Friday, April 28, 2017
Robert Neivert, 500 Startups: In Europe, there are some great opportunities to invest in companies
Robert Neivert is currently a Venture Partner at 500 Startups, specializing in B2B seed investments. He likes scouting for companies in the EU, because this offers him the opportunity to find companies he might not be able to get if they were in the US. How can startups get the attention of investors? Short answer, he says, is to "understand what big problem you solve and how you uniquely solve it and say it very succinctly and say it to the right person."
You maintain a broad domain of expertise, having held leadership positions in products, marketing, and operations. Which area of business do you personally see as the most challenging and why? Where should the young and fresh entrepreneurs focus first, in your opinion?
Do what you love and have at least some skill in. If you love it, you will learn it and become great at it. Passion is what makes the good great. It does not matter if that is marketing, software development, or finances, companies need many skills so be good at something and find others who are good at the other stuff. Don’t try to be good at everything, be great at something, and let others do the rest. As for me, I chase problems, I find stuff that bothers me and I solve it. That path has taken me many places but what I really love doing is solving problems, so I chase that.
How is investing in B2B industries different from investing in B2C industries? What’s your experience? Are there any similarities or are these “worlds apart”?
B2B and B2C are very different. The metrics, the people, competitive advantages, etc. I think they are similar to a neophyte, but the more expertise you have the more different they are. For example, B2B sells fewer larger deals, while consumers often sell many smaller deals so the sales process, marketing, etc. are all different. There are not a lot of consumer products with price tags over $1M but a $1M software purchase for a company/government is common.
You’ve written that startup founders should manage their investors and not the other way around. Do you let yourself be managed as an investor?
I expect it. I have no desire to manage my companies, I expect them to do a reasonable job of doing the leg work and let me just interact where I have expertise. I dislike long pointless emails from founders with vague questions or term sheets that make no sense. It just makes for more work on my side, and in some cases I have to spend time training them to avoid it. That does not mean I let them set all the terms, that is not the same thing. Just because a founder wants $5M on a $100M valuation from me for an idea he has does not mean I give it to him, it just means he is managing the situation.
The majority of global investment activity still happens in the US. However, other geographical areas are quickly developing. How do you see the European startup ecosystem and what are its major opportunities compared to the rest of the world?
EU continues to develop. It has a ways to go, but it continues to make progress. From my point of view there are some great opportunities to invest in companies that I might not be able to get if they were in the US, so it is my advantage to scout and invest in EU companies. Some EU investors offer terrible terms to their companies, this makes it easy for me to make a competitive bid and win the investment, so I am happy to, and continue to recruit investments in the EU. That being said, a few country laws, poorly trained startup founders, and other issues prevent us from being more aggressive.
If you were to form another startup company tomorrow – would it be a B2C or a B2B company?
B2B. I suck at B2C companies. I did not do well with them, I am much better at understanding the needs of companies than consumers.
According to the CB Insights, the venture capital funnel shows odds of becoming a unicorn are less than 1%. Nevertheless, you, the investors, obviously still believe in turning startups into unicorns. Are these expectations realistic? Do the occasional black swans outweigh the risk involved? You’re a mathematician by education – does math in your opinion justify this (ir)rational behavior?
Sort of. This is a complex thing but 500 Startups averages 2-3% of our portfolio hitting unicorn status and the math works well actually. It is hard to explain in a short answer but consider this if I invest $100k in 100 companies. 30 go to 0, 30 give me my money back, 30 give me back 2X, 8 give me 10X, and 2 give me 1000X I get a nice return, turning $10M into $217M. The math is heavily skewed because you can make 1000X on an investment, so it is worth the risks.
You’ve been everything – a founder, a mentor, and now an investor. According to your vast startup experience: what’s your advice for pitching the investors? How can young and fresh entrepreneurs grab & keep the attention of investors who process tens or even hundreds of pitches daily?
The short answer is to spend time to understand what big problem you solve and how you uniquely solve it and say it very succinctly and say it to the right person. More words are not better, think signal to noise. Know how to say it well, quickly and concisely and solve a big problem others have not solved and be uniquely qualified to solve it and be sure to pitch the right person. Pitching me a pharmaceutical product that you are looking for $100M for is not effective. I don’t’ invest in that area nor that amount. Know the investor and what they look for and when, and it will save you a lot of wasted time. For more on this check out 500 Startups various videos on YouTube about pitching.
500 Startups recently partnered with General Motors. Even though CVC in the West still represents a small percentage of investments compared to the traditional VC, it seems corporations are finally realizing the innovation potential of startups. What’s the future of CVC in your opinion? Is this just another hype or something that’s here to stay?
I would propose that the partnership is the next generation of this. Corporate VCs come and go, at the moment it is very popular, but many companies are finding it is not helping them achieve the innovation they were looking for, so they are turning to integrating VCs as partners to help them drive success. I think the key difference from the past is that we are fully independent investors, and not captured ones like some of the previous programs. So we refuse any company that we would not otherwise accept, avoiding a lot of bad investments that would be done just because the corporate sponsor asked for it, or wanted it done. I cannot tell you if this trend will continue, but we are having great success with it, both for 500S and GM.
What do startup accelerators really give startups? When would you recommend a startup attending the accelerator program and when not?
A lot of that depends on the startup and which program. I can speak for 500 Startups we focus heavily on two main areas. Sales and marketing training is the first. We do a lot of work helping companies to build sales and marketing functions to be highly successful, repeatable and scale. Thus, we have a large number of experts in a range of areas teach classes and work hands on with the companies to achieve specific growth goals. The second part is to help give the company the foundation and skill to grow a company successfully, such as skills in fund raising, pitching, hiring, legal structure, etc. It is hard to get all the skills you need to build a company, but if you don’t have them companies can fail. So we help companies get the skills they don’t have until they are large enough to hire people with those skills.
I once read that a “startup is an overnight success that takes ten years”. Is this a joke or a harsh truth?
It is more true than false. Many startups take a long time to build, but you only hear about them at the point where things take off. Many big successful companies struggle, sometimes for years, in obscurity, and then become a success later and suddenly they are an overnight success. Startup success is not a straight line, it is rough road filled with ups and downs, those that succeed are those that function with the difficulty, and manage to conquer the challenges. The problem is history gets re-written later when they success and the failures are often ignored or deleted. This also creates a false impression that "everyone else is succeeding" making the entrepreneurs often feel like failures, even if they are doing just fine. So yes, overnight successes happen over ten years.
ABOUT THE SPEAKER:
Robert Neivert is presently a Venture Partner at 500 Startups specializing in B2B seed investments. Previously, he was an executive for startups having founded or worked at eight companies with four exits and four companies still operating. He was the CEO for last two venture funded start-ups. He also maintains a broad domain of expertise, having held leadership positions in products, marketing, and operations.
He is a 500 startups Venture Partner, a mentor/advisor for Cardinal Ventures, Stanford iFarm, and Stanford's Treehacks program as well as an executive advisor for over 15 funded startups, and previously held the position of Executive in Residence at Quest Venture Partners.
Robert Neivert will be a keynote speaker at this year's PODIM conference.
You maintain a broad domain of expertise, having held leadership positions in products, marketing, and operations. Which area of business do you personally see as the most challenging and why? Where should the young and fresh entrepreneurs focus first, in your opinion?
Do what you love and have at least some skill in. If you love it, you will learn it and become great at it. Passion is what makes the good great. It does not matter if that is marketing, software development, or finances, companies need many skills so be good at something and find others who are good at the other stuff. Don’t try to be good at everything, be great at something, and let others do the rest. As for me, I chase problems, I find stuff that bothers me and I solve it. That path has taken me many places but what I really love doing is solving problems, so I chase that.
How is investing in B2B industries different from investing in B2C industries? What’s your experience? Are there any similarities or are these “worlds apart”?
B2B and B2C are very different. The metrics, the people, competitive advantages, etc. I think they are similar to a neophyte, but the more expertise you have the more different they are. For example, B2B sells fewer larger deals, while consumers often sell many smaller deals so the sales process, marketing, etc. are all different. There are not a lot of consumer products with price tags over $1M but a $1M software purchase for a company/government is common.
You’ve written that startup founders should manage their investors and not the other way around. Do you let yourself be managed as an investor?
I expect it. I have no desire to manage my companies, I expect them to do a reasonable job of doing the leg work and let me just interact where I have expertise. I dislike long pointless emails from founders with vague questions or term sheets that make no sense. It just makes for more work on my side, and in some cases I have to spend time training them to avoid it. That does not mean I let them set all the terms, that is not the same thing. Just because a founder wants $5M on a $100M valuation from me for an idea he has does not mean I give it to him, it just means he is managing the situation.
The majority of global investment activity still happens in the US. However, other geographical areas are quickly developing. How do you see the European startup ecosystem and what are its major opportunities compared to the rest of the world?
EU continues to develop. It has a ways to go, but it continues to make progress. From my point of view there are some great opportunities to invest in companies that I might not be able to get if they were in the US, so it is my advantage to scout and invest in EU companies. Some EU investors offer terrible terms to their companies, this makes it easy for me to make a competitive bid and win the investment, so I am happy to, and continue to recruit investments in the EU. That being said, a few country laws, poorly trained startup founders, and other issues prevent us from being more aggressive.
If you were to form another startup company tomorrow – would it be a B2C or a B2B company?
B2B. I suck at B2C companies. I did not do well with them, I am much better at understanding the needs of companies than consumers.
According to the CB Insights, the venture capital funnel shows odds of becoming a unicorn are less than 1%. Nevertheless, you, the investors, obviously still believe in turning startups into unicorns. Are these expectations realistic? Do the occasional black swans outweigh the risk involved? You’re a mathematician by education – does math in your opinion justify this (ir)rational behavior?
Sort of. This is a complex thing but 500 Startups averages 2-3% of our portfolio hitting unicorn status and the math works well actually. It is hard to explain in a short answer but consider this if I invest $100k in 100 companies. 30 go to 0, 30 give me my money back, 30 give me back 2X, 8 give me 10X, and 2 give me 1000X I get a nice return, turning $10M into $217M. The math is heavily skewed because you can make 1000X on an investment, so it is worth the risks.
You’ve been everything – a founder, a mentor, and now an investor. According to your vast startup experience: what’s your advice for pitching the investors? How can young and fresh entrepreneurs grab & keep the attention of investors who process tens or even hundreds of pitches daily?
The short answer is to spend time to understand what big problem you solve and how you uniquely solve it and say it very succinctly and say it to the right person. More words are not better, think signal to noise. Know how to say it well, quickly and concisely and solve a big problem others have not solved and be uniquely qualified to solve it and be sure to pitch the right person. Pitching me a pharmaceutical product that you are looking for $100M for is not effective. I don’t’ invest in that area nor that amount. Know the investor and what they look for and when, and it will save you a lot of wasted time. For more on this check out 500 Startups various videos on YouTube about pitching.
500 Startups recently partnered with General Motors. Even though CVC in the West still represents a small percentage of investments compared to the traditional VC, it seems corporations are finally realizing the innovation potential of startups. What’s the future of CVC in your opinion? Is this just another hype or something that’s here to stay?
I would propose that the partnership is the next generation of this. Corporate VCs come and go, at the moment it is very popular, but many companies are finding it is not helping them achieve the innovation they were looking for, so they are turning to integrating VCs as partners to help them drive success. I think the key difference from the past is that we are fully independent investors, and not captured ones like some of the previous programs. So we refuse any company that we would not otherwise accept, avoiding a lot of bad investments that would be done just because the corporate sponsor asked for it, or wanted it done. I cannot tell you if this trend will continue, but we are having great success with it, both for 500S and GM.
What do startup accelerators really give startups? When would you recommend a startup attending the accelerator program and when not?
A lot of that depends on the startup and which program. I can speak for 500 Startups we focus heavily on two main areas. Sales and marketing training is the first. We do a lot of work helping companies to build sales and marketing functions to be highly successful, repeatable and scale. Thus, we have a large number of experts in a range of areas teach classes and work hands on with the companies to achieve specific growth goals. The second part is to help give the company the foundation and skill to grow a company successfully, such as skills in fund raising, pitching, hiring, legal structure, etc. It is hard to get all the skills you need to build a company, but if you don’t have them companies can fail. So we help companies get the skills they don’t have until they are large enough to hire people with those skills.
I once read that a “startup is an overnight success that takes ten years”. Is this a joke or a harsh truth?
It is more true than false. Many startups take a long time to build, but you only hear about them at the point where things take off. Many big successful companies struggle, sometimes for years, in obscurity, and then become a success later and suddenly they are an overnight success. Startup success is not a straight line, it is rough road filled with ups and downs, those that succeed are those that function with the difficulty, and manage to conquer the challenges. The problem is history gets re-written later when they success and the failures are often ignored or deleted. This also creates a false impression that "everyone else is succeeding" making the entrepreneurs often feel like failures, even if they are doing just fine. So yes, overnight successes happen over ten years.
ABOUT THE SPEAKER:
Robert Neivert is presently a Venture Partner at 500 Startups specializing in B2B seed investments. Previously, he was an executive for startups having founded or worked at eight companies with four exits and four companies still operating. He was the CEO for last two venture funded start-ups. He also maintains a broad domain of expertise, having held leadership positions in products, marketing, and operations.
He is a 500 startups Venture Partner, a mentor/advisor for Cardinal Ventures, Stanford iFarm, and Stanford's Treehacks program as well as an executive advisor for over 15 funded startups, and previously held the position of Executive in Residence at Quest Venture Partners.
Robert Neivert will be a keynote speaker at this year's PODIM conference.
