Adding value as an early stage investor is inherently different than doing so later in a company’s lifecycle. During tonight’s PandoMonthly fireside chat, First Round Capital partner Josh Kopelman explained how his firm approaches nurturing its young portfolio companies.
Kopelman compared the role of being a seed stage investor to being a baby nurse (er, night nurse).
“Our view is that there is a different skillset that is needed to be a baby nurse – to help someone find the rhythm of life and figure that out – versus the skillset required to be a babysitter,” the investor says. “And there are hundreds or thousands of firms that we believe are better at being babysitters than we are.” But First Round is pretty confident in its ability to get its company out of diapers.
Like being a baby nurse, seed stage investing requires a high level of engagement over a short period of time, says Kopelman. Nowhere is this more critical than within the board of directors. Accordingly, First Round structures its board involvement much different than most venture capital and superangel funds.
First Round takes board seats in the majority of its deals, Kopelman says, offering 20 out of 25 transactions per year as a rough estimate of its rate. Where it differs is that it only holds those seats for the first 18 to 24 months of a company’s life.
In that time, the investment partners focus on offering tactical advice to portfolio companies trying to find their way like a newborn baby. Who to hire? What go to market strategy to employ? What customers to target? What potential acquirers to build relationships with? This type of guidance is far different that the strategic advice required of board members later in a company’s lifecycle.
The other benefit of this model is that First Round, with just seven investment partners, can maintain a relatively light board load compared to many other firms. This allowed the firm to scale quickly, make a relatively high number of investments (or as Sarah Lacy describe it, “invest with velocity”), yet still add significant value to each company.
Kopelman says that his firm doesn’t “spray and pray.” Spray, he says, suggests that an investor doesn’t use discretion. Pray, suggests that they don’t add value beyond writing a check. First Round hopes to avoid both.
With so much capital in the marketplace today seeking out a limited number of the best deals, VCs are looking for ways to differentiate themselves. For many, this manifests in the form of firms offering services, like in house PR, HR, accounting, and community-building software.
For First Round Capital, the biggest value comes from focusing relentlessly on the formative years of a company’s life – where they believe they can make largest impact on a portfolio company – and leaving the rest to others.
[Illustration by Hallie Bateman for Pandodaily]
To watch the interview in its entirety, click here.