True Ventures Looks for Magic in the Crowd of Portfolio CEOs, Not Its Partners’ Brains
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new kind of firm to back tech companies introducing their first products. “The world was changing,” says Black. “The cost of starting a business was decreasing, but the amount of money on Sand Hill Road had increased dramatically,” meaning most firms didn’t have time for small early-stage investments.
“Our little angel fund had been doing [early stage investing] on a microcosmic basis, but we decided to create a new firm to focus on that segment of the market at full institutional scale,” says Black. “We wanted to raise a fund that was small enough that we could invest whatever size check the entrepreneur wanted, but large enough so that we could protect our position the whole way and be part of all the additional rounds of capital.”
What is that ideal size, by the way? True raised $165 million for its first fund and $214 million for its second. “I do think that fund size dictates what business you’re in as a VC, and the early stage venture business is best done at the $125 million to $250 million size,” says Black. Typically, he says, True invests during a company’s first round of capitalization, and puts in an average of $1 million in return for a 20 percent ownership stake. True’s two funds are large enough that the firm can afford to keep investing through follow-on rounds—in a $30 million Series D round, for example, True would need to ante up $6 million to keep its pro rata stake. “We certainly have the ability to have a $5 million to $10 million exposure to every company,” Black says.
But with only four general partners—Black, Burke, Callaghan, and veteran software product manager Puneet Agarwal, who joined in 2008—True has a lot of work on its hands servicing the 62 companies in its current portfolio. (Another 14 True-backed companies have been acquired, and four—Acai Solutions, Collecta, GigaLogix, and Headcase—have shut down.)
Part of the work is handled by True’s venture partners, who are all active executives at current or former True portfolio companies and spend about one day per week on firm business. This crew includes Tony Conrad, founder and CEO of About.me; Om Malik, founder of tech news site GigaOm; and Toni Schneider, CEO of Automattic. “The venture partners are vitally important,” says Black. “It’s not an adjunct position where you can phone it in; they’re the connective tissue between the VC entity and the entrepreneur community.”
But even with the venture partners’ help, True couldn’t stay on top of all its investments without invoking help from the CEOs at its portfolio companies. “They crowdsource a lot of the work that venture guys normally do themselves,” says Danny Shader, founder and CEO of PayNearMe, a True-backed startup that’s building a nationwide mobile payment system for the millions of people who have cell phones but don’t have credit cards or bank accounts.
The crowdsourcing takes several forms. One is the e-mail list from Alex Bard’s anecdote; Shader says he gets lots of questions via this list “because I am the old guy.” But that’s only the beginning. There’s also a private website called the True Founder Portal, and Founder Camp, a twice-yearly gathering of True company founders modeled after Tim O’Reilly’s FOO Camp. The private, day-long, off-the-record gatherings often feature appearances by Silicon Valley celebrities such as … Next Page »