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Venture Profile: John Fisher, Draper Fisher Jurvetson

By Angel Mehta, Managing Director, Sterling-Hoffman Executive Search

A win-win-win-win-win business is how John Fisher describes the world of venture capital. A founding partner of renowned venture firm Draper, Fisher, Jurvetson (DFJ), his passion for venture capital remains obvious Ė even after witnessing multiple boom-bust cycles. Angel Mehta, Managing Director at Sterling-Hoffman, met with John Fisher to discuss his least favorite part of venture investing, why DFJ continues to pursue high-risk deals, and the possible end of enterprise software as a growth industry.

Angel Mehta: Does being a venture capitalist ever become routine? Boring?

John Fisher: I think itís the most wonderful business in the world, but occasionally, like anything, it does get routine. Having said thatÖVenture Capital is still a business like no other. Itís a win, win, win, win, win business.

Angel Mehta: Thatís a lot of winsÖ[Laughing]

John Fisher: Well, we help entrepreneurs realize their dreams and when they get funded, they win (win#1). We help create tens, hundreds and, in some cases, thousands of jobs (win#2). State and local and federal governments are big winners as tax revenue increases and jobs get created (win#3). Of course, we make money for our limited partners (win#4), and we make money for our partners (win#5). Those are the five wins. What we donít do is bust unions. We donít lay people off in order to create efficiencies for the sake of financial engineering to cover interest expense associated with buy-outs and those kinds of things. We donít, generally speaking, invest in businesses that are heavy polluters of the environment -- heavy industries -- smoke stack stuff. Actually, these days weíre investing a lot in clean energy deals.

I view venture capital as the purest form of capitalism. I view it as an unflinchingly good thing for all parties involved. Of course, every now and then companies and management teams end up not executing and some people lose their jobs because they need to be replaced. Sometimes companies donít perform and they need to be downsized because thereís no cash available to support big payroll, etcetera. But thatís quite different from the financial engineering that takes place in the LBO business where people get sacrificed in order to meet debt payments.

Angel Mehta: So the Ďgreater goodí and the constituents that arenít on the board or listed in the shareholders agreement are always top of mind for you? Have you always been like that, or is the social consciousness something that has developed in you over time?

John Fisher: Always been the case. My parents instilled in me a sense of community and social responsibility from a young age; itís something that I believe in. For me, Venture Capital is a business that I feel is very consistent with my own personal ethics and one that I can say unequivocally Iím proud to be involved in.

Angel Mehta: Well then, what part of the job do you hate the most?

John Fisher: Well, the least attractive aspect of Venture Capital, the sort of dark underbelly of Venture Capital, is probably the all too frequent arguments about money. In most businesses, at some point, you end up arguing about money, but in Venture Capital, you end up arguing about money every other day. Sometimes youíre arguing with your partners about investing in a company, or how to properly manage a company. Often times, youíre arguing with other venture capitalists about whether or not you can get into the deal, how to properly manage, or properly finance the deal. We also argue about liquidity in a given situation, the timing of selling a company, raising money, going public, or taking dilution --- all these, more often than not, boil down to arguments about money. Sometimes, you have arguments with your management team about how to spend the payroll, whether or not to hire people, fire people, cut back, or build up, etc. There are also arguments about how much equity various people get: the salaries, and the bonuses.

It canít be avoided because, after all, weíre in a financing business.

Angel Mehta: I know that DFJ was always perceived, even amongst venture capitalists, as one of the more adventurous firms. Is that still the approach or has that changed? Does it still make sense to fund those deals that have very little besides an idea?

John Fisher: In general, thereís a critical notion that many people donít understand about early stage or high-risk investing. That is, the most that you can possibly lose on any given investment is one times your money. The most you can make is unlimited. The truth is that risk and reward are often directly correlated. It doesnít make any sense to be afraid of risk as a venture capitalist. What you need to be concerned about is: ďHow big is the upside?Ē The truth is that in the early stage of the venture capital business it is common to lose all of your money on the first third of your deals. Itís common to make no meaningful return on the second-third of your deals and itís common to make all of your return on the last third. The baseball metaphor really applies: if youíre a .333 hitter, youíre at the top of the league. In the venture capital business, if you make money on a third of your deals; you should be doing fine so long as youíre making more than three times your money on average on all your deals, youíre making money for your limited partners across the board. A home run analogy really applies too. The magnitude of your winners determines the ultimate degree of success. So the home run deals make the difference between mediocre returns and superb returns. What really matters is the magnitude of the winners. Youíve got to swing for the fences every time you place a bet because, given the fact that the risk is high in all of these situations, you better make sure that the winners really pay off. So you will have to be very ambitious for them and only invest in companies that can, if they become successful and truly achieve their vision, become extraordinarily valuable.



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