Wearable Tech World Feature Article
May 29, 2014

CRV Talks Future of Wearables & Investment

For more than 40 years, CRV has been investing in companies that touch the lives of millions everyday. With teams based in Silicon Valley and Boston, CRV is made up of entrepreneurs and operators who have worked at companies big and small.

I had the chance recently to chat with George Zachary, general partner of CRV. The company focuses on early stage investments and has been involved in some of the biggest tech companies and exits in the last few years, including Twitter, Yammer, Orchestra, and more. More recently, the firm has invested in some of the fastest-growing sectors in consumer and enterprise tech. Our full interview appears below.

What key elements do you look for in a business plan?

GZ: I look for a bunch of different elements. I’d say the most important one is a clear, concise description of what the product is and what major problem it solves; that’s number one. Number two is how solving this problem will change the world in a meaningful way. Number three, the founders’ backgrounds and how they’re coherent or consistent with the problem they’re trying to solve. That doesn’t mean that they were former rock stars in what they did, but what they were working on before feeds into what they’re working on now.

When should entrepreneurs turn to the investment community for financing?

GZ: When they need it. Usually what we see is - and we look at mostly internet-related companies as well as the infrastructure for it – usually we see companies that raise seed-funding and then they need to raise a million to ten million dollar size round to basically expand the head count of the company, to basically get the product to market, not only from an engineering perspective but also from a go-to market and marketing perspective.

So where should entrepreneurs then go to raise capital?

GZ: Well, it matters what stage they’re at. For example, I’m the lead investor in Pebble, which is the leading smart watch company out there in terms of market share and units,

and when they approached me they had raised very little capital, about $375,000, from friends and family and from some small angel investors, and they had launched their Kickstarter campaign which had done well so they had some capital there, but they needed additional capital to buy more parts to make more watches.

So I met the founder while he was just starting to think about that from another person who knew both of us. We actually didn’t know either of each other, but this third person basically said, “You guys should really meet each other because you both have interest in wearables.” And Eric, who’s the founder of Pebble, was doing a wearable company and I was actually looking to find out more about Pebble, so that’s how that kind of happened. In terms of where to go to raise capital, it matters what kind of company it is. If it’s a technology company, you’re usually best suited to try to raise capital from people who are already involved in what I call the technology ecosystem, which means venture capitalists and angel investors who make investments into early stage technology companies.

So then how can entrepreneurs calculate the value of their enterprise?

GZ: There is no calculation of value. People have asked well how do you calculate valuation. We have no 64,000 variable large mainframe application or cloud application that computes value. The number one thing we like to figure out first is do we believe this company can change the world and become a billion dollar company? If the answer to that questions is yes, then the next question is Okay if this can be a billion dollar company, can it create effectively a winner take-all scenario, where it can basically garner a majority of profits in the market or a larger than average share of profits in the market?

From there, we basically figure out how much capital a company will need, and we try to invest and own approximately 20 to 25 percent of a company, some companies are slightly less, some companies are slightly more. We have companies where we’re in the 35 percent range, but we’re interested in ownership. Valuation is really ephemeral and really an illusion because a company isn’t really worth anything at the beginning…it’s only worth what people want to put into it. And that really depends on the perception and excitement by investors about what the company’s doing and the founder’s ability to do it.

So I actually want to spend a couple more minutes on this. If you look at the amount a company is funded by a venture capitalist and angel investors in a 3 year time frame, there are roughly 4,000 of them, and approximately 8 drive 80 percent of all the gain in the market. So if you’re not in one of those 8, it’s very difficult to remain a venture capital firm and continue to raise capital. Our investors, who are primarily institutions and endowments and charitable foundations, what they want to know are that we’re going to be an investor in the next Twitter or the next Google. They don’t care about an investment where we invest a dollar and it returns 2 dollars. What they want to see is a company where we invest a dollar that has the potential to return 100 or 1,000 or 10,000 dollars for each dollar. So we specifically look for very high risk companies that are also potentially very world-changing. The probability of us losing all our money in the investment is also pretty high. We’re not looking for safe investments – we’re really looking for investments that change the world.

How can entrepreneurs then capture the attention of potential investors?

GZ: Great question. Everyday I get 10-20 emails from founders that say ‘please look at my Slidedeck here or my executive summary which I’ve attached, we’re the best company ever, and we’ll be worth billions of dollars,’ and then after I get through that portion, I look at their deck and I get into it. What captures my attention– the first thing is – if there’s a high quality referral to me; I’ll pay attention to it. And the reason why is I have a lot of relationships in my network and people in my network effectively filter a lot of the opportunities for me, so the things I see from my network tend to be higher quality.

So I would suggest to any founder to find an introduction to a venture firm, optimally through a founder in the portfolio of that venture firm – that would be the optimal. That’s number one, and number two is just a clear, concise story in the email that captures my attention. In my 19 year career in venture capital, I’ve looked at about 35,000 companies and have invested in about 30, so I tend to invest in companies that I feel so excited about that I’d literally want to join them as a co-founder. Not that I would actually join them, but I have that feeling of wanting to join them.

Is there something that jumps out at you and says ‘This is the kind of company that really grabs it’?

GZ: Yeah, but it’s very hard to verbalize that feeling. It’s a feeling of excitement and I feeling energized. It’s not really from how much money can I make or will this be from a rational argument, it’s really an intuitive, emotional, gut-level reaction. And for me, I think it’s pretty personal, and I tend to make all the decisions in my life that way. Within 15 minutes of meeting my wife, I realized I wanted her to be my wife. So I tend to operate off of intuition and instinct as opposed to some kind of rational, calculated spreadsheet. I don’t know how to do that and I’m not really wired that way.

Are there any current events particularly in the technology sector that are especially notable these days?

GZ: I think there’s many. We can look at some things, like for example self-driving cars are something that’s going to happen. I think that’s pretty exciting for a whole bunch of different reasons. That’s a longer term issue but overall what I see is an increase towards

more distributed, decentralized systems. More things in the cloud, less things running on phones, phones as a server.

For example, the Pebble application actually runs on the iPhone or on an Android phone, so it works both on the watch and on the phone, so we use the phone as our wired network communications link, and we also use it to run application code there, because there’s more battery there and there’s more CPU power there. So I think we’re going to see more and more of this dual mode where you’ve got a phone as a server. So we moved in the ‘80s from mainstream architecture to client server architecture, and then we moved into kind of the internet and cloud, and then mobile, and now we’re going to have a situation where you’ve got cloud, mobile, and wearable. So some of the most compute intensive stuff will occur up in the cloud, some local compute stuff will occur on the phone as a local smaller server and wireless provider for communications. And then the actual wearable will be the presentation of the information as well as collecting information from local sensors on the body, if it’s a health-related wearable.

Looking ahead, how do you imagine wearable technologies enhancing our lives?

GZ: I think the number one reason to invest in technology, besides making good investments and returning good capital to our investors, the number one reason is to make the world better. To increase the average quality of life for every person, and one of the things I’m excited about wearables is that everyone can wear them. And they should be fairly affordable, precisely because they’re more sensor technologies. I think the way they’re really going to enhance our lives is being able to be connected and get information quickly from people without having to constantly pull out your phone, but also being able to get important health and medical information from our bodies to medical providers or just to ourselves, just to basically train ourselves to have better habits or help spot issues.

For example, I’ve seen wearables that not only capture pulse but actually can measure oxygen saturation, and those are pretty obvious to do, but there’s other ones like I just saw something yesterday which was really amazing – which was a contact lens that functions similarly to Google Glass. So you could see the same functionality of Google Glass working in a contact lens. In fact, Google has been working the area. So I think in the next 10 to 20 years, we will see the emergence of a contact lens wearable that will basically be a display technology that won’t look like glasses but will probably be fairly invisible to most of the public.

Edited by Stefania Viscusi

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