Trends And Money With Woody
In this two part interview, I sat down with Woody Benson of Prism VentureWorks to get his thoughts on the VC industry today and the interesting trends that are keeping things exciting. Woody’s insights, sense of humor, and track record make this interview a must read.
Prism’s goal is to build substantial businesses around disrupting the status quo. Prism VentureWorks has only been around since 1996 but has raised 5 funds and manages $1.25 billion currently. Each of the 10 partners focuses on different industry sectors within technology and life sciences. These industry sectors in technology include digital media and software & services In life sciences, Prism focuses on medical devices, therapeutics, and breakthrough diagnostics.
The Prism team strives to be the "CEO’s First Call." And given the operational experience available to management teams, it’s probably the right first call. Woody joined Prism VentureWorks in 2004 and runs the firm’s digital media practice. He also has extensive experience in mobile and transformational business. Woody is a director for LogMeIn (IPO, July 2009), KickApps, Worldwide Biggies and Everypoint. Formerly, he was on the board of Maven Networks, acquired by Yahoo! and M:Metrics, acquired by comScore. Prior to becoming a venture capitalist, Woody had an extensive operating career. Career highlights include serving as Chairman, President and CEO of MCK Communications. MCK Communications went public in 1999 and completed a secondary offering in 2000. Before MCK, Woody was a senior executive at Shiva Corporation and Lotus Development.
I sat down with Woody because of his amazing track record in both operations and venture capital. He’s insider knowledge on redefining venture capital and trends in digital media have made him a member of OnHollywood’s Top 100 and the Venture Capital East 50. I was fortunate enough to catch Woody before his panel during Venture Summit East 2010. Here’s part one of our two interview series.
Andrew Bellay: What trends do you see in the market today that are facilitating the low capital start-ups that we’ve been seeing recently?
Woody: The low capital requirements – mostly on the development side – stem from infrastructure and platform changes. What used to be $10-15 million for a software company to get going is $250-500k now, maybe even less. That comes from open source and the commoditization of most of the software development platforms and databases. And of course, cloud services – being able to rent computing versus buying computing. The complex part there is that it use to cost $15 million and the marketing was easy – you would market to the fortune 5000. Now it’s $50-500k to start-up a software company but you have to market to the consumer 250,000,000. So the consumer marketing part is where more of the variability and the expense lay. Look at foursquare, Twitter, Yelp – most of the money is focused on consumer marketing, not development.
Andrew Bellay: How do you think these trends have changed the VC market?
Woody: I think it’s changed the VC market in terms of knowhow. VCs need to actually know how to work with more consumer oriented companies. Traditionally, most VC returns have come in a couple big buckets. Excluding life sciences, that would be: communications and most enterprise oriented IT specific investing. Today, VCs need to be more aware of the consumer generation. As you look through the pillars of enterprise, we’ve essentially automated most functions inside the enterprise from manufacturing to finance, human resources, sales, marketing, analytics. The last bastion of productivity is out there in small-business-land and consumer-land.
Andrew Bellay: Do you find that the rising super angel class is sweeping in and snatching up your deals?
Woody: I don’t look at it like that. Venture capital is the ultimate blue collar business. It can’t be scaled. You can’t increase throughput. I think it’s fair to say that the average amount of deals that a VC can be involved in and be productive in is probably in the 6-8 range. So there are only so many deals you can do whether you’re an angel or a VC. With lower capital requirements, it makes sense that there are capital sources that are less dependent. I think it’s a broadening versus a shifting. Yeah – there are more angels, there are more self-funded people, there are more super angles, more angle groups, but I think all of that is good. I think it will be interesting to see how the traditional VC model evolves to capture the realities of what’s happening in start-up land.
Andrew Bellay: Do you have any predictions?
Woody: No I really don’t. Except that I think it will change. It’s fair to say that it will be different than it is today. I think the VC model is so new over the last 3-4 decades that it undoubtedly will change. I think it’s kind of a lagging indicator of change. LPs aren’t big on change. They want tried-and-true. So there are two forces at work: a changing environment and an LP resistance to change. It certainly will change – that’s for sure.
Andrew Bellay: Any thoughts on VCs jumping into angel rounds and deflowering entrepreneurs?
Woody: When it comes to deflowering an entrepreneur, they can get fucked by anybody. I don’t think it’s specific to angles, super angles, or VCs. I think it’s all based on the person. It’s not fair to say that this one group of investors will screw an entrepreneur rather than another. I think it’s all a people-oriented business. Each investment, each project is like a mini-marriage that really is a meeting of the minds, philosophy, and culture of two groups of people. I don’t really subscribe to the idea that one asset class will screw you more than another.
Andrew Bellay: What about this argument that entrepreneurs should stick with venture money because VCs are more likely to stick around than angels are when things get bumpy?
Woody: It’s very safe to say that every great company is going to hit the wall and morph and change at some point in time. A capital source partner – VC or angel – is going to be aware of that and plan accordingly. If someone thinks they’re going to tread the needle and hit it perfectly and that’s what they’re investing in, I don’t think that makes a lot of sense. It comes down to the person.
In part II of our interview, Woody talks about hot markets, the current VC fund-raising situation, and whether the VC industry is scalable.
[Originally published By Andrew Bellay on aonetwork.com]