Jun 26, 2010
For many high tech startup ventures, the intricate process by which entrepreneurs court venture capitalists is a defining event that helps create the path to success. In Mastering the VC Game, Flybridge General Partner Jeff Bussgang illuminates the inner workings of this relationship with the unique perspective of a veteran in both worlds. His insider’s vantage point into the VC world provides access to the venture capitalist’s psyche and the way potential companies are evaluated. Within a similar framework, Bussgang swaps his VC lens for a founder’s hat, and in the same breath, dissects important take-aways of how masterful entrepreneurs can conquer the VC game.
Bussgang includes several engaging interviews with key startup leaders. These leaders are founders of mega-companies like Twitter, LinkedIn, Constant Contact, and Sirtris Pharmaceuticals. In each instance, Bussgang explores what it was like for the founders before striking an acquisition or IPO and how they got involved in their startups in the first place. A key example is Jack Dorsey’s early obsession with maps and bike couriers, which ultimately led him to found one the leading social networking sites—Twitter. For young entrepreneurs and veterans alike, Mastering the VC Game goes further to provide discrete experiential evidence on a number of interesting topics like choosing the board of directors and when to give up decision making power as a founder for the common good of the company.
MITER sat down with Jeff Bussgang to discuss some of these topics and explored his curiosities, motivations and advice for entrepreneurs.
MITER: What advice would you give to MBA students and technology researchers who want to try out entrepreneurship for the first time?
JB: I would encourage you to find thought partners who can challenge you and who are different than you. In particular, you can learn a lot from people who come at things with a different perspective and different experience. Michael Bronner, my colleague and partner at Upromise, was that kind of individual for me.
MITER: You discuss the importance of networking in building a successful enterprise. What advice would you give to entrepreneurs who want to expand their network?
JB: To start a company, you need both customer insight and technology insight. Customer insight means understanding the pain that a customer feels and having an idea of how to solve that pain. A technology trend allows you to create new opportunities. As an entrepreneur, I would advise making sure your team has experts in both dimensions. Also, be very aggressive at going to local conferences, gatherings and networking sessions. Show up to everything. Read Scott Kirsner’s blog, read blogs of various VC’s and CEOs in the community. Follow that old mantra that 90% of life is just showing up, and by showing up at various community and networking events you can build important relationships and gain great insight.
MITER: In Mastering the VC Game, you also provided a lot of success stories that began while the entrepreneur was still in school. In your experience, have you noticed any characteristics that successful entrepreneurs share that others lack?
JB: The ability to be a “pied piper” is an incredibly important element of success. Entrepreneurs need to bring people along, attract them to the vision and lead the team to execute. Some people can articulate a great vision, but can’t rally a team around them. Startups are a team sport, and they require really outstanding leadership to overcome the long odds.
MITER: A large number of business school students are also interested in careers as venture capitalists. Given that the system needs thousands of entrepreneurs for every VC, what do you think of the possible oversupply of VCs?
JB: The VC industry has a natural regulation against oversupply in that there simply aren’t many jobs in the industry. The industry only employs a few thousand people. There also is not enough capital available to produce more than a small community of VCs. Thus, I don’t worry about the oversupply of VCs. For example, in 2009, only ~600 firms made new investments.
If you’re a graduating MBA trying to take the apprenticeship path to becoming a VC, I would advise being humble about how many years it takes to be good at the business. Vinod Khosla once joked that it takes 7 years and costs $30M to train a VC. To gain this experience, you just need to spend time and see a few cycles. There are many fantastic career VCs, but it takes a long time to become successful.
MITER: In your book, you mentioned the importance of mentors in your own career. Can you tell us about one of them that stood out?
JB: I’ve had a lot of great mentors over the years. Gary Eichhorn, my boss and CEO at Open Market, was one in particular. Before Open Market, he was the division president of a billion dollar business at HP. One valuable notion he brought to our company was the importance of developing business processes to win at scale. He brought that “world class management” to our fledging startup, and he always pushed us to prepare ourselves for scale. We eventually went public and became a $100M company with a multi-billion dollar market capitalization thanks to Gary’s leadership.
MITER: You describe examples of entrepreneurship in Asia, Europe. What major global trends do you see in entrepreneurship?
JB: I still think the US will be the continued winner in VC. The US has an outstanding university system, and about two-thirds of trained VCs are in the US. I think US firms practice the business very well. I see China in second place, and it drops off from there.
MITER: You stated that entrepreneurs need to be both passionate and realistic. How do you guide the entrepreneurs in your portfolio companies to strike an appropriate balance?
JB: I know an entrepreneur is being realistic when he’s ahead of me in identifying and mitigating risks – this behavior always encourages me. When entrepreneurs ignore or don’t understand the risks, this worries me. You learn about the entrepreneur early on, even at the first formal meeting, whether they can internalize the risks or if they are overly confident, which is a red flag to me.
MITER: What kinds of books and blogs do you read for pleasure and for work?
JB: Right now I’m reading The Girl Who Played With Fire, by Stieg Larsson. I’m also in the middle of Click: The Magic of Instant Connections, by Ori and Rom Brafman. I really enjoyed their book Sway, on irrational behavior. And of course I follow industry blogs and the Red Sox and Celtics blogs.
MITER: What surprised you most when you did the research for the book?
JB: I was surprised by how long it takes for entrepreneurs to become aligned with VCs. The first time around, many entrepreneurs worship the VC and when things go wrong, feel jilted. The second time around, they loathe and distrust the VC. Finally, by the third time, they tend to “get it” and are able to achieve reasonable alignment. I hope the book helps all entrepreneurs jump right to stage 3!