Google Entrepreneurship Lecture Series“What a long, strange trip it’s been:

from Wall Street to Angel to VC”

Roger EhrenbergIA Ventures

October 19, 2012@infoarbitrage

My story, part 1:“The Startup Phase”

• 1965: Born in Detroit – Michigan in my blood

• 1983: Graduated from NTHS outside Chicago – U of M-bound (Honors College, B-school)

• 1987 (early): Meet my future wife at Rick’s (she was my waitress – true story)

• 1987 (mid): Graduated from Michigan B-school – Wall Street bound (M&A, Capital Structuring)

My story, part 2: “Product/Market Fit”

• 1993: Graduate from Columbia B-school – switch from advisory to S&T (Derivatives)

• 1993-2002: Ride the derivatives / risk management boom at Citi and DB

• 2002 (late): Get the opportunity to write a business plan for a large proprietary trading business called DB Advisors

• 2003 (early): Become CEO of DB Advisors

My story, part 3:“The Pivot”

• 2004 (early): Make first angel investment - TheLadders.com – and become drunk on startups

• 2004 (late): Leave Wall Street (long story!)• 2005: Leave my comfort zone… say goodbye

to derivatives, hedge funds and trading and say hello to data-driven startups full-time

• 2009 (mid): After 40 angel investments, actively penning a blog and countless meetings with entrepreneurs, VCs and angels, decide to start IA Ventures with a thematic focus on “Big Data”

My story, part 4:“Going Big”

• Leverage my experience– Take my 20+ years using data and algorithms to solve

market problems and apply it to venture investing

• Adopt a founder’s perspective– Build a venture firm that’s thoughtful about recruiting and

partnership (with LPs and companies alike)

• Define a clear market opportunity– Attack it with ruthless focus – skills, branding, execution

• Pay it forward– Build strong relationships across the Big Data ecosystem

(entrepreneurs, data scientists, strategic corporates, government)

Some Basics on Entrepreneurship

• Solving defined problems generally leads to the best ideas– Buddy Media, TransferWise, TweetDeck

• Have a partner; they help get you out of your head and facilitate joint problem-solving and collaboration– Mike & Kass Lazerow (Buddy Media)– Nat Turner & Zach Weinberg (Invite Media)

• The best entrepreneurs have strange utility functions: they optimize for impact, not $$– In Mike Arrington’s parlance, “Are You a Pirate?”

• Unless you have an exceptionally high pain threshold and are willing to feel like an idiot much of the time, do not try this at home

Entrepreneurship “Data-Style”

• It doesn’t have to be technologically complex– Sometimes, an amazing consumer product/platform can build

valuable data assets ripe for mining

• It’s not about whose cluster is bigger– Your infrastructure is only an enabler of you asking and

answering the most relevant questions

• Lots of data isn’t an advantage on its own– Often, more data creates more problems– Data-centric founders build the right technology and culture to

extract maximum value out of data assets

• Instrument everything and use your data to learn– Test, test, test early and often– You must have real hypotheses and be intellectually honest

Data Economies of ScaleUser

engagement

Data

Insight

Improvements

PRODUCT

Data Exhibits Network Effects

100101001

Insight

11010010Insight

010001011

Insight

ContributoryDatabasePlatform

So you think you want venture money?

• Are you sure?• Bootstrap as long as you can

– e.g. Indeed, Github, Thrillist

• Friends & Family / angel money is a good first step– e.g. TweetDeck, Global Bay Mobile Technologies, MyTrade

• Only consider institutional money if you are committed to building a business of meaningful scale. VCs care most about big exits– e.g. Metamarkets

• Taking venture money reduces optionality

If you’re going to take the VC plunge…

• Make sure you’re all in– Building a huge business implies “burning the boats”

• Money is NOT FUNGIBLE– Be as thoughtful in picking investing partners as you

are operating partners and employees– Sometimes, this means taking less money or a lower

valuation from a better partner

• DO NOT overcapitalize the business – Bad habits, reduced optionality – see Color, Airtime

• Build an array of key mentor relationships

You want them…but will they want you?

• Perhaps, if you have:– A razor sharp vision, clearly articulated– A hard/interesting problem you are solving

and/or a pressing need you are addressing– A beautiful demo that shows the power of

the product and has a good design aesthetic

– A grip on your costs over the next 18-24 months

– Unbridled passion for the mission you’ve outlined

– Chemistry with the investor(s)

What if they say no?

• Don’t take it personally– Expect to succeed, but be prepared to fail

• Really listen for concrete feedback

• Be honest with yourself– Is your idea dumb? – Too small for venture financing? – Did you do a crappy job telling the story? – Or is the market simply missing the boat?

• The best companies are often contrarian plays– If you really feel the market is wrong, ramp down cash burn,

raise more angel $, and try to get some paid pilots to fund further build-out of the business

The punch line

• Follow your passion• Seek out great mentors• If you are the masochistic type and want to

start a company, know what you’re signing up for

• Find an awesome partner• If taking money, optimize for chemistry and

value-add, not simply valuation• Get some thick skin• ALWAYS REMEMBER THAT YOU ARE A MICHIGAN

WOLVERINE

Roger EhrenbergIA Ventures

@infoarbitrageroger@iaventures.com