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I'm always amazed to hear VCs describe themselves as "value added investors." Not because I am skeptical about their ability to add value. More because I think all investors need to be "value added." If the only thing you do as an investor is hand out money, you are in big trouble. There's a lot of money out there. And it isn't that hard to hand it out. If all you are as a venture investor is a money dispensary, you are as fungible as the money that you are handing out.
I know that in some entrepreneurial circles there is a reasonable amount of skepticism about the idea that investors can add value. While that may be a fair criticism in some circumstances (there are investors out there who have been known to add a little bit too much value, if you know what I mean), after attending the tail end of First Round Capital's CEO Summit last night, I was reminded that Great investors can add significant value to their portfolio companies (Congratulations to the FRC team).
In light of that, I thought it would be worth sharing some thoughts on the sorts of things that venture investors can do to help their portfolio companies be successful. Few investors are able to provide value on all these fronts. But great VCs will help where they can be helpful and staying out of the way the rest of the time.
So, in no particular order, here are some ways in which VCs can be helpful? I'm hopeful that this is not a comprehensive list -- but it is a good starting point.
RecruitingI think this is one of the most important ways in which VCs can be helpful to their portfolio companies. Companies are only as good as the collection of entrepreneurs that populate them. So it really matters who you're able to recruit. VCs should be able to help in that process. We can explain why it is that of the hundreds of companies we see every year, we funded this particular company. We should also be able to help put our portfolio companies in the context of the larger marketplace, which is helpful when trying to convince a fantastic engineer or sales person to join your company over some other opportunity.
Frankly, companies under-utilize their investors when it comes to recruiting. We are occasionally called in to have dinner with a hot prospect for VP of something-or-other. But we are rarely asked to put in a quick call to a young engineer or hotshot SEO magician. We should be. In an industry where nothing matters more than the people, helping bring in the very best people should be a top priority for all VCs. And we can often really be of help here.
Raising Equity
If an early stage VC can't be helpful to you in raising future rounds of capital, don't take his money. The vast majority of companies will need to raise more than one round of capital over their lifetime. So having a VC who can assist in the fundraising process will be of real value. I recently spent time with a very smart young guy who's done a ton of research over the last year looking into what makes a successful venture firm. He concluded that you could measure the likely success of VC firms by the folks with whom they co-invested. It is really not that surprising that good venture firms tend to invest along side other good venture firms. It is also not surprising that the best venture investors tend to have a broad set of relationships that make the fundraising process easier for their portfolio companies. In fact, the very best VCs tend to have later stage firms that are willing to follow them into practically any deal they've done. As you can imagine, that's pretty valuable to a startup (few things are as distracting and unpleasant for an entrepreneur as fundraising).
Raising Debt
After completing an equity financing, entrepreneurs often decide to raise debt to further support their company (be it equipment financing or venture debt). While debt providers certainly will assess a company on its own merits, the company's backers will play a big role in that assessment. A lender's capacity to get repaid will rest largely on that company's ability to raise future rounds of funding (debt is rarely paid off before a company needs to raise additional capital). Given that, the company will be assessed in the context of its backers and their ability to 1) assist in future fundraising and 2) continue to support the company. It is very rare that a debt financing gets done without the lender spending a chunk of time on the phone with the company's backers. So a VCs enthusiasm for his portfolio companies can translate into additional dollars in the bank. And like later stage financings, there are lenders who are willing to follow certain VCs into nearly any deal about which that VC is excited.
Introductions, Introductions, Introductions
If there is one thing that VCs should be good at, it is helping companies build relationships. VCs are connectors. It is what we do for a living. I don't know how many emails a year I send that go something like this: "X meet Y. Y is awesome. Y meet X. X is awesome. Talk amongst yourselves." While it is a relatively simple thing, don't underestimate its power. Great VCs can help facilitate partnerships. Great VCs can help you engage the best analysts. Great VCs can help sell your product. And, as I said above, Great VCs can help you recruiting. Those introductions can prove invaluable.
Strategic Advice
VCs sit in a very interesting position when it comes to technology and markets. All day, every day, we meet with a host of entrepreneurs pursuing new ideas, chasing new market segments, building new products or services. Those entrepreneurs are the experts on the markets they are pursuing and they work hard to educate even the densest of VCs on those markets. As a result, any VC who spends time with a sufficiently large number of emerging companies -- as a matter of simple osmosis -- will have a pretty well-informed view of the technology landscape. In light of that, great VCs are able to give well-informed strategic advice to their portfolio companies.
Save Time
This one is a little thing, but probably worth noting. Good VCs can help companies avoid reinventing the wheel. There are a ton of things that every startup goes through. They all have to figure out payroll and insurance and office leasing and hosting providers and salary levels and . . . . Now, there's no question that entrepreneurs can get help on these kinds of things from all sorts of people. But good VCs should be a resource to entrepreneurs when they are sifting through all these mundane issues.
Create a Keiretsu
A lot has been made of the idea of venture keiretsus. And in most instances I think that the value of the keirestsu is overstated. I don't think that good VCs will force one portfolio company to assist another in any way that isn't beneficial to both companies. But I do think that there are opportunities for portfolio companies to assist each other -- partnering, recruiting, introductions, etc. As Josh Kopelman describes in his post about the FRC CEO Summit, a bunch of value is generated by portfolio executives when they are in the same room "exchanging ideas and sharing experiences." We've had a similar experiences at August Capital when we've had events for our CEOs, CFOs, Heads of Marketing. Good things happen when you connect smart people to each other with a sense of shared purpose.
PR
To paraphrase Glengarry Glen Ross, great investors should always be selling (ok, it's "always be closing" but you get the point). But, unlike some VCs out there, I don't think that venture investors should always be selling themselves -- they should always be selling the greatness of their portfolio companies. VCs spend lots of time with journalists and have the opportunity to spread the gospel of their portfolio companies and they should. We're on panels and in classrooms and on TV, and we should always be selling our portfolio companies. It is amazing how valuable a well placed reference to a portfolio company in the New York Times can be.
Making Exits Happen
And, of course, the culmination of all these other activities is that Great VCs can help make exits happen. Sometimes that means selling the company -- venture investors can make intros to potential acquirers, help position the company, create competition. Sometimes that means helping taking a company public -- venture investors can get the right investment bankers involved, brief the right analyst, encourage the right coverage. While VCs can't manufacture exits out of thin air, good VCs can definitely help to create a climate that will maximize the possible outcomes.
I can already hear the outcry about this blog post -- "value added investor my ass! That's an oxymoron." None of this is intended to suggest that venture investors are company builders. We aren't. That isn't our job. Entrepreneurs build companies, hire great executives, raise money, make strategic decisions and ultimately effect exits. But I think that good VCs can help a huge amount along the way, even if sometimes that means getting out of the way and letting great entrepreneurs do their jobs.
In the past three weeks, I have attended 2 memorial services and 2 brises. The brises celebrated the births of two future superstars -- the sons of four of the smartest entrepreneurs and venture investors in the Bay Area. The memorial services celebrated the lives of two recently deceased superstars -- both entrepreneurs and venture investors in their own right. As I listened to the stories of the lives these great men had lived, and listened to the toasts and prayers for these great men-to-be, it struck me that there were lessons to be learned for entrepreneurs and venture investors alike.
Just over two weeks ago, I sat in Stanford's Memorial Church, listening to the friends and colleagues of Rajeev Motwani share stories of Rajeev's incredible life and legacy. The outpouring of love and respect for Rajeev was overwhelming. He had touched so many people as a professor, investor, advisor, father, friend. I left the memorial feeling grateful to have been Rajeev's friend and colleague and awed by all that he had accomplished.
Sadly, today I attended another memorial service -- this time for Craig Johnson, the founder of Venture Law Group. Again, the memorial service was filled with stories of a life well-lived. Craig was an incredible builder and connector. After helping hundreds of up and coming entrepreneurs get their businesses off the ground, Craig couldn't help but innovate himself. He launched Venture Law Group in a time when others were complacent to practice law as it had always been practiced before. And recently jumped into the fray again, innovating on the model once more, this time founding Virtual Law Partners. Craig was an unendingly positive man. I was lucky to have started my professional career in the Bay Area in the house that Craig built (VLG) and am deeply saddened to see Craig go.
As I sat in today's service, it struck me that there were certain common themes that flowed through both Rajeev's and Craig's memorials. And it struck me that those themes were perhaps at the heart of what it takes to be successful in Silicon Valley.
Both Rajeev and Craig were deeply intellectually curious people. They loved to learn new things. They loved to explore new ideas. And when they became enthralled with a new idea, both Rajeev and Craig couldn't help but explore that idea with a rigor that one might say bordered on obsessive. They dug in and looked at the idea from all angles. They examined and cross-examined the idea. And those ideas that survived their scrutiny inevitably proved interesting and valuable and worthy of investment (be it in time or energy or dollars).
Both Rajeev and Craig were incredible connectors. So many of us at their memorial services had been introduced to one another by none other than the men we were there to honor. And the scale of both memorial services was a testimony to the vast reach of their respective (and overlapping) networks. But networking wasn't a cynical endeavor for Rajeev or Craig. It was a natural outcropping of their intellectual curiosity. They were as curious about people as they were about ideas. They took a genuine interest in the people with whom they surrounded themselves, and therefore were able to make real, valuable connections among their friends and colleagues.
Most importantly, both Rajeev and Craig were unendingly generous with their time. They were wonderful people to have as friends. They were superb mentors. They were patient advisors. But they weren't just generous to those people they already knew. Rajeev and Craig made time for everyone. And they managed to do it in a way that made everyone feel special. Rejeev's graduate students all felt that they were getting a disproportionate amount of his time. Craig's clients all felt that they were his priority. Rajeev's portfolio companies all felt they had instant access to his advice. Craig's colleagues all felt that he was their personal confidant. And they were all right. Rajeev and Craig were there for everyone. They always made time for those of us around them. And, in return, we all would do anything for them. All they had to do was ask (which, not surprisingly, they didn't do very often).
I will miss both Rajeev and Craig. They were amazing men. And they were amazing role models for all of us in SIlicon Valley.
Relatively recently I hosted a meeting of the advisors to one of my portfolio companies. It was an impressive group of tech veterans. Each of them had been involved in the building of multi-million dollar high tech companies. Yet, what struck me about this summit was how many of these computer gurus carried with him a good, old fashioned notebook. Two varieties seemed to dominate the gathering -- the classic, leather-bound Moleskin and the pocket-sized graph paper Rhodia. I was surprised to see so much scribbling and so little typing. Since that meeting, I have kept my eyes out for this notebook phenomenon and have been amazed by how many startup CEOs, Venture Capitalists, attorneys, etc. have forsaken the digital world for the analog.
Why is it that this all-star crowd of tech moguls had pushed aside the very digital domain about which they were so madly taking notes with pen and paper? I think the answer is data overload. The digital world is a land of plenty. Plenty of emails. Plenty of social networks. Plenty of corporate wikis and portals and knowledge management systems. The typical executive these days needs to deal with hundreds, if not thousands, of data points across dozens of services each day. While we all necessarily find ways to consume this huge amount of information, segregating the truly important stuff remains a big challenge. And this is where the notebook comes in.
Notebooks have certain enviable characteristics. They are instant on -- even faster than a laptop with a solid state drive. They have virtually unlimited storage -- just boot a new notebook when the pages are filled. And they perform better than tape for archival storage. Direct sunlight is no problem for a bright white piece of paper. And power management is rarely a problem (although your pen may run out of ink). Notebooks don't require any connectivity. They aren't susceptible to viruses. And they are highly portable. [1]
Given all the analog goodness of notebooks, it is no surprise that there has been a resurgence of paper. Don't get me wrong. I'm not a Luddite by any means. I'm a firm believer in a laptop in every room and a smart phone in every pocket. But, when it comes to keeping track of priority information, it would appear that notebooks are becoming the tool of choice for technology's elite. Perhaps I should hedge my bet and buy some stock in Apple and in Mead.
[1] I realize Notebooks aren't perfect. They perform about as well as laptops when exposed to the elements. They are a terrible collaboration tool. And I have yet to see an effective way to backup your notebooks.
This weekend I was reading a blog post written by Chris Douvos. Chris is an investor in a number of well-known venture firms and writes a blog called Super LP. His commentary always cracks me up, even when he's writing about the finer points of risk curves, financial models and the like.
In his post entitled "Keeping the Window Open," Chris cautions the investor community to not be too overzealous in taking companies public during this time when the gently re-emerging market is so fragile. As he rightfully points out, those companies that go public and then promptly miss their numbers, not only tank their own valuations but also spoil the markets for everyone else. If investors can't trust newly minted public companies to do what they said they were going to do, the markets will simply reject future public offerings as more of the same old head fake.
The conversation reminded me of the good old days when I was an attorney. One of my final acts as a lawyer came at the board meeting of a rapidly-growing but somewhat erratic startup. The venture investors in that startup sat at a board meeting reveling in their growing user-base and began discussing the idea of taking the company public. The VCs were in rousing agreement that we should promptly commence work on the company's S-1.
Lacking a certain self-preservation gene, I pointed out to the VCs that should the company miss its numbers after going on file, it would have to pull the filing and be in a much worse position than when it started. Thus, I strongly recommended that the company wait until it had greater predictability of revenue before filing to go public. Not only were the VCs not wowed by my erudite advice, they promptly fired me and hired another attorney to draft the S-1. Of course, I would not be telling this story if the startup did not ultimately miss its numbers and have to pull the filing. More importantly, this was precisely the sort of company Chris cautions us VCs against taking public this time around -- and I am with him one hundred percent.
There are too many great companies lined up and ready to get public for us to jeopardize the IPO window trying to get middling companies out. As Chris rightfully notes, if we can take solid companies public, "[t]heir success should lead to more opportunity for other companies." If, however, we take marginal companies public, their lack of success will spoil the market for even the most solid of performers.
I realize that the lure of liquidity may be too much temptation for some in the venture community, but I would urge patience in the face of uncertainty. The venture business is a long-term business and the more we can do to grow the overall pie by being circumspect about those companies we bring to market, the better off we all will be in the long run.
When I first became a Venture Capitalist, I had been a practicing attorney and my partner Dave passed on the somber news that he believed there was a good chance that I would fail at the venture business. He explained to me that lawyers were "agents" and Venture Capitalists were "principals" and that being good at one was no indicator of being good at the other -- in fact, Dave felt that being a good agent suggested you would not likely make the leap to being a good principal (but, hey, he liked me so we'd give it a go). Dave's assessment wasn't without historical support. If you look at the venture business, service providers (lawyers, accountants, etc.) don't have a great track record of making the transition from agent to investor. But, despite that fact, I think that being a service provider was excellent training for the venture business.
I got to thinking about this question earlier in the week when I was asked by a friend to discuss "brand" and "brand building" with his team of service professionals. He suggested that it might be interesting for me to talk about how I approached building brand as a lawyer vs. building brand as a VC. And as I pondered that question, I realized that I thought about it exactly the same way.
I should start with my definition of brand. In the venture business (or legal business, for that matter), I don't think of brand as some abstract piece of intellectual property acquired through countless millions of dollars in advertising, sponsorships and the like. Rather, for individuals and firms of individuals, brand is acquired through countless interactions with your customers and the relationships you build from those interactions. In other words, brand is a reflection of how you are perceived on a personal level by your customers.
So who are my customers? One might argue that my customers as a VC are the Limited Partners who invest in my fund. And, to a certain extent, that is true. Without my LPs, I would have no money to invest. But, to my mind, the best way that I can serve my LPs is to appropriately view entrepreneurs as my primary customers. Without entrepreneurs, I will have nowhere to invest my LP's money. And without great entrepreneurs, I will have no economic returns to distribute to my Limited Partners. In fact, without entrepreneurs, the VC business would be a bit like "Waiting for Godot."
Given all that, the conclusion that I have come to is that the best way to be a successful VC -- and maintain a positive brand in a business so fraught with detractors -- is to act like a service provider. The executives of my portfolio companies are my clients. But all entrepreneurs are potential clients. And I need to behave accordingly.
When I was a service provider, I built a reputation on sound advice, responsiveness, attention to detail, ethical behavior, loyalty, tenacity . . . all of which, I believe, are valuable traits for a Venture Capitalist. In the past, I have been asked by entrepreneurs "what will you do for us if you are our investor?" My answer is always the same -- "what do you want?" It is my job as a VC to serve my entrepreneurs (and, in so doing, serve my Limited Partners). Whatever I can do, I will. And I believe that is the right way of thinking of it. Entrepreneurs are not here to serve VCs. VCs are here to serve entrepreneurs. What can I do for you?
Just yesterday I had breakfast with Rene Lacerte, the founder of PayCycle, and we discussed the power of great customer service. When Rene first pitched me on the idea of PayCycle, the service was not yet built. Nonetheless, he was already discussing how he would integrate the customer support experience into the overall service offering. He rightfully pointed out that every change you make to an online service will have implications for the customer support team -- whether it is training, navigation, speed to resolution, etc. So from its inception, PayCycle's product management and customer support went hand in hand. Rene is now building his second customer-focused service called Bill.com and it too has been built from the bottom up with customer support in mind.
As we ate breakfast yesterday, Rene and I had a long discussion about the fact that despite being called Software as a Service, very few SaaS organizations put any emphasis on the "service" piece. Sure, you could argue that the "service" in SaaS is all about delivery and not about customer support. But that would be a mistake. Service businesses live and die based upon the satisfaction of their customers. While it is conceivable that your software could be sufficiently foolproof that customer support is limited to receiving "thank you"s from your happy customers, so far no one has quite found that Holy Grail. Customer support remains a significant piece of all SaaS organizations and the more a company recognizes that going into building their service, the more likely they will succeed.
So what does that have to do with the Rosewood Hotel? I was reminded of the importance of customer service this morning as I experienced the Rosewood Hotel's stunning disregard for their customers. For those of you who have not yet been to the Rosewood Hotel (and I would not recommend that you go), it is the new "high-end" hotel that was just built on Sand Hill Road in Menlo Park. For those of us parked in VC-land here on Sand Hill Road, it was a welcomed new place for breakfasts and lunches and, in fact, I have eaten breakfast there 12 times in the little over a month that it has been open. But never again. (Warning: herein begins a rant -- a well-deserved rant, but a rant nonetheless.)
Three weeks ago, when parking for breakfast, I was surprised to see broken glass in one of the parking spaces. As I left breakfast, I pointed the glass out to a maintenance person driving his golf cart by. I assumed it would be cleaned up. Two weeks later, the glass had still not been picked up, so when the manager of the Madera restaurant came by to say hello to me (after all, I was there every other day), I pointed out to him that there was broken glass in the parking lot that had not been picked up despite the fact that I had pointed it out two weeks earlier. The restaurant manager apologized and assured me that it would be picked up. To my shock, it was not. Undaunted, I figured I'd give it a third try. Two days ago, on my way to an event in a conference room in the hotel, I asked to speak to the hotel manager. A nice young man named Daniel came to talk with me and I recounted my tale of woes. I explained to him that while the glass hadn't particularly inconvenience me, that I thought it didn't reflect well on his hotel and that he might want to take care of it. He assured me that it would be cleaned up by the next time I visited, which I told him would be two days later.
I must say I was surprised to see the glass still there two hours later when I got out of my meeting, but I figured I'd give him the benefit of the doubt and assumed that it would be picked up by my breakfast on Friday (today). I was wrong. To my horror, as I drove up to breakfast this morning, the glass was still there. Was I cut by the glass? No. Did I get a flat tire from the glass? No. So why do I care? Because I think that customer service matters. I think that if you care about your customers, you should do more than pretend to listen to them. So rather than park, I drove up to the front of the hotel and explained to them (amidst a fair amount of swearing) why it was that I would not be eating breakfast there any more. The same manager, Daniel, was there and fell on his sword, taking full responsibility for the incident. But as far as I am concerned, it is too little too late. Such blatant disregard for your customers maybe deserves a second chance. And, if you are feeing extremely generous, a third change (particularly when the restaurant is so convenient). But not a fourth chance. So I guess I'm heading back to Il Fornaio for breakfast.
Customer service matters. And it matters more than ever in this age of blogs, and Facebook and Twitter. If you search for PayCycle, you'll find a whole lot of happy customers. And if you search for Rosewood Hotel, I'm guessing you'll see a whole lot of dissatisfied customers. You'll certainly find me there.
Update: Shortly after I posted this rant about the Rosewood Hotel, I got a call from Managing Director of the hotel. Through the power of blogging, twitter and facebook, the Rosewood's MD had read my complaint moments after I had posted it and promptly called a staff meeting to address the situation. He then came over to my office to offer up his apologies for what had happened and his commitment to make customer service a priority of the hotel. While I wish it had not escalated to the point of needing such attention, I certainly appreciate that the hotel's MD took it seriously enough to come to my office and have the discussion.
A short time ago I wrote about my investment in Aardvark. As I said in that post, I believe that in many ways search is broken and getting worse. Not only are there voracious efforts at Search Engine Optimization (SEO) throughout the Web, but the scale of the Internet is monumental today and getting larger by leaps and bounds virtually every minute.
The massive scale of the Web not only creates huge challenges for search, it also cripples discovery. Gone are the good old days in which fortuity would lead to the unearthing of interesting new Websites. Remember when Web directors would lead you to great sites on the topic of your choice (you may not recall but, in the early days, "Yahoo" stood for "Yet Another Hierarchical Officious Oracle" and Srinija Srinivasan, Yahoo's chief of ontology, was one of the most powerful people on the Web). Better yet, remember the good old days of browsing libraries -- the Dewey Decimal System created the propensity for discovering new and interesting books as a result of their being shelved next to related categories -- while looking at one book, other books in its general vicinity would likely pique your interest.
That sort of accidental discovery was driven out of the Web a long time ago. The only sorts of chance Internet encounters most of us have these days are a result of mistyped URLs -- not exactly a recipe for exciting new discoveries. Thankfully, one company has made it their mission to bring back discovery to the Web. StumbleUpon delivers nearly half a billion recommendations per month. Those recommendations can be across broad categories (e.g., photography, video, etc.) or in very focused niches (e.g., electric violins, VC blogs, Alice in Wonderland, etc.). The StumbleUpon experience brings the unforeseen and unexpected back to your browser. I like to think of StumbleUpon as a discovery engine bringing fortuity back to the Web.
Enthralled by what StumbleUpon was doing, a couple years ago I began chatting with the founders about their business. The more I learned, the more excited I got about the prospects for assisted discovery at StumbleUpon. But before I had an opportunity to propose financing the company, it was purchased by Ebay.
Nonetheless, I've stayed in touch with Garrett and Geoff and continued to talk with them about the power of StumbleUpon. So when they began discussing the possibility of spinning StumbleUpon out of Ebay, I was grateful to have the conversation. The need for discovery on the web has not gone away since Ebay bought StumbleUpon. To the contrary, the problem has continued to grow more acute. And StumbleUpon continues to be the best solution to the problem. Over 7.5 Million registered members discover, categorize and review Web pages, making StumbleUpon the Internet's most powerful recommendation engine.
I am thrilled to join the original StumbleUpon team in spinning the company out of Ebay. Along with Garrett and Geoff, Ram Shriram is reinvesting in the company and going back on the board. The primary financial backers of the spinout will be August Capital and Accel Partners and Sameer Gandhi and I will go on the board as well. I look forward to working with Garrett, Geoff, Ram and Sameer to continuing to build StumbleUpon into a large and important piece of the Web's infrastructure.
As one of the leading analysts and Web Strategists in the social computing space, Jeremiah Owyang meets with a lot of companies. He has the luxury of talking with big companies and small companies, public companies and private companies, venture-backed startups and bootstrapped companies. He is constantly looking at what makes one company successful and another one less so. Not only is Jeremiah a really smart guy, but he has a ton of data to support the conclusions he draws both in his day job with Forrester and in his role as confidant and advisor to numerous startups.
Given all that, I was thrilled to read Jeremiah's post "Beyond the Money: Some VCs Provide Startups With A Competitive Edge." In his post, Jeremiah asserts that VCs (at least the better VCs) are good for more than just money. What are we good for? Jeremiah lists a number of categories: Thought Leadership, Strategic Guidance, Being Part of the Family (e.g., Keiretsu), Ancillary Services (marketing, recruiting, etc.), Umbrella Branding (e.g., "an August Capital company"), and Networking. I would probably add to this high level list Recruiting and Capital Raising, both of which VCs can be very helpful with. Jeremiah concludes that "What [VCs] do beyond the investment makes a different - I can see it."
Thank you, Jeremiah! While I recognize that my job as a Venture Capitalist is to invest other people's money and, if all goes well, turn it into more money, I have a hard time thinking of Venture Capital as a "financial services" job. It is certainly the case that the financial services aspect of the job isn't what gets VCs up in the morning. What gets us up in the morning is the prospect of working with really smart people to build new and exciting businesses. And Jeremiah does a great job of listing the fun parts of our job -- advising, connecting, recruiting, etc.
All too often I fear that VCs are thought of as fungible -- one VC's as good as the next. It is certainly true that our money is fungible -- a dollar from any other VC will buy as much as a dollar from August Capital. But the aggregate value of taking money from another VC will be vastly different from taking money from an August Capital. My partners and I work hard to deliver value to our entrepreneurs on all the fronts Jeremiah describes. And those efforts can have a big impact for a company. VCs don't build companies, entrepreneurs do. But good VCs can do a whole lot more than simply write a check.
I had the good fortune of participating in the first (hopefully of many) AngelConf today. AngleConf was the brainchild of Paul Graham of YCombinator fame (although, you never know, it may well have been the brainchild of Jessica Livingston, so my apologies if that's the case Jessica). Not only is Paul a prolific angel investor, but he is also a thought leader and a mentor by nature. His AngelConf was an attempt to share the collective wisdom of the angel investor community with would-be angel investors.
The speakers at AngelConf were a veritable who's who of the angel world. Among those speaking were Ron Conway (Angel Investors, Baseline Ventures), Dave McClure (500Hats, Founders Fund), Paul Buchheit (Google, FriendFeed), Andrea Zurek (Google, XG Ventures), Naval Ravikant (The Hit Forge), Michael Dearing (Ebay, Stanford Design School), Mike Maples (Maples Investments), Ariel Poler (Textmarks, numerous startups), Aydin Senkut (Google, Felicis Ventures), Jeff Clavier (SoftechVC), and Jim Young (HotOrNot). Like YCombinator's rapid-fire demo days in which companies are given only a few minutes to present, each angel investor was given seven minutes to share his or her wisdom with the crowd. And this impressive group did not disappoint.
AngelConf was part training session, part confessional, part group therapy. Virtually all the speakers were in agreement that angel investing is not for the faint of heart. As one investor after the next stated, you have to be prepared to lose all your money. If losing your money is going to keep you up at night, perhaps angel investing isn't the thing for you to do. That said, there were plenty in the speakers lineup who have every intention of making money. Folks like Jeff Clavier and Mike Maples are investing other people's money. For them, the goal is assuredly to make money. For many of the others it was a fantastic mix of geeky pleasure at building great things, the need to stay engaged in the tech world, a desire to give back to the entrepreneurial community, etc. While for most of the speakers angel investing is essentially a full time job (even if they have another full time job), everyone in the room seemed to be there for the love of the game.
What was some of the most interesting advice imparted? Here are a few thoughts from the speakers:
* It's a small community -- if you screw one entrepreneur, you'll be out of the angel business because entrepreneurs talk (Conway)* Angel investing is about learning on the job, which means that you can plan on screwing up your first 10 deals at least (McClure)
* If you assume that the money is gone once you've invested it -- that it is like a lottery ticket -- then you will have a better time angel investing (Buchheit)
* Work with other angel investors so that you can get the advantage of their expertise (Zurich)
* There is no rational way to arrive at valuation, so don't be overly concerned about getting it right (Graham)
* Don't worry if the idea seems crazy -- if it didn't seem crazy, it would be too late to invest as an angel (Graham)
* The lifeblood of angel investors is deal flow -- you need huge deal flow to find enough stuff that is worth investing in (Ravikant)
* The best deals come from other angels (Ravikant)
* Don't be afraid to throw a little dynamite into the status quo and see what comes out of it -- often times interesting stuff emerges (and sometimes nothing does) (Dearing)
* The Rule of 12 -- you need to invest in 12 companies to have statistical diversity -- invest in fewer than 12 deals and you run the risk of them all failing (Maples)
* Like in the movie "Oceans 11," you want to pull together the best team of angel specialists there are out there -- it increases the likelihood that the company will succeed (Maples)
* Help bring your entrepreneurs together so that they can learn from one another (Poler)
* By being a connector, you will see the most interesting stuff and work with the most interesting people (Senkut)
* Angel investing is all about the syndicate -- you can lead if you want to but it can be lonely until others join in the syndicate (Clavier)
* Angel investors need to distinguish themselves from others with money -- what do you bring to the table? Contacts. Experience. Advice. (Young)
* Only invest in stuff you actually know something about -- otherwise you're just buying a lottery ticket (Young)
All in all, a pretty jam packed few hours. The energy in the room was great. It felt very much like being in a room full of entrepreneurs. Because, in the end, like entrepreneurs, angel investors are company builders. They love technology. They love company creation. And, like me, they thrive on the fun and excitement of the startup world.
I hope that Paul will have another AngelConf some time in the future. It was a fantastic way to spend the afternoon.
I was deeply saddened to read Erick Schonfeld's post on TechCrunch entitled "DEMO Gets Desperate: Shipley Out, Marshall In." The feud between Mike Arrington and Chris Shipley has been well documented. Arrington has gone so far as to hope for the demise of the DEMO conference. He and Jason Calacanis have taken great pains to question the ethics of DEMO's business model.[1] They have lashed out at Chris Shipley repeatedly. And now Erick Schonfeld has jumped on the DEMO-bashing bandwagon.
I have known Chris Shipley for many years. She is fair and honest. She is smart and thoughtful. And she has worked long and hard to build the DEMO conference into a premier outlet for startups. Chris Shipley is a believer in the power of technology and the value of emerging companies. She has helped launch many hundreds of great companies and products. And she is a powerful advocate for those companies that she has showcased on the DEMO stage.
Today it was announced that Chris is handing over DEMO to Matt Marshall of VentureBeat. My congratulations to Matt. I wish him the best of luck in his new role with DEMO. I have long been a fan of the DEMO conference and hope that it will continue to prosper. As Marshall Kirkpatrick writes in ReadWriteWeb, "We'd like to see a bunch of successful conferences thrive and bring great technology into the public eye." I couldn't agree with him more.
I look forward to attending this year's DEMO conference a little over two weeks from now. I am sure that I will see some compelling demos, meet many great entrepreneurs, and get a broad overview of the startup landscape. But, most of all, I look forward to seeing Chris Shipley on the DEMO stage one final time and to wishing her the best as she passes the torch to Matt Marshall. Chris has been a wonderful steward of the DEMO conference and her thoughtfulness will surely be missed.
[1] I personally believe that the suggestion that DEMO's business model is somehow less ethical because startups are charged to participate in the event is silly. It is, no doubt, a different model than Arrington and Calacanis's conference which makes its money through sponsorships and registration fees, rather than demonstration fees. But that does not make it less ethical. Is it unethical for Sprint to charge for 411 calls merely because 1-800-FREE411 will provide information for free? I don't think so. It's a shame that Chris Shipley has had such strong accusations leveled at her over these last couple years.
