As I've gotten more ramped up here at Austin Ventures, I've learned a lot about the "other side" of entrepreneurship. I've known the world of a founder for the first half of my life (I'm 41 now), and I've started five companies, including Bazaarvoice and Coremetrics. But I've never been on the other side of the table as an investor and been a part of the closed discussions that occur after founders make their best case to an investment committee. What I've learned is really eye-opening and is helping me put a lot of patterns together (this is called "pattern recognition" in the investing world).
One pattern that came together for me today - after seeing two pitches and being on a break to write this and check email right before two more - is that the recruiting process that Brant Barton and I set up at Bazaarvoice has a strong parallel with the VC investing process. I didn't think of this until now - again, being on the other side helps put the patterns of both sides together.
At Austin Ventures, there is the initial pitch - and that may be to just a few people at the firm. Then there is the pitch to the larger early-stage VC team. Then there is the pitch to the entire Partnership. Each pitch, of course, gets better and better as the entrepreneur takes away more and more input - if they are smart and humble enough to listen to the feedback they are getting each round. Each pitch gets more and more intense as you are presenting to a larger group of very experienced people. I know as an entrepreneur from working with other large VC firms like Accel Partners, Highland Capital Partners, and Battery Ventures that it works this way for them too - at least that is my observation of the way it worked.
Therefore, at the end of the day it is hard to raise money. It takes an amazing amount of preparation on the entrepreneur's part. After all, venture capitalists are representing their LPs (Limited Partners), who range from large pension funds to very wealthy individuals. They want to make the best decision they can as they are responsible for millions of dollars that have been hard-earned. But even though it is hard raise money you must - at least for some business models - if you want to achieve your grand ambitions. To not do so is likely to hold yourself back from capitalizing on a big opportunity and changing the world in the process. Read my Bootstrap vs. VC post for more on that. And that is where the connection was formed with how rigorous our recruiting process has been since the beginning of Bazaarvoice. Ultimately, we were trying our best to get the people on board that wanted to "change the world, one authentic conversation at a time" (our mission statement at Bazaarvoice) - those that were really passionate about our cause - and reject those that weren't. And I've always said that the raw material - our people - defines our culture more than anything else - and that leads to great performance.
So I find it surprising that when I describe the Bazaarvoice recruiting process in presentations I give to other CEOs, entrepreneurs, and executives that some of them gasp at the rigor of it all. "Doesn't that take you too much time?", they initially say. But yet they themselves have been subjected to a very rigorous selection process when they raise money from VCs. Why is it that VCs should be more selective on investing than CEOs should be in recruiting? One of the reasons we grew revenues so quickly at Bazaarvoice is because of our recruiting process. Our hit-rate with hiring good sales people, for example, was very high as compared to industry norms. Hiring the right person allowed us to maximize on the opportunity quickly - versus hiring the wrong person would have an opposite effect and a high opportunity cost - for both the individual and us.
My next-door neighbor at Austin Ventures is Gene Austin, the former CEO of Convio, which was acquired by Blackbaud for $312 million years after it went public. Gene is an EIR here and just popped in as I was writing this post and we discussed it. He said one of his takeaways is how much entrepreneurs focus on presenting the "big idea" to VCs versus talking about the strength of their team. And most VCs will tell you that the team matters more than the idea. A great team will usually find a way to optimize on an okay idea whereas a decent team will usually not execute well on a great idea. When you have both a great team and a great idea - well, that is when you could be investing in a future IPO candidate. This is part of the pattern recognition that has formed for so many VCs. And so you should apply it to your business as well as an entrepreneur - and that starts with recruiting.
I recommend you read my post on our unique recruiting process at Bazaarvoice, and I also recommend reading about the fundraising journey of Tom Serres and Rally.orgbecause it is just a wild story and shows the value of hustling when the fundraising momentum is in your direction. I've always hustled when I've raised money and it has worked out well for me.