I sat down with Jeff Bussgang to get his take on market trends, angel investors, and the future of the VC industry. Jeff’s optimistic about the market, thinks angels are a “positive phenomenon,” and is really excited about diagnostic and point of care markets, advertising and media markets, and the financial services industry. Find out why here.
Jeff Bussgang, who was a successful serial entrepreneur for 8 years, has been a general partner at Flybridge Capital Partners for the last 7. Before becoming a venture capitalist, Jeff was the co-founder of Upromise, the largest private source of college funding contributions in the United States. He serves as an entrepreneur in residence at Harvard Business School, where he earned an MBA with highest distinction. Flybridge is an early-stage venture capital firm in Boston, MA with $560 million under management.
Jeff’s investment interests and entrepreneurial experience are in consumer, internet commerce, marketing services, software and wireless start-ups. He currently represents the firm on the boards of BzzAgent, ClickSquared, DataXu, digitalArbor, i4cp, Mall Networks, oneforty, Ready Financial, SimpleTuition, and Transpera . Jeff was previously a director at Brontes Technologies (acquired by 3M), go2Media, and PanGo Networks (merged with InnerWireless).
Jeff was recently appointed to serve as an Entrepreneur in Residence at Harvard Business School’s Arthur Rock Center for Entrepreneurship. He is also on the board of MITX, the Massachusetts Innovation and Technology Exchange and is a Founding Executive Committee Member of FirstGrowth Venture Network, a network of venture and angel investors supporting first and second time entrepreneurs building exciting companies in the New York area. Jeff’s book on venture capital and entrepreneurship, Mastering the VC Game, is an insider’s guide for entrepreneurs on financing and company-building. Check out Jeff’s popular blog on helping demystify the venture business for entrepreneurs: Seeing Both Sides.
Andrew Bellay: What trends are enabling low capital start-ups these days?
Jeff: It differs depending on the sector. Life sciences, medical devices, and diagnostics do require a lot of capital. You can have a small first round – a classic series A of $5-8 million – but it’s very hard to be effective at determining whether the major obstacles and milestones can be overcome and achieved unless you’ve got a good amount of capital in those kinds of companies. I don’t think that’s changed at all.
Where things have changed is in the area of internet and software. In these sectors it simply costs less to build companies now. Where it used to cost $5-8 million to get started, today we have a lot of entrepreneurs coming to us with $500k spent and an initial product out.
Andrew Bellay: What’s facilitating these changes?
Jeff: Cloud computing, the lean start-up discipline and culture, the ability for a lean team to develop a minimum viable product, more nimble service providers – law firms, real estate, accounting firms – are flexing to the new model. The development tools have gotten so much better allowing entrepreneurs to do rapid application development and iterate really quickly.
Andrew Bellay: Are things becoming more or less competitive because of these lower start-up costs?
Jeff: The barriers are lower and the interest in entrepreneurship is higher. The combination of these two factors is absolutely creating a super competitive environment. I think the other super competitive environment is where the money is going to come from: advertising budgets, IT budgets, and consumer wallets. Throw those factors in the mix as well and, yeah, it’s hard at the initial stages of a start-up before they hit scale and develop a brand.
Andrew Bellay: Do you find that angels and super angels are swooping in and stealing your deals off the table?
Jeff: No, I don’t think they’re stealing deals – It’s been a really positive phenomenon. We can either co-invest with them and leverage their networks and get a lot of the value out of the power of the angel community or we can watch companies develop a little bit further. The company gets a little money from the angels and we can monitor things. For example, we are investors in a company called oneforty which is an app store for Twitter. Laura Fitton, who is the founder and CEO, raised $300k of angel money and we saw her at TechStars. We watched the progress of the company and they were able to launch the service, get over 100,000 users and then we were able to do a $2 million round of financing, which you might call a seed round. But it was done with a company that was live, with a service, a clear strategy, and users. That wouldn’t have happened 6 years ago.
Andrew Bellay: Do you think the angel round brought down the investment you needed to make in the seed round?
Jeff: No, I think it enabled it. I think there wouldn’t have been a company if it weren’t for that. The angle community has been really positive because they’re doing things you want angels to do. They’re nurturing companies early in the process when the company is still figuring things out and there’s still a lot of risk around process and execution.
Andrew Bellay: Switching gears to markets, what markets are hot right now?
Jeff: I think that the diagnostics and point of care markets in the life sciences are really interesting. Why should you be waiting for weeks and weeks to here the results of tests from some lab? Why can’t point of care delivery be provided? Why can’t the PC revolution come to diagnostic tests and enable real time feedback? A lot of the principles of IT that are being applied to the medical world are really exciting.
PatientKeeper, one of our portfolio companies, is a physician portal that allows doctors to walk around with their iPhones and Blackberries and get access to patient data to do chart capture and computerized physician order entry. Finally, the dream of bringing computing to the edge is impacting the health care industry – which by the way, represents 18% of our GDP – so it’s a big industry to transform. I think that’s a really exciting area.
I still think the advertising and media space is really exciting. We’re still early in this transformation of having the dollars catch up with the eyeballs.
The financial services industry is undergoing tremendous transformation that’s creating really interesting dislocations and therefore really interesting market opportunities. Whether it’s in the debit card space, payments and mobile payments, or loyalty, coupon, and discount programs – those kinds of dislocations in such a large industry always create interesting opportunities.
Andrew Bellay: Speaking of markets, do you go for teams or markets?
Jeff: We’re not religious on this. Obviously the ideal point is to find both, but sometimes we will invest behind one piece, other times behind another. I have seen examples where you can fix team and I have seen examples where you can fix market. The religion exaggerates the nuance of the situation.
Check out part II of this interview on venture fund raising, satisfying LPs, and advice for aspiring entrepreneurs and VCs.
Jeffrey Bussgang is a general partner at Flybridge Capital Partners and entrepreneur in residence at Harvard Business School’s Arthur Rock Center for Entrepreneurship. Check out Jeff’s popular blog on helping demystify the venture business for entrepreneurs: Seeing Both Sides.
[Originally published By Andrew Bellay on aonetwork.com]