Here is the first tip: Be clear about what you’re selling and listen to the marketplace to find your opening. Read more useful advice from Garage Technology Venture’s Bill Reichert.
Hometown: Chicago, IL
Current Residence: Los Altos, CA
Occupation: Managing Director, Garage Technology Ventures
Areas of Focus: Startups in information technology, communications, materials science, and cleantech
Early on in your life, was there a specific incident that shaped you to want to become a venture capitalist?
I have been very lucky to have several great inspirations in my life, but my greatest inspiration early on was my grandfather. He was an entrepreneur and an innovator. He built a manufacturing business in Chicago (that just happened to be located exactly where Groupon’s headquarters are currently located), sold it in the ’50s, and bought a 400 acre farm in southern Kentucky. As a boy, I got to spend my summers on that farm and learned about breeding and auctioning cattle, cutting and curing tobacco, designing and building houses and barns, harvesting wheat and corn, digging post holes and fixing fences. When I was about 12, he and some buddies organized a grain cooperative for the area, and I learned the rudimentary concepts of an investment partnership. He sold the farm when I was 14 and retired to Florida, but you can still see the grain silos on Google Earth.
What is a typical day like for you at Garage?
The great thing about the world of startups and innovation is that there are no typical days. But there are patterns of activity. In any given month, we spend a fair amount of time on what we call “outreach” activities — doing conference advisory boards, or workshops, or panels, or speeches or articles — reaching out to the entrepreneur ecosystem to find the most interesting and potentially important emerging innovations. That is how we find a lot of our investments.
As a result, we also get a lot of startups that come to approach us, either directly or by referral. We look at everything that comes in, and we try to respond helpfully to everyone. We spend a good chunk of our time focusing on a short list of the most interesting companies we have found. We meet with one or two companies a day, on average, either in person or over the phone.
We also spend a chunk of time doing diligence on prospective investments, and reaching out to other investors to build a syndicate around interesting companies. Once we decide to invest, we also have to spend a chunk of time on terms and documents. Although some VCs hate the “docs” part of the process, this is one of the most energetic moments in the creation of a company — negotiating through the details of the investment terms — and the character of everyone who’s sitting at the table really comes out.
We also spend a large amount of time working with our current investments. Our model is to be heavily involved in the very early days of company-building, and then as the company raises Series B and Series C, and more VCs are sitting at the table, we can reduce our intensity so that we can focus on the next startup. Finally, we also spend a good chunk of time talking with LPs, current and potential investors in Garage.
One of your start ups, Pandora music filed to go public this year, what made you guys invest in them early on?
I’d love to say that it was our brilliant insight into technology trends and consumer behavior, but really it was Tim Westergren. Tim has always had a clarity and intensity of purpose that is hard to resist. Frankly, none of us had a lot of clarity around how the actual business economics of Pandora (originally Savage Beast) would evolve, but everyone could understand Tim’s idea that there had to be a better way to find music that you like.
What would you say are some warning signs of a startup that you’d predict is going to fail?
There are three reasons a startup fails: Lack of clarity, lack of execution, and bad timing. The first two factors are largely in the team’s control; the last one usually isn’t.
Clarity is different than focus. A lot of entrepreneur literature hammers on the issue of focus, but for most startups, it is dangerous to decide too early exactly how the business is going to play out and focus on a fixed menu of strategies and tactics. For most startups, the issue is being clear on what your unique value proposition is, or can be, and figuring out the best way to deliver that to prospective users. Too often entrepreneurs are so excited about the cleverness or brilliance of their technology, product, or service that they assume everyone else will simply agree with them and buy it. But usually the hardest part of building a company is getting clarity on what it is that is truly compelling about what you have, and then doing a good job of articulating that to the marketplace. Then you have to listen to the marketplace to find out where you have resonance, and where you don’t. Focus without clarity causes companies to run into brick walls at 90 miles an hour. Clarity — internally and eventually in the marketplace — enables companies to find the right places to focus.
Execution is more than just getting things done. It is a relentless forward press to probe and discover what is working and what is not working and then making adjustments that are based on this new information. In our experience, good “managers” make bad entrepreneurs. What characterizes good managers in the traditional corporate sense is the ability to manage teams of people around executing a plan — tactics and deliverables. What characterizes good entrepreneurs is the ability to stumble onto ideas and opportunities and customers that weren’t in the plan, and then exploit them successfully. This doesn’t mean that entrepreneurs aren’t on the hook for getting things done, but good execution is more than that.
Unfortunately, bad timing kills a lot of otherwise great startups. Pen-based tablet computing was an obvious evolution in computing, but entrepreneurs and investors jumped into it too early, back in the early ’90s. Similarly, the first wave of companies doing location based services, or voice over IP, or video over IP, or social networks are all gone now because they were too early. Every once in a while, you have the right combination of persistent and persevering entrepreneurs and investors — as we had with Pandora — who can survive long enough to catch the wave when it finally comes.
In contrast, is there a pattern you’ve noticed in successful start ups across all sectors?
Clarity. Execution. Good timing. Lots of commentators talk about passion and focus. I certainly agree those characteristics are useful, but they are only useful to the extent that they result in clarity and execution in the ways discussed above. Factors that are more important are flexibility and resilience, which are the critical complementary characteristics of the fabric of a strong, successful startup. There is a fine line between passion and pig-headedness. If the team’s passion is to see their technology take over the world, they might be blinded to signals from the marketplace. Flexible teams with clarity of vision will process those signals and adjust appropriately — maybe changing the product, or changing the message, or changing the target market. Pig-headed teams will try to beat an uninterested market into submission. On the flip side, resilience is the ability to survive hiccups in the execution of the business. Some people think passion and resilience are synonymous — if you are passionate, you will be able to plow through setbacks. But I prefer resilience, which means having a deeper strength. You can fake passion; you can’t fake resilience. Also, teams that are passionate can fall to bickering — sometimes really intense bickering — when things don’t go well. Teams that are resilient tend to have a great deal of shared trust in one another — that’s the sign of a great team.
What are one or two of your most recent project/investments, and why do you like them?
Our most recent investment is in a company called Sixense, which has developed a very precise and fast “true motion” controller for games and other applications. We love them because they have all the elements of success outlined above. Most impressively, they executed brilliantly before they even raised capital, and now are executing brilliantly with very little outside capital.
Another brilliant startup we seeded is D.light Design, which has developed a solar rechargeable lantern that is cheaper, brighter, cleaner, and safer than a kerosene lantern, which is the main source of lighting for nearly two billion people on the planet. Again, they executed brilliantly with almost no resources, developing their initial technology and product while graduate students at Stanford. In addition, they have always had an intense clarity of vision and resilience that has guided them through the challenges of building a company that does business in multiple countries in South Asia and Africa.
What do you wish people would understand about seed / early-VC funds? Most common misconceptions?
The hardest part of our job is to say no to a smart, passionate entrepreneur with a good idea. We see lots of startups that clearly have the potential to be successful businesses, but our job is to find the very, very few startups that are most likely to be highly successful businesses. Probably the most common misconception about seed investing is that it is about investing in great ideas. We have all had those moments in the shower when we came up with a brilliant idea that would make a great business — possibly even change the world. Great ideas are necessary, but not sufficient. A lot of commentators like to say things like, “Great ideas are a dime a dozen.” I disagree with that level of cynicism. This goes to the clarity point above. There are lots of clever product ideas; but very few great business ideas. Still, you need to demonstrate that you have the other ingredients — the ability to build a great team that can execute brilliantly, and a market opportunity that is accessible at a reasonable cost in a reasonable time frame.
What has made Garage Technology Ventures successful throughout the years?
They key to our success has been our passion to help entrepreneurs and the clarity of our role in the new venture ecosystem. When we started, after having spent years on the other side of the table as entrepreneurs seeking venture capital, we decided that we would be the most entrepreneur-friendly VC on the planet. (One of our original mantras was “We take the FU out of funding.”) Of course, being the nicest VC is a low bar. But we strive to reach out to entrepreneurs through events, workshops, panels, seminars, and speeches, plus the multiple guides we have on our website, not to mention Guy’s blogs, tweets, and books (“Art of the Start” is a compilation of lessons we learned through the early days of Garage). We know we cannot help every great entrepreneur, but we want to have a positive impact on as many as we can, and we want to invest in those that fit our very particular investment criteria.
How can budding and/or seasoned entrepreneurs get their ventures reviewed by you?
First, review the materials on our website that outline what we are looking for and what we expect from entrepreneurs pitching us. We are focused on startups on the West Coast with novel technologies that have a sustainable competitive advantage and can get to a dramatic inflection point with just a small amount of capital. We invest in information technology, communications, materials science, and cleantech, but we don’t invest in life science or healthcare. That means there are a lot of startups that don’t fit our investment criteria, but there are a lot of venture firms that will invest in areas we don’t. So if an entrepreneur has done her or his homework, and there is a fit, we will review their venture.