Boston-based G20 Ventures recently announced the closing of its first fund with $63.5MM in assets.
G20 was founded and is led by Bill Wiberg and Bob Hower, industry veterans who will be familiar to many from their years at Advanced Technology Ventures (ATV), where they remain GPs. Their investment focus is on early-stage, East Coast enterprise software, infrastructure and Internet solutions, and they will not invest in 100% consumer-facing businesses. They have persuaded an impressive group of individuals (the group of 20, hence the name G20) to serve as LPs and as advisors to portfolio companies.
There are four firms in the portfolio thus far: 128 Technology, which is in stealth; Dunwello, a place to find trustworthy reviews of individual professionals; Evergage, a real-time marketing platform; and Thinking Phones, a cloud-based consolidated communications platform.
Bill was kind enough to agree to an interview.
Q. Bill, why is now the right time for a new early-stage fund?
A. Bob and I have worked together for the last dozen years at ATV. It’s been a great platform for both of us and our partners and in fact we still have a portfolio of ATV companies and the ATV partners continue to work together to optimize the outcomes. From a legacy perspective, Bob and I have a lot of working history together.
The ATV partners made the decision to raise separate Healthcare and Technology funds leaving Bob and I with a clean sheet of paper as we thought about the strategy for a new Technology fund. We are by nature early stage investors. We both come out of operating backgrounds before getting into venture. We like to work with teams pretty closely.
We saw an increasing amount of entrepreneurial activity in Boston and New York and believed the East Coast offered a very rich field to pick from. So we started off thinking about an East Coast, software, enterprise software focus. That’s largely because the consumer-facing ideas were not where we had invested in the past. That’s not to say some of them aren’t compelling, but we felt that others are probably better equipped to understand consumer adoption risk.
Then we started to talk to the entrepreneurs we had worked with and made money with over the last dozen years about our strategy, partly to verify that it made sense. A relatively small fund managed by the two of us, focused on the East Coast – is this the right place to be and the right strategy to pursue?
What was interesting is that the idea resonated with people largely because of the alignment between the entrepreneurs, the investor (us), and our potential LPs. In a small fund the venture guys don’t make money unless LPs make money and entrepreneurs make money because everyone is in the boat together. It’s a back to basics approach that reflects how venture used to be before the late ‘90s.
What we heard from the entrepreneurs was that they were interested in investing in the fund and interesting in helping. Early on, we hadn’t really defined what helping would mean, but we were listening to this input. Over time we ended up with about 20 people we really respected and who were by nature collaborative people. That last part is really critical – that they were collaborative people. We decided to coalesce that group into what we began calling the G20.
Then we looked for an efficient and effective way to leverage their collective experience in all aspect of building a venture fund – from deal sourcing to diligence, but maybe most importantly in helping companies succeed. We wanted to leverage the wide experience of this group of 20 people to help companies succeed more quickly.
That was the premise. It was pretty simple really. We chose the name G20 to embody the model that we put together.
Q. And then two more people called and said, “Can you let me in”?
A. It’s funny. Initially there were 18 not 20. We held the first close on the fund at the end of 2013. Then, we really stopped fundraising and made four investments before we went back out for the second portion of the fund.
In doing so, we met some fascinating people we couldn’t pass up. A good example is Matthew Szulik, who was the CEO who brought Red Hat public and knows more about the open source business model than anyone Bob or I had ever met. We’ve had him talk to a number of entrepreneurs in our portfolio and at companies we are looking at. People really respect his perspective.
We are really not bound to twenty. Let’s just say we rounded.
Q. What can you tell me about the kind of investments you plan to make from this fund?
A. We expect to make between 15 and 20 investments over the life of the fund, and the majority of those are going to be traditional Series A, first institutional money into a company. Just a traditional Series A round, generally done with another venture firm and reserving additional capital that might be necessary to participate all the way through to a company’s exit.
I would contrast that to a seed fund that is making a lot of bets, and watching to determine which ones are growing quickly and then trying to double down on those. That’s a strategy that probably would not work well for Bob and me. We would tend to put as much time into those seed investments as we would into much larger investments. It’s hard for us to be passively involved – that just not our personalities.
Now, it’s quite possible, and true so far, that there will be some small number of seed stage investments made if there is an entrepreneur with an exciting vision, but the vision isn’t fully developed so it doesn’t make sense to put a lot of money into that company as there is further exploration to be done.
That would be the case with Dunwello. We think Matt Lauzon is a great entrepreneur. We like the general vision he’s brought forward. He’s iterating very quickly. It’s an exciting time to be involved with him. But it is a seed investment. Bob is involved with Dunwello and certainly spends as much time with them as if we had put in ten times what we invested. So there will be some seed investments but that will be more the exception.
Then, on the other side, there will be some things that look like more like later stage or Series B kind of investments. An example of that would be Thinking Phone Networks. The company had been bootstrapped for several years and was at significant scale when we got involved. But the entrepreneur and we had concluded that there was an opportunity to accelerate growth and I think that’s working out very well for them.
So there will be cases on both sides. Some things that looks a little later, a company with significant revenue that is looking simply at how they might grow more quickly, and some on the seed side.
But the bulk of the 10 to 15 investments will be traditional Series A investments.
Q. Are companies in the Northeast underserved by Series A investors?
A. It’s a hard question to answer yes or no. What I would say is that there is good balance, meaning that there are a lot of terrific entrepreneurs in the Northeast. And more people are being attracted to startups – as you were 15 years ago when you made the jump from corporate life to the entrepreneurial life. I think that’s happening more and more and it’s an attractive thing for people to do right out of school. You see that on the East Coast in all the incubators and accelerators and right on through into company formation. So it’s an exciting time certainly to be investing on the East Coast
I do think, as compared to the West Coast, the balance is probably appropriate and favorable to an investor. There are plenty of good firms to work with and to co-invest with. It feels like a healthy, balanced ecosystem on the East coast right now.
Q. How far along do you want companies to be before they approach you?
A. What does a Series A company look like? In the software area, it is certainly true that on seed money or friends and family money people are able, often or maybe even in the majority of the time, to have a product in the hands of some early customers. So, they’ve learned from customer feedback about the market for what they are doing. That’s an ideal situation for us. We often say that we’d prefer to take technical risk rather than market risk.
A. You can outwork technical risk. You can solve technical problems in software – it just takes more time and more money. But you can always solve the problems there, right? If you are not in the right market, that’s a problem you can’t solve.
So, to the extent we can validate that the problem being solved is an important one to a customer, that’s something that is very appealing to us even if there is a lot more work to be done to get the product into its final state. We certainly are comfortable with all that.
We love the ability to talk to customers about a real problem that a company is solving and understand that the market need is really there.
Q. Do you plan on being investment lead? Do you expect to take board seats?
A. Yes and yes. It would be hard to think of a case in which we would not take a board seat. In the last 12 years I don’t think either of us has made an investment in which we did not take a board seat.
Do we lead? We lead or co-lead. If we lead we are generally going to be looking for someone to join us. And if there is another good firm that we like working on a deal, then we are very happy to join them.
Whether or not it’s to our advantage, I always tell entrepreneurs that they are better off with two investors rather than with one. One group can change strategy or a partner can leave. A lot can happen. Plus, the diversity of perspective that comes from a group is beneficial.
Q. How will investment decisions be made at G20? Who does your investment committee consist of?
A. Bob and I are the investment committee.
Q. Your tag line is, “We help entrepreneurs move faster.” How are you going to do that?
A. Part of it is that we have a very simple and low overhead model. Bob and I make the decisions, so we can move quickly.
Bob and I will both get to know a team that we are seriously interested in quite well and then we mutually agree – the team and we – if we are the right folks to make an investment. Once we‘ve done this there is no need to present to a broader partnership, of which only a subset is interested in what this startup company is doing.
So, from the very beginning, working with us because of the simplicity of our model is quite efficient to the entrepreneur. Then our sole focus in on how we can help this company succeed. In general, success is correlated with speed.
Then we look at how the group of twenty can help this company move forward. It’s not through big meetings or formal interactions but through us bringing the right person with the right experience to bear at the right moment in time.
It’s pretty simple in this way. It’s just the two of us working with companies and trying to establish a deep enough level of trust with the entrepreneur that they are very open about the challenges they are facing. Then we have this resource – this pool of experienced people – that we can draw on to really help accelerate their movement through these obstacles.
Q. In general, what is your feeling about the right time for a startup to think about expanding outside its home market?
A. It’s a good question. At the outset, I think the important thing for the company to do is to focus on winning at something. Setting a goal in an area where you can find success. That area might not be constrained geographically – it might be defined by domain or the specific value that you are providing with an initial product. But the idea of focusing on solving a single problem and doing it really well before expanding is just good advice.
Now, to do that it might be necessary to think broadly, geographically, right from the outset. But then you should define a very narrow, solvable, but distinctive problem to address across geographies. So it’s quite possible that early geographic expansion could be appropriate.
Just like there is a moment in time when it makes sense to take your first product and expand it and gain territory and create value with a broader use case. But if you try to do that initially you dilute your ability to be great at anything. Be great at something first, before expanding too quickly either geographically or with product scope.
Q. Was all of the capital for G20 put up by you and the group of 22 or do you have other LPs?
A. The majority of the money comes from traditional limited partners outside of the G20 but the G20 did contribute significant capital.
Q. Three of the first four startups in your portfolio were founded by people who have founded companies before. Is this just random or is it a preference?
A. Definitely not an accident. We have a strong preference for successful, repeat entrepreneurs. There is probably no stronger predictor of future success than past success.
We like to back people with experience in entrepreneurial settings who have seen what it takes to win. Or they’ve seen where companies have failed.
Q. You have some very impressive marketing people within the G20. Can I assume that marketing technology and AdTech are areas you are looking at?
A. You build networks in different areas. Bob was involved as a board member and investors at X+1 which recently sold, to Rocket Fuel, so he knows John Nardone (CEO of X+1). John and Sarah Fay are both part of the G20. They bring, among other things, great deal flow. People in those markets go to them for advice, and this is true of every member of the G20 in their areas of expertise.
Venture is a simple business if you have the best deal flow. Everybody aspires to that. So it’s somewhat inevitable that we’ll be looking at these areas going forward.
Q. Are you interested in looking at financial services or financial technology startups? Are there areas of FinTech that are particularly interesting to you?
A. Absolutely. As we look at opportunities in New York, the FinTech space is a good area for us to be tapping for a number of reasons. We’ve spent time with the guys at Value Stream Labs and seen some of their companies.
A new add to the G20 is Perry Traquina, who recently retired as CEO and Chairman of Wellington. Perry brings a deep understanding of the problems that are faced by major participants in the financial services market. Within the G20 and across our LP group we have a number of people who can play that role in the financial services arena.
So we have a good way to validate problem statements in the FinTech area. And there is a lot of activity in this area, so we definitely expect to be looking there.
Q. Do you anticipate being involved with accelerator programs and incubators?
A. Yes. They are trying to build the entrepreneurial ecosystem on the East Coast – we’re obviously interested in doing that – and to do it you have to participate. Both Bob and I have done work with a variety of these groups and will continue to do so.
Q. Will you look at companies that have gone the equity crowd funding route?
A. Sure, if it is a great company and the capital structure makes sense. We have not really looked at anything yet, but there will definitely be some winners there, so no exclusion.
Q. Are non-competes a bad idea or the worst idea ever?
A. I would like to see us get rid of non-competes. You want to be on a level playing field with other areas that are working very hard to attract entrepreneurial activity for reasons of job growth and economic health.
Anything that encourages entrepreneurs to leave Massachusetts and go to states with more attractive climates – take California because of non-competes – is a bad idea.
Q. What will G20 look like in 12 months?
A. It will look exactly like it does today, except that we will have made two to four more investments.
Q. How would you like entrepreneurs to contact you?
A. Our phone number is on our web site, and people can certainly get to us through LinkedIn.
I hate to give such a stock answer, but we have a pretty broad network. It’s always good to find a connection to us through your network, because then your inquiry has some context.
Q. Is there anything else you’d like to add?
A. When I think about G20 there are two words that I always come back to: alignment and collaboration.
We want to have really tight alignment between entrepreneurs, ourselves, and our investors. We want everyone to feel we are all in the boat together.
Also, we are by nature, Bob and I, very collaborative people. We learn from each other, and from entrepreneurs. And, we learn from all the great people we surround ourselves with.
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