This Week in VC with Rick Smith of Crosscut Ventures

Posted on Jul 15, 2010 | 4 comments


We started this week’s show with a Q&A session where I answered viewer questions about fund raising and the VC industry.  If you enjoy this blog I think you’ll enjoy watching the first 14 minutes of this video (just click on the image of me below).  Heck, stick around and watch me discuss the seed funding debate that is going on right now and what is happening in the VC industry overall.  I give a sneak peek at a blog post I’m writing on the topic next week.

I’m going to make this a regular part of the show since it was really fun.  In the first 10-15 minutes of show I answered the following questions:

- What is my greatest exit? – I spoke about GRP’s recent exit of Ulta in which we returned $320 million to our limited partners.  Yes, that was the value that we actually returned as opposed to the value of Ulta.  Great exit.

- Can you please expand on your post about distributed teams? I spoke about the need of the CEO, CTO and head of Products to be in the same location.  No problem to have some developers in remote locations.  It was a verbal discussion on my post on distributed teams.

- Can you please explain convertible debt and specifically how it pertains to angel deals? Convertible debt is a loan to the company that doesn’t typically get paid back but rather “converts” into equity when you raise a larger round at a later date.  If you’re an entrepreneur, all else equal you prefer convertible debt because the deal is priced at a later stage when you’re worth more.  If you’re an angel investor you prefer a “priced” rounds because you want to lock in a lower price given that you’re taking more risk up front.  Think of it – why should an angel fund you to allow you to create more value so that they have to pay a higher price at a later date?   The reality is that due to competition and a desire to keep legal costs down (convertible debt deals are cheaper to implement than priced rounds) there are many deals done with convertible debt.  A good compromise is “convertible debt with a cap” meaning the conversion price has a limit.  If you watch the video I go into greater detail

- What advice do you have for people who want to get into venture capital? Don’t. ;-) But seriously, I talk about why VC is a “get rich slowly” scheme and why many VCs make much less upside than you might think.  I talk in the video about the economics of venture capital and how we make money.

We then had a full session with Rick Smith, founder of Crosscut Ventures (along with Brian Garrett).  Crosscut is a seed-stage fund based in Southern California that has been in some hot local deals like ShoeDazzle (Rick discusses how they get in when it was a super competitive deal – great story), DocStoc, GumGum and others.

We talked about the seed fund phenomenon and whether there was a bubble for seed funding as Paul Kedrosky had predicted.  We also talked about whether VC is shrinking and what that would mean for entrepreneurs if true.  This is a great discussion so if you’re interested you can pick up in the video sometime around the 23 minute mark or within a few minutes after that.

Finally we covered this weeks deals. If you’re interested check out the last section of the video.

1. Hi5

2. InMobi

3. Beyond The Rack

4. eMeter

5. Google’s investment in Zynga

  • http://kickpost.com/ calebelston

    Really like the new format, keep it up.

  • http://bothsidesofthetable.com msuster

    Thank you. Feel free to let me know what you like / don't like so I'll have some feedback.

  • http://www.ryanborn.net ryanborn

    I agree with you on too many players in Beyond The Racks Space but I can assure you they have really nice numbers from what I hear they are basically the Hautelook of Canada and their financial numbers (i.e. revenues) are large enough and growing at a nice enough trajectory to justify the cash infusion and downside protection.

  • http://kickpost.com/ calebelston

    Been watching since the beginning, and the thing I want more of is and understanding of the guest's philosophy for investing. How do they evaluate deals, what has shaped that view, what qualities excite them most, how do they like to be pitched, what information do they most often feel is lacking in the pitches they hear. Really teasing out what drives their descison making more.