There are certain realities behind venture capital one cannot escape from:
- At the end of the day, the more of the best companies we own, the more money we make.
- We don’t always know which companies will be successful, but if a bunch of other smart people think that a company has promise, there’s a good shot we’ll want in.
- We don’t always want to get off the merry-go-round the same time the entrepreneur does—and often times we want to go around again, at twice the speed.
Fortunately, some firms, like the two that I’ve been fortunate enough to work for, Union Square Ventures and my current firm, First Round Capital, understand the following:
- Owning less of *more* great companies works just fine, too—especially if that means you’re left with highly incentivized entrepreneurs who receive appropriate amounts of financing at the right time, focusing their efforts.
- We should strive to be *the* smart people that other people want to work with—by working hard to get smarter about the areas we invest in.
- At the end of the day, smaller funds can deal with the “high class problem” of the $100 million exit just fine, because we don’t need a billion dollar exit to make our find economics.
But why do I like working with startup companies?
I think that’s important for someone to understand when pitch their idea or project and agree to take on an investor. I’d encourage every entrepreneur to ask the people that they’re pitching to, “Why do you do this?”
Some people are deal guys (or girls). Always be closing—they love the transaction. They just like having money behind them and putting it to work. The bigger the deal the better. They’re tough negotiators and they like pushing the envelope on how much they can get. It’s a money and power thing. Their steak dinners are outlandishly full of more food than anyone can actually eat. Perhaps they were salespeople or bankers in the past. I’m definitely not that guy.
Other people are all about having better toys—getting into the hot deals. They need the fastest, the best, the smallest, and their stuff is better than yours. They don’t just order steak—they order the super secret cut of Kobe steak that was grass fed by albino ninjas wearing a certain kind of slippers. They’ll wait until the train looks like it’s leaving the station and then they’ll come swooping in, absolutely needing to push their way in because they need to have it. I’m not that guy either.
Me?
I think I’m two things. First and foremost I’m a relationship builder. I doubt you’ll find someone in NYC who knows as many people in the innovation community as I do—simply because I love it. (And PS… there’s still a few thousand of you I haven’t met yet!) I love meeting and getting to know interesting people—and venture capital just happens to be an industry where you’ve got unparalleled incentive to make a habit of this. Plus, this is a self-selected group particularly high in awesomeness. Maybe that’s why steak is celebratory food for me. My best friend of 24 years and I take each other out to top tier NYC steakhouses for our respective birthdays. Sure, we love the food, but it’s really all about the person on the other side of the table—and it’s the same with startups. The people on the other side of the table over the last 6+ years have been amazing to work with.
Second, I’m a systems designer of sorts. I like thinking about how data and other elements flow through a system and produce outcomes. It’s the way a portfolio manager constructs a pool of assets within certain constraints. It’s fascinating to me to try and take the randomness out of the equation and to try and figure out where the startups are coming from, what kinds of people are building them and what is making them successful—to turn those learnings into a strategy with actionable criteria, filters and decision points. What that means is that I’m trying to figure out whether the waitress at Del Frisco’s is actually flirting with me or whether she’s systematically making every dumb guy like me feel like they’re special to get a better tip—and what percentage increase that generates in her net pay. These are the kinds of things I’m thinking about.
Lastly, I have this teaching gene. I take a lot more pride in the success of others than in my own. When I play softball, I could get 4 hits in a game and not be nearly as excited compared to when that girl who never gets a hit drives in her first run after I taught her how to swing. Now, granted most of the entrepreneurs I meet wind up teaching me more than I could ever teach them, it still means a lot to me to be able to help someone achieve success. It’s kind of like introducing someone to the crabcakes at Ben Benson’s—it’s great to be able to help someone have a great experience like that.
And as a bonus, another driver of why I love working with startups is my New York City pride. I was born and raised here and love when people find what they’re looking for here—success, inspiration, a challenge, or just a good sysadmin.
For the record, I’m not as big of a fan of Peter Lugars or Sparks as others are, and Del Frisco’s remains my favorite. Other solid choices are Old Homestead, Wolfgangs, Angelo and Maxies and Strip House.