This post is by Jeff Carter from Points and Figures
YCharts is the best charting service around for professionals to investigate the stock market and find structural holes that they can relay to clients to build wealth. I am a seed investor. Last week they exited to a private equity firm and recapitalized the company.
I decided to blog about it because there are a lot of important lessons to be learned about investing in startups from this exit. I am still going to keep the blog on ice for a little bit though. I do miss blogging regularly, so at some point it will come back. Thanks for all your notes. This blog NEVER received a lot of comments so you never knew how many people were really reading it. Turns out, a lot.
It is interesting to note that Hyde Park Angels, the angel group in Chicago that I started in April of 2007 has had successful exits with almost all of its first few investments.
- UICO.com (still operating and the leader in touchscreen technology)
I don’t think any seed investors expected that. My favorite line on seed investing came from my friend Brian Hand. Once he said at a presentation, “When you invest in a startup, you might as well take the money to the toilet and flush it away because the odds are you will never ever see it again.”
All of the companies above had positive returns.
One thing I don’t like about the way VC firms present themselves is on exits. Go to websites and they have little banners that show all these firms as “exited”. It doesn’t say if they made money or not.
As an old trader, we all know people lose money. If you don’t lose money, you aren’t taking risk. I think if you lose money you ought to be transparent about it. At HPA right around when we invested in Brilliant, we invested in Tap.me and did a very small investment in Noblivity and we lost money on both. I have lost on more companies than I have made but the trick is to have outsize gains to make up for the losers. It’s also important to be disciplined about check size, and for a fund to be disciplined about ownership percentage.
I have some thank you’s I want to make publicly.
Personally, I want to thank the original CEO Shawn Carpenter for starting YCharts. He brought the deal to HPA when we were still a fledgling angel group with not a lot of people and only three investments under our belt. He pitched it in 2009 and we didn’t invest until 2010.
I also want to thank two HPA people. Richard Box for illuminating the group on how the back end of YCharts worked. All the traders I recruited to the group understood the power of the charting. It was how the guts worked that turned our heads. RH Bailin for stepping up and being a deal lead and serving on the board until he retired from the group. They made a difference and you don’t get to exits without a team effort.
I also want to thank Bob Giammanco and Jeff Kleban for picking up the baton and serving as board member and observer after left.
I am very grateful to Sean Brown and want to thank him for becoming the CEO of YCharts. He took over the company when it was in a very precarious situation. This doesn’t happen without the above people but it certainly doesn’t happen at all without Sean. He is a great CEO. I interviewed him on a podcast and he laid out his philosophy there. I am grateful to Sean because a lot of people wouldn’t have wanted to accept the challenge. Sean had just gotten done running a different company, and wasn’t actually looking for a new gig and this one fell into his lap.
Sean built a great team, and culture. He stayed extremely focused and tight. I have spoken randomly to wealth managers and they have told me YCharts is indispensable to them. That’s before they knew I was an investor.
The path to success in startup land is a long and winding road. Every startup usually goes through at least one moment where they look like they are going out of business. As a CEO, when it happens keep your head and calmly assess your options. As an investor, you cannot panic. You must work to keep your emotions under control so you can be a port in the storm for the CEO.
The path to exit truly is a journey. At the beginning, you are at the bottom of the foothill on the plains. You begin to climb and you don’t actually know how you will get to the top.
Exits from LBO funds are going to become a lot more common. PE has a lot of money to put to work. I always thought YCharts would sell to another Fin Tech company. In the other companies I listed, only one sold to a corporate, Gradebeam. The rest were creative finance and Shuffletech was a patent lawsuit. All of them are in business in one way or another because the entrepreneurs behind them created something of value that customers wanted.