Web Innovators Guru: An Interview with Venrock’s David Beisel

3/28/08Follow @wroush

If you’ve been to the bimonthly Web Innovators Group meetings at the Royal Sonesta ballroom in Cambridge, you know that the menu always consists of three or four “main dish” talks by local entrepreneurs launching new Web services, along with three to five “side dish” presentations by companies who set up tables around the room. And you probably know that the chef de cuisine—the man who tastes all the ingredients and selects the evening’s menu—is David Beisel, a vice president at venture capital firm Venrock.

But you may not know that these bustling startup feasts, which regularly draw several hundred attendees, started out three years ago with just a dozen people around a table at Tommy Doyle’s pub in Central Square—or that a good fraction of the 90-some companies hand-picked by Beisel to present over the years have gone on to win funding or achieve illustrious exits.

I caught up with Beisel this week at the Cambridge offices of Venrock, which is one of the grand old pioneers of the venture business. Formed in 1969 by Laurance Rockefeller and other members of the Rockefeller family, the firm has backed Intel, Apple, 3Com, Gilead, Polycom, Doubleclick, and nearly 400 other prominent information technology and life sciences companies. For several decades it was a family operation, but in the mid-1990s, Venrock began to raise money from limited partners outside the Rockefeller family, who now account for a majority of the firm’s investors. Last year the company launched its fifth fund, amounting to some $600 million, with a dual focus on life sciences and digital media.

Beisel and general partner Mike Tyrell manage the company’s Boston-area digital media investments. I asked Beisel how the Web Innovators Group meetings play into the firm’s investing strategy, what technology areas he considers most exciting, and what the firm is doing to work with entrepreneurs who don’t necessarily need several million dollars to get their companies launched. (By the way, the next Web Inno meeting is coming up next Wednesday, April 2.)

Xconomy: You’ve been very visible in the local IT community as the organizer of the Web Innovators Group meetings, which are coming up on their 17th edition, I think. Can you tell me how that event got started and why it’s worth spending your time on?

David Beisel: The event got started back in the summer of 2005. I literally invited just 12 or so folks to Tommy Doyle’s. It was just Web entrepreneurs, and it was a very informal gathering. By the second time, people started inviting other folks, and by the third time we had probably around 50 people. That’s when I realized there was something more here and I started putting a little bit of structure around it and introduced the notion of having informal demonstrations to the crowd.

Venrock LogoI know the Reddit guys demoed there, and also Blogniscient, which ended up getting rolled into Top Ten Media. Later on, I introduced the idea of “main dishes” and “side dishes” and put it on a little more formal schedule. I try to make it every other month. There’s enough space between each one that it becomes an event, with something special about it that people look forward to. At the last one, people were saying 500 people came.

X: When you’re deciding which companies to feature as main dishes and side dishes, do you find that you’re having to turn people away?

DB: Yeah, I’d say in the last year especially. It’s a great forum for companies to get feedback and exposure to some of the media and the investment community. For every event I’ll have seven to nine presentations and I’ll get a few dozen applicants. I try to figure out not only which ones I think are “best,” but what is going to be a good package that provides good content for people attending.

X: Your one criterion is that these companies have to be pre-venture funded. What’s the object there? Is it to get these companies in front of investors at the time when they most need the money?

DB: No, that’s just a good way to draw a line somewhere. I tell presenters that this is not really a capital-raising pitch, it’s a way to demonstrate their service to the community. I really try to make it a demo. And it’s interesting—a number of the demos are polished, but a lot of them are raw. I think that’s a lot of the attraction for people to attend. The content is very authentic. It’s real entrepreneurs in the process of trying to figure out what they’re going to do and really putting themselves on the line.

X: At the last session, there was one guy in the audience who kept raising his hand after every demo and asking, “So how are you going to make money?”

DB: He does that every time. I like it a lot, because it’s challenging. We’re all inside this little Web ecosystem, and it’s a great reality check. At the end of the day these are businesses that we’re all trying to create.

X: Having done this for three years now, do you see any trends in the kinds of ideas entrepreneurs are coming up with, or in how mature those ideas are?

DB: Three years ago people were just starting to think about Web businesses again. There were some dark days in the early 2000s. One of the things that’s interesting is that we’ve probably featured 90 companies and about four or five have received venture financing and five or six have been acquired. From my perspective, it’s been interesting to see which ones have succeeded. And the ones that have, have not always been the crowd favorites.

X: Which are the crowd favorites—the ones with a more obvious consumer appeal?

DB: The ones that are crowd-pleasers are usually the sexiest, most consumer-facing ones or, earlier on, the ones that were very geeky. But if you look at the ones that have had exits or funding, they are companies like MyBlogLog, which was acquired by Yahoo; Sconex, which was acquiired by Alloy; Reddit, which joined Conde Nast; LocaModa, which was funded by Dace Ventures; and most recently IDG Ventures, now Flybridge, invested in GuildCafe, the gamers’ site. I’m happy to hear those stories—it’s a testament that the community is gelling.

X: What does Venrock get back from sponsoring this Web 2.0 forum? Have you met companies that you’ve invested in?

DB: I’ll get to your question, but I should explain that my own focus is on the digital media space. By digital media I think of any consumer facing service or media property, whether it’s on the Web or on the mobile side. I focus on that and then one layer beneath that—technology services that help facilitate those properties, and advertising networks. I tend to spend 90 or 95 percent of my time there, because of my own background as an entrepreneur on the Web.

I think first and foremost, as a venture capitalist you have to participate in the entrepreneurial community, but it’s even better to actively engage and contribute to it. The primary thing that we at Venrock get out of this is just being in the middle of it. A secondary benefit is that as I continue to do this over the next three to five years it would surprise me if we don’t end up a funding a company somewhere along the line, just by having a touch point with a lot of young startups in the area.

X: I know you were at Masthead Venture Partners before Venrock, but I don’t know anything about your background as a Web entrepreneur. Let’s start at the beginning.

DB: I was at the Parthenon Group, which is a consulting firm here in Boston, and left with two other people from Parthenon and one gentleman from Microsoft and we started an e-mail marketing company about 10 years ago now which was called Sombasa Media. We had unique technology which enabled us to generate dynamic individual personalized e-mail newsletters based on preferences that people gave during the registration process. We had a series of these consumer-facing newsletters. One was a bargains newsletter called Bargain Dog. And we had relationships with 150 online merchants featuring products they wanted to feature in what was essentially a personalized e-mail. We ended up raising $1.1 million from CommonAngels, in 1999. In 2000 we were acquired by About.com, just after their IPO but before they were acquired by Primedia. We basically became a group within Primedia, handling anything and everything to do with e-mail and newsletters, including all of the About.com guides, who had e-mail newsletters. I was there through the Primedia acquisition, but I left before About.com was acquired from Primedia by the New York Times.

X: Do you feel like that was a good Web education for you?

DB: Definitely. We started out in the proverbial room with no windows and four people—over on Congress Street downtown. It was a long thin room where if the person on the end wanted to get up and go to the bathroom everybody else had to scoot their chairs in so he could get by. To go from that room, to raising money from CommonAngels and having 25 or 30 people, and then be acquired by a public company with a couple of hundred people, and then join Primedia with a couple of thousand—going through all those stages and see the whole spectrum was quite an experience. Through that, I consider myself a Web guy.

Then I took a little time off and ended up going to business school at Stanford, and moved back here afterward. Two of the angel investors in Sombasa, Steve Smith and Rich Levandov, were at Masthead and I ended up joining them in 2004. And then I joined Venrock last year, at the end of April.

X: So you started the Web Innovators Group while you were still at Masthead?

DB: Yep.

X: So here at Venrock, you’re looking at digital media broadly conceived, including both the Web and mobile platforms. Can you tell me about some of the companies you’re invested in?

DB: One that you’ve mentioned in Xconomy is our investment in Second Rotation, a Waltham company that allows people to trade in their electronic gadgets. The thing that gets me excited about it is it’s at the interesting convergence of a number of trends. Consumers going green is the basic trend. But then you have the proliferation of these digital consumer electronic devices, between cell phones and laptops and game consoles, and you have people upgrading more and more frequently. And then you have the fact that other outlets like eBay are geared for power sellers, not for individuals. It’s a hassle to sell products there. I consider myself a web savvy guy and I’ve never sold anything on eBay.

With Second Rotation, you get rid of price uncertainty right away; we have a proprietary algorithm that determines what price we want to offer you and we’re going to tell you right away. We also get ride of time uncertainty. There is no auction. As soon as you send in a product, we will send a check to you. We also get rid of fraud uncertainty; on eBay you don’t know who’s going to end up buying and if they’re going to pay or not.

X: What’s another company you can talk about?

DB: A West Coast company called BlogHer. It’s a women’s blogging destination site. We’ve got a few dozen editorial women bloggers who blog on BlogHer.com. Then we have a conference series that is expanding into several conferences and meetups around the country. Then we have an advertising network as well, with 1,500 women bloggers who are blogging about everything from parenting to politics. And we provide both monetization for these bloggers and services which help them generate additional traffic and we exchange traffic throughout our publishing syndicate.

With BlogHer we had a destination site which had a couple hundred thousand uniques a month. But once we opened it up from 30 or 40 bloggers to 1,500 bloggers, and we were generating 8 million uniques on a monthly basis, that’s when you have that critical mass and that’s when advertisers really wake up and get excited. And the three founders are just great. Talk about authenticity. They still blog, because they are part of this community they helped create.

X: What about the mobile side? There’s tons of mobile application developers in this area and a pretty good number of mobile services companies of one variety or another. Are you excited about the local mobile space as a potential area for you?

DB: We are investors in uLocate and EveryPoint. I agree, I think there is actually a pretty rich ecosystem here. Mobile is often a challenging space because you have to deal with the carriers and with disparate devices. That being said, if you can crack those nuts, the opportunity is great. Ten years from now, we will all be carrying around this personal media device that’s more than just a mobile phone. It will always be connected, and all the information and connectivity you get out of your connected desktop or laptop, you will also be getting out of this device. The opportunity is tremendous.

X: I would argue that we’ve already got this always-on media device you’re talking about—it’s the iPhone. And Google’s Android mobile operating system looks like it is going to be just as good. Obviously there are some limitations to the iPhone, like it’s not 3G. But I don’t think it’s going to take 10 years—it’s almost here now.

DB: I agree, but I think what we’re seeing now is still just a glimmer. I think it will take a little while to play out.

X: Recently an increasing number of venture firms seem to be getting involved in these really early stage investments or grants. Sometimes they’ll pool with another firm and create a fund like the iFund for iPhone app developers, handing out small to medium size investments. It seems like there is increasing attention to the need for investments that would seem really minor on the scale of things, from the traditional venture point of view, just to help entrepreneurs test ideas and move them closer to being investable. Do you guys watch that, and do you feel it’s important to be involved?

DB: Especially on the digital media side, the capital requirements for launching a company are increasingly small. The ability for an entrepreneur to experiment and see if he can get some consumer traction or paying customers is a lot lower than it was 10 years ago. If entrepreneurs can get investments that are commensurate with what their real needs are, I think that’s great. You see that manifesting with Paul Graham’s thing [Y Combinator], getting people together for a summer or a winter. It doesn’t take a lot of capital; it’s more about the intellectual capital.

At Venrock, especially in the last two years, we’ve made a number of seed investments. I think you wrote about RightsAgent—that’s one we’ve been incubating here internally. And then we’ve done a couple of others on the West Coast. For us, it’s trying to figure out what’s the right amount of capital for what the companies need.

X: I’m assuming that given everyone’s limitations on time, you just can’t afford to do business if you’re going to invest less than a couple million on an equity basis.

DB: You hit the nail on the head. The most important limiting factor is time, it’s not money. It’s trying to figure out what are the opportunities which have the possibilities for bigger exits down the line. We worry less about how much we can put into the company. We worry more about, is it a big idea. Does this company have a glimmer of greatness. That’s the lens we look through.

We’re still trying to figure out the right way to engage with these early companies. Is it getting involved with them on an equity basis right away, or should they be raising money from angel investors and if they want to expand from there, going to the VC community? We’ve seen companies go all routes. But I think there is still a need for venture along the way. While the initial requirements to start a company are lower, I don’t think the capital requirements to build a real sustainable entity have gone down.

X: Is there any news we should be watching out for from Venrock? Are you working on a sixth fund? Any changes of direction?

DB: No, last year was the big year, when we launched the most recent fund and brought a lot of people on to do this digital media effort. There will be more news in 2008 about the things we’re doing in the digital media space. We just launched a fund in Southern California with the William Morris Agency, Accel, and AT&T looking for digital media properties in that region. [For details see this VentureBeat article.] That’s just one example. We have more things coming.

Update 3/28/08 11:30 am: Beisel has sent in a few more examples of funding events and acquisitions among companies that presented at the Web Innovators Group:

If you know of other companies that won funding or found purchasers after presenting at Web Inno, let us know by leaving a comment below.

Wade Roush is a contributing editor at Xconomy. Follow @wroush

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