Well, that seemed like an eternity. I took over a year off from blogging for a variety of reasons and am now preparing to jump back into it… with a brand new look and URL! I will do my best to port content over but suspect some posts will get lost in the the transition. Stay tuned!!!
Well, it’s that time of year again. That’s right, VC in the OC is back next Tuesday (May 24th) from 7am to 6pm at the Hyatt in Newport Beach. This year promises to be a major event with over 500 attendees. I’ve heard that the Real Housewives of Orange County will be in attendance, but a) I’m not sure it’s true and b) even if it is, I’m not sure what to make of that fact… I look forward to seeing you there!
While the title of this post might harken some back to the days of the Grateful Dead, it is meant as a shout-out to William Quigley at Clearstone Ventures and his recent presentation about the revival of the venture capital industry (for certain types of funds). If you haven’t seen it, see below. Enjoy
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I am often asked what VC look for when making their investment decisions and while I truly believe that it is at least 80% “art” and only 20% “science” I thought I’d quickly share 3 main, objective criteria (which then require subjective analysis) with the hope that it helps you assess how you stack up relative to what we VCs are looking for. No, this isn’t a repeat of my “3Ps” post from a few years ago.
1. Team - A great team is paramount. That said, it doesn’t necessarily mean that your team has to be complete when you raise money. It actually varies by fund and firm as to how complete your team needs to be before they are interested. So, what are the elements of a great team? Easy. Great team members that compliment each other. So, what do VC’s consider “great” in terms of entrepreneurs? Again, the answer varies by VC but most generally agree and are looking for evidence (empirical and anecdotal) of a high intellect, integrity, energy & passion, deep subject matter expertise, vision, and persistence & fortitude. I could spend separate blog posts on each aspect but won’t spend the time unless there is an overwhelming request to do so.
2. A solid business model - VC are looking to invest in companies that have a robust, competitive advantage that provides protection from imitation, protection from supplier/customer holdups, protection from substitution and protection from complacency. Each of these aspects arguably merit separate posts so let me know if you’d like me to go deeper and, if so, on which point(s). VCs area also looking for companies whose business models are self-reinforcing wherein the company is able to expand without conflicting its model and, ideally, achieve some type of economy of scale. Finally, a company’s model should align with the company’s management’s goals as well as those of the prospective VC. We are not looking to invest in “lifestyle” businesses.
3. Targeting the right market - Notice I did not just say “large” when mentioning targeted markets. Sure, most VCs prefer extremely large markets that are rapidly growing (myself included) but this third criteria seems to be the most subjective of the three I’ve listed for one simple reason. The equation we are really solving for here is simply is the target market “right” such that I can invest the amount of money I need/want to invest into this company and have the investment return a large multiple on that investment in a set amount of time (< 10 yrs.). Another way to look at this is that the size of the market is relative to the size of the company the entrepreneur aspires to and relative to the fund he or she is pitching.
Let me know if you’d like elaboration on any of these points. I’m finding myself with less and less time to write these days but I have an active bin list and will continue to try and find time to write.
At the beginning of every year, I look back and reflect on what the “highs” and “lows” were for me for the year and what life lessons I learned. I have been doing this since high school and occasionally write about it (privately)…so this is a rarity for me to share my 2010 reflection with you. 2010 will go down in my book as the year of my biggest personal growth thus far and was a wild roller-coaster of a year chronologically. Let me explain.
January 2010 started with my father having health issues and me running one of my portfolio companies after the sudden departure of its CEO. I remember dealing with both situations in parallel and laughing a lot, assuming the year could only get better. It did get better…and worse. My youngest started preschool after a “potty training boot camp” (as my wife called it) and we officially kicked our Diaper Genie to the curb! In February, one of our portfolio companies received a LOI to be acquired so I spent a few months working through the process with the CEO. The outcome was Helixis being acquired for $105M by Illumina after just 30 months of our having made our first investment in the company. The sale represented a 6.2x return on invested capital (in 30 months) and help put my fund on the map. We ended up passing out distribution checks to our LPs at our 4th annual meeting that May and things were looking up going into the summer. I found a great CEO for the company I was running and was looking forward to some free time in July/August.
My father ended up having a pacemaker put in that Summer while I was in Maui with my wife and kids. One of our companies had a technological breakthrough that was (is) very exciting. I distinctly remember sitting out on a SUP board after about an hour or so of paddling and reflecting on the concept of work/life balance and how important good health was after a chaotic first half of the year. All in all, a good summer.
We returned from vacation, kids went back to school for a new year, my fund’s portfolio companies were doing well to great, and I was looking forward to the college football season. Work started picking up and spent a fair amount of time in the Bay Area with various business dealings. I had a very productive Fall until the end of November when my wife was diagnosed with breast cancer. I won’t get into the details here other than to say that November and December were two of the most difficult months of my life. By the grace of God, her latest pathology report was good and she is now on the road to recovery.
So, why discuss my 2010 look back publicly? I guess if only to encourage others to appreciate life and its preciousness and to be truly thankful for family and friends. I have been thinking more and more about such matters (it’s why I haven’t been blogging much) and feel truly blessed for my life and those I have in it. Here is to hoping your 2011 is a great year filled with health and happiness.
I’m a bigger believer in thinking “outside the box” and routinely analyze situations keeping that belief in mind…so I thought I’d share a moment of levity with you. My son’s kindergarten class was given a piece of paper that stated: “If I had a turkey, I would _______.” and asked to write in their answers. Of the 20 students, 16 wrote “eat it”, 3 wrote “stuff it”, and then there was my son. He wrote “teach it to do back flips”. I guess the apple really doesn’t fall far from the tree. Happy Thanksgiving.
In light of our recent mid-term elections, I have been spending a fair amount of time thinking about leadership the past several weeks. It has been said that leadership is the art of accomplishing more than the science of management thinks is possible. I couldn’t agree more. In fact, I have been reflecting a lot on what leadership means and to whom these days as my state and country seemingly continue to struggle with its concepts. To give you some perspective on my own personal experience with leadership, I grew up an Air Force brat and my father was a career officer and pilot. I’ve played on numerous sports teams where I have had the privilege of both being a captain and following the leadership of a few good ones. I’ve held officer roles in numerous fraternal organizations and non-profits and have been a CEO and board director for a number of for profit companies. I have taken several leadership and “leadership related” classes at USC and Stanford GSB and heard a number of folks whom I consider to be great leaders speak on the topic over the years. Through all of this, I’ve learned a few things about leadership in my life and was planning on sharing a few of these with you today. I spent some time thinking, reviewed numerous notes I have taken on the topic in preparation for writing this post, stumbled across some notes I took while attending a speech by former Secretary of State General Colin Powell…and decided that I’m not sure I’m capable of articulating what leadership means to me better than Powell did that day. So, instead of rambling on, I think I will simply share several principles from his speech here.
- Being responsible sometimes means pissing people off.
- The day employees stop bringing you their problems is the day you have stopped leading them. They have either lost confidence you can help them or concluded that you do not care. Either case is a failure of leadership.
- Don’t be buffaloed by experts and elites. Experts often possess more data than judgment. Elites can become so inbred that they produce hemophiliacs who bleed to death as soon as they are nicked by the real world.
- Don’t be afraid to challenge the pros, even in their own backyard.
- Never neglect details. When everyone’s mind is dulled or distracted the leader must be doubly vigilant.
- You don’t know what you can get away with until you try.
- Keep looking below the surface appearances. Don’t shrink from doing so (just) because you might not like what you find.
- Organization doesn’t really accomplish anything. Plans don’t accomplish anything, either. Theories of management don’t much matter. Endeavors succeed or fail because of the people involved. Only by attracting the best people will you accomplish great deeds.
- Organization charts and fancy titles count for next to nothing.
- Never let your ego get so close to your position that when your position goes, your ego goes with it.
- Fit no stereotypes. Don’t chase the latest management fads. The situation dictates which approach best accomplishes the team’s mission.
- Perpetual optimism is a force multiplier.
- Look for intelligence and judgment, and most critically, a capacity to anticipate, to see around corners. Also look for loyalty, integrity, a high energy drive, a balanced ego, and the drive to get things done.
- Great leaders are almost always great simplifiers, who can cut through argument, debate and doubt, to offer a solution everybody can understand.
- Use the formula P=40 to 70, in which P stands for the probability of success and the numbers indicate the percentage of information acquired. Once the information is in the 40 to 70 range, go with your gut.
- The commander in the field is always right and the rear echelon is wrong, unless proved otherwise.
- Have fun in your command. don’t always run at a breakneck pace. Take leave when you’ve earned it: spend time with your families. Corollary: surround yourself with people who take their work seriously, but not themselves, those who work hard and play hard.
- Command is lonely.
I have about a page of notes on each of these principles that I have compiled but rather than share them here, I’d rather hear from you as to which of these principles resonate with you. Any you object to? Any you’d add?
I believe in butterflies. The kind you get in the pit of your stomach at certain eventful times in your life. You know, that “fluttery feeling” before you make a big decision, close a big deal, take a big test, etc. I’ve had that feeling a handful of times in my life and have learned to listen to those feelings.
I was reminded of this fact when recounting to a neighbor recently how I met my wife. She walked into the room and my stomach did back-flips and I instantly knew she was the one. I listened to my butterflies, pursued her, convinced her I was a decent enough guy, and the rest is history. The second time I had this feeling was when deciding between joining Intel or prominent law firm. Intel felt right, I joined, and the rest is history. My butterflies returned for a third time when I was presented with the opportunity to launch Okapi and told, Field of Dreams-style (i.e., “if you build it, we will invest”). To put this leap of faith in perspective, I was one removed from Paul Otellini (CEO of Intel) running strategy and business development worldwide for the software and solutions group…and imminently expecting the birth of our first child…when I was approached and made the decision. I made the leap and Okapi is on track for a truly phenomenal history. The next two instances were around two particular investments (one of which we have already sold…for 4x in 30 months) and I expect more such moments in the years ahead.
My most recent “butterfly moment” was the launch of our second fund as I view the next several years an all time moment in time to invest in early-stage start-ups given the evolving dynamics.
Listen to your butterflies.
I have posted on this topic before, but feel compelled to re-post it based on some recent experiences I’ve had. For those of you new to OC VC, it will probably be refreshing. For you “old timers”, this is worth a re-read…especially in these economically challenging times. Hope you enjoy.
Hi, my name is Marc… and I’m a recovering attorney. Well, maybe I should say “reformed” instead. Actually, while I like to make jokes at my former profession’s expense, a good number of my friends are attorneys (or ex-attorneys) and I am privileged to work closely enough with some of them on a weekly basis so please don’t misconstrue any animosity here. I thought I’d re-post a popular piece I wrote in early 2007 about choosing legal counsel after being inspired by a recent piece by Jason Mendelson titled: Quick Ways to Get Fired as a Lawyer. I strongly encourage you to read Jason’s piece in addition to my spiel below.
I’ve had the good fortune to work with some really great attorneys over the past fifteen or so years and would like to spend a few minutes explaining just how important they are to the VC ecosystem and, in particular, to entrepreneurs given the number of questions I’ve fielded of late as to whom to go to for legal service in OC. Rather than try to address each situation that I was presented with here, I’ll answer generally like any good (reformed) attorney and simply say it depends…and then provide you some general considerations when choosing an attorney.
First, I strongly believe that having one or more good attorneys in your corner can really help you at the inception of your new business endeavor and you should get them involved early and often (once you’ve decided on who you want) as they can truly help you avoid the frequent initial mistakes at a minimum. Some will tell you that a good attorney can be worth his or her weight in gold, but I prefer to think in terms of diamonds; namely, the right one can shine as brightly under the right light and should also be chosen based on the “4 Cs”. So, what are they? Simply put, they’re Competence, Chemistry, Collaboration, and Cost and I’ll take each in order.
Competence: You should retain the right attorney for the job based on the job at hand and the attorney’s competence in performing such job. This may seem like common sense, but you’d be amazed at how many people simply use their friend, neighbor, [fill in the blank], regardless of his or her specialty, out of convenience rather hire a domain expert. Doing so can be extremely detrimental to an entrepreneur, especially one in a sector where intellectual property truly matters. For the record, I’m not suggesting you don’t confer with your friend, neighbor, etc that is a litigator or maritime lawyer, I’m simply pointing out that (in my humble opinion) you should consult an expert in the subject matter you need help in. For example, you should consult with a corporate finance attorney with experience in representing start-ups in company formation and financings rather than a general practice attorney who dabble in a number of areas of law. Most good attorneys will be more than willing to refer you to an expert in a particular field when the matter is one off their proverbial reservation. Fortunately, there is a number of competent attorneys right here in OC with a vast array of specialties and extensive experience.
Chemistry: Bottom-line, you need to be able to work with your attorney and to trust him or her implicitly given the nature of the business you will likely be conducting with him or her. If you’re constantly at odds with your attorney, it can hinder your progress as a start-up. Spend some time upfront getting to know each other to see if he or she is someone you can work with. A good attorney will be rowing the boat right along side you and become a true team member. Again, it may seem like common sense but I’ve seen the uglier side of this relationship and it’s a very big distraction at a minimum.
Collaboration: This is similar to chemistry. You need to retain an attorney that not only understands your issues, but can dynamically work well with you to resolve the issues and get the work done. It is also a good idea to choose a local attorney as working with someone from afar on the litany of start-up legal issues can be a challenge and, in my opinion, deprives you from getting the most bang for your buck. It’s much better to be able to pop into your attorney’s office and chat, review docs, etc. than to attempt to do so by electronic means. Choosing a local attorney may also come with the fringe benefit of utilizing his or her offices and conference rooms for meetings with your team, investors, and the like (you know, when you don’t have an office yet and/or are trying to keep your burn down like a good entrepreneur). The other thing to consider here is whether your attorney is part of a larger firm that has a diverse set of practices to grow with you as your company grows. Having said that, I’m reminded of a plaque my father (a career pilot) had on his desk that read something like: “It’s hard to soar with eagles when you’re surrounded by a bunch of turkeys...” so I feel compelled to point out that it’s not always a good idea to rely on a single firm for all your matters just because you like and work well with one particular attorney. Make sure you’re getting the expert advice you need and will be presumably paying for rather than deal with a bunch of turkeys just because they share a nest with your legal eagle.
Cost: Before all you big-firm attorneys panic and think that I’m going to suggest that entrepreneurs simply get the cheapest attorney they can to preserve their much needed cash, relax…that isn’t even remotely close to what I have to say here. I use the term “cost” here but I just as easily could have used the phrase “value exchange”…but it wouldn’t have started with a “C” and would have therefore thrown off my analogy. The value exchange I’m talking about here is simply making sure you receive appropriate value for the money you spend on your attorney (which goes to the other 3 Cs). It can actually be, and often is, more expensive to go with a particular attorney just because he or she is cheaper. How? Simple. A good attorney brings more to the table than just basic legal service. He or she has presumably worked with a number of companies you might want to work with but are unaware of, know a variety of capital sources, know a number of potential employees that you’d be interested in hiring, etc. Additionally, a really good attorney will help you avoid some common mistakes with respect to incorporation, patent prosecution, equity/debt financing, etc. that a lesser attorney may inadequately do. Avoiding such initial mistakes can save you money in the long run and ultimately prove to be cheaper for you overall. So go forth you brave entrepreneurs, lawyer-up, and build great companies here in OC.
Well, it’s that time of year again as I’m all packed and ready to schlep up to Rancho Palos Verdes for Wall Street Journal’s D: All Things Digital conference this year, D8. As I packed this morning, I had to laugh as every year I debate whether to attend and always end up registering after remembering the “one key meeting” I had the year before (that I probably wouldn’t have had otherwise). This year I’m excited to have a number of meetings to discuss one of my portfolio companies, My Damn Channel, as they seem to have become the belle of the ball of late and truly are producing some remarkable content these days. You’ll know whether I find the conference useful again by whether I blog from it. If I don’t, then it means that I’m too busy to do so (or I ran into IT issues of some sort). Until next time, aloha.