Early-stage VC investors dominate CB Insights top 20

Rebecca Lynn, co-founder of Canvas Ventures, who is among CB Insights’s top 20 venture capitalists. Photo: Jason Henry/The New York TimesRebecca Lynn, co-founder of Canvas Ventures, who is among CB Insights’s top 20 venture capitalists. Photo: Jason Henry/The New York Times

For the last few years, the spotlight in start-up investing has largely shone on those who poured money into a company when it was already well along on a growth path. It turns out that spotlight may have been misdirected.

While some investors are throwing giant sums into more mature start-ups like Uber and Airbnb at soaring valuations, it is the venture capitalists who identify a promising company at its infancy and bet on its growth who often come out on top.

Known as early-stage investors, they dominate a list of the top 20 venture capitalists worldwide that was recently created by the research firm CB Insights. About three-quarters of the top 20 are investors who put money into start-ups during their early rounds of financing. Only a handful on the list are focused on investing at a later stage in a company’s life.

CB Insights generated the list using criteria such as how big a return an investor was able to produce when his or her investments went public or were acquired. CB Insights focused on the performance of investors since 2008 for the list.

The top 20 includes Peter Fenton of Benchmark, who invested in Twitter when the social media company had only 25 employees and was trying to fix its once-common service failures; the company went public in 2013. The list also includes Jim Goetz at Sequoia Capital, who was one of the few to invest in the messaging service WhatsApp before it was acquired by Facebook, and Jenny Lee of GGV Capital, who was among the earliest investors in 21Vianet, a Chinese data center services provider that has since gone public.

The idea that early-stage investors can generate much larger returns has long been a core principle of venture capital: Get in early and grab a bigger stake in a company, with more opportunity for a larger return later, the thinking goes.

Early-stage investments have accounted for the lion’s share of the venture industry’s gains since 1994, according to Cambridge Associates, a research firm that studied the quarterly financial reports of dozens of venture firms. Since the dot-com boom of the late 1990s, between two-thirds and three-quarters of the industry’s returns have been generated by early-stage investments in any given year.

But the value of investing in a company when it is still nascent has been somewhat obscured in recent years as hordes of non-traditional start-up investors—including mutual funds, hedge funds and sovereign wealth funds—have piled into private tech companies, often when those start-ups are already proven growth stories. When Uber raised around $2.1 billion in December, for example, one of its investors was Tiger Global Management, a New York investment firm with a hedge fund component.

Rebecca Lynn, a managing director and co-founder of Canvas Ventures who is on the CB Insights list, said early-stage investments generally pay off more because “investors can get more of an ownership stake and you’re also part of the team”.

Lynn, who invested early in the alternative lending platform Lending Club, which went public in 2014, added that “later-stage investing is more like a stock bet. You’re along for the ride”.

Yet there is more risk in early investing, since unproven start-ups can easily fail.

“There are so many unknowns, from what the core business is going to look like to what the team is going to look like,” said Danny Rimer, of Index Ventures. He is also on the top 20 list, partly because of an early bet on King Digital Entertainment, the maker of the game Candy Crush that went public before being acquired by Activision Blizzard. (Rimer also invests in firms in their later stages.)

Early-stage investing has changed in recent years. The top-returning venture-capital investments in any given year were once dominated by just a handful of brand-name, early-stage venture firms. That has shifted: During the last decade, new venture firms have contributed to an increasing share of the best investments, according to Cambridge Associates.

New players have been successful partly because they have been more willing to put money into companies outside Silicon Valley, especially in China, where start-up success stories have been abundant over the last decade, Cambridge Associates said in a report last fall.

That has benefited venture capitalists including Lee and Neil Shen of Sequoia Capital, who made names for themselves by investing early in Chinese start-ups that went public: Lee in the social network YY.com and Shen in the Internet security company Qihoo 360. Shen is also on CB Insights’ list of top 20 investors.

“The tech market has massively expanded, and tech is now far more accessible all around the world,” said Theresa Hajer, a managing director at Cambridge Associates.

As more venture firms have snagged pieces of the top deals, more have also taken pieces of the return pool, lowering the overall gains for the venture industry as a whole. Before the dot-com bust of the early 2000s, huge returns of 25 times the original investment amount were the norm for the top investments.

Since that period, it has been much rarer for the top investments in any given year to yield a 25-fold return, according to Cambridge Associates data.

For the foundations, endowments and pension funds that have poured billions into venture capital funds, finding the right early-stage investor remains a challenge. Scott C. Malpass, the chief investment officer at the University of Notre Dame, said he could count on two hands the number of venture investors who could successfully identify which young start-ups would make the transition to lasting companies.

“I just want to be in the top two to three companies, not the top 100, because that’s where the next Google or LinkedIn will be,” Malpass said about his philosophy of working with early-stage venture capitalists. “It’s still a home run game.”


Dominate Using These Digital Data Trends and Insights

 digital trends

Have you noticed how integral digital elements have become in our lives? Whether we love it or hate it, we are living in a digital economy, interacting with digital devices, building and managing digital relationships.

Here are 10 books that will give you insights on digital data trends and guide you through the digital landscape in 2016.

disrupting business book“Disrupting Digital Business: Create an Authentic Experience in the Peer-to-Peer Economy”

by R “Ray” Wang

More than half of the Fortune 500 have been merged, acquired, gone bankrupt and fallen off the list in the last 15 years because they didn’t adapt, transform or keep pace.  In “Disrupting Digital Business: Create an Authentic Experience in the Peer-to-Peer Economy,”  Wang claims it’s all about the right mindset and that includes being true to yourself and your brand mission, leveraging people-to-people networks, keeping brand promises, personalizing the customer experience, focusing on relevant content and developing a culture of digital DNA. The key to moving your organization forward lies in having a focus on transformation, staying relevant, being intentional and networked. Regardless how big or small your business is, you will find inspiration here.

platform marketer book“The Rise of the Platform Marketer: Performance Marketing with Google, Facebook, and Twitter, Plus the Latest High-Growth Digital Advertising Platforms”

by Craig Dempster and John Lee

These days marketing is more about digital creativity.  Collecting, managing and making sense of consumer data is the best way to deliver targeted personal experience that your customers have come to expect online. In “The Rise of the Platform Marketer: Performance Marketing with Google, Facebook, and Twitter, Plus the Latest High-Growth Digital Advertising Platforms” by Craig Dempster and John Lee (@JohnLeeMerkle), you’ll learn how to build competencies that will help you take advantage of the ever changing digital landscape. The book goes into detail about how to use digital tools like social media and digital marketing and how to develop strategies in this environment.

If you’ve been wondering how you’re going to accept, adapt and leverage tomorrow’s social platforms, this is a book that belongs on your shelf.

dot com secrets book“DotCom Secrets: The Underground Playbook for Growing Your Company Online”

by Russell Brunson

Russell Brunson (@RussellBrunson) isn’t just an author. He’s also the man behind the awesome marketing automation tool called “Click Funnels”. This tool has gained so much traction that he’s written “DotCom Secrets: The Underground Playbook for Growing Your Company Online” to help small businesses market online without worrying about the technical aspects of online marketing. Brunsen has taken everything that this tool does and written about it in exquisite detail so that you can do it too.  The good news is that you don’t have to be a Click Funnels customer to appreciate the strategies Brunsen covers here.

This is a wonderful book for any small business owner looking to sell products or services online and to make that experience educational, rewarding and profitable for their customer.

small data book“Small Data: The Tiny Clues That Uncover Huge Trends”

by Martin Lindstrom

By now you’ve probably heard of the phrase “Big Data.” This is the moniker we give to the onslaught of personal information that we share through our daily actions or social media sharing.  In “Small Data: The Tiny Clues That Uncover Huge Trends” by Martin Lindstrom (@MartinLindstrom), the author takes it to the other extreme.  He claims that Big Data doesn’t really give brands the kinds of insights they need to connect with their ideal customer.  Instead, Lindstrom goes to “Small Data,” triangulating highly personal data such as diaries, phone records and interviews.

This is a fascinating story of how our invisible and intimate behavior will have you predicting trends by simply observing social posts and seemingly insignificant actions.

twitter power book“Twitter Power 3.0: How to Dominate Your Market One Tweet at a Time”

by Joel Comm and Dave Taylor

Twitter has evolved from a social media fad to a phenomenon.  And if you’re still mystified, don’t worry. Pick up a copy of “Twitter Power 3.0: How to Dominate Your Market One Tweet at a Time” by Joel Comm (@JoelComm) and Dave Taylor (@DaveTaylor).  It’s a completely updated guide to Twitter in 2016.

You’ll get everything from setting up your account to “Twitter Etiquette” and how to connect and build relationships with experts, customers and everyone in between.  The book even gives you practical tips on how to set up your profiles and keep your account secure. You’ll love Comm’s practical advice that makes Twitter accessible and manageable even if you’ve never Tweeted before.

shareologoy book“Shareology: How Sharing is Powering the Human Economy”

by Bryan Kramer

From the first cave painting illustrating the latest hunting expedition to posting your vacation picture on Facebook and Tweeting your comments around this week’s episode of “Survivor,” it’s clear that people LOVE sharing. In “Shareology: How Sharing is Powering the Human Economy,”  author Bryan Kramer (@BryanKramer), a leading authority on social and digital media, takes a deep dive into the history and condition of sharing.  He didn’t write this book just for business or brands. He wrote it for people who want to understand and connect with others in a powerful way.  This book will show you how to listen on social media, see content as currency and develop personalized strategies that will help you grow and expand your marketing impact using social media.

smarter screen book“The Smarter Screen: Surprising Ways to Influence and Improve Online Behavior”

by Shlomo Benartzi (@ShlomoBenartzi) and Jonah Lehrer (@JonahLehrer)

If you read a book on an iPad, you’re less likely to remember its contents than if you read a hard copy! You overvalue products when you shop on a touch screen. Facts like this may seem trivial, but they make an enormous impact on how we process information and the decisions that we make.  In “The Smarter Screen: Surprising Ways to Influence and Improve Online Behavior” by Shlomo Benartzi (@ShlomoBenartzi) and Jonah Lehrer (@JonahLehrer), you’ll explore how to leverage the changes that technology makes to our brains in order to make better decisions. If you’re a gadget geek and interested in the backstory of intended and unintended consequences, you’ll enjoy this book.

storytellers secret book“The Storyteller’s Secret: From TED Speakers to Business Legends, Why Some Ideas Catch On and Others Don’t”

by Carmine Gallo

If you want to move, influence, persuade, touch and inspire people, then become a great storyteller.  In “The Storyteller’s Secret: From TED Speakers to Business Legends, Why Some Ideas Catch On and Others Don’t,” author Carmine Gallo (@CarmineGallo) shows you how to reframe ideas to make an irresistible, memorable and emotional connection with your audience.  The book goes into actual brain science to explain why human beings are attracted to stories and gives insights and examples how to create your own stories. He uses examples such as Richard Branson, Steve Jobs, Bill and Melinda Gates and more.  Here’s a sneak peek at one of the core principles  Great storytellers have had struggles in their lives and have learned to turn that adversity into victory. Ultimately, not every great storyteller is a hero, but they know how to talk like one.

quarter method book“The Quarter Method, Book 1: The Psychology of Sales (Volume 1)”

by Roy Wilhite

“The Quarter Method, Book 1: The Psychology of Sales (Volume 1)” by Roy Wilhite is the first of a 3-volume series that focuses on the psychology of sales.  The author is a psychologist and uses his experience in how people buy to demystify the sales process. Think of it as a sales system.  This volume starts before the actual sales process begins.  The author brings your attention to your mindset and focuses on recognizing and changing bad habits.  Other topics include getting into the mindset of the customer, wants versus needs and understanding perceived value from the customer’s point of view.  This volume is ideal for the new sales person or a salesperson who wants to take a fresh look at themselves or a new industry.

challenge customer book“The Challenger Customer: Selling to the Hidden Influencer Who Can Multiply Your Results”

by Brent Adamson and Matthew Dixon

Did you know that every purchase by a large company involves an average of 5.4 people? With that many cooks in the purchasing kitchen, it’s not surprising that they have conflicting priorities. In “The Challenger Customer: Selling to the Hidden Influencer Who Can Multiply Your Results” by Brent Adamson (@BrentAdamson) and Matthew Dixon (@Matthewxdixon), the authors show you how to focus on the low hanging fruit and that does NOT include the easy customers.  It’s actually found by focusing on the more challenging customers. The key is to reach all the decision makers and bring them to consensus.  Using in-depth research from CEB (Corporate Executive Board), the authors lay out a five-step process that will help you find those “Challenger Customers”, engage with them and leverage them to drive consensus.


Billionaire Wisdom: 8 Insights From a Quartet of the World’s Most Effective Entrepreneurs

Billionaire Wisdom: 8 Insights From a Quartet of the World's Most Effective Entrepreneurs
Until very recently, taking on grand challenges was off-limits for most people. Historically, going big meant huge capital outlays and multi-decade bets.

It meant staging personnel in dozens, sometimes hundreds, of countries. Assembling the astounding array of talent required an infrastructure for hiring, retaining and retraining it as technology evolved. But with the wealth of crowdsourcing tools available to today’s entrepreneurs, the entire playing field has shifted.

Technology lets companies to scale up in size as never before. Small groups can have huge impacts. A team of passionate innovators can alter the lives of a billion people in an eyeblink.

A quartet of entrepreneurs have harnessed technology to build multibillion dollar companies that forever changed the world: Virgin Group founder Richard Branson, Amazon CEO Jeff Bezos, Tesla Motors CEO Elon Musk and Google CEO Larry Page.

Each of them mastered a rarely discussed skill fundamental to bold pursuits and enterprises with exponential growth: the ability to think at scale.

Based on my in-depth interviews of these men and other sources, I have distilled eight strategies for business success:

Related: How the Next Five Years Will Revolutionize Business

1. Take risks but mitigate them.
richard branson

Richard Branson
Image credit: Richard Branson via Instagram
Just about everything Sir Richard Branson has done has involved taking brazen risks. But he also runs his Virgin Group empire like a competitive ecosystem, letting some companies live, others die and always ceaselessly experimenting.

He is quick to rapidly iterate his ideas and quicker to shut down a failure. While Branson is known to have started tons of companies, he has also shed ones that didn’t work for him.

Branson understands that risk mitigation is critical.

“It looks like entrepreneurs have a high tolerance for risk,” he told my co-author Peter H. Diamandis in an interview for our just-published book, Bold. “But, having said that, one of the most important phrases in my life is ‘protect the downside.’ It should be one of the most important phrases in any businessperson’s life.”

It was a “big, bold move going into the airline business,” Branson said of his launch of Virgin Airlines after initially starting Virgin Records. But Boeing allowed for him to “give the plane back after 12 months.”

“That meant I could put my toe in the water, I could see whether people liked the airline,” he said. “But if it didn’t work out, it wasn’t going to bring everything else crashing down.”

Added Branson: “I’d be able to look my record company bosses in the eye and we’d still be friends because they’d still have jobs.”

“Protecting the downside is critical,” Branson said. “Make bold moves but make sure to have a way out if things go wrong.”

Related: Richard Branson on Taking Risks

2. Rapidly iterate and experiment until things are right.
jeff bezos

Jeff Bezos
Image credit: James Duncan Davidson | Flickr
Jeff Bezos is a busy man. He isn’t interested in small shifts in direction or polite progress. He wants to effect change on a massive scale, tapping customer-centric thinking for the long term.

The Amazon CEO also understands that the only way to really succeed is via experimentation. He knows that this approach will occasionally produce spectacular mistakes. “Failure comes part and parcel with invention. It’s not optional,” he wrote in a 2014 Amazon shareholder letter

Staff at his company “believe in failing early and iterating until we get it right,” Bezos added.

“When this process works, it means our failures are relatively small in size,” he wrote. “Most experiments can start small.”

“And when we hit on something that is really working for customers, we double down on it with hopes to turn it into an even bigger success,” Bezos said.

Related: Google, Fidelity Invest $1 Billion in SpaceX to Spread Internet Access Across the Globe

3. Be driven by passion and purpose.
elon musk

Elon Musk
Image credit: Heisenberg Media | Flickr
Nothing is more important than passion and purpose for Elon Musk, who also heads up Space Exploration Technologies and SolarCity.

“I didn’t go into the rocket business, the car business or the solar business thinking this is a great opportunity,” Musk told me in an interview.

“I just thought, in order to make a difference, something needed to be done. I wanted to have an impact. I wanted to create something substantially better than what came before.”

4. Think long term.
Google X chief Astro Teller told Wired how he imagined wheeling a time machine into Google CEO Larry Page’s office, plugging it in to demonstrate that it worked only to have his boss ask why it needed a plug and wouldn’t it be better without having to draw from an electric power source?

This was to illustrate Page’s focus on 10x thinking, which Teller has referred to as making something 10 times better.

For Page, the answer for him and Googlers always sits at the intersection of long-term planning and customer-centric thinking.

“We always try to concentrate on the long term,” Page told me in an interview. “When we first looked at YouTube, people said, ‘Oh, you guys are never going to make money with that, but you bought it for $1.4 billion. You’re totally crazy.'”

“We were reasonably crazy, but it was a good bet,” Page said, noting YouTube’s revenue growth.

Added Page: “Our philosophy is that the things that people use often are really important to them and we think that over time, you can make money from those things.”

Related: Google Co-Founder Larry Page to Step Back From Duties to Focus on ‘Bigger Picture’

5. Emphasize a customer-centric approach.
Branson’s fiery devotion to fun is relayed to his dedicated clientele and fervent fans. The net effect is a business strategy based on experimental customer-centrism. If Branson thinks a particular service might be beneficial to his customers (and fun), he tries it out.

This is why Virgin Atlantic offers free seat-back TVs, onboard massages, a glass-bottomed plane and stand-up comedians.

“Unless you’re customer-centric you might be able to create something wonderful, but you’re not going to survive,” Branson told me.

“It’s about getting every little detail right. It is running your airline like you would an upscale restaurant — the kind where the owner is there every day,” he added.

“Virgin Atlantic started out with one plane,” Branson said. “On paper, we should not have survived. But because we were customer-centric, people went out of their way to fly us.”

6. Broaden the view by tracking probabilities.
Thinking in probabilities (a business has, say, a 60 percent chance of success) rather than deterministically (if I do A and B, then C will happen) doesn’t just guard against oversimplification. This type of thought process protects an entrepreneur against the brain’s inherent laziness.

Musk strives to broaden his view by thinking in probabilities.

“Outcomes are usually not deterministic,” Musk told Kevin Rose in a 2011 interview. “They’re probabilistic.”

Added Musk: “The popular definition of insanity — doing the same thing over and over and expecting a different result — that’s only true in a highly deterministic situation.

“If you have a probabilistic situation, which most situations are, then if you do the same thing twice, it can be quite reasonable to expect a different result,” he concluded.

7. Be a rational optimist.
elon musk

Larry Page
Image credit: Niall Kennedy | Flickr
Larry Page famously said in a keynote address to Google’s I/0 conference in 2013, “Being negative is not how we make progress.”

“I’m tremendously optimistic,” he said. “I’m certain that whatever challenges we take on, we can solve with a little bit of concerted effort and some good technology. And that’s an exciting place to be.”

Page observed that this meant his company’s “job is really to make the world better” and that the world needs “more people working on this. We need to have more ambitious goals.”

Said Page: “The world has enough resources to provide a good quality of life for everyone. We have enough raw materials. We need to get better organized and move a lot faster.”

8. Rely on fundamental truths.
Musk urges entrepreneurs to seek direct, blunt, critical feedback from friends. “It’s not going to be easy, but it’s really important to solicit negative feedback,” the type that “helps you recognize as fast as possible what you’re doing wrong and adjust course,” he told me.

“That’s usually what people don’t do,” Musk said. “They don’t adjust course fast enough and adapt to the reality of the situation.”

Often, he says, people do things because “others are doing them” or they spot a trend. They see “everyone moving in one direction and decide that’s the best direction to go.”

At times “this is correct, but sometimes this will take you right off a cliff,” Musk said.

Considering fundamental truths “protects you from these errors,” Musk concluded.