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Meet a VC: Jay Levy .

Nasdaq is highlighting the venture capitalists that built the startup landscape we know today. This week, meet VC: Jay Levy of Zelkova VC

Meet a VC: Jay Levy

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Joe Brantuk- Good Morning FB I’m Joe Brantuk coming to you from the Nasdaq Market Site, and we’re delighted to be with Jay Levy from Zelkova Ventures. Good to have you here!

Jay LevyThanks for having me!

JB- So how’d you get started in the venture community?

JL- About 8 years ago I was trying to help some friends raise some capital here in NY, and they were having a really hard time trying to raise their first million dollars. At the time, back in 2007, there was only a handful of early stage funds, what we would call today seed funds didn’t exist and the funds that would write smaller checks, 300k, half million and upwards of a million, were larger fund so they would apply the same process and rigor to a 300 hundred thousand dollar check as they would a 3 million dollar check. Inherently companies at that stage are at a very different place then companies looking for 3 to 5 or 10 million dollars, so the level of diligence you can do isn’t there. So we saw an opportunity to start what today we would call a Seed Stage Fund, to be able to work with entrepreneurs and be entrepreneur friendly, to make intelligent but quick decisions and build what we built.

JB- What is a day in the life at Zelkova Ventures?

JL- The days are very much mixed on meeting entrepreneurs to hear new pitches and then spending time with existing companies. Over the years we’ve invested in 60 plus companies now, and its probably closer to 70 at this point, so quite a few board calls, board meetings which can take anywhere from an hour to 5 or 6 hours, and we’re on 20 something boards at this point and that adds up quite a bit. We see about 800 companies a year and we try to at least give everyone the opportunity to a call. And then from there, take in person meetings. So it’s a mix of meeting with new companies and then working with the existing ones but the existing companies always come first. That is primary and that is where our attention definitely lies.

JB- What sets you apart from other venture firms and what is your model?

JL- We looked at the numbers and we saw that of successful companies, 88 percent sell for less than a 100 million and of that, 90 percent sell for less than 30 million, so unfortunately the vast majority of companies that are started aren’t going to end up IPO’ing here. They’re going to build great companies, the ones that succeed, but they’ll be doing 30, 40, 50 million if not, less and sell at multiples of 5. So we looked at that and said: how can we build a fund that is successful around that model? So we tend to look for companies that can be capital efficient. The data shows for founders when they raise less than 3 million dollars they have the best outcomes, so where they can raise less than 3, where they can quickly drive revenues in a few years to 2, 3 , 4 , 5 or 6 million and sell it at a 5x multiple, everyone dreams of a 10x multiple but it really doesn’t happen that often. So we really look for founders who can grow great companies and understand the ballpark that we’re playing in that is the early stage ecosystem.

JB- How many portfolio companies do you have and what is the overall investment?

JL- We’re currently on Fund 2, there’s about 20 something active companies in that fund right now, our investing thesis is to invest early and follow on heavily. Last year our initial check was about 175 thousand but we reserved 3 times that for follow on so we like to come in in the syndicate between 500 thousand and a million with other early stage investors, we’ll do about 175 to 200 of that and the companies typically feel that that’s going to get them to their next round of financing. But things take longer than expected, things don’t always go as expected and companies typically need more money. At that point we’ve been typically involved with the companies for 12-18 months, we’ve got a lot more conviction on what they’re doing and we’ll double or triple down to help to bridge them to the next level whatever that might be.

JB- Do you focus on a specific sector or sectors?

JLYes, we’re very much B2B SaaS, so software for enterprise and we are very much horizontal so we don’t target any specific industries so we want to invest in software that can go cross industry whether that be financial services, real estate, medical, marketing, etc. and within that we’re very much focused on marketing technologies, HR technologies, financial service and operations technologies so kind of across the entire corporate spectrum.

JB – Let’s talk a little bit about the process, so you said you look at 800 plus companies a year, what are you looking for? What’s the commonality about either the management team or the company itself?

JL- So we joke and say it’s 97 percent the people, 2 percent the product and 1 percent the market, that’s not true, but it’s definitely directionally correct. It’s all about the people because that’s what we’re backing. We want the people to have the heart, we want the people to have the passion and we want the people to be understanding of how hard this journey is going to be and understand why they’re the right people to build this company. That’s really what we look for, and you know every little factor comes into play, askingthem ‘how did you get into us?’, ‘who was the introduction through?’ ‘who are the people we have in common?’, and ‘how are we going to work together?’

We spend a lot of time with entrepreneurs prior to the investment, doing strategy meetings and whiteboard sessions and seeing how well they take feedback, how creative they are, how open they are to ideas, etc. to see how this relationship over 6, 7, 8 ,or 10 years is going to evolve for us

JB – There’s a lot of founders watching on Facebook, what advice do you have for them?

JL- Do your research! When it comes to investors, read their body language, understand the signs, get introductions and don’t be afraid to share your idea. One of the things that we see is ‘stealthmode’ per se, trying to keep it a secret. It’s likely we’ve seen your idea before and what’s going to make you successful is your execution ability and the more data that you can get, and the more feedback you can get and the more open you can get than the more likely you are to succeed so don’t keep things that secretive.

JB- Now this could be a tricky question because I know you have to love all your portfolio companies equally, but do you have a favorite start up?

JL- I don’t have a favorite start –up, I have founders that I’ve had more fun with that’s for sure (laughter) they know who they are. We’ll leave it there. The only mistakes we’ve ever made are founders who 6 months, 12 months, 2 years we don’t want to be with, and even founders and companies that have failed, if we felt that the founders went to bat every day for themselves, for their investors and for their employees, then we’d back them again and we have.

JB- When you think about all the investments you’ve made and all the portfolio companies that you’re working with, is there a common denominator across all of them?

JL- Yeah, I think there are a lot of common denominators. The common denominator among the successful ones are entrepreneurs that won’t give up and that realize that they are doing this not for the publicity and not for the fame and headlines but because they want to build a business and they realize how hard that is and they work at that and they don’t judge success in valuation. They judge success in revenues, and in employees’ lives that are being changed, things of that nature, that’s definitely the common denominator of the startups that have succeeded. I think the common denominator of the many that have failed are the complete opposite, are the ones that are judging this on how big of a valuation that they got, on how many headlines that they got on the tech blogs, what famous investor that they may have gotten in, and how much capital they’ve raised. So I think you could definitely group founders into two different categories in our portfolio from that perspective.

JB – Well we certainly appreciate you spending some time with us today and for sharing some of the insight it was great to have you here.

JLThank you.

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