Deborah Farrington, Founder StarVest: Forbes Midas 100 Top US Venture Capitalist
Deborah Farrington is a Founder and General Partner of StarVest Partners, a New York City-based venture capital firm founded in 1998.
StarVest invests in technology-enabled business services companies with a focus on software-as-a-service, ecommerce and internet marketing.
StarVest was an early investor in the software-as-a-service trend: in 2000, it invested as the only venture firm in NetSuite (NYSE: N) whose December 2007 IPO, at the time, was the highest market capitalization for a venture backed company since Google.
Other noteworthy investments where Deborah served on the board include Fieldglass, acquired by Madison Dearborn, and Insurance.com, bought by QuinStreet. Prior to founding StarVest, Deborah held positions including: President and CEO of Victory Ventures, LLC, a New York-based private equity investment firm where she also served as chairman of Staffing Resources, Inc.
She was named to the Forbes Midas 100 List of top venture capitalists in the United States in 2008, 2009 and 2011. She is a graduate of Smith College and holds an MBA from Harvard Business School.
We spoke to Deborah about what it takes to be a successful VC; why there aren't more women in the field; and her advice for entrepreneurs who are looking for funding.
TNW: How did you get involved in venture capital?
DF: I have a background in finance and have worked in diverse areas, all of which contributed to my work as a venture capitalist. After college, I worked for two years at The Chase Manhattan Bank in the Global Credit Training program, which focused on financial statement analysis. After the training program, I made loans to small businesses in the NYC metro area. It was good preparation for venture, because small businesses are all about managing cash flow to survive.
After Chase, I went to Harvard Business School. Following HBS, I joined Merrill Lynch in New York in investment banking and was transferred to Hong Kong and then Tokyo.
In Japan in the 80s, they had no idea what to do with a female investment banker, so Merrill asked me if I was interested in being a securities analyst and my response was: “I can do that.”
It was great background for analyzing business models.
During my time in Asia in the late ‘80s, I joined a Hong Kong merchant bank called Asia Oceanic Group. Working to facilitate the flow of capital and technology between Asia and the U.S. was my first exposure to investing as a principal, and I loved it!
After returning to the U.S., I ran a small public company that was a turnaround situation; this also gave me valuable experience that was applicable to venture. Once you learn how to lead a company, you can help others with their leadership abilities and see other ways that a company can be run. I then started a multi-strategy private equity/venture group with some friends from Harvard Business School, serving as CEO, where we made investments in business services. In the late 90s, it was clear that businesses services were moving to the Internet and I thought it was a great opportunity to start something on my own and so developed the thesis, with three partners, which led to founding StarVest Partners in 1998.
TNW: What kind of companies do you fund?
DF: StarVest Partners invests in expansion stage technology-enabled business services companies throughout the United States. Our specific sectors of focus are Software-as-a-Service, internet marketing, eCommerce, and data/analytics.
TNW: What advice would you give women who are considering getting into venture capital? What does it take to be a successful venture capitalist?
DF: There are a few tips I have for women looking to enter venture capital. :
- Actually enter the field: The first tip is simple – get involved! As with starting any career, you need to learn about the field, reach out and have a plan. This can be done in many ways. Some paths are: interview at a VC firm, many of which are looking to hire analysts; start working at a VC-backed company or start up; go into a related space (like finance or technology); get operating experience. There is not one path, and the most important thing is finding the path that works for you.
- Educate yourself and get relevant experience: Experience is critical no matter what path you choose to get into venture capital. Also, don’t discount the value of relevant education. In my opinion, a great background for venture capital is engineering, economics or computer science and an MBA. Of course, there are other options, so do some research and see what may work best for your interests and career path.
- Find a mentor and develop your network: Women are natural relationship-builders. Relationships are critical to the venture capital process, and women can benefit from establishing meaningful connections in the industry. Reach out, set up informational interviews, begin an online conversation and make sure you get out there. Also, look for a good mentor, as this often will be more helpful than anything else. Identify and befriend someone, man or woman, in the field who has been successful and can advise you — they probably will be delighted to share their experiences and assist you along the way.
- Get used to risk taking/hone your analytical abilities: To get into venture, you must be comfortable with risk-taking. Investing is about taking calculated risks, after all! Calculated risk-taking is based on identifying, analyzing and weighing costs and benefits and, ultimately, pulling the trigger and making a decision based on limited or unknown information. You must be able to get comfortable making a decision to be successful as a venture capitalist.
- Make yourself heard – speak up! Women tend to prepare more but speak less in business situations. Don't let that be you. Get used to thinking through your ideas, articulating them in an organized fashion and speaking up. Do the work and contribute at every meeting. Your voice is important. Make it heard!
TNW: Why do you think there aren't more women involved in tech venture capital and what could be done to encourage more women to get involved in the field?
DF: There are a few reasons why we don’t see more women involved in venture capital right now but I see that changing. Looking at it from an historical perspective, there have been waves of women becoming involved in different areas of finance and investing over the past few decades. First, it was commercial banking in the early ‘70s, then investment banking in the ‘80s and private equity in the ‘90s. Venture capital gained popularity in the late ‘90s and early 2000s and tends to be technology-oriented. Fewer women have a background in technology and engineering and this is one challenge to having more women involved in venture capital. But, as we have seen, as these waves develop and mature and their appeal broadens, more women enter and I see that happening in venture.
I would like to encourage more women to go into venture capital for several reasons and encourage VCs to hire more women– mainly because it will benefit the field!
As venture capitalists focus on funding applied technology and these applications are more broadly used by consumers and business, I see real opportunity for women, both as entrepreneurs and in funding these exciting new companies as VCs.
Some of the recent “hot” growth areas in venture provide advantages for women as founders, CEOS and VC investors. These are in areas where women have experience and often an innate advantage in understanding the customer, such as retailing, fashion and media. Women are excelling in e-commerce: Gilt was founded by two HBS grads, Birch Box by two other HBS grads and Rent–the- Runway, to name a few. And in social media, there is Sheryl Sandberg, COO of Facebook. Travora Media, one of StarVest’s portfolio companies, is run by Nan Forte. These are areas that in my view offer a more a level playing field for women and we also see more women VCs involved in funding them. As women CEOs are successful, I predict they will be entrepreneurs in residence at VC firms and partners there. With eCommerce and social media increasing steadily in importance as venture investments and with more than half the customers being women, female investors are well positioned to understand these companies better. That is a business reason for having more women welcomed into venture.
And progress is being made: look at this year’s Midas List – there were five women on the 2012 list, up from two in 2011. Five is still not a great number, but the increase is encouraging.
Up to this point, venture has not done a great job with outreach. Women need to realize that there are many ways to get involved in venture capital. For example, my background in finance gave me the expertise to analyze business models. Women need to understand their strengths and how they can translate these into the venture capital world. Many women focus on qualifications they don’t have and take themselves out of the game instead of focusing on their strengths and what they bring to the table.
In order to become more involved in venture, women need to realize their strengths and how these translate into the skills of a great investor.
Venture capitalists must be good at two things: choosing great investments and being effective at the board level of their portfolio companies.
My experience shows that women often evaluate business issues with a broader, top-down perspective and lead by forging a consensus. Women also contribute differently at the board level. They are oriented to providing meaningful assistance by mentoring and teaching others as partners, not preachers. These traits are valuable to VC-backed companies as they seek advice and mentorship from their investors to guide their growing businesses.
TNW: Do the companies that are successful in bidding for funding from StarVest tend to have certain key traits in common?
DF: StarVest focuses on expansion-stage companies, which we define as companies generating at least $2M in revenues, an established product, referenceable customers, and a team. We selectively invest in some early and later stage companies. In all cases, we look for strong teams that can execute well. If your target customer is an advertising agency, for example, it is helpful for us to see that you’ve had prior successes selling to advertising agencies. And if you don’t personally have that experience, then I’m interested to know how you attract and incentivize strong A-players who have the ability to execute for you.
But in my opinion, leadership starts at the top, so the teams we invest in are the ones that have a strong vision, ability to execute, and enough humility to see when something is not working.
TNW: What is the most common piece of advice that you give to startups looking for funding? Do you find that male and female founders need the same, or different advice?
DF: We expect entrepreneurs to come to their meetings prepared with a story and a pitch. Unfortunately, meetings have time limits, so we want to know what they do, who else does it, and why they’re better, in a very concise way. Don’t start with market statistics – so much of that information focuses on the macro and isn’t relevant to what your company actually does now and how you are differentiated. We want to invest in companies with leaders that have a strong vision of where they want to take their company, and how they plan to do it. Entrepreneurs should also know what they want from an investor, whether it’s money, advice, or expertise, and ask for it. Indicate an awareness of the competitive trends in your ecosystem and market factors that may affect how you execute.
Take every meeting seriously, whether you’re meeting with a partner or an associate at a firm. Most investment teams are small and rely on each other for feedback and information.
TNW: What kind of technology are you most enthusiastic about and why?
DF: StarVest is focused on B2B companies. We think about how the consumer Internet has changed people’s behaviors, and how businesses will use technology to adapt to this. This ranges from how company demands on employees will change, to how companies will market differently to consumers, to how companies will adapt to the sheer number of mobile devices consumers are using, bringing to work, and generally integrating in all aspects of their lives. I’m enthusiastic about the consumerization of corporate IT. How are large companies going to ensure their data is secure if employees are accessing it on their tablets and smartphones? Similarly, if employees can’t access it, are companies preventing their employees from being as efficient as they could be? The integration of various devices and ensuring that data access is seamless is also interesting. Although companies like Dropbox have made it easier for people to access data, the user experience across devices continues to challenge consumers and businesses alike.
TNW: Have you come across any exciting startups recently and what is it about them that appeals to you?
DF: This question doesn’t apply directly to StarVest because we don’t invest in pure startups, but we see more SaaS companies focusing on different verticals as cloud computing continues to gain acceptance by businesses and sectors that aren’t traditionally considered to be on the cutting edge of technology. Companies like PublicStuff, which has a dynamic young female CEO and sells a SaaS solution and mobile-enabled 311 system to municipalities and cities, appeals to me. Before mobile took off, a company like this would not make sense but now, using this software, citizens can report problems they see right on their mobile devices and serve as the eyes and ears for a city.
We’ve seen more startup companies selling to other businesses lately, and New York definitely benefits from this, because there are so many media, advertising, fashion, and financial services companies here compared to Silicon Valley. Sectors that we’ve been focusing on include eCommerce infrastructure, mobile-focused companies, video that utilizes social media and marketing, big data, and companies focused on the consumerization of corporate IT.
TNW: We published an article recently about subscription service startups being the next big thing. What other trends do you predict for the next year or two?
Key trends and problems that need solving, in our view, include:
- The rise of mobile: More and more eCommerce is being conducted over smartphones and tablets. We’re focused on B2B companies whose functions make it easier for the increasingly mobile workforce to conduct business and work remotely.
- Seamless connectivity: How do companies ensure that people can access files and work seamlessly not just across devices, but across operating systems so that you’re just as efficient whether you’re on a Mac, a PC, a smartphone, or a tablet, no matter where you are?
- E-Commerce Infrastructure: I also think that the new wave of consumer Internet companies will demand more efficient infrastructure on the back-end. For example, I think e-Commerce infrastructure companies are a hot sector because they need to support how commerce companies run their businesses as more operations go online.
- Differentiated business models: Subscription service startups had a differentiated business model. We’ve been seeing more innovation on how companies sell, whether it’s through a freemium model, or subscription pricing or based on ROI. We’re interested in seeing what other creative ways people can sell.
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