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.