Entrepreneurs vs. VCs

I caught the tail end of SXSWi (showed up yesterday and gave a speech sponsored by the Canadian Consulate) and am hanging around today for some night time music entertainment as the music part of SXSW. It’s pretty cool to watch Austin shift from “nerds” (the SXSWi gang) to “hipsters” (the SXSW music gang); while the music scene is not my thing (I’m a nerd), it’s highly entertaining to observe this species in action.

On Monday night I co-hosted a meeting at the Governor’s Mansion in Denver with a group of about 20 significant Colorado entrepreneurs (and a few academics, government people, the Governor and State CIO, one other VC, and two CxO’s of a large Denver-based “ICT” company).  The discussion was around ICT in Colorado and our local entrepreneurial ecosystem.  I’ve long believed that the entrepreneurs are the motive force behind all entrepreneurial ecosystems – not the VCs, the other service providers, the government, or anyone else.  It might be a tautology (e.g. “entrepreneurs drive the entrepreneurial ecosystem”) but I regularly hear people – including very smart and experienced ones – assert other things such as overstating the importance of the presence of VCs to the entrepreneurial ecosystem.

My experience with TechStars has given me a set of great insights into the notions of entrepreneurial communities and how they develop, evolve, and sustain themselves.  I’m heading over to Capital Factory this afternoon to talk to the guys there about what they are doing (a similar type of seed stage mentoring program that is running their first year in Austin this summer).  When wandering around SXSW yesterday, I saw floods of techies and entrepreneurs – nary a VC in sight.

When I think about who I spend most of my time with, it’s entrepreneurs.  When I think about who really drives innovation, it’s entrepreneurs.  When I think about the core of any entrepreneurial community (or ecosystem, or whatever you want to call it), it’s entrepreneurs.  When I think about the history (and future) of innovation in the US, it’s all about entrepreneurs.

Last fall I read Spencer Ante’s fantastic book Creative Capital: Georges Doriot and the Birth of Venture Capital.  It’s been bouncing around in my mind as I ponder my view of the role of the VC in the entrepreneurial ecosystem, especially as all the noise has started circulating again about the inevitable change / re-invention of the VC industry. 

VC’s play a role in all of this, but it’s one that I regularly feel is dramatically overstated, misrepresented (including by many VCs) and misunderstood.  We provide different resources and value than lawyers, accountants, investment bankers, and PR and marketing firms, but we are still simply one of the inputs into the entrepreneur ecosystem.

I’m sure I’ll have more to say about this as I continue to think out loud on my blog about the dynamics of “entrepreneurial communities.”  As always, feel free to challenge me about anything as I play around with these ideas in public.

  • “Quality of place” is a dynamite phrase.  I expect I will use it plenty – thanks for offering it up.  Yes – I believe that quality of place (and life, and goals, and style) are critically important.  If your entrepreneurs bolt when they make $10m, or disengage from the community, that’s a long term issue in terms of sustaining the entrepreneurial community.  One of the magnificent things about a place like Boulder is that once someone shows up, they almost never want to leave (I run into a few people a year that are ho-hum on Boulder, but 99.9% of the people I know there would never live anywhere else.)  That makes a huge difference to the long term dynamics of the entrepreneurial community.

  • Sean


    It is interesting to read your take on the start-up scene here in Austin. My personal view from the trenches is that there is a ton of entrepreneurial activity going on here but up until recently we have lacked a highly visible "infrastructure" to support very early stage activity (vs wanting to raise a couple of million for a chip company). With the start of Capital Factory and some of the things the Austin Entrepreneur Networks is doing that is starting to change and the "infrastructure" is becoming more proactive and public about their activity.

    Hope you enjoy your visit.

  • Hi Brad,
    At Brightspark (http://www.brightspark.com), we are VC's and entrepreneurs. We divide our time between managing 2 VC funds and operating 3-4 startups directly.
    The biggest lesson I have learned isthat being a VC is all about money – even in early and seed stage. Being an entrepreneur is all about strategic decisions and prioritizing effort.
    I used to think that VCs were much more influential on non-financial activities until I went back to being a hands-on entrepreneur again.

  • Hey Brad,

    Sorry I missed you at SXSW, but hope you had fun in Austin!

    It's funny I had a number of conversations this year at SXSW about this as well. And was thinking about it a lot on the flight home – then read your post. One reaction …

    One thing I think I had under appreciated when talking about the need for 'entrepreneurs' previous to some conversations at the festival was the need for a region to be the type of place that the management teams of start ups want to live at after they have their first exit. These become your serial entrepreneurs, angels & mentors.

    On the one hand this is actually pretty obvious. (Maybe so obvious it's not worth mentioning)

    Yet, talking to people about the regions they perceived to be blossoming most it seemed a great predictor. For example, it was interesting to talk to some guys from DC who felt like most of their successful entrepreneurs left town after making money. (I don't know the DC market well enough to know if this is indeed true, but they certainly gave a number of examples.) On the other hand, it was interesting to see how many people from Austin & Boulder want to stay in that town.

    I don't know how you improve that beside being a cool place to live but it's interesting to think about 'quality of place' as important not just at a macro level for a region but specifically for building a good 'entrepreneurial ecosystem.'

    — Sean

  • I was with Brad on Monday night at the Governor's Mansion. Thanks Brad for co-hosting and for including me.

    As an entrepreneur, I like Brad's conclusion. I think there is a lot that revolves around the statement. A geography must earn a reputation for being a strong environment for start ups to thrive. Investors need to be confident that highly capable teams will form around ideas and leaders. What world-class domain expertise (e.g., software, telecom, green tech technology) is prevalent in a geography? Is there ample smart and creative talent to draw on? Does the geography's culture place value in start-ups and entrepreneurs? This is much more likely if there been success stories from within the geography.

    Colorado has a lot going for it, but work is required. In tomorrow's http://www.bearonbusiness.com post, I will discuss one area that Colorado has substantial domain expertise.

    I will also over the next few weeks write a couple other posts that provide my 2 cents on how Colorado can bolster its reputation as a great start-up community.

  • Great observation(s) Brad and Sean. I am in Austin too and I can vouch that the entrepreneurial spirit here is alive and well — venture folks are certainly not leading it, let alone visible.

    Given what we all saw at SXSW (e.g. BarCamp, as an example), the tools and people are in creative communities like Austin. It is now much more about whether you can attract/serve/retain customers. (This just in: it has ALWAYS been about the customer!)

    As long as the community is open to collaboration/partnering, VCs/Investment $$$ aren't necessarily needed. In fact, in my case, the ROI for pursuing them doesn't warrant taking my eye off of serving the customers I have queued up. Now, we all could use more seed/Angel investors and if anyone knows a great Ruby/Flex/PHP developer…

    Good luck to everyone and I hope you had a great time in Austin.


  • As some one who is trying to bootstrap my own efforts, I think VCs and entrenprenuers are both fairly integral to the ecosystem. I'm not a fan of the start up that needs 10mil to operate for a year, but sometimes bootstrapping isn't feasible, and outside money and guidance are needed. Enter the VC.

    It's been my (outsider) impression that VCs are more useful for insights and guidance than for money.

    Conversely, entrepreneurs dream the big dreams, think up the new things, without them, innovation doesn't happen or happens much slower.

    • VCs love the promulgate the impression that they are “value add” beyond money.  Some are; most aren’t.  The trick if, as an entrepreneur that decides to raise VC money, is to find the VCs that actually are and attract them to invest in your company.

  • I’m having a great time.  I grew up in Dallas so Austin is familiar, yet I don’t know it well enough to have a real perspective.  I was really tired yesterday when I showed up and had a giant energy uplift from all the folks hanging around.  I’ll learn plenty more today.

  • Tom Skelly

    Could not agree more. Entrepreneurs at all levels (ones that need vc's and ones that do not) drive every economy. Look at Iraq. Who started trading and getting the country back to stability? The men of the local outdoor market. Simple entrepreneurs doing simple things.

    Our ecomomy will driven will be restarted the same way.

  • Zoe Montalbano

    Hi Brad,

    Thanks for your post. I'm mostly a lurker, and I live in Boudler. My husband and I (and a partner) have an idea for a web biz we're really excited about, and we've debated about whether to present our idea to techstars or not. We think we can almost bootstrap it ourselves, though we're struggling to make ends meet. It could be much bigger and possibly better if we had financial help, but we're not sure it is worth the risk.

    Is there a chance we could talk to you to get your opinion on if we should even bother to submit to techstars?

    Thanks for your time,

    Zoe (with 2 boxer dogs I mentioned in a reply to your post about dog tags)

    in Boulder

    • Always happy to take a quick look and give you my reactions.  Just email me a short overview ([email protected])

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  • My thinking on this topic was influenced by McKinsey & Co's report (with the World Economic Forum) on what makes a region an innovation hub (http://whatmatters.mckinseydigital.com/innovation… The report analyzed 700 variables and summarized the results in “Building an Innovation Nation.” Despite the report’s title, I thought the principles could be applied to business and city regions as well. I wrote about it on my blog at: http://workingknowledge.com/blog/?p=106

    Phil Weiser and Brad Bernthal did a nice recap yesterday of your meeting at the Governor's Mansion and next steps. Many people around the conference table echoed your view on the importance of entrepreneurs. Entrepreneurial energy is a big driver and attracts other entrepreneurs. I'd like to add, however, that what I think makes Boulder stand out is the mentorship here, which people like you and David Cohen provide. The fact that budding entrepreneurs can have a coffee with folks like you and your colleagues means that your experiences and advice get shared and spread among the community. Everyone benefits from the insights you all share there and at events like the Boulder Denver Tech Meet-up, Silicon Flatirons, etc. So, perhaps you are downplaying the role of VCs from purely the financial aspect, but I wouldn't downplay VC's role in mentorship and cooperation in making the entrepreneurial ecosystem thrive.

  • Gary Rauchenecker

    As an accountant, I do not consider myself an entrepreneur, but I have found myself over recent years more deeply involved in the entrepreneurial world. Mr. Feld, we have not met, but I have heard your name many times through my involvement with Vcfo as a controller for Lijit Networks, Newmerix, and through other arenas.

    If I have anything of value to add here, it might only be a general observation that I think venture capitalists sometimes are not very knowledgable about the businesses they invest in, and for that reason don't always appreciate or are aware of the opportunities that might exist. Entrepreneurs I think bridge that gap and serve a critical role in educating others, especially in the current economic climate.

    Thanks for listening.

  • My own journey from engineer to entrepreneur occurred as my focus changed from solutions to value. I now find myself in that wonderful place with my finger on the pulse of customer needs and investor outcomes. Since VCs are members of the investment community, they naturally default to an "investment outcome" viewpoint. However, when things really click, VCs and customers both interact with me around value.

    In other words, when everything is working well, the entrepreneur and VC get caught-up in a virtuous cycle along with customers. Take away the VC, the entrepreneur, or the customer and the virtual cycle collapses.

  • Mark, while I generally agree, the “great VCs” often have huge impact on strategy and product.  They do it in a way that is supportive of the CEO / CTO / founders (rather than declarative – most VCs that say “this is what you should do” are clueless).  It’s subtle as the CEO should ultimately make all the calls on strategy and prioritizing effort – “great CEOs” also know how to reach out to their investors and board members and extract the appropriate help / feedback from them.

  • Good point.  My personal philosophy, after investing in some stuff in the 1999 – 2001 time period in stuff I knew very little about – was to stick to only investing in things I know about and care about. 

  • I was with Brad on Monday night at the Governor's Mansion. Thanks Brad for co-hosting and for including me.

    A geography's overall entrepreneurial culture and reputation are of significant importance. What is the talent pool? Are there track records of success that the new start-ups can draw on? What domain expertise resides in the area (e.g., telecom, green technology, etc.)?

    The reputation develops over many years and fortunately Colorado has a lot to build on. The front range also has a lot of work to do to enhance our reputation to where I (and Brad) would like it to be. Entrepreneurs, VCs, and others (such as local universities) need to collaborate.

    My blog is http://www.bearonbusiness.com will provide my perspective on this topic. Tomorrow, I will discuss the Front Range's important role in one important domain: telecom.

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  • kudos to you brad….for being so close to the entrepreneur and having a true vested interest in seeing all that you are associated with thrive and succeed. (duh). not all vc's are like that, esp from a full engagement standpoint. dont forget about the angels and micro-angels too who are out there working to seed ideas in hopes of one day they will reach a super-angel and vc funding level (need). it's pretty risky out there and entrepreneurs need to hear/be educated on all the good and bad stories…not to mention (the need for) a high degree of hand holding and mentoring…

  • Brad, I agree. Innovation needs to come from entrepreneurs. My last blog post covered this topic in response to Umair Haque's post where he attributed lack of innovation to VCs' investing habits.

  • Spoken like a true entrepreneur! Nice that you haven't forgotten your roots or the couragious ones!

  • Brad, this is a very important post. With the exception of the few investors that started out as successful entrepreneurs like yourself, and a few investors like John Doerr and Michael Moritz that were made to be great VCs, I think its obvious to say that the business of venture creation happens thanks to entrepreneurs. The reason that this is so is because to the true entrepreneur, it is a calling , an art, a path and often a way to change the world in small and big ways. To the investor it is often just a way to make money. I hate to say it, but many venture capitalists are venture capitalists because they dreamed of being entrepreneurs but did not have the vision or the courage to do so.

  • Dan

    Brad, next time we will have to make sure you make a greater portion of the interactive show. We were actually surprised to find few VCs attend some of the more pertinent panel discussions. We are happy that you enjoyed your Austin visit and similar to our syndication investment into Memeo, we would welcome the opportunity to syndicate another deal with Foundry, hopefully in Austin this time. Next Austin trip, lets connect. Dan – G-51

  • Ed Engler

    Great discussions here – thanks for fostering the conversation, Brad! As an entrepreneur turned VC it's interesting to think about both sides of the coin. My first reaction is that of course entrepreneurs drive the ecosystem. They are the irrationally exuberant ones that drive innovation into the virtually immovable status quo. VCs work at reducing risk and managing risk/reward ratios to maximize returns for LPs. If you consider that VCs fund only a very small percentage of companies it becomes clear that they play a pretty small role in the overall ecosystem. That said, they do play some important roles. First, they offer a lofty goal perhaps second only to a big exit that entrepreneurs set their sites on. Second, they provide a constant stream of entrepreneurs with (presumably valuable) feedback on their business plans. Lots of entrepreneurs are too focused on their technology and fail to focus on the financial aspects of their business: the value to their customers, their addressable market and how they will become sustainable by generating profits. VCs often serve to remind entrepreneurs of those facts of life even when they don't make an investment. Third, VCs act as important hubs of the community, connecting many different organizations to the companies they invest in. Lawyers and accountants play this role too, but no other service provider has the vested interest in their client's success that VCs do.

    In summary, you are quite right, Brad. VCs add important factors to the equation, but the entrepreneurs are clearly the engines of innovation that are at the heart of the ecosystem.

    Pittsburgh, PA

  • Rizwan Mallal

    VCs put fuel on entrepreneur's fire

  • Dug Song

    you're a geek, not a nerd. geeks get it done. nerds don't.

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