Bessemer Venture Partners celebrates its missed opportunities

Legendary Silicon Valley venture capital fund Bessemer Venture Partners publishes, on its website, its "anti-portfolio," containing investments it could have made, but chose not to. These investments are as star-studded a portfolio as you can imagine, a testament to the difficulty of picking investments in startups. As Daniel Isenberg wrote in "Worthless, Impossible and Stupid: How Contrarian Entrepreneurs Create and Capture Extraordinary Value," "Entrepreneurship and the process of betting on it may be impossible to systematize, precisely because of its contrarian nature."

BVP's successful investments include Skype, Staples, LinkedIn, Celtel and Yelp. Its missed opportunities include these:

Google: Cowan’s college friend rented her garage to Sergey and Larry for their first year. In 1999 and 2000 she tried to introduce Cowan to “these two really smart Stanford students writing a search engine”. Students? A new search engine? In the most important moment ever for Bessemer’s anti-portfolio, Cowan asked her, “How can I get out of this house without going anywhere near your garage?”

Lotus & Compaq: Ben Rosen, one of the founders of Sevin Rosen, offered Felda Hardymon the chance to invest in both Lotus and Compaq Computer on the same day. Says Hardymon: "Lotus wasn't proven yet, and I was worried about the situation there. As for Compaq, I told him there was no real future in transportable computers since IBM could do it."

eBay: "Stamps? Coins? Comic books? You've GOT to be kidding," thought Cowan. "No-brainer pass."

And more are available on the site. (Thanks to Dan Isenberg for referring to this list in "Worthless, Impossible and Stupid.")

Bravo to the BVP Partners for sharing their list and their sense of humor.

Fred Wilson on "Coming of Age" as an investor

This post is from Fred Wilson's AVC blog. We've reposted many stories from Fred (you can find a selection of them here). It's not a mistake story per se, but a recollection of mistakes of inexperience he made, and which he is seeing from young venture capital investors today. I especially like the generous and optimistic tone of the post.

Mar 312012

Coming Of Age 

I’m out here slingin bringin the drama,
tryin to come up in the game
and add a couple of dollar signs to my name
- Memphis Bleek Coming Of Age by Jay-Z

I'm not going all Ben Horowitz on you. But imitation is the finest form of flattery and I do like how Ben rolls on his blog and in the venture capital business.

I'd like to talk this morning about how hard it is the come up in the venture capital game. I work with a bunch of VCs who are in their early 30s and have less than five years in the business. They work hard, put in ridiculous hours, are on top of all the latest trends, companies, technologies, etc. They meet with tons of companies every week, work hard for their portfolio companies, and are on planes flying around to the important confereneces and demo days. I can assure you they are working harder than I am.

But when it comes to winning deals, they have a distinct disadvantage. They can be working on a deal for a year or more, and then when the entrepreneur decides to raise funds, a more experienced VC such as myself can swoop in, spend a week or two building a relationship with an entrepreneur, and take the deal away from them. I've seen it happen. I've done it myself.

They make rookie mistakes. They let a reporter hang out with them for a week thinking they can trust them. They talk when they should be listening. They overpay for deals thinking that will win the deal for them. They use their phones in board meetings. They fight with entrepreneurs over meaningless things.
When I see these things I cringe. Because I've been there and done that. I spent the first ten years (maybe 15) of my time in the venture business as a young VC trying to make it in the game and not really knowing how. I've made all of these rookie mistakes and more. I feel for them, I often mentor them, and I really enjoy working with young VCs.

When a young person asked me about getting in the venture capital business, I advise them not to. I think VC is an experienced person's game. Startups are not so much. Startups are a great place to be in your 20s and 30s. VC is a great place to be in your 40s and 50s.

I look at Ben and his partner Marc and think "they did it right." They got into the venture capital business when they had all the experience one could ever want working with startups. They don't lose deals to more experienced VCs. They win deals over more experienced VCs.

But of course many young VCs made the decision to get in the game at an early age and are committed to making it work. They are going to have to take their lumps. Make the mistakes. Learn from them. Continue to work harder for less results to show for it. And lose deals they should win.

One of the things I did not do very well that many of these young VCs are doing much better is building relationships with more experienced VCs. As I said, I work with a bunch of them. Teaming up with a more experienced VC can help you win a deal, you can learn from them in the board room, and you can ask them for advice when you screw up.

Going back to where we started this post to end it, I like how Jay-Z and Memphis Bleek partner up in Coming Of Age. That's the way to do it.

[JZ] Hahahh I like your style
[MB] Nah, I like YO’ style
[JZ] Let’s drive around awhile

VC Fred Wilson: "Wear failures as a badge of honor"

Fred Wilson's A VC blog is a great source of information on investing and venture capital. And it's one of the few blogs where the comments are consistently a source of great insight. In 2009 Fred posted a story and thoughts on the topic of failure:

Barack Obama said this in his "back to school speech":

you can’t let your failures define you – you have to let them teach you. You have to let them show you what to do differently next time

That's so true. It took me a while to learn that lesson.

When I first started out in the venture capital business, I was afraid to make a mistake. Once I started investing and taking board seats myself, I worked super hard to avoid losing money. I went for almost a decade without making a losing investment.

But then in the aftermath of the internet bubble, the wheels came off of the bus. We wrote off close to twenty investments in the span of two years from late 2000 to late 2002. It was devastating on many levels.

But when I look back on my career, it is not the successes that I think back on most. It is the failures, and particularly those two years when everything that could go wrong did go wrong.

When Brad and I started Union Square Ventures in 2003, we laid out a roadmap for what kind of firm we wanted to create, what kind of investments we'd make, and how we thought the Internet was going to evolve. That work was largely a result of the lessons we both had learned in the aftermath of the bubble.

I think embracing failure is one of the things that makes this country such a great place to do business in. In many parts of the world, if you fail once, you are done. People won't touch you with a ten foot pole. But here in the US, it's almost a badge of honor. And our President explains why.

When we met with entrepreneurs, I'm always interested in their failures. And most people have them, you just have to dig a bit to find them. If someone has failed and taken the time to learn from it, I think that's a big positive. It makes us even more excited to back them the next time.

So don't hide your failures. Wear them as a badge of honor. And most of all, learn from them.

VC Ed Sim reflects on investments he passed over

This post on logging and reflecting on mistakes was originally posted nearly two years ago, but, by coincidence, today VC and blogger Ed Sim published a similar idea - "Reflecting on Passed Investments" - looking back, after the fact, on investments that weren't made. How had they turned out?

Every 3 months I dig through my "passed company" folder to look at what investment opportunities we passed on and why. Inevitably, there are a few companies that are near-misses, but we end up passing on for whatever reason. Did we pass because we didn't think the team was great or because we didn't believe that they could get a product launched? Did we pass because of lack of traction in the beta release or because of concerns on valuation? Looking at my "passed company" folder gives me an opportunity to test our reasons on passing and to see 3 months later if the entrepreneurs could actually execute or prove our concerns wrong.

While many times I find doing this reflection further confirms our reasons for passing, I also find myself from time-to-time sending up a follow up note to check in on these near-misses or doing a quick Google search to see how the company has progressed since our last communication. Inevitably, there will be a few that "got away" and seem to be doing quite well. No one is perfect and looking back every quarter gives me an opportunity to better hone my investing acumen and further refine my understanding on what separates a potential winner from a loser.

Related Post: To learn better, keep and review a mistake log

Fred Wilson: passing up the opportunity to invest in super founders

This story is from Fred Wilson, partner at Union Square Ventures, a tech VC firm based in New York City. I'd encourage you to read the post on Fred's site as well, if only to have access to the hundreds of comments people have left there.

When you walk into our conference room at Union Square Ventures, you see the box of cereal on the right on our conference room credenza next to a wifi router and a jar of Jolly Ranchers. It is there because we are big Obama fans? Nope. The cereal box is a reminder to back great entrepreneurs whenever they walk into our office regardless of what they pitch us on (as long as it's in our investment universe).

Let me explain. Cliff Elam made a suggestion for a blog post in the "bloggers block" comment thread. He said:

Tell us about something you saw that was intensely interesting but was not something you'd invest in. And why.

So here's the story of how we missed Airbnb, one of the best startups to come our way in the past few years.

The Airbnb founders came out of the winter 2009 Y Combinator class. They came to see us during their time at YC. They told us about a great stunt they pulled at the Democratic Convention in Denver (in which Obama was nominated). They bought a bulk supply of generic cheerios and made up these cereal boxes to generate seed capital for their startup. Here's how one of the founders Joe Gebbia describes it:

We made 500 of each (Obama O's and Cap'n McCains). They were a numbered edition on the top of each box, and sold for $40 each. The Obama O's sold out, netting the funds we needed to keep Airbnb alive. The Cap'n McCains... they didn't sell quite as well, and we ended up eating them to save money on food.

I asked them if they'd leave a box of the cereal for us and it has been sitting in our conference room ever since. Whenever someone tells me that they can't figure out how to raise the first $25,000 they need to get their company started I stand up, walk over to the cereal box, and tell this story. It is a story of pure unadulterated hustle. And I love it.

At that time, Airbnb was a marketplace for air mattresses on the floors of people's apartments. Thus the name. They had ideas for taking on other listings but they had not yet made much progress on them.

We couldn't wrap our heads around air mattresses on the living room floors as the next hotel room and did not chase the deal. Others saw the amazing team that we saw, funded them, and the rest is history. Airbnb is well on its way to building the "eBay of spaces." I'm pretty sure it will be a billion dollar business in time.

We made the classic mistake that all investors make. We focused too much on what they were doing at the time and not enough on what they could do, would do, and did do. I am proud that our portfolio is full of companies where we saw the vision before other investors did and backed a great team. But we don't always get it right. We missed Airbnb even though we loved the team. Big mistake. The cereal box will remain in our conference room as a warning not to make that mistake again.

[Fred's story is licensed under Creative Commons 3.0 - Attribution]

[Photo by Charmaine Cooper via Flickr]