Risk, Reward, & Uncertainty

“Nothing ventured, nothing gained.” The correlation between risk and reward is accepted wisdom. The greater the risk, the greater the potential reward. That may be true with most forms of investing, but it may not be always true with venture investing.

Some of the most successful companies in the world are disrupting their industries because they found an effective way to unlock and make available an underutilized asset…

Airbnb unlocked underutilized residences to create a new supply of lodging.

Uber & Lyft unlocked underutilized people and vehicles to create a new supply of transportation.

Amazon unlocked and made available underutilized books, and then everything, including a new supply of web services.

Google unlocked and made available the world’s underutilized information.

TikTok unlocked underutilized teenagers & their inexhaustible creativity.

Moore’s Law – where the number of transistors in an integrated circuit roughly doubles every 2 years and which has governed the semiconductor industry’s march of progress since the 1970s – was about to hit a brick wall. The lack of a photoresist – a photo-reactive ink – to work with next-gen extreme ultraviolet (EUV) lithography, meant that engineers could no longer develop chips with increasingly smaller transistors.

Fortunately, it doesn’t take a whole generation for most seed investments to bear fruit. In fact, the mean time to harvest for Oregon Venture Fund seed investments is just 4.5 years. Over the past 10 months, OVF and our region experienced a bumper crop of exits from recently planted seeds:

OVF invested in Salt & Straw in 2019 to fuel their expansion and bring their artisanal ice cream to locations up and down the West Coast. We feel so strongly about the potential of the team, the strategy, and the product that we made a 2nd investment in 2020 to help them add additional scoop shops in Florida. We have been delighted with their progress – the company has generated consistent, impressive growth with new locations and customers from coast to coast. But selling handmade, super-delicious ice cream has always been only part of the equation for founders Kim and Tyler Malek (cousins). They are on a mission to create community gathering places in walkable neighborhoods and arts districts, as well as marquee entertainment destinations. A Salt & Straw scoop shop is a place where you can run into neighbors, spend time with family, or treat yourself.

It’s no secret that students’ mental health is in harm’s way. Young people the world over are feeling more isolated, anxious and disengaged, exacerbated by the Covid pandemic. In the last decade, there has been a 76% increase in adolescent suicide attempts. 76%! Suicide is now the second leading cause of death among adolescents. Chances are you know someone who knows someone who has attempted (or succeeded with) suicide. It has become harder and harder to just be a kid.

While the pandemic continued to generate hardship & angst for many, 2021 was a year for the record books for the Oregon Venture Fund’s growing community of investors and portfolio entrepreneurs:

OVF invested a record $11 million in local startups this past year. We are particularly proud to welcome Cloud Campaign, TrovaTrip, RISE Brewing, and Wayfinder to our portfolio and venture community.

Venture capitalists love metaphors. And nowhere is this more prevalent than when we talk about a good startup “pitch” – the first meeting with an investor where you get to tell your story.

We like to say things like, a good first meeting is like a good first date. You want the person you are meeting to remember you and think you are interesting enough to get a second date. No one should be getting married after a first date.

One of the areas where we’ve experienced confusion between investors and entrepreneurs is getting to a common vocabulary for the current stage of a company. An entrepreneur might say, “We’re raising a $5m Series A to build our product and run pilots with 10 customers,” which in many cases sounds to an investor more like a seed or pre-seed investment rather than a Series A.

The Technology Association of Oregon (TAO) was kind enough to present me with a lifetime achievement award, which is wonderful recognition of what we have all accomplished as a fund and community.

OVF is very grassroots in origin and nature - it was created by our community, for our community; a community of hundreds of investors, local entrepreneurs, and organizational partners, including TAO. What we’ve accomplished, we’ve accomplished together.

Our thoughts are with our doctors and nurses working long hours; our parents and grandparents feeling isolated and scared; our families with children adjusting to life without school, extracurriculars, sports, and play dates; our employers facing abrupt losses and changes in demand; and pretty much everyone adversely impacted by this virus.

As early-stage investors, we’re often the first institutional partner of a founding team, and we’re all working together to grow a successful, self-sustaining company. That said, one of the first tasks of a startup board is to create an exit strategy and plan, knowing the plan will evolve and change over time as the company evolves and grows.

Danny Meyer came terrifying close to pursuing a career as a lawyer. In the early 1980s, Danny moved to New York City and took the LSAT exam. The experience of taking that test caused him to quickly decide that he really did not want to be a lawyer. His parents were not pleased. Instead, Danny took a job as a host at an Italian seafood restaurant. 2 years later, at age 27, he used all his savings to open his first restaurant: Union Square Café.

Since 2016, the Oregon Venture Fund has collaborated with The Brentwood Group and other regional and national venture funds investing in Oregon and SW Washington to survey and track founder, employee, and board compensation at local venture-backed companies. As the only annual survey focused on Oregon VC-backed startups and growth companies, the data has unique value for identifying trends, benchmarking compensation, and assisting startup executives, investors, and board members with recruiting and retaining key people.

Blockchain best suited where:

· Immutability matters

· Either transparency or anonymity/confidentiality matters

· Multiples entities involved, and trust is an issue

· Millions/trillions of transactions

· A centralized architecture fails, and peer-to-peer works better (eg, YouTube, not Comcast)

· Disintermediation can/should occur

We invited Gerry Langeler to meet with us and share his advice on what the Oregon Venture Fund and our portfolio companies should be doing now to prepare for the inevitable next economic downturn.

Worth remembering that during the mortgage meltdown and the ensuing Great Recession (12/07 to 6/09), the Dow Jones Industrial Average lost 50% of its value. Venture financing dollars dropped 40% and the number of initial venture financings also dropped 40%. 9 million jobs were lost. $7 trillion in home equity evaporated. 7 million American families lost their homes.

We believe there will be an increasing number of local venture-fundable startups operating in life science and medical technology markets. The Oregon Venture Fund has made 9 investments to date in these sectors…

How are VC-backed companies in Oregon and SW Washington compensating their employees? The Oregon Venture Fund teamed up again with the Brentwood Group to find out.

To get meaningful, longitudinal data, our approach is to directly survey all privately held VC-backed companies in our region. This allows management teams and investors to track annual compensation levels and trends, including base and variable comp and equity ownership, by position, and controlled for company size, stage, and funding level.

Why Oregon and Why OAF

We believe this is Oregon’s day in the sun. Even when it’s raining, like it probably is right now…

The frequency and quality of local venture-backed exits continue to accelerate

This means that virtuous cycle of local wealth creation and reinvestment is shifting from first to second gear. The result: More local capital and more entrepreneurs wanting to do it again.

Thorough diligence is a cornerstone of successful investing - and a hallmark of the Oregon Angel Fund. OAF's thoroughness is born of our collaborative model, which harnesses the vast wealth of talent and experience that our investors bring to the table. But as with any project involving lots of people, OAF diligence could become chaotic and time-consuming if not carefully choreographed.