Additions to Hitchhiker Guide 2011

Earlier this year, I published our annual "Hitchhiker’s Guide to the Boston Entrepreneurial Community"

I’ve also been going around town handing out hard copies as well.

As with all good things, there has been new exciting things popping up that I am very excited about.  So I thought I’d discuss a few major additions to the guide:

1. RubyRiot

This is a pseudo mysterious event being planned by Matt Lauzon, Cort Johnson, and John Clark for May 17.  I suspect this will be the first of a series of really excellent events that will bring together the most active members of the entrepreneurial community in a unique “pay-it-forward” event.  Sign up here!  Knowing the folks involved and some of the planning, it will be THE event of the quarter. 

2. Founder Mentors

A unique program created by Sean Lindsay, the CTO of Viximo.  This is in line with my earlier blog post about Golazo - the program is focused on helping entrepreneurs develop a structured and impactful relationship with some outstanding experienced entrepreneur mentors.  Apply here!

3. Angel Boot Camp

Last year, Jon Pierce put together a remarkable event to spur more smart angel investment activity in the Boston area. It drew an amazingly high-density of successful entrepreneurs and investors in one day of unique and inspiring content.  It was definitely one of the most impactful events of 2010, and this year’s bootcamp is sure to be even better. Invite request here!

Lots more new stuff going on, but there are the biggies that really should not go unnoticed!

Act II: Golazo

For the last couple years, when people have asked me what is needed to improve the startup eco-system in New England, my response has been “more shots on goal”.

I have firmly believed in this.  It was (and continues to be) important to break the impression that starting a company is only for the extremely experienced and extremely well pedigreed.  I think talented people should be encouraged to take a swing and build something, and more experienced members of the startup community should do more to contribute to the ecosystem.

But I think things have changed a bit in the past few years – activity levels are on the rise, investors are more open to backing younger entrepreneurs, and there are many great projects in the works.  Even while this weekend’s Globe article lamented certain weaknesses in this region, the article points to the fact that the local startup culture is indeed changing.  But as I was quoted in the article, I think this momentum should bring an evolution in focus.  It’s time for the start of Act II, and this act is less about more “shots on goal” and more about “Golazo”.  

For those of you unfamiliar with the phrase, “Golazo” is a Spanish soccer slang for an “awesomely amazing goal”.  In this context, what I mean is that while volume of activity is great, what we need is more truly remarkable, enduring successes that will inspire hundreds more because of them.

Easier said than done, obviously, and I’m still trying to figure out exactly what I think this means practically.  But I’ll offer a couple more specific thoughts.

First, for entrepreneurs, “Golazo” means grander ambitions and building a foundation for enduring companies.  That starts with the strength of early teams.  In recent years, the increased availability of seed capital has led to an interesting tradeoff for talented folks.  Do I join the early team of a startup for a point or two of equity?  Or do I start my own thing and own all of it?  Increasingly, the biggest competitor to recruiting isn’t Google or Facebook, it’s the option of striking out on one’s own (this is actually most acute in Silicon Valley).

I think this is generally a good sentiment.  But I also think that some projects are just more worthy of the efforts of extremely bright people than others.  Plus, being a small part of a monstrous endeavor can be more fulfilling (and financially rewarding perhaps) than being a large part of something less ambitious.  I think (and hope) that we are going to start seeing more teams with deeper density of talent going after more ambitious projects in the next several years.  That’s one of the reasons why I’m so excited to be involved with the founders of Boundless Learning, each of whom could have probably raised money for three different companies, but chose to work together on one massive opportunity.

Second, as a contributor and participant in the startup ecosystem, “Golazo” means investing more time in fewer high-quality areas.  Given the wealth of activity that has sprung up in the past several years, I find that many of the generous mentors and experienced entrepreneurs in our community are spread pretty thin.  We are all trying to be as supportive as we can be, so we volunteer to speak on a panel here, be a mentor there, etc.  But shallow involvement in many projects probably isn’t nearly as impactful as really taking emotional ownership of a company or a cause and being a champion for it.   

I was very impacted by TechStars Demo Day in New York this year when each company was introduced by their primary mentor.  Although I’m sure each team benefited by exposure to many great folks, the fact that one person took it upon themselves to really try to impact one team to be as successful as possible was very powerful.  I hope TechStars Boston is taking the same tact. I’m going to try to bring that mindset with me in some of the things I’m involved with as well.   

I’m excited to see how Act II unfolds. It’s early, but we are building off a strong base with a ton of momentum.  I’m glad to be a small part of it. 

How We Make Decisions

In starting NextView, one of the things I was looking forward to doing was crafting our own decision-making process for the firm.

Making wise decisions is very important in venture (duh) and being able to balance speed, collaboration, and diligence is easier said than done.  Luckily, my partners and I have worked at four different venture funds, and were able to draw from the experiences of:

  • Small and large partnerships
  • Single-office and bi-coastal partnerships
  • Multi-stage and multi-sector firms
  • First time funds and heritage funds
  • Highly structured and loosely structured firms

I believe that we are at an advantage in that we are a small team of three equal partners, have only one office, and are very focused both from a stage and sector perspective.  We’ve developed a process that fits this context, and it will probably continue to evolve as we gather more data on the efficacy of this approach. 

We want to share some of the details of our process so that entrepreneurs that meet us know what to expect, can interpret our actions clearly, and can keep us honest if we stray too far from this.  This should continue to evolve over time, but we’ve been doing a variation of this for the past 12 months, and I think it’s been working well.

Basic Process

We aren’t entirely rigid in our process of evaluating an investment opportunity, but we do try to be efficient and transparent in our intentions.  Below are the basic steps to expect if an entrepreneur is talking to us about a potential investment, although they may not happen in exactly this order. 

  1. First Meeting: At least one of us meets an entrepreneur and hears about their project.  It is often a formal pitch, but it could also look fairly different (an open ended discussion, a demo, phone call, etc)
  2. First Partner Discussion: We talk about the potential investments on each of our radars as a team.  We set aside time once a week to do this, but if an opportunity is moving quickly, we will call an ad-hoc meeting or call (not too difficult with a team of 3).
  3. Blink Vote: This is a minor innovation that we developed to create more efficiency and to help each partner better focus their time. Whichever partners have seen the company will describe it to the team in enough detail to develop a reasonable opinion of the opportunity.  Sometimes, a deck will be circulated beforehand.  Based on this shallow level of information, we will do a “blink vote” to share our gut instincts with one another.  I’ll discuss our voting methodology further below, but the basic purpose here is to gauge the team’s enthusiasm for the company, so that the person advocating for the investment knows where everyone stands and what risks need to be addressed.  The goal of this is for the person advocating for the investment to really be able to “speak for the firm” when representing our interest in a deal.  What you don’t want is for an investor to tell an entrepreneur “I love this” and then hear later “but I couldn’t get my partnership over the hump”.  We want entrepreneurs to know that whatever message they get from one partner incorporates the sentiment of the entire firm.
  4.  Due Diligence: Based on this vote, the partner who is leading the investment internally will decide whether or not to engage in due diligence.  The other partners will support this process, but there is one person who is primarily responsible.  We’ll also discuss as a team what diligence needs to be done and what risks need to be investigated for us to move forward with an investment. During this time, an investment memo is created. This memo summarizes the opportunity, the work that has been done, the risks, and other important components of the investment.
  5. Meeting the Partners: As a small firm, it’s less important for us to do formal “partner meetings” in the classic sense.  It is important for us to have each partner hear the story and get to know all the teams we invest in.  This may look like a partner meeting pitch, it could be 2 separate meetings with the partners individually, or something in between. 
  6.  Final Decision: At some point, if the lead partner is interested in pursuing the investment, we will do a final vote.  Based on this vote, the partner will try to commit to the investment and/or proceed to negotiate the final details of the deal.  If there is a material change during this time, the partnership may revisit the final decision.

Voting

Not all firms employ a voting process.  I find that it’s helpful to vote because it forces a concrete decision and normalizes feedback.  As mentioned above, we vote twice when evaluating an investment opportunity, once close to the beginning and again near the end.  Our voting process at NextView is highly subjective.  We’ve found that trying to apply too much science to what is fundamentally a subjective science is fruitless and a poor use of time and energy.  Instead, we apply different gradients of sentiment around a particular investment:

  1. I love it
  2. I like it
  3. I support YOU
  4. I hate it

A couple points on these:

  •  “I support you” means that the partner has legitimate concerns about the opportunity, but trusts the diligence and enthusiasm for his partner to make the right decision and make the investment successful.  An “I support you” can arise for many reasons – concerns about a market size, a mixed gut reaction to the entrepreneur, unfamiliarity with a particular market, etc.
  • Our partnership does not operate on a pure consensus basis.  Historically, the most successful investments have been the most controversial ones within a partnership.  We’ve seen this ourselves in our own experience and heard about it anecdotally from many other firms.  The bar for proceeding with an investment is 2/3 support (although for a large investment, we do require full support).  However, “support” just means anything better than a “I hate it”.  Although it seems like the bar is low, we take our partners opinions very seriously, and you can believe that we feel a lot of pressure and need a ton of conviction to lead an investment that has 2 “I support you” votes.
  • We use a language of support at NextView because we think it’s critical that even though we allow for dissent and even though one partner is “leading” an investment, we are all equal owners of all the companies that we invest in.  Even if we make an investment that I voted a “I hate it” on, once the investment is made, I am 100% behind it and will do whatever I can to help the company (and help my partner look like a genius).

A final word on voting – our blink votes are just that.  Blink votes.  Opinions change, and hopefully we are reasonable enough to be persuaded by data.  Our final vote should be much more informed and based on multiple rounds of diligence on the critical challenges identified during the blink vote.  But we use the exact same language in the two votes.

Time Expectations

We designed our process to be diligent but efficient.  The time from first meeting to final decision can be very short, but it can also be long depending on the circumstances.  In either case, we try to be transparent with entrepreneurs why we are taking a longer time – sometimes we need to learn more about a market, or get to know the founder better, or just have to invest more time in diligence. 

Typically, we can get from first meeting to final decision within 2 weeks.  If we push, we can get it done in a few days. But our typical preference is to get to know founders before they are in formal pitch mode (more on that later) so it’s actually hard to really give a good time estimate.  The most recent two investments we made were with entrepreneurs we’ve known for years, and businesses we’ve seen from an initial inkling of an idea many months before formal fundraising began.  

Miscellaneous thoughts:

  • We have a lot of friendly meetings with entrepreneurs to hear about their projects and provide feedback.  We try to keep these casual, and to the extent we are able, we try to take off our investor hat for a moment and try to speak objectively to these entrepreneurs based on their own best interests.  We will often ask entrepreneurs to “tell us when you are fundraising” at which point, we’ll shift our stance a little bit.  Often, we’ll help the entrepreneur craft their fundraising process and introduce them to other investors. 
  • Don’t ask us how you scored in our voting.  That’s not something we share with entrepreneurs, and frankly, isn’t important.  We will be straightforward about the internal sentiment on an investment while it is going through our process, and after an investment is made, you have the full support of the partnership.
  • Occasionally, the person who is first introduced to an investment is not the person who ends up leading it.  There are several reasons for this, but they mainly come down to domain knowledge and capacity.  We’ve seen this happen at other firms – in some cases, it is handled well, but often, hand-offs end poorly.  We have done 2 handoffs in our first 12 investments at NextView.  We try to make these happen within the first 2 meetings with a company – usually at the blink vote.  We allow for this because we know that sometimes, great companies will cross the path of the wrong partner.  But we make the handoff happen very quickly so that there is a clear owner and advocate for an investment through the decision-making process. 

Backwards Goals

I had dinner with an entrepreneur that I really admire a few nights ago.  He raised a small seed round pre-product and the early signs for the company are positive.  He made a very simple remark that I thought was worth repeating:

"If things go well, we’ll either just get to profitability, or raise a small amount of extra money to get there comfortably.  If they don’t go as well, we’ll think about talking to VC’s"

It was an eye opening statement, because most of the time, I hear the opposite:

"My plan is to make tons of progress so that I can raise money from VC’s.  But if I fail, we’ll raise a small round or bootstrap to get to cash flow breakeven."

Once again, thinking about the goal of building something enduring, I much prefer the orientation of the first entrepreneur.  He wants to raise as little money as possible to prove that he has a valuable service, prove that it can be made repeatable and profitable, and then maybe consider ways to scale from a position of strength.  

We’re also lucky at NextView to have Niraj Shah and Steven Conine as venture advisors to the fund.  They are the founders of CSN stores, a monster ecommerce company that does hundreds of millions of dollars in revenue and never raised VC funding. 

In both cases, these entrepreneurs didn’t do anything all that strange, they are just trying to build rational and durable businesses.

Isn’t that the goal after all?

Building Something That Lasts

I’ve been thinking about this for quite a while.  This may sound a little strange, but
I think there has been a little too much emphasis on the START in recent years.
I know that sounds strange coming from a seed investor, especially since I think almost exclusively about the START and the tactics around setting a company on a fruitful path from the beginning.

The Lean Startup movement has been amazing, and Steve Blank’s work has gone a long way towards helping entrepreneurs rethink the product development process at the early stages.  Almost all web entrepreneurs now talk about “Product Market Fit” and building a “Minimum Viable Product” and for the most part, I think it’s very productive.  Incubators like Y-Combinator and TechStars show just how much value can be created from very little capital, some good mentorship, and a few months of very hard work. 

But I think there isn’t enough discussion about building a long-term, enduring business. I know that most companies probably won’t get there, but as an investor (and more importantly, a beneficiary of innovation), I think that the more entrepreneurs are trying to build lasting companies, the better.

To be clear, I may be speaking a bit out of school since I haven’t built an enduring company myself (yet), but I’ve had the benefit of seeing a few up close. Here are a few things that I’ve observed. 


Founders Pursuing Worthy Endeavors

In the success case, startups become enduring companies, and that takes time.  We have a finite amount of time in this life, so hopefully our efforts are directed towards worthy endeavors.  Hatching a company to tackle a problem may be exciting at first, but are you going to be excited enough to tackle that problem day in day out for 10+ years?

A few weeks ago, I was lucky enough to sit down with Steve Kaufer, the founder and CEO of Tripadvisor.  He founded Tripadvisor in 2000, and the company was acquired by IAC in 2004.  Earlier this month, it was announced that Expedia was going to spin out Tripadvisor as an independent public company.  All the while, Steve has been at the helm, slugging it out day after day, completely in love with the company and its ambitions.  I don’t think he’s staying for the money (he’s made plenty), but I think he is staying because he believes he is pursuing a worthy endeavor. I found it inspiring - how many entrepreneurs stick with their companies after it has been acquired?

I kind of like they way Mike Maples put it when he talks about passing on companies started by terrific entrepreneurs because their ideas aren’t “worthy” of him or her.  It’s also one of the reasons we like backing entrepreneurs that are motivated by authentic needs and experiences.

By the way, “worthy” doesn’t just mean big. I know lots of people who are pursuing “worthy” endeavors that are small in scope, but deeply transformative within that scope.  I also realize that many companies started with ambitious goals and end up going sideways or pursuing something very different.  I very much admire the entrepreneurs that grind it out in those scenarios as well. 


A Unique Culture and Practices That Reinforce That Culture

I’ve blogged about the importance of culture before, so I won’t rehash it here.  But it is remarkable how strong cultures pervade enduring organizations.  Also, it’s interesting to see how these cultures are ingrained into specific company practices, which is important as a company scales and the founders are less able to directly propagate a culture over time. Finally, it should be noted that having a strong culture means that it’s not for everyone.  If a culture isn’t at least polarizing to some degree, it’s probably not very strong.

Rather than say much more, here are some of my favorite examples:

An Innovation Machine

Enduring companies obviously evolve beyond one great product to a machine capable to constantly launching many successive products (and a repeatable business model that supports them).  This is true in technology, enterprise, consumer products, etc. The challenge is building an innovation machine that is able to balance the needs to enhancing a core product with investment into new product lines or adjacent products (with a coherent strategy around all). Again, I’m not an expert here, but here are a few posts that give a taste of what I’m talking about

A Willingness To Evolve

The beauty of innovation is that the old eventually makes way for the new.  It’s great news when you are the new shiny thing, but bad news when you are the big incumbent that is perceived as the “dinosaur”.  

Evolution is particularly important in technology where the cycles of change can happen so fast.  It takes great leadership to stay out ahead, as the demise of so many acquired companies prove. Pure Digital is a great example of this.  It’s remarkable how the company went from a heroic $500M+ outcome to a shuttered business so quickly. 

What’s amazing however is the ability for some companies that are perceived as “transitional” technologies to maintain leadership in their industries, and even take the hard steps necessary to evolve as markets change.  Again, Netflix is an amazing example of this, as is Amazon.  We’ll see if Chegg is able to do the same.

This isn’t meant to be exhaustive and it’s not nearly as actionable as I would like.  But hopefully does start a discussion around laying the foundation for enduring, transformative enterprises.  

I had the pleasures of sitting down with Matt Lauzon last week to talk about the lessons he’s learned as the founder and CEO of Gemvara.  I’m hoping this will be the first of several chats with some of the new crop of entrepreneurs and investors in BOS that are making things happen. Many thanks to Cort Johnson for helping me make this happen.  

We talked about a lot of things - getting noticed, developing as a CEO, etc.  But the best part was his story about "Paying it Forward”.  I get the chills thinking about it.  I’ve embedded that segment of the conversation above. Below are links to two other segments to our conversation. 

By way of context, Gemvara is an online retailer of customized jewelry that is growing very rapidly.  The company was seeded by Highland Capital and raised their series A and B from Highland and Canaan Partners.  Matt looks a little giddy in the interview because that morning, he had just signed a term sheet from Balderton Capital for a $15M series C round to scale the business. 

Our chat is structured into three parts, and I will point out some of the gems below. 

Part I: Getting Gemvara Started

Matt founded Gemvara as an undergraduate student at Babson.  What set Matt apart from other students starting companies and entering business plan competitions was his willingness to do the straightforward but slightly intimidating things that you need to get noticed.

See 1:36 to hear Matt talk about how he coordinated a tactical strike on Bob Davis’ inbox shortly before his meeting with him. 

See 2:52 to hear how Matt cold called the VP of engineering at Bladlogic shortly after the company’s $800M acquisition and convinced him to join him as CTO when the company was not much more than a man with a plan. 

Part II: Developing as an Entrepreneur (and getting replaced)

I ask a terribly inappropriate question up front about getting replaced as CEO shortly after their series A. See the first 2 1/2 minutes to hear what it was like to be replaced as CEO, and then to come back a few years later.  Why did it happen?  What changed? Why was he equipped to come back?

Some other great sound bites:

"I know more today than I did yesterday.  But less than I’ll know tomorrow."

"When the first great ecommerce companies were built, no one had ecommerce experience"

Part III: Paying It Forward

Matt gives his perspective on the state of the Boston startup ecosystem as a someone from “a small town in Maine”.  He speaks candidly about the many good things and some of the things that are potentially more difficult.  He closes with an incredible story at 3:38.  It’s definitely the BEST PART OF THE INTERVIEW and talks about those who helped him early on and what kept him going in the really hard and discouraging moments. 

By the way, in the spirit of “Paying it Forward” Matt is organizing an event in mid-May called Ruby Riot.  Details are sparse, but based on the stealthy twitter chatter, I think it will be the “It” event for the local tech community in May. 

Hope this video is interesting and instructive.  Follow Matt on twitter here, and please let me know other folks you’d like to hear from in a comment below. 

We Are Not Moving to Wellesley

Looks like quite a few people took my April fool’s joke too literally.

There were nuggets of truth to the post, but most of it was tongue and cheek.

Truth - there is a big wooden table at the old Bessemer office that I wanted.

Truth - I do want to skate to where the puck is going. But the answer definitely is not Wellesley. Nor is the answer suburban hipsters.

Oh, and btw, we obviously are not raising a $1.61B fund to focus on China. But from what I hear, such a fund would not be too difficult to raise. Although I hear there is quite a bit of investor interest in that sort of fund. 

NextView Ventures Relocates to Wellesley, MA

I’m pleased to announce that NextView Ventures is relocated our offices to Wellesley, MA.

We are taking up the venerable old colonial house that was home to Bessemer Venture Partners since 1984.  

We first started considering Wellesley during a conversation with Felda Hardymon during their last week in their office.  He promised to give us their large large, wooden, conference room table when we got into business, but unfortunately the table was too large to evacuate from the office.  

"The table comes with decades of good mojo" Felda told us, "amazing entrepreneurs have etched their name into the wood and pounded their fists on the table."  My partners and I just had to have it, so we decided that if the table couldn’t be moved, we would move the firm. 

A couple other reasons for the move:

  1. We believe in being contrarian, and given that many leading Boston VC’s have moved into Cambridge in recent months, we thought “let’s skate to where the puck is going, not to where the puck already is”.  Wellesley was a no-brainer
  2. We were getting tired of lunch options in Kendall Square and the Galleria mall. I am going to miss the Japanese teriyaki chicken in the food court though.  I’m hoping Ming Tsai has his own interpretation of this classic dish. 
  3. I’m thinking of getting a minivan, and Cambridge parking is way too tight.  Also, Lee’s roadster kept getting dinged, and he wanted to be able to park in a proper driveway.
  4. We think the next wave of great, consumer internet ideas are coming from the suburbs.  So we need to be there.  Urban Hipsters are so 2010.
  5. This past winter’s snow convinced us that the best way to keep our wives from griping about our long hours is simply to have the option of getting “stranded” in our offices because of snow.  There was no excuse when we were on the red line, we were just bad husbands.

So, that’s the big news for us this lovely, snowy April morning.  Oh, and we’ve also just closed a $1.61B fund to make ultra late stage internet investments in China.  See, I told you that table has good mojo :)

Hi! Thanks for your blog! I'm from the Boston area, so I've really appreciated your post on the tech scene here.

I'm meeting with a high profile VC next week, as part of my dayjob as a reporter/interviewer. We're going to get to have about 20-30 minutes of uninterrupted 1-on-1 time so I can do a profile story on him. I'd like to bring up my startup with him, but I feel a bit tacky about springing it on him. He and I have met before and he's a super nice guy. But he'll be the first real VC I've ever talked to about my startup. Do you have any suggestions on how to bring up my startup to a VC in a non-pitch meeting environment?
steelmangoes

HI, sorry for this response is delayed.  

VC’s hear startup pitches all day, so no need to be bashful about sharing your startup.  I’d probably be candid.  ”Can I take 5 minutes to get feedback on a project I’m working on?”  I’d probably try to have one or two very specific questions to ask.  It’s hard in a quick meeting to really answer “so, what do you think?” and get substantive feedback.  But you can ask more specific questions and get meaningful feedback in a short amount of time.

Good luck!

Rob Go Thanks for visiting my blog! Learn more about me or ask me a question.