Along with a couple startup/VC obsessed HBS students, I recently visited some of New York’s VC funds to learn more about post-MBA careers in venture capital, NY venture capital ecosystem, and firm-specific investing philosophy.
In this post, I wrote about what stuck with me, what I learned and what I think could be useful for other VC/Startup obsessed people. I skipped details that can be read or inferred from the funds’ websites or the Internet.
I would like to begin by thanking all the VCs below who took time to meet us, opened up their experience to us and candidly answered our questions.
(in chronological order of our visits)
top quartile persistency and self-containing flywheels
Thanks to HBS Field program and Boston weather only 2 out of the 7 of us could make it in time to meet NEA partner Dayna Grayson, associate Eugene Chung, and the X-fund X-men team of Hugo Van Vuuren and Halah AlQahtani.
Two things that I took away from the session were:
1) Eugene’s presentation about VC industry that used data to prove that the top quartile funds have high persistency- basically if you produced great returns once; statistically you are likely to create a brand that helps you generate great returns again, and again. And
2) We also met “the great VC firm flywheel” here for the first time. This flywheel graphic illustrates the theory that great VC funds create positive network effects that attract best deals, entrepreneurs and capital y-o-y. We met this flywheel in different colors many times during the course of the trek.
Also, Dayna and Hugo re-emphasized that it’s the best time to startup and just start building. They have great energies, and this time combined with a new simple idea- I’ve started to build. Details about that later.
FFVC: Founders First Venture Capital
the sweet spot and its temptation
At Founder’s first we met founding partner John Frankel, David Teten and the standing desks- so many of them. They were also the first of many we saw over the course of the trek. I took a mental note to try one soon.
John started by explaining the career path into VC starting as an angel investor while at Goldman, and then making a complete transition after the dotcom bust.
Two things that I took away from his story were:
1). He mentioned some data as evidence to the theory that early stage VCs generate more returns than growth stage VCs. He says most successful early stage VCs transition towards larger funds because of the larger management fee. And
2) He explained how as a result of the above-mentioned point, more and more successful early-stage VCs move into growth stage and hence leave less competition for early-stage VCs.
Thus he deduced why FFVC has made a choice to stay committed to early-stage. I thought this was insightful and worth thinking upon.
God in detail and entrepreneur in suit
Two things that I was particularly impressed by were:
1) David is probably the most thorough and productive VC professional I’ve met. As a proof, check out his bible of making the best out of business school here. I wish I could share the super customized personal career advice David gave Juan and I. On a tangential note, I was also impressed by his use of doodle to communicate all available meeting times quickly. I believe small productivity-hacks like these compound into huge competitive advantages over a long term and I’m thankful to David for providing an insight into his affairs.
2) I think the most appealing thing about the HBS angels pitch night was the super rich and long work experiences of the founders presenting. One gentlemen was a 6-time serial entrepreneur (3 IPOs, 2 Sales, 1 lemon), another turned a major Republican state into Democratic by data analysis in Obama’08, and yet another lady just finished helping peacefully separating North and South Sudan. On top of that, in my understanding, 4 of the 7 ideas shared could find a central place in our lives. I wish I could share them or had the money to invest. Maybe soon. J
3) Yes, all of them were in suits
Unfortunately, we didn’t get enough time with Jason but hopefully will see him soon.
Technology Crossover Ventures
tips, tricks, and pitfalls
Thanks to Amol, a classmate at HBS we reached out to Principal Daniel O’Keefe at TCV. In my mind, this as the most intimate session we had. Dan is super-supportive of HBS alumni and spared no detail in helping us understand the life of a VC. Some of the key insights I think he won’t mind me sharing were:
1). Rewards are in the details. He ran us through his career in the VC industry and how at every stage minor contract details about application of carry had a huge impact on his earnings. I’m afraid that’s as much I can share in this post. Tip- just read the offer documents very very carefully.
2) He also explained to us the competitive advantages of firms in each of the three stages: early stage VC, growth stages VC and buy-outs. In his experience, early-stage VC is all about deal sourcing, and selling to both entrepreneur and the investment team internally. On the other extreme, private equity buyouts are mostly driven by extensive financial analysis, and building relationships with entrepreneurs. As for the growth stage VC, he mentioned that it’s sort of midway, with relationships with entrepreneur the most important. His tip was to start helping entrepreneurs much before you expect a transition, mostly executive recruiting and business development.
valor and vision
We were lucky to meet the RRE fantastic 4 team: Managing Partner Stuart Ellman, General Partner Will Porteous, Principal Tom Loverro and analyst Kane Hsieh. I must confess I didn’t personally know much about them before visiting them but boy I’m glad we met. I’ve been exploring hardware enabled software business opportunities such as Nest & Lockitron lately and RRE seemed to love that space. Two things I took away from the meeting were:
1) The stories: I loved Mr. Ellman’s story of the founding of RRE immediately after HBS, and their evolution into a major NYC VC fund. Another story highlighted the co-operation between the NV VC and startup ecosystem during hurricane Sandy. They gave examples of portfolio companies that moved into their offices and other larger startups taking smaller ones in. It was worth reflecting how everyone in NV ecosystem talks about collaboration- good feeling.
2) Being selfish, I tried to steer the conversation towards their thesis on consumer hardware and learned that they believe the biggest challenge is building a service platform/ marketplace where people with product ideas can get their ideas prototyped and then if successful, can hope to get mass manufacturing. They supported the argument by arguing how a lot of successful Kickstarter hardware projects had failed to ship products eventually.
I’m very grateful for the discussion, and will hopefully get some of their time to schedule a follow up meeting to discuss the theme further.
fireworks of frameworks
We met Principal Matt Witheiler at one of their portfolio company’s offices as Matt has recently moved to NYC from Boston and working out from this office. Matt was very analytical and had actually made a presentation on why a Boston VC moved to NY. I would like to share a couple notes from that discussion, and another analytical discussion about optimizing summer for VC/Startup post B-school:
- It’s all about baseball teams. Just kidding. Matt explained how in a typical startup sense he prototyped his NY move and travelled to NY 3 days a week for over a year before gaining substantial traction from NY startup ecosystem for Flybridge. He showed slides proving how most new deal flow for Flybridge came out of NYC and thus, he should make the move. He mentioned how large tech companies are building engineering hubs in NYC and how that would translate to a vibrant tech community. I was sold.
- Next, Matt explained how different jobs in summer might position us for VC/entrepreneurship post B-school. In short, working for a tech company is must for either VC/entrepreneurship post MBA job. He said how he believes working for a growth stage brand-name startup might help progressing towards a VC job, but the flip side is it may not be in your core interest area or give you a great feel for early stage startup challenges. On the other hand working for a younger startup in your area of interest may be a great learning experience, but it may not be a great success when you graduate and may not help getting a VC job after school.
My summary of takeaway was to work for a brand-name VC backed early stage startup with experienced founders in a sector of interest to optimize both VC and startup/entrepreneurship post B-school. I think someday I will make a Venn diagram for this, maybe Matt should.
Anyhow, next time I meet him I have to ask him his framework to look 10 years younger than he really is. He does.
Bain Capital Ventures
history and future
Principal Jordan Bettman focuses on Fintech investments at Bain Cap, and his passion for the sector was mesmerizing. Since I have very limited understanding of the sector, instead of making a fool of myself and doing injustice to Jordan, I’ll talk about two stories he shared- one about Bain Capital Ventures, and another about Unreal Chocolates:
- Bain Capital Ventures: Jordan started by telling us about origination of Bain Capital and how Mitt Romney realized that as consultants they could generate much more returns from their private equity portfolio companies if they get involved in the operations of the companies, and hence, Bain Capital was formed. Bain Capital Ventures was then formed when they saw a potential gap of investing early stage. This is why Bain Capital Ventures has a culture of working with portfolio companies and that culture is here to stay. Coming from the horse’s mouth, it was very meaningful to me.
- Unreal Chocolates: Jordan also graciously offered us some unreal chocolates, literally. If I remember correctly, these chocolates taste exactly like the snickers of the world, only they don’t use any chemicals. They were so tempting that they killed the New Year resolutionary in me and I indulged.
On a serious note, Jordan persuaded us to look at incumbent industries such as Insurance and come up with ideas that ease their compliance procedures but not directly attack their competitive advantages. I thought that was profound and super helpful. For eg: You don’t want to sell a software to insurance companies that tells them how to price premiums and attack their jobs, but sell them a solution that eases customer verification that already hate to do and are more likely to outsource.
I’ll digress a little and mention that later that evening I met with my fellow HBSer’s venture-backed startup Handybook.com (a one stop serviced platform to book handymen in 30 secs) and must mention that they’re looking for talent. Write to email@example.com.
Overall, it was great to immerse in the ecosystem I’ve been reading about for years far away in India and live through it, though only for a day. I hope to be back to get my startup’s term sheet signed with that white cross pen.
I love startups. I love NY. I love America.
Thanks again to all the VCs who made it possible, and special kudos to Amol Helekar, Dong Zhang, Jeff Bussgang and Paul Tumpowsky to help setup meetings, and Paul for taking time out to chat in person. It’s been great.
Also, it’s Paul who inspired me to blog about this trek- so thank him if you thought the post was helpful, or fun.
This post was written by Pratik Agarwal, Harvard Business School MBA Class of 2014. Follow him twitter.