Tag - chicago

Why the Micro-VC Surge Will Drive Innovation Across the US
The Hidden Challenges of Starting a Company in Secondary Markets
Breaking The Mold With David Hornik

Why the Micro-VC Surge Will Drive Innovation Across the US

The following was co-authored by Ezra Galston of Chicago Ventures(@ezramogee) and Samir Kaji (@samirkaji) of First Republic Bank.

Over the last several years much has been made of the opportunity, or perceived lack thereof in technology centers outside of the Bay Area and NYC. From Steve Case’s Rise of The Rest Tour, to Google for Entrepreneurs, to Brad Feld’s Building an Entrepreneurial Ecosystem , the discussion has consistently been overwhelmingly positive.

It’s easy to understand the stance as who wouldn’t want to support entrepreneurship, irrespective of geography? However, it’s hard to discern whether these opinions were borne out of a utopian desire or a sincere belief of true financial viability in markets outside of NYC and the Bay Area.

In Fred Wilson’s widely discussed (and debated) piece “Second and Third Tier Markets and Beyond,” he suggested that the opportunity outside of the Bay Area was significant, citing the successes of USV in New York, Upfront Ventures in LA and Foundry Group in Boulder:

“The truth is you can build a startup in almost any city in the US today. But it is harder. Harder to build the team. Harder to get customers. Harder to get attention. And harder to raise capital. Which is a huge opportunity for VCs who are willing to get on planes or cars and get to these places.

There is a supremacism that exists in the first and second tiers of the startup world. I find it annoying and always have. So waking up in a place like Nashville feels really good to me. It is a reminder that entrepreneurs exist everywhere and that is a wonderful thing.”

In an effort to move past anecdotes however, we wanted to explore one of the components that helps drive and catalyze early entrepreneurial activity in any localized geography — the availability of early stage funding.

Simply put, non-core US tech hubs are reliant on local early stage capital to subsist since seed stage fund sizes often make remote investing impractical (by contrast growth stage investors who manage large funds and have significant resources can easily invest in breakout companies outside their region).

With the hypothesis that quality local seed capital is needed to foster a strong entrepreneurial ecosystem, our analysis is centered on whether the MicroVC surge, has provided (or may provide) a material impact to these “2nd and 3rd” tier US geographies.

Fortunately, there’s good news for entrepreneurs everywhere. Of all of the Micro-VC funds raised since 2010 (this number includes firms currently raising funds), over 40% of Micro-VC’s formed were based outside of the country’s largest tech centers of SF, LA, NYC and Boston, a number we found quite surprising.

In total, those Micro-VC funds raised outside of the four core tech centers since 2010 represent $6.7B in investable capital, the vast majority of which have driven significant investment dollars in their geographies.

More important to note is that the opportunity in these secondary ecosystems is unequivocally noteworthy. Using M&A activity as an evaluation metric, these ecosystems, despite a relative dearth of funding, have performed quite well:

In each year dating back to 2010, the percentage of Micro-VC funds raised outside of SF, LA, NYC and Boston materially lags the volume of M&A activity, on % basis, in those same areas. This suggest that Micro-VC funds located in secondary markets face less competition — and proportionally more opportunity — for strong financial outcomes by betting on that delta. Now, it’s true that these opportunities are a bit geographically dispersed, however it’s clear that certain cities (Seattle, Boulder, Austin, Salt Lake, Chicago) have made great strides in developing great entrepreneurial talent.

This dislocation in M&A proportionality is of course amplified by the concentration of funds in the Bay Area and NYC. Because coastal deals are more competitive due to an oversupply of capital, they boast higher entry prices (valuations) than do deals in secondary or third tier markets — and the effect on a returns basis may also be material. Case in point: according to Angelist, the mean valuation for deals in Silicon Valley since 2010 is $5.1M. That compares to $4.5M in Chicago, $4M in Indianapolis, and $3.7M in Detroit — offering Midwest investors anywhere from a 10–30% discount at entry.

There are other ways of interpreting the data. One could argue that Bay Area deals deserve to be higher priced due to a premium in the quality of founding teams. Or that the pure volume of M&A in the Bay Area and Boston de-risk the level of returns variance for any particular fund. Those arguments may be with merit but are also balanced by data released by Pitchbook that show cities such as Chicago, Seattle and Washington D.C effectively comparable on a multiple of returns basis:

It is nearly indisputable that large technology companies are being built and enormous value is being created outside of the coastal venture markets: examples include Grubhub, Groupon, Domo, Qualtrics, ExactTarget and HomeAway. But these markets will require more patience for company maturity, a willingness by fund Limited Partners to accept greater short-term volatility, and conviction that key talent will stay in non-core markets due to a desire of staying local and the avoidance of the high cost of living present in the major US tech centers.

While the rhetoric around non-core markets has been historically positive, it appears that the early stage capital surge through Micro-VC funds may be a major factor in these areas actualizing on their potential.

Extra special thanks to Peter Christman for his tireless work in helping to analyze, aggregate and process the data underlying this article.

The Hidden Challenges of Starting a Company in Secondary Markets

Fred Wilson’s much debated post, Second and Third Tier Markets and Beyond, sparked an important discussion about operating and investing in businesses outside of the Valley. Case in point: within 48 hours, the piece generated a heated Twitter exchange (including input from the one and only Bill Gurley), a Pitchbook analysis of the best M&A outcomes by region, and even a capitulation of sorts from Fred.

Wilson identified a couple of important challenges of building in these markets, namely lack of conviction, lack of money, lack of infrastructure, and shallower talent pools:

But there is a dynamic that goes on in these third tier markets where the local investors look to investors in the first and second tier markets to come down and “validate” their investments. And the investors in the first and second tier markets won’t come down and do that without a strong local lead. This game of “chicken” happens ways too often in these markets and is incredibly frustrating to entrepreneurs in these markets. These third tier markets need a few strong Series A focused VC firms who have large enough fund sizes to be aggressive lead investors and also have the conviction and stomach to play that game. That is what USV, and Flatiron before it, did in NYC. That is what Foundry did in Boulder. That is the game Upfront is playing in LA. Every third tier market needs a few VC firms like that. And being that investor is a terrific way to make a lot of money.

The truth is you can build a startup in almost any city in the US today. But it is harder. Harder to build the team. Harder to get customers. Harder to get attention. And harder to raise capital. Which is a huge opportunity for VCs who are willing to get on planes or cars and get to these places.

And his insights are a good start. But as someone who’s lived the Chicago startup scene since moving here in 2007 to help build CardRunners Gaming, I’d like to suggest three other non-obvious challenges of building companies in secondary or tertiary markets. This is a tough love blog intended to provide guidance within secondary markets and enable founders to actualize their potential. If you can get through it and internalize it, it’ll make you stronger.

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The Press Challenge

Although the press outside of SF & NY may not be bulge bracket publications, they are nevertheless not constrained either by distribution (digital solves that), nor by space. But they are constrained by a dearth of quality stories. Meaning that Chicago, for example, has a finite number of private unicorns or venture backed IPOs – so, if you want a quote from the CEO of a Chicago unicorn company for example, you’ve got finite people to call.

The effects are that it can force a cycle of manufactured, often unwarranted positivity, feature stories, even local awards on companies that are downright unproven or even floundering. Moreover, it enables certain founders, especially those with a natural PR inclination, to run from magazine shoot to newspaper interview to conference to panel and back, all the while ignoring the actual company they’re supposedly running. It’s akin to Mark Suster’s admonition to Be Careful Not to Become a Conference Ho: “If you’re a startup CEO — don’t kid yourself. Get back to work. There’s a team in the office in need of your guidance.” But that warning is amplified in secondary markets where founders – sometimes entirely unproven, even occasionally on the brink of shutdown – are paraded around by the press, conference organizers and awards shows as local heroes.

PR is a wonderful tool and an extraordinary opportunity for the right situations (building a story for hiring, consumer marketing, etc). But it is a challenge to ignore the phone when the press circuit is continually calling. Local founders must learn to say no at the formative stages of their business.

The Self Delusion Problem

If an entrepreneur goes to raise money in the Valley and is unsuccessful they are forced to concede one of the following points: either (a) I am not a good fundraiser or storyteller, (b) This should not be a venture backed business*, (c) I have not proven sufficient traction, or (d) This is not a good idea period. [There may be other nuances or derivatives of these four, but you get the idea.]

This is because the Valley funds over a thousand new companies annually, plays host to hundreds of seed stage funds, and has the deepest network of angel investors anywhere in the country. Lots of companies get funded and you didn’t.

But in Chicago, an entrepreneur can ignore all of those failings and instead simply blame Chicago: It is Chicago with its low risk tolerance, or its culture of demanding revenue, or its disposition towards boring enterprise businesses, or excuse Z that are the reason my company didn’t get funded.

Unfortunately, some businesses with outsized potential certainly do fall through the cracks in smaller markets (Fred alludes to this as well). But that simply serves to reinforce the potential for self delusion: wherein founders, should they so choose, never need to admit that their startups do not meet the threshold for investment. This can enable a cycle where local founders become resentful and/or spend years fundraising for a business that will simply not get funded.*

The Cap Table Problem

A big pitfall of secondary markets is poor cap table planning and management from the earliest stages that materially affects long-term growth potential. It typically falls into one of two buckets:

(1) We have met multiple companies that were otherwise intriguing except for the fact that a single investor (often an angel) owned more than 50% of the company. This matters because with an option pool, and 25% dilution of the impending financing, it leaves even a solo founder (let alone a 3-person founding team) improperly aligned for future growth needs.

(2) A company that initially raised money from angels at too high of a valuation, that later took on a bridge or even a fresh round of capital from that same group of angels (again, at a higher valuation). SO, by the time the company had proven product/market fit, it’s prior valuation was dislocated from the market values traditionally ascribed by venture institutions.

#2 is a far more egregious problem, often generating a vicious cycle of dependency on amateur investors. Now, to be fair, every market suffers from questionable practices of non-professional investors. But those practices are exaggerated in secondary markets that lack pre-seed infrastructure or successful entrepreneurs to properly seed the next era of startups.

In almost all markets, even ones without much institutional venture, there are copious numbers of high net worth individuals, successful real estate operators, or financial services pros who are looking to enter startup investing – either because they can’t generate alpha in their core jobs or because startups are sexy.

The problem is this: once the vicious cycle of dependency has been initiated (and because no one has an interest in marking down their investments) it is extremely difficult to disassociate from it. Which isn’t to say that great companies won’t be built with such a founding structure. Many have. But it does make it difficult to attract experienced local entrepreneurs or traditional institutions to the cap table.


Secondary and tertiary markets provide a lot of benefits for startups looking to build great businesses. Lower costs of living enable a lesser burn rate. Less competition for great talent and easier accessibility to successful advisor networks are also a big positive. That I am very bullish on Chicago should be obvious: despite being an East Coaster (DC & NYC) – and with opportunities in numerous cities – I’ve made it my new home.

But pitfalls and challenges abound. The better informed entrepreneurs are, the better non-SF markets are likely to perform.

* My intention is not to be crass or insensitive. There are many great businesses, digital and offline, that are simply not a fit for institutional venture funding. My first startup, CardRunners Gaming, is one such company – profitable from day one and profitable now, even a decade later, although it’s total market potential was at most $10M. Had the company raised institutional money, it would have imploded upon itself trying to stimulate growth in a market that simply could not accommodate it.

Thankfully, other investors such as Bryce Roberts at Indie.vc are building innovative funding models, intended to accommodate non-venture digital businesses. Here’s a great article on their efforts: Venture Capital and Its Discontents

Breaking The Mold With David Hornik


There’s an old adage that if you want to get something done, find the busiest person you know to take on the task. David Hornik is the embodiment of that manta.

I first met David a year and a half ago as part of my journey with the Kauffman Fellows. He was so insightful that our group unabashedly asked him to spend an additional two hours answering questions a month later (the only time we did this in our program’s history). He obliged. As a young investor learning and growing in the industry, it’s almost unfathomable to me what David has accomplished – but moreso how much he’s able to give back in spite of the constraints on his time. David’s reputation as a giver – he’s been nicknamed the “Robinhood of VC” – is so prolific that he was profiled for an entire chapter by Adam Grant in his bestseller Give and Take.

His personality shines in our interview. In fact, behind the scenes, I actually tried to end the interview several times – to which David objected, requesting that I push deeper. My sincerest appreciation to David for his time, and I hope all readers (entrepreneurs and VCs) are able to benefit from his poignant insights.

Ezra: Thanks David for doing this. You are a man of the people. Let’s start – you built a reputation as an ultra-nice, transparent, likable guy in an era where Venture Capital was rather opaque. But as VCs now fight for the moniker of most “founder friendly” and are no longer chair tossing curmudgeons, do you still find niceness an effective strategy for winning the hearts and minds of entrepreneurs? Or are you become surly just to differentiate? 

David: I can tell you with great certainty, that I have never thrown a chair. I don’t think I will start any time soon.

First, thanks for the kind words about my reputation. I am hopeful that it is well-earned. I firmly believe that startups are the byproduct of incredibly hard working and thoughtful entrepreneurs, really great markets, and some luck. My role is to support those entrepreneurs in any way that I can — certainly with money, but also with all sorts of support (recruiting, fundraising, publicity, strategy, etc.). So it isn’t really about being a nice guy. It is about being a supportive guy. It is about understanding that we are all in this together and doing everything I can to be on your side and help you build something big and great. Are there others who view the venture business this way? Sure. There are some folks out there. There are a lot more pretending they do than the ones who actually do. But there are others who are truly entrepreneur first. I’m glad that there are more of them these days. Those are the VCs I want to work with.

Ezra: Those are the VCs I want to work with too! But here’s the thing…I once heard Bill Gurley say “Whenever you hear a VC speak, know that she is speaking to the entrepreneur she hasn’t met yet” – namely, recognize that investors are always marketing themselves. Do you agree with that? How do you – either as a fellow investor or as an entrepreneur – discern who is genuine and who is transactional? I’ve made a lot of mistakes in my first four years, so are your instincts better than mine or it simply a matter of experience/existing relationships?

David: I do think that good VCs understand that they need to market themselves. Some VCs have taller tales to tell than others. But it is awfully hard to be what you aren’t over an extended period of time. So one of the best ways to tell if a VC is full of shit is to spend a bunch of time with him or her. The more time you spend with them, the clearer the picture you will get of how they view the world. It is exactly the same way with entrepreneurs. When an entrepreneur is pitching a VC, she is putting her best foot forward. If you are excited about the deal, spend some more time with the entrepreneur — you will either grow to like that entrepreneur more or less. If it is less, move on quickly. If it is more, then it is worth doing some more work.

So if you’ve spent time with a VC and find yourself liking them more, what work do you do next? Reference checks. And lots of them. There is no better way to know what it is like to work with someone than to actually speak with someone who has worked with that person. VCs are really easy to reference. We list our portfolios on our websites. Look at the companies in which we’ve invested and call those entrepreneurs. See what they are like to work with. I make it even easier for entrepreneurs I’m interested in working with. I give them a list of all the founders and CEOs I’ve worked with over the last 15 years. All of them. And I encourage them to call the folks I’ve worked with. Because you can fake it when you meet someone for an hour. But you can’t fake it for 11 years (which is how long I’ve been working with Splunk so far — I’m still on the board) or 14 years (which is how long I worked with Ebates before it was sold for a billion dollars to Rakuten) or 15 years (which is how long I’ve been working with Rene Lacerte across two companies so far).

There are lots of great venture capitalists out there. You just need to do your homework to find out who they really are.

Ezra: Great thoughts, thanks. You know, when I first discovered you David, you were something of a prolific blogger. Now you’re something of a non-existent blogger, with a stellar 3 posts in the past 24 months. What on earth happened? And is it indicative of something larger, more fundamental in either your own personality or the venture ecosystem?

David: I suppose my lack of blogging is mostly about being too busy. When I started VentureBlog, I was new to the world of venture capital and had a lot of time on my hands. There were no other VC bloggers at that time, so everything I thought about made a good blog post. These days there are lots of VC bloggers and not a lot of new stuff being discussed. That said, I really should write more. I have been contemplating a series of posts about the things I’ve learned in my first 15 years in the venture business. So don’t give up hope. Keep your eyes on VentureBlog.

Ezra: Quite the cliffhanger – I’m sure many fans will now be refreshing religiously. Given the saturation of blogging, if you were a young person entering the venture scene today, what would be your strategy for making a mark and standing out – besides the requisites of being transparent, make winning investments, good follow through, etc: Apprentice a lot and say little? Be funny and silly? Do something scandalous for the free Gawker PR? Pick up skateboarding and become a Vine star? 

David: Wow. This is the million dollar question. Or, if things go well, it is the billion dollar question. How does anyone differentiate his or herself in the venture business? In some ways I got a little lucky and hopped into blogging early. And then I started podcasting early as well. I’ve been a little more consistent in recording VentureCast these days than I have been in writing VentureBlog. And then I decided that the world needed another conference, so 9 years ago I created a conference called The Lobby. It has been going strong ever since. In fact, I now have a digital media Lobby conference and an enterprise version of the conference as well. So should a new VC jump into blogging or podcasting or creating a conference? Probably not. If you want to really differentiate yourself, you’ll need to come up with something new. Maybe you’ll write a novel making fun of the venture business. Maybe you’ll create a series of online classes that reach millions of people. Maybe you’ll get a television show. Maybe you’ll just be an amazing networker. Who knows? The key is to use some medium to share your passion for startups and make clear to entrepreneurs what makes you different. You may be able to do that in a rap album. You may be able to do that in a picture book. Whatever it takes to connect with entrepreneurs and get them excited about telling you what they’re working on next.

Ezra: A few weeks ago you announced a large investment in MassDrop, a community platform for enthusiasts of a wide variety of interests. It’s actually quite apropos, and reflective of your entire track record: in addition to MassDrop you’re also on the boards of vastly different companies ranging from Splunk to Stumbleupon to Bill.com, just to name a few. At the same time, over the past few years the VC world has become far more specialized – with firms such as Emergence Capital, IA Ventures, ForeRunner – many firms now also boast partners with deep domain specific knowledge. Simply put: you are a generalist living in a specialist’s world. So how do you do it? How do you compete? Do entrepreneurs value your generalist lens? Or, is the question fundamentally wrong – that you are an absolute expert at building growth companies, or asking the right questions, irrespective of your expertise in any specific field.

David: There are all sorts of ways to be a VC. I’m not sure which one is best. I am sure which one is best for me. I like lots of different businesses. On the one hand, I think consumer businesses are amazing. They naturally appeal to VCs because we are consumers. So we think to ourselves, “that is awesome. I’d use that.” And that can create excitement around a business. On the other hand, I have also had the good fortune to work with spectacular enterprise teams and seen what it looks like when that works. I funded Splunk when three founders and a great idea. Eleven years later I still sit on the board and it is a multi-billion dollar company and there are 1,500 or so employees. It is hard to not get excited about that. I am sure that there are VCs out there who can share valuable insights because of their focus on a particular space. But I think that most of what I do as a VC is broadly generalizable across companies. My job is to help make entrepreneurs successful and that is something that requires experience and perspective and patience and faith, but doesn’t necessary require a particular industry specialization. I suppose it is possible that after 20 years working with startups across the spectrum, I have become an expert in both enterprise and consumer businesses. But I think it is more likely that I have become an expert at being helpful — I am happy to help the entrepreneurs with whom I work recruit great people, raise capital, develop growth strategies, connect with partners, get good press, not fight with each other, design great t-shirts, motivate their troupes, judge Halloween competitions, and a million other things. There is no one qualification for the venture business and there is no one approach that guarantees success. So I’m just making it up as I go along.

Ezra: A year or two ago I heard you say that August was “notorious” for losing an extra $500k-$1M on deals for routinely going one bridge too far. You added that overall, it was worth it, because it built genuine long-term authenticity and trust with founders. But I have to wonder if that’s a bit too easy… a fitting strategy for such a “nice” guy. Further, a multi-decade, very successful GP recently advised me that funds “live and die by the quality of their follow on investment.” Do you agree with that? How do you balance and juxtapose those two interests? Or, is it simply that you’ve done the math and $20M worth of failed extensions is a palatable “marketing” (or testimonial) expense for a $450M fund?

David: I suppose the good news is that we have a pretty small number of companies that fail outright. So most of the time we aren’t really losing another million dollars. Most of the time, we are supporting great entrepreneurs and helping them to find a good home for their businesses when they aren’t working. But it is certainly the case that we do, on occasion, invest an additional million dollars when we could have cut off the investment earlier. I don’t think it is really marketing dollars. I think it is more about supporting your entrepreneurs while they are still fighting the good fight. And some of the time that money makes all the difference in the world. Some of the time, companies are able to get to profitability on that last million dollars or find the right acquirer, or get to some better outcome. And in those instances, we’ve made a great economic decision, not just a great relationship decision.

As for follow on investments, whoever told you that funds live and die based upon the quality of their follow on investments has an odd view of the stuff that’s important from where I sit. That isn’t to say that follow on isn’t important. It certainly can be. But it is so much more important to find great companies and invest in them in the first place then to figure out how much to invest in a follow on round. That said, we own a big percentage of three of our most promising companies right now because we invested in those companies early and then led subsequent financings as well. If those companies are successful, we will reap the benefits of having been early investors and then having doubled down on those businesses. But the more important financings will certainly have been the initial financings, even if the subsequent ones ultimately drive real value as well.

Ezra: I also heard you say maybe a year ago that you should only invest in an entrepreneur or team that you’d want to be friends with and that you’d in fact de-prioritize an otherwise healthy, growing, business if you weren’t extremely passionate about the team. I’ve taken that advice to heart and it’s helped me a lot in my filter. Where I’ve personally struggled is falling in love with “people” that I think are extraordinary – deep domain experts, thoughtful, self-aware, intellectually curious – but where its unclear if they have the founding skills or acumen to build a great company…perhaps they weren’t able to communicate a clear go-to-market vision or have really unreasonable growth or hiring expectations, whatever it might be. I always find myself stuck in that spot. What’s your approach? Do you err on the side of backing people that you “click” with and that have a really unique approach to a market? Do you try and convince them to find external help? Do you wait and see while building the relationship? Or it case specific and you’ve taken many approaches?

David: It is an old trope but I stand by it — it is all about the people. Great entrepreneurs build great companies. There are some surprising exceptions to the rule. But, for the most part, amazing businesses are built by people with whom you would love to work. That is a rule I do not break. People, People, People.

But here’s the thing. I back a very small fraction of the entrepreneurs with whom I meet. And I definitely do not back all of the entrepreneurs I like. I don’t even back all of the entrepreneurs I love. I back great entrepreneurs with whom I’m excited to work, but only if think they will build a great business. And great businesses are hard to build. They require you to be smart and thoughtful and a good sales person and have a great idea, etc. etc. But more than anything else, a great business requires a great market. And great markets are hard to find. Most businesses are too small for a traditional venture fund. Some have too much competition. Some are not likely defensible in the long run. Some have sales cycles that are too long. All of these issues add up to either a great market or a less than great market and it is very hard to build a big business on a less than great market.

So what do I look at when investing — people, people, markets, people. Great people and a great market will build an amazing business. It is the killer combination. And it is stunningly rare.

Ezra: Do you think you would you re-write any of your prior answer if you were a pre-seed/seed investor as opposed to primarily a Series A/B investor?

David: Absolutely. I would probably answer all of them differently. The angel business is very different from being a Series A investor. You have different information at the time of investing. You likely have a smaller fund. You will have different resources when it comes time to doing follow on investments. And when it comes time to supporting your investments in good times and in bad times you will have different resources as well. The one thing that I suspect would be pretty consistent is that it is all about the people. People, People, Markets, People!

Ezra: Looking at your investment history, the vast vast majority of your investments have been in the Bay Area. It probably doesn’t come as a surprise that as an investor with Chicago Ventures I have to believe that I can drive meaningful returns from my perch in the Midwest or else I’d find a different job. But I might well wrong be wrong, so best to find out know I suppose! SO: What’s your take on the future of outperforming startup companies from a geographic perspective? Do you expect to focus the large majority of your attention on the Bay Area for the foreseeable future? If so, do you buy that the potential for greatness is not incumbent to one geographic region? Or, do you view the Bay Area as an exponentially compounding flywheel – with the compounding knowledge of its accomplished founders & advisors cultivating an increasing delta between the Valley and everywhere else in the world?

David: Good news — no need to move or find a new profession. I think there will be amazing business all around the world. In fact, we’ve invested in some great businesses in the Chicago area. The founders of Avant Credit are some of the best entrepreneurs with whom we’ve ever worked. They are building an incredible business. As a firm, we’ve backed a number of companies throughout the county (New York, DC, Texas, Washington, etc.) and throughout the world (Germany, Israel, Canada, etc.). We back amazing entrepreneurs wherever they are. In fact, there are real advantages to company building outside of the Bay Area — easier recruiting, lower costs, etc.

So why are nearly all of the companies in which I’ve invested in the Bay Area. In part because of proximity. I am necessarily going to hear about a lot more local businesses than those outside of the Bay Area. In part because of resources. The Bay Area has an astonishing entrepreneurial ecosystem. There are a huge number of founders, funders and friends within a 50 mile radius. It is hard to understate the value of a near limitless pool of advisors, investors and support inn close proximity. It doesn’t make it impossible to create and scale a business elsewhere in the country, but it certainly makes it easier in the Bay Area.

Ezra: As we come to close, I want to ask about your support network. The startup world is not an easy industry – I daresay it’s at its most cutthroat in history and seemingly playing for the biggest stakes (and biggest payoffs) in history. The stresses on family, emotions and psyche for all players in the ecosystem should not be understated. And as investors, though we might be spared from the pressure of having to directly lay off employees, we’re affected as de facto therapists – juggling dozens of high intensity issues across the portfolio. So while you’ve been profiled as a prolific giver, we don’t know much about your support and mentorship networks. And I’m fascinated because you’re always expressing positivity, confidence and humility. So how do you do it & who helps you? Is your family a big part of that? Do you still lean on early mentors in your career? Your partners? Friends completely outside the ecosystem?

David: Ezra, this is such a good question. No one really thinks about the psychological challenges of the world of entrepreneurship. It is MUCH harder on entrepreneurs themselves. I know many entrepreneurs who find themselves depressed, isolated, feeling deeply inadequate. It is very clear that being a CEO is a lonely job. I recommend to all of my portfolio CEOs that they should either join a CEO group (there are lots of great ones out there) or hire a CEO coach. At least that way you will be able to discuss the challenges you are facing with someone who understands what you are going through. As far as VCs go, I wouldn’t say that there are similar groups. I don’t know of any CEO group equivalent for VCs, but it would probably be a good idea. I do spend a reasonable amount of time chatting with other VCs. And my conference — The Lobby — is an opportunity for VCs to get together and chat about the challenges of the markets, etc. But I think we VCs would be well served by a better support structure. I suppose other than looking to my friends who are VCs, I mostly turn to my wife Pamela. She is sometimes a sympathetic ear, sometimes a kick in the pants, and always a very good advisor. But, truthfully, I’m so grateful to be a VC and work with such an amazing group of talented entrepreneurs. I guess I’m just not a worrier. That’s not really my nature.


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