Jeff Bussgang of Flybridge Capital and author of Mastering the VC Game

Welcome, everyone. This is Carlos from seedcamp. I'm in the offices of Jeffrey Busgang, who is the author of Mastering the VC Game and who's a general partner at flybridge Capital Partners, based in Boston. And this is an exciting chat to have because it's rare that I ever have a chance to talk to an author about the thoughts and processes that went behind coming up with a book. And, and for those of you that have the book, you probably already know the structure of it, but for those of you that don't, I'm just going to read a little bit of the table of contents so you know what the topics are, and then we'll hopefully get Jeff to give his views for each one of those. So he starts off with the first section, being around the intrapreneurial itch. And in it he really does talk about what has driven him in his years as an intrapreneur before he became a vc and what in his views, an entrepreneur is really searching for and some of the challenges that he identifies at the scaling point. Then he talks a little bit about the VC club in a subsequent chapter about the profiles of how funds work and all the elements of them, and he profiles some of the VCs there. Then he talks about pitching. He talks later in chapter four about making and picking and choosing the right deal. Then it goes on to how to manage the issues within a company, the board of directors, and avert a fall from grace. Then there's the whole discussion about exiting, which we might be able to explore in light of some of the difficulties that foreign markets have in that sector. And then lastly, we talk about the. The export that is venture capital to the rest of the world. So that's, in summary, roughly the structure of the book. And I would love to maybe start from the very beginning, Jeff, if you could give your sort of firsthand views on that journey that you felt in Chinatown in top of a smelly restaurant, that really made you fall in love with entrepreneurship.

Sure. Well, as I said in the book, I was born to be an entrepreneur. My dad was an entrepreneur. He was an immigrant Holocaust survivor, came to the US after the end of the war and armed with a Ph.D. started his own company, even though he had no background in entrepreneurship, even though he was an immigrant who spoke English imperfectly, and even though there was no venture capital industry at the time that he started his business in the early 1960s. And so that's the kitchen table MBA that I received. And so I've been in love with technology and entrepreneurship from the very beginning.

And then that transition to a point where you took your first experience and you narrate it in your book, maybe you can add a little bit more color of what it was like working in an environment that Chinese food and barking dogs.

Sure, yeah. The description I talk about, as you point out, is when you're starting a company, you're in this very humble environment. You're in your basement, you're in your. In one case, I was one company I started, I did it out of my partner's house. I was in the hallway outside the bathroom. We had the engineering team in one of the master bedrooms, spare master bedrooms. The business development team was in the kitchen. The Chinese food example you give is that another startup that I worked in. It was right above a Chinese food restaurant. The smell was unbelievable. It was awful and delicious at the same time. Revolting and strangely attractive. And people brought their dogs to work. And so I'm on the phone with the CIO of a multi billion dollar financial services industry trying to convince him to buy our software and a six figure contract and there's a dog barking in the background and there's a frayed rug at my feet and people are in their shorts and flip flops walking around. So that's just the world of startups and it's a world I love.

Yeah. And it's a great anecdote about probably the same feeling that people are having. And in that chapter you talk about that itch and that itch as a possibility as to why sometimes people don't stick around for when the company starts scaling. Maybe you can give us some of your views as to when does that itch start fading and the desire for something new to come up, like when did that happen happen for you? Because you made a couple of transitions from open market.

Yes. I often think of three lives in the journey of a startup. The first is when you're in the jungle and there are no clear paths and you've got a machete and you're hacking your way. And it takes a lot of creativity and entrepreneurial skill and really passion for finding a path. The second phase is when you're on the dirt road. The path is relatively clear, everybody's pointing in the same direction. And now it's just a question of optimizing your speed and making it more and more efficient. And there's still plenty of potholes and muddy spots and routes to jump over, but the dirt path is relatively clear. Then the third phase of the company's life is the highway and in the highway, it's all about efficiency and speed and continuing to improve your processes. And there are some people who love to be in the dirt road and who are awesome at it, and there are some people who love to be in the jungle and who are awesome at it. But people who are awesome at the jungle tend to be awful on the highway. And so when you're in a company and you find yourself in an environment where the things that they're focused on and the things that calibrate need to be calibrated for the sake of success are no longer the things that you love doing, it's a natural time to think about getting off and moving into a new environment.

And you did that?

I did that personally a couple of times. I've been an executive team member of three startups and at each time I love company inception. I love strategy.

It's probably why you like the jungle.

I like the jungle. And I eventually became an early stage investor. And the dirt road is fun and I have no interest in the highway. And so for me, when a company got to the point as my company opened market, we were public for four years. I'd been an executive team member. We had scaled over about 100 million of revenue and quarterly reports and earnings and dealing with all the things that a public company has to deal with. Eventually. It was interesting and fun and stimulating and I learned a tremendous amount. But eventually I decided it wasn't what I love doing. And the opportunity to start a new company in this case, you promise with my partner and out of his house, was a very appealing opportunity.

So it's given you quite a good insight into what determines a really awesome jungle and road founder. And I know that from the times we visited you before that you have actually this list of the attributes that you look for in those kinds of founders early stage. And I have them in front of me, but actually would be amazing if we could hear them straight from you, kind of. What are those attributes that you really look for?

Sure. And these are attributes that my partners and I have developed, so I can't take credit for them. We've developed them over many years of investing and working with entrepreneurs, as well as our own entrepreneurial experience. And when we meet entrepreneurs, we think about these things as we are evaluating the opportunity to invest in them and their chances of success. The first we refer to as the Pied Piper and the Pied Piper skill is the ability to attract people to you even though you have nothing of substance yet to attract them with whether that's attracting employees, partners, customers, investors. Pied Pipers are able to be magnetic in their ability to bring people along with their vision. You don't necessarily need to be charismatic and promotional or wildly extroverted. Some very sophisticated, skilled Pied Pipers are very introverted technical people, for example, who are just wonderful and substantive and endearing that people so endearing that people want to follow them. The second aspect that we look for is vision and the ability to see around corners, the ability to see things that other people don't see in an industry. Entrepreneurship is all about disruption, and it's very hard to be disruptive if you don't have vision and insight. The third attribute that we look at is domain experience. We have found over time that outsiders can be very effective in disrupting industries. But they have to have some angle, some domain experience that gives them the specific knowledge that allows them to disrupt an existing industry. So we love entrepreneurs who have been living in an industry for many years and, and then are looking to disrupt that industry. You introduced me to an entrepreneur today who is disrupting the trucking industry and his mother owns a trucking company. So he grew up in the trucking industry, literally, and now as a young, technically savvy entrepreneur, he wants to disrupt that industry. That's a fantastic set of characters.

Do you feel obliged to plug the company truck. Truck now?

Exactly, you bet. The next attribute that we look for is executional skills. And there are a lot of people who have wonderful visions, but have no ability to turn those visions into companies that are valuable. And so the ability to actually manifest that vision into a product, to hire a team, to raise capital, to build a sales force, to work with customers, that skill is a very rare skill to find in combination with the other skills. And when you find it, it's truly magic. The next attribute is fundraising skills. We have over the years observed that those that are skilled at fundraising are able to be more successful. It sounds very simple, but when you evaluate an entrepreneur, sometimes you think only about their technical skills, their intelligence, their team building skills. You don't think, can this person actually raise money? Will they be good and effective at raising the necessary capital to take this company end to end? Most of these companies take tens of millions, if not hundreds of millions of dollars of capital. And if you're not effective at meeting with investors, inspiring them, and doing all the things you need to do to get through the diligence process, both at the early stage and at the later stage, then you probably won't be a successful leader. I think Those are the main ones. I may be missing one or two.

No, I think that's.

But I think those are the main ones that we look at. And we literally, and I've told this to you and some people are surprised at this, but we literally a few times a year in our off sites as a partnership, we sit down and we look at all of the companies in our portfolio and all of the CEOs and entrepreneurs and we rank them across those skills and it helps clarify for us where we need to complement them. Because if someone is brilliant at vision but weak on execution, well, then we can find for them an execution partner. If someone is brilliant on execution but weak on domain knowledge, well then perhaps we can help them hire someone from the domain. So the mix of skills and the teams is just as important as the individual.

One of the things that you talk about in your book is the job of the vc and you've kind of somewhat touched upon it right now in terms of what you do internally. But it sounds like also you perhaps coach founders. It sounded from the example you just gave that in that case it was perhaps about hiring people to supplement a CEO. But I'd love to hear how you go through the process of coaching. And actually that was one of the questions the founders had was what's the coaching plan for CEOs, how do you train them? Because one thing is to say, look, you're uncoachable effectively. We're going to live with your pros and cons and we're going to bring this other person in who's going to compliment you, that's fine. And at least most people, if they're self aware enough, will be like, yeah, okay, I get why that's useful. But then there's the second part of it. It's like actually this person might actually have the potential. We just need to bring it out in them. How do you guys go about doing that?

Well, first, the principle I would establish is that startup success is a very people dependent business. It is also the case that when companies grow, the individuals grow with those companies. It's an incredibly intense experience and transformative experience to run a startup. I've lived through it myself and I've worked with many, many entrepreneurs that have lived through it themselves. It is incredibly transformative. And so it's not that we are evaluating an individual at any point in time, it is that we are working with individuals over the course of time to help them grow, to become the best entrepreneurs they can be and the best CEOs and leaders they can be for that company at that moment. This morning as an example, I was talking to one of my CEOs who is running a 300 person company and we were talking about organizational design and structure in anticipation of a thousand person company. And that's the kind of coaching that is relevant today. Whereas five years ago he and I were talking about how to get the first customer on board and how to position the product and be effective in the market from, from a competitive differentiation standpoint. So the coaching elements change as the company changes and as the needs change. And yes, from my standpoint and from my partners at Flybridge, we're very focused on coaching and nurturing and supporting the entrepreneur from seed to scale. That's what we do. Some other firms do it as well, but it's relatively unusual in my experience as both an entrepreneur and a vc. But that's really what we're focused on. So the coaching, it depends on the priorities at that moment in time. It takes into account the fact that things will change, the individuals will change and grow, the situations will change and it's bringing the best resources to help that individual at any moment in time. If they need help with go to market, then we surround them with people who are experts at sales, operations and inbound marketing. If they need help with product design, then we bring experts on UI UX design. If they need help with fundraising for the next round of financing, then we try to bring some expertise around that. And the goal that I have as the partner and board member is to be enough of a generalist, like a general practitioner where I can help them diagnose the problems and where necessary, bring in specialists to help supplement the conversation.

Yeah, it sounds like you and I have a very similar job. But I think one of the challenges that I'd like to hear how you manage is that Rolodex of people. Would you say that in the section in VCs, how much time do you spend in sort of building a Rolodex of product people, HR people and understanding truly kind of the different stages that those people are best qualified? Because should a founder expect that a high value ad investor should should be able to say, you know what, you're at this stage, here's this guy and really rely on the investor to do that for them.

I think founders should have extremely high expectations of their investors, just as investors have extremely high expectations of founders. Every investor walks into a company and writes a check and expects to get 5x10x20x out of that founder. In turn, the founder should Expect to get 20x of of value from that investor. They should expect that investor to know when and anticipate when they need what help and to bring that help to bear in as efficient a way as possible. When we survey the entrepreneurs that we work with and we run our business like a business, we evaluate our brand, we evaluate the flybridge values, we talk about the services that we provide to our portfolio companies because we are in the business of providing a service, an unusual service because it comes with money in exchange for equity. But effectively we're service providers. When we do those things, we try to figure out and think and listen very carefully what do the founders need? And one of the things they need most is access to people, to partners, to customers, to experts. And so yes, we work very hard to build our network as a partnership to provide that access. And they also need help with prioritization. And I think that's the other thing that is very important about our job is to help the founders focus. Many founders, there's way too much to do when you start a company, the world is an incredibly defocusing world, very interrupt driven, barrage of information, social media, what have you. And so for a founder in those earliest days, the power of focus is an incredibly important power. And as investors, we should be not distracting our entrepreneurs, but we should be helping them focus and helping them clarify what are the few things they need to do really well at that moment in time.

So the next question is a bit controversial still in that same spirit, but controversial because sometimes you hit a wall, right? As an investor talking or a founder talking to an investor both ways it can happen that you hit a wall. And I want to pick on a specific wall and the wall of you as an experienced investor speaking with a founder, where that founder may or may not necessarily be aware of the limitations that they've hit. And you know, you've tried your best in terms of putting them with the right people. Maybe those people came back with feedback saying, hey, look, this person is just really struggling with this particular issue of management. Perhaps it's conversations you've had that have hit a wall and you realize that that founder is beyond their depth and that could really use bringing somebody more senior on board. How, how do you manage those conversations? Are you philosophically of the view that it's impossible to have those kinds of conversations? Just curious if you have any interesting anecdotes to share there.

So those are conversations we have all the time. And as I said earlier, because companies change, founders change, people change, and the demands may not match the skills at certain points in time. The thing that is most critical for me in those situations is to establish up front before you get into trouble, when you're still in the honeymoon period, when you're deciding to work together. How are we going to work together? How are we going to have those conversations? Let's give each other permission to be very direct with each other and let's think through what the solutions will be before we get to that point. So, for example, I had an entrepreneur that I invested in where I said to him, I think you're going to be awesome from now for the foreseeable future, but at some point when you get to say, $10 million in revenue, I don't know if you're still going to be an awesome CEO. You've never been at that scale company, you've never led that scale of a company. And so at some point we may have the conversation where it's clear you're no longer the best person to run a $10 million company and take it to 100 million. And when we have that conversation, I'll do it directly. Honestly, I'm not going to go behind your back. I'm not going to do it in a way that erodes trust. But we'll have that conversation and we'll decide together what's the right thing to do. And if you have that, when there's no tension before you begin to work together, when you're in the honeymoon period, it's a much easier conversation. When you're in the thick of the problem and you can refer back to that foundational element, it's a much easier path of a solution.

But does that just trigger alarms for the founder though? Because although the way that was phrased was very much the most open and transparent ways of phrasing it, is it intrinsically that that kind of founder, the one who's good at the jungle, who's good at the road, is going to come back to you and say, hey, wait a second, you're already questioning my ability to get there. I actually don't know if I like that. And you know, has anybody ever reacted in a negative way where, where it creates a downward spiral during that honeymoon period?

It's definitely the case that some founders can be very defensive or protective or even power hungry or control focused. And if we find that, I'd rather learn that before investing than after. Because any founder that's not open minded and open to having a mature conversation around that topic and around any topic, boy, it's Going to get only worse. I mean, when you're a founder, when you're running these companies, you get a lot of good news, you get a lot of bad news, People quit on you, you miss quarters, you miss numbers, deals fall through. Those are very, very sensitive emotional situations. And if I can't have a direct conversation with the founder about those situations when I'm in the thick of it, it's not going to be a good relationship for the long term. So what I typically find is, again, I'm not going to invest in someone if I don't believe in them. But what I typically find is that if I lay the groundwork for how the relationship will play out and what our mutual expectations should be, then it's a good foundation for the future.

And yay, Boston traffic. I don't know if you guys could hear that, but there was a big horn in the background. All right, if we kind of follow that train of thought, how about cases where you've successfully brought in somebody to be above a founder at some point in the growth of the company? What's that played out like? I mean, obviously it sounds like you've already had pre buy in, so at least it wasn't a surprise. But what are the key factors that you have found whenever you had to supplement somebody, either at the peer level or somebody who helped grow the company whilst the founder was still involved? What has been the attributes that you've seen that have guaranteed the success of that outcome?

The best outcome is when the founder is involved in that process and where they own that process, where they, as I like to put it, where they're ahead of me or ahead of the board on that process. So a founder will come to me and say, hey, Jeff, I feel like it's time, let's work together to find someone who can run the company. And here's what I want to do. I want to focus on product, I want to focus on technology. I want to focus on this particular strategic area that's the best situation. And then we together go find someone who they would respect and appreciate as their boss. Hiring your boss is a very difficult thing to do. Turning your baby over to someone else is a very difficult thing to do. I'm in the middle of that right now. We just brought on a new CEO into one of my companies, where the founder said to me, it's time. I know that we're now at a complexity, and this is a company that's 400, 500 people. And he started this company from scratch with his partner in their apartment. And he said, I know that I'm not optimizing the operational excellence of this company. And at first you think, well, can you bring a COO in place, can you bring a head of operations or a president and whatnot? But at some point in time the founder has to realize, this is what I'm good at and this is what the business needs and where's the match? And so that's an outcome that again is very common. The best outcome is if the foundation founder can go end to end. It's very, very unusual for a founder to go end to end, but that's always the best outcome if they can grow as rapidly and evolve with the.

Business taking a slight tack. The founders asked me another question and it was actually ironic that the last chapter in your book has to do with the international scene in Europe. And one of the things that came up was really around what is it going to take for more US investors? And maybe you want to speak on a sort of broad capacity or on a very specific vibrance capacity, but what is it going to take for more investments in European founders so that you feel like the communication challenges of being in different time zones and different distances is no longer an issue? What, what's it going to take?

Well, there are two things I would observe on that. One is that early stage venture capitalists like to be near their founders. As I described earlier, it's a very people intensive business and coaching intensive business. And I'm going to be a more effective coach if I'm near you than 3,000 miles away. You need to be close to your source of early stage capital. If you're a European founder, that means you need to find find European seed and series A investors that you love that can help you scale, that can lay the groundwork for a very successful company. Or you need to come to the US the best early stage investors are, I won't say the only great early stage investors, but some of the best early stage investors are in the US and it's a big market. And so if you want to come to pursue the big market and work with those investors, you need to come to the US you can leave your R and D team behind, but you need to come to the US or find great investors in Europe and scale and then get to the point where your metrics are so good, your leadership is so obvious, you can fly to the US and get the money and go home. The relationship with later stage investors is very different than with early stage investors. You don't need to have the same intensity and proximity. So I'll give you one example. In our portfolio is apiary, which you know is a check. Founded company out of Prague, and the founder came to the US and sought us out after he initially raised some seed capital in the Czech Republic. And we said to him, jacob, you need to come to the us you can pick New York, Boston, San Francisco, but you need to pick one. And if you are able to do that, leave the R and D team behind. We'll back you. And we did. I think Jacob has learned over time, and he's made the company transition and it's becoming a very successful company. But over time, it's harder to do that than people think. It takes longer. Your hiring effectiveness is slower. Your ability to connect with partners takes time. Every transition we've made, and we've made some from Israel, we've made some from Europe, the founders find it takes longer to make those transitions and adjustments than they thought, and therefore do it sooner. Do it as soon as you can, because it's only harder later on.

Yeah, no, fair point. Well, I want to give you an opportunity to wrap up with our traditional method of wrapping up, which is you get to shamelessly plug anything you want.

Well, great. Well, if you're a fantastic founder, then flybridge Capital wants to hear about you. If you're interested more about venture capital, you can read my book, Mastering the VC Game. And I also have a blog that's quite active on the topic of startups and venture capital, which is seeingbothsides. Com.

Excellent. Thanks, Jeff. Until next time, guys. Bye.

Thank you.