Venture capital and angel investing have been at the heart of the vibrant entrepreneurial community in the US for decades and have helped create global success stories such as Facebook, Netflix and Tumblr. Growing access to mass communication and fast-paced technological innovation around the world today are spreading the need for early stage financing for tomorrow’s entrepreneurs and innovators.
Today we have the opportunity to talk about these topics with a veteran member of the New York VC community: Alessandro Piol. Alessandro has Italian roots, but has spent the majority of his life in the US. A Columbia University and Harvard Business School alumnus, he has been a technology investor for over 30 years, first at AT&T Ventures and later at Invesco as General Partner and Vedanta Capital as Partner and co-founder. He is also a member of the New York Angels, the city’s angel investor network. Alessandro, together with Maria Teresa Cometto, is the author of Tech and the City: The Making of New York’s Startup Community.
BSIC: What is the daily life of a VC and angel investor like?
Alessandro: It’s definitely a busy life. It is a very intellectually stimulating environment. Your professional background will deeply influence how much you understand the management team and the product you invest in. Especially as an angel investor, you invest in the people much more than in the product. It is important to understand the need to be able to “pivot”, i.e. to change strategy quickly to adapt to new challenges.
During a typical day on the job, you share your time between looking for investment opportunities, spending time with your current portfolio, and spending time with your own investors. When hunting for opportunities, having a good deal flow is key. You need to be able to grasp opportunities coming from many directions, while still being able to pick the best ones, according to a 100-to-1 rule. The due diligence process is also fundamental in understanding the potential of the company, of the product, and of the market.
BSIC: How do you get into Venture Capital and what are the challenges for investors?
Alessandro: There is no predetermined path. But in order to improve your chances a good technological knowledge of your field is important. Industry experience, for example in a startup, really helps getting closer to the VC community. Knowledge of financial skills is useful, but its importance, especially at early stages, is limited.
The key advantage to being successful as an investor is the personal experience you bring to the table in understanding the target companies. The real challenge is the low likelihood of success for each single company, in particular at seed level. As an angel investor, for example, it is important to invest in a portfolio of 15-20 companies if you want to make a profit. For venture capital investors, it is equally important to avoid being “carried away” by an exciting idea and forgetting about other key aspects like the quality of the management or market opportunities.
BSIC: What do you look for in a promising entrepreneur?
Alessandro: You should be looking for entrepreneurs who have faced a real problem and are passionate about solving it themselves. You should also focus on what the process to come up with a solution was. At the same time you want to make sure that the problem they’re trying to solve is a relevant problem, one that not too few people have. In other words, understanding whether there is a market for this idea is fundamental. Lastly, you need to be able to understand the right timing for the investment, while hoping not to miss on any good opportunity.
BSIC: What are the differences between the VC communities in New York and Silicon Valley?
Alessandro: In terms of size Silicon Valley is bigger, but New York (about 30% of the size for technology investing) and Boston are growing quickly. The main difference is in the culture: the majority of people in Silicon Valley are very focused on technology, while the New York community is exposed to a variety of local industries like finance, fashion, and advertisement. New York also brings entrepreneurs closer to a huge potential customer base. Since today’s IT infrastructure is much cheaper and less cumbersome to develop than in the past, it makes sense to stay close to customers and try and build an ecosystem around existing local industries.
BSIC: Some activist investors have raised the issue that once VC funded companies grow and go public, there could be a conflict of interest with venture capitalists sitting on the boards of competing companies.
Alessandro: I think this is not the case. It is common that potential target companies will even refuse an investment from a venture capitalist if there are too similar companies in her portfolio. It is possible that conflicts of interest may arise as companies grow, but both the VCs and the companies themselves are very active in making sure that if there is that risk, the investor will leave her seat to avoid the conflict from arising in the first place, and we have seen this happen several times.
BSIC: Crowdfunding: is it a threat or an opportunity for VC?
Alessandro: I think it is good for entrepreneurs to have multiple opportunities to raise money. However there could be the risk of fraud if the market is not regulated. There is a difference between pledges and outright equity investments, and professional investors are better suited to carry out due diligence on those investment opportunities. With this caveat, I think crowdfunding is a great thing.
BSIC: How can a VC community like the one in NY grow in Italy?
Alessandro: Every ecosystem always starts with entrepreneurs who want to get something done first. Then, talent to help them build their ideas is needed: this can be found in academia, like famous universities in Sylicon Valley and Boston. Seed money and early stage investors are important, but the key is in the presence of later stage, pure VC investors to make follow-on funding available. A less restrictive bureaucracy is important too. Incentives to investing could help kickstart investments at first, but over the long term creating and recognising success stories is the most important engine of a good VC community.