The Changing Face of Boston VC: A Chat With NextView Ventures’ David Beisel

2/24/11Follow @gthuang

I have glimpsed the future of Boston venture capital—one possible future, anyway—and it looks a bit like David Beisel. He’s kind of an unassuming guy, but those are the ones you have to watch because they can make big things happen.

Traditional VCs might scoff at the notion that so-called micro-VCs or “super angels”—earlier-stage, smaller investors—are disruptive to their industry. But they ignore people like Beisel at their peril. He might not admit it either, but Beisel and his partners, Rob Go and Lee Hower, are looking to turn the Boston tech VC scene on its head. How? By investing in promising seed-stage Internet companies through their young micro-VC firm, NextView Ventures. Whether you think they’ll succeed or fail, the NextView plan is to do it in a way that is more in-the-trenches and, frankly, shrewder than other approaches.

NextView Ventures started last summer and was quiet for half a year before talking to the press last month. The firm is in the process of raising a fund, reportedly in the $15-$20 million range, and has made 10 investments so far (one deal is an undisclosed company). Its most recently announced investment is in Hyperpublic, a New York startup focused on connecting people, places, and things locally. NextView’s other portfolio companies range from Swipely (social shopping) to Salescrunch (business software for sales managers) to Shareaholic (social Web discovery).

The micro-VC firm is focused on companies in the Boston-New York corridor, Beisel says. Of its nine announced investments, five started in the greater Boston area and four started in New York. In terms of deal size, NextView has mostly participated in seed-stage investments that were $500,000 to $1.5 million in total. (Beisel declined to say how much NextView itself has invested so far.) Its philosophy is different from the “spray and pray” strategy of some super angels and the “seed and cherry-pick” approach of some traditional VCs. “Each company is a true investment,” Beisel says. “We syndicate with other venture firms and micro-VCs. We look to proactively lead deals as well. We want to be aligned with the entrepreneur after the seed-stage round.”

While many tech startups are looking at the eventuality of being acquired for $50-100 million, he says, “we make our investments [with the goal] that they will become truly transformative companies and will pursue a venture scale opportunity.”

Here’s some more background on the partners. Beisel previously co-founded Sombasa Media, an e-mail marketing startup, and learned the VC ropes at Venrock and Masthead Venture Partners. Go was previously at eBay, Fidelity, and BzzAgent, and most recently worked at Spark Capital. Hower, for his part, came from the early days of PayPal and LinkedIn (watch for that IPO), and was most recently with Point Judith Capital. “We see Boston as an underserved market opportunity,” Beisel says.

Entrepreneurs and investors I’ve talked to say NextView is a welcome addition to the seed-stage ecosystem. They also point out that the firm needs to differentiate itself from the growing pack of angels and micro-VCs who are making earlier-stage investments in tech startups (such as Founder Collective, LaunchCapital, CommonAngels, and Project 11 Ventures). They say Beisel, Go, and Hower need to clearly articulate the unique expertise that each of them brings to the table.

Among the other challenges I’ve heard is that NextView has less manpower to find and evaluate startups as compared to larger angel networks or venture firms, and that its deals could be susceptible to the same “clubbiness” you might find at a traditional VC firm. Another issue, raised by skeptics, is how the partners will actually make money, given that their fund is small and the typical fee structure is to pay managing partners a small percentage of the fund annually (plus a percentage of the profits).

Beisel wouldn’t get into specifics of the firm’s expense structure. But he did say, “It isn’t radically different from traditional VC funds. In general, though, smaller funds like ours can provide for closer alignment between [general partners] and [limited partners and fund investors] given the stronger incentive towards capital gains rather than management fees.”

More broadly, Beisel acknowledges that NextView faces some of the same challenges as the overall VC industry—a weak IPO and acquisition market to provide exits, challenges in raising new funds from institutional investors, and so forth. But he contends that he and his partners have unique strengths. “We’ve been entrepreneurs, operators, and investors,” he says. “That mix is really unique in the Boston area.”

And, he says, NextView’s network is enhanced by having brought in an impressive stable of advisors: Niraj Shah and Steven Conine from CSN Stores, Mike Baker from DataXu and Enpocket, Brian Shin from Visible Measures, Nabeel Hyatt from Zynga (Conduit Labs), and David Cancel from Performable. What’s more, he says of his partners, “We’re all digital natives—we’re of the generation where we live and breathe and are embedded in this technology,” from both consumer and business standpoints.

In that regard, NextView strikes me as being more like a Silicon Valley seed-stage fund or super-angel group—one that has more Internet-focused experience than most traditional Boston angels. That said, these are young investors (all in their early 30s) who are raising their first fund together, so there is bound to be a learning curve. And it will take time to build up a track record as investors.

Indeed, it’s still very early in the micro-VC game, but I wanted to hear Beisel’s take on how the broader venture industry will evolve. There are two things going on, he says. One is that over the past decade, venture funds have gotten larger, while more recently mid-size VC firms have struggled to raise new funds. “But over the next 10 years, bigger firms will actually raise larger funds,” he says. At the same time, the other big trend is that young Internet startups need much less capital than they used to, as they can rely on pay-as-you-go cloud computing and other efficient infrastructure services.

Beisel thinks there will be an “emerging segment” of micro-VC that is “enduring” and will sit in a sweet spot between the various incubator and accelerator programs (like TechStars, Y Combinator, and MassChallenge) and big venture funds. And, for the record, he does think micro-VC is disruptive to traditional venture capital.

That being said, won’t successful micro-VCs just morph into big VCs down the road? Beisel didn’t exactly say no, but he replied, “We founded the firm to be the best micro-VC firm.” And he pointed out that in venture capital studies covering the last 30 years, “the earlier the stage, the higher the returns.”

More fundamentally, what Beisel’s firm represents is a relatively recent grass-roots approach to investing early in tech entrepreneurs—a strategy that many traditional VCs have adopted as well. “We’re embedded in this ecosystem. We’re not just participants, we’re contributors,” he says. “The days of pitching in Waltham are over.”

Gregory T. Huang is Xconomy's Deputy Editor, National IT Editor, and the Editor of Xconomy Boston. You can e-mail him at gthuang@xconomy.com or call him at 617-252-7323. Follow @gthuang

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