Monthly Archives: August 2014

The luxury of oversubscribed seed rounds for entrepreneurs and investors

The last six startups that we’ve backed, namely Roadster, Mavrx, ValetAnywhere, Arthena, and two startups in stealth mode are all seed investments in the US.

The primary difference between our investments in Turkey and those in the US is that we’re generally the lead investor in our Turkish investments while we take a follower role in our US investments. This is reflected in our investment sizes in each market, which range between $250K and $2M in Turkey and between $100K and $250K in the US. 

The first reason behind our different approach to the geographies we’re active in is because we’re based in Turkey. This makes us better positioned to work with and add value to our Turkish startups than those in the US where we take a more hands off approach.

However, another important reason why our investments in the US are smaller than those in Turkey is because of the availability of capital in each market. In five of these six US investments, the seed round was oversubscribed. We therefore had to adjust our ideal investment amount downwards in order to accommodate the other investors participating in the same round.

This is a nice problem to have for seed stage investors like ourselves. While later stage investors may want to complete as much of a round as possible themselves once they’ve identified a startup with steady growth and a scalable business model, the absence of these characteristics in seed stage investments justifies more risk sharing among investors.

Oversubscribed rounds are also a nice problem to have for entrepreneurs. Their first advantage is that they allow entrepreneurs to choose the investors who they would like to work with based on factors like how much value add the investor will provide, the investor’s brand reputation, and their capacity to perform larger follow on investments.

Equally important, oversubscribed rounds also allow entrepreneurs to raise more capital at better terms. While more capital isn’t always better as it can lead to excess spending, when properly managed at the seed stage, it gives entrepreneurs more runway to achieve the product-market fit necessary for them to continue to grow their business either organically or by raising their next round at better terms.

The natural consequence of the lower amount of capital available for seed stage investments in Turkey gives $100M+ funds like Earlybird, where we’re an investor, and 3TS an important advantage. Even in the absence of other investors, they have the internal financial firepower to continue to support successful startups across the multiple rounds that are often necessary for their success.

On the other hand, oversubscribed rounds in the US are a luxury for both entrepreneurs and investors. As active seed stage investors in the US, we’re very fortunate to be able to position ourselves on the right side of this market dynamic.

 

Our investment in Arthena

We recently made a seed investment in Arthena, an equity co-investment platform for art work. Arthena is our third investment in the US after Flipps and Anymeeting. For those in the startup space, you can think of Arthena as AngelList for art.

On one hand, there are pieces of art with a value anywhere from hundreds of thousands to several millions of dollars. On the other hand are individual investors who want to invest in art but don’t have the expertise to select the right investment or the necessary funds to buy an individual piece of art on their own. 

Similar to the AngelList Syndicates feature, Arthena solves these problems by accepting co-investments as small as $10,000 and working with fund curators who are experienced art investors with a proven track record of generating high returns from their investments. Fund curators are responsible for marketing their funds with the help of the Arthena platform and selecting the artwork to be purchased. In addition to the value of its platform, Arthena is responsible for sanity-checking the value of the purchase, authenticating the piece of art, and storing it.

Following its participation in the AngelPad Spring 2014 program, Arthena is currently headquartered in the world’s art capital New York City. The three person Arthena team is led by Madelaine D’Angelo. Madelaine has an MA in Museum Studies from Harvard and a strong network in the art space from her previous work at the Smithsonian and the Museum of Fine Art in Boston. The company is currently growing its team and you can check out all their available positions here.

We’re very fortunate to be able to support Madelaine and the Arthena team as they bring the excitement and financial returns of art investments to the masses.