In the second of this two part interview with Woody Benson of Prism VentureWorks, I get Woody’s thoughts on hot markets, the current VC fund-raising situation, and whether the VC industry is scalable. Woody’s insights, sense of humor, and track record make this interview a must read.
Don’t miss part I of this interview with Woody on trends enabling start-ups right now, how these trends are affecting the VC market, and Woody’s position on the angel market.
Andrew Bellay: So what markets do you think are hot right now?
Woody: Distressed European assets. No – that’s a good question. I think innovation markets are hot. Really innovative new ideas that take advantage of the consumer being in charge, time shifting, society trends, and that have a mobile element are hot. It’s really based on the ingenuity and creativity of the entrepreneurs.I think the things that are hot are bigger ideas. The thing to be careful about taking less capital to start something is that there are a lot of very thin ideas out there – too many small ideas that can actually get to the market place because of the lower capital requirements. The really innovative things happen when there’s a bigger idea at play.
Andrew Bellay: Are those small ideas creating destructive competition in the market?
Woody: I don’t think so.
Andrew Bellay: So for you it’s all about the people when it comes to funding an entrepreneur, what about the entrepreneur himself? Do you look for good markets or good teams?
Woody: For me, the team. 100% of the time.
Andrew Bellay: So you fall in the Draper camp?
Woody: Absolutely. If you want something great done, give it to a great man. I would much rather have a poor idea well-executed than a great idea poorly executed. I don’t think a cyborg can run a company, and as long as human beings are analogue, you need great people to run them. I would subscribe to the great team every single time. Great companies don’t happen on a piece of paper. Teams, leadership, good people, motivation, and working together compound to make more.
Andrew Bellay: What’s it like out there for VC firms raising money?
Woody: It’s terrible. The asset class has negative returns through the last 10 years. The big endowments are trying to get out of illiquid assets to solve other problems, so there are large divestitures happening in VCs and private equity investment portfolios. The fund-of-funds are in the market trying to gather money. The public pensions have such problems on their actuarial tables that getting into venture isn’t going to satisfy the real problems they have. The middle east looks closed. Asia looks kind of closed. That leaves family offices as the only capital source. I think it’s a very very difficult time for venture capitalists to raise money.
Andrew Bellay: Is Prism planning on raising another fund?
Woody: We suspended our fundraising about a year ago recognizing the real issues in the fundraising environment. We have a lot of money under management so we decided to use our energy and our time working on our companies in our portfolio. We’ll revisit it in the future, but right now we’re focused on our portfolios.
Andrew Bellay: You mentioned earlier that you don’t think venture capital is a scalable business. Can you talk more about this?
Woody: VC is a manual business with a general partner managing a portfolio of companies. You have as much bandwidth as an endowed partner can extend to their companies. To bring a company over the finish line of liquidity and to a positive return – takes to do the investment justice – requires a minimum amount of bandwidth. If you do the math in start-up land, its labor intensive. I think that the VC has to earn a right to be at the board table. I think the VC that shows up without really knowing what’s going, asking inane questions is not productive or helpful for the company. A good VC needs to understand the business, the culture, the management, the customers, and competition of any existing investment to add value.
Andrew Bellay: Can’t firms simply add more GPs to scale?
Woody: Sure – but firms, like companies, have a culture and a way of doing business. This is an iconoclastic business and every practitioner works in their own unique way. Value creation works in two ways here: when the general partner works exceptionally well with the management team and when the GP sees value where others don’t. Expanding that system and having a culture that still works is challenging. There has to be a high level of trust, communication, coordination, and a culture fit for that to work. You can’t just hit the accelerator and get more. VC is more like custom jewelry more than a production line.
Andrew Bellay: What about the culture at Prism?
Woody: We’ve created a process at Prism so we know what the expectations are for one another. I think the most important things are how aware and valuable GPs can be on other people’s deals, knowing where the big bets are in this illiquid cycle, communicating well and organizing the limited time we have together.
Andrew Bellay: What distinguishes you as a venture capitalist to create a lot of value for Prism and your entrepreneurs?
Woody: I don’t pretend that I’m the CEO’s boss. I try to establish a relationship where no one has to call me for permission. The CEO is the boss. The only thing the board can do is hire and fire the boss. Don’t call me for permission to do anything. The answer is always ‘yes.’ But if you have a problem or something that you’re thinking about, I will obsess on your behalf 24/7 and try to further that conversation. I get taken up on this offer and it brings me closer to the companies. As a result I get invited to sales meetings, marketing meetings, and customer meetings – a deeper level of engagement.
The other thing is that, having been a CEO, I think CEOs work in waves of momentum. I focus on what I’d be thinking about if I were the CEO – not what’s happening currently but what’s going to happen down the road 6-12 months from now. I try to foresee things the CEO might not have been thinking about.
And finally, I try not to make value judgments. Every path to success takes a mysterious route. I recognize that there’s going to be some things that work and some that don’t.
Andrew Bellay: What advice do you have for the aspiring entrepreneurs and venture capitalists in the audience?
Woody: For aspiring entrepreneurs, this is a great time. The whole world is changing. Change is good. Bring it on! Bring on the creativity, bring on the passion, bring on the steadfastness that’s required to create something special, and never give up on your dream.
Andrew Bellay: And for the aspiring VCs out there? How do you become a VC?
Woody: You don’t. Why would you want to be one? There are only 1,500 check writers in the US. It’s a very very very small thing. Go create value in the real world an d then consider becoming an investor later.
A very special thanks to Woody for his time and great insights. Don’t miss part I of this interview with Woody on trends enabling start-ups right now, how these trends are affecting the VC market, and Woody’s position on the angel market.
[Originally published By Andrew Bellay on aonetwork.com]