One of the earliest things we did at NextView when my partners and I started working together was go away as a team to the New Hampshire mountains. At the time, I think we didn’t even had a name for the fund. We talked about the tactics and strategy for our firm, but also about the ethos we hoped to create, and our motivations and goals for this part of our careers. Given that we were all in our early 30′s, we were likely giving the best years of our careers to getting NextView off the ground, and our intention was to build a firm that was excellent, and would hopefully last. That was a couple years ago.
On Monday, we are going back to the New Hampshire Mountains for what I think will be our 8th quarterly team offsite. It’s fun to see how far we’ve come, but humbling to think about how much more lies ahead. Personally, my intention in starting NextView and pursuing a career in Venture is the opportunity to be involved with extraordinary companies that solve problems that matter. I’m thrilled by the companies we are investors in, as well as the founders that lead them. But like us, all of these companies are very early. They have great ambitions and golazo, but we are all still finding our way.
Late last week, I wanted to take a step back and review what has transpired the last two years. NextView is our startup, and I often reflect on how things are going and what we could do better. I scratched some notes down on my moleskin, and thought I’d share some of them here. It was fun to do – we started from nothing, and I’m proud to see where things stand.
It’s commonly said that the biggest risk facing a new VC firm is disharmony among the partners. This is of particular risk if the founders of the firm never really worked together before, as was the case for us at NextView. I’m happy to report that after a couple years of ups and downs, I’m more thrilled to be working in partnership with Lee and Dave as I’ve ever been. And I think they’d say the same. There is something really wonderful about the shared ownership of our firm. The fact that we are equal partners in every way, and the fact that we collaborate very closely on pretty much every investment. If you go company by company, you almost always hear a story where each one of us significantly contributed to the origination of the investment, and in helping to create value for the companies. Collective ownership is a really important tenet for us, and it’s great to see it re-enforced with nearly every investment we make.
Pace: We have made 23 investments so far. Our intended pace is roughly 10 investments per year, and we had a handful of legacy angel investments that we rolled into the fund at cost. So that 23 is right on pace.
Stage and Sector Focus:
- In 16/23 companies, we were part of the first outside round of capital. In the rest, we were part of the first “institutional round”. We have not participated in any seed extensions or full-blown series A investments as our first check into a company. I’m pleased with our focus and consistency of strategy, although I’d say that this doesn’t mean we’d never do a seed extension or series A. Probably our biggest “missed-opportunity” was a seed extension.
- In over half of our portfolio companies, we have invested pre-product. In only a handful of cases has there been significant traction prior to our investment.
- We are split pretty much down the middle on consumer vs. enterprise. We have 9 investments that are consumer. 9 that are B2B. And 5 that I’d call “hybrid” in that they are marketplaces or platforms with both a consumer service and an interface with businesses.
- Sector-wise, we’ve invested in a bunch of spaces. But there actually have been unifying themes (which I’ll blog more about another time). We have investments in e-commerce, SMB SaaS, Business Software, AdTech, Payments, Enabling Platforms, Consumer Social, Gaming, and Education.
Geography: 18 of the 23 are in Boston or New York. The others are mainly in Silicon Valley with some exceptions. Our BOS/NYC split is 12/6, although based on our pipeline, I see that becoming more balanced over time. We are increasingly finding that excellent founders are creating remarkable businesses everywhere, and we are first and foremost a stage and sector focused fund. Some of our most interesting companies have originated in places like Estonia (GrabCAD), Croatia (Farmeron) and Omaha (SkyVu), although all have either moved or have a significant presence in a major tech hub like SF, Boston, or NY.
Founders: Similarly, founders have a vast array of founding stories. We’ve been pleased to back both first time founders straight out of school (such as IS2, RentJuice, and ThredUp out of B-school and Plastiq that was founded by two Harvard undergraduates from the class of 2011) as well as experienced entrepreneurial executives and repeat founders much further along in their careers. Although the resumes of these founders differ quite a bit, for the most part, we back entrepreneurs with deeply authentic founding stories and a strong focus on product.
Early Progress: Performance is a difficult thing to measure as a seed stage fund given the time horizons and the fickleness of private company valuations. But we feel pretty good about the progress of the portfolio so far. Out of the 23 portfolio companies, 2 have been acquired for terrific multiples (RentJuice and Hyperpublic). About 75% of the portfolio companies that are at least 6 months old have successfully raised series A’s from good institutional investors at a nice valuation step-up from our initial investment. Again, these are nice indicators, but only a directional measure of how things are going. Also, one could debate whether a high “hit-rate” to series A is ideal, or if it’s not that important in a business of asymmetric outcomes. In either case, it’s a decent enough quantitative metric and an interesting data point at this stage in the portfolio’s progress.
Stepping back to the big picture, it’s remarkable to see how quickly things change in the VC and entrepreneurial community. When we started, TechStars was in only one city. Y-Combinator was probably half the size. There was no Angellist. Most BOS VC’s were still on Winter Street. Consumer was hot and enterprise was lame Things change a lot. Net net, I think things have gotten much better for entrepreneurs, which is a good thing for us overall. The VC market has become more competitive, but there is also a bit of a generational transitioning happening which is quite healthy. We enjoy really great partnerships with other institutional investors that we have either worked with or hope to work with in the future.
On the macro side, I’m pretty nervous about how anemic the broader economy is. We are still in the relatively early stages of a big deleveraging process for the private sector, coupled with the need to take some giant and painful strides to cut public debt. But entrepreneurship and innovation is THE hope for the future leadership of this country, so I feel excited to at least be part of something positive in a gloomy overall environment.
The VC market is shaping up pretty much as we expected. As we often say, you can look to the beer industry to see where the venture market is going. If you are going to go big, you better be prepared to compete on size and scale, and success will be concentrated in a few of the biggest and best funds. The other approach is to be a microbrew, and do something in a very focused way and do it well. It’s been our goal from the beginning not to aspire to be Anheuser Busch but to be more like DogFish Head or Stone. I really don’t see that changing, and it’s enough for me to shoot for excellence under those terms.