Venture Capital Seed Investors – Who Re-Invests in Follow-on Funding Rounds?

Statistics are spare, but we incline to believe that many of the 300,000 active US Angels not members of organized groups will invest in one and only one funding round. Their goal is to help the entrepreneur get started, not to finance his company until cash flow positive.  Of course, many of these Angels have contacts and experience to help the founders raise funds from other sources, but they themselves prefer to step aside. Many of the very early angel groups also invested this way. Today, most of the Angel Capital Association member angel groups we know of do organize or participate in follow on rounds.

In recent years, a number of VC firms have entered the angel space. It is unclear their level of commitment to their companies, some of which has been uncharitably called “spray and pray.” The question we might offer is what happens to these companies if the VC fails to invest in follow on rounds?

For example, consider Atlas Ventures. “When it comes to doing seed rounds for Boston area startups, no venture capital firm is more prolific than Atlas Ventures — a main reason why the firm managed to close VC deals in Boston last year at the rate of nearly one a week,” wrote Kyle Alspach, VC Editor of the Boston Business Journal, last July. “The Cambridge-based firm closed 47 venture deals in the Boston area last year (2011), with a total of $60 million invested across the deals, according to new Boston Business Journal research.”

So what is Atlas doing now?  “For us at Atlas Venture Tech, we're looking at approximately 12 seeds (average check $400K) and 4 or 5 Series A investments (average check $4M) ... if we can find the entrepreneurs to partner with!” writes Atlas Partner Fred Destin in an April 2013 blog post.

From the numbers above, one might conclude that there is in fact a “Series A Crunch” and that Atlas Ventures is causing it.

But hold on right there.  Newly released industry figures show Atlas ventures to not only be one of the most active seed investors in the US, but to also be one of the most supportive firms at reinvesting in seeded companies.

The data on this topic was collected by market research firm CB Insights, the same firm that produces the HALO Report on Angel Investing.

“Earlier, we detailed a list of the top 10 Seed VC investors based on their portfolio’s historical follow-on investment rate. But we also wanted to analyze which of the most active seed investors from the 2010 and 2011 vintages were most inclined to reinvest in companies they previously seeded. From an entrepreneur’s perspective, having an investor who is more inclined to participate in follow-on rounds of financing should be a plus since it probably means less time wasted pitching and educating new investors,” reports CB Insights.

“Also, if you believe that seed deals made by larger funds who don’t reinvest present a signaling risk, this list of prolific re-investors is also valuable.  Note: The signaling risk argument is one that was popularized by folks like Chris Dixon (Andreessen Horowitz), Mark Suster (GRP Partners) and David Hornik (August Capital).  Unfortunately, the argument about seed VC signaling risk is not supported by the data as we’ve previously shown.”

Below is a list of the 30 most active Seed VC investors over the two-year time frame ranked based on number of Seed VC deals they participated in followed by a ranking of the Top 10 most frequent re-investors:

In terms of re-investment rates, the top 10 is led by  German early-stage firm High-Tech Gründerfonds and London-based venture capital firm Atomico, followed by Philadelphia-based First Round Capital and Chicago-based Lightbank.

The ranking of all 30 most active seed investors by re-investment rate can be found on the ‘Research’ tab here, after logging in to CB Insights. (Note: The list of investors is only available to paid subscribers with access to CB Insider.)

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Shark Tank Boston to Feature Local Angels, Entrepreneurs

On Oct. 25, a panel of Boston’s best known early stage investors will invest $100K among six competing companies, using a distinguished format derived from the Shark Tank reality TV show.  A list of 70 applying companies will be pared down this week. Panelists include:

Katie Rae (Techstars)

Lucy McQuilken (Intel Capital)
Mike Troiano (Techstars Mentor)

Joe Caruso (Top Angel)
Dharmesh Shah (Top Angel)
Fred Destin (Atlas Ventures)
Jen Lum (Top Angel)
Nicole Stata (Boston Seed Capital)
Dave Balter (Top Angel)

Should you be unfamiliar with the Shark Tank TV format, you can find it on the ABC web site. “The panel of five Sharks will hear pitches of the best business and product ideas from some of America's brightest entrepreneurs, ranging from start-ups from stay-at-home moms and dads, to simple yet brilliant ideas in a wide range of areas including children's products, music, sports, automotive, and even the nightclub scene.” A couple of these brilliant ideas that went unfunded included a Human Powered Monorail System and Beer Flavored Ice Cream.

TV Sharks include billionaire Mark Cuban, owner of HDNet and the Dallas Mavericks, Lori Greiner, inventor of retail products considered the "Queen of QVC,"  real estate mogul Barbara Corcoran, technology innovator Robert Herjavec, fashion and branding expert Daymond John and venture capitalist Kevin O'Leary, who we all know has also been called Mr. Wonderful (by himself, of course). These panelists are quite rude, both to the entrepreneurs and to one another.

If you don’t believe me, you can view this with your own lying eyes on ABC at 8PM Fridays (Ch. 5 in MA, 9 in NH).

Let us now praise famous Angels.  You might have noticed that I identified four of our local panelists as “Top Angels.” That was because Xconomy recently named them among the 34 top angel investors of New England.   You can see their photos in the  slideshow here. 

So what can we expect when we pair local our very qualified local angels with the reality TV format? According to the Sponsors, “it’s going to be a fun and wild and a hot mess – and not without its fair share of nail-biting, sweat-inducing drama. The Sharks don’t invest lightly and companies who dare to enter the tank must be on their game.”

Was Oscar Wilde right when he held that "Life imitates Art far more than Art imitates Life"?  Is reality TV Art? We’ll all find out on October 25. If you are a panelist, wear your sharkskin suit.

A question that arises: if Shark Tank becomes our model for angel investing might Jersey Shore set the tone for our summer vacations?
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The Boston Shark Tank was conceived by BzzAgent and is being hosted as part of MITX’s FutureM week. The event will be held from 4-6 PM at the Microsoft NERD Center on October 25th. You must have a FutureM ticket to attend.