Duncan Davidson (Bullpen Capital): In Silicon Valley failure is a feature, not a bug.
04 Feb, 2022
George Spencer III is Founder and Senior Managing Director at Seyen Capital. He has over 30 years of experience in the venture capital industry. Before founding Seyen Capital in 2007, he spent seven years as a Partner at Adams Street Partners (“ASP”) where he helped to architect the spin-out from Brinson Partners. At ASP, he was a key player in the direct investing group as a lead IT investor. After leaving Adams Street Partners in late 2006, he continued to serve as a Senior Consultant to ASP, managing his prior investments with the firm. He was also a co-founder and Executive Member of JK&B Capital, a Chicago-based venture firm.
I got a job in venture capital in 1990, when I get out of Business School.
Yes, I work in VC since my Business School.
It was such a long time ago. I guess it’s, probably, that you have to rely on every single functional skill you have to be a good venture capitalist. And that’s what I really enjoy about it: some days you’re a strategy guy, some days you’re a marketing guy, some days you’re a sales guy, and some days – a financial guy.
It’s a way way more sophisticated world now than it was when I got into it. Entrepreneurs have a lot more information than they did at that point of time. I think, today the later-stage business is really institutionalized. The early-stage business is probably a lot closer to the same as it was before, but there are lots of people who try to institutionalize it as well, but that’s hard work: I don’t think that early-stage venture scales.
I think, data is going to become increasingly important in the world – there are lots and lots of new data being created by the Internet of Things. That data will help to create or to companies strategic value if they use it correctly. That’s one of the big things I’m working on right now.
The obvious one right now is work from home is an accepted means of work. There are specialists and skills that are really really hard to find now – data scientists or engineers. We are moving into a new world in terms of how we define culture and create stickiness amongst employees. That’s one of the new things that we’re going to deal with.
I have a lot of favourite ones. The favourite ones are really the ones where you do a lot of work and you end up being right. In most cases, they do require the most amount of work. One I remember was Cbeyond and that was a telephone business. I invested in them back in 2002/2003, when nobody would touch Telecom after the Dotcom Bubble burst. And that was a great deal and a lot of fun. The other one and comes to mind right off the top of my head is Borderfree, which was an Israeli company and they just moved to the United States. We had to really pivot it, we pulled it out. We grew the thing and took it public. But it was 3 or 4 years when I was going to Israel every 6 months.
I’m currently managing about $300M.
I usually think about reserving about the same amount I’ve invested in my initial round.
I keep doing what I’ve been doing so it seems to work. I’ve lost money once since 2001, and for the stage I’m investing that’s really good. I just tell entrepreneurs that I’m going to use my playbook of how to build these businesses and that I’m here to help them make money. It doesn’t mean that we’re always going to agree and it doesn’t mean that at some point I’m not going to take them off my shoulders and say that it’s time for them to play the third base.
The best deals I got are either my past entrepreneurs or referral from my past entrepreneurs. It may be somebody like the VP of Sales in a company who’s now the CEO of a new startup. I just found a company called Hucu.ai, the co-founder of which, Laura McKee, was founding CEO of Autism Home Support Services that I’ve supported earlier. Those are the best ones on my mind.
We typically invest in 2 or 3 deals a year. I don’t even count how many pitches I see, because I know what I’m working for and just turn down things we’re not interested in instantly.
We typically invest in what I call the Venture/Growth stage when a company has developed its product and has its first handful of customers.
Somewhere between $750K and $1.5M and double that over the life of the company.
Definitely, the United States, but we’re trying to stay out of the Bay area and out of the West Coast.
I invest in Software and Information Technology related businesses. We did a lot of work in and around Data which I talked about earlier. Also in and around Healthcare, in sort of what’s going on in Healthcare right now and it’s a kind of alignment of risk and helping produce higher quality of health care for a lower price.
We’re looking whether there is a unique value proposition, whether it is a degree of technology, a big market, nice tailwind in the market that you’re in helps a lot. And we’re really looking at the team, at their desire to build that business.
You have to fit it to the size. The deals I typically looking at are $1M away from friends and family financing to get the product to market. Then I raise Series A at around $3M. And we go from there.
I want to see a couple of customers: I want to be able to understand the value proposition, I want to be able to talk to customers and ask how strategic the value is, how big the problem is – that kind of stuff.
I’m looking for someone who’s got a combination of domain expertise, technical expertise, and sales skills.
Neither of them, frankly. I think, Steve Jobs was really hard to work with. I don’t think you could work with Steve Jobs: I think you just give him the money and get out of the way.
My red flags would include people who consistently lost money and those whom I won’t consider as serious people. I don’t invest, for example, in kids right out of college, who didn’t have any previous job. Also, I wouldn’t support people who switch jobs every 2 or 3 years.
I’m not super hands-on. I work with them on building a team, strategy, and financing.
The most common mistake is thinking about making money when the price is unrealistic.
When you raise money you should have at least 18 months of runway money. Startups fail when they run out of money, as simple as that.
My average return over the last 30+ years is 5x.
For our investments, it starts somewhere over 10% and ends up in the high single digits.
We definitely rejected some startups that became successful later, as any other VC firm.
I would say, Amazon, Genentech, and, probably, Intel.
How about Theranos?
I’m just going to go to my own set of entrepreneurs and name Jim Geiger, founder of Cbeyond, who’s gone on to do another deal after that. And Mark Fowler, the founder of Unisite and PowerFone before that. I’ll go with these two.
I just love the battle! You go to a war with these guys, with every company. It’s always different.
Probably, it’s the team-building thing. And when it’s time to transition from CEO to another role, that’s a real challenge.
You have to be a good listener. You have to have good guts and be able to see things before they are on a spreadsheet. You need to read people and understand if a sales guy is good in sales or an engineer is good in things he does, and if they are not, you need to move quickly. You need to be able to draw a line with one data point.
Founders are really really special kinds of animals and it’s really discontinuous function – getting a business off the ground. Successful founders are able to cross the chasm if you will.
I read a lot. I read The Wall Street Journal, The New York Times, and 2 or 3 local papers.
Crossing the Chasm by Geoffrey Moore is the Bible.
It’s Monopoly. It’s really a matter of knowing when to roll a dice and when not. When you are involved with so many companies, you need sometimes understand that this or that one won’t be that huge, so you’d better not to raise, say, the next $50M and just sell it. It’s like Kenny Rogers’ song, “You need to know when to hold ’em, know when to fold ’em” (“The Gambler”), that’s all.
I think a lot of managers would learn how to capitalize on data.
Have a big vision. Never quit, but understand the steps to execute along the way what you gonna do.
I want to be either with The Trashmen or play for Dallas Cowboys.