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Venture Profile: Tim Haley, Redpoint Ventures
By Angel Mehta, Managing Director, Sterling-Hoffman Executive Search
Angel Mehta: Several venture capital firms added ‘Recruiting Partners’ to compensate for the severe talent shortage during the bubble years, but very few people that came up through Executive Search ever became actual Investing Partners. So I’m interested to know how you made the transition to General Partner?
Tim Haley: It is a good question. You are correct. Very few executive search professionals have successfully transitioned into the VC business. In fact I can only name two others. David Beirne who joined Benchmark and Kathryn Gould who joined Merrill Pickard and later started Foundation Capital.
I always used the executive search business as a vehicle that allowed me to invest in technology companies at a very early stage. For me it was all about creating leverage. The smart VCs and entrepreneurs understood that there was a direct correlation between the quality of a team and the likelihood of big success. I simply used my ability to attract and evaluate great talent in exchange for getting some of my own money to work. It was a great deal for both sides. I worked that model for 17 years before joining IVP as a General Partner in 1998. It was really like managing a small fund. I still had to pick the winners and I still had to attract the very best executives. The transition was fairly easy. The biggest difference was that I now had a bunch of partners and needed to get them to agree with my investment decisions.
Angel Mehta: The open question I always put to different venture partners is about the best training ground for success in venture capital: operations, or finance? I’ve never talked to anyone about executive-search as a training ground…so how has the recruiting background prepared you for the investment role, or influenced your approach to venture investing?
Tim Haley: Firstly, I do not believe that there is a “best” training ground for this business. Some of the best investors have marketing/sales backgrounds and some are experienced operating guys. It’s kind of all over the map. Certainly a good grasp of markets, technology and finance are all very important. But what may be more important is having great deal instincts combined with an ability to consistently identify and attract the best people. I firmly believe that great people make great companies. Period. I know some companies have succeeded in spite of having mediocre teams. That’s just not a bet that I care to make. Mediocre people correlate with mediocre returns. At least that has been my experience. I actually think the search business is a great platform on which to develop the pattern recognition skills required for picking good deals and good people. If you have evaluated hundreds of deals and thousands of people you eventually develop a pretty good grading system. But the real test is in applying those skills to early stage technology investments. If you have a good track record doing it from the search platform I think it’s a good predictor of how you will perform in the VC business. It’s also pretty easy to measure. It’s all about making great returns.
There is of course one other critical asset that directly translates from search to the VC business. That is a broad network of entrepreneurs. That network has an immediate impact on your transition into the VC business. When you think about it the VC business is all about having a great network…. right?
Angel Mehta: Sure…
Tim Haley: When I joined IVP I remember taking a look at the firms deal history. I wanted to get a sense for where most of the deals originated. What I found out was very interesting. It turned out that virtually every deal came from within the firms network, either from a lawyer, an entrepreneur, a CEO or a professor etc. I guess that’s not a big surprise. But at the time it re-enforced the value of a great network. It is still very much true today. A deal that comes blindly over the transom…
Angel Mehta: It’s thrown out?
Tim Haley: No, we don’t just throw it out. We may look at the plan, we may study the market and we may even meet the team. We always look at interesting stuff. But the odds of that deal resulting in an investment is very low unless we can get some really good “in network” reference points on it.
Angel Mehta: So let’s talk about the differences between managing an executive-search practice vs. an investment portfolio - what were some of the biggest challenges for you in making the transition?
Tim Haley: Executive search is a primarily a transaction business. A typical CEO search takes 4-6 months and then you move to another project. You still need to understand the business issues and assess the deal quickly. The front end of the project is very much like the deal evaluation and investment phase in the VC business. The big difference is that you are at the beginning of a 4-6 year relationship. It’s really a long-term business. I think that is what makes VC business so much more interesting than the search business. You participate in the entire lifecycle of the company.
There has been no dearth of new experiences. I had to learn how to finance a company, manage an M&A, effectively contribute as a board member, and effectively contribute as a partner. The list goes on and on. And most of these were experiences unique to the VC business. That said, it is what these businesses have in common that is most critical. These are essentially relationship businesses. It’s all about establishing credibility.
>Angel Mehta: Have you now gotten to a point essentially where you’re comfortable with those other domains, including finance?
Tim Haley: Yes.