Muschamp Rd

Amy Rae @ Launch Academy

August 9th, 2013

Today I attended another Lunch n’ Learn event at the Launch Academy. Today’s presenter was Amy Rae of Vanedge Capital, a VC fund in Vancouver focussed on digital media. The format was Q&A and I took quite a few notes. They are presented below, all factual inaccuracies are my own.

Questions from the audience are in italics.

  • Lots more seats laid out than usual, older crowd too.
  • Amy used the term “mandate” not investment philosophy.
  • Vanedge is a 137 million dollar fund and a Series A investor.
  • Investment Rounds: Accelerator -> Seed -> Series A
  • Nice to have $500,000 to a million dollars in revenue, prior to Series A.
  • VCs provide funds for scaling.
  • How many months of trailing revenue are you looking for?
  • Vanedge has done seed deals in the past, but not their mandate.
  • It is all about repeatability, want to see ‘actuals’ not proforma financials.
  • Series A is risky but less risky than Seed investing.
  • 3 Focuses of fund:
    • Infrastructure lead by Moe Kermani
    • Gaming lead by Tony Lam
      • Hard to monetize gaming
      • Backing a lot of analytics companies
      • Looking less at gaming than earlier in the fund’s life
    • Digital Media lead by Amy
      • Looking a lot at marketing automation
      • Big Data
      • Also security which overlaps with Infrastructure
  • Paul Lee is the managing director, he raised the fund after leaving EA.
  • In a first fund not a lot of banks and pension funds are LPs, mostly high net worth individuals.
  • The best thing Vanedge can offer is introductions. 2nd Best Thing is operational experience.
  • Vanedge is perhaps a little more hands on than other Venture Capital companies.
  • Mentions Grow Conference is coming up next week.
  • When should you approach a VC is a common question?
    • Will always take coffee even if a company is at too early of a stage for the fund to consider investing.
  • When giving the pitch, we (Vanedge) need to understand at the simplest level, the simplest terms. Those that have the best understanding can explain their idea in the simplest terms.
  • When pitching, if questions throw you off, you don’t know your pitch well enough.
  • Third when pitching, the VCs are really there to meet the people, want to invest in people which they want to work with and that they can trust.
  • How you deal with assholes is important.
  • VCs talk to everybody, it is there job, they have a mandate, the 137 million has to be invested somewhere. 50% of fund is already allocated.
  • 2-5 million per investment is the Vanedge sweet spot. Also need to reserve money for follow on investments, to prevent dilution in later rounds.
  • Does the length of the Boot Strap period matter?
    • Amy likes entrepreneurs who are conservative in managing their money. Sees a boot strapped company as a positive.
    • Yellow flag for Amy is when a fund company has $500,000 left in the bank, as $500,000 can go out the door quickly.
  • Can you name any LPs?What about LP’s geographic location?
    • Amy advised to look for a VC fund investor that is early in the fund’s life so you don’t have extra pressure to exit.
    • A lot of Chinese influence at Vanedge.  LPs with a background in Real Estate and Steel, some in Media and Medical.
  • One guy keeps asking the hard questions, I approached him later and found out his company is called planetECG.
  • VendAsta out of Saskatoon was a frequently mentioned portfolio company.  An LP in Vanedge is a CEO of restaurant chain, so VendAsta’s product was given a trial by the restaurant chain.  This was an example of how Limited Partners can be leveraged by the fund.
  • Vanedge has also used existing portfolio companies to test a potential new investment’s technology.
  • Amy doesn’t have a heavy tech background, Moe does.
  • Vanedge always gets an outsider to do technical due diligence.
  • What kind of metrics does Vanedge want to see? 
    • Depends on the industry.
  • SASS?
    • Recurring revenue and traction.
  • Lifetime value of a client is another metric Amy looks at. VendAsta is a SASS company, also a white label model company. VendAsta does “reputation intelligence” according to Amy.
  • What is the recurring monthly revenue of a company that Vanedge invests in?
    • Number isn’t as important, more important is the repeatability of sales.
  • Need to be in operation for 2-3 years for customer acquisition cost numbers to solidify.
  • Amy has seen one company in 7 years hit their forecast. They always try to tie compensation to the forecast.
  • We (the VCs) shouldn’t care about your forecast more than you.
  • When Vanedge start into due diligence they build their own financial models.
  • Does Vanedge have a preference towards leading a round versus being part of a syndicate?
    • Vanedge cares about having a board seat.  Vanedge has been the lead investor in most of their investments. Some VCs only invest if they are lead, others will never lead a round. Vanedge is more flexible in this regard than some other venture funds.
    • VendAsta investment is syndicated with BDC and a Valley VC fund (who’s name I didn’t hear).
  • What do you look for as a Series A investor in the previous investors in a company?
    • Care about motivation.
  • What are the common mistakes you have to clean up, prior to closing out an investment round?
    • A lot of little investors can be problematic.
  • What is the minimal potential market size Vanedge looks for?
    • VCs always work back from market size. Vanedge is also a startup. Amy considers how big a company needs to grow in order to generate a positive return for our investors.
    • Rule of thumb, can this company be valued at 300 million?
    • Revenue multiple matters, varies by industry/market/niche.
    • Many investment deals don’t make sense to be VC backed due to the high cost of capital.
  • I asked if Vanedge has an exit preference? 
    • Never exited to a limited partner yet, as to preferring IPO or private sale?
    • Strategic exit is probably the best.  
    • Look for a potential portfolio company that has multiple ways to exits.
  • Amy has seen companies go out of business only to get a new follow-on investment literally at the last possible moment.
  • Time period to exit is 3-5 years, pretty standard for the industry.
  • 70 million left to be invested in Vanedge’s fund, 6-8 million per company, plus money set aside, currently 9 companies in portfolio, so approximately 10 more investments will be made, how soon do you have to make those 10 new investments?
    • LPs need to be approached for every investment during the term sheet negotiation phase. Takes about 30 days to do due diligence, 30-60 days from initial engagement to investment close, probably closer to 3 months. Limited Partners have 2 weeks to put their portion of the investment into Vanedge’s account.
    • There has been team turnover at Vanedge, Paul has always been with the fund.
    • Always want to look for quality companies.
    • Less urgency now at Vanedge to make investments than when Amy started at fund.
  • Amy stressed that Venture Capital is expensive capital.
  • A hypothetical 4 million dollar deal will typically be done in tranches, perhaps 4 one million dollar investments each tied to a milestone.
  • Not everyone likes milestones and tranches. Vanedge has an 8% cost of capital, so why not leave the money with the LPs?
  • Very hard for a VC to say “I don’t want to fund this company anymore” once they have already invested in a company.
  • How many companies have you wound down?
    • Amy is still fairly early in her career and has never wound down any of her companies but at previous positions has watched co-workers wind down companies. [Insert sad panda]
    • 9 active portfolio companies, but Vanedge has had 2 portfolio firms go bankrupt.
    • The way you invest changes after you have failures on your fund’s books.
  • How would you contrast Vanedge with another VC say one in the Valley?
    • The Valley will give you a higher valuation. But what matters is how much you return to your LPs. The Valley has it’s own rules due to increased average exit price.
  • Amy advises Don’t value your company out of the ability to raise a next round.
  • What are the biggest oversights and mistakes founders make on Term Sheets?
    • Not knowing what you need board approval for when running your company.
    • How the ‘vote’ is divided, making sure you still have enough ownership percentage.
  • Amy likes ‘simple’ in term sheets.
  • Mentioned Brad Feld’s book on being smarter than your Lawyer and Venture Capitalist.

I hope some people find these notes useful. If I made any egregious errors, hopefully someone corrects me in the comments. I’ve written more on venture capital over the years.

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