You Can't Solve Problems With Money
Last monday night, I spent an hour talking to a group of Columbia and NYU MBA students who participate in a group called InSITE. I like to do this once a year. I talk for about 30 minutes about venture capital and startups, then I take about 30 minutes of Q&A, then we go out to a local bar and drink beer for another hour. It's a lot of fun and it works because InSITE is a small group of between 30-40 MBA students who all are focused on careers in VC and startups. So it's a small and high quality group who aren't shy and ask good questions, both at the event and at the bar.
This year, I decided to talk for the first 30 minutes about my early career in venture capital where I learned a lot of important lessons that have shaped the way I think about venture firms and venture deals. InSITE filmed the hour long talk, but not the fun later at the bar. They broke it up into nine videos which are all on YouTube.
Here's my favorite segment (#2) which is about 9 mins long where I talk about some things I learned about venture capital at Euclid Partners (including the fact that you can't solve problems with money), where I started my career, and also a bit about Flatiron Partners and Union Square Ventures.
If you have the time and the inclination, you can watch all nine segments here.
You make the comment that because of the investing strategy in an early small fund you needed to be very aggressive about getting other investors around the table and fighting hard for upticks in valuation. One very positive impact of that strategy is that it very closely aligns the early investor’s and founder’s interests. It is much easier to focus on solving the real problems of the business.On the flip side, the first few times I pitched an idea to institutional investors I made a comment while defending the idea to the effect of “Well, that isn’t an issue because we are a funded company” To which they replied “Not yet” Oops. Tack that up with things not to say to investors right along “These numbers are conservative”
oops is right. live and learn!
tell it to geithner 🙂
What struck me about this talk is how much more compelling it was because you didn’t use slides. Not every speaker can do that, but sometimes I think that PowerPoint or Keynote encourages people to blast away with the artillery of argument rather than to relax and tell a story.
Fred – This is inspiring and very helpful. I found the comment you made about specialization pretty interesting. That ‘web services’ at first seemed, to some, to be limiting, and quickly revealed itself to be an enormous category. For small funds, I wonder how you think about the tradeoff between specialization and diversification. You mentioned that the size of the funds at Euclid created situations where you weren’t able to participate in follow-on rounds and were diluted down to small stakes. Would you, in retrospect, have been willing to whittle down the size of the portfolio to preserve that ability? One other observation. As the camera pans around … very few women in the audience. Kind of striking actually. I don’t have a particular point-of-view about it, although it would seem that more diversity of gender might be helpful, but it was just just something I noticed. Thanks for posting.
There were only two women in the group that nightWay too few but typical of the world I work inIt’s not good
I am so glad I took the time to watch this. Other than being VC related, I had no idea what this would be. I also had no idea I was about to watch an hour-long video. Now that I’ve seen it, I wish it had been longer. I never really knew any of your background, but I was curious about it. You’re so candid, and generous with the stories and knowledge, which you shares here. Now, I really understand why many of the people I’ve come to respect hold you in such high regard. Thank you for sharing this! BTW, I live in L.A., and would love to check out the the taco tweeting guys. How do I find them?
You went through all nine videos?
I found this on ff, and started on the second one. I enjoyed it so much, that I went back to see if I missed anything in the first one. It’s the video, which makes this so special. I get a better sense for someone when I can see and hear him or her. I also added a question on the end of my last comment in case you missed it.
Michael: http://kogibbq.com/ or @kogibbq on twitter.Fred: Watching on Boxee while making easter dinner!
The personal touch. Thanks! I’m look forward to trying your food and meeting you! Have a wonderful Easter Dinner. I need to set up my feeds in Boxee later too.
I’m not @kogibbq (i wish!), but hear great things from my L.A. friends!
Sorry, but thanks for the link. It was very thoughtful of you to post it for me. I still hope you have or had a wonderful Easter dinner. Take care!
Sweet. What was for dinner?
Bless you, brother Fred.
So you spoke to the next generation of white collar criminals, hedge fund loving douchebags and Madoff wannabes. They are aspiring to be like those who have turned your country into liquid shit.BIG FREAKING DEAL.!
Oh c’mon. These were nice decent young people. What could possibly be up your ass that you would write shit like that?
classic response Fred. LOL i’m surprised you didn’t just delete the comment. so unproductive.
I don’t delete comments unless they are hate speech or porn or comment spam
Madoff and Friedman were nice decent young men at some point in their lives. So what? you preached bunch of rookies to be exactly what? a freaking VC? or another gaggles of investor advisers known as the ULTIMATE DOUCHEBAGS.Read the news. Capitalism is over no matter how YOUR kind cling into it criminal tenets.
I am glad you think I am a douchebag. And the feeling is mutual.
I’m not even sure why I am responding to Tommy’s statement.http://www.youtube.com/watc…It has nothing to do with Capitalism. If some jerk decides to drink and drive we don’t blame the car for the accident.It is the combination of capital and innovation that is the ultimate driving force in bringing new products and services to market.Madoff on his own could not have pulled this off. The first people to invest in a ponzi scheme are sometimes aware of their actions but want to get that quick pay out. Everyone should be responsible for their money and know exactly where it is going. If you are not diligent it’s your fault.The government should not intervene and bail anyone out. The market should be left to correct itself. Then investors will think twice about CDO’s and complex investment vehicles. The individuals involved should bail themselves out and revive their own companies.Anyhow, the point is the responsibility resides with the individual.Fred, keep up the good work.
I’m glad you responded. I don’t delete comments from jerks. I prefer to let them stand and be revealed for what they are. And discussion about them is useful
Sweetheart,To be called a jerk by a VC is actually very flattering and for that I thank you.
Puhleeeeeeeeeze!Same kind of balderdash circulated before the collapse of the former soviet union.Your problem is that you don’t look for cause (capitalism). Instead you focus way too much on the symptoms (Madoff and “nice decent young men” aspiring to be little Madoffs).You can’t operate in a cesspool and not get filthy.
I watched the 9 segments.I found your Twitter story fascinating, especially the reverse pitch aspect. That’s part of the reason why I am not actively pitching but instead building my products. I want to have a sufficiently compelling business model that will make people like you call me. :)I will tell you that it can get very frustrating to bootstrap and go through multiple business models. However, I recall that scaling a business model, which is what VCs do in a nutshell as I understand it, will also scale any fault that may be present in that model, which will be a lot more expensive to correct.Thank you, enjoyed the session.
Great perspective. I love it
Fred, I’m on the board of a nonprofit called the Northwest Entrepreneur Network, and have been involved for almost 10 years now. The sole focus of the organization is to help entrepreneurs succeed. We started a blog last year (http://www.nwen.org/blog/) where we include guest/syndicated posts on topics helpful to entrepreneurs.Here’s the ask … if I provide a by-line and link back to your blog, make I selectively include some of your posts?
Yes, everyone can do thatIt’s in my creative commons license
Fred,In one of the videos you mention that you still get distribution checks from Euclid, could you explain more about this please?Thanks, Prakash
Venture funds take a long time to wind down. As they wind down, they make distributions to their members. I said that to make the point that venture funds take a long time to wrap up.
got it. thanks.
It sounds sort of hard to manage the beast of money. At one level, it sounds like what you have to do is network a lot and have the right 10-12 friends to invest alongside you.But what is the glue that holds you together? You don’t get anything out of bringing those other investors to the table, do you? Or how does it work? Do you get a finder’s fee?Or is it just the confidence that you recruited someone to validate your own pick?