are the Elon Musk-led Tesla car project where they are reinventing the electric automobile from the ground up—the transmission, the drive shaft, the battery, and everything. DFJ also has investments in Synthetic Genomics (human genome sequencer Craig Venter’s company), Space X, BrightSource, and Redfin. According to Bryant, the Synthetic Genomics team is trying to invent new forms of microorganisms that have never existed before in nature. In China and India, DFJ has investments not in technology, but in consumer driven propositions like home delivery, travel agencies, bakery chains, and fleets of taxis. These nations have large populations that are rapidly consumerizing, and consumer plays are the most promising opportunities.
“What do you think about entrepreneurs catering to theme investors in order to get funded? Why swim upstream trying to create something new, when someone is willing to fund ideas in a given sector?” someone in the audience asked.
Bryant strongly advised against this. “You really need to have conviction in what you are doing in order to be successful. What are you going to do when the fad changes and the thematic investor loses heart? If you didn’t really believe in what you were doing, you will fail. The resistance and rejection to true innovation usually lasts about 12 to 18 months but if your idea is any good eventually people will come around to seeing it your way.” He gave the example of a theme-chasing company that decided to compete with Seattle-based Opscode and is failing to keep up with their early market leadership. “Opscode foresaw a world where all devices would be managed from the cloud and went after that opportunity early. These other guys decided to copy the approach and are getting crushed.” He did not mention the name of the company. [Bryant helped lead DFJ’s investment in Opscode last spring—Eds.]
The one thing all the speakers agreed on is that venture capital firms are closing down and consolidating. This is a trend that will continue. In particular, Bryant predicts that it is the mid-sized firms in the no-man’s land of venture capital that will collapse. “Smaller firms like Union Square in the $100 to $250 million range will continue to do well,” as will his firm DFJ with about $5.5 billion in assets under management. “It is the $400-600 million firms that should be worried.”
In favor of so-called “theme” investing, DeVore said that Founder’s Co-op is actively seeking entrepreneurs in the lead generation space, arguing that “it may not be sexy, but it is very profitable.” Founder’s Co-op was founded to address the misalignment of interests between venture capitalists and entrepreneurs mentioned earlier, and generally invests $100,000 to $500,000 for roughly 20 percent of an early stage company. For those who think VCs are evil, these guys might be a much better fit. They also like funding engineer-driven companies because they are capital efficient and can accomplish a lot more with smaller amounts. “Funding business people to hire engineers is not capital efficient,” DeVore says.
Have a lead generation idea? Chris and Andy Sack (the co-founder) run the popular Open Coffee event at Louisa’s Cafe every Tuesday morning from 8:30 to 11:00 am and will gladly listen to your pitch. And because they are angel investors, they will not be evil!