Incubators or Investors?
Jeff Clavier discusses how startups should go about deciding on incubators and investors

Jean-Francois “Jeff” Clavier, founder and managing partner of SoftTech VC, was January 23’s guest lecturer for Entrepreneurship Through the Lens of Venture Capital.

While Clavier touched on key components of successful startups like Vassallo did the week before him, the discussion focused mostly on incubators and investors.

“It used to be the case that incubators were really great for a few founders that had an idea in mind but weren’t so ready for primetime,” Clavier said, meaning that the company would not have been able to raise money on their own.

About two years ago, however, much more mature companies have been going through incubators such as YCombinator (YC). Clavier attests this to the valuation bump that incubators like YC give you.

This ends up reversing the competition scene, where VCs are trying to get at the best companies versus the best companies trying to get at VCs.

“If you feel that you are going to learn a lot and the team, mentors, will actually be really useful to you, I think it’s really worth it,” Clavier said. “Just remember it comes with a cost—dilution.”

Clavier also emphasized, however, that people shouldn’t forget it is definitely possible to be really successful as a startup without going through programs like YC’s.

 Selecting an incubator is like selecting a VC fund. In both cases you should never go into it without talking to other people who have an understanding of who is interested in who out there. In the specific case of investing, Clavier pointed out that, “Not every investor is equal. Everyone has specific types of founders or sectors that they invest in or don’t invest in. You have to try to understand the landscape.”

While the reputation of the firm does matter, what’s more important is whether or not the person of the firm is going to be good for your startup.

As Professor Thomas Kosnik pointed out, “This is a game of building trust.”

“You want someone who’s going to challenge you. You don’t want someone who’s going to be your bestie and not push you,” said Clavier. “But you want to make sure it’s done by someone you can appreciate and enjoy working with.”

Before talking to investors, startups typically should have put themselves out there, get some input and some data so that the investors can understand very early whether or not the market opportunity of the product can yield a big enough company.

“If ever we feel that you won’t get to scale, we won’t invest,” Clavier said. SoftTech gets thousands of opportunities to invest a year yet, “We say no roughly 99% of the time.”

John Lee, a director at Silicon Valley Bank’s Entrepreneur Services Group, was also present to moderate the class session.

The Lens of Venture Capital teaching team encourages anyone to submit questions to speakers via lensofvc-questions@lists.stanford.edu or by Twitter via the hashtag #lensofvc. Tomorrow (1/30) Gary Morgenthaler of Morgenthaler Ventures will be speaking to the class on Iterating your product and market strategy. On 2/13, Howard Hartenbaum of August Capital will be coming to class to speak on how to create a winning culture by making the team work: executives, board, and partners.

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