Silicon Valley VC Reveals Most Common Misconceptions About VC Funding
After earning her Stanford MBA in 1983, Heidi Roizen co-founded T/Maker, a personal computer company, on a leap of faith. She was one of only a handful of women tech entrepreneurs at the time.
Following a successful exit, she served as VP of Worldwide Developer Relations at Apple, and then entered the venture world as Managing Director of Mobius Venture Capital in 1999.
She was elected to the Board of Directors at London-based global media company, DMGT, in 2012, making her the first female director in the company's 116-year history.
She is now a venture partner at Draper Fisher Jurvetson.
Gwendaline spoke to highly-respected Silicon Valley tech entrepreneur and venture capitalist Heidi Roizen about her current venture capital role; the most common misconception that entrepreneurs have about VC funding; and the Stanford University Course she teaches on the spirit of entrepreneurship.
GM: What is your role at DFJ?
HR: I work at the board level with companies in which DFJ has a significant stake, e.g. $6-12M dollars. They are at a critical stage of growth, and I help them get to the next level. The companies I deal with range in size; the smallest one will do $10 million in annual revenue this year, and the biggest one will do over $50 million. It’s really fun for me.
GM: Prior to becoming a venture capital executive, you were a successful tech entrepreneur. What was the environment like back then for starting a company and how does it compare to today?
HR: It’s a very interesting question. There were really no women starting tech companies back then. Sometimes, I almost laugh when I hear women today say there are no women. There are a lot more than when I first started: Sandy Kurtzig (ASK Computer Systems) and Ann Winblad (Hummer Winblad Ventures). Let’s see, can I think of anybody else? That was kind of it.
Starting a company today versus back then is the same, in some ways. It’s about passion, finding a need and filling it, doing it as resource-efficient as possible, being creative, and surrounding yourself with great people.
I think what’s different today is almost every business gets started on a global platform.
Distribution is very different. At T/Maker, we made software, put it in boxes and then mailed it to people. Now, you have this continuous upgrade; you can be on your iPhone and not even realize that an app has been updated.
Back then, when we started shipping our product for personal computers, there weren’t many personal computers, but there also weren’t many products, 2-3 competitors at most. Nowadays, it’s very hard as a content provider to get attention because there are hundreds of thousands of apps.
There’s also a lot more entrepreneurial competition. There’s this fertile platform that you can do something on, with few resources.
The good news is you don’t need a lot of resources, the bad news is that neither does anyone else.
GM: What is the biggest misperception that entrepreneurs have about VC funding?
HR: VC funding isn’t for every venture. It’s about high risk, high return. More than 60% of all venture deals never return capital. It’s those outliers that more than make up and create the business model. If you’re not going to be an outlier, you’re probably not appropriate for true venture. The big funds have to do fundamental disruptions of big industries, with big outcomes; that’s how the model works. Anytime you take venture, you have to remember that they’re only going to get paid when you achieve liquidity, that’s by selling the company or taking it public. Most never go public, so that means at some point you’re going to have to sell your company.
What I find interesting is that most entrepreneurs don’t understand that when taking venture you are creating a contract that says I’m going to sell the company someday.
The other misperception is around preferred shares; entrepreneurs don’t seem to think that if I, as a VC, give you $5 million and a few years from now you sell the company for $5 million, I get all my money back first; that’s how it works. I encourage entrepreneurs who plan on taking any kind of capital to read a fantastic book on the topic, Venture Deals, by Brad Feld and Jason Mendelson.
GM: Tell me about the Draper University Heidi Roizen scholarship for young women entrepreneurs.
HR: Tim Draper and I are long-time friends, since Stanford undergrad. Last year, he asked me to help him with Draper University. I love what he’s trying to do: reinvent how education for entrepreneurs is done. He believes in this really immersive experience. It isn’t just about business plans and power points, it’s about survival, team building; it’s all over the map.
Through this scholarship, I wanted to support the idea of having more women in tech and give them the opportunity to go, from a financial perspective.
GM: What is the one lesson you learned the hard way that you’d like to pass on to other women leaders?
HR: It’s a lesson I like to pass on to women, and not just women leaders, which is the 20/40/60 rule by American actress Shirley MacLane: at 20, you’re constantly worrying about what other people think of you; at 40, you decide you don’t care what other people think of you; at 60, you learn that no one was actually thinking of you. It’s been a guiding light for me. No one’s really thinking about you, so here’s the good news: when you give a speech that’s not that great or your company goes out of business and you think the whole world is focused on you and your life is ruined, it’s really not, because no one’s really thinking about you that much. Tomorrow they’ll move on to something else. It’s part of life.The sooner you can pick up and move on, the better off you will be.
The flipside is that people aren’t thinking about you. So, you have to do things yourself. This is an area where I see women not taking initiative, whether they’re afraid to ask for help, whether it’s because they think other people are going to do things for them.
Whatever the reason is…you have to recognize that most people are just not thinking about you, and you have to do it yourself.
GM: What is the best career decision you have made so far?
HR: That’s a really hard question. Starting a company with my brother, even though any rational person would have said we were foolish to do that. We didn’t know what we didn’t know, so we didn’t know we couldn’t do it, so we did it. Taking that leap of faith, especially when you’re young. I’m lucky I made that decision when I did. If I had gotten a job, I wouldn’t have done it, because I would have had too much to lose.
GM: What would you consider to be the most critical skill for anyone looking to be in a leadership role?
HR: Effective communication. Leadership and communication go hand in hand. Telling people why you’re passionate about something, what the vision is, helping people organize around what they need to do, delivering bad news in a heartfelt, succinct way.
In every way, there’s a good way to communicate and a bad way to communicate. Communication is the single most important thing.
GM: Tell us about the course you teach at Stanford on the spirit of entrepreneurship.
HR: Stanford is the world epicenter of entrepreneurship education; I’m not the class that teaches about business plans and business modeling. In my class, we have a weekly speaker series (available online at etl.stanford.edu). We delve into the speaker, the business they’re in, their road to success.
Last quarter I did something that I was most proud of, and that the students loved. During the course of the quarter one of my acquaintances, an entrepreneur, unfortunately committed suicide. An article was written about him called “Killing it” Isn’t Worth it, a reference to when successful people do really well they are said to be “killing it.” The article talked about the issues the company had run into, the dark side of entrepreneurship, the pressure, the loneliness, the fact that we say we tolerate and celebrate failure, but we don’t really want people to fail.
After reading this, I decided to give a class called “Blood and Guts,” where I talked about all the terrible things that happen to people, the bankruptcies, suicides, lying, cheating, stealing, love triangles, murders, stalkers, all of it, because it all really happens. I used real life stories from my own experience and people I know. The students were really thankful because entrepreneurship gets really glorified as a cool thing to do, but the reality is that entrepreneurship is not for everyone, the vast majority of entrepreneurs won’t be successful and bad stuff happens. People should be aware of that.
GM: For women looking to start their own company, what advice would you give them?
Don’t gamble more than you can afford to lose — this doesn’t mean don’t go do it, nor does it mean don’t make sacrifices, just don’t put yourself in a situation where you can’t sustain the loss.
Figure out if there’s a way that you can start small. Every person you hire has to be the best person possible, and really do your homework on the competitive landscape.
GM: For anyone looking for VC funding, what things should they consider?
HR: Traditional VC is a super small part of the funding spectrum for the market. You have to recognize it isn’t for everyone. There are so many other great sources of funding available now: crowdfunding, angel funding, new kinds of VCs, incubators. I also think that an old fashioned way, which is how we got T/Maker started, is a particularly good source of funding: customers. In other words, have someone pay you to develop a customized version of something that you want to make generic.
If you do decide to raise venture, figure out the firms that are the right size, sector, and geography for you. The last point, and, one that is sadly true, is that if we don’t know who you are, we are unlikely to pick up on it. That personal introduction is very important, even if it’s going to a conference, going through their attorney, a mutual friend, anything.
GM: What is your take on Sheryl Sandberg’s book, Lean In, and women in the workplace?
HR: I think everyone should read the book. Sheryl’s done a great service by writing it. I know Sheryl; I found the book to be very approachable, personal, heartfelt, and vulnerable. Some have said that she can’t relate because she’s rich; she wasn’t rich when she started. If we’re going to condemn anyone who’s made a lot of money, we’re not going to get a lot of advice from people who are successful because money is a by-product of that.
In my own life, a lot of great people have helped me, men and women, mostly men because I was in an industry that had a lot of men, but some women, such as Ann Winblad, who led our A round at T/Maker and was a super helper. But, she didn’t help me because I was a woman, she helped me because I was a kindred spirit. I believe that one of the issues about women not helping women is when you are in a zero-sum game, like in investment banking; they hire their crop of recruits and everyone knows that only two people are going to make it to the next level, so why on earth would you help anybody? They’re your competition. Silicon Valley is interesting because we actually believe, whether it’s right or wrong, that, for the most part, if we help each other out, we all get bigger and better.
If you look at the eco systems, e.g. the iPhone ecosystem or whatever it is, the more things that are available on it, the more everybody flocks to it; it’s a self-perpetuating virtuous cycle, so there’s a real incentive for women to help other women because they believe they will benefit when others are successful. Whether that is out in the open, a more subtle thing, a belief we hold, or it’s just that entrepreneurial people are constantly looking to make something out of nothing, meaning they are constantly looking for help, which means they buy-in to the idea that if you’re constantly asking for help, you have to be willing to give help too -- it could be a combination of all of these reasons.
I can give you lots of examples of women helping other women, and it’s the collective of all these small things that make the big things happen.
Gwendaline Mazzara is an international business development executive with over 15 years experience in consumer technology and financial services, across Europe and America. She has successfully launched new divisions, grown sales and marketed multi-channel products for SMEs and Fortune 500 companies alike, including Mattel Interactive and Sony. Read her blog at NxtGenSME.com. Follow her on Twitter @NxtGenSME.
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