Entrepreneurs' Series 2015: VC Panel Screenshot

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From bashing dentist investors on crowdfunding sites to enthusiastically declaring tech bubbles, Wednesday’s Entrepreneurs’ Series panel discussions were anything but boring. 
 
An audience of 300 entrepreneurs and investors got in on the funding secrets of three local angel investors and five national venture capitalists, most of whom either invested for the first time in the Triangle last year or dramatically increased their portfolio of local companies. 
 
You can watch full videos of the angel and venture capital investor panels here, but scroll down for quick recaps of some of the hot topics from the annual event by Durham's Bull City Venture Partners, held January 14 at Brier Creek Country Club in Raleigh.

Credit: Ryan Timms
Credit: Ryan Timms

On entering the Triangle…. 

Each national investor's story includes a warm introduction from someone in this region. For Paul Martino of Bullpen Capital, it was an initial introduction to Durham-based Hatteras Ventures years ago and a relationship built over time with then Hatteras associate Whitney Rowe. Rowe learned Bullpen’s business model and waited until WedPics had the right monthly growth numbers to pitch it. 

Associates at Durham's Square 1 Bank made introductions between New York-based Greycroft Ventures and Durham's Validic (Greycroft also invested in RTP-based Netsertive) and Philadelphia-based Osage Venture Partners and Durham's Automated Insights. Comcast Ventures' Jonathan Drillings of NYC went to Duke University, but was lured back to town by Adzerk's James Avery, who then introduced him to Windsor Circle.
 

On pitching deals to national VCs….

It’s key to know the firm’s model, Bullpen’s Martino says. For example, his fund isn’t looking for a company with a big long-term vision. It wants companies achieving significant enough quarterly milestones that allow them to raise larger rounds within a year. Sixty percent of Bullpen's portfolio companies raise rounds within a year at three times the valuation at the time Bullpen invested. WedPics' fast growth to a million weddings fit that bill.

For Comcast's Drillings, Windsor Circle matched perfectly with its interest in retention marketing, which ties back to Comcast's telecom business.

Several said they appreciate good salesmanship, an experienced management team, a repeatable sales process that proves product-market fit. 

On why they aren't likely to do seed deals outside their home base....

While every investor believes that innovation is happening in communities around the world, they recognize that early stage companies need a lot of hand-holding by investors. That is best done by experienced investors in their own backyards. 

Says Drillings, "For seed investing, it's critical to be close."

On general solicitation rules….

Investors love the new confidential S-1 filing, which lets companies test the waters with a secret pre-IPO without revealing financial information. 

Some aren't too impressed with crowdfunding's offering. Greycroft's Sigalow believes AngelList syndicates are funding "garbage at the early stage."

His memorable line: "If you want 5,000 dentists to fund your company, that's great but you're not going to get any help. I don't think that's an advisable plan for anybody."

Then again, he admits that some companies might not be fundable for institutional investors and benefit from incremental capital. In that case, the money from dentists might "put a finger in the eye of the VC community."

On tech trends and investment themes….

Drillings is all about big data packaged in a way that sales or customer service reps can use to better engage or keep their customers and get them to spend more money. The thesis is that existing customers are cheaper than finding new ones. They're easier to upsell and drive profit. Comcast Ventures also is interested in Internet of Things and the connected home, as well as the next generation of digital media. No surprises there considering its parent.

Greycroft focuses on five-10 year trends, like open source companies with free software and paid services or data or security or other premium offering. Services that use mobile devices to change the way people use or buy products are also key. Examples in its portfolio are Acorns, which lets people invest their spare change from purchases, and Plated, which delivers fresh ingredients and recipes to doorsteps weekly.

Martino's Bullpen Capital doesn't have an investment thesis, but has been into gaming lately, especially gambling using mobile. See above for more details on that company's target, and why WedPics, here.

East Coast B2B software companies are the focus of Drahms' Osage. It also has a university fund, investing in intellectual property and innovation spun out from universities within its territory.

On bubbles…. 

There was consensus that there are bubble-like conditions though Bullpen's Martino was most adamant, claiming "we absolutely are." For him, it's all about cycles. It's been seven years since the last major dip in activity, and most cycles are seven to nine years. Valuations also are unrealistic.

"I get crazy when people say this is a normalized valuation market," he says. "Not if you're paying 50 times sales for that investment. Don't tell me that's normalized."

Greycroft's Ian Sigalow believes we may still be a few years out from a burst. Valuations are up 50 percent over the last three years, he says, but companies are growing faster then typical. Because they've never done that before, it's hard to value a company growing faster than any ever has before. The caution in that is that companies don't grow fast forever, so when does it end?

Osage's portfolio reflects the changing environment. In 2005, no more than two of its companies achieved 100 percent annual growth, while today six of 11 portfolio companies in Osage's most recent fund are growing at that rate. Drahms take? Bigger companies are more wiling to buy from startups than in the past.
 

On the Triangle's strengths…. 

It wasn't a huge stretch for Comcast's Drillings to come back to Durham. But the force in his decision was Adzerk's Avery who booked his trip and took him to American Underground, The Startup Factory and to meet several startups. A key driver in the decision to invest in Windsor Circle was its ability to recruit the right talent in this region. Drillings' team also saw a community driving entrepreneurs forward. 
 
“In today’s world, if you can get talent, you can really build a strong business anywhere (as long as you’re connected with your customers),” Drillings says. “We saw that in Windsor Circle and we see it in this area.”