Boris Wertz, Venture One Capital - Founder Journey Series, Episode 5

Today on Founder Journeys, we get a behind the scenes look into the world of venture capital. Today's guest is Boris Wirtz, founder of Version One Ventures. We get a look into how he himself built his fund, into what it is today, his own journey, and what makes Version One so successful.

Three, two, one.

Hey, what's up everyone? We're back at it again with another episode of Founder Journeys. Today is a person that's actually really special to me because he's been a mentor, but also inspiration for me and my journey. Boris Wirtz, one of the founding partners of Version One Early Stage Venture Capital Fund based in Vancouver and San Francisco. He is a very accomplished and successful entrepreneur in his own right. Boris, thank you for joining us and taking the time to share your wisdom with our audience.

Great, thanks for having me. Really looking forward to this.

I want to dive into the experiences that you've encountered to get you to where you are today, but also want to dive into the notion of building a venture fund. A lot of people are just mistaken or naive to think that a venture fund is just a glorified bank and you're full of money. But it is a very daunting task. I know because I've tried to build funds as well. Not as successful as you, but it is a challenge and it is a entrepreneurial journey of your own because you have to build the brand, you have to go raise money, you have to execute against the business plan and strategy. So let's rein it back, give our audience a little background about you, who you are, the companies that you've built and we'll kind of transition into talking more about Version One and that journey.

Sure, happy to. So it takes you back a little bit. About 20 years ago in 99 started back in Germany, that was Internet 1.0, a company called JustBooks, a marketplace for used rare out of print books. We sold that company after we built it up to Europe's market leader to Eight Books, a Canadian company in 2001 and I came over to become chief operating officer of the combined entity a year later. I thought I would stick around for a couple of years, go back to Germany and in contrary met my wife and the rest is history. Stayed with Eight Books. We built it up till we sold it to Amazon in 2008. So eight fantastic years of the early, early stages of trying to find product market fit and getting office ready, hiring the first employees to in the end co running a company of about 140 people, a quarter of a billion of transactional volume going through the marketplace. And so after that, I wasn't quite sure if I wanted to do another startup. So I thought I would try out the investing thing. So I took a lot of the proceeds I made from the Amazon sale and started investing in private companies and tech companies. First in Vancouver, then a little bit broader Pacific Northwest, then kind of across North America and developed a thesis, developed a track record. And then four years in, I really decided that I want to do it long term and started Version one venture as a proper institutional venture fund. We currently invest out of our third fund, which is a $57 million real estate fund. Really focus on SaaS, companies and marketplaces and merchant sectors like health care, energy and climate. And crypto.

Yeah, that's actually a really cool thing as well. You've got the Guide to Marketplaces, which is an awesome guide. It's kind of like a bible of how to build a marketplace. And it's revised almost every year. And there's always new insight. But you're also not afraid to jump into new emerging sectors like crypto and blockchain. I do want to take a step back and talk a little bit about that journey to flip from being the entrepreneur building a company to being the entrepreneur building a venture fund. There's a lot of misconceptions about VCs and what they do. Maybe to give our audience a little behind the scenes look at what it took to build version one into what it is today.

Yeah, I think it's a lot of people want to be VCs these days and want to launch a career in venture. And I would just say two things. I mean, the first one is the mindset of a VC is a very different one than the one of an entrepreneur. And I think being ready to kind of change the mindset and change the approach to things is crucial and what is really at the core of it. As an entrepreneur, you're the one that takes a decision. You're the one that drives the strategy, drives the vision, motivates people. And you're really kind of the player on the field. As an investor, you're the coach, you're not the player. And you can give advice, you can give guidance, but ultimately the players on the field execute on the division. And you have to be okay sitting on the sidelines and let other people take the decisions. And that's a really, really tough transition from entrepreneur to investor and kind of from an entrepreneur mindset to investor mindset. And I think everybody who wants to become an investor needs to be okay with that mindset, I think the second thing. So listen, investing looks easy is actually really, really tough. And it's an apprentice business that takes a long time to prove out you're, if you're actually good at it. Because feedback loops are not a quarter, they're not a year, they usually often a decade. And it takes a long time to show, to show yourself if you're any good at it, if you taking good investment decisions.

I read somewhere, actually, I think it was a tweet that came out today where somebody said it's easy to write checks, it's hard to really show an internal rate of return and you have obligations to limited partners that have invested in you to give them a return. And so I also see a lot of exit entrepreneurs that want to become VCs. I still have this belief that the best investors, especially at the early stage, seed stage, are exit entrepreneurs because they know how to build a business and not the investment bankers. A lot of them that get into the VC world really get dissuaded by year three or four because they realize they're managing other people's money and they have to be accountable to them. And there's a lot of reporting and other aspects of the business other than just living vicariously. Entrepreneurs.

Correct. Yeah. And as you said before, I think venture is also a business building exercise in itself. As you said before, you're building a brand, you're trying to get better at the investment decisions. You need to raise money from LPs, you need to report back to these LPs, you need to build your team and so on. So it's certainly an exercise in itself of building a business, but just the business of investing.

Like other founders and other entrepreneurs, you go through ups and downs. What are some of the challenges that VCs face? Tell us about struggles that VCs have.

Yeah, so I think on a few levels, the job kind of gets complicated and difficult. I mean, the first one is everybody going into investment business is trying to figure out what are the bets I should place, what are the companies I should invest in. And you develop a thesis only to see within a few years, once you found like you had a really good thesis, that actually it doesn't work out or it only partially works out. Right. And you start from scratch. It's like, oh my God, I just don't know anything anymore. And you start from scratch developing a thesis and trying to get conviction and you build it up again, this conviction, only to see that perhaps it's not going well. I think one of the real big challenges like investment success is a lot driven by luck. And the question, if you said yes or no to one company that then goes on to become a really big company can make or break your investment career. And it's at that moment not obvious if you should have said yes or no. And it kind of. It can certainly drive you crazy to look back at these decisions that like, oh, I should have said yes, why did I pass on this company? Or otherwise, why did I say yes to this company that didn't turn out to be. But often there's a lot of real luck involved, and that's really tough to reconcile with your own conviction and your own decision making.

I think.

The other really tough thing in B.C. is certainly it's a very. It's a category that gets a lot of media attention. Right. Has a lot of competition. And so you continuously in this virtual race with other VCs, other investors, to get into the best deals, to show investment progress, show returns to investors, and it's not like just silently in your corner building something, but it's a very public exercise of competing with other investors for kind of the best deals and the best entrepreneurs.

One of the conversations that's kind of sprung up quite a bit in these founder journeys that we've talked to other entrepreneurs is the glorification of raising money and how that's applauded. But it's just the beginning. Once you've raised money, it's, yeah, it's a great milestone. You convince somebody to invest in you, but you convinced them on a plan and a strategy. Now you have to go and execute against that. How do you, as a vc, work with the entrepreneur through that process and then hold them accountable? Like, okay, let me take you off of Cloud nine here and now you have to go and execute. Yeah, yeah.

I think I would even take a step further back and kind of. We often ask entrepreneurs that pitch us if they really think that actually raising venture capital is the right strategy for them. Venture capital is a real outlier business. We're trying to invest in companies that can become 50 or 60 or 70 times the money we invested, and that it's only possible if you have a runaway success in a really large space. And not every company can have that. The problem they're working on or the market they're in or the ambitions of the founders. That doesn't mean that these companies that shouldn't raise venture capital are bad companies. They actually can be great companies, they can be profitable and they can provide tons of joy and happiness for the founders as they build these companies. But they might just not be the best companies to raise venture capital. I think the first step is really to really decide for you as a founder, do I run a company? Do I want to run a company that actually becomes venture capital capital fundable or not? And again, there's many other ways to fund the company, fund companies, but you don't have to have venture capital. But obviously, once you raise venture capital, the expectations are high that you turn that capital into revenues and into growth and most likely into the next round of financing. And as you say, it's only a starting point and usually it doesn't get easier. I mean, there's just different challenges over time and higher ceilings to break through. And so it's kind of an ongoing, kind of real tough fight to kind of get to the next level, scale the company, grow the company and build something that is really generational, lasting.

And as you are working with an entrepreneur, you've made an investment. You said that you're more of a coach, sitting on the sidelines, working with them. How do you determine when to step in and when to help them or where they actually need coaching, or do you wait for them to come to you?

Yeah, I think it's a give and take. I mean, first of all, I think you need to be close to the business and to the founder and have a really good, trustworthy relationship to even understand what's on the founder's mind. Right. Generally, I feel the entrepreneurial journey is really a bunch of ups and downs. And us as investors should be partners that are not amplifying those moods and those mood swings and ups and downs, but actually help to steer in the other direction. So if founders are down because a product launch failed or you lost a big customer, et cetera, you're not the one that kind of screams and get nervous, etc. You really have to, at that moment, like, really cheerlead and point to the good things that they have achieved and trying to put them on the right track again. And if things go super well, then perhaps you have to be the one that points out what else we can do and where else we can improve. So I'm a big fan of kind of being a partner that doesn't amplify these ups and downs, but is kind of more, on the contrary, kind of tries to smooth them out.

And so that definitely requires a lot of open communication between you and the founders. And how do you. I know from talking to a lot of founders, they want to have positive relationship with their investors. But there is a stigmatism of I can't show weaknesses, I can't show signs of struggle with my investors. But we as investors know that. No, you want to see that because you never know how I might be able to help you or who I know that can get you through this problem without proper communication. So how do you Encourage your portfolio CEOs and founders to open those lines of communication to you?

Yeah, I think it's a few things. I mean, first of all, I think even in the investment making process we always get very honest and transparent feedback and are open discussing the questions we have with the founders we think about investing in. And I think if you get tremendous amount of pushback from a founder when you want to discuss these questions and you just never get straight answers, I think that's for us kind of a red flag for not investing, not wanting to invest, because we assume that we're not going to have honest discussions down the road either if we can't have it in the investment making process. So I think first of all, as a firm, I think we self select for founders that love getting feedback, love having open discussions and kind of honest exchange of ideas and concepts. I think the second thing is you continuously have to be close to the company, really understanding what's going on. Ask a lot of questions, don't be descriptive about what needs to be done, but rather ask what's on your mind, what keeps you up at night? What are you worried about? Are you happy with the current situation? What are the team members you love working with? Are there team members that kind of make you angry and you can't work with them? So I think you stay close and you ask a lot of questions versus just kind of describing what needs to be done and rather be that coach that is always there for them if they need any advice. And then last but not least, I think, and that's coming back to the backgrounds that some investors have. If you were a former entrepreneur like I was, I think you certainly have more empathy for the founder journey and can respond a little bit more authentically when they have run into problems because you've seen it before, you've been there before, you have the same challenges, the same problems, and you can not only recognize them a little bit earlier than the founder because you've seen them before, but you can also kind of give better advice and more empathetic advice.

And that kind of is a great segue into one of the topics that we've talked quite a bit on in These founder journeys is the taboo topics. It's very glorified to be an entrepreneur, but the reality is there's a lot of ups and downs, a lot of challenges. The entrepreneur journey is oftentimes a lonely one. And so you as a vc, you get a great reputation and obviously hindsight, I know a lot of things that you've done and how you treat entrepreneurs. But how is it that we don't need to go, and I don't want to talk about anybody specifically, but how do you detect when somebody is really struggling, whether at a mental level or a personal family level, and intervene or try to step in to support them through that? Because those are personal things a lot of people don't talk about. But we all know it's like found as a serious issue. There's been a lot of documented founder suicides and things like that. And mental health is something that is now starting to be openly talked about. But how do you try to preempt things or step in and try to help somebody? Yeah, so.

So I think there's a few ways. The first one is certainly build up a relationship outside of the purely official communication channels. Right. I think it's really tough for a founder to open up in a board meeting when there's like two or three investors in attendance. Right. But it's easier for a founder to open up if you have a one to one call with them and you actually ask them about how they're doing. I think the second thing is exactly what kind of following up on that point, I think you have to find ways to actually check in with them, how they're doing and how they're feeling, and not just talk about the business and not just talk about expectations and stuff like that, but really understand in their private life, understand ask the questions about how they're personally doing. I think besides an investor, probably even more important, usually is co founders you can really trust. And so we're certainly big fans of teams where the founders know each other since a long time, trust each other, it doesn't matter how much you address the former two points I just mentioned about investors, it's still a kind of hierarchical relationship and you're never going to completely get away from that. But if you have a co founder that you trust or several co founders that you trust and are really close with, it's probably the biggest asset any founder can have. And I remember just my own personal relationship with my founders. I had some amazing co founders. We were in total five co founders in my business and one that Wasn't that great? And it made all the difference to have really close relationship with my co founders. In the bad times that sometimes you all went through.

You nailed the segue of. My next question is specifically about co founders and conflicts with co founders. Again, from an investor's seat, you have a different perspective and you oftentimes can see things coming and brewing. What are things that you think that founders can do to mitigate challenges and conflicts with co founders and that oftentimes does spark depression and things like that because you kind of tied into relationships. Like you can't separate a co founder easily from your company, but conflicts do happen. And so how do you as an investor help in that regard?

And you know, I think, you know, coming back to a little bit of a similar answer to one of your previous questions, I think we self select for very strong co founder relationships. Right. And so when we make an investment, we would never make an investment just in one founder we see and not seeing the other. We always talk to a whole team. We love to see them in action together, how they interact with in a pitch. How do they respect each other, how do they trust each other? Do they respect who's responsible for what? When you ask a question into the whole room, like does everybody know who should answer that question? Or do all jump in and want to trump each other on the quickness of the results and the smartness of the response? So I think we as investors, we self select for founding teams that work really, really well. But having said that, even then, as the company matures and company grows, as relationship kind of evolve, you sometimes get co founder conflicts and it's unfortunately very, very tough to resolve just because they're all very emotionally involved in the company. There's something very, very basic that is going on. I think the thing that we've seen can help is a coach that helps resolve founder conflicts, especially around communication issues. But sometimes the issues are much deeper and then if they are much deeper and even after some investment with coaching, you can't resolve them, then I think the only solution is that one founder leaves the company and moves on and does something else. I've never seen it really work out or kind of being able to resolve these things after you've done a serious investment of time and coaching resources. I think at some stage you just have to pull the plug on one of the founders.

Yeah, some of our founders have talked openly about either themselves or their co founder coming to the realization that the company is now at a stage, it's scaling, it's growing, but their skill sets or their passions or things that they want to see achieved are no longer aligned with the company. But it is a deep conversation that needs to be had. Also internal realization that you are not ready to or you're not now the good fit for that company. And.

It happens very often around the tech co founders, right? Because in the beginning you are kind of the builder, you're the one that builds the whole product, perhaps with another co founder or kind of a first team member. But you know, you're it. You wrote every single line of code. And as the tech scale, right, suddenly you need to act like a VP of engineering managing people. And that's very different from kind of writing every single line of code yourself and kind of being the master of the product. Right. And so we've seen many, many times that especially technical co founders love to move on or just take on an individual contributor role, if they're okay with that, and still be part of the company, but not in such a prominent position anymore.

I guess it's kind of like a selfish way. Do you look at talent that's moving on within portfolio companies and see if you can integrate them into other portfolio companies? Is there a lot of cross pollination or cross collaborations between portfolio companies?

I think it has happened before. We certainly kind of consider everybody who has been a version one founder a version one founder for forever. So they're part of the family for forever. Sometimes they go on and start their own companies after they left the original company. Sometimes they go back to their original founders and start a second company. We had one or two cases where they joined another version one portfolio company. Really depends a little bit on the dynamics. Overall, we think there's a real value of thinking about the extent of version one family even after they move on from their original company. And we certainly love to keep in touch with all those entrepreneurs in whatever way they're using their talents down the road. If that is a second company or the original company or some other portfolio company. Certainly they're part of the version 1 family.

Which circles back to the original conversation that we started with is that version one is a business of its own and you've had to build it. And so your culture, but also the community that you're building, you're also looking at fueling future opportunities. And so the investment isn't just, hey, I'm going to put some money in your company, I want to be part of your journey, but also want to build a longer term relationship with you. And some of the key stakeholders in your business. Because it might help my business down the road.

That's correct. That's correct.

And so going back to version one itself, in the time of COVID you're not traveling as much. How are you finding deals? How are you executing on deals? How's the landscape of venture changed in the last eight months now?

Yeah, I think it's kind of interesting. The first two months after Covid hit, like mid March to mid May, I think people were a little bit puzzled looking at their existing portfolio, figuring out how to do Zoom investing. We were always a distributed team, and while we preferred to meet entrepreneurs in person, sometimes, logistically it didn't work out. Given that we invest across all of North America, sometimes we just couldn't make it halfway. So we were used to invest on the basis of Zoom meetings before COVID hit. So I think we found our rhythm very, very quickly. And actually even in April did four deals right as Covid was at its first wave and first height. Since then, I think there's a few things that have happened. I mean, first of all, everybody has kind of adjusted to Zoom Investing or most investors. And secondly, I think there's more entrepreneurs than ever that Covid has kind of. COVID has created that break in their lives where they revalued again what they wanted to do and what job they were working on and where they wanted to spend their time. So I think we've seen more than ever entrepreneurs that are starting businesses that are excited about building their own startup after they've reevalued kind of their previous job and decided they want to become an entrepreneur. And then last but not least, I think that the theme of COVID is really the acceleration of digitization. And everything has become much more tech forward. Every single company has become more tech forward. So it feels like there's more opportunities than ever. So it feels like the perfect trifecta. There's more entrepreneurs that start startups and work on important problems they care about. There's generally a bigger opportunity in tech than ever before. And then there's investors that have figured out how to invest virtually and over zoom and are ready to deploy money. And so I think especially the last three to four months, we've seen an incredible explosion in number of deals and valuations, in the speed of that rounds get done. And it probably has been as hot of a market as ever before and.

Are seeing a lot of activity outside of the main business centers, large cities, New York, San Francisco, like what's happening in Utah and Denver and other Secondary markets, Vancouver.

Yeah, I mean so we've been always kind of active across North America while you know, we had our core centers of the valleys, Seattle, Toronto, Waterloo, New York. We've invested across many, many geographies and in North America. So for us it's like probably that the trend there's nothing new and we always were righty. I think what we see now, what we see is really interesting is just more distributed teams from the beginning on. So when I just look at the last six or seven deals we've done, probably half them were distributed teams from the beginning on and not as in we're just remote first right now but we still all live in one location but truly distributed from the beginning on. I think we haven't really seen as many of those before COVID and right now it feels like people are really embracing remote first completely distributed teams. Well, we'll see how it's going to work out. It's like finding product market fit is not always the easiest when you're distributed and not in one location. But right now it's certainly the dominant theme.

One of the other dominant themes that I've been seeing a lot lately has been the exodus out of the Bay Area out of San Francisco. But what is your view on the role San Francisco will play in the tech industry moving forward? I don't want to hint to my answer, but what is your take on this?

I think it's too early to tell what exactly going to stick and not. I mean first of all, I think we definitely going to see more distributed workforces and companies being open to employees that live wherever they want. And that's certainly going to have a negative effect on San Francisco that just suffered off higher ends and often kind of not an ideal standard of living in many aspects. Having said that, I think there's something to be said for in person communication in really crucial situations. Getting to product market fit, making investment decisions for long term investments, kind of building a culture early in the journey of a company. So I still think San Francisco will play an incredible role in this whole system. I think at the edges certainly we'll see people go off and live in other locations. But it might well be that a lot of the core creative processes, the processes that rely on person to person interaction will remain very much centered in the Bay Area.

Yeah, no, I totally agree. I think people are undervaluing the value that Samsung brings to collaboration. Strategic partnerships, but also investment. I think a lot of the leadership will continue to want to have some sort of presence in the Bay Area, because the ability to execute and make decisions is that much greater in those hubs, and that's not going to get replaced anytime soon. Boris, you've been really generous with your time. I want to kind of wrap this up with two questions here. The first one being for you as a founder or even maybe for the companies that you are investing in and the founders that you're working with, what is one tool or one app that you've seen to be indispensable and really key to their success?

Here is a completely controversial answer. No app, but a book or a walk or run. You know, I think the one thing that the virtual world around Zooms have continued. Zooms has shown how efficient it can be, but also how incredibly draining it can be. And for me, the one thing that I really have made sure is after kind of learning it the hard way is this like having real world, that is nature, if that is conversations, if that is a book, whatever it is, and getting away from more apps and more virtual interactions and more efficiency and more productivity. So no more apps for me. More back to nature and people and real things.

That's an awesome answer. One of the themes that we have at launch VC is mental health is tied to physical health. And so you need to make sure you're taking care of both to be a highly efficient entrepreneur and be able to execute on all cylinders. So no app is the recommendation. Last question for you is a piece of advice for entrepreneurs. First time entrepreneurs, seasoned entrepreneurs, doesn't matter. Somebody that's starting a business in today's world, what would be your advice for them? This is the new reality of COVID and social distancing. Somebody starting something new.

Yeah. My advice is always just start, don't think too much about it. I think there's still the tendency of really proving out every single, every single thing. Trying to kind of come up with a business plan and think through all the edge cases. Reality is like once you start in a certain area, you build things, you get feedback, you launch your business, you're in business and you're going to learn very quickly if you like it, if it's successful, if it works. So my biggest advice is always just start and figure things out along the way instead of trying to figure out things before you even start.

Extremely valuable piece of advice there, Boris. You've been really generous with your time. We've got tons of insight and information. Our audience is really going to benefit from having watched this. But how can our audience benefit you? What's your call to action. What can our audience do for you?

Build amazing companies. We love investing in companies. That's our business. We love meeting passionate entrepreneurs that want to build a company for the long term. So go on and build these companies. I think the world needs more entrepreneurship. The world needs more crazy entrepreneurs that trying to achieve something that seems unachievable for many and so I think everybody who's listening to that, please become an entrepreneur and start something that you care about and build a great company.

Go out and build cool companies, do great things. Boris, you're an amazing entrepreneur, amazing investor and the tech community is really great to have you in it and yeah, we'll hopefully see you out at events and giving more talks and investing in more great companies.

Thanks for having me. That was fun.

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