Announcing SoftTech VC’s $12M seed fund ? the Return to the Dark Side

After 3 years of angel investing in 20+ Consumer Internet startups (and profitably selling 5 of them), I am very excited, and humbled, to announce the launch of my very own VC fund, SoftTech VC II, L.P. Some of you may wonder what is actually the difference between what I have been doing until now ? after all I am still referred to as a VC by many ? and this new $12M fund.

One major difference: I have taken the step (back to the Dark Side ?) and have raised outside capital, from a mix of fantastic institutional and private investors. Angels invest their own money, VCs invest capital they have raised from others - as well as their own since it is market practice that Fund Managers also contribute to the fund’s capital. In most cases, it is extremely difficult to raise the first fund of a new firm. Despite great individual track records, it might take a year or two of effort to assemble a syndicate of Limited Partners (this is how people investing in VC funds are referred to) willing to back a new team.

When I left my previous fund (Reuters Venture Capital), I wanted none of that: my passion was working with early stage entrepreneurs, supporting them with time, cash and connections. And since I had zero track record in the consumer internet space, thinking that I could raise outside capital in 2004 would have been a total fantasy. That’s why, like so many entrepreneurs, I decided to bootstrap my own startup ? using some of the family’s savings and generating cashflows from a few consulting gigs. It just so happens that the “market” I had decided to enter was early stage investing… in other startups. Last June, serendipity helped me decide, and eventually secure, the next logical step for SoftTech VC. As many friends in the angel and VC community were asking me whether I was thinking of joining an existing firm, or raise my own fund at some point, a few people hinted that they would be really interested in investing in a fund if I was to start one.

A few more discussions and one PowerPoint, later the core foundation of my new fund was there:

• invest in 30 to 40 seed stage startups
• average “bite size” of $250K, ranging from $100K to $500K
• able to lead, co-lead or follow other firms or angel syndicates
• focusing on consumer Internet, but with a great flexibility to enter new sectors opportunistically ? open to a few non Silicon Valley deals
• capital efficiency, great teams, differentiated ideas and flexibility on “how big it can become” will be common characteristics shared by the companies we invest in
• working hand in hand with the best firms in Silicon Valley, and the usual suspects in the acquisition gang, to build a successful outcome for everyone involved
• I would be the sole Fund Manager of the fund, with the support of a fantastic advisory board: my friends Jon Miller, Josh Kopelman and Reid Hoffman

The actual size of the fund was the subject of an interesting discussions, tossing around different numbers that all would have made sense: $5M, $10M, $20M,… A number of factors led us (my investors and myself) to decide that $12M was the right amount, and a significant portion of the fund was subscribed in just a few days, with final allocations having been made a short time thereafter. You have two ways to look at how long it took to raise the fund: 3 ? years of hard work since I started investing, or a few weeks. All this would not have happened without the support and wisdom of the great investors who decided to follow me in this adventure: Jon Miller, Reid Hoffman, Josh Kopelman, Geoff Ralston, Jim Bankoff, Mark Fletcher, MR Rangaswami, Loic Le Meur, Brad Feld, Frank Caufield and his firm Darwin Ventures, Tim Chang and the whole Norwest Venture Partners team. And no, I am not naming everyone ? some investors want to remain “stealth” and I obviously will respect it. But thanks to ALL of you.

I am used to always direct any bit of attention I get from the media to the real heroes: the entrepreneurs I have the privilege to work with, building great companies, capturing markets and having fun at the same time. I am therefore super psyched to introduce the first four investments of SoftTech VC II. Yes, four. Been busy this summer, between forming the fund, selling two companies (Yay Kaboodle and Maya’s Mom!), and getting these four to the finish lines.

I will write a post about the fund’s investment areas of interest later this week, and want to share a quick background to these new investments:

• SocialMedia.com was co-founded by my good friend Seth Goldstein, and has been building an infrastructure and an ad network targeted at social network application developers. The company will help these developers manage, market and monetize their applications.  After just a few weeks, last Friday’s revenue on Facebook alone, was over $10K - most of which was distributed to independent developers.
• Active Athlete Media’s focus is active consumers who participate in sports, and the advertisers desiring to reach this passionate audience engaged in the sports they love, on thousands of mid to long tail websites. To date, I had been reluctant to jump into a sport-centric community (passion centric communities will still have a strong representation in the new portfolio). However a monetization solution like Active Athlete’s, which has been steadily growing and generating revenues, became very attractive in order to set foot in the category.
• Satisfaction Unlimited announced its funding mentioning me as an angel investor just last week, but I am pleased to point out that it is actually SoftTech VC II that made this investment. I have known the co-founders of the company, Thor and Lane, for a long time, and saw their concept of a People-Powered Customer Service being refined and improved over the course of several meetings through the summer, and could not pass on it.
• Grouply is one of these “The World Needs” companies where one day I decide that a product or service needs a fresh start. There are hundreds of millions of users of message boards, email lists, forums and online groups products like Google Groups and Yahoo Groups, and they have not evolved for a long long time. Grouply will help solve that by enabling users to easily adopt a richer and more powerful experience for their existing online groups.

One of the key factors that have influenced my decision to get on this journey is the sheer number and quality of many of the companies that I have had a chance to be introduced to. I feel extremely lucky to have the best job in the world, and to be given the opportunity to take my passion to the next level.

Comments

[Chris Saad]

Congrats Jeff - or Condolences. Depends on the given day I guess!

[Julien]

Jeff, this is big news. Congrats and all the best.
How many french venture do you plan to back ;-)

[John Furrier]

Jeff,
Congrats! You are a great investor and I'm sure that you'll continue to ID the winners. Having a comp sci background plus all your experience in investing and venture will go miles in doing great deals.

[Julien]

That's interesting! Congratulations...

You said you'll remain alone, well, that's not the common team size for a VC, but I guess you'll benefit from the extensive support of the board of trustees as well as the investors you brought to your fund!

Congrats again!

[Charles Nouyrit]

Congratulation Jeff for this new venture, this an excellent news for the entrepreneur's world and will bring some fresh air from real pro in the VC space, I hope that you'll be extending your influence in Europe too.

[Sin Jin Lee]

Your advisory board sounds like a dream team of vc big wigs. Congratulations on forming your fund!

[John Lin]

Congrats! You hiring? :-)

[Bill Burnham]

Congrats Jeff! Glad to hear that you closed your fund.

[Thor Muller]

Well done! We're very excited to be working you, Jeff.

[Sanford Barr]

Kudos Jeff, glad to see it came together so smoothly!

[Michael Parekh]

Best wishes and Congratulations, Jeff...
been a long road.
:)

[Gijs]

Congratulations Jeff! Awesome!

[Marc Brandsma]

Mixed feelings:

- very happy for you to be able to move forward with more fuel and no limit in sight

- so sorry that your story will probably never happen here (France, Europe)

Beware of the downturn :)
http://avc.blogs.com/a_vc/2007/09/tough-times-ahe.html

[Paul Elosegui]

Damn I am jealous!

Congratulations and best of luck for the future.

[James Littlejohn]

The darkside gives to the lightside. Have fun with your new VC fund.

[Vic Podcaster]

Congratulations Jeff. This is good news for the startups looking for seed level funding.

[Entrepreneur]

Do you look at any new technology companies that are based solely overseas, like in Singapore?

http://www.entrepreneur.com.sg

[Christine]

Many congratulations on the IPO! (Isn't raising LP money like taking a startup public?)

[Philip Wilkinson]

Great news Jeff regarding the new fund. 25+ investments in early stage companies is exciting for you, but also for us entrepreneurs! Good luck.

[ckeene]

Face it Jeff, you were made for the dark side - some people just have affinities for that part of the Force! Since I met you when you were on the dark side (Reuter's Greenhouse) I can attest that VC-hood will do you good.

[Puneet Gupta]

Jeff - congratulations!
Keep up the good work.

[Chris Yeh]

Congratulations Jeff! Don't worry, all of us on SoftTech I will keep working hard to boost your IRR.

[thierry koehrlen]

Wow Jeff, this is awesome. You are really doing great with your "little start-up". I look forward to what you can achieve now with the $12M after what you managed to achieve already until now. Keep up the good work.

[Angela]

Congrats on the start up of your new venture. I hope you get all the funding you need, and that it will be a great success.

[Joe Hunkins]

... the real heroes: the entrepreneurs I have the privilege to work with, building great companies, capturing markets and having fun at the same time

Jeff it is no wonder you have been so successful. Keep it up dude!