Posts from May 2008

Doriot Quote Of The Day

The riskiest part of the spectrum has to date proved the most rewarding, and the greatest capital gains have been earned in companies which were started from scratch.

Doriot, in a 1960 talk to the Chicago Society of Security Analysts, titled “Creative Capital”

This has been our experience too. It’s not just the lower valuations you get at the formation stage, but it’s also that you are working from a blank slate with respect to everything and you can work with the founding team to form the culture, the strategy, the team, etc. Buying into companies that have done several rounds has always been a lot harder for me.

Doriot Quote Of The Day

Never go into venture capital if you want a peaceful life. Keep on financing concrete that doesn’t move, that doesn’t call you at 2am in the morning

Of course this is true about entrepreneurship, even more so than venture capital. At least in venture capital, you’ve got portfolio diversification to keep you sane.

I Got Lucky

A recent commenter suggested that I blog about the post-MBA experience I had when I got into the venture capital business. This is my version of the story and I’ll make it as brief as I can. There are several lessons to take away from it. I’ll get to them at the end.

In 1986, between the summer of my first and second year at Wharton (Univ of Penn’s business school), I got a break, the first of many, and convinced a partner in a small venture capital firm in NYC called Euclid Partners to have lunch with me. At the urging of the Gotham Gal, I called Bliss (Bliss McCrum Jr) one friday morning and asked him if he’d meet me. He said he was free for lunch and asked me what kind of sandwich I wanted. Flustered, I said tuna because that was the only thing I could think of. I got off the phone, called the Gotham Gal who was at work and told her the news. She informed me that I’d need some nice shoes to go along with the suit I had just bought for interviews. So on my way to see Bliss I stopped off at a shoe store, bought some nice shoes and showed up for my lunch promptly at noon. It went great and I walked out with an invitation to spend my summer at Euclid Partners. I spent the next 10 years working there including mondays and fridays during my second year at Wharton.

I didn’t know anything about the technology business and venture capital when I showed up for work at Euclid. I knew how to write software and knew a fair bit about personal computers. But nothing about the business of software and computers. And I had never worked in a real operating position. In fact, I never have and probably never will. This was a severe handicap and for the next 10 years I kind of stumbled around the venture capital business. I learned a lot about the investing side of the business, how to find deals, how to structure them, how to manage them, how to be on a board, how to get an exit. But I really didn’t have a sector focus. Our firm, Euclid Partners was small ($25mm and $40mm funds while I was there), and we invested in life sciences and info tech. And all sectors of both, including biotech, medical devices, software, services companies, hardware companies, communications companies. We weren’t particularly experts in anything and I certainly wasn’t. It wasn’t a stellar start to my venture capital career.

Then I got lucky. The Internet came along. I didn’t know anything about the business of the Internet. But then nobody else did either. I was 10 years into my career which wasn’t going anywhere as far as I could tell, I was antsy to do something big, and here was something that sure looked big to me. I convinced Euclid to invest in a few early Internet deals and became friends with the crazy entrepreneurs who ran them. It was a blast and in the span of two years, 1994 and 1995, I had found my calling.

I left Euclid in early 1996, started Flatiron Partners with Jerry Colonna who had been doing Internet deals at CMGI, and we decided to invest $150mm in Internet deals as fast as we could find them. I got lucky once again when we quickly convinced Chase Capital Partners and SOFTBANK to put up the $150mm (basically as a pledge fund). It worked out great. I had ten years of experience doing venture deals so I understood finding deals, pricing them, structuring them, managing them and exiting them. Jerry had been in the technology publishing business so he understood media business models, had real operating experience, and from his CMGI experience he knew a lot more of the crazy entrepreneurs starting Internet businesses in the mid 90s. That $150mm turned into $750mm in the span of three years which of course were the three best years to be investing early stage venture capital ever. Timing is everything in life.

So that’s how I got to where I am. I wouldn’t suggest anyone take that career path. It won’t work unless you get incredibly lucky. Had the Internet not come along, I would have continued to stumble around the information technology business investing opportunistically in a hodgepodge of deals and generating mediocre returns at best.

If you want to be a top tier venture investor, you must be recognized as one of the experts in the field you invest in. When I was at Euclid, I used to watch in admiration as guys like Bill Kaiser worked the enterprise software business or Paul Ferri worked the communications equipment business. They knew the business cold and if you wanted to start a company in their area of expertise you went to them first. That’s what you have to get to if you want to make top tier returns in the venture capital business.

The way you do that is you work for at least ten years in the industry, getting operating experience, building a killer rolodex, and learning how the business works from the inside. Then in your mid to late 30s, you can make the move to the venture capital business, as a partner, not as a wet behind the ears associate who doesn’t know anything other than how to push numbers around a spreadsheet.

I did it all wrong and got lucky. I don’t recommend anyone reading this to try it the way I did it. If you choose to get an MBA, get a real job out of business school. Help to build a few businesses in an industry sector you really like. Become an expert in that industry. Then try your hand at venture capital. You’ll be much better at it than I was my first ten years in the business.

Doriot Quote Of The Day

At early board meetings, I would try to give an accurate accounting of the profit and loss. He would look through me and ask what I really thought about when I was shaving.

High Voltage Engineering CEO Denis Robinson, about General Georges Doriot

I really loved this one. Its rarely about the numbers at the early stage. Its about the challenges and opportunities. Speaking of "loving this one" I’ve noticed few if any comments on these Doriot quotes. Am I the only one enjoying them?

Web Discussions: Leaving The Instigator Out

I know that this has been discussed in great detail already. And I have a vested interest in this debate with our firm’s investments in the disqus third party comment system and also twitter which is part of the problem. But today I saw something on FriendFeed that really got me thinking. Here’s a picture of it:

Ff_image

My brother, known as Jackson to the blog world, wrote a wonderful post on the rock band Mott The Hoople last week.  I saw it today and posted it to delicious. Which resulted in it showing up in my FriendFeed.

And the good news is that a bunch of people saw that post that would have never seen it otherwise. A few went to Blogger and left a comment for Jackson. And a bunch left comments on FriendFeed that Jackson will never see and never reply to. And he also won’t see Robert’s compliment which I know he’d appreciate.

So here’s the deal. Jackson instigated the conversation with that post. His reward is the comments it generates. That’s how bloggers get paid. And he’s not getting his due on this one.

It’s sort of my fault because I posted it to delicious and got the conversation going elsewhere. It’s also sort of the fault of the people who left comments on FriendFeed and not Jackson’s blog.

But mostly it’s the fault of the web services for not figuring out how to work together. Some have. Twitter and FriendFeed pass updates and replies back and forth. That’s good. Disqus passes blog comments to FriendFeed but I don’t think FriendFeed passes comments back to Disqus. If not, they should. And FriendFeed doesn’t pass comments back to Blogger, Typepad, and WordPress.

All of that should happen. Because the people who create social media content; the bloggers, the twitterers, the commenters, the youtubers, the flickrers, etc, etc are doing this for a reason. Feedback. And without their content, none of these companies would have a business.

So it’s time for aggregation to work two-way. You can suck it out. But you have to pump it back too.

Doriot Quote Of The Day

The hardest part is to help a company through it’s growth pains. That is particularly hard because we have to work with others.

He was talking about the venture business and it’s true. There is nothing harder than watching a a portfolio company struggle with growing pains.

Discussing Web 2.0

There are two web 2.0’s.

There’s the mantra that has come to define the second "up move" of the Internet. Every run needs a name and this one has been called web 2.0. That’s nice enough and if this run comes to an end, and surely it will at some point, then it will probably be the end of the web 2.0 mantra as well. I’d be happy to see it go.

Then there’s the "web as a platform" meme that the man who coined web 2.0, Tim O’Reilly, meant it for. Tim articulates that meme really well in a series of two posts he wrote over the memorial day weekend. Web 2.0, in Tim’s mind, is the ultimate incarnation of the web:


I believe that we’re collectively working on an Internet Operating System,
and that it will ultimately look more like Unix than it looks like
Windows. That is, it will be an aggregate of best of breed tools
produced by an army of independent actors, all playing by the same
rules so that those tools work together to produce a whole greater than
the sum of the parts.

That web 2.0 is just getting going and is probably a ten or twenty year work in progress. Maybe we are five years into building this Internet Operating System.

So, that’s my frame of mind going into a discussion I am participating in on Friday at TieCon East in Waltham Massachusetts (a suburb of Boston). I am on a panel with Don Dodge, David Cancel, Nabeel Hyatt, and Brian Balfour. The title of the panel is Web 2.0: Viable Business Model or Bursting Bubble? And my answer is, of course, neither. 

It should be fun. If you live in or around the Boston area, stop by the Westin in Waltham at 10:45am and join the discussion.

Doriot Quote Of The Day

This one is about him, not from him:

The General provides the two things a young scientific organization needs: enthusiasm and appreciation.

William E Barbour Jr, Founder of Tracerlabs, an early ARD portfolio company

If you can’t be a passionate cheerleader for your companies, you should not be in the venture business.