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Venture Profile: Bill Reichert, Garage Technology Ventures
By Angel Mehta, Managing Director, Sterling-Hoffman Executive Search
Angel Mehta: What do you think the biggest misconception is that entrepreneurs have about venture capital?
Bill Reichert: Misconception? That it’s easy. I think a lot of entrepreneurs have the perception that being a venture capitalist is a lifestyle career, and nothing can be further from the truth.
Angel Mehta: But would you rather be doing something else?
Bill Reichert: No. The challenge in a purely operating role is that, as aggressive as you want to be as a change agent, you’re limited by the legacy of everything you have built and produced to date. The reality is that things just don’t change as fast as you wish they would in the operating world: customer up-take isn’t as fast, infrastructure technology doesn’t evolve as fast, etc., etc. So it just takes a lot longer for things to happen. The appeal of venture capital is that it’s always fresh, new, evolving.
I will point out, however, that what’s great about Garage is that we’re not just a VC. My point of view is we’re building an operating company here - it’s not just a loose confederation of investors who are trying to pick winners. We view Garage as an entrepreneurial endeavor; so in that sense I get the best of both worlds here.
Angel Mehta: Let’s talk about Garage for a moment because as you said it’s more than just a VC, which is perhaps why a lot of people aren’t quite sure what exactly Garage does. Tell me about how the model has evolved over the last five years.
Bill Reichert: We used to joke that we evolved the model every six months, whether we needed to or not. We launched Garage in October 1998, which also happened to be the month in which NASDAQ bottomed out after a five or six month slide. At that time, we thought, ‘oops, the bubble may be over!’
The original model for Garage came from Craig Johnson, who is the founder of Venture Law Group. His insight was that the venture community and the entrepreneurial community had changed dramatically over the 90’s and it had come to a point where it wasn’t a nice tight circle of people where he could pick up the phone and call one of his buddies and get a company started anymore. The dramatic change in venture capital was that the funds had just gotten bigger, and it was harder to convince somebody to pop $250,000 into a group of grad students just to try something out. It just wasn’t the model for Sand Hill Road anymore.
Meanwhile, the Angel community had exploded, and venture capital and entrepreneurship had spread across the country. There were deals coming from Seattle and Southern California and Texas and Denver and all over the place. Craig’s big idea was to create a group of smart people to play in the middle: take responsibility for finding the best start-up companies - wherever they are - and figuring out how they get to them funded with the best investors - wherever they are. So that was the original conception behind Garage. Originally, we thought it would be primarily seed funding, hence, the ‘Garage’ name. It would be two guys or gals in a garage and we would get a couple of angels and maybe a small fund to pop a seed check into the deal. We would be responsible for nurturing that company in the early critical phase.
As soon as we announced our existence we were SWAMPED with entrepreneurs and investors interested in this whole concept. Entrepreneurs wanted a pathway to financing and investors wanted deal flow, but the original thought at the average deal would be $750,000 proved to be way off. Instead our average deal turned out to be $4 million. We also thought the average deal would be a couple of angels and maybe every once in a while we’d get a VC to participate. It turned out that our first ever deal was VC-funded and pretty much every deal we did was with a venture firm, not angel money.
Angel Mehta: Were there any other developments that were unanticipated?
Bill Reichert: One that comes to mind is that originally, we had a budget of $450,000 to put on workshops and seminars for entrepreneurs and investors. We thought they would pay $25.00 and those little seminars would pay for themselves - that was the event-marketing concept. So we put together an event, and we had 1,400 people sign up. Unfortunately, we only had 600 seats after we maxed out the fire code. All of a sudden, this idea that we would be an educational venue for both entrepreneurs and new investors became a significant part of our outreach and also, in fact, our business model. To this day, many people know us as the company that puts on these special events and less so as investors per se.
Angel Mehta: Given the choice, would you advise an entrepreneur to go with an associate-level investor from a marquis brand name VC, or a very senior, experienced partner from a firm that was more low key. How important is the ‘brand’ of a venture firm?
Bill Reichert: I would like to say there’s no question about it, I’d take the partner with 20 years of operating experience, but unfortunately that is not always true. The right answer depends upon what your future financing requirements are. The reality of venture capital is that even the best VC’s out there realize that it is very hard for them to add significant value on a month-to-month basis in an operating sense. Most experienced venture investors that I know perceive their role to be at the edge of the next round of financing or the next major corporate strategic event.
So the irony of the VC branding issue is the VC branding is actually more important to OTHER VC’s than it is to the entrepreneur directly. If you’re an entrepreneur that knows that he or she is going to require several rounds of financing, then the answer may be that you really need that first marquis investor. Brand name investors make it easier for you to attract the next VP Sales candidate you need…if they have deep pockets, they find it easier to pony up at least one more round to get you through. I’m generalizing of course but you see my point. Bringing in an investor with a great operating background can be a huge asset, but it really depends.
It is one of the cognitive dissonances that I’ve had crossing over from the entrepreneur side to the investor side - how do you honestly answer that question with entrepreneurs given what I know to be true?
Angel Mehta: At the height of the bubble, I remember you challenging the popular notion that there was “too much capital chasing too few ideas”… How has your view changed today?
Bill Reichert: It’s true that there was too much capital, but I said before that there were tons of good ideas then, and I continue to think that there are a tremendous number of good ideas now, but good ideas do not make good companies or good business models. It’s a long way from a good idea to a good company and that’s the challenge in any market - up or down. I happen to think it is easier to build a good company in a down market than in a frothy market. It seemed like it was easy to build a good company during the bubble, but it really wasn’t and the subsequent fact that so many of these companies crashed and burned is proof of that. The question now is, will the companies that are built today be, in a fundamental sense, more healthy? I think they will and I think now a lot of people have taken this point of view. There are a whole bunch of factors to make this a better time to start a company than during the bubble. One factor is simply the infrastructure cost: the rent, hiring people and all that kind of stuff. All that has dramatically changed.
The much more important issue is everybody’s expectations are reset. It takes longer to build a valuable customer relationship than anybody ever wants, of course, but you also have the time to do it the right way. There was a time when companies had artificially high revenues because everybody would buy one of everything… if you were on the map, you wound up getting revenues. Now, you have to work for your revenues and have to build value into your customer relationships and that’s fundamentally a healthier constraint.