Howard Lindzon was nice enough to have me on his Stocktwits.tv show recently. For those who don’t know Howard, he writes a fantastic blog. He writes in such an irreverent way it’s easy to overlook the wisdom behind what he says. My favorite recent Howard-ism was, talking about investing, “I like to look outside and see my [investments].” I take this to mean he likes to invest in things he understands, can touch, go visit, etc. This is probably the single best piece of advice in order to have survived the recent financial crisis. Fancy things like CDOs, Auction-Rate Securities, etc turned out to function much differently than advertised. Diversification across asset classes (CAPM etc) turned out to be useless: when things got bad, correlations went to 1. One reason I like investing in startups is you can go visit them – they are something tangible and understandable.
Howard is also the founder of Stocktwits. Stocktwits is potentially genuinely disruptive in that it dis-intermediates Wall Street. It is one of those things that some people think is a toy now but could end up being the next big thing.
Founder Collective has already made a number of investments. Some are listed on the Founder Collective companies page and some aren’t yet. I thought it might be interesting to explain the rationale behind our investments from time to time.
One recent investment we made is in a website called 20×200 (“20 by 200″). I first became a fan of the site when I read about an artist who created a New Yorker magazine cover with the iPhone app Brushes. I thought it was so cool that I bought one of the artist’s prints on 20×200. Only later on did I meet the founder – Jen Bekman – and learn that there might be an investment opportunity.
Apple I (from 20x200)
As with all early-stage investments, the main reason we invested is that we really love the founding team. Most of Founder Collective’s investments are seed investments so the founding team is pretty much all we have on which to base our decision. 20×200 was unusual insofar as they already had a successful, sustainable business and just needed capital to accelerate their growth.
True Ventures (the lead investor in 20×200) eloquently characterized the company’s vision as the “the democratization of art.” Here’s what that means to me. Today, the art market is highly polarized. At one end, there are Manhattan socialites going to fancy openings and multimillionaires bidding at exclusive auctions. At the other end, there are generic landscapes, portraits, dogs playing poker, etc. purchased at, say, Walmart or Art.com mostly just to fill up wall space. 20×200 envisions creating a vast middle market, where anyone with an interest and a reasonable budget can become an art collector. Since 20×200 splits revenues 50-50 with the artist, it also strives to create a new way for artists to get funded that doesn’t involve groveling to Upper East Side socialites.
Anyways, if you are interested, 20×200 prints make great gifts. Here are some of my favorite prints, and here’s a Hunch topic “20×200 art” to help you choose one.
As readers of this blog know, I’m a huge fan of the startup and venture capital world but also a sometimescritic of how the venture capital industry works. For a long time I’ve wanted to do more than talk about this and actually start a new kind of venture firm, designed the right way from the ground up.
Last year two friends of mine who are both very successful, serial entrepreneurs — Eric Paley and Dave Frankel — were brainstorming ideas for what to do next when the thought occurred: why not make their next startup a new kind of venture firm, the kind we had wished existed back when we started our first companies?
We think of ourselves as part of a new wave venture firms led by Y Combinator, First Round, Maples, Ron Conway/Baseline, and Betaworks, among others, that have adapted to a world where venture capital is abundant but authentic seed capital and, more importantly, mentorship from experienced entrepreneurs, is scarce. We have many similarities to these firms and also some differences:
1) We have a small fund – approximately $40M – and intend to keep it that way. This means seed investments are our entire business — they are not options on future financings. Hence our interests and the founders’ interests are aligned. This also means we are happy with smaller exits if that’s what the entrepreneur wants to do.
2) Each person involved in Founder Collective is an entrepreneur, most of them currently running startups full time (my full-time job is CEO/co-founder of Hunch).
3) We believe the best people to predict the future — and create it — are fellow entrepreneurs, not former bankers drawing graphs and developing abstract theses.
4) We try to be respectful. We’ve all sat in countless meetings where VCs show up late, email while you are presenting, and generally act arrogant and dismissive. We try really hard not to be like that.
5) We’ll make investments anywhere in the world but tend to favor our home turf – New York City and Cambridge, MA. New York is a hotbed for online media and advertising startups. In Cambridge, there is a constant flow of ideas coming out of places like MIT that just need a little capital and guidance.
We realize the word “Collective” sounds a bit radical, even socialist. This is deliberate. While we have an actual fund — we are not just a group of angel investors — we also have a unique structure where active entrepreneurs lead investments, work hard to help their investments succeed, and share in the profits when they do.
