Ken Howery, Co-Founder of PayPal
Corey Reese, UC Berkeley
Rob Rueckert
Ron Weissman, Apax Partners
Brent Whisenant, Carlyle Group
Henry Wong, Novus Ventures
Venture Capital Panel:
Ron Weissman: We were founded in 1969 in the U.S, 1970 in Europe. We just bought Tommy Hilfiger. We have about 300 portfolios worldwide. We have deep sector experience: consumer, IT, media, healthcare, financial/business services, etc.
Henry Wong: I've raised over 200M in corporate financing for many companies. Novus has an average return of about 27 percent. Our ideal is low-risk companies with finished products and teams with prior experience.
Ken Howery: I've been involved with funding Facebook, LinkedIn and PayPal. Remember the importance of the team. It's easier to support a good team with a mediocre plan than vice versa. For those looking to start a company, it's also important to choose your VC fund based not only on money considerations, but also on the rapport you have with the VC firm.
Rob Rueckert: Since 1991, Intel Capital has invested $4 billion-plus in about 1,000 companies in more than 30 countries.
Brent Whisenant: At the Carlyle Group, we try to find companies that will benefit our network. We have five buyout deals in my fund that are all leveraged transactions. It's hard to find companies that meet all our wishes.
Q: How do you decide where to invest?
Ron Weissman: Look five to eight years out to when the company may become a successful player. We're less into fortune telling than into big brothering and mentoring. We look at the team, but also at the market to sustain healthy exits and strong valuation.
Ken Howery: We look at timing and fads, for one. Many social networking companies sought VC funding in 1997 and then failed, but a second wave of them in 2001 got VC funding and was much more successful.
Henry Wong: Don't just look at technology. A good VC actually looks at it from the opposite end, saying, is the market sustainable? Does the technology support a viable business model?
Brent Whisenant: Although technology keeps changing quickly, things sometimes take longer than we imagine. RFID, for example: we got in early, but the ramp has been slower than expected.
Ron Weissman: We all want perfect companies, right? Well, we're not fortune tellers. We don't need to have tons of pet stores online, photo sharing sites, etc. VCs mostly follow the herd ... let's not romanticize them too much.
Q: There's a book by Malcolm Gladwell called Blink: The Power of Thinking Without Thinking. Some believe this applies well to early-stage venture capital decision-making. Can you really make a blink-fast decision on a vc investment opportunity?
Rob Rueckert: Often, the first look gives you a great sense of the viability of the deal. And then you can more easily go and decide what to do.
Ron Weissman: Always do a deal right before lunch, not right after breakfast :). We do deals over a long semester, not over a meal. We invest in three things: the team, the team, the team. My favorite silly line from a potential client: "The big guys don't get it; we're gonna win because we have the best technology." The quick kill often happens in the first ten minutes. You can look at how the person projects their knowledge and estimation of the business world around them.
Henry Wong: Often, longterm quantitative evaluations end up equalling the initial bias - so yes, often our initial impressions of people greatly influence whether a deal is made. Our biggest three turnoffs: no team; part of a team; wrong team.
Ron Weissman: If we like the market and the valuation, then we do due diligence on the team. We try to get a sense of their stamina, their ability to take risks and to ride the roller coaster, their ethics, etc. We might dig deep into their lives and pasts for three to six months. If you come to us, we'll scrub your numbers and your assumptions; we won't just leave you with nothing to show for your efforts. The team must be flexible and fast-moving, and out-of-the-box thinkers.
Ken Howery: Sometimes we move very fast. Typically we look at the market size and the traction as well. Are people really going to use the product/service? We look for a smart, likable, cohesive team. A big red flag is a CEO without a supporting cast.
Brent Whisenant: My entrepreneurs must understand my business to an extent. They must understand that we are investors, and traders - long-term perhaps, but traders nonetheless. We check on management: we ask for references - not family members alone! We might call your old school, your old boss. We do a whole body scan and colonoscopy of the business, as it were.
Q: Many companies might have an incomplete team - do you ever complete the team for the company?
Rob Rueckert: We can help with that. We steer away from a team that thinks it's got everything and doesn't need help, when it really does.
Ron Weissman: The founder must be willing to make changes in the business to fit our needs; otherwise we'll likely kill the deal.
Q: How can students prepare themselves for a VC career?
Henry Wong: Three ways - learn to look at, do, and manage deals, all with a good return for the investor.
Ron Weissman: This is an opaque, informal business. We don't expose the workings of individual companies, but beyond that, there isn't much regulation.
Brent Whisenant: We might go through several job changes in our lives - so try to add to your skill set with each job you have.
Ron Weissman: You must be able to tolerate lots of ambiguity and also buyer's remorse. You might find out a month after the deal, e.g., that a competitor just beat you to the market. You gotta have a strong stomach and tolerance for uncertainty.
Q: Are entrepreneurs born or taught?
Rob Rueckert: Sometimes you can learn just by trying. Some of our best employees have failed in the past. But always recognize the obstacles and the competitors.
Ron Weissman: When you fail, fail honorably - don't be bad to your investors or employees.
Ken Howery: Be honest with yourswelf and get people to support you on things you're not good at.
Brent Whisenant: some types are just sort of born - wildly optimistic, visionary. often great for a really early stage deal.
Q: How do you decide whether to invest in an inexperienced group?
Ken Howery: We look to see if the CEOs – even though they may be first-timers – if they have passion, a team that is not only smart but also works together well. The time entrepreneurs have known each other is always a great thing because they're friends already. The Facebook guys are young, but they're very smart - we know that they can figure things out when they go wrong. We did help them recruit a few hires.
Q: How do you recover from a loss?
Ron Weissman: You feed your winners and shoot your dogs. But: Hope springs eternal. “That next deal might bail us out.” It might depend on whether you're early or late in the fund. Most of us are less disciplined than you might imagine. We have unbounded faith in our companies. The orginal investor might find it hard to let go.
Henry Wong: Sometimes it is hard – and actually unwise – to let go. A company can turn around surprisingly fast.
Q: When should an entrepreneur not go to a VC? What other sources of funding are there?
Brent Whisenant: The rules you must live by are not as stringent and the consequences are not as great with a VC firm as if you borrow from, say, Wells Fargo. With VC, you pay more, but there's a better chance for success. If you have 20 million dollars in assets – go to a bank and take out a secured loan, you will pay seven or eight percent on that kind of money. The big difference is that a bank won't help you at all. A VC firm will mentor you, track you, recommend changes, etc. We often brings a third party in to help. We spend lots of time with our companies and thus expect a much higher rate of return. There is a great benefit to bringing in a new company, beyond the money aspect.
Ron Weissman: Two scenarios. One: fast market, you have a technology edge and want to move fast. In that case, you definitely want to run to venture capital. Two: A slower market – you might wait for a little while to become more stable and de-risk the deal so that your valuation will improve – then the VCs will soon be pounding on your door and not vice versa.
Comment Preview