Tugboat invests with unbending conviction.
"Venture capital is the most expensive kind of money," said a well meaning friend of my parents. He was giving me career advice over coffee at Bucks during a break between my college terms and it was the first time I had heard the phrase "venture capital." I had no clue what he was talking about or why he chose to share this bit of seemingly gratuitous, and tautologically inaccurate, information — I thought money was money — but the phrase stuck with me. Fast-forward a couple of decades, after many adventures reporting on, raising, spending, and sometimes squandering, venture capital, and I’m starting to understand what he meant.
I think his words were both a caution and a compliment. Building a business is hard work and bringing in venture capital opens some doors and closes others. It requires a price that not everyone is willing to pay: unbending conviction. That’s a quality I’ve seen in every great entrepreneur I’ve known or interviewed and it doesn’t come free. It means you are going to pursue what you believe in — and believe in what you pursue — to the exclusion of… well, a lot. You don’t need venture capital to have conviction or to be a successful entrepreneur, of course, but if you don’t have this kind of conviction, don’t raise VC.
Venture capital is “expensive” because it ought to be. Don’t buy it, if you don’t want to pay the price. And don’t buy it from someone who can’t deliver the value. I’ll admit that more than once, though always in jest, I’ve referred to venture capital as the “dark side,” and I’ve steered more than a few early entrepreneurs, always in earnest, away from raising venture capital if they didn’t need it. We bootstrapped Red Herring for many years before raising capital, and if I had to do it over again, we’d still be bootstrapping it now.
But venture capital can be critical for the right opportunity and is at its best when it supports gutsy and stalwart entrepreneurs, tackling big problems with big ideas and long-term vision. We all know how critical it’s been, just in tech alone, in ushering in personal computing, the Internet, Web 2.0, and now the "third wave" mixture of mobile, social, cloud, and crowd technologies. It’s helped change the way we work and live — mostly for the better — and I think the most significant changes are yet to come.
And yet, I sense ambivalence around the venture industry today. Despite some great success stories, it hasn’t performed well as an asset class over the last decade and, perhaps as a result, an industry that has seen surprisingly few major innovations over the past 20 years now seems to be transforming. Angels, seeds, incubators, accelerators — and some new powerful entrants — have blossomed, offering a new array of services. Much of this is good and as is sorely needed. But while innovation is welcome, I often wonder whether it’s coming at the price of conviction. Initial investments and timeframes shrink while failure rates rise. Is this experimentation or is this sending kids over the trenches?
There is a lot of money out there to dabble in the early stages, and plenty to jump on a juggernaut in the late stages, but the question of the day is whether there is a crunch in the middle; where is takes blood, sweat, toil, and tears – and unbending conviction from both entrepreneur and investor – to move something forward, over and around rocks, rivers, deserts, and mountains, from good to great. Unbending conviction means that you shouldn’t raise funds too early from too many, but it also means you shouldn’t give up too soon. I wonder if we are seeing too much of both these days.
Great companies often start from pioneering or contrarian ideas that, by definition, are not immediately obvious or well understood. They take time to develop requiring adjustments and changes on the way to greatness. Unbending conviction by an investor means sticking with an entrepreneur, with both time and money, when others may not see it.
I’ve spent my career as an entrepreneur, not an investor, but I’ve been very privileged to have been supported by many great investors, such as Ron Conway, Marc Andreessen, Reid Hoffman, David Hornik, and Dave Whorton. Only these folks are better understood as entrepreneurs, who have applied their talents, ideas, and innovations lately to the business of investing in entrepreneurs, and have moved the industry forward. And they have all had great conviction.
That holds especially true for Dave Whorton. He’s been a friend for many years and invested in my first internet company. As with the others, he’s been an entrepreneur, with a passion to help entrepreneurs build great companies. He brought what I wanted in a venture investor — support, guidance experience, connections — but most importantly he pushed me to be better, told me what I needed to hear, and did it all without being overbearing. He’s been consistent with his vision for investing: gain conviction (or pass) and then rolling up his sleeves and helping early stage companies go from idea to growth. I’ve seen him resist moving later stage, which may have made him richer, and resist going the other direction, towards “spray & pray,” which may have made him more fashionable. Tugboat Ventures, which has raised $125M over two funds, was founded to follow his bliss and he has a great portfolio to show for it.
Not only do I like this kind of investing, and appreciate it as an entrepreneur, I think it is the area that is needed the most at the moment as many early stage and seed funded companies are staring into the abyss, realizing that raising capital is a means, not an end. However, Dave and I think, as with the entire industry, it will need to innovate and come up with better and better ways to help entrepreneurs be successful.
In other words, I am not leaving entrepreneurialism. I am joining Tugboat Ventures to be an entrepreneur, in a business that invests in entrepreneurs.
Specifically, I will have several roles:
- Identify new investment themes and specific opportunities
- Support the Tugboat portfolio in any way I can
- Consider, conceive, and build services to make Tugboat an innovative firm for innovators
I will see if this suit fits — or if Dave likes me in the suit — but at the very least I will get to do what I enjoy: build stuff. (And I say “suit” metaphorically. I will, of course, be wearing the executive hoodie every chance I get, since it says that I am hip but professional. And not in an ironic way.)
But enough from me, I’d love to hear what you think. Am I off base on my assessments of the venture industry? What makes a great venture capitalist? I am conducting a survey of what services venture firms offer, and I will share the results with any VC who participates. If you are an entrepreneur, I’d love to hear your views on what you want from a venture capitalist. If you complete this survey, I’ll share the results with you and will also, if you like, let the VCs that fill out this survey know about your company.
If you or someone you know is starting a fantastic company — with a powerful vision and unbending conviction — please let me know.