What I’ve Learned from Fred Wilson

Last week Fred Wilson and I sat down in Santa Monica for an hour+ discussion with the video cameras rolling.

One of the questions we discussed was, “How much capital should a startup raise?” Fred & I are both in agreement that there is a tension between capital constraints and creativity. In his words,

[in some instances] “because lots of capital is available, the company takes on the capital and that ends up resulting in no constraints on decision making and so the company decides to do five things in stead of just one.”

Here is a three-minute video with Fred answering this question. I promise it’s worth watching.

We also spoke about what it takes to be an effective board member. On the one hand, I often find that some board members are seemingly reading the board materials on the fly and don’t have a firm grasp of the business fundamentals. On the other hand some board members like to tinker in the running of the business.

Again, Fred,

“What I’ve learned is that if you frame the problem for the team in a way that it becomes their idea as opposed to you telling them them to do it — that’s the move… effective board members help the management team decide to make the decisions that are right decisions instead of just telling them that those are the right decisions.”

This clip is just 2 minutes:

I agree. I’d add that often as board members we know contextually what the likely right answer is from years of experience and seeing similar scenarios. But unless management buys into your premise you can’t offer effective input. So part of playing an effective coach is helping the team to see the answer for themselves.

The final clip is of Fred & I talking about whether “the best product wins” and my assertion that the bias in today’s Silicon Valley dominated tech world there is probably too much emphasis on tech — at the expense of how to sell, implement and service customers. While this clip is only 1-minute long we talk about it more in the full interview.

My goal in the interview overall was to capture more of the personal side of Fred since so much of his investment thesis and portfolio work already comes out in his blog. We talk a lot about his schooling, his early jobs as a developer, and then as a VC. We also talk about his decision to spend winters in Los Angeles.

Fred has of course been a public mentor to us all with his market-defining terminology that he popularized, including “freemium” and “mobile first.” He has publicly espoused building products for “non logged in users” and has benefitted greatly from his thesis of large networks of socially connected and like-minded individuals.

Let’s see: Twitter, Tumblr, Etsy, KickStarter … not bad, hey? Not to mention USV’s investments in MongoDB (10Gen), Lending Club and a host of others. We talked in the full interview about some of Fred’s partners and the role that they play in the firm.

What you may not know is that Fred has been a behind-the-scenes mentor to many of the newer VCs in the industry, including myself. He has played an invaluable role as sounding board, confidant, and truth teller. Fred is generous with his time and advice and I hope has shaped a generation of VCs for the better.

Some things I learned from Fred early on in my days as a VC (these are my paraphrasings so hopefully I won’t stretch the bounds of what he would own):

VC Truisms [not covered in our interview … aka bonus material!]

1. You need to invest in good markets and bad
I remember many years ago, back in the last frothy market, saying to Fred, “I wonder if I should just sit out 6 months of investing until the craziness dies down?” He quickly pointed out that some of his best investments came during the last big (pre Sept 08) bull market including Etsy and Twitter. This always stuck with me. You can’t time VC investing markets.

2. You are defined by how you serve the companies that are struggling
This is one that is core to my ethos, whether rightly or wrongly. But it was nice to have validation early on from Fred. There are some firms that pull resources from deals that aren’t quite working and put all of their time into their mega hits. Perhaps that’s rational capitalism at its extreme. But it’s not who I am. I view it like “The Pottery Barn rule” … if something goes wrong I need to be part of the team that tries to fix it. This is classic Fred.

3. Blogging is like Venus Fly Paper
I have been blogging for years — even before BothSidesofTheTable. My initial blogging inspiration was actually Brad Feld because as an entrepreneur I always wanted to work with Brad after reading his advice on term sheets and the like.

Fred got me to see a broader perspective. Instead of just writing operating and funding advice, Fred also talks about industries. He says, “It’s like Venus Fly Paper. When I write about topics that are relevant, suddenly anybody with a startup solution in that field will approach us. This works brilliantly.”

I applied this advice and started writing about SaaS and Online Video, and have found Fred’s advice spot on.

4. Don’t be in a rush to invest your fund
The biggest mistake I see from new VCs (and new funds) is rushing to do investments. The temptation is natural. As a VC, so many deals look interesting and you sort of feel like you “want to be in the business.” Fred and I had a long discussion about this in the video.

VC investing is hard work. Most deals don’t pan out, so rushing into deals will just load up your year 2 & 3 with problems to fix. This is especially true if you haven’t found your unique source of dealflow yet. It’s easy to invest in today’s momentum categories. The problem is — that’s not how you make money as a VC.

5. Take nonconformist bets on the future world you imagine
Picking up from the last point, Fred has always espoused investing in the future you believe will happen, rather than the incremental improvements in today’s world. This is exactly where my head is at and it’s been great to watch Fred. At Upfront, we have huge conviction around topics that aren’t exactly 2015 sexy. I think this will set us up nicely for 2018–2020 if we’ve played our cards right.

I remember writing about online video nearly 5 years ago. Back then, people remained skeptical about the long-term value of video (“It’s a hits-driven business!”). But these days, many investors have started to realize that the future of the Internet will contain large elements of video. Being early got me my first $1 billion exit (Maker to Disney).

6. Be generous with time with newer VCs / pay it forward
I woke up one day and realized that many of the VCs I’m good friends with got in the industry either contemporaneously to me or after I did. Life happens. But I’ve tried my best to proactively offer up private advice on the industry as best I can because Fred was always generous with his time and advice with me.

I hope you get a choice to watch the video and learn some new stuff about Fred and his philosophies.

Here’s the full video interview. The first 25 minutes, we talk about Fred’s background (where he went to school, his first job, spending winters in Los Angeles) — it’s fun & informative. If you prefer just to hear business topics we start at 24:45 where Fred talks about the role of his partners starting with Brad Burnham and Albert Wenger.

Fred is an investor in SoundCloud and we always provide the audio track on SoundCloud and RSS (for any podcast player) for those that prefer audio:

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