Accel Partners

Who this new generation of aspiring entrepreneurs are and the new Golden Age of tech (part 2 of 3)

We live in very interesting times. It's 2010 and I'm at a family reunion. We've just barely survived the most cataclysmic global financial crisis in the modern history and one of my cousins asks me, "How can tech be doing so well while the rest of the economy is doing so poorly?". I did my best to answer but the question kept eating at me. I remembered Michael Porter's Harvard Business Review article about the Internet being the sixth force - and how it would disrupt all of the previous five forces cited in his famous strategic model.

Fast forward just four years later and a five-year old company, WhatsApp, is bought for $19 billion by Facebook, a company that itself is only ten-years old at the time but worth a mighty $170 billion. Just two years earlier, when Facebook went public, the media was asking for Morgan Stanley's head - and sometimes Mark Zuckerberg's or David Ebersman's (CFO of Facebook) head - for what was perceived at that time as an overpriced IPO. Except that it wasn't... and any investors that held on to their IPO stock should now be very happy campers.

At age 46, he started his first company and it failed miserably… but then, on his second…!

At age 46, he started his first company and it failed miserably… but then, on his second…!

For all of us Austin fans, I'm talking about Cotter Cunningham, the founder and CEO of RetailMeNot. Last night, Cotter was one of our keynote speakers, along with Mark Cuban, at the University of Texas for Longhorn Startup Demo Day (the event was just fantastic, by the way, and Josh Baer, Ben Dyer, and Bob Metcalfe deserve a huge round of applause for it).

As of today, RetailMeNot is worth $1.33 billion as a public company (it went public in July and just filed for a follow-on offering). It is just four years old - for a value creation of $333 million per year. Who says Austin can't do B2C now? HomeAway is another one of our five tech IPOs in the last five years. It is worth $3.4 billion today as a public company (it went public in 2011). It is just nine years old. Yes, we haven't produced a Facebook or Twitter size outcome - there needs to be a higher volume of failures (entrepreneurial experiements) to do that, but don't forget we did produce a Dell, a National Instruments, and a Whole Foods.

The critical importance of checking references

I'm shocked that more startups, including their Boards and investors, don't thoroughly check references. That is the subject of this post, and I hope by the end of it you will agree with me that to not check references is both irresponsible - and dangerous.

When I started Coremetrics in 1999, Accel Partners wanted to invest in our Series A alongside Highland Capital Partners. We had already chosen Highland as our lead. We were really impressed with Keith Benjamin in particular and he was joining our Board of Directors (unfortunately Keith passed away in a tragic accident in 2008 as I wrote about in this Bazaarvoice blog post; I think about him often - he was an incredible friend and eCommerce and Wall Street visionary). Accel put forward Arthur Patterson, the co-founder of Accel and a venture capitalist since 1973, to join our Board of Directors alongside me, Keith, and Bong Suh (our independent Director, and a really terrific mentor). As I had done with Keith, I insisted on checking Arthur's references. Most people at Accel were surprised, and I think they thought I was naive at the time - I was a 26-year old CEO and they probably chalked it up to inexperience. And when I called his references, some of them expressed a lot of surprise that I had the moxy to do so. But those references turned out to be very helpful to me, specifically how to best work with him as a business partner. I believe Arthur had more respect for me as a result of being one of the first entrepreneurs to check his references. I couldn't see any other alternative - I deeply loved the business and I wanted to make sure that we fielded the best team possible, and that included our investors and our Board of Directors.

Recruiting parallels to venture capital investing

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).