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Why EIR’s Have a Tough Time Finding a Company to Start

I’m supposed to be on vacation this week, so it may be a mistake to try to bang this blog post out. Oh well.

I was talking to a good friend of mine who will be starting an EIR gig at a very good VC firm shortly. We were talking about what to expect and how to think about allocating time during this period. It caused me to reflect on the last few years, where quite a few people I know have been EIRs at various firms in both the east coast and the west coast. In most of these cases, the individual was legitimately trying to start a company, not going through a try-before-you-buy process to become a VC. But in the majority of these cases, these terrific founders didn’t quite find traction with an idea, and ended the EIR period further from their next company than they expected going in.

I found this puzzling. Of course, starting a company is hard and it’s tough to manufacture the right circumstances for a new business. But as I reflected on it, there are some things working against EIRs that actually hurts early progress as a founder. And I think these may also hold true for some founders even if they aren’t in a formal EIR program with a VC fund. Two thoughts stand out in particular.

First, the VC mindset is probably a terrible one to have at the very earliest stages of starting a business. In particular, the mindset around being “venture-scale”. I’ve blogged in the past that the number two reason why VC’s pass on an investment is because an opportunity “isn’t big enough”. As an EIR, you are more exposed to this thinking than you normally would be, because it’s in the back of all venture investor’s mind when they are considering an investment. There are a few sub-problems with this:

  1. In looking for a business to start, the goal is often to build a product that some small group of users really love that solves a problem that matters to them.  Thinking too early about  opportunity scale artificially limits the types of problems a founder may consider working on.  Often, the size of an opportunity becomes more apparent as things start working, and as customers start buying your product and using it in ways you didn’t expect.  Put differently, there is some percent of ideas that are obviously venture scale.  There is a much larger percent that does not need to be venture scale.  And there is a non-trivial percent that, if approached correctly, end up unlocking a venture scale market. AirBnB is a great example of this.
  2. Even apart from the problem or opportunity, the “venture scale” mindset puts artificial limits on how one might think about the initial product.  If the goal from day one is to create something that could be very scalable with great software leverage and great network effects, it limits the ways you might go about solving the problem.  But often, building something people want from day one can be done with a pretty low-fidelity but non-scalable solution.  This may not be the right way to build a business long term.  But taking that approach may be the best way to start working on a problem and learning about what might get customers really excited about a solution.

The second challenge as an EIR is that one can end up spending a lot of time thinking about problems and much less time doing.  As one former EIR remarked to me, “I found that I found the best luck thinking about companies when I was in the middle of solving other people’s problems”.  One of the benefits of being an EIR is the awesome exposure one has to experts, other founders, and the intellectual capital of the VC firm.  In order to benefit from this, it behooves a founder to take advantage of the exposure that the role allows.  But that needs to be in balance with actually doing, actually trying to solve problems.

The third issue (which isn’t particular to EIRs but repeat founders generally) is the challenge of finding an opportunity with a team.  OFten, a repeat founder is trying to “get the band back together” and in doing so, the band is ideating as a group about companies to start.  This may work sometimes, but more often than not, the need for group consensus around a company, or even around a vector to explore slows decision-making down dramatically, and dilutes the enthusiasm of the group around any one problem.  I think it ends up being more productive for one or two founders to collaborate to the point there they are locked in on a direction before assembling a larger all-star team.  You also want to make sure that there is great fit between the capabilities of a team and the problem being addressed, which further makes it tough to get the band back together too early in the company creation process.

To be clear, this isn’t a critique of EIR programs or VC’s. I am a VC after all, and I often recommend that founders I know consider a program like this with the right firm.  But rather, I’m trying to uncover the unique blind spots that one might be getting themselves into when trying to start a company in this sort of an environment.  And honestly, right now is a great time to start a company, so hopefully this is helpful to many founders who are trying to figure out where to get started.

 

Rob Go

Thanks for reading! Here’s a quick background on who I am: 1. My name is Rob, I live in Lexington, MA 2. I’m married and have two young daughters. My wife and I met in college at Duke University - Go Blue Devils! 3. We really love our church in Arlington, MA. It’s called Highrock and it’s a wonderful and vibrant community.  Email me if you want to visit! 4. I grew up in the Philippines (ages 0-9) and Hong Kong (ages 9-17). 5. I am a cofounder of NextView Ventures, a seed stage investment firm focused on internet enabled innovation. I try to spend as much time as possible working with entrepreneurs and investing in businesses that are trying to solve important problems for everyday people.   6. The best way to reach me is by email: rob at nextviewventures dot com


    • static

      Definitely helpful as I struggle to put my next thing together. It is harder to get a group to collectively settle on an idea. Sometimes groups make ot hard to be responsible for that idea, where not everyone has the initiative and courage to possibly be wrong. It’s much easier to say no.

      The other problem I am running into is too many opportunities with others, which seem like really great, but will end up deferring my next move. If all of your dream team are already making their next moves…

    • Simon Sylvest

      co-founder of the startup studio founders.as (based in copenhagen) and I can very much relate to all of your points…
      Why we also have adjusted our creation process accordingly….. This implies that we to a much greater extent build up the opportunities that we see within our own internal teams before we go out and find the EIR/co-founder/CEO of the company…
      It demands a bigger platform yes (number of people), but it also creates a much more controllable proces for us with people that are aware of the points mentioned above

    • John Eden

      Rob, this is a great piece.

      One question: Why not go further and say that venture partners aren’t generally in the best position to render a final judgment on whether something is “venture scale” in the first place?

      There would be no shame in admitting this, IMO. But if it is true (i.e., if VCs aren’t uniquely able to judge whether X or Y is a venture scale business), then that has obvious impacts on how entrepreneurs should process feedback from potential investors. I mean, didn’t Uber experience bumps/resistance early on from investors whose own experience with taxis (“other, less affluent people take them”) led those investors to pass?

      John

      p.s. By the way, I’m also a Duke grad (Law, 2006).

    • tjmahony

      Well done Rob. You pretty much nailed it. I was an EIR at a solid firm and found myself thinking more about why something wouldn’t work vs. why it would work. You’re also exposed to a tremendous amount of rejection as you see the partnership pass on the VAST majority of deals. I then brought in “the band” and we couldn’t agree on a play and ultimately broke up. So basically, you have pysched yourself out, you can’t agree with your team and everyone keeps asking you when your album is coming out.

    • We could also have a sub-conversation about the E in EIR– sometimes it’s an Executive-in-Residence rather than Entrepreneur-in-Residence. I did this gig for an Australian venture accelerator, and in some ways they really needed the latter vs former.

      I think a big reason that EIR programs these days aren’t so effective is the same reason that VC-sponsored incubators aren’t worth their investment: they just aren’t really needed anymore. Polaris/Dogpatch comes to mind, whereas Benchmark’s pioneering program in the late 90’s birthed some real winners. The free market produces enough startups, so any A-level VC can just wait and watch the various seeming winners bubble up, and then court them.