I came across two very interesting posts today in which execs at highly rated marketing software company Hubspot write glowingly about two of their investors, Sequoia Capital and Google Ventures. One post is about why Sequoia is such a successful VC, and the other asks the questions Will Google Ventures disrupt venture capital?
In the case of Sequoia there are two main reasons given why they are successful. The first is that past success begets future success and they have a long history of being at the top of the VC game. That history brings them great brand, know how from experience of working with great companies and access to great talent from those companies. The second reason is strong execution from the existing Sequoia team – they don’t rest on their laurels, but rather work hard, are aggressive but reasonable, and are agile in their working practices.
The way that success begets success in venture capital is one of the factors that makes it exciting to be in this industry during its formative years here in Europe. If Silicon Valley is any guide there will be four or five funds over here that achieve a Sequoia like position at the top table and those positions are still up for grabs.
In the case of Google Ventures their secret sauce is that they can leverage the Google mother ship to help their investments, particularly in the areas of engineering support, Main Street brand support and access to people within Google. My experience investing on behalf of Reuters in the first half of the last decade taught me that corporate venture teams can deliver on these promises and bring real benefit to their portfolios very effectively when the portfolio is small. However, if the portfolio becomes large then the call on resources can become problematic, particularly with calls on the time of key executives in key areas of innovation. It is pretty easy to see that if Google ventures gets to have hundreds companies in their portfolio then it will be hard for senior execs at Google to spend time with anything other than a small percentage of them.
One thing that was missing from both lists is a strong personal relationship with the lead partner on the deal. To my mind after fund dynamics (is their a good fit between the VC’s fund size and timing and the company’s requirements) the most important factor in choosing a VC is having a shared vision of where the company might go and a common understanding between the lead partner and CEO on how to approach key strategic decisions going forward. This gets less important as the number of investors grows and Hubspot now has six, which maybe explains the absence.