Learning to be a VC

Private Equity Manager spoke recently with Jeff Andrews, a partner in the Boston office of Atlas Venture, about his firm’s approach to mentoring, about how Atlas is set up globally to pursue deals and about his background as an inventor.

You come from an entrepreneurial and an operating background. What was it like making the transition to venture capitalist?

It’s a very different career. I think of the VC business as roughly falling into two categories of work. One is looking for the next deal, building out your network and so forth.
The other part of the job is working with the companies you’ve invested in—being an active board member, helping to build out the management teams.
My operating role helped a lot in guiding portfolio companies and helping them make good decisions. After you’ve been on lots of boards and been doing this a bunch of years, you continue to build out the skill set that helps you guide portfolio companies.
But one thing you never do when you’re in an inwardly facing operating role is go out networking, going to events and meeting people and looking for private companies that need money. That’s a whole different piece that you have to learn.
This is a business that looks very simple from the outside yet has an immense amount of complexity. One of the things that I love about this job is that every year that goes by you can’t believe how much you’ve learned and how your perspective has changed.

What struck you as being different or difficult in having to go out and source deals?

Well, if you’re not used to doing it, you just don’t know how. As it turns out, in the entrepreneur community, networking is an important part of the job and so it turns out to be a lot easier than you think. If you talk to an entrepreneur and say, “Hey, let’s go grab a cup of coffee and talk about what you’re up to,” people won’t look at you like you’re crazy. The same thing goes for the university community and the research community. People who are entrepreneurially-minded realize that they need to meet people and that this is a key element of how companies come together.

As a partner at your firm, one of your tasks is mentoring junior professionals in the art and science of generating deal flow. How do you approach this task?

Exposure, exposure, exposure is a key element of mentoring these folks. They key way that you get better at this job is by being exposed to as many experiences and situations as you can. Experience counts for an incredible amount in this business. The more company presentations a junior person sees, the more board meetings they attend as a silent observer, that will help them build out their mental database.
You can give people suggestions. I think every person has a different level of personal skill. Some people are just natural networkers and they make a real effort at it and are fantastic at it, and for other people, it’s very painful them to get away from behind their desk and walk up to someone they don’t know and start trying to build a relationship.
One thing I try to make sure that all our young guys do is see as many presentations and be involved in as many deals as they can, and go to as many board meetings as they can. They’re going to see all the hairy situations that small companies find themselves in and see how they get worked out. They’ll see how the dynamics play out and how the personalities work together or don’t work together. All that pattern observing is going to help them in the future.

How about attending trade conferences? Would this be a useful exercise in network expansion for a junior deal professional?

Sure. Going to conferences is good, but when you’re there you’ve got to go talk to people. If there are some companies that you hear about that are doing interesting, yeah you can cold call them and talk to the CEO. You’d be surprised at how many people are happy to have you come in.
One of the things that is really important in networking is that it’s one thing to have people know you, and another to have people actually know you, like you, respect you and work with you. There are lots of people who are well known—that’s not really the entire goal.
It’s important for venture capitalists to have valuable things to say. If you are someone who, when someone meets with you, they learn something, and you’ve got insightful things to say and turn out to be a real resource for them, you’re someone they’re going to call. If all you’re doing is picking up the tab for coffee and talking about the Red Sox, that doesn’t really help much.
You need to be known, respected and useful. If you can pull off those three things, then you’ll start to build out a real rich network of people.

Your firm has offices in Boston, London, Paris, Munich and now Shanghai and Bangalore. How does your firm balance regional deal sourcing with a culture of sharing and helping?

We invest in companies when they’re very young. Often times it’s three people and a set of PowerPoint slides.
That is fundamentally a local business. You really can’t invest in a company like that unless you’re physically nearby, or you have a co-investor who you trust who is physically nearby.
Having said that, we work as one fund in a partnership, and we have what we call a deal team which is a subset of maybe five or six partners from the firm who have domain knowledge. That team will really do a deep dive in making the initial investment decision.
But it will also monitor the company throughout its life. If you’re a partner in London doing an investment in a wireless chip company in Bristol, you’re going to have a partner who’s local and active on your board, but you’re also going to benefit from the Atlas network and international footprint, and gain the benefit of the fact that you’ve got me over here in Boston and talking to my buddies at Motorola and Qualcomm.

Does the person who sources a deal automatically end up working with the company after the investment is made?

In most cases, the person who sources it is the person who ends up on the board, because there’s a personal relationship there. But not always – we routinely hand off company leads to each other. In terms of sourcing the deal, it doesn’t really matter who it comes from.

How does someone get promoted at Atlas?

You make an impact. In terms of becoming an investing partner here, you need to get to a point where you’ve got a critical mass of knowledge and experience, and a critical mass of a network of contacts and knowledge externally.
Those are the things that would make us say, “You know what? I think this guy’s actually a partner now.”

How have you approached succession planning?

At a big company, they need lots of mid-level managers and junior-level managers and executives. They are constantly grooming that next crop of people to take the next position level. In a venture firm, it’s a much smaller version of this. There are less people and we have a lot less turnover. Yes, we do need to ensure the longevity of the firm by making sure we have some really strong partners coming up in the ranks. But we don’t need a lot of them. We just need a couple of them.