UPDATED 23:41 EDT / JUNE 26 2009

True Ventures – The True Story – LPs Love Their Model

Limited Partners around Silicon Valley and around the world are questioning where they put their money. Not with True Ventures.

In fact many LPs are lining up to pump more money into True Ventures because they want working early stage venture funds that scale. Not talk but results.

Yes you heard me – early stage venture fund that scales. Early stage venture biggest issue has been the lack of scale. Add to the fact that the market is more dynamic and faster paced, early stage deals are even tougher to do.  Good VCs do early stage.

Not for True Ventures. They figured out the scalable model for VC. I’ve seen it first hand.

I was very pumped to see True Ventures highlighted in today’s PE Hub.  This was a very good story and well done by PE Hub.  What got me thinking is how good PE Hub is and how tough they are.

PE Hub takes on tough issues with VCs yet this story is one of the positive ones that is coming out of a really bad recession.  Why?  Because Jon Callaghan and his team at True were doing early stage deals before they were fashionable.  Best of all their model is working.

Jon Callaghan says in PE Hub story:

The failure of classic seed-stage investors is that they raise a little money and take all the risk upfront, but as a company succeeds, [seed funds] can’t afford to play. Ron Conway had Google and it worked out, but generally speaking, you want to own [more] of the winners.

The Sand Hill Road model is basically that you invest between $5 million and $8 million for 25 to 33 percent of a company — to start — and a lot of founders don’t want that kind of structure or the expectation of a big exit that comes with those amounts.

I’ve had a chance to meet all the partners over there at True and they are friendly to entrepreneurs. I have never had an example where I couldn’t get access to one of the partners for a quick phone call and have a value-add discussion.

Joe Krause I guy that I respect tweeted a sound bite from #T4E.  We had the following twitter exchange.  Joe is very experienced and savvy so listen to him and follow him on twitter @jkraus.

joektweetvc

furrierresponsetokrause

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I would say that True Ventures is both friendly and hard ass.  They are all experienced entrepreneurs who know their place.  They are the investor and they know when to get out of the way from the funded entrepreneur.  They have a track record not in one business cycle but three ups and downs.  They got the scar tissue to prove it.

Here Callaghan explains

I think your primary DNA as an investor has to be as an investor. Being an entrepreneur is also critical — I cofounded three companies earlier in my career — but as an investor, you sort of know thy place. You know you’re an investor, not the CEO.

I think the hardest thing for entrepreneurs [becoming investors] is figuring out how not to say, “I’ve done this before, I’ll just tell you how to do it.” As an investor you also come to understand how to look at a whole portfolio, that success doesn’t happen in a straight line, and that you always lose the ones you think will be the biggest winners.

What makes True different – they are savvy, smart, and get the current entrepreneurial landscape.  That attracts entrepreneurs.  There isn’t any trickery to what they do. They are straight shooters.

Best of all about True Ventures, they don’t hype themselves up and let “their game speak itself ”

Here is the Private Equity Hub story.

True’s reputation among entrepreneurs is more notable, though. Whatever it’s doing — treating entrepreneurs like customers, as it likes to say, operating out of a startup-like space (its open, sunny offices at the base of a pier feature little aside from cheap gray carpeting and an array of modest desks) –has resonated with the digital media community, which seemingly now holds the firm in the same high regard as Union Square Ventures in New York, First Round Capital outside Philadelphia, and prominent angel investors like Ron Conway.

What is their investment averages look like and how much do they give companies.. He explains

A median round is $1.5 million. Our median check is $1.25 million and our target, for that amount, is 22 to 25 percent ownership of the company.

We have three products. The first we call our “real deal product,” which is one where we write you a check for $1.25 million for 25 percent of your company. We have the “seed deal product,” which is a check for $500,000 for 20 percent of your company. And we have our “super seed product,” which is $250,000, for 10 percent of your company. There, the entrepreneur has an idea but he’s not really sure if it’ll turn into something. We’ll still write him that check, though, because you know what? That’s one-tenth of one percent of our fund, and because our LPs want us to take risks. It also means that if a company sells for $10 million or $20 million, that still makes us a lot of money.

The biggest gem that speaks to the future of deal flow is the following quote ..

Yahoo and eBay are crumbling; Google is trying to figure out where to go next. We see all kinds of seams opening and all kinds of opportunities emerging from them. We’ve actually doubled-down in 2009; we’ve already backed 15 new startups.

As Gordon Gecko once said… Money never sleeps


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