Derek Footer and Andrea White-Kjoss help the many startups that struggle to get noticed by big investors through their investment firm, ExtraVallis, based in Rancho Santa Fe, California.
They also help investors delve into untapped potential—beyond Silicon Valley or New York or the few other places that have strong networks connecting startups with investors.
“Companies that don’t have access to the Silicon Valley networks are generally very, very unlikely to get funded,” White-Kjoss told The Epoch Times. “You have all of these very smart entrepreneurs … that have great products … who just can’t get funding.”
“These great ideas die a slow death,” she said.
Footer said ExtraVallis looks beyond the “overworked pool in Silicon Valley,” and at the same time, gives startups in other regions a chance to make it.
Footer and White-Kjoss outlined the process startups go through before really making it big, and they explained how to succeed in venture capital investing.
From Startup to IPO
At the “startup stage,” Footer said, an entrepreneur goes to friends and family usually, getting together some $100,000 to test the product, to see if there’s interest. Next is the “seed stage,” he said. This is what ExtraVallis is interested in. It’s a hard stage to enter and an even harder stage to progress beyond.
It’s when angel investors pump another few hundred thousand, or maybe up to a few million, into the startup. Angel investors are people with a high net worth who might also be from within the entrepreneur’s networking circle.
Next, the venture capitalists get involved, and the entrepreneur starts seeing investments in the tens of millions.
Then the company expands, and might either be acquired (by the Googles or Fords of the world), or go to an initial public offering. And the investors cash out.
But it’s hard to connect with venture capitalists if you’re not in the major networks in Silicon Valley or similar regions, Footer said. For most companies, trying to get to that stage, you’re in the “valley of death,” he said.
“Even the best companies die.”
And if you’re an investor outside of those networks, it’s also hard to connect with the investment opportunities.
How to Succeed in Investing
Investors looking for a diversified portfolio should have 5 to 10 percent in risk capital, Footer and White-Kjoss said. But, White-Kjoss said, many are only investing in a few companies per year, “which is a statistical way to lose money.”
Success comes, she said, with 10 to 12 per year, up to some 35 over the course of three years.
Footer explained that, of those 35, 15 will “outright die.” Another several will be “zombies,” he said, providing an income for the company managers but not providing returns to investors. Out of the several remaining, two or three will provide big returns—10 to 100 times the investment. And the others will provide decent returns of up to 10 times the investment.
For that critical mass of companies to invest in, Footer and White-Kjoss say they are happy to look in undersubscribed areas. Footer explained that 76 of all venture capital goes to New York, the San Francisco Bay Area, New England, China, and India.
He said they’re hunting for the “unicorns”—those companies that will give 10 to 100 times the investment—all over the world.
“California Insider” is an Epoch Times show available on YouTube.
Views expressed in this article are the opinions of the author and do not necessarily reflect the views of The Epoch Times.