My Three Most Important Lessons Learned at Harvard Business School

Business school sometimes get a bad rap in the startup world.  Some of it is deserved – it’s big opportunity cost, and until fairly recently, the approach to most business schools to entrepreneurship has been more about theory than practice.

Thankfully this is changing.  But what is very positive about business school and what hasn’t changed is that they are an amazing collection of people and opportunities that can significantly shape ones education and even personal character.  Many of the founders we’ve backed at NextView are graduates of top business schools and bring many of their leanings from those two years to bear.

As I think back on my own business school experience, I often recall three very important lessons and pieces of wisdom that impact me every day.  One was academic, one was advice from a professor, and one was self discovered thanks to the entirety of the 2-year experience,

Lesson #1: What Makes a Good Market
Before Business School, I had heard of Porter’s 5 Forces and probably memorized it at one point during preparations for consulting interviews. But I really started to internalize the concept at business school and I think of it every day.  When one thinks of attractive markets, it’s easy to just think of markets that are “really big” and “growing fast”.  However, that is NOT what makes a market attractive.

A market is attractive relative to the player involved.  And its attractiveness to that player is based on how the forces in the market work to make it easier or harder for that player to create and extract value.  The forces described by Michael Porter in his framework are:
- bargaining power of suppliers
- bargaining power of Customers
- competitive rivalry
- threat of new entrants
- threat of substitutes

I don’t want to spend much longer on this point, but I’ve found this immensely helpful.  And it’s not just important for investors who are analyzing new businesses in different markets.  But it also dictates the strategy of a founder as they think about their own market and what they need to do to win.

For some additional thoughts of mine on the difference between BIG markets and ATTRACTIVE markets, see this post here:
Lesson #2: Authenticity Works
Authenticity works. It was an off-hand comment from Felda Hardymon during office hours one day when I was a student in his VC/PE class.  But it was a word of wisdom that I really try to take to heart for myself and when speaking to entrepreneurs.

It turns out I’m a pretty socially awkward person.  But much of business school (and much of business interaction) are awkward social situations.  Think about difficult conversations with employees, cocktail parties, cold calling, negotiations, selling, etc.  Those types of situations are a nightmare for someone like me.

But I’ve continuously found that when in doubt, the best thing to do is to drop any social posturing and be authentic.  Talk about what really gets you excited and what you really care about.  I remember when was interviewing for my job at Spark, one partner questioned my willingness to take risks and pound the table for what I believed.  I ended up telling him the story of how I pursued my wife – a very personal but authentic story, and it won him over.

Similar things happen when we speak to entrepreneurs at NextView.  We love founding stories that are driven by highly authentic experiences in a market or with a problem.  We also love interacting with entrepreneurs that are transparent about the things that excite them about their businesses and the things that they worry about or are really hoping go their way.  It’s a highly personal business after all, and we try to put that front and center as a core part of our firm ethos.

Lesson #3: Do the ACTIVITIES You Love

One very interesting aspect of business school is that it can be a 2-year soul searching process about who you are and what you want to do with your life.  A lot of business school students find themselves paralyzed, because it feels like there is a lot at stake in the career choice post B-school, especially with large sums of debt and 2-years of opportunity cost.

That said, I think business school is a wonderful time to step back and reflect on what you want out of life professionally and personally. The problem is, I find that when we think about careers or jobs we want, it’s easy to get caught up in a lot of different motivations – what would other people think? How can I make the living I’d like? Is this job impactful? What kind of a role is suitable for me? Etc.

But I find that business school students (and especially myself) often don’t ask what I think is the most important question. To me, that is – “what activities do you love?”.  We spend a lot of time at work, and you’d better be doing activities you enjoy, otherwise, it’s a terrible way to spend your time until you die. And activities are not jobs.  They are not roles or functions.  They are activities.

For instance, being a VC and being a doctor are very different jobs and roles.  But some of the activities are the same. Doctors and VC’s meet people 1:1 or 1 on a few all day long. They have a lot of first time meetings and hear people’s stories.  They try to solve problems based on pattern recognition. On these dimensions, doctors and VC’s do very similar activities.

But you never hear VC jobs and medical jobs compared. You do hear VC’s and entrepreneurs compared, and many job seekers out of B-school contemplate both paths.  But entrepreneurs do different activities.  They sell more (or in different ways), they meet very often with their team to solve common problems.  They may actively make design and product decisions, talk to prospective customers for feedback etc. The activities can actually be quite different.

I’m not making the point that being a doctor is more like VC than being an entrepreneur.  But my point is to look at jobs and life as a set of activities that you are doing all day long.  Do those activities map to what you are excited about doing?  Are they activities that are life-giving to you, or draining?

Or, put another way (as I’ve heard from an old boss and mentor), think of the times when you were happiest at work.  What exactly were you doing at that time?  Try to do more of it.

That’s it. Pretty simple.  Don’t overthink it or plan too far in the future.  Do something that you think is interesting and allows you to spend as much time as possible doing activities you love. I think it’s hard to go wrong if that is actually achieved.

So, those are my three biggest lessons learned from 2 years at HBS.  Worth the 2 years and $100K+ of fees? You be the judge

Yesterday, I had the pleasure of joining a number of investors in a meeting with entrepreneurs and policy makers in the education space. It was a terrific group that includedd Karen Cator (Director of Ed Tech for the US Department of Education), Paul Reville (MA Secretary of Education) and Joanne Weiss (Chief of Staff of the US Secretary of Education) among others.  As an investor that is really just dabbling in the education space, it was a really amazing opportunity to learn more about the challenges facing innovation in education, especially in the K-12 space where I have yet to make an investment.

It was really just a preliminary conversation, but a couple simple themes came out loud and clear:

1. The biggest challenge for companies targeting K12 is excessive friction in winning early customers and early growth. Some sub points:

• VC’s look for a rapid path to growth, but it isn’t available in K12 sales.  VC’s almost categorically pass on any company that requires sales into schools and districts
• Slow transmission of information. One would think that a program that is successful in a few districts or schools would spread quickly. Not so. My friend Teddy Rice, the founder of a growing company in the ELL space shared his experience walking into districts that had no clue what his company did, even though most surrounding districts were using his product with great success
• On one hand, investors get excited about “over the top” opportunities that bypass traditional sales channels in favor of a more direct-to-consumer approach. But Alex Grodd from Better Lesson brought us a bit back to earth, reminding that the only payers are consumers, teachers, and schools/districts.  And it’s easier said than done to get consumers and teachers to pay for core educational programs on a broad scale.

2. The common core could provide some positive lubricant for the problem in #1

• Not only is the common core simply motivating broad reform in many states, but it provides a  common set of standards that new companies can build their products around and sell to a much broader market.  This has the potential to reduce some of the friction posed by idiosyncratic state needs
• A common core also should make evaluation of new technologies and programs more straightforward and easier to promote broadly if the data shows positive outcomes.
• Personally, I’ve started to see some companies already start to take advantage of this change.  LearnZillion in DC is building a very interesting personalized learning platform aligned to the common core.  Although their product was conceivable before the common standards, I expect their speed of adoption and quality of content and instructors to be augmented because of this initiative.

3. Fixing the buying process is probably the biggest opportunity, but there are no easy answers

• Lowering the bar to trial, adoption, and purchase of new technologies is potentially the biggest opportunity for change.  Alex Taussig from Highland articulately compared the standard practice of the consumer web (where broken products are shipped all the time) to the much less forgiving enterprise sales dynamic in the K12 space.
• One proposed solution was to create a streamlined, group RFP or RFD (request for discussion) process for new technologies.  But again, Teddy pointed out that “there is a big difference between stated customer preferences and revealed customer preferences”.  I tend to agree that very few innovative products designed for end users survive an RFP.
• Another concept introduced by Stephen Marcus from AdmitPad was some sort of lightweight payment system that could empower innovative teachers to pull the trigger on adopting new products without having to go out of pocket or deal with school or district bureaucracy.  It seemed intriguing, but difficult to implement. Ultimately, we came away thinking that innovation in the payment system would probably most help investors get more excited about companies selling to the K12 space.

It was just the start of hopefully a longer discussion.  I learned a lot, and am thankful to have been able to join.  Many thanks to New Schools Venture Fund, Highland, Flybridge, and Bessemer (esp. Chris Gabrieli) for pulling this together.

We’re taking some time this month to talk about the components of our ethos at NextView.  Taking investment from a VC is a very personal decision, and we thought it was important to try to articulate our values and culture in a way that is a little deeper than what you typically see on a VC’s website.

Last week, my partner Lee talked about our focus on Golazo – a beautiful goal. Today, I’d like to expand a bit more on our ethos of the “invited guest”.

Unlike “Golazo”, “Invited Guest” is not our own terminology.  It’s a phrase that Greylock has used over many years, and also a phrase that I’ve heard other VC’s talk about.  That’s a good thing – the goal is to be true, not to be unique.

We use “Invited Guest” to describe the way we hope to conduct ourselves in interactions with entrepreneurs and portfolio companies.  We are invited guests at their table.  Think of a dinner party when you go to someone’s home for a meal.  Basic manners usually dictate that you:

1. Show up on time
2. Use good table manners, out of respect for the host’s time and effort
3. Help clear the dishes, but don’t take over the cooking

A bit more detail on the points above as it relates to VC’s and entrepreneurs.

Show Up On Time

One of the things I admire about my partner David is his commitment to punctuality.  It’s pretty rare in our industry actually.  He diligently blocks time out in between meetings and makes a very conscious effort to get to places on time or ahead of time.  It’s easy as a VC to fall into the habit of being late.  After all, it’s nice to have someone else wait for you vs. the other way around.  When you are usually the one getting pitched to, it feels easy to roll in 5 minutes late (or much more), just say “sorry” and then move on.  The funny thing is, when a VC is chasing a very competitive, “hot” deal you can bet that he shows up on time.

Every time I’m running late (which is too often) I remember something that was shared to me when I was a kid that I’ve always remembered: Being late communicates to the other person “my time is more valuable than yours”.  I think that’s bad form, and no way for an invited guest to behave.

Use Good Table Manners, Out of Respect of the Host’s Time and Effort

The sentiment that the investor’s time is more valuable than the entrepreneur‘s leads to some pretty poor table manners in VC/Entrepreneur engagement.  Here are a few examples:

• Checking email during meetings or being otherwise disengaged.  Boo.
• Not moving the ball forward between meetings.  How often do entrepreneurs find themselves just pitching things “from the beginning” between meetings?  Or, sometimes, a follow up meeting is more of a random walk through what has already been discussed.
• Hanging around the hoop and not driving to a decision.  It’s a lot easier for a VC to just say “stay in touch” or “it’s interesting” but never get to a definitive answer.  Even worse, it’s easy to ask for a list of diligence items even if the investor knows that it’s highly highly unlikely that they will ever pull the trigger.  This gives false hope, and also makes it easy to spend wasted time with that VC giving updates or sending due diligence.

These are just a few examples of not being respectful of the host’s time and effort.  We try hard to avoid these.  And most importantly, we try hard to drive to a decision quickly and efficiently.  I’m pleased to say that over 1/3 of the entrepreneurs in our portfolio are people that we have said a quick “no” to in the past.  I think entrepreneurs generally appreciate a quick and definitive answer, and are willing to invite us over again if/when things change.

Help Clear the Dishes

We take pride in our ability to help entrepreneurs in the earliest stage of their business.  It’s why we are motivated to do what we do.  It’s also the thinking behind our investment strategy.  Our investment pace is actually slower than most other micro-VC’s or seed investors out there.  The reason we target a smaller number of investments is that we see our capacity as capped, so we try not to go beyond a certain number of active investments per partner.

We also are trying to find better ways to create leverage for our portfolio companies beyond just our own human capital.  I must tip my hat to firms like FRC and A16Z who I think really set the bar here.  We have a few tricks up our sleeves too, but frankly, it’s something we are continuously improving.

But while we help clear the dishes, we don’t try to take over the cooking.  We are believers that most great companies end up being led by their founders, and we try to find ways to empower founders to lead their companies most effectively.  That usually means that the founders need the authority to make the tough calls, and although we try to clearly express our point of view, we are ultimately guests at the entrepreneur’s table.

Final thought: As with most components of our ethos, these are largely aspirational.  The risk of writing a post like this is that it can have a holier-than-thou tone.  That’s not the intention – the reason we talk about these is to keep ourselves honest and push us to be better.  Even in writing this post, I cringed a few times as I typed, recalling times in just the past few days that I’ve acted contrary to this ethos.  Still, just because we can’t live up to it all the time doesn’t mean that we shouldn’t try.

There is a lot of discussion on the web about raising seed and series A rounds, but not much after that.  I think there is some false conventional wisdom these days that once a company has achieved “product market fit” the job is done.  However, that is far from the truth, and I often hear investors and entrepreneurs lament over is the dreaded “B round”.  I’ve heard it often also called the “sucker round”. Some thoughts on this below:

Why Is The Series B the “Sucker Round”

VC’s tend to invest based on major inflection points in a startup.  Usually financial metrics are pretty sparse at early stages and investors have a hard time giving companies “credit” for steady, linear progress.  Instead, we have an easier time getting over the hump on an investment when we see some sort of major value-accretive milestone achieved.

For seed stage companies, typically, it’s about:

• Compelling founder(s)
• Multi $B market potential
• Something captivating about the product

For series A companies, it’s all of the above, plus usually some evidence of product market fit. Product market fit often looks something like some sub-set of below:

These companies get a lot of press, but it isn’t the common experience.  Most companies have to become real, scaleable businesses. Some companies may get away with it by raising a series B or C on “traction”.  But the music stops eventually. Traction does not inevitably lead to the long-term, sustainable businesses that really matter.

So, what does this mean for entrepreneurs?  Let me offer a couple suggestions:

The entire Tech world is waiting with baited breath for the filing of Facebook’s IPO next week.  I’m excited – the company is an absolute MONSTER, as the numbers will show.  It’s truly THE pillar company since Google and it has completely transformed the web.

But, as I’ve reflected on Facebook this past weekend, I can’t help shake a nagging feeling that the company’s success feels somehow…fleeting. In some weird ways, Facebook makes me think a bit of Yahoo. Not the Yahoo of today, but the Yahoo of the past and I wonder if Facebook will see a similar decline as Yahoo has seen over the next 10 years.

Here are the major vulnerabilities that I see:

1. Network fragmentation.  Facebook’s success is largely based on its ability to aggregate the biggest audience on the internet and understand and monetize that audience.  Social networks should be incredibly robust because of network effects. But I really have a hard time believing that Facebook will continue to dominate the internet’s page views 10 years from now.  I think we are already seeing that while Facebook serves as a great repository of one’s identity and relationships, deep engagement is starting to happen in more targeted, fragmented communities.  Photo sharing is done best on instagram. Social curation of products on Pinterest.  Self expression on platforms like Tumblr.  Etc. etc. Sure, Facebook participates in this activity somewhat and could copy these companies, but swiss army knives almost never win long term.

2. Not natively mobile.  I think the mobile internet will further accelerate the trend of network fragmentation.  Part of Facebook’s challenges will be driven by the rules of the app ecosystem that Apple has created.  But mostly, Facebook’s main challenge is that it was NOT built in a mobile-first context.  We are in (or will soon be) in a mobile first world, and I think it’s hard to expect a large company like Facebook to own that domain in the same way.  Just as Google ceded ground to Facebook because it was not natively social (and Yahoo was way way worse), I can see Facebook ceding ground pretty quickly to products that are built with a mobile, distributed computing context in mind from the beginning.

3. Advertising effectiveness.  Facebook’s impressive revenue relies largely on advertising. But I think the jury is still out on how transformative it as as an advertising medium.  Social advertising can be pretty compelling, but intent is pretty low, much like display advertising. I also think that Facebook falls pretty far short currently on its effectiveness as a brand advertising medium.  Do you remember any really impactful brand campaigns this year that were deeply integrated with Facebook?  I don’t.  I do remember many more that were largely driven through YouTube and Twitter.  Finally, Facebook hasn’t yet developed a meaningful off-Facebook advertising product that has scale.  These are more opportunities than criticisms, but if the company doesn’t maintain leadership in these areas, I see it as a further challenge in the face of #1 and #2.

4. Talent exodus?  This is a big question mark. I think one of the most incredible things about Google is the company’s excellent culture and unique ability to hang on to outstanding talent for a long long time. There were certain management practices that were core to Google that made it an exciting place to work.  From the distributed nature of its product teams, to its maniacal focus on valuing engineers, to its free-market-like prioritization of resources and products, to 20% time, etc etc. It means something special to be a Googler. And although some of these practices have evolved and the company has changed,  I’d argue that Google will maintain higher calibre talent much longer than other large scale technology leaders like MSFT, Ebay, Yahoo, etc.  Will Facebook be able to do the same?  I’m really not sure.  I’m sure we’ll hear much much more in the coming years about how Facebook is run and how it represents the next step in the evolution of high performing engineering organizations.  But if it can’t bottle some of the magic that Google was able to achieve, I think the company will risk sliding slowly from the center of the internet to its periphery.

All this said, it’s obviously easy to poke holes at a company from the sidelines.  Facebook is an amazing company and will continue to look pretty dominant for at least the next 5 years (much like Yahoo).  But I think its ability to remain a great company for 10+ years will depend on how well it navigates the four challenges/opportunities above.

I look forward to the company’s public offering and will probably be a buyer… at least the first couple years.

When I started in venture capital, east coast VC’s largely had a formula for the kind of founders they wanted to back. There was a high degree of interest in backing repeat, experienced entrepreneurs or executives.  Many successful investors had made their LPs (and themselves) many millions of dollars by finding a rock-star founder, and then following him or her through 2, 3, or more companies successfully.  Simultaneously, many of these companies relied on very strong proprietary technology and IP.  As a result, it was very difficult for a young, first time entrepreneur with an interesting (but technically undifferentiated) internet product to get investors attention (especially after the bubble burst).  This region lost many amazing companies to the west coast in the process. It’s getting much better, but this continues to happen.

This history is a reminder to me about the danger of following conventional wisdom for its own sake.  Thinking back, I think it’s pretty clear that conventional wisdom ends up

1.) being applicable in a more narrow context than is commonly believed and

2.) being based on a context that changes more quickly than most people imagine possible.

In retrospect, the reason that pursuing this profile of entrepreneurs and companies became conventional wisdom is pretty straightforward.  This region had had a number of successes in enterprise software and telecommunications infrastructure. Young entrepreneurs were at a disadvantage starting these sorts of companies.  It was a huge advantage to have C-level relationships at the large carriers or enterprises.  Repeat entrepreneurs or well known CEO’s could get engagement from these customers well before a functional product was actually available. First time entrepreneurs would have a hard time even getting a phone call returned.  This model worked, and things were good.

The problem is that the context of the world changed. Today, we have a new conventional wisdom, especially in the consumer internet space.  The realization is that entrepreneurs that are developing consumer applications with a social component tend to look very very different from the founders of old. The conventional wisdom isn’t quite as tightly defined, but a couple characteristics I’ve noticed investors gravitating towards are below (some are serious, some less so)

• Young, under 30
• “digital natives” who grew up in an internet connected world
• Socially connected urban hipsters of SF and New York
• Designers and geeks, not technical wizards
• “Hustlers”
• In love with photography, quirky sneakers, and indie music
• Using the words “test”, “pivot”, “iterate”, “MVP”, like they studied at the feet of Steve Blank
• Ramen eating

Now, some of these characteristics are reflective of terrific entrepreneurs in the consumer internet space.  They describe many of the founders we’ve backed too.  But this is by no means a rule for all. I find it really funny to see my more conservative friends from other professions go into the startup world and start to become molded to this persona.  I don’t think that works – it’s important to be authentic.

Besides, conventional wisdom comes and goes.  As a firm, we often back younger, first time founders in certain projects.  But we’ve also backed older, repeat entrepreneurs in others.  Usually, we have a preference for more experienced founders when a company needs to participate in a complicated eco-system where being an “insider” is an unfair advantage.  Sean Black, the founder of SalesCrunch and former VP of Sales at Trulia is an example of this, as is Paul Nadjarian who founded Mojo Motors after a career spent working with auto dealers at Ford and Ebay Motors.  Different contexts dictate different rules.  It’s easy to be intellectually lazy or rely too much on heuristics and miss this.  It’s also easy to look around and see everyone else behaving one way and use that as a reason to follow.  Ultimately, conventional wisdom is wisdom for a reason.  But that reason doesn’t hold true for all circumstances or all time.

I watched Apple’s announcement about their textbook offerings with great interest yesterday. It’s a market that I’ve been following for a long long time and one where I have pretty strong feelings. A couple quick thoughts from my vantage point:

1. The $15 pricing is not nearly as disruptive as one would think. Here’s why: A typical textbook publisher essentially takes their cover price on a title and divides it by the number of years in circulation to get the effective revenue per title per year. High school textbooks cost about $70-$100 to schools. Divide that by the typical 5-year period they are in circulation, and you get ~ $14-$20 per year per title. From a publishers standpoint, Apple’s $15 annual price isn’t a big change, so they are going to be pretty happy. $15 sounds like a nice number, but it doesn’t really change the equation much. It just amortizes the cost across the life of the book. College textbooks are much more expensive than K-12 books, and new editions come out much more frequently. I think you’ll see major college textbooks offered closer to the $50-$80 range, which is basically what digital books are going for now at Coursesmart.

2. I’m a big believer that education and content should become more open. Pricing is one component of openness, but it isn’t the only one. I’d argue that Apple’s moves are an attempt to make educational content LESS open. Think about it – Apple is still going to anchor its content around the big publishers which essentially represent an oligopoly. These publishers spend hundreds of thousands of dollars per title to produce content that is essentially undifferentiated from what you could find on the open web. I’ll bet that this Apple partnership will be designed to strengthen publisher’s stronghold on education, not loosen it. Moreover, if Apple is successful, you’ll also see another new gatekeeper introduced into the ecosystem on the distribution side, namely, Apple itself. I think Apple’s objective through this move is actually to drive greater adoption of its iBooks business and market share for its own devices. This doesn’t have that much to do with education, it has everything to do with increasing market share for Apple and tightening the grip that publishers have on an already captive market.

3. Let’s not get ahead of ourselves here. iPad penetration in schools is still miniscule, even in higher ed. Apple announced that 1.5M ipads are being used in “educational institutions”. There are over 80M students in the US. I think we will get to a place where over 50% of students or more will have access to a computer or tablet, but we aren’t there yet. I’d also like to think that students will have some choice on what devices they use and there is some healthy competition in this market.

4. All that said, Apple being apple, crafted a very inspirational vision about what educational content should look like. I’m glad that they are setting a high bar – I believe in this wholeheartedly.  Personally, I think educational content should be:

• No-brainer affordable for everyone
• Up to date
• Presented in a variety of formats to fit different learning styles
• Extremely high quality
• Modular so that it can be personalized by instructor
• Modular so that it can adjust to the pace of learning of individual students
• Social. I believe any student studying about photosyntehsis should be able to interact with other students studying the same thing (by the way, it shouldn’t matter if you are studying from the same book.)
• Provide students the ability to go extremely deep and also move across topics with the same ease as they do on the internet

Apple’s new platform promises the ability to do many of these things.  But not all. I don’t think some of these are possible as long as the content layer is controlled by a few very large publishers.

5. Overall, I think we are witnessing the end of a very archaic period in education. It’s baffling to me that over 10 years since the death of physical encyclopedias, we still rely on essentially the same format to communicate information to students today.  We’re seeing progress, and I think it has been accelerating significantly in the past 3 years.

In a prior post about what it’s like to be a VC  I made the claim that even if an investor has operating experience, that experience gets stale after a few years.

This led to the following question in my comments:

“You mention that operational skills begin to decline 2 years into the job. If this is true, then it follows that VC GPs can only add limited operational value.”

I have lots of thoughts on this, so I thought I’d expand with a full post.  I think this is an interesting question, because it seems to defy the logic (or conventional wisdom) that a VC with more operating experience should be better suited to help entrepreneurs.  Couple observations.

First, consider the many counter-examples. Fred Wilson (Twitter, Zynga, Foursquare) has been a VC for almost his entire career. Danny Rimer (Skype, Tellme, Stardoll) started out as an equity analyst. Nick Beim (Gilt, The Ladders, JBoss) was a consultant and investment banker.  Some of the legends of the business are so far removed from their operating days that it’s probably a real long shot to say that they bring direct operating experience informed by their prior roles.  I think you’d be hard pressed to find too many entrepreneurs that have worked with these investors who don’t think they’ve been extremely value-added and have helped on strategic, operating decisions that they have faced.

So, why are non-operators well equipped to help?  I think the difference is their longitudinal view of many companies vs. the more narrow (but deeper) view that an entrepreneur has in one company.  A non-operator may not be well equipped to advise you on how to build a product, but she may be very well equipped to advise you on how to build your product TEAM or how to MEASURE your product progress based on what she has seen across many companies.  An investor with lots of experience will also have much more pattern recognition when it comes to some of the challenges that an entrepreneur may only face once or twice in a company’s life. The simplest example is negotiating future financings (assuming you and your investor are relatively well aligned).  But there is also negotiating a sale, letting go of a co-founder, switching business models, rapidly scaling or rapidly cutting costs, etc.

Former operators on the other hand have an advantage in other ways.  They may have deeper relationships within their industry (although a non-operator may have broader relationships in tangential industries).  They may have more conviction around product or technical decisions, hiring, or even organizational structure. And there is probably a higher degree of empathy for the challenges of being an entrepreneur and founder that might make the former operator a better advisor and confidant.  But I think the further one gets from actually operating, the more stale one gets as well.  You wouldn’t necessarily want someone who was an executive at Excite to tell you how to develop your advertising product because the learnings are so stale and context so different.  In fact, a non-operator may actually have more industry insight than a veteran of that industry because he has deep conviction about an investment theme and can draw from lessons learned from multiple companies within that theme. The folks at Foundry and IA come to mind, although I think this is true for many investors that are more thematic or thesis driven.

So, over time, I think a former operator starts adding value to companies in pretty much the same way that the non-operator does.  That is, based less on their deep entrepreneurial experience, and more from their longitudinal view over many companies over different periods of time. I don’t think this is a bad thing – hopefully I’ve shown that non-operators can obviously be immensely helpful, but usually not in the normal “operational” sense.

Often, I will counsel entrepreneurs that we invest in to bring in a couple angels that are active entrepreneurs in or around their space.  I think it’s a great benefit to have an informal (or even formal) CEO coach, and there are other unique things that a current industry insider can easily bring.  A few examples from our portfolio:

• Boundless Learning:  John Katzman (Founder of Princeton Review and 2Tor)
• GrabCAD: John MecEleny (former CEO of SolidWorks)
• Shareaholic: Stephano Kim (President of GraphEffect), Brian Shin (Visible Measures)
• Insight Squared: Steve Papa (Endeca) and Mike McDerment (Freshbooks)

But ultimately, advisors are just advisors.  They are great to leverage, but can only do so much.  Same thing with investors, even if they do bring deep, operational expertise.  After all, as I often hear VC’s say, “if I’m the one designing your product/marketing plan/technology stack/etc, then we have a big big problem.”

Disclaimer: Although I hold these views, I still intentionally looked to start NextView with two other partners who each have operating and entrepreneurial experience.  Go figure

One important component of our ethos at NextView is the idea of being part of a “Tribe“. There are two sides of this idea.  One is the idea of being a participant and a contributor to the community that we are involved in.  We aspire to do that in a number of ways, but that’s for another post.  The other idea is the concept of collaboration and shared ownership between the partners of our fund.

This collaboration manifests itself in many ways. The most simple is the fact that we are an equal partnership, and thus, are economically equal. But it goes much much deeper than that.  One practice that we instituted early on was to create a co-working culture, much like what you see in the startups we invest in or the shared workspaces where startups are birthed.  Our “offices” at NextView are mainly little phone-booths for taking calls.  If we are not on a call or out of the office, we find ourselves surrounding a large, antique table in the center of our office.

We intentionally made this table the centerpiece of our space and we policed one another to stay out of our offices unless absolutely necessary. I think entrepreneurs that visit us the first time are a little confused when they open our door to see us huddled together.  It may seem weird for a VC, but it definitely isn’t weird if you visit the offices of a startup.

This may sound a bit corny, but I’m convinced that this works and makes a difference.  In fact, I think you can see it in the data.  Earlier in the week, I wrote a post sharing some data about our early portfolio. However, there is one other stat that I didn’t mention that is very unique for a VC firm and I think reflects some of our efforts to promote internal collaboration.

Of the 16 investments that we have made, in 5 cases the “lead” on the investment was different than the “source”.  What this means is that one partner was the originator of the investment (or the owner of the first touch-point with the founders) but another partner led the investment internally.  Leading an investment at NextView means that that partner quarterbacked the evaluation and due-diligence process and is the point person for our firm during the actual deal process and on an ongoing basis with the company.

All VC firms track who “sources” a deal and know who the “lead” is. What’s unusual here is that in over 30% of our investments, the “source” and “lead” are different people.  This is very rare.  In some cases, a fund may have one partner with disproportionate deal flow because of their high visibility or “celebrity status”. But that’s not the case in our fund.

I think this is important for a couple reasons.  First, even though we have a fairly tight focus as a fund (internet enabled innovation, seed stage, select core geographies) we all have different areas that we are particularly excited about.  I think entrepreneurs benefit from speaking with VC’s that have thought fairly deeply about their sector, and aren’t just broadly a firm’s “internet guy”.

Second (and this is obvious) this is a highly personal business.  We are different people, and different types of founders may find that they have more chemistry with one person vs. another.  While we all work together to try to impact our portfolio companies positively, you want to have the best possible fit with the investor who is actually the “lead”. After all, you’ll likely spend a lot of time with this person, and will have both very happy and very tough conversations with them over time.

Some final parting thoughts:

• I would argue that a change in the internal “lead” of a deal is usually bad news in most cases.  The worst thing for an entrepreneur is to lose their champion within a firm, whether it’s during the pre or post investment process. If something like this is happening to you (even with our firm) I think it’s fair to press on why this is happening, and make sure that it is for a reason that is advantageous to you and reflects only stronger commitment on the part of the fund.
• When we do change leads, we try to make them happen as early as possible in the process. In 4 of the 5 cases we’ve experienced, the transition happened at the time of the 2nd meeting.  The later it happens, the more time and effort it takes to built rapport with an investor and the longer it takes for the investor to feel like a real “owner” of the deal internally.
• One reason why this practice is typically rare at most firms is that it takes a lot to feel emotional conviction over a deal.  Also, some firms are very competitive internally, and so those investors take deal “ownership” very seriously.  A partner would be reluctant to hand-off a good deal lest they forfeit credit if things go well.  Ironically, another partner would also be less willing to take a hand-off lest they get only partial credit for the success but full blame if things go wrong. This dynamic isn’t always at play, but one way or another, feeling deep ownership over a relationship and investment decision is a big deal and hard to achieve or pass around.

A year ago, I wrote a post detailing some tidbits about our portfolio.  One year later, we’ve made more investments and learned a lot.  I believe that the best way to understand an investor is to meet the founders that they work with.  Second best is to understand their portfolio.  So here is an unscientific cut of our portfolio and some commentary below.  Hopefully it sheds some insight into who we are, how we work, and what we tend to gravitate towards.

• We have made 16 investments. Currently, all are announced and appear on our website
• Geography: Of the 16 investments, 9 are currently headquartered in Boston, 4 are in NYC, 2 are in SF, and 1 has s presence in both Boston and Chicago

The main focus of our fund is in the Boston-New York corridor.  We think that region is particularly promising and underserved.  However, we are lucky to have deep ties in SF, Chicago, LA, and will opportunistically invest in those areas as well. 

• Founders: We invest behind founders from a variety of backgrounds.  Broadly speaking, they break down something like this:
  • First Time Founder: 6
  • Repeat Entrepreneur: 6
  • Tom Brady Entrepreneur: 4

• Source Type:How we meet founders
  • 6 month+ prior relationship with founders: 9
  • Introduced by an entrepreneur: 3
  • Introduced by co-investor: 3
  • Inbound from blog: 1

Typically, we meet companies through our network of entrepreneurs and co-investors.  We like meeting founders early, and often well before they start working on the project we ultimately invest in. But one investment this year originated from a cold email regarding a post on one of our partners’ blogs (we invested after getting to know the founders over several months).  It’s nice to know someone reads our stuff

• Stage:We are seed investors, but often, the first institutional seed round happens at different stages in the company’s maturity.  Here was the status of the company when we invested:
  • Pre Product: 7
  • Post product Pre Revenue: 5
  • Post Revenue: 4

We pride ourselves in being true early stage investors.  Many investors will not invest in a company pre-launch or pre-traction.  In some cases, we do want to see some evidence of a working product and consumer adoption.  But in many cases, we’ve invested in pre-product companies led by product-oriented founders.  In one case, the founder’s “product” was essentially an excel spreadsheet and physical paper handouts.  We invested at that stage, and less than a year later, the company is doing >$100K in monthly recurring revenue. 

• Sector:
  • Consumer Internet: 7
  • Consumerization of Business Software: 5
  • Enabling services: 4

• Syndicate Composition:
  • Angels: 5
  • VC Lead: 5
  • Micro VCs: 6

We aren’t that dogmatic about syndicate composition.  Our main requirement is that there is a strong lead .  We have a bias towards leading or co-leading rounds, but will also participate in rounds facilitated by like-minded lead investors.  There are benefits and drawbacks of different types of syndicates and we try to help entrepreneurs navigate the nuances of each.