Anne Dinneen

Who Invests In Investors: Homebrew LP Shares VC Performance Goals, Importance of Diversity & What They Look For In New Funds

Anne DinneenSatya and I approached fundraising for Homebrew as if we were building a company, asking ourselves who were the investors that would give us a solid platform, who were aligned with our values and where we learn from them. Over the first two funds we’ve ended up with just that – a group of LPs representing college endowments, foundations and fund of funds who are committed to us and the early stage venture segment. 

The James Irvine Foundation joined us in Fund I and has been a great partner since. They provide assistance to Californians in building a vibrant, successful and inclusive society, distributing more than $1.5b in nonprofit grants to that extent. How could we not get up each morning excited to help that cause!?!

We work with the entire Irvine team but through our first two years spent many hours with Anne Dinneen in their investment group. Anne recently became CIO of Hamilton College which is a fantastic and deserved opportunity for her after many years of success. I approached Anne last month about sharing some thoughts behind how LPs evaluate venture partnerships and she was game, especially since we both share an interest in diversity questions within VC. 

Oh and Anne is DEFINITELY still interested in venture as part of Hamilton’s investment strategy. If you have the opportunity to work with her, I highly recommend it.

Hunter Walk: Let’s start by covering a basic question – why is venture part of Irvine’s investment strategy?

Anne Dinneen: Nothing has contributed more to the growth of the Irvine endowment over the years than our venture portfolio. For an investor like Irvine, who can embrace the asset class’ illiquidity and long time horizon, venture has produced significant returns with less capital at risk. These managers sit in our Privates bucket and are therefore expected to beat the public markets by at least 4.5%.

As you know, the standard ”excess return” and “diversification” benefits attributed to venture are widely debated among institutional investors.  An investor needs much more than patient capital and an appetite for illiquidity.  At Irvine, we have spent two decades building an approach to venture that we believe enables us to identify and partner with the best firms consistently, throughout cycles.

HW: So over time how do you decide allocations to different funds? And what leads to adding or removing a fund from Irvine’s portfolio?

AD: A small group of the more established venture firms with whom we have partnerships have consistently produced excellent results, fund after fund.  Deciding allocations to those firms is based on a detailed quantitative analysis of the track record and a more qualitative analysis of the team, strategy, opportunity set, domain expertise, etc.  We have a preference for strong local teams in certain geographic regions or those focused on underserved sectors and inefficient markets.  An addition to the portfolio typically offers some differentiation or new value proposition.  Removing a fund from the portfolio can be for a variety of reasons – strategy shift, team dynamic, assets under management, performance, etc.

In terms of velocity, we attempt to make a steady set of commitments to exceptional partnerships without making an effort to time the individual partnerships. There will be years with few compelling opportunities and years with an abundance of outstanding opportunities. We probably meet with twenty venture managers a year. Over the past five years, this has resulted in one to two new relationships per year.

HW: When you’re adding a fund that’s been around for a while you have their track record to evaluate. In cases of a new fund, like Homebrew in 2013, what does Irvine evaluate?

AD: The Foundation’s venture portfolio currently has a mix of established as well as new managers. Emerging managers do not have track records, established franchises or teams. As a result, we have to rely on the qualitative metrics previously discussed. We spend a lot of time understanding the talent proposition and the investment strategy.  We triangulate with investors, entrepreneurs and large company operators to assess probability of success and ability to attract in-demand entrepreneurs.   Given the abundance of capital in today’s market, we want to feel that an entrepreneur will pick this team to sit with at the table.  Similarly, a GP might be in the middle of great flow, but we need to have conviction that they can identify the right deals, structure creatively, and negotiate effectively.

HW: Recently there’s been a spotlight on the lack of diversity – especially gender diversity – in the VC GP ranks. Is this something you’ve thought about as part of Irvine’s investing strategy? Does diversity explicitly come up in discussions with your GPs?

AD: Yes. The basis for modern portfolio theory rests on the power of diversification. Diversification can come in many forms and flavors beyond the garden variety, including gender.  While we would not invest in a fund simply for the sake of gender diversity, we believe that assembling managers with different backgrounds can contribute to a more diverse set of perspectives and hence investment opportunities.  I have also seen gender factor into an entrepreneur’s decision to partner with a GP.

HW: I’m often asked by people earlier in their career about breaking into venture. My recommendation is basically to spend 10+ years building operating skills at tech companies (founder or meaningful contributor), expand your network and put together an angel investing track record. What would your advice be?

AD: I think that is sound advice. While there has been meaningful growth in the number of early stage venture funds, very few are able to provide meaningful operational and product guidance. We felt that Homebrew filled the growing mentorship gap that exists today. We believe deep engagement yields better outcomes. A powerful network is always valuable. It can provide superior access to investments, talent and strategic relationships. Finally, we were attracted to Homebrew because of the combination of deep operating experience and solid investing backgrounds. If you are early in your career, an angel track record will help to quantify your talent and develop portfolio management skills. That all said, some of the best teams we have backed do not have operational experience or a track record.

thanks Anne!

barros

Five Questions With: Marc Barros, Founder of Moment (err six questions)

Writing started as therapy” – that was the opening line from Marc Barros is my last interview with him. Marc was the founder of Contour, a camera company which served as GoPro’s primary competitor before struggling to grow. Processing some of those learnings into very personal and effective blog posts, Marc caught my eye as someone sharing meaningful stories with founders. So almost a year later, wanted to check in and see how Moment, his new company was doing.

Hunter Walk: The previous Five Questions with you was one of my most popular posts, mostly because of your vulnerability and durability. Catch us up on the last nine months.

Marc Barros: The last nine months have been a lot of fun.

On the personal side, being a father has made be a better entrepreneur. My son is 20 months old now and he reminds me everyday to be present. The speed at which he learns and the simplicity of how he expresses himself is amazing to witness. It truly makes everything we do in building companies seem irrelevant.

On the entrepreneurial side Moment has gone from a product to an awesome small team of nine. We feel incredibly blessed to have customers who are so passionate about what we’re building. While as a team we are defining how we want to play the game, building deeper relationships together, and learning how to win as a group. I believe that building great teams takes a long time and we are very committed to this process.

HW: What’s different for you in building Moment?

MB: What’s different this time around is I’m trying to be the coach and not the player. In building Contour as a first time founder I prided myself on being able to do nearly everything in the company. I somehow believed that leading by example meant taking over when people fell down. Like a bulldozer I would run over everything and everyone in my way.

Fast forward and I’ve learned that being a great leader requires you to realize that it’s not about you. It’s actually about everyone else and enabling them to deliver their best work. And so this time around I have been working really hard at becoming a better coach.

I can’t say this process been easy but it has forced me to be more vulnerable, more empathetic, and a better listener.

HW: You’re doing Hardware Workshops in different cities. What’s the goal of those and what’s surprised you about the response?

MB: I started Hardware Workshop to help other hardware startups build better companies. I had no idea that we’d end up helping some 800 companies. It’s crazy to realize just how big the hardware startup community has become and how many people want to help in making it successful. The teachers, partners, and attendees are all committed to the overall movement in making hardware startups successful for the long haul.

In gaining feedback from previous attendees we realized there are two important stages for a hardware startup and therefore should be two different types of lessons we teach. The first is going from an idea to market where successfully shipping an MVP that customers will actually buy is critical to getting out of the gate. The second is turning that shipping product into a successful hardware startup. So based on this realization we now have a Level 1 workshop (idea to market) and a Level 2 workshop (shipping product to successful startup). We have seven workshops there year. You can read more about it here. http://hardwareworkshop.com

HW: Did you happen to catch this post by Bolt.vc – discussed how crowdfunding success is often misinterpreted as true product market fit. How has Moment shaped your attitudes towards crowdfunding?

MB: Yes, I read it and believe in its core message. I think Ben and Bolt are doing some amazing things for the hardware community.

My definition of market fit for a hardware startup is when you profitably understand how to reach another customer. Reaching a new customer is by far the most expensive aspect in building a company with a physical product so you want to figure out very early on what works best to profitably grow your base. Unless you have the resume to raise a lot of money up front, your capital constraint will force you to be creative in reaching new customers.

With Moment I feel that we only recently reached market fit. It took us about 18 months and it wasn’t until we shipped our second product (lenses + app), received high customer conversion rates on mainstream press coverage, and raised $695K with our second Kickstarter campaign. Before that we didn’t have enough data points to prove to ourselves that we had more than an interesting first product.

We crowdfunded our first two hardware products with Moment and plan to keep going back to the community with everything new we create. It not only provides incredible feedback early in the development cycle, but ensures people are interested in what we’re building. If customers don’t want the product then we shouldn’t make it, no matter how much that hurts our own egos.

HW: GoPro is now a public company worth billions. Will their competition come from other specialized wearable devices or from the phone morphing into “good enough” replacement for most people?

MB: What a story. When we were competing against one another with SD quality action cameras no one would have believed that the category for action cameras would dwarf every other hardware startup category. I remember many investor meetings where people called this a niche.

GoPro’s core DNA was to take an average product and market it extremely well, driving up the margins of the product with perceived quality. They did this as well as RedBull marketed sugar water, which is not an easy feat.

So the question is not about the camera and what is going to replace the hardware. Instead it’s about the GoPro brand and what other products/services they can sell you. Their brand owns the 90 second action video real, which is something no one can take away from them. Not even RedBull.

HW: What’s a hardware startup that’s impressed you recently and why?

MB: Fitbit. By filing to go public you can finally see just how efficiently they have executed both in growth and managing their profits. They have build a category leading brand with less than $100M raised which very rare in hardware. James and team deserve a lot of credit for what they have done.

Malay (@mxgtro) wrote an interesting piece (http://rockhealth.com/2015/05/deconstructing-fitbit-s-1/) about Fitbit and tried to break down their customer engagement and turn metrics. It’s super interesting and the kind of thinking most people have had with connected devices. But in Fitbit’s case I think it’s is the wrong way to look at their business. Health and staying in shape is not actually a constant for people. Based on life’s events we ebb and flow into our levels of fitness. Which means the success of Fitbit really shouldn’t be measured about the % of people that stay engaged with the product but the % of people that accomplish their goal. If you look at the business this way then it’s even more interesting to realize that customers can leave and come back to the platform as they need more health inspiration. Fitness trackers aren’t telephones, they are products used periodically to motivate us.

I don’t know if Fitbit will unlock this opportunity but it will be exciting to see what happens next with them. Their IPO is great for hardware startups. It not only provides benchmarking data for other hardware startups but it demonstrates that hardware startups can provide a significant return for their investors.

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Five Questions With: Sara Chipps, CEO of Jewelbots

You meet a lot of interesting folks on Twitter. Sara Chipps, cofounder/CEO of Jewelbots was one of them although most enjoyably, she reached out to me initially because she thought I had something to do with Homebrew, the Mac package manager and not Homebrew the venture fund. Once that was resolved it turned out we still had things in common and got together in NYC last year. She recently launched an opportunity for Jewelbots’ community to invest in the company via Quire so I wanted to reach out and catch up with her.

Hunter Walk: What I love about Jewelbots is it encourages girls to think about what they’d want to create, not just consume. How’d you decided to start this project?
Sara Chipps: I’m an eternal teenager. It was a time in my life that was difficult for me, however it was a time that truly defined my personality. I think teenage girls are the future, and an incredibly important demographic.
HW: When we talk about STEM education and kids, what aspects of the challenge are unique to girls?
SC: It’s unique because of the scary numbers coming out of engineering schools. The internet is the largest record of human history ever created, and our history is being written by white and asian males. It’s incredibly important for humanity that we change that.
The way we are approaching this is wrong, however. We keep telling them they should be into it. There are a million programs for telling girls “this should be important to you!! make it important!! you need to be an engineer!!!” We’re telling them what they need and not asking, I think that’s a recipe for failure.
HW: Have you gotten any pushback that a project based on jewelry reinforces notion that girls are only interest in “pretty things?”
SC:  A few months ago I was in a meeting with my cofounder Brooke. She said something that solidified my belief that she’s an amazing partner. The person we were meeting with asked this exact question. She said “I’m personally offended that you think that things that are girly and beautiful can’t be technical.”
HW: You worked out of a hardware accelerator, right? What advice do you have for founders evaluating those programs?
SC: Always look at companies that have gone through before you. Sit down with the founders if you can. We learned an incredible amount from that and it’s the reason we went with Highway1. Look at their product, evaluate if that’s a company you would like to be like on the other side of the program.

Coming out of Highway1 we saw amazing companies like Ringly, Navdy, and Birdi. Talking to the founders and looking at their products we were sold. I’m incredibly glad that we did it, it was extremely valuable.
HW: What role does Quire play in fundraising for you? Why not just go traditional route?
SC :We have great investors that are available for feedback when we need it and truly care about our success. They’re an invaluable part of this company.
We think that platforms like Quire give our community a chance to be a part of our company and to grow with us. We want to give people that care about Jewelbots and our mission the chance to become owners. We’re excited to be able to share our success with this new group of investors.
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Please Succeed or Fail Fast: Why Large VCs & Seed Rounds Could Lead to Portfolio Conflict Down the Road

Despite some speculation, I’m not @StartupLJackson. However, after reading this article about his NVCA talk, I’m realizing I might be Naval Ravikant because there’s a lot in there that I’ve been thinking about as well. Our early stage fund Homebrew debuted just two years ago in early 2013 but already I’ve witnessed a dramatic change in how BigVC thinks of seed.

In 2013 BigVC was putting small checks to work in lots of companies for a variety of strategic motivations (marketing, first looks at promising startups). As Sarah Lacy notes in the article referenced above, “firm after firm announced new ‘seed programs’ —pools of capital that they’d invest different than they did Series As, Bs, and Cs.” The article further details that many of these programs have shuttered or slowed. But BigVC hasn’t left seed, just changed its approach.

From where I sit on the front lines, more large funds are playing lead/co-lead roles in seed rounds these days (or pushing the startups Straight to A Round). There are lots of implications for founders – both positive and less so – so they should go into these opportunities thoughtfully, but at Homebrew we’ve enjoyed co-leading with some BigVCs and anticipate we’ll happily continue to do so when it makes sense for the entrepreneur.

Less discussed is what I believe to be a primary challenge for these larger funds making meaningful commitments to seed companies: competitive conflict within their portfolio. It plays out like this ->

  • $500m fund leads a bunch of seed rounds, putting $2m into $2-$3m rounds for early stage startups. That capital is supposed to last 12-24 months until company is ready to raise their A, like the rocketships they hope to be.
  • But not all startups are up and to the right. Those which grow more slowly suddenly become very capital efficient – burns get reduced, second seeds get raised, etc. They reach profitability or become zombies.
  • BigVC who led round gets frustrated. Small ongoing concern isn’t worth their time but even worse, what happens when they – or one of their other partners – wants to invest in the Series A, B of a company in a similar vertical. Uh oh, potential conflict. Earlier seed founder isn’t happy – you’re investing in one of our competitors!

Pragmatically, some BigVC firms specifically incorporate the “is this our bet in the vertical” question into their seed investing strategy. It’s why their seed investments skew towards problems which have technical risk or unique markets rather than, for example, one of 12 competitive companies with low barrier to entry and high network effects. Their thinking is, better to wait and try to invest in the “winner” later than take yourself out of the game at seed.

I’m not privvy to what many of these firms tell seed founders about potential conflicts. Founders should expect that non-lead seed firms may make a larger number of potentially competitive bets within an industry. Those checks are usually <$500k. However I think it’s fair for a founder to assume their seed round lead will not make competitive investments in the foreseeable future, whether the check comes from a micro VC or BigVC.

The hardest thing about this situation is no one’s intentionally being a good or bad actor here! The BigVC would like to see early stage startups win. But if they don’t, they’d like to see them fail fast. I’m wondering what happens over the next few years when these conflicts come up increasingly often.

Homebrew’s Second Annual LP Meeting: Why We Do Them

Last week Homebrew held its second annual LP meeting, coinciding with our second anniversary as a fund. The agenda was very similar to 2014’s, which I discussed last year in this post. Now that we’re another 365 days in, thought I’d add (a) what’s different about a Year Two annual mtg vs Year One and (b) why we think annual meetings are valuable to Homebrew.

What’s Different in Year Two

  • Follow-On Decisions Become Part of Agenda: Since a fund in Year Two is still in value creation, not harvest, mode, the trajectories of Year One investments is often more illuminating than recently funded ventures. We’ve had two second seeds, 5+ Series A and one Series B from the investments we made during the fund’s first 12 mths. Given round sizes and our average ownership of ~10%, we can very quickly end up with several million dollars invested into a single company. Satya and I discussed how we help companies fundraise and our thinking in maintaining ownership vs buying up vs taking dilution.
  • Bringing New LPs Up to Speed: Since we raised our second fund earlier this year, you can think of this as our first board meeting with our new investors. They all became quite familiar with Homebrew during their diligence process but post-close is when we actually start to work together and bring them into our community. After spending the time with them last week, we’re even more thrilled by the expanded group.
  • Comparing Notes About Market Trends: Although Homebrew is still young we’ve definitely seen some changes in the seed stage ecosystem since we started in early 2013. We ran through five “headlines” about the state of venture capital and articulated which we thought impacted our strategy. The in smaller discussion of our advisory board, got their feedback about what we were overemphasizing or underestimating as impacting our model. Homebrew has a 20 year roadmap to be the type of venture fund Satya and I would have wanted to take money from. That means we raise what we need to fund our strategy, not more than that.

Why We Have Annual Meetings

Annual Meetings or similar events are pretty common in the VC industry. Amongst seed funds they’re slightly more rare – sometimes VCs will do small dinners with their investor – but we’ve always thought a somewhat traditional structure was worthwhile, with a few of our own touches. Why?

1) Gets All Three Sides of Our Triangle Together: It’s our chance to bring our LPs, advisors and founders together with us. We invite several of the founder teams to present at the LP meeting discussion and all of our founders and advisors to a dinner. Chance to build our culture and give all of the people we depend upon, a look into our community. It also gives us another annual milestone to take stock, given that fund cycles themselves are generally long.

2) Makes Us Smarter: We learn from the questions and conversations with our LPs. Satya and I have always raised for Homebrew as if we were raising for a company: who are the people we want around the table to give us help, advice and enthusiasm. Yes, it’s a business relationship at start, one where we need to live up to our end of expectations, but we hope to have many years getting to know these institutions.

3) Founders Should See How VC Works: If you ever take money from venture capitalists to fund your company, you should know how VC works. To know how VC works, you should know about the capital behind your venture capitalists. Firstly because it will give insight into how your VC backers work. Second because increasingly these institutional LPs are interesting in going direct in startups later rounds. We’re happy to invite our founders behind the VC curtain so they can understand every part of our operations.

While it takes meaningful time to prepare for an Annual Meeting (and about 12 hours of sleep once done), they’re worth it for Homebrew.

The Time When YouTube Eliminated Pay Bias For Its Product Managers

If you haven’t checked out #TalkPay on Twitter, you should. People are tweeting about their salary histories. Not verifiable and not scientific, but part of the desire to help drive awareness and close pay gaps for the same jobs, whether between men and women, or Caucasians and other ethnicities.

At the heart of pay bias issues are the employers who, with short-term thinking, pay less to people when circumstances allow it. Maybe because someone isn’t as good a negotiator as their peers for example. I certainly don’t believe everyone doing the same job function should automatically be paid the same — gaps in wages based on objective measures of performance are part of a good compensation strategy — but during my years at Google I was exposed to the wages of dozens (maybe hundreds) of our product managers across all roles, seniority and performance levels. And I’ll tell you, even at a data-driven place like Google, base salary didn’t always correlate with quality of employee. So at YouTube we took a radical step to fix this among the product org. Here’s what we did.

Outside of performance review cycles, we looked at the base salaries of all our product managers and where that salary fell within the salary band for their slotted level. Usually you would get larger salary increases at promotions and then smaller merit increases annually based on performance. We were months away from any annual review process but when looking over the salary data we saw something troubling. Many of our high performers weren’t necessarily at the high side of their salary band. Why? Any variety of reasons but most had to do with what their Year One salary was at Google and whether they were aggressive negotiators of salary during performance reviews or off-cycle because of competitive job offers.

So what did we do to those high achievers who were being paid same or less than their peers? We bumped their salary to the max of their current level. Over time, their performance trajectory would have fixed any imbalances – they’d be promoted faster, get more stock, etc but that wasn’t the point. Our nearterm goal was for our best product managers to know that we never wanted them to feel undervalued and that they could trust our desire to invest in them. In my opinion, the dollars we spent in off-cycle salary changes repaid themselves 10x in retention and moral. The idea wasn’t mine – I think it came from People Ops or Salar (YT CEO) or Shishir (YT Monetization Product lead) – but it was such the right thing to do.

I wonder if places like Facebook, Apple, Twitter, Microsoft, etc do similar today. It might be an overly idyllic version of the world, but given the value of high performers within technology environments, I’d personally never want a superstar on my team – male or female, white or black or asian – to find out someone else was being paid more than them just because that person threatened to join a competitor, or had a previous boss that liked them more, or whatever. Employees should ask for equal pay but smart employers shouldn’t have to be asked.

shyp

Shyp Raises $50m: Some Inside Baseball Notes

Obviously thrilled that Shyp raised a $50m B Round from Kleiner Perkins. As we noted on the Homebrew blog, this is a company with so much growth ahead of them, it’s great to put capital to work. Here’s some more detail on the round, our involvement and what I think it generally means for startups.

  • Pro Rata. We remained enthusiastic supporters in this financing, making Shyp the first investment in our Moonshine fund. Moonshine is allocated to pro rata in primarily the B and C rounds of companies from our core funds, when we believe there’s still venture-scale returns to be had for an additional dollar invested.
  • Boards. Satya and I strongly believe in the value of Boards at the seed stage because they help founders build cadence heading into the A round. When Homebrew lead Shyp’s seed in 2013, I joined their Board. When Sherpa lead the A in 2014, Scott Stanford was added and has been a huge asset. Now with Kleiner’s John Doerr stepping into a Board role, I’m able to step off into an Observer role. Homebrew’s model is to be partners of conviction for your first few years but we also think founders should not be overwhelmed by VC opinions or control. So we’ll typically step off boards come B rounds.
  • Google network rolls deep. I’d met John Doerr a few times while at Google/YouTube because of his role on their Board but that wasn’t the only Google-tie in this deal. Kleiner’s Megan Quinn was one of the early champions for Shyp within their firm. Prior to Kleiner (and a leadership role at Square), Megan held a variety of roles at Google. It’s always fun to bring familiar faces back around the table just in a different context.
  • Breaching the Gates. Shyp didn’t run an exhaustive financing process but instead ended up speaking with just a small number of firms who had built relationships with them over time. It was very impressive to see how Kleiner and some other name brand firms did a good job of working with Shyp’s CEO Kevin Gibbon, building trust and proving value. Over time I’ve seen some VCs wait to be told a company was raising. Over time I’ve seen some VCs offer help but do very little proactively (at least until that company is in their portfolio). And over time I’ve seen some VCs get excited but then hesitate at the last minute when it comes for them to stand up in front of their partnership and pull the trigger. Not here.

So if you haven’t tried Shyp yet, here’s a free first shipment (up to $30). They’re currently live in SF, NYC and MIA with a beta in LA. They’re also hiring.