True Ventures Looks for Magic in the Crowd of Portfolio CEOs, Not Its Partners’ Brains
How do you run a venture capital fund with $378 million under management with just four full-time partners? San Francisco-based True Ventures, a six-year-old early stage investing firm, has found a way: you crowdsource a lot of the work of shepherding your investments to the group of portfolio company CEOs themselves.
You can’t go far in Silicon Valley without bumping into True—they’ve invested in Automattic (maker of WordPress), BrightRoll, GDGT, GigaOm, Meebo, Plancast, Sifteo, and a passel of other up-and-coming startups. I’ve spent a fair bit of time recently speaking with True Ventures partners and portfolio companies, and if there’s one thing that sets the Internet- and mobile-focused firm apart from other Bay Area VCs, it’s the strength of the community it has built by encouraging portfolio CEOs to turn to one other for help and advice. It sounds sappy, but at True, “community” is more than just a motto; it’s the business model.
Indeed, the community is such a key part of the firm’s strategy that the partners call it “the platform,” as if it were a key piece of infrastructure software. “We are very much about the platform,” Phil Black, one of the firm’s three founding partners, told me when I visited the firm’s Pier 38 offices recently. “We really want the community to be the experts. Our style of venture capital imitates the open source community in many respects.”
In practice, that means that many of the key strategic and tactical questions that come up during a startup’s crucial early years get referred to other True CEOs, rather than to the partners. If you were an executive at a company backed by a traditional venture firm and this happened to you a lot, you might feel a bit shortchanged. After all, the big Sand Hill Road venture firms are always boasting about how they provide “smart money” and how their partners’ hands-on experience building companies is as important as their capital.
But at True, the situation seems reversed. The firm doesn’t claim to offer a ton of hands-on experience from its partners—and the portfolio CEOs rave about it.
“The part that has probably made me the biggest fan is the platform,” says Alex Bard, CEO of customer support software maker Assistly, which obtained Series A funding from True Ventures in 2010. “They have made a huge investment in connecting all the companies they invest in, and we are all connected in a real-time way.”
Bard shares an example relating to a recent product update that Assistly wanted to publicize. “Historically we haven’t had a ton of success with PR and getting multiple outlets to write about us,” he says. “I sent an e-mail out to the True founders mailing list and said ‘Hey, could anybody spare 30 minutes to chat with me and my head of marketing about how to optimize around product launches.’ Within two hours I had seven CEOs of other companies calling to say they’d be happy to take us through how they were successful. It was priceless.”
True opened its doors in 2005 after Phil Black and Jon Burke, co-founders of a $5 million super-angel fund called Blacksmith Capital, connected with Jon Callaghan, who’d been Black’s colleague at Summit Partners back in the early 1990s. The trio thought there was a need for a 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 Google vice president Marissa Mayer. “When you get a whole bunch of talented founders in a room, they get to talk about the issues that are important to them and hear what other people are focused on,” says Black. “It could be issues around hiring, or how to deal with offshore production. We don’t want our companies to reinvent the wheel.”
Founder Camp has proved so popular that True is expanding on the concept this summer with True University, a two-day gathering on the UC Berkeley campus that’s open to employees of portfolio companies as well as founders. True will offer a curriculum of more than 40 courses in areas like “responsive Web design,” “change management,” and “hiring and firing,” all staffed by academic and business leaders such as Dan Ariely, Steve Blank, and Alexander Osterwalder, as well as True venture partners and CEOs. “Every VC firm has a CEO get-together kind of thing once a year,” says Assistly’s Bard. “It’s what True does in between those get-togethers—the True University they are building, and these other pieces heavily focused on the ongoing connection—that are an invaluable asset to us.”
Founder Camp, the Founder Portal, and True University are all the province of Shea Di Donna, a True vice president who’s been with the firm since the beginning. Says Black, “We have a dedicated person for founder services because the platform we have created is so hugely valuable to our founders, but also because [our founders] help us look at new investment opportunities, which ultimately delivers better results for our investors.”
Unlike some small venture firms—Emergence Capital, which I profiled last month, comes to mind—True doesn’t restrict itself to a single industry or investing thesis (aside from its focus on information technology). “We are a heavily people-driven shop—our belief is that great founders will take us into the best markets that are out there,” says Black. “Our founders are connected to really great people who have very good ideas, and once we make that connection, it tends to be in our sweet spot whether it’s consumer devices, media, or infrastructure.”
According to True portfolio CEOs, there’s one more benefit to the firm’s entrepreneur-centric philosophy: founders tend to work harder for the firm because there’s a perceived culture of autonomy and trust, with nobody peering over their shoulders. “If you think about a traditional venture fund, a partner writes a few very large checks, which means they have to be deeply involved in the business, which means the relationship feels much more like the investor is in control,” says PayNearMe’s Shader. “And by the way, if you are trying to build a huge, capital-intensive business, that’s the way you have to go—and there’s no beating the judgment of somebody like Bruce Dunlevie,” a general partner at renowned Menlo Park, CA-based VC firm Benchmark Capital. But at True, says Shader, “they are doing so many deals that nobody is afraid of that.”
Like many of its own portfolio companies, True is still so young that it’s hard to judge whether its platform is producing outsized returns. It has had a few exits— Playdom acquired Hive7, AOL acquired About.me and Sphere, VMware bought Socialcast, Jive Software acquired Filtrbox, and just yesterday, Alibaba subsidiary Vendio acquired True-backed SingleFeed. But True hasn’t yet experienced a Zynga-scale home run, the kind of acquisition or public offering that can reap an entire fund’s worth of profits. And the early-stage investing gap that True set out to fill back in 2005-2006 is a lot narrower these days, Black acknowledges, as firms like Union Square Ventures, First Round Capital, Felicis Ventures, and Floodgate Fund muscle in. “We felt like we were probably providing around 40 percent of the capital [for early stage tech companies] back in 2006, and now it’s a much smaller percentage,” he says.
But as long as it can keep bringing in talented entrepreneurs who are willing to go to bat for one another, True Ventures will retain its one unique feature, its communitarian culture. “True is bigger than any one individual rainmaker investor,” says Black. “When you get a whole bunch of experts in a room and they are able to exchange ideas, powerful and wonderful things happen.”