Brad Feld

Category: Venture Capital

Fred Wilson and I are cross posting each other today (we must miss each other) – he had a good post this morning on how turn downs work in venture capital and then followed it with a followup post about what makes a great VC.

Fred’s post on telling the truth is right on the money. One of the most infuriating experiences an entrepreneur (or VC) has to get turned down from someone with a “blow off reason” (or no reason at all). Entrepreneurs get this all the time from VCs – but VCs also get it from each other (as potential co-investors when a VC looking at a new deal turns an existing VC’s deal down) or from LPs (when they decide not to invest in a VCs new fund). While it’s unreasonable to expect people to go into excruciating detail about why they are turning you down, I’ve have much more respect for people that will give me a clear, truthful, simple reason they aren’t interested vs. an elusive, twisted, convoluted – or passive and silent – rejection. I’d much rather hear that my baby is ugly (or that I’m ugly) then get blown off.

Fred’s post made me think of two pet peeves that I have – one around rejection and the other around honesty.

Concerning rejection – even worse than a “blow off turn down” is the “slow no”. VCs are the master of this – rather than turning you down, they string you along – never saying yes, but never saying no. My advice to entrepreneurs is to drive to a definitive yes or no and – if it’s a maybe – understand why and what you have to do to move it from either a maybe to a yes or a no. Now – a maybe is ok – as long as it’s supported with both action and elapsed time (e.g. talk to me again in three months). The ambigous or unclear maybe (which is really just a string along because the VC – or whoever is stringing you along) is simply unwilling to make a decision. That’s weak.

Concerning honesty – the title of Fred’s post made me think of the millions of times I’ve heard someone start a statement with “To tell you the truth, …” or “Honestly, …”. When ever I hear this, I want to jump up and down and scream in their face “No – don’t tell me the truth – I want you to fucking lie to me!” Until a month ago I bit my tongue, but I can no longer deal with it so I do jump up and down and scream something comparable. If you are going to tell me the truth, just do it. If you are going to lie to me, do it, tell me you lied, and then delete all my contact info from your universe since I don’t ever want to deal with you ever again.

I’ll end with another one that a friend joked with me about today – “You guys are 360 degrees apart.” Now – wtf does that mean?

Last week I had a meeting with a prospective limited partner (“Mr. X”) who is long time investor in venture capital funds. He’s extremely experienced, well respected, and has a phenomenal track record. He’s also very provocative, which always spices up a meeting like this.

As we were discussing the backgrounds of the various partners at Mobius Venture Capital, I made the statement that we all have had meaningful experience as entrepreneurs and technology executives (VP level or higher) prior to becoming venture capitalists.

X immediately asked me if I had any data to support my view that this was a good thing. He said “take the top 50 individual VCs (based on historical returns) and correlate their experience – what does it show?” I thought for a minute and ran through my head some of the great VCs I know. Before I reached a conclusion, X said “it’s random – totally random – there’s no correlation to performance.”

At first, this surprised me (I was about 50/50 in my quick mental sort when he answered for me). Then – as I thought more about it – I realized that operating experience is merely an attribute that someone has rather than an indicator of performance. Experience by itself (whether operating experience or venture capital experience) is not enough – I’ve certainly worked with some abysmal VCs who have a lot of “venture capital experience” (and I’ve also worked with some abysmal VCs who have plenty of operating experience).

I pushed on what he thought actually correlated with success. He responded that the great VCs he knew had a combination of incredible instincts honed by experience combined with the ability to quickly and accurately size up situations and draw effective conclusions. He labelled this “pattern matching” – which is a good phrase for this capability.

I think the combination is what is critical – neither operating experience or pattern matching alone is enough (e.g. “I’ve seen this before, but I don’t know what to do”).

I’m sitting in a technical advisory board meeting for one of my companies (Rally Software Development). I’m moblonging from my Danger – pretty cool (at least to me).

We’re having a great meeting. I’ve sat in on a bunch of these over the last 10 years since I started investing in (vs. running) software
companies. Often, these meetings are a complete waste of time because of some disconnect between the goal of the meeting, the group of people in the room, the facilitated process – or worse – the complete dominance of one or two people.

We’ve got 15 people in the room – 5 from Rally and 10 advisors. The
chemistry is awesome – Rally is about to go GA with the first version of their product so we’re dealing with tangibles (instead of the abstract of “what should we do, where should we go”). Management is facilitating well – leting people talk, but keeping them on topic. The richness of the discussion is noticeable to everyone involved – which causes the discussion / debate to feed on itself.

This is one of the funnest parts of this job – seeing / being involved with a group of people passionate about trying to create something new and revolutionary where six months ago there was nothing.