Investing

It's the Partnership, Stupid. by Nate Westheimer

TeamworkImage Credit: Dunechaser Over the years, I've learned a lot about Venture Capital and Venture Capitalists, and what I've learned is that a VC is only as good as his firm, and a firm is only as good as the health of its Partnership.

What do I know about VC? Certainly not as much as some, but VC is something I grew up around, and then as I got into startups it's something I've surrounded myself with, for better or worse, over the past 5 years. I've worked for two VCs, been backed by another, and through my closest friends have intimate working and specific knowledge about their experiences with many more. Lastly, let's not forget my personal relationships with VCs who I consider more friends than colleagues, but from whom I learn a great deal about VC as well.

So it with this experience I wanted to share one lesson that has become crystal clear to me in the past twelve months: The quality of a VC is not defined by the VC herself, but but by her Partnership.

What's a Partnership? A Partnership is not just the legal entity formed by a group of people -- that's the stupid details -- a Partnership is the dynamic among two or more people, created by working and living together.

And so, while there are a number of VCs I really like a lot on a individual level, for too many I don't believe their Partnership functions at a high enough degree of Integrity and Healthfulness, and so I wouldn't do business with them.

Now Integrity is an easy thing to look and do diligence on: all you need to do is ask around. Are these people honest? Do they believe in doing the "fair" thing over the short-term profitable thing?

Healthfulness, however, is a harder thing to look for and judge -- yet it's just as critical.

Let me tell you how I first started thinking about the concept of "VC Partnership Healthfulness":

Back in August, after attending about 8 months of Monday morning Partnership meetings at Flybridge, I was getting tea in New York with one of its Partners, David Aronoff, and brought up the issue.

"David," I said, "It's strange, but it's palpable how much you guys respect each other in these meetings."

I was serious. It seemed the Partners went out of their way to make sure everyone's voice was heard and that both dissension and support were heard with equally open minds and ears.

It was eerily straight out of my Quaker upbringing.

And so, David's reply to my observation was both surprising and obvious:

"It's because we work very hard on it."

If you want to learn more about how Flybridge "works on it," read this great post by Jeff Bussgang called "Stop Avoiding Conflict" -- it's an important read for people in any kind of partnership, business or otherwise.

But what I want to highlight is the effect -- or lack of effects -- this has on the startups in the portfolios of Partnerships who operate this way.

In Partnerships where they don't "work on it," by the time that Monday morning Partnership Meeting rolls around -- where they could be voting on a Big Decision about your company (whether to invest in the first place is a small one, the biggest are whether or not to continue investing, to sell, or how to deal with other mid-stage startup quandaries) -- it really matters whether or not that Partnership is making life and death decisions about your company with a clean, healthy slate, or if a Partnership's toxicity, usually unseen by an entrepreneur working with a single Partner he or she likes, is making that Monday morning's decisions less about the specific company being talked about, and more about how one Partner may or may not have voted the week before on another Partner's portfolio company, how your company is doing relative to other companies in the portfolio, or other petty-yet-dangerous issues that do not either have to do with 1) Your company; or 2) Fund-specific reserve policies.

Let's just said I found this out the hard way.

So, as folks head out to raise funds in 2011, I advise you to add a new Checkbox to your VC diligence list: "Is the Partnership -- not just the Partner -- good enough for me." "When the going gets tough, will the firm be lock-step if figuring out what's best for me and my company, or will there be other politics at play?"

Sadly, you may find a lot of the Partners you love ending up on the cutting room floor.

The Case for Four by Nate Westheimer

Yesterday, my friend, mentor and colleague, Jeff Bussgang wrote a post questioning the validity of a 4 year vesting cycle for startup founders. On behalf of all the founders out there, I'm going to disagree. His argument: startup exits how happen at a slower pace than in the 90s. Then, 4 year vesting made sense, because that often coincided with an exit. Today, Jeff argues, the average exit happens in 6 - 8 years, so he argues for our industry to change its ways and move up from 4 to 6 or 8 years?

My argument: all founders need to kick ass in the first 4 year. The best ones you need for longer, so you're going to have to step up and make it more interesting.

Zero to 60

First of all, founders universally serve only one purpose: the take the company from Zero to 60. While some founders end up being great long-term managers (I'll talk about these folks below) the skill that all founders have to have in common is taking a company from idea to operating and scaling.

With that as a baseline, a four year vesting cycle makes sense, because four years is about the time needed between inception and knowing whether or not you have a win, lose, or draw of a company.

Beyond that, most (web/tech) companies are executing on a vision which could never be longer than four years away. If you're Shai Agassi and a founder of Better Place, maybe your visionary horizon has to be longer than four years, but any web/tech entrepreneur worth funding has better be executing on a max-four year visionary horizon (even if he or she has views about how the looks 6 or 10 years out). The consumer landscape they see before them is shifting rapidly, and the best entrepreneurs see and execute on what's 1, 2 -- maybe 4 -- years ahead. But not 6 or 8.

Keeping Us Around

So, let's say you've stumbled upon a Steve Jobs or a Jeff Bezos. You've just funded a company with both a pioneering visionary for the first 4 years, and he or she also turns out to be an an innovative manager for the next 4, or more years. Lucky you, Mr. & Mrs. VC. :-)

So, you want to keep your visionary AND expert-manager founder around for the long-haul? You're now going to have to make things more interesting than that stock we just accrued after 4 brutally tiresome years.

In this case, all companies turn to increasing the founder's (now quite diluted) equity pool with stock options, many start to pay the founder more market-rate salaries, and increasingly more Boards now allow the founders to sell-off part of their equity pool, so they can pay back loans, buy a house, maybe take a vacation -- all while still plowing ahead, giving the company their incredible and continuing vision and managerial skills.

When you, the investors, handed us a term sheet 4 years ago and asked to invest in our company, you signed up for us taking our company from Zero to 60. I think that if the VC community wants to change that initial vesting cycle, we should also rethink how much of the company founders will actually end up with after locking up their lives for 6 or 8 years, and perhaps readdress startup valuations and options programs.

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I'm joining Flybridge as an Advisor by Nate Westheimer

FlybridgeToday, I'm very happy to announce that I've joined the amazing team at Flybridge Capital Partners as an Advisor for New York-based investment opportunities. This position is part-time (more like real-time), as day-to-day I -- as most of you know -- help run AnyClip (as EVP Product & Technology), and (on a part-time, pro-bono basis) lead the NY Tech Meetup.

I'm excited about this new relationship for a number of reasons. For one, it's a great opportunity for me to work with and learn from yet another World Class team. I've been very lucky to work with amazing people in the past -- from Kyle Bragger at BricaBox, to Bob Williams at NPB; from David S. Rose at RTV, to Aaron Cohen and the team at AnyClip -- and now, I get to add the team at Flybridge to that list.

The partners at Flybridge are true entrepreneurs with amazing startup stories of their own. Each of them have walked first and foremost in our shoes, and have succeeded. In the investing they do today, they take the entrepreneur's perspective to the table, and it's reflected in every aspect of how they do business. As I did my diligence on the firm, I heard from person after person how exceptionally respectful the team was to entrepreneurs (when it's a "no" you'll hear "no," not a dial-tone, and when it's a "yes" the deal will get done painlessly); on the other side of the table, I also heard from my friends at other VC firms how great it was to co-invest and be shareholders with Flybridge.

Additionally, Flybridge is much more diverse than a typical New York VC firm, and working with Flybridge I'll have the opportunity to see inside of deals outside of New Media, and inside industries like green tech and biotech. As I grow as an entrepreneur, and as New York grows as an ecosystem, having support infrastructure for non-media related investments, -- whether from Flybridge or others -- will be a very good thing.

This last issue is a good segway to another reason I'm so excited about my relationship with Flybridge: it's another notch in the belt for New York, as the startup capital of the World. In my work with NY Tech Meetup, I welcome new VCs and startups from outside the New York area here on a weekly basis. Flybridge already has its foot in the door in New York -- they were a founding partner in the First Growth Venture Network, and recently invested in NY's own 10Gen -- and now, with my engagement with the firm, I'm excited for New York that Flybridge has made an additional investment in our ecosystem.

(By the way, this relationship means that if I can get a chance to know you and your startup -- and it seems to be a fit -- I now have a direct line to a great East-Coast VC firm and can make the connection. Hopefully, those connections, over time, will lead to more successful startups in New York City.)

Finally, I'd like to thank someone who helped this relationship come about. It was Roger Ehrenberg who connected me and Jeff Bussgang, the partner at Flybridge I'll work closest with. I've known Roger for a few years now, and I look up to him for his entrepreneurial spirit, early stage investing prowess, and sheer intellect. Even before meeting the Flybridge team and spending time with them, I felt good about the opportunity because it came from Roger.

So that's it! I'm looking forward to my ongoing work, as an entrepreneur and community leader, in the New York startup ecosystem, and now working with Flybridge to make killer investments in our great City.

If I didn't have BricaBox... by Nate Westheimer

... I'd totally apply for the analyst position open at Union Square Ventures. Last time they made this call, I had no idea I'd be doing what I'm doing today. I actually "came to" in the tech scene right as my buddy, Andrew Parker, got the job. The whole thing turned me on to the power of niche media -- this certainly exemplifies how it works with job postings. I know this is more Job Thread's territory, but I imagine Path101 is taking notes.

Current TV Site Relaunch Worked by Nate Westheimer

Back on October 15th, Current TV relaunched it's website. Now it's filing for an IPO, which made me wonder, "Was the relaunch a success?" Check out this Alexa graph.

Lucky for us, when they relaunch they dropped the .tv and picked up the .com, making it easier to see precisely when they relaunched and how their traffic changed. Looks like a success to me:

Picture 16 Congrats to the Current.com team.