Venture Profile: Andreas Stavropoulos, Draper Fisher Jurvetson
By Angel Mehta, Managing Director, Sterling-Hoffman Executive Search
Angel Mehta: You began your career on the Management Consulting side; do you think that consulting provides good foundational training for success in venture investing?
Andreas Stavropoulos: Consulting is about interviewing people; learning to ask questions, listening and probing. The interpersonal side is obviously quite important and in a consulting role - you can't do your work if you're not good at learning to interact with many different styles. Certainly, those skills help in venture investing, when your having to work with entrepreneurs from different backgrounds and various management teams. However, I don't think a typical consultant is necessarily a good fit for the Venture Capital world. The longer you stay in consulting, the more you are taught to think in a very structured way. That's great when you're trying to help large businesses improve by small increments, or extrapolate from where they are today. But that isn't necessarily the best approach for venture investing, where creativity may be even more important than structured thinking.
Angel Mehta: You mean management consultants don't think creatively?
Andreas Stavropoulos: I don't care what they say, consultants are not creative, out-of-the-box thinkers. They are creative in incremental ways, but that's it.
Angel Mehta: What do you mean by incremental?
Andreas Stavropoulos: A typical consulting background does not encourage thinking completely out of the box because it's usually unrealistic to implement. Large Fortune 500 companies can't go way over there where nobody's been before (gesturing) - because in the Fortune 500 world, it is supposed to take 20 years to go way over there.
Angel Mehta: You mean in terms of doing things that are an order of magnitude different than the way they're currently being done?
Andreas Stavropoulos: Exactly. But with a startup, you have to start thinking about how to go way over there from day one. Because if you don't think about way over there, your idea is at best incrementally beneficial and at worst, ten other companies are already doing it. Consultants aren't taught to think in these terms - they get paid for incremental improvements.
Angel Mehta: I want to talk about the process of selecting entrepreneurs. The more research I do, the more it seems like using track-record as the primary metric makes no sense whatsoever - primarily because the set of variables that conspired to make someone succeed in the past do not necessarily carry forward into the future. So what else beyond track record do you look for?
Andreas Stavropoulos: Focus, passion, anger. What I've learned, through making mistakes, is that it is really difficult to determine what or who would make a good entrepreneur because most of us tend to like people who are like ourselves. Don't you agree?
Angel Mehta: I suppose.
Andreas Stavropoulos: Well, the people I could hang out with or enjoy a conversation with over a cocktail are usually not great entrepreneurs. The people I get along with are a lot like me and there's a reason I'm not an entrepreneur. So it really doesn't make sense for me to pick entrepreneurs based on whether I personally 'like' them or not. Instead, you want people who are relentlessly focused and passionate. You want people who are angry…almost pissed off about the way things are, and say to themselves: 'I CAN'T BELIEVE THE WORLD IS DOING IT THIS WAY. I CAN'T BELIEVE WE DON'T HAVE SOMETHING BETTER. I KNOW I CAN DO IT BETTER'.
What we find around here is that the great entrepreneurs have this anger inside that serves as the primary driver.
Angel Mehta: That's interesting because I find a correlation between that kind of anger and youth. Yet as people get older, they tend to become more accepting of the status quo. So does that mean, perhaps, that you are more open to considering young entrepreneurs?
Andreas Stavropoulos: Yes, absolutely. Young people aren't jaded. You don't know why it is that you can't do something. As you grow older, you learn that there are a lot of things that you cannot do. You learn just how hard it is to build things, and just how challenging it is to run a business. I will say, however, that they must have the ability to recognize talent in others. If they have a huge ego and the vision is being fueled by ego, they are not going to attract top people. You want a person who cares enough about what they're doing…who cares enough about the idea…who is angry enough to say, "The way to make my vision happen is I need to hire people better then myself". The passion of the vision is what moves others. So recognizing talent in others and then delegating and letting go so that you're not thinking of yourself before the company or the vision but rather the vision first and everything else second… that's a critical part of making it happen. It shouldn't be about your crusade as an individual.
Angel Mehta: Beyond mistakes in selecting the entrepreneur, what other mistakes have you made?
Andreas Stavropoulos: I have made mistakes in timing and technology. Here's the thing, and it sounds obvious, but needs to be said: It's really difficult to build a big business. I mean, it's amazingly difficult to build. It almost defies logic that you can begin as a start-up and then make multi-hundred million or billion dollar business. E*Bay, Yahoo and Hotmail are exceptions. So that said, there are two different strategies you can go forward with. One, is do deals with low-risk / lower return. For example, an enterprise software company that is really just automating another small process and can get three to five clients that love the product. Maybe they've got $2m - $3m in revenue. With a deal like that, I can see clearly that I'm probably not going to lose my money and chances are we'll come out with 4x or 5x return if they execute well. The other investment strategy is to go for homeruns, where in the early stages, the deals look kind of weird.
Angel Mehta: Weird?
Andreas Stavropoulos: Weird in the sense that some people would say, "Wow this is going to be huge"… whereas some others would say…
Angel Mehta: What the hell are you talking about?! [Laughing]
Andreas Stavropoulos: Right. Those are the really big deals; the ones that may start with concepts that nobody has heard of before. Another thing we try to do when assessing plans is rather than thinking about how many holes there are, we try to look at what might happen if everything goes right. If, by some total fluke, this thing takes off, how BIG does it really get? What is the potential? Any MBA graduate can poke holes in a business plan. More likely than not it will fail because most things fail. But if the world does end up looking like the vision that the entrepreneur has in his head… how big can we make this thing? I always find that to be a useful way of approaching deals.
Angel Mehta: What is the most difficult thing to get right in venture capital?
Andreas Stavropoulos: Timing. In general, entrepreneurs come up with good ideas. But in most cases, they err on the side of being too early. Timing is a critical piece and is very difficult to get right. What I've learned is to check my instincts a few times and always tack on a few years to any estimate someone gives me about when the right time is. I try to stay in touch by talking to my mom or my wife about the world in general. They kind of ground me back down into reality with ideas that are too far away from their world. But anyway, timing is a huge challenge. The 'man this is so far away' from their world. So timing is one that causes problems.
Another big problem is becoming overly enamored of technology. It's ironic because we're tech investors yet tech isn't very high on the list of things that are very important. We haven't had good experiences trying to find the best intellectual property and fund a deal on that basis because there's more technology then you can shake a stick at out there. As an example, you can have great technology in a market that is dominated by commodity pricing so you have a very small window. At the end of the day, you're part of this overall solution and some Taiwanese ODM buries you into a stack and your piece is only so big. If it's taken you $30 million dollars or $50 million dollars or $100 million dollars to get this great technology to production, and your margins have just collapsed… well that's a failed deal. So it's important to discount the importance of technology a bit.
Angel Mehta: What part of serving as a venture investor do you dislike the most?
Andreas Stavropoulos: It's a good question, but frankly, I love my job. I can't think of anything I'd rather be doing right now beyond what I do today. Is it stressful? Sure. It's guaranteed that at any given point in time you'll be fighting some fire somewhere and nothing is ever under your control the way you want it to be. There's always something going on so it's hard to carve out time and say, "I will take time off" or "I'll take it easy over the next couple of weeks because I have a family thing to do". You live your job. You live it 24 hours a day and weekends.
One thing I don't enjoy is having to contend with the perceptions that exist about the venture community. Venture capital, in general, has as many negatives as positives in terms of stereotyping. You are sometimes viewed as a greedy capitalist who wants to just get your money out with no regard for the company or entrepreneur and move on to other things. That's not really true. Yes, we are greedy in the sense that we are looking to serve our Limited Partners, but we're up front about it. We don't have hidden motives.
Angel Mehta: Limited Partners are your customers…
Andreas Stavropoulos: Exactly. So yes, we negotiate with entrepreneurs and, yes, we're going to be cheap if we can get away with it. We don't like to pay top dollar for deals and we feel we add a tremendous amount of value that justifies whatever we offer. And yes, we're going to have disagreements with people - because we're vocal. I think that the way you add value is by challenging a management team and the entrepreneur to think about things… to execute better, faster, etc. That's part of the job. It's what a venture capitalist gets paid to do.
Andreas Stavropoulos is a Managing Director at Draper Fisher Jurvetson, where he serves on the Boards of a number of private companies, with a focus on software products and services, emerging web service infrastructure, and wireless. Prior to joining DFJ, Mr. Stavropoulos was with McKinsey & Company's San Francisco office, where he worked with senior management teams of corporate clients with an emphasis on information technology. For article feedback, you can contact Andreas at: email@example.com
Angel Mehta is Managing Director at Sterling-Hoffman, a retained executive search firm focused on VP Sales, VP Marketing, and CEO searches for enterprise software companies. He can be reached for feedback at: firstname.lastname@example.org