by Sean Wright
I’m sitting in a sleek, expansive room that seems to stretch for miles. The atmosphere brings to mind the headquarters of a tech startup company—and that’s because it kind of is. I’m in the offices of Z80 Labs, an entrepreneurship incubator in Buffalo, New York that serves as a hub for all things startup-oriented in the city. Ambitious entrepreneurs from various parts of upstate New York use this workspace as their office, where they collaborate on new ideas, work on their investor pitches, and reach out to venture capitalists. The last of those reasons is why I’m here. Along with one hundred other attendees, I’m waiting to hear prominent venture capitalist Steve Murray speak.
Murray is a partner at the Washington, DC-based Revolution Growth, a mid-series venture capital growth fund that seeks to invest in companies that have already seen some measure of success. After starting out as an accountant at Deloitte, he made the switch to the venture capital industry, where he’s been for 25 years. Basically, Murray’s job is to find companies in need of capital and connect them with the resources to succeed. In exchange, Revolution receives a stake in the company. However, there is much more to the process than just that. Oftentimes, Murray must sift through hundreds of inquiries to find an idea worthy of an investment. And even then, the company receiving the funding won’t necessarily be profitable. Murray, though, has seen a great deal of success, having hit home runs with investments in Yahoo, BuzzFeed, and most recently, Fitbit. Over the course of his talk at Z80, he covered a variety of subjects, including his career history, his investment strategies, and many stories about his experiences in the industry. The talk was followed by a Q&A session, in which entrepreneurs from the area asked him for advice and insight. I caught up with him after the meeting to chat some more.
Ceteris Paribus: Do you still look at making seed investments, or does your group focus exclusively on growth?
Steve Murray: Revolution is an entity that has multiple pockets, if you will. So there’s a pocket that makes seed-type investments, there’s a group that makes venture investments, and there’s the growth fund, that does more mature companies. So we have different pockets of money for different stages of companies.
CP: In your time at Revolution, have you always been with the growth fund, or have you worked with other types of investments?
SM: Most of my time, from an investment perspective, is spent with the growth stage groups. However, I spend a lot of time in the marketplace, meeting with companies of all stages. Based on my assessment of them, I funnel them to the various entities that might be interested in that stage of investing.
CP: When considering an investment in a company, what are some of the numbers and statistics you look at to help make your decision?
SM: Oftentimes, it depends on the type of business the company is in. For example, if it’s a social network or mobile application, it might be the number of people using the product. It also might be the engagement level, which is measured by how often and for how long people use the product. If it’s the software type of business, you might see be interested in how many people are trialing the product. You also might see the sales cycle or marketing cost of the product. Every type of business has a different set of metrics that are most important for it.
CP: In the talk earlier, you said the most important thing you look for is a good fit between the founder(s) of the company and yourself. Is there something specific you look for in a founder, or is just a gut feeling?
SM: There’s always certain things you look for. You can look at their experience in the field that they’re in. Some questions worth thinking about: what’s the reason they started the company? Do they have any prior work or life experience in the field? For example, if I’m looking at a biotech company that wants to cure another form of cancer, I’m going to look at their founder’s history with chemical engineering, research, and other things of that nature. The background of the founder is important, to see how it jives with the mission of the business. Oftentimes, the most successful founders are ones that have started one or two businesses in the past and learned from their mistakes.
CP: Have you ever founded your own company?
SM: I personally have not started a company, but with early stage companies, on some level we’re a part of the team. If you’re making an investment in a seed or growth stage company, that business is still relatively young, so we will often join as an advisor or board member. In order to succeed in these roles, you have to think like an entrepreneur.
CP: You said that Fitbit was one of your most successful, yet most controversial, investments. What were some of the sticking points that caused the initial reluctance to invest?
SM: It was very hotly debated within the investment team at the time. A component of Fitbit’s business was hardware, which is generally viewed as difficult to make, hard to scale, and very costly. We were much more used to investing in software companies that have very high margins, which after a certain scale start to generate a lot of profit. The other big concern was the competitive threat at the time. There were folks like Garmin and Nike and Under Armour that all had similar products in the marketplace, and there was a threat of Apple having their own version in the marketplace over time. There was a concern that these companies, because they had more resources, were more developed, and had more connections through the distribution channels, would be able to squeeze Fitbit out and make it too difficult for them to expand.
CP: BuzzFeed is another one of your successful investments. The media industry has changed a great deal over the past decade; what do you look for when considering an investment in a media company?
SM: When we look at a media company, we look at the types of things that users do with the media. Engagement is key. Does the user come online and look at 10 pages or one? Do they come on once a month or twice a day? Do they engage for 30 minutes and read the articles, or do they flip around and check out a picture and leave? These questions are important to ask for a media company. The second thing that’s critical is the company’s ability to track users. Whether it’s through word-of-mouth, social usage, or search advertising, it’s important to see how the company is acquiring users.
CP: What advice would you give a young entrepreneur who is trying to attract attention from venture capitalists?
SM: The best advice is to build a successful business. There’s gonna have to be some portion of the venture that is self-funded, whether it’s from personal savings, family and friends, or small angels. I always encourage new entrepreneurs to focus on the business first, because ultimately that’s what people want to invest in. You want to put as many “proof points” on the board that serve as evidence of success, because that will be extremely helpful when dealing with institutional venture capital. I would also say to start your discussions with venture folks as early as possible. That way, they have more time to get to know the company and the entrepreneur.
CP: What would you say to an undergraduate student interested in the venture capital track? What should they be doing now to help prepare themselves?
SM: On some levels, it’s a tough business to prepare for for the same reason it’s a great business to work in: it’s changing every day. Some days I feel like a psychologist, some days an investment analyst, some days a public speaker, and some days a board member. It’s a wonderful job; there’s not really a path, if you will, perfectly suited for developing that. The background of most venture folks is varied. Some are from investment banking, some are from finance, some are former entrepreneurs. With that being said, you can do a lot around the technology and entrepreneurial ecosystem to continue to learn and challenge yourself. You want to have a solid understanding of business and finance, as well as product development and marketing. Most people don’t go straight from undergraduate to a lifelong career in venture capital—for now, it’s important to get a strong understanding of business.