Musings on Entrepreneurship and Innovation
Tuesday, May 04, 2004Venture Capital with a Human Face
Last year, Bill Reichert, Managing Director of Garage Technology Ventures, was the featured guest in a Pioneer Entrepreneurs roundtable discussion of the evolution of venture capital. Since then, Garage has evolved into a focused seed and early stage technology fund. This morning, I engaged Bill in a Quick Take™ interview regarding the changes at Garage, its investment focus, and the factors that differentiate Garage from other venture firms. Bill's following comments, in particular, caught my attention:
We like to think of Garage as venture capital with a human face...One of the founding propositions of Garage was that the best companies in the future won't necessarily come from Silicon Valley, and they won't necessarily come from proven, established, been-there-done-that entrepreneurs...So, we try to give every entrepreneur that approaches us a fair shake...even if they are not serial entrepreneurs.
Bill's statement is interesting for three reasons:
First of all, Garage understands that highly experienced, highly successful entrepreneurs are disadvantaged when it comes to cultivating dramatic technological innovation. By their very nature, the early stages of a breakthrough are frought with uncertainty. Consequently, highly regarded entrepreneurs face higher risk in such situations than do two guys in a dorm room. On a risk adjusted basis, it makes more sense for experienced entrepreneurs - who have more to lose financially and reputationally - to lead the exploitation of existing technologies than speculatively develop new technologies.
Secondly, Garage's purposeful, regional approach would seem to indicate that the optimal level of parochialism [1] is diminishing - even for seed stage investors. Alternatively, in Garage, we may be seeing an example of how a relatively high profile investment firm can overcome the limitations of geography through its superior ability to engage in investment syndicates [2].
Last, but not least, is Garage's customer orientation. It's not rare for professional service firms to have different functional and financial buyers. It seems to me that a VC's financial buyer (the person who pays the bills) is its limited partner. A VC's functional buyer, on the other hand, is the entrepreneur. Keeping both groups satisfied in the long term is a difficult, but essential, proposition. In recent years, however, one of the unfortunate distinctions of the VC industry is how it has simultaneously alienated both sets of customers. Given that, it's heartening to hear Bill explain how his firm aims to take the "F-U" out of funding.
[1] Optimal Parochialism: The Dynamics of Trust and Exclusion in Networks (PDF)
[2] Syndication Networks and the Spatial Distribution of Venture Capital Investments (PDF)
