Lori Hawkins, the business reporter for the Austin American-Statesman, interviewed me last week for an article that ran in the Sunday newspaper. I spent a lot of time with her on this - she is typically very diligent, and that is something that I've appreciated as an entrepreneur and now entrepreneurial catalyst and investor in Austin. She probably spent four hours with me on the article she wrote about my school-of-hard-knocks journey at Coremetrics to get it right.
This interview was full of advice for entrepreneurs and got a lot of attention. However, it had to fit the space constraints of the newspaper and came in around 1,000 words. So here's what you missed - a Director's cut, or a b-side if you choose. I've pasted the article in full below with quotes and filled in the additional content, which is not marked by quotes.
Does Austin's 'entrepreneurial energy' need more direction?
By Lori Hawkins, American-Statesman Staff
The last time I wrote about Bazaarvoice founder Brett Hurt was in November, when he announced he was stepping down as CEO of the software company and joining Austin Ventures.
Hurt, who is now vice chairman of Bazaarvoice, has spent the past five months meeting with startups, and he started a blog, Lucky7.io, where he writes about entrepreneurship.
We recently caught up with Hurt, 41, to discuss his observations, and below is an edited transcript of our conversation.
American-Statesman: You’ve met with dozens of entrepreneurs since becoming a venture partner at Austin Ventures. What are you seeing?
Hurt: There is a tremendous amount of entrepreneurial energy in Austin but it needs to be more directed if we are going to create more companies that change the world. Many tech entrepreneurs in Austin are lacking the capital – and more critically, the mentorship – to advance from a first-stage entrepreneurial venture to a second-stage one. In short, a first-stage tech venture is consulting based (the most obvious form of entrepreneurship as you are hawking your own skill set) while a second-stage tech venture is product based, which is beyond what you individually can deliver and has a much larger potential market. Second-stage entrepreneurship almost always requires that you raise capital but it also creates much larger economic ripples when your second-stage venture really works.
And they can change the world, as we have done at Bazaarvoice with the digital word of mouth movement having taken off among retailers and brands all over the world. This mentorship is something I feel duty bound to provide here in my hometown. I'm a product of many great mentors and books and, most importantly, experience (the best form of learning is experiential). The first half of my entrepreneurial career (I'm 41 now) has been to turn my programming roots (I started at age 7) into founding companies that would be defined for changing the world (specifically the world of retail, which is a $12 trillion industry worldwide). And now the second half is about how many of these local entrepreneurs I can help to reach their full potential, achieve their dreams, and do a lot of good (creating jobs and economic ripples) along the way. The talent level here in Austin is among the best in the world, and I'm very bullish on our tech scene here overall.
You’ve said that one thing Austin lacks is mentors. How does this differ from Silicon Valley, where you spent several years, and why does it matter?
Silicon Valley is the land of more. More entrepreneurs, more IPOs, more venture capitalists, more angel investors, and more mentors. I spent four years of my life there – with Coremetrics – and it was an amazing experience. I soaked it all up – I worked and networked like crazy, and I went to any entrepreneurial learning event that looked interesting (and there were many). I learned a tremendous amount living through the height of the tech boom (year 2000), the depths of despair (2001-2002), and the start of the rebuild (2003). To some extent I compare Austin to Silicon Valley, like others do, but this really isn’t a fair comparison. Austin should compare Austin to Austin. The Austin tech scene today is so much stronger than it was 10 years ago, and I have no doubt that 10 years from now it will be so much stronger than it is today. And besides me, more potential mentors to entrepreneurs that want to graduate from first-stage to second-stage entrepreneurship are being minted here or are moving here. First, you have four tech IPOs in the past four years (Convio, SolarWinds, HomeAway.com, and Bazaarvoice) and IPOs tend to create large economic ripple effects because they generate both capital and knowhow. Second, there is a huge influx of talent with more second-stage knowhow coming from both the West Coast and the East Coast. For example, I just met with Sean Spector, the co-founder of Gamefly – he moved here in August.
What can be done to expand mentorship opportunities here? Obviously we have far fewer people who are in the position to be mentors, so how do you broaden the base?
This is going to sound self-serving, but it isn't. Austin needs more people like me. Entrepreneurs that both have the knowhow and want to give back to the community. I've gone all the way from founding five companies to growing one (Coremetrics) into a large exit to IBM and another (Bazaarvoice) into a IPO, two acquisitions, and a follow-on offering, so I can mentor entrepreneurs through all of the stages. And, as I said, more mentors are moving here – or being minted here. One thing that I'm really excited about is how you have people like Bob Metcalfe that have chosen to move here and be mentors. And you also have people like Josh Baer, Kevin Koym, Kerry Rupp, and Shari Wynne who have all started incubators in Austin in the last three years – Capital Factory, Tech Ranch Austin, DreamIt Austin, and Incubation Station, respectively. We need more early-stage "experiments" that are planning to be more than first-stage ventures - and incubators are a great solution to that because they provide both mentorship and capital. You also have the rebirth of the Entrepreneur–in–Residence program at U.T. Austin, currently with Laura Kilcrease, an experienced venture capitalist, in the seat but rebirthed initially with Gary Hoover, the founder of Hoovers and Bookstop (Gary is now serving as EIR of U.T.'s iSchool). You have two fairly new Deans – Dean Gilligan and Dean Fenves at U.T. Austin who moved from posts in California – that are really focused on creating more entrepreneurial energy – and mentorship – among the large student population here. Ultimately, though, what will broaden the mentor base the most is more local entrepreneurs swinging for the fences – focusing on creating a business that will change the world and create a lot of ripples. That will create more knowhow here locally – and it will also attract more mentors to move here.
What are the most common mistakes made by entrepreneurs trying to raise capital?
To my point about mentorship being critically lacking in Austin, I’ve seen many entrepreneurs come into Austin Ventures without a strong understanding of how much they are trying to raise and, more importantly, how they would use the capital when they raise it. I’m not expecting them to come in with a 100-page business plan, but how can they come in without an understanding of how they will use the capital? They need to clearly communicate how many people they will hire, over what time frame, and for what roles; how they will allocate the money in sales and marketing versus product development versus client services (and there are critical debates and tradeoffs that they need to have with their co-founders and early executives in these areas prior to presenting to any VC firm); and when they will break-even on the money and at what revenue run-rate and gross margin.
Also, many entrepreneurs come in with a market opportunity that is too small versus the “swing for the fences” attitude that needs to permeate their businesses. “Swing for the fences” doesn’t mean “risk-seeking” as most people think about that term. An entrepreneur’s job is to carefully mitigate risk while aggressively growing their revenue, margins, and client base.
I personally love deals where you can break-even on the Series A with a industry norm (or better) gross margin and high run-rate – those are rare market opportunities.
You say Austin startups would benefit from more seed-stage funding. What needs to happen?
First, Austin Ventures is very actively seeking early-stage tech deals and recently backed Handshakez in their Series A, for one. Notably, Handshakez was co-founded by Michael Osborne, our initial head of sales at Bazaarvoice (a reference to the knowhow gained in a second-stage venture that really works and how those people are well equipped to found their own companies after). You also have Silverton Partners doing the same and new funds like LiveOak Venture Partners and Corsa Ventures as well. And certainly Jeff Harbach at CTAN (the Central Texas Angels Network) has done a great job for our entrepreneurs – and angel investors – locally.
[But] the hardest round to raise – by far – is the round needed to prove the business model. This is the riskiest round in an aspirational second-stage venture. The incubators help but we need more angel investors and early-stage capital here to take that initial risk of investing the first $500,000 to $1 million. And it can be lucrative for investors that can stomach the higher risk to do so. Our first five angel investors at Bazaarvoice invested at a price of around 16 cents per share.
What’s your advice to entrepreneurs seeking capital for the first time?
Investors want a big return – and of course you would too if you were in their shoes. If you are swinging for the fences with the right business model, team, and mindset then you will eventually attract the capital — don’t give up. Investors want to invest in those that are ambitious enough to dare to try to change the world.
Several angel investors turned me down at the beginning of Bazaarvoice and 38 out of 60 turned Jeff Bezos down at the beginning of Amazon too. Although it may be painful to face rejection, make sure you are really listening to their questions when you are turned down. Build on the answers to those after each presentation by debating with your team and mentors. Effectively communicating how you are swinging for the fences is important once you get a meeting with an investor. But how do you get the meeting in the first place? Today, there are many ways to network, including the increasingly ubiquitous LinkedIn. Using LinkedIn to get to a connection of one of our Partners can work because your 1st-degree connections shared with them can vouch for you. But in-person networking is the most effective and Austin Ventures, as well as many other investors, attend – and host - events around town, including SXSW. Incubators also help to facilitate introductions. For example, I'm doing mentor hours for a second time at Capital Factory on May 2, where I may meet a promising team and venture. I've also done some mentor hours at DreamIt Austin, where I met a team that I'm personally considering angel investing in and could eventually lead to an Austin Ventures investment down the road.
You contend that there are five critical ingredients to building a big company. What are they?
They are – and somewhat in this order – business model, team, mindset, funding, and culture. I describe this in detail in this Lucky7 post. And these ingredients are exactly what I'm looking for whether I'm angel investing personally or we are VC investing at Austin Ventures.
[End of "Director's cut" version of the interview]
I hope this post helps you in your journey as an entrepreneur or as an investor that wants to help foster the Austin scene. For more on the tech entrepreneurship scene in Austin, read my Lucky7 post on what I've learned about the scene here over the past five months. That post has received more comments than any of my posts before, including from people steeped in the scene here, such as Bob Fabbio (founder of Tivoli, Dazel, and several others), Bijoy Goswami (founder of Bootstrap Austin), Ben Metcalfe (co-founder of WP Engine), and Austin Gunter (who also works at WP Engine).