique and novel approach to venture capital, and it works very well. I have several startup ideas which I would like to see fulfilled. One of them relates to the future of work and a concept of universal basic income. So, yes, everyday I’m thinking about what I should do next.
I love photography and have a Sony A9 Camera. I particularly love making videos with it. One of the things I did at TechCrunch, which I can claim some credit for, is that I set up TechCrunch TV with Mike Arrington and Heather Harde. My second hobby is Manchester United. Maybe, I shouldn’t talk about that.
I think it’s close to a card game, I’ve forgotten its name. It is highly collaborative and at the same time competitive. You play with a partner, and you play the round together without knowing what cards each of you have against two other people who are also doing the same against you.