NextGen Venture Partners is a network-driven venture firm. They are taking the venture partner model to the next level. They hand-select the nation's top young founders, innovation executives, technologists, and serial investors and turn them into part-time venture capitalists. They build, fuel, and accelerate our portfolio through our collective resources, connections, and expertise. NextGen is live or launching in eight cities, with the goal of becoming the most powerful network of entrepreneurial investors in the world.
0:28 Todays guest has what all startups seem to be looking for - access to investment capital.
1:41 Jon is a venture capitalist - he feels that people have different interpretations of what that means. His main task is to return more capital to his investors then the investors gave to him, by finding smart entrepreneurs changing the world with incredible technology.
2:30 Next Gen is the first network driven venture firm. Their model is to ask their venture partners to source great deals, and then ask them to due diligence the said deals, and then when a deal opens up a space is kept for the venture partners to invest alongside of Next Gen.
3:45 Jon is based in Austin, where his initial goal was to set up and expand the venture partner network in Austin. Now he focuses on the funding end of the business by taking his experience and applying it to the investment side of the business.
4:39 Next Gen aims to be the first round of institutional capital. Typically, an entrepreneur has a good idea but has no funding. Firstly, friends and family may get involved followed by angel investors to expand the technology etc… and just after that is where Next Gen step in.
5:55 At a basic level, Next Gen needs to return a profit to its investors. With that in mind they like to focus on new game changing technologies which will have more lucrative returns then straightforward investments - i.e. software, mobile gaming and the like.
7:00 At a very early stage Jon believes its key to get somebody to believe in you or in your product to get the initial investment - its important to go to a pitch with a compelling story of why this product exists. Jon encourages all entrepreneurs to get a straight answer - and don’t be afraid for that answer to be ‘no’, but don’t accept a ‘I might be interested’ scenario - that inevitably wastes time.
8:35 The onus rests with the entrepreneur to push for an answer either way.
9:14 Jon has seen a direct co-relation between success and entrepreneurs who keep giving updates and stay in touch with investors.
9:50 Jon started off with paper rounds and lawn mowing businesses. He moved on to a cigar selling business before he spent some times in the finance world and decided to move to LA and start a company. This company was called ‘Farmscape Gardens’ - a better model for urban gardening. During this experience he met a colleague who was experienced in grant writing. Her husband was a venture capitalist. Building a relationship there combined with Jon's background experience led to Jon getting his first steps into the venture capital world, and led him to where he is today.
12:25 Jon basically started showing up with the ‘Hi I’m here’ attitude and worked for free for a period to get inroads into working with the smartest people, and he encourages anybody to try the same.
13:52 Jon's influences include Brad Feld from the Foundry Group, Mark Suster from Up Front Ventures, Fred Wilson from Union Square Ventures. Fred was the first to expose the venture industry. These are popular blogs. Some of the lesser known ones he likes are Charlie O’Donnell from Booklyn Bridge Ventures and Elizabeth Yin with a blog called 500 startups.
15:40 Some of the poorer ideas that Jon has seen over the years include RFID enabled golf balls which seemed to come at him in waves. Other things that haven’t impressed have been entrepreneurs who are combative or defensive. Jon asks left of centre questions to see how prospective partners perform under duress. Jon also doesn’t like to see business plans with reams of text. He wants the highlights and expects entrepreneurs fill in the blanks by talking.
18:00 Valuations of companies have increased at a crazy rate and Jon feels that along the road a company is probably going to want to get more capital in and increase in value so its better to set a more realistic valuation.
19:32 Jon is a big fan of price rounds. He feels that convertible notes are lazy, but probably cost less in legal fees and also can lead to a conflict of interests between the business owner and the investor. There are great resources available to explain the intricacies of financing.
22:15 Valuation is basic economics. It's supply and demand. It should never feel like a hardened negotiation. It should be a dynamic conversation.
22:53 If you’re raising money from a proven investor who has a background in successful deals, the conversation should really be driven by the investor. If its a less sophisticated investor the conversation should be more fluid.
24:06 Next Gen’s process is a little different to the norm. Because they have a network of investors feeding back to the home office, they are able to apply a simple litmus test. They ask "Are you personally investing" and the reply to this speaks volumes and influences Next Gen’s response and referrals.
25:50 If the investment doesn’t fit Next Gen’s model, they are happy to refer to other investors. There are several circumstances where this can happen.
26:26 All entrepreneurs have is their time, and Jon feels that a lot of investors take up too much time on some entrepreneurs, but Next Gen will reply to everybody the very next day with some caveats albeit, but a reply nonetheless. Next Gen like to incentivise companies with shares as opposed to huge salaries, and if the company is successful they like to share with their network of investors to help with key tasks in the company.
28:00 Jon feels salaries for founders have got out of line along with valuations. Starting a company used to be about the love and belief in starting something, now it seems to be about attaining salaries that match the private sector.
30:34 Some of the trends Jon has noticed are Air BnB Model for example, but an area he has huge interest in is virtual reality, augmented reality. He’s also interested in agricultural technology, continued education and drivers education. He believes in supporting areas where continued learning is required, but people who need the learning do not necessarily want to sit in a lecture room to get it. The reason he loves his job he asserts is that he gets to go and talk to these talented people who are changing the world.
33:12 Jon stands by his quote, "I have never invested in a company and exited with them doing the same thing that I invested in them to do." It is a people game, you have to invest in the team. Jon’s belief is that everyone who works in a company is faced with 100 small decisions every day, and you have to get 51% of those decisions right to be successful, and if you get 51% of them wrong you go out of business.