Culture Radio: Podcast Discussing Culture & Venture Captial

Culture Radio: Podcast Discussing Culture & Venture Captial
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EPISODE 21: A CLOSE LOOK AT THE IMPACT OF VENTURE CAPITAL IN THE BUSINESS LANDSCAPE WITH ANDREW ROMANS

DISCLAIMER: Listen to the podcast. That’s easier and I can see having glanced at the transcript below that it’s not word-for-word accurate. If English is not your first language this not perfectly accurate transcript may be of interest. Otherwise I encourage you to LISTEN TO IT HERE.

 

THE QUESTIONS

[7:55] Andrew, what do you think drew you to the VC world? As you grow up, was there something that shaped and formed you to this direction?

Answer: I grew up in Short Hills / Madison, New Jersey. Even there, I was an entrepreneur. I founded a company called the “Freshmen Assassination Game.” When I saw that movie “Gotcha” and said, “Who wants to go to school when you could be playing an assassination game?” That sounds fun. And the good thing about that business is I didn’t need any investors. You know, I collected $2 per student. Gave $1 to the sole survivor and kept the bucks from everybody myself. So I had little businesses running all through high school and college. I had a big t-shirt business in college. And so, I was just a hardcore entrepreneur, you know, from the core and my soul.

[25:10] Was there a moment in your career over the last 20 years where there the lights went on for you?
Answer: The honest answer is it’s been more of a logical progression through life. I think I enjoyed being a child. I enjoyed growing up. A big seminal moment for me was I moved from New Jersey to Paris, France at the age of 16, and went to this bilingual high school where half of the classes were in English, and half in French. And there was 40 nationalities. And to me, it was only two years, but I’m telling you, that was just the most formative experience of my life where I felt like the whole world got opened up to me.

[30:22] To what degree does culture and team dynamics influence investment decisions in your opinion?
Answer: I mean, I don’t want to say it’s everything, but it’s big. So in the decision in the equation, this is an enormous element. If, you know, back to the definition of vibe and values, if the vibe and values don’t feel right to me, we call it “spider senses.” Always trust your spider senses when investing in startups. So if I don’t like the vibe and the values of the business, then that’s going to get us through a pass right now. We don’t want to spend a lot of time on a company that we don’t think there’s a high probability or real potential for us to complete the investment.

CULTURE ACCORDING TO ANDREW ROMANS:

I think it’s a mix of vibe and values. So whenever you go into a startup or any company, whether this is, you’re entering the campus of Google, VMware, Yahoo!, Facebook, or you’re entering the vibe of like some brokerage firm, like Wolf of Wall Street. Think of Leonardo DiCaprio’s culture in that place, bum-bum, right? I mean, that culture is going to be totally different than some of our startups where you’re going to the office at a startup in San Francisco or Palo Alto, and they’re literally making stuff out of hardware; and they’re writing software; and they’re having meetings; and they’re whiteboarding; and they’re on the phone a little bit. So it’s a very different corporate culture. So there’s a vibe to every startup or every company and there’s values. And so to me, those are the two defining thing, I would say, of culture.

GO TO QUOTE FOR INSPIRATION

WHAT ANDREW ROMANS WANTS HIS COMPANY TO BE:

  • BE Tough
  • BE Fun
  • BE Honest
  • BE Loyal

WHERE TO FIND ANDREW ROMANS:

CONNECT WITH JOHN ON

FULL EPISODE TRANSCRIPT

John: Andrew, welcome to BE Culture radio.

Andrew: Hey, glad to be here.

John: I’m glad you showed up. Good to have you. Thanks for showing up and sitting and visiting with us. You’re out on the sunny west coast, and here we are on the cold northeast. So we finally get a chance to talk.

I’m very excited to have you. But before we start, Andrew, can you tell us a little bit about your background and who you are, and what made you the man you are today?

Andrew: Sure, sure. So with regards to corporate culture, I founded a company which raises venture capital funding. And we actually had $15 million in our first round in cash from VCs, and then $25 million from Lucent to then go out and buy telecom switches and software & services. And so I had my own experience of watching the company go from just me and one other guy, my co-founder, to 90 employees. And we were hiring and firing, as we didn’t have time to do 72 interviews like Goldman Sachs. You kind of have to make a decision rather quickly. And within three months, you would know when someone would stay.

So I had my own experience of hyper growth. Then I switched over to becoming an adviser, where VCs would bring me in to join the board of directors of one of their portfolio companies that they invested in, and asked me to reach out to other VCs that I knew, in order to raise money. So I essentially became a banker for helping start-ups to raise venture capital funding, and I was getting paid like a banker on that stuff.

And then, I decided, why should I give the best deals to these other VCs? Why don’t I raise money myself and invest in them myself? So I first became an angel investor, and I started seeding companies. I actually started managing to good, small amounts of money into later-stage rounds, which is not that easy to do, but I did that. So again, I’m watching hyper growth out for companies getting funded too quickly.

A lot of times, these companies like mine, they were experiencing hyper growth, where they got to really pay attention to their culture, and they’d get funding. And that can change things a bit. If nothing else, it pours some rocket fuel on top of the company. You’ve got more operating cash flow to hire people, right, and to expand. So when expansion happens fast, culture is something to really pay attention to. And then, I raised my own venture capital fund. So now, I’m a founder of Rubicon Venture Capital. We’re VC-backed by largely angels and family offices. And we invest in start-ups. So I’ve got this perspective of being the entrepreneur, being the banker and being the investor, and watching a lot of companies grow very quickly.

John: Andrew, what do you think drew you to the VC world? As you grew up, was there something that kind of shaped you and formed you, and then drove you in this direction?

Andrew: Yeah, so I grew up not far from you in New Jersey. I grew up in Short Hills, Madison, New Jersey. Even there, I was an entrepreneur. I founded a company called the “Freshmen Assassination Game.” I saw that movie “Gotcha” and said, “Who wants to go to school when you could be playing an assassination game?” That sounds fun. And the good thing about that business was that I didn’t need any investors. You know, I collected $2 per student. Gave $1 to the sole survivor and kept the bucks from everybody for myself. So I had little businesses running all through high school and college. I had a big t-shirt business in college. I was just a hardcore entrepreneur, you know, from the core, in my soul. And then, I worked at some other companies. And when opportunities presented themselves, like an entrepreneur, I went for it and took the risk, I put my own money at risk, and then this grew into good business. And then, when I had a good business, investors were chasing me.

The first time that I came across VCs was when I was running the Global TeleExchange at Washington DC, Northern Virginia. And you know, I realized that in order to do what I really wanted to do, I needed maybe as much as $100 million. It was going to be expensive if I executed on one strategy. And so I met these VCs, and almost within a second of the first meetings with them, I thought, “Wow! This is like entrepreneurship on steroids. These guys get to be in multiple deals at the same time. They get to see everything.” It just checked a whole lot of boxes for me. I was pretty positive that that’s what I wanted to do with my life.

Somebody also said to me, “If you can decide what you want to do in your life, such as choose your major the first day of undergrad or something. If you can figure that out and run with all of your energy in that one direction, life can just be so much better for you, rather than trying a little bit of this and that every six months for the rest of your life.” So I got pretty hooked on venture capital. I then had the experience of having VCs on my board. I observed what I thought, whether they were effective and whether they were not effective, and if so, why they were ineffective. In dealing with VCs constantly on fund-raising for about a decade, I began to understand how they work together and how the whole web of connections operates.

So typically, VCs operate in their own partnership, in that they work with other VCs in the whole ecosystem. You know, this includes even folks like yourself doing podcasts; it’s kind of all connected. So, I began to just refine my own idea of how to run a VC firm that would be different than others.

John: Tell me a little bit about that.

Andrew: You mean like “What are some of the differences?”

John: Yeah.

Andrew: Yeah, okay. Firstly, typically, a classic VC will say, “Every time we invest money from our fund into the company, we’re going to be very hands-on, and we’re going to be so hands-on that our consulting for the company is going to raise the value of the company. We’re going to add value beyond just the capital that we put in.” I couldn’t agree with that more. It’s the way it’s done and the way by which we do it differently. So a classic VC will join — one of the partners will join — the board of every company that they invest in.

But there are only so many boards you can be on and be effective. If a venture, if one individual person, is on ten different boards, there are going to be about 80 meetings a year that they have to go to, that they should prepare for, be at and follow up. At the same time, it all starts to break down a little bit. At the same time, they’re supposed to be sourcing new deal flow. So it’s supposed to be that they are finding new deals, going to conferences, publicly speaking left and right, doing podcasts, in other words they are being seen in the market. Then they’re supposed to do a high quality job, in evaluating each company and doing the due diligence by making phone calls, checking out if this business is really for real and whether it is a good one or not. What are the risks? Can we handle them?

After they’ve invested, they’re supposed to be adding value, making introductions, advising the companies and spending time with the CEOs and the founders. They’re doing all kinds of things, with the aim of helping them ultimately sell their business and exit via M&A, a trade sale of the company, or an IPO or possibly even a secondary purchase of the private shares.

So that’s a lot of work, and the VC is supposed to raise an entirely new fund every two or three years, or around the far end, every four years. If you’re trying to maintain a relationship with your spouse and have your children know you, that’s a lot on one person’s plate. And it’s hard to be effective and deliver on all these campaign promises.

We have structured things differently, in that we initially raised money from a whole bunch of CEO’s and founders of successful venture-backed companies. Then we started raising money from individuals who were senior executives at the big technology companies that are big buyers of companies, like Apple and Facebook, and Google, and VMWare. There are other guys like Goldman Sachs, and then big financial people. Also, we raise money from other VCs including in places like Tokyo, Japan, in London, and in Zurich. So we’ve got a footprint of people from Europe, the East Coast, New York, San Francisco, Bay Area, LA, Japan, all over the place, who put their own money into the fund. Fourteen of them are venture partners.

We’ve got a full-time team of three guys, and then we’ve got 14 men and women who are venture partners and support the company. So in essence, rather than one person trying to do everything themselves, and find themselves being ineffective, we’ve managed to build a team of people in a distributed manner, that can add value at every step of the process. This includes from sourcing deals to vetting and doing due diligence to bring in capital together, to investing in companies and taking board seats. I don’t take every board seat, because there is usually someone more qualified than me in our network who can take that board seat, be more effective and have better chemistry. And frankly, these guys are typically operators, where the VC has become a consultant. Even if they were an operator like I was, in some ways, I’m like a McKinsey consultant with a different revenue model, a venture capital model.

So that’s the big difference I think another thing is that a lot of VCs require a minimum ownership percentage. For them to justify the company taking investment and taking one of their finite 5, or 10, or 20 board seats, it’s not worth their time to take a board seat and be consulting heavily to the company if they only own 0.5%. So most VCs have a minimum ownership target. And that often looks like they want to have at least 30%. You know, private equity guys want controlling stakes. But VCs investing in loss-makingcompanies typically want 30% or 15% or 10%, or even 5%. And if they can’t get that, they won’t invest in it.

So they might see a company that’s taking off like crazy and they can invest in it at one valuation, say $10 million, and be really confident it’s going to sell for $100 million to $1 billion and will make a lot of money for their fund. But they can’t get that minimum target, 20%-30% ownership, and so they don’t invest.

Rubicon Venture Capital, my fund, is unique in the sense that we can take and add value to the network and be comfortable in taking a small percentage, and not even taking a board seat. We’ll say, “Hey, do you need help? Ask us, and our network will deliver. We’ll even pro-actively send you people, make introductions and help you with your network. But we don’t necessarily need to own 10% or 20% of the company.” And that makes us very, very, very attractive. We can talk for hours, and hours, and hours about it. But another thing that makes us super different than most VC funds is that what happened in the venture capital industry in 2001 and 2008 with those economic downturns was that a lot of VCs failed to raise their next fund. So they stopped adding capital to invest in new companies. They became what we call “zombies,” literally the walking dead, no longer actively investing in new companies. The surviving VCs raised larger funds. So the funds went from being $50 million and $250 million to being in the billions, or $750 million, $850 million, $1.2 billion funds. And so for them, if one of their companies get sold to Facebook or Google for less than $100 million, that’s not going to make a dent in returning the capital of a $1 billion fund. So the classic VC started telling the entrepreneur, “I’m not going to support you in selling this business for anything less than $250 million or $500 million.” When the offer comes to sell the company, the VC almost has a conflict of interest with the founders and the CEO.

Rubicon’s position is a relatively small fund that can support the company if it sells for, say, $50 million or $100 million, and that makes an impact on our relatively small VC fund. We allow every investor in our fund to double down and put more money into any one of our portfolio companies that they like.

So we opened up what we call “sidecar funds.” So if we want to support a company, as it’s a $1 billion fund our fund can wire money to them, and then we open up what we call a sidecar fund. Any one of these angels and family offices can say, “Hey, I can add value to that company because I own a furniture business and I understand that space.” And so, he might want to double down in that one deal but he doesn’t quite understand the other tech deal. What ends up happening is that our investors put more capital into the deals where they can really personally add value, and where they like the deal. So, we’re able to have the flexibility of a small fund and yet deep pockets in power and cash, in the capital of a big fund. Then this dynamic of allowing our investors to invest and double down with more money on the deals that they like more results in more value being delivered to the founder and the company.

Now, they get not only cash, but cash from an operator who truly believes in that business and thinks he can add value to it. We should be talking about the topic of corporate culture, so I’ll stop there.

John: No, this is very interesting to me because it’s very unique and you don’t hear this in the VC world. So I think it is part of your culture and what makes you attractive, and why people do want to hear about you. What I want to ask you is, as you have 20+ years and you’ve seen a lot of things, about your most challenging professional moment, when you said to yourself, “Oh my God!” Could you share that with us? Also, what are your proudest achievements at this point of your career? I mean, you’ve got a long way to go and you’re going to have a very long career. But at this point, maybe you can share with us, when was that moment where you thought, “Oh wow, this is—I don’t know.” And what are you the most proud of today?

Andrew: I have a lot of ups and downs, and a week in my life is typically like a roller coaster at any given time. Any company that makes it into the winner’s circle and has a huge exit, you can believe me when I say that they would have had some rough times along the way. It’s an even deck, you know, when they’re doing well, one day, and they’re having a tough time the next day. And there are people in every one of these companies, so there’s always a little bit of divorce happening somewhere to get involved in. But certainly, every day’s an up and down for me. But there were two really challenging moments for me. One was early in my career. I was selling fiber optic cables and turnkey solutions to build telecoms networks in Bosnia Herzegovina. The fighting had stopped and the United Nations had come in. They had stabilization due to the international forces. So there were soldiers everywhere. When you were driving, if you have to stop the car, you literally didn’t want to stand outside of where the tire tracks were, because you didn’t want to step on a landmine. When it came time to sell to these guys, corruption was kind of all over the place. That was one of the most complicated situations I’ve ever had to navigate, where people were asking for bribes, and it looked like 80% of their families have been killed in the war.

It was absolutely the most complicated business situation I’d ever been in. You’ve got a fair amount of oversight from US government-type bodies and European Union government bodies. And the contracts were big, so that was an incredibly complicated situation. And I was proud that I managed to navigate it in a way that was ethical and legal, and effective. And I thought all parties came out okay, other than my competitors.

Another big, big challenge for me personally in this business was writing the first book that I wrote. I wrote this book called “The Entrepreneurial Bible to Venture Capital.” And I pulled together stories from, probably, 100+ venture capitalists. So I asked VCs to tell me a story. Don’t be afraid to tell me a war story; tell me your Bosnian story but it must relate to venture capital and entrepreneurship. I’ve got stories from CEOs, from billionaires, from VCs, from angel investors, from lawyers and CEOs. And so much of it was so good that I organized it into this big package that it turned out to be like a thousand pages. And I thought nobody wants to hear a 15-minute jam on the radio. They want a three and a half minute song. So I had to drill it down and edit it down.

Then I signed a publishing deal with McGraw-Hill, who wanted it to be 50,000 words. I got it from so many thousand words down to like 330,000 words. Then to go from 330,000 words to 50,000 words with my deadline coming up, that was a moment of panic. I still don’t know how I could look people in the eye, like Dov Moran, the inventor of the USB flash drive in Israel, and tell this guy that I was cutting his entire section on the book.

John: Oh, wow.

Andrew: And like, Dov, I mean, that guy’s an entrepreneur, a gladiator who builds a corporate culture, believe me. I mean, what a corporate culture he had there in M-Systems.

Now, he has a $1.3 billion exit. The guy feels stronger with his next company than he did with his last company. So that was a real moment of panic. The honest truth is that my parents flew in from New York on angel wings and decided: “you’ve got to cut this, you’ve got to cut this.” That was one of the hardest moments. Everything else, I’m just used to the bullets kind of flying in the air with the start-ups now, and the egos and everything else.

If I write another book, I’m now experienced on how to not let things even begin to get out of control. You know, don’t let anyone write more than 500 words.

John: So it sounds like to me you’re a pretty well-grounded guy. And here, let’s talk about your children a little bit, your mom, your dad, that whole—I refer to it as a tribe that surrounds us and gives us the moral fiber to move forward in a positive direction even the most challenging times.

Andrew: Absolutely. And the same thing goes for companies, right?

John: Yeah, absolutely. And I want to drill down on it a little bit. Can you share with our listeners what your definition of company culture is?

Andrew: Yeah, I was thinking about it. I think it’s a mix of vibe and values. So whenever you go into a start-up or any company, whether you’re entering the campus of Google, VMware, Yahoo!, or you know, Facebook, or you’re entering the vibe of some brokerage firm, like Wolf of Wall Street. Think of Leonardo DiCaprio’s culture in that place: bum-bum, right?

I mean, that culture is going to be totally different than some of our start-ups where you’re going to the office at a start-up in San Francisco or Palo Alto, and they’re literally making stuff out of hardware; and they’re writing software; and they’re having meetings; and they’re white-boarding a bit; and they’re on the phone a little bit. So it’s a very different corporate culture. So there’s a vibe to every start-up or every company, and there are values. And so to me, those are the two defining things, I would say, of culture.

The other thing is, you know, there’s literally, it’s quite the same in Israel, and it’s accurate to use this word “culture” here. The culture of Israel is very right to the point and open. People will tell you if they think your idea is bad. Whereas in England, in London, people are so polite that they’re a little uncomfortable about confronting you, about saying whether your new idea for a start-up or VC fund is good or bad. And they might politely smile at you, kind of Japanese-style, and never tell you that they think you’re making a mistake.

And so the culture in England might be that they are subliminally telling you, “Yeah, that’s a great idea, maybe not.” In Israel, they’ll be like, “This is a disaster. Here’s the name of the guy who can fix it.” And they give you a name and a phone number. So the cultures in a company are also going to be super different like that. East coast, west coast. It’s like east coast-west coast rap. The start-ups are actually different in New York than they are in California. There are things I like better in one and better in the other.

John: Let me ask you this. You go out and you see companies and they maybe want to move from emerging, but they’re on the growth pattern. You sit down and the person running in says, “Hey Andrew, here’s our culture.” And you look around and you’re like, “No, it’s not.” How do you reconcile that? Because you see something that’s of value. But you’ve got to help this person because they’re not aligned with what’s really going on. Did you ever have that experience? Because I know some of my listeners have shared with me that they’ve seen that. They’ve heard that. They’ve experienced it firsthand, that the leader is out of touch with what the culture really is, and they’re driving culture in a different direction. And they think they’re driving it and they don’t get up every morning to do it on purpose. They just don’t know any better.

Andrew: Well, I think a lot of culture is accidental and it’s hard to control. If you think that you can drive, get on the steering wheel and steer the direction of your culture, you might be lying to yourself that you’ve got the power to change it all that much. I think that in my experience, culture proliferates from the founders into the other people. So Adolf Hitler is not going to watch a podcast and change his course of style into being a different style of manager from how he is. He’s going to have a dictator-type of culture, with yelling and screaming. Some cultures are more formal than other ones. You hear the CEO down to the head of engineering screaming expletives, you know, “F-U-C-K” every other word. And then in other kinds of law firms, that’s not going to be tolerated, or it’s a different style.

So I think it’s something to pay attention to. I think that senior management at the board level and at the C-level, and the heads of different business divisions, can get together and, say, “Have off-site retreats and talk about their values,” and agree on that, and even kind of subtly talk to people about it. “Hey, I saw you lose control of yourself when you were very angry in front of all these people. And I don’t think you should do that.” And you can fine-tune cultures.

So it’s not completely out of your control. But I think the staffing decisions are the closest you can come to really controlling your culture. I think you can take these steps of writing down your core values, you can be inclusive with everybody in that kind of process. Depending on how many people are in this company, you can do it at different levels. But what I experienced, a defining moment for me was when we hired somebody actually through a headhunter. And she turned out to be a complete ax murderer, and we were, and I was, super cautious. I think I had two different lawyers and another witness in the room when I fired her, worried about how she was so crazy. I thought that she’d try and sue us. I documented over the weeks and weeks when wanted to see change and then documented that there wasn’t any change. But after that, I remember I got the whole company to meet together and said, “We’re growing like crazy. We’re hiring a lot of people. We have to hire.” It’s not an option to stop hiring people. But just for a little while, I want us to only hire people that we already know or who are friends with somebody in this company. So let’s actually try to hire some friends. And I’ve been criticized for this some times. But for me, looking back at the GTX, the Global TeleExchange, my startup that had 90 people, I’ve actually never enjoyed working anywhere as much as that place.

I don’t think it was because I was the boss; it was that there were all these pockets of friends. Like I remember we when hired Ashley Kim, and then she hired so many people out of Morgan Stanley, Dean Witter, that they gave us a cease and desist letter that said if we hire one more person, they’re going to sue us. We basically sacked them, we ripped out all of these people from that one company. And so, all these guys were buddies and friends and had worked together. Then I remember hiring this girl who was 23 years old, who was friends with someone that was working at our company. Everyone thought she had heard from everyone who worked with her that we were the coolest place in the world to work. She was willing to take any job. “Right out of school, I’ll take any job you want to give me. I just want to work there.” And then we hired her, and then she hired a bunch of friends. And so it just became a cool place to work because all these people were friends. And most of them had the feeling of having gone to an Ivy League school or something.

So we were hiring talented people, but the fact that people were hiring friends meant that they were not going to stab each other in the back. So we ended up with a culture that was not one where it was like “Every year, one of the five people in this group is going to get voted down to the point of being fired, and so it’s an up-or-out kind of culture.” We have a culture of “I’m going to help you. I’m going to be honest and tell you what you need to do quickly to not get fired here. And I’m going to tell you honestly what to do to be successful. And I’m going to help you get up the hill, and together we’re going to get up the mountain.” So to me, it bred this honesty and “I’m not going to stab you in the back. It’s not going to be that kind of political place. And I want to see you flourish because you’re my friend.” Or you’re friends with those guys and they’re cool.

John: I’ve got to tell you, that’s so cool to hear. Because, for us, what we’ve built here, we only have three rules. Firstly, treat people the way you want to be treated, which ,by the way, doesn’t always mean it’s all roses and flowers. If I’m a jerk, someone will tell me I’m acting like a jerk. And I’m like, “I didn’t mean to be a jerk. I’m sorry.” You have to be able to tell people you’re sorry because we’re not always right all the time. And the last part, we talk about character and being the change you wish to see. But we define character as what you do when nobody’s looking. And so, we embrace that. And so, I was just wondering, for you, was there a tipping point for you, an “aha” moment when you kind of stepped back and said, “Oh, I like this. I don’t care for that. This works for me and I’m going to embrace this”? Was there a moment in your career over the last 20 years where it was like the lights went on for you?

Andrew: In a professional sense?

John: Yup. In a professional sense, yes.

Andrew: I’m not sure I understand the question. Was there an “aha” moment when a light went on that says from now on, I’m never going to do that again or-

John: Yes, exactly. It’s like “I’ve been doing this and nope, that doesn’t work. And I’ll tell you a story about, let’s hire friends. Let’s hire people that know each other.” To me, that was a great moment when I heard you tell it because, wow, it makes a lot of sense. And I was just wondering, in your travels, because you’ve seen a lot of things, Andrew, was there a reinforcement for you that said, “Yup, I get it. This is how I’m going to do it. This is how I’m going to build my business. It’s how I’m going to build my culture. This is what I’m going to embrace in moving forward professionally.” Because I’ve been through it, where I’ve said, you know, I’ll never do that. I won’t be that kind of boss. You know, when I was younger, when I was going through my career and I was working for the Fortune 100 companies and striving to get to the top, it’s like step on anybody, do whatever you got to do just to get there. And then you get there and you’re like, “Oh, I don’t like that guy in the mirror very much.” For me, I looked at the mirror one day and say, “Oh, I don’t like that guy very much.”

Andrew: Yeah, I don’t think I’ve had like a single, rock-bottom or kid-at-the-top-of-the-peak, “aha” moment. The honest answer is that it’s been more of a logical progression through life. I think I enjoyed being a child. I enjoyed growing up. A big seminal moment for me was when I moved from New Jersey to Paris, France at the age of 16, and went to this bilingual high school where half of the classes were in English, and half in French. And there were 40 nationalities. It was only two years, but I’m telling you, that was just the most formative experience of my life where I felt like the whole world got opened up to me. I started to care about people in all these different countries, because I met people from 40 different nationalities who had graduated with me.

You know, I’m like dating them, dating the girls. The guys are my friends. We’re playing sports together. We’re living life together. We’re in an amazing city together. That was really a seminal moment. And so, I think with what I’ve witnessed, I think I felt secure with myself. It’s almost like Whitney Houston, you know, “Love yourself and you can love others.” And when I see bad operators, I think it’s often driven by insecurity. So I think the bad operators could probably use some time on the sofa with a psychoanalyst to help sort themselves out. Maybe being crazy worked for Steve Jobs, and he doesn’t want to come to grips with certain issues. But I think secure people are easier to work with and better to work with. Yeah, there’s one little seminal moment. I mean, Ed Taylor was the CEO of Pencom Systems, this UNIX Company that I worked for right out of undergrad in ’93. And I think the first thing he said when I was part of a rookie class who went to a six-month UNIX training program was, “If you worship gold as your number one thing, you’re not going to make it in the computer business.” And back then, that’s what you called the technology world, computers. And I think that’s true. I think when people are too obsessed with money, it’s going to lead them to do the wrong thing. And they’re going to be thinking about taking the next hill and not taking the whole mountain. So I think being secure with yourself, being able to live with the downsides, if it doesn’t work out, will make you more effective, less dangerous, less volatile. And people will trust you more.

John: Andrew, what tip would you give for entrepreneurs starting to hire and build a business? And what tip would you give them to say, “Build this kind of culture. This is what builds good companies. This is what investors are looking for?”

Andrew: Yeah. Well, I kind of think that when you’re really getting started from ground zero, when you’re sitting in the shower or something, thinking of a company, I think the number one thing first is it’s about what people you are going to surround this company with. Because those people will proliferate their cultures and their advice, and where you are leading to, and who else you can attract to the company.

So your co-founders are your first most important thing. By making sure the co-founders are tip-top, as good as they can be, and ones that you can get to the finish line with. And make sure that you like them. You’ll probably spend more time with them than you’d do with your family, unfortunately.

The second thing is building advisers around that company. So if you’re not able to raise money, then give like 3% or 5% of the whole company to a board of advisers and get three to five people on that. And maybe start with the best person you can attract and then work with them to attract somebody else. So you kind of do one domino at a time.

And then, when it comes to the time when you’re raising money, try to get money from investors who are going to be the best fit with you. So it could be that you attract people who are exactly the same as you, so you’ve got a consistent, good culture from which to proliferate into everyone else. But you can also take another view of it and say, “I’m good at sales, but I’m not good at engineering.” or, “I’m good at engineering, but I’m not good at sales.” So you try to fill in the missing holes with investors and advisers, and new employees that have those skills. So you begin to fill in the missing bits.

John: Okay, let me ask you a question on that. To what degree does culture and team dynamics influence investment decisions, in your opinion?

Andrew: I mean, I don’t want to say it’s everything, but it’s big. So in the decision, in the equation, this is an enormous element. If, you know, back to the definition of vibe and values, it’s about whether the vibe and values feel right to me, it’s what we call it “spider senses.” Always trust your spider senses when investing in start-ups. So if I don’t like the vibe and the values of the business, then that’s going to get us to an impasse right now. We don’t want to spend a lot of time on a company about which we don’t think there’s a high probability or a real potential for us to complete the investment.

It’s not fair to the CEO because he might need money, but he definitely needs every second of the day. So to take an entrepreneur’s time is an unforgivable crime. So I try to be quick to say, “We’re not going to do this, if we don’t think we’re going to do it.” And if the vibe and the values aren’t there, then that’s it for us. If I think the CTO is going to stab the CEO in the back, then it’s not going to work for me to invest, no matter how attractive the other elements are in that decision-making equation.

John: Maybe you can share with our listeners, how do you evaluate a business plan and, when you’re evaluating that business plan, what would you tell our listeners makes a good investment based on the business plan?

Andrew: Okay. Well, first of all, what do all VC’s want or what do all investors want is a bit like saying, “What do all women want?” The answer to that is that every woman’s different. And you should talk to them and ask them questions on what they want, right?

So when it comes to investing, all investors have unique fingerprints and they all have their own values and their own strategies. So at Rubicon, we have a strategy that’s different from other VC’s, and one might think their strategy is better than another’s. But in reality, each VC should have a strategy that they are uniquely qualified to execute on, or at least that they’re capable of executing. So if you’ve got a billion-dollar fund, your strategy is going to be different than if you’ve got a $25 million fund.

For us, I like to invest in start-ups where I feel like we’ve got a direct line of sight to a key milestone that we believe is attainable, that will significantly lift up the value of the business.

So when we invested in Iotera, we knew that they had pre-sold to a kick-starter campaign 2,000 units, sort of pet tracking that would actually give us total metro coverage of San Francisco, New York, Houston, Dallas, Chicago, a whole bunch of cities. And that when we release the news that we’ve got a wireless network for the Internet of things, that’s covering all those cities, that the valuation of that company is going to go up incredibly fast.

The price that you would have to pay to buy stock in that company after we announce that we have San Francisco covered would be so much higher than right now. And so, for us. We did a lot of due diligence to make sure that getting San Francisco covered by this summer was really possible. And when we believed it’s totally, totally possible, then we were saying, “How much of our money are you willing to take?” Now, of course, we spend a lot of time with Ben Wild and his founding team, and we really got to know them. So we kind of checked the box on vibe, we checked the box on values. We checked the box on a lot of things that fit our strategy.

But one simple thing to say is that when we invest in a company, it’s because we believe that the value of that company is going to go up quite quickly, and that we are able to help them.

If we can’t help, we won’t invest and that’s the part of how it goes up. We also need to believe that it’s realistic for this company to be sold at a valuation that’s ten times bigger than the valuation that we’re investing in. So we would never invest in a company that’s been around for ten years and it’s got revenues of whatever number, and those revenues are likely to double. That’s good for some investors. That’s exactly what some other investors are looking for. It’s not what we’re looking for.

We’re looking for companies that can grow at least 10 times. Uber raised money at a $40 billion valuation. For us to invest in Uber at $40 billion, we would need to believe it’s realistic for the company to have an IPO with a valuation of $400 billion.

John: You’ve seen a lot of companies try to build dynamic cultures, dynamic companies. What’s the most common mistake you’ve seen repeated over, and over again?

Andrew: I mean, I have to say there’s only one thing: it’s running out of money. Yeah, I mean, the founder miscalculates the three things, like how much revenue they’re going to get in the door from customers in actual cash. Booking revenue isn’t going to help you meet payroll. You need the actual cash to meet payroll.

And then the other big one is what your operating expenses are. So what are the expenses that you’re able to quickly bring down and control, and what are the expenses that you’re stuck with? Do you have a contract or are you paying for posting, or rack space, or telecom bandwidth or something, and payroll, and then how much cash comes in the door from investors?

So it’s revenue, expenses, and investors, and making sure that the timing happens. But one lesson learned that I experience every day is that somebody gives you a handshake, a huge, a signature that they’re going to wire money on something, whether it’s buying the company, or investing in the company, or it’s a customer. And somehow, you’ve got to be prepared for that money to somehow not show up when they said it would. It might take longer. So make sure you don’t run out of money because then, the blood will leave the body and the body will die. And these start-ups are all about the people. It’s all about these people making the culture. And people need to meet their own expenses of rent and food, and kids and school, and tuition and healthcare, and all that. So you’ve got to have money, or else these companies die. Actually, I’ve already started something. I can’t tell you what it is, but I can tell you this: this time, I have a co-author, and the co-author is another VC, with a very different perspective on life than me. He’s not American.

John: Cool. One other question for you, then we’ll go to the lightning round. I know that — and a lot of people have wanted me to ask you this question — Andrew, what have you personally invested in? Because people follow you. You have a great following, a great business history, you’re a smart guy. And so people are always saying, “Hey, ask him. Ask him.” I’m like, “You ask him.” So I’m asking you, and I hope you don’t mind, at the risk of my being a little bolder, I just want to know what you’ve personally invested in as it relates to businesses.

Andrew: Yeah. Well, I mean, I’ve personally invested in my own fund. So I’ve invested in all the 12 companies that you see on our website. Two of the companies on our website are still confidential investments, where the founders don’t want to reveal how much they’ve raised and who’s invested in them yet. They’re still kind of in stealth mode. But ten of them, you can see. So if you go to georgetown-angels.com/portfolio and click on “portfolio,” you’ll see that I put my money where my mouth is on those ten investments. And I believe in every single one of them. And if somebody wants to know more about one or the other, I’m happy to look at it.

I think that for our fund, it was important to invest in companies that are in the Internet software sectors, or if they have hardware elements, where there’s really software behind that hardware, and that that the hardware is scalable.

We need to invest in companies that can grow extremely quickly and we need to invest in companies that have the potential to exit within two or three years. But they may go by the IPO path that could take nine or ten years, but that the valuations would just go up super, super fast. Part of that is that we want to raise a new fund every two or three years, and if we show that if you put a million into this fund, it’s now worth $10 million already and it’s got potential to be worth a lot more, then that’s a good story to continue to raise money, because you’re making money very quickly for the investors.

So I would say the Internet, the Internet software/hardware type sectors are the ones that we invest in, that have the potential to grow very quickly. I like businesses that take advantage of some of the conditions that have changed over the last ten years that did not exist before. That is the ability to acquire customers very quickly on some kind of platform. That could be Facebook, Twitter, YouTube, using kick-starter campaigns. It’s about having some other distribution channel that will quickly let them very, very, very fast grow, grow, grow, rather than a business that says, “We don’t know yet how this thing is going to grow.” You know, I had a follow-up call with a start-up in Amsterdam yesterday that I want to invest in. But they haven’t, or we haven’t, figured out yet a special button that they can press that will just go “Boom!” and let it grow really, really fast. When we find that, we’ll be ready to make that investment.

John: Thanks for answering that. I really appreciate it. I want to take you to the lightning round now. And I appreciate you just spending so much time with us today, so just some quick questions. Is there a book that’s changed your life?

Andrew: You know, on the business side, not really. I mean, Milan Kundera and Tom Robbins are probably my favorite authors on the pleasure side.

My favorite book about venture capital is Bill Draper’s book. He is Tim Draper’s dad. He’s an old-school kind of original VC. I really like it because he tells stories. And also, I just really like Bill Draper and I think he successfully conveys his personality in a book, which is not that easy to do.

Another book, if you’re raising venture capital, I think a must-read book is Brad Feld’s Venture Deals. And that’s a bit more like surgical-legal stuff, but I think a lot of people don’t know what they’re getting into. That’s probably another good book.

John: Do you have a quote you go to for inspiration?

Andrew: I don’t know. I put a bunch of quotes in the book that I think are funny. One quote that I love, that I put at the beginning of my chapter on M&A of my last book is “I made most of my money selling too early – J.P. Morgan.” Another mistake that I see all the time with founders is they say, “Oh, Andrew, our company’s in play. Hitachi wants to buy us.” And they think their company is being sold. And just like that, money is slow to get into the bank. Most of those deals are going to fall apart. And so, I think that those that sell too early, that’s not a bad thing. Those that fail to sell ever and get an exit, it’s a bummer. It’s a bummer for them even more than for the VC, because the VC has got a parachute because he’s diversified.

For a more optimistic quote, there’s Albert Einstein. Anything that guy wrote was pretty hilarious. I think he had something that goes like, “Imagination is the preview of a coming attraction.” So I’ve always liked that one.

John: It’s a good one. What company outside of yours do you admire the most as it relates to culture and why?

Andrew: So this is a thorny one. I don’t know. I don’t want to say on the record that I admire it, but I’m incredibly intrigued by Travis and Uber. The city of Hanover in Germany will say Uber is now illegal in our city. Then Travis responds by saying, “Hey, drivers, you know how I was charging you 20% of the fare? Just because the mayor is getting out of control, it’s free. You run out of Uber, you keep all the money. Uber’s behind you. Keep doing it.” So he’s basically, completely, completely breaking the law. And you kind of wonder, why I have got to watch it over there. Saying he’s calmly raising $1.5 billion, and a $39.5 billion pre-money valuation, in hiring a legal team to take on the city of Hanover, at the same time as he takes on like 20 other cities that claim that what he’s doing is illegal. And he argues that the existing systems are all messed up, and that the law itself is incorrect. So I find Uber, in the way Travis has managed some of these crazy situations, that’s worth watching. I have to say, he’s got balls.

John: That’s pretty fun to watch. Alright, the last question for you. I want you to describe the culture of your firm and we’re on BE Culture Radio, so I want you to start with BE in three words. And you can tell us why when you’re done, but go ahead.

Andrew: Okay, I’d say: BE tough, BE fun, don’t be boring, BE honest, BE ethical, BE loyal.

John: Excellent. Hey, how can my listeners contact you if they want to reach out to you?

Andrew: Sure. So if you want to contact us seeking funding, I would e-mail Mike—“M-I-K-E”—@georgetown-angels.com. It’s his job to look at every single deal. I try to look at the deals that come to me through someone that already knows me. Another way to contact us would be to look at our venture partners and see if you know any of them. You know LinkedIn. If you know somebody who knows me on LinkedIn, that doesn’t really mean much to me. I’ve started accepting a lot of LinkedIn’s. If you’re interested in the venture capital asset class itself and you’re interested in investing in companies, then contact me directly. And that’s “andrew@georgetown-angels.com.”

John: Is there anything else you want to tell our listeners?

Andrew: No, I just think it’s an exciting time, it’s a very exciting time to be an entrepreneur. I think the Internet right now has gotten at least ten times easier to make money on, for a whole lot of reasons. Women are online. Everyone’s got the Internet on their mobile phone. Undocumented workers have prepaid Visa cards that they could purchase online. Everybody is online now. So whatever the Internet was ten years ago, that’s nothing compared to what it is now. And so, I encourage people to start capital-efficient businesses that make money, maybe even that make money without an investor. And then when things are starting to take off, there’s guys like me who want to work with you and put money in and a lot of support and to partner with you to grow toward the finish line. So it’s an exciting time to be a founder, an angel investor or a VC.

John: Andrew, I can’t thank you enough for your graciousness in spending this much time with me. I never end the show without sharing with my guest my favorite quote from Maya Angelou, which is “People will forget what you said, people will forget what you did, but people will never forget how you made them feel.” And I just want to personally thank you for making me feel welcome in your world and taking the time to spend with me when you didn’t have to. And you’re just a great guy and I can’t thank you enough for coming on BE Culture Radio and sharing your information with all of our listeners. And we hope that you’ll come back in six months when you release your book and tell us about your book, if you’re going to do it in the next six months or eight months. You’ll come back and visit with us again?

Andrew: Yeah, and John, if you go to Amazon.com and you look up “Andrew Romans” – “R-O-M-A-N-S,” then my book, “The Entrepreneurial Bible to Venture Capital” comes up. So if anybody wants the existing book, it’s out there.

John: And I would tell my listeners to go take the time, get the book and read it. It will make a difference in your business. This guy is incredibly bright. He’s incredibly generous with his time and he’s just a great guy. I can’t say enough good things about you. Thank you for coming on our show. And if you run across anyone in your emerging companies, where you think they have a great story to share with our listeners, Andrew, would you send them our way?

Andrew: Absolutely.

John: I really enjoyed it. Thank you so much. I wish you the very best and BE well, my friend.

Andrew: Okay, John. Same to you. Thanks so much. Take care. Bye now.

John: Thanks. Bye-bye.

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