You've got to risk it, to get that Biscuit

Before getting into my post today, I just wanted to take a little bit of time to discuss the direction of the blog going forward. As you may know, I recently started working as an Analyst on the investment team of Rev1 Ventures. My first couple of weeks of work have been great and I am so excited to work on more investments and work closely with more entrepreneurs! Out of respect for my new role and a desire to not step on any toes I will be making a few changes to the sort of posts I work on.  Since I will be actively working on live deals with startups, I will shy away from doing any more deep-dives on specific companies. I will instead be discussing my personal experience in venture as well as continuing to cover the topics and trends in the space. I started this blog as a way to practice my analysis and writing, and that will continue to be the goal, but things will now be more colored by my personal experience. Now that I am no longer busy with actively job-hunting, you will start to see some long-planned additions to the blog. I want this site to not only be a place to discuss venture capital and startups, but somewhere I can share a bit more about my personal interests and hobbies. If you check out the resources section in the top right corner of the page, you will see that I have added a "Boardgames" section. I have been wanting to share more with you about this hobby of mine and I am excited to bring you more personal content such as this in the future! 

Thanks for all your support and back to our regularly-scheduled-and-loosely-organized running train of thought!

To Pay or Not to Pay 

The big news in the venture space over the past week has been Microsoft's acquisition of GitHub. GitHub is a software collaboration repository and version control tool founded in 2008. Microsoft announced the $7.5 billion acquisition on June 4th, and ever since then there has been much discussion about whether the deal was good, bad, or "7.8/10 Too Much Water". My personal and highly educated belief is that this deal is a heaping, helping of "who knows".

The deal has all the hallmarks of success, but acquisitions of this sort are rarely so cut and dry. Some large acquisitions work out, some don't. Microsoft's own $26.2 billion acquisition of LinkedIn was one of the richest transaction of all time when it closed in 2016. Naysayers thought that Microsoft was overpaying handsomely, but the deal seems to be working out (despite it still being in its early innings). On the other hand, Microsoft has already written off more than $8 billion dollars from its seemingly-failed from the start Nokia acquisition. 

I am much more interested in the investors that made a bet on GitHub prior to the acquisition. 

GitHub's first funding round was an $100 million round led by Andreessen Horowitz in 2012 with GitHub's pre-money valuation estimated to be approximately $650 million. 

GitHub raised an additional round of funding in 2015 of $250 million led by Sequoia with Andreessen Horowitz and Thrive Capital also participating. The pre-money valuation for this round was estimated to be approximately $1.8 billion. 

I think both rounds represent excellent examples of paying up to invest in a strong company. It is easy to say in hindsight, but at the time, both deals were thought of as having relatively rich valuations compared to the market. First A16Z and then Sequoia paid a premium to get into what they viewed as a strong deal. A16Z felt that GitHub perfectly fit their thesis that the web would evolve to be focused more and more around developers. This thesis alignment gave them the comfort to "pay up" to a price that was more than others thought the company was worth. Their gamble paid off. Andreessen Horowitz went home with about $1 billion in proceeds thanks to their 13% ownership of GitHub at the time of sale. 

The way that returns are distributed in venture capital makes missing on a rocket ship hurt much, much more than investing in the majority of companies that don't make it. The best in the business are willing to pay up for the best deals. More often than not, this isn't just a case of them offering more than the next guy. The most successful deals occur when investors have a unique and fundamental thesis about the future that causes them to believe that the market is actually undervaluing the opportunity because either the investment isn't as risky as others believe or the upside potential is significantly greater. 

Venture Capital is for optimists. I believe a key to this business is optimizing your process for successful outcomes, not minimizing the effects of failures.

Sometimes that means paying a little bit extra. 

The Start of Something New

I am excited to announce that today is my first day working as an analyst at Rev1 Ventures in Columbus, Ohio! I could not be more excited about this next step in my career. Ever since my first exposure to the venture capital ecosystem as an intern at 3x5 Partners in Oregon, I have been fascinated with startups and the ambitious entrepreneurs that build them. Making my way into venture capital has been a goal of mine for years now and I am so grateful to the Rev1 team for this fantastic opportunity. This feels like a huge accomplishment, but I know that this is really just where the hard work begins! Very excited to roll up my sleeves and get started!

WHY Rev1? 

Rev1 is exactly the sort of firm I have been looking for. Rev1 invests in seed stage companies. As I went through my job search process I was very purposeful in targeting seed investors as opposed to later stage venture capital or growth equity firms. One of the things I learned during my time at Carlyle was that the later stage you are as an investor, the more your returns are concentrated in two areas: acquisition and exit. When you are buying billion dollar companies, there is only so much value you are able to add to the operations of a company. Large, developed companies tend to be able to run themselves pretty well without too much outside interference. The real returns in later stage private investments are all based around finding the right deals and executing on them. This is a lot harder than it sounds, but it really does work to drive returns for investors. This is all well and good, but I wanted to gain expertise in an area where there is a much bigger focus on partnering with companies to help them grow, not buying them and letting them run themselves until they are ripe to be sold. With Rev1's venture studio model, they are true partners in the entrepreneurial process. They work with entrepreneurs all the way from two guys with an idea in a garage, up to fully formed and fast growing companies. I am thrilled for the opportunity to work alongside entrepreneurs at the earliest stages of company formation. I believe that this role will provide me with an unparalleled opportunity to learn about what it takes to build and lead a successful business. 

WHY Ohio?

Chris Olsen, the founder of fellow Columbus-based VC firm, Drive Capital, calls the Midwest "the opportunity of our lifetime." The Midwest has all the ingredients necessary to support a vibrant entrepreneurial ecosystem as well as some key competitive advantages versus other geographies. Collectively, the Midwest would be the 5th largest economy in the world. It is home to incredible Universities and research institutions such as Ohio State University, University of Michigan, Notre Dame, University of Chicago, and many more. These institutions provide an incredible wealth of both technical talent and research/Intellectual Property to build companies around. Resources and talent are further provided by the 152 Fortune 500 companies that call the Midwest a home. The ethos of the Midwest is also ideal for building an entrepreneurial ecosystem. There is a palatable underdog status of the region compared to coastal tech centers. This has helped create a much more collaborative environment than one would see somewhere like San Francisco. From what little exposure I have had, there definitely seems to be a view that "a rising tide lifts all boats" and there is a focus on collaboration over competition, as everyone seeks to build up the region together. The Midwest has another "secret sauce" that helps set it apart versus other startup ecosystems: the cost. The cost of living in the Midwest can often be less than half that of living in coastal metropolitan areas. This allows companies to attract and retain top-level talent at a fraction of the cost of what would be required in somewhere like San Francisco or New York. I can personally vouch for this difference in cost myself. As part of our recent move to Columbus, my wife and I were able to double the square footage in our new apartment for approximately half the cost of our previous apartment just outside of DC.

Thanks to everyone that has provided me with wisdom and support throughout this process! Breaking into venture capital is not easy (I am sure there will be another blog post on this topic in the future!), and it is not an exageration to say that I could not have done it alone! 

I am so looking forward to my time with Rev1 and continuing to bring you my insights, thoughts, and views on startups and the world of venture capital. 

Until next time!