Musings

The truth is, everyone is going to hurt you. You just got to find the ones worth suffering for. — Bob Marley

January 20, 2012 • 10:53 am 4

Leaving Bessemer…

I’m leaving Bessemer today. The last 19 months and 6 days have been very special to me. I’m writing this to document a few things from my time here. And to let my friends know what I’ve been up to and where I’m going from here (the short of it is that I’m moving back to California on January 24th!).

1) I’ve had the smartest peers in the world. Literally, the people at BVP generally, and the analysts specifically, are the single most talented group of people I’ve ever met, period. Their accomplishments span academia, entrepreneurship, social welfare, financial engineering, and limitless other areas. On more than a couple occasions, I’ve laughed out loud about how much more impressive the other current and previous analysts are than me. Michael Horowitz, Michael Segal, Mackey, Sheel, Phil, Brian, Mark, Daniela, Sarah – reading their bios makes my head spin, so I don’t anymore!

2) I’m following my plan exactly. When I originally interviewed with BVP, I told them I wanted to get exposure to tons of businesses so that I could develop instincts and pattern recognition to improve my odds of success with future entrepreneurial endeavors. And that’s exactly what I’m doing. I’m leaving BVP to start a company called Or Be Square which helps friends discover and plan events and activities. I have 3 ridiculously talented co-founders: Kamran, Michael and Adam. And even if this particular implementation of my entrepreneurial aspirations doesn’t work out, I plan on trying out my hair brained ideas for a long time to come.

3) BVP has been the single best platform I could have possibly asked for. I’ve learned an absurd amount about how businesses and private equity investments work. I’ve built meaningful personal and professional relationships with people who have founded and built some of the most well-known companies in the world. I’ve considered accepting offers for VC and executive roles at many of the world’s premier institutions and technology companies (as well as some that are just starting to build enduring brands!).  Amazingly, the same is true of every other BVP analyst. I would strongly recommend that anyone who is interested in an accelerated career trajectory with peers that will blow your mind consider applying for a job at BVP. We’re hiring a summer analyst (e-mail Mackey@bvp.com) and several full-time analysts… starting with our first hire, Anna, a hyper talented woman who graduated as a triple major from Stanford in 2010. She’s starting in a couple weeks and is going to be taking over my office!

And, just one gripe.

4) I frequently see “sourcing” roles get unfairly maligned. Bessemer’s analyst program consists of a mixture of deal sourcing and deal support. In essence, sourcing involves independently identifying interesting companies based on research, referrals, etc., and making an effort to connect with the entrepreneurs who run those companies. This type of role is frequently characterized as mindless cold-calling.

-Outbound VC Dialing Programs

-Chumps vs. Checks

-Quora Thread #1

-Quora Thread #2

These assessments make me laugh. It’s honestly hilarious!

A very basic principle of economics is that marketplaces become increasingly efficient as accurate information associated with buying and selling decisions is disseminated. The market for private capital is simply another example of this. Bessemer (and other firms that have built effective analyst programs) possesses vastly more institutional knowledge on the average industry than any of its top-tier VC firm counterparts.

A little huddle session at BVP rarely fails to produce a mindbogglingly comprehensive and granular understanding of a market. That includes: 1) historical and current examples of companies that have failed and succeeded, in almost any continent, 2) precise financial, operating, and customer metrics for most industry constituents, 3) a detailed understanding of products, features, customer requirements, sales cycles, technologies, patents, and the like.

This leads me to believe that any investment firm which doesn’t have an analyst program is simply irresponsible. And, trust me, the problem of uninformed decision making is more pervasive, and more problematic, than you could possibly expect.

A) It makes for worse investors and board members. The most painful thing going into a board meeting is discovering complexities, competitors, regulatory risks, and the like, which you were unaware of when you made the investment. Transparency and understanding is key to having stable and enduring relationships.

B) It’s less helpful to entrepreneurs. Providing informed and creative insights into a business after a detailed survey of an industry landscape is vastly superior to off-hand comments the entrepreneur has already thought of a million times before and which are ignorant of the true marketplace dynamics.

C) It connects high quality investors to high-quality businesses that, due to geography, less well known market segments, or whatever, would have a challenging time getting access to capital.

D) It creates meaningful relationships that start well before an investment takes place and last well after a company has exited. I significantly prefer this kind of investment “process” to one in which you meet the company 3 weeks before wiring them $20mm.

Case in point: companies sourced by Bessemer analysts have generated billions of dollars in market value. Recent examples are Diapers.com, Lifelock, Twilio, Cornerstone OnDemand, Zoosk, Adaptv, and a few dozen others.

–

Anyway, all in all, this has been a really exciting time in my life and I’m pumped to get started on a new adventure, one that’s far less cushy and far more scary, risky, and prone to failure. We’ll see what happens!

Filed under: Uncategorized

January 12, 2012 • 3:46 pm 0

Nightlife Party at the California Academy of Sciences

Just found out and blogged about this party for tonight 1/12 hosted at the California Academy of Sciences and being run with SkillShare – one of the hottest new education startups!

Check it out at http://blog.orbesquare.com!

PS – this is my new startup :)

Filed under: Uncategorized

February 23, 2011 • 3:34 pm 1

Bucket List at Bessemer Venture Partners

Link to peHUB article

Venture capital is a time-management profession. Every month, you evaluate hundreds of businesses through powerpoints, tech publications, referrals, events, and others. Without quick instincts, you’ll lack the bandwidth to assess each of these companies. Interviews are designed to assess your instincts.

An important part of VC recruitment is convincing your future colleagues you are thoughtful and attentive to the features of businesses that typically determine their ultimate success or failure. It’s worth emphasizing that being thoughtful is different from being right: there’s no universal set of standards by which to judge businesses. Case in point, Fred Wilson, even in retrospect, wouldn’t have invested in GroupOn or Pandora. Yet, his investment track record in recent years has been pretty spectacular: Zynga, Twitter, Etsy, and Tumblr are all well on their way to being great businesses. There are many perspectives which can lead to profitable venture investment strategies, so, focus on carefully thinking through the rationale behind your evaluative lens, rather than on trying to be right.

In short, my theory is that you must make generalizations. This is a tough pill to swallow. Learn to quickly place companies in assigned “buckets” as they’re evaluated. The case-by-case model is simply unworkable. Yes, you’ll be wrong sometimes. Hindsight and adjustment are part of the game.

There are many different types of buckets, I’m including the ones I find myself most frequently using in making evaluations. At risk of stating the obvious, many other VCs have significantly more experience and a more fine-tuned way of thinking about businesses than I do. The point is to provide context for thinking through your own beliefs about what makes a good investment opportunity. Form evaluations, try to justify them across the spectrum of companies you’re considering, and adjust your opinions and expectations as you’re proven wrong and right.

Teams: Evaluating team members is often cited as the most challenging and important part of venture investing. As John Doerr says, “Ideas are easy. Teams win.” Especially with early stage companies, where the barriers to entry are non-existent, a team that brings a competitive advantage is essential. Prior experience, technical talent and proprietary industry relationships are some examples of great qualities a team can bring to the table.

Market: Size matters. I’m only interested in businesses that attack multi-billion dollar revenue opportunities. How many potential customers are there? How much can you charge them? Multiply.
-Exogenous variables. Are there external risks which threaten the viability of a business model? For instance, consider the regulatory and industry risks faced by music companies.
-Composition. Is the market competitive or commoditized? What are the barriers to entry?

Technology: Complexity. Is the product hard to build? I like to consider early stage companies that have a spectacular team and/or are solving a very challenging technical problem. Otherwise, there’s no reason to think they’ll win over the next person who thinks of the idea or copies them.
-Website. If this is a consumer facing company, or one which makes sales online, a poorly constructed website implies inattentiveness to user needs or laziness.

Business Model: It must be transaction-oriented. Does the product involve a transaction which can eventually be monetized?
-Advertising. Very few technology businesses have scaled efficiently with an ad-based model. I usually ignore them unless they collect very high quality user-interest data which makes them uniquely capable of ad-targeting.
-Recurring revenue. Is the product priced on a subscription basis or as a perpetual license? Recurring revenue businesses have smoother growth curves, as they simply need to add more customers than they lose to experience temporal growth.

Think carefully about these and any other variables you might encounter during an investment due diligence process. I can almost guarantee that if you build up conviction around how you think about and evaluate businesses, you will put yourself far ahead of other applicants. More importantly, it will meaningfully accelerate your learning curve when you get the job.

Filed under: Uncategorized

February 11, 2011 • 10:42 am 1

Landing the Gig on Sand Hill Road (or, Larchmont, N.Y.), Part 1

Link to PEHub: Landing the Gig on Sand Hill Road (or, Larchmont, N.Y.), Part 1

Jobs in the venture capital industry are in high demand these days. The lure is undeniable: successful VCs profit wildly from entrepreneurs’ hard work.

Two questions I hear frequently are: is VC the right fit for me, and if so, how do I land a job? If my recommendations sound taxing, you may simply lack the appetite for a VC career. Interest in technology, entrepreneurship and startups is essential for the job.

In all interviews your objective is to demonstrate you’re uniquely capable of excelling at the most challenging aspects of the profession. VC is no different. So, this begs the question, what makes a good VC? In my experience, the three essential components are deal flow, instinct, and personality fit.

Deal flow depends on the quality and quantity of investment opportunities you source. With inbound deal flow, acquaintances inform you of companies raising capital. Outbound deal flow involves identifying interesting companies and finding proactive ways to create a relationship with them. Though inbound and outbound deal flow are equally important, they require vastly different skills.

These days, inbound deal flow depends on savvy use of personal and digital communication. For this reason, VC is frequently described as a networking profession. High-profile deals often require a “warm intro” to get you into the fundraising process. This requires friends who are integrated into the technology ecosystem, ranging from entrepreneurs and other investors to writers and industry visionaries.

Unfortunately, name-dropping in interviews will probably make you look like a jackass! Instead, demonstrate your ability to connect with entrepreneurs. Describe your passion for technologies which revolutionize consumers’ lives or improve the efficiency of business processes. My brother once told me you have to “sell for the right to buy.” What he meant is that you have to connect with entrepreneurs’ visions for them to believe you’ll be a valuable partner as they build a business. Demonstrate that you share the enthusiasm and you’ll be well on your way to convincing VC firms that you can be a valuable
resource.

Making “a digital home for yourself” is another important way to demonstrate your immersion into the technology ecosystem. If Google doesn’t retrieve tech-relevant results within the first page of a search for your name, you are missing out on an important opportunity to distinguish yourself from other applicants. Some means are:

–Blog. Keep it current and comment on the other technologists’ and VCs’ blogs.
–Tweet. Follow all the smart tech people, and tweet about relevant and interesting items in the tech world.
–Be a Beta user. Try out all the exciting technologies like Dropbox, Tumblr, Instagram and Quora as they’re released onto the market.

Outbound deal flow is an entirely different beast. Investing entails identifying interesting markets and the companies addressing those markets most effectively. It also requires intimate familiarity with
historical and current trends in the tech and startup ecosystems.

Share with interviewers that you are an avid reader of all tech publications, ranging from Techcrunch to Tnooz. You should be capable of rattling off the most exciting companies, what they do, how well they are doing, and so on. For practice, pick a few interesting areas, like mobile social media, and figure out the most exciting new companies in them, like Instagram and Path. Make sure you’re also familiar with the underlying technologies like Android vs. iOS operating systems, Facebook Connect, etc. During interviews, make a special effort to weave tech factoids into your answers to basic questions.

For instance, when I ask college kids why they are interested in venture capital, they really impress me with answers like: “Well, I spend a lot of my free time thinking about awesome new consumer technologies. Working at Bessemer would let me be close to businesses like Instagram which use photography and geography to connect people on iPhones. The prospect of taking a professional interest in something that intrigues me personally is really appealing on an intellectual level.”

At this point, I stop asking run-of-the-mill questions and start having a bidirectional dialogue about new companies and whether or not they’re interesting. As long you can hold your own, you’re more or
less assured of getting to the next round. On a handful of occasions, I’ve even reached out to interesting companies that interviewees told me about!



Filed under: Uncategorized

October 25, 2010 • 7:34 pm 1

Good Business or a Good Product?

Great businesses don’t necessarily have great products. This is a fundamental oxymoron that has become glaringly apparent to me over the past four months. These “great businesses” are not the ones which keep me up late at night. I certainly don’t lose sleep passing on a company with a deficient user interface that nonetheless has an incredibly sophisticated means of purchasing traffic at a cost lower than the revenue it extracts from that traffic.

My point is not to discount the importance of attentiveness to metrics. In fact, any CEO who is unfamiliar with their fixed costs, variable costs, customer acquisition costs, customer lifetime value, conversion rates, PageRank, and the like, should probably be much closer to their business. However, the difference between understanding the business and making it the end goal is significant. I’m not interested in a team that is unconcerned with user experience. You’d be shocked by the number of companies that fall into this category.

Looking at a couple of competitive products will help to illuminate the glaring difference between a good and bad product.

Quicken

 

Mint

Mint.com is a spectacular example of how a great product engenders cheap, word-of-mouth marketing, even without a high viral coefficient. In fact, at one point Mint.com was growing so rapidly on the back of its tremendous user experience that Intuit, the company behind Quicken, sent them a threatening letter demanding they substantiate their claims in user growth. (You can read more about this here. It’s a great read.) Without a great product, that kind of trajectory would have been impossible to sustain except with obscenely high marketing spend.

The lead designer at Mint, Jason Putorti, also happens to be a former Bessemer designer-in-residence and the current co-founder of Votizen. Bessemer was so impressed by his design talent that they wanted to attach his skills to the Bessemer brand.

Another great, perhaps more familiar example is Facebook vs. MySpace.

Facebook

 

MySpace

Not only does Facebook look incalculably better than MySpace, it also has better user functionality. The flow of pages is more logical, the information feed is more relevant to user activity, and the advertising doesn’t compromise the integrity of the site. Over time that user experience trumped any first-mover advantage that MySpace had developed or any brand marketing they had pursued.

Fundamentally, I like the way my brother described it: business oriented companies are limited by their market sizes, while product oriented companies can scale almost infinitely because they inspire interest in otherwise inaccessible users and expand their addressable market. More simply, you can make money without a great product, but you can’t change the world. For now, I’m interested in companies aspiring to do the latter.

Filed under: Entrepreneurship, Technology

October 17, 2010 • 10:16 pm 4

RE: Outbound VC Dialing Programs – Total Disrespect for Entrepreneurs

I recently read a blog post by Mark Suster at GRP Partners with which I disagree very strongly. You can read it here: http://bit.ly/aXs9KK.

What’s below is a slightly tweaked version of an email I just sent Mark. Speaking only for the job I do at Bessemer, this blog post deeply mischaracterizes.

1) Our program doesn’t incentivize volume. We’re compensated based on deals that get done. So, as a matter of time tradeoff, we’re actually disincentivized.

2) It’s not “fishing.” 20-25% of the companies I speak to progress to a meeting or follow-up call with a partner. As investment judgment improves, those percentages rise.

3) It’s not disrespectful. Half or more Bessemer transactions begin with an analyst or associate level conversation. I promise these entrepreneurs don’t feel disrespected. I also promise they’re happy in retrospect that they took the call.

4) It is educational. We develop pattern recognition, learn to communicate intelligently about industries and markets, and learn to develop meaningful relationships with entrepreneurs who are changing the world. If you’re suspicious, I can assure you that I now have Bessemer-unrelated personal relationships with multiple entrepreneurs I spoke with initially under these circumstances.

To me, the bottom line is that we are hired for this position based on the belief that we’re capable of developing investment judgment for ourselves. If that ever devolves into “fishing,” that’s a function of the young VCs inability to exercise judgment at the outset. The same would apply to a partner who took meetings with several unfit entrepreneurs.

Quite honestly, I think you’ve done a disservice to entrepreneurs who now choose not to have conversations with someone who represents an investment firm that may be a strong value-add capital partner. If they organically declined such a conversation in the interest of time, that would be one thing, but this is entirely another.

Speaking from personal experience, my dad is an extraordinarily successful entrepreneur and he shares my perspective on the job. I also have entrepreneurial and not investor aspirations and I can tell you with absolute confidence that having spent 4 months as an analyst at Bessemer I now have much greater insight into what sort of startup would have a high probability of success.

Filed under: Venture Capital

August 2, 2010 • 9:48 pm 0

Artsy Pictures from Europe

Taken with my Canon 30D and a variety of lenses. Once upon a time this was relatively modern equipment, then the 5D came and changed everything. Time for an upgrade soon!

Filed under: Photography

August 1, 2010 • 9:17 am 0

Transaction Cost Economics: A Tool for Software Development Strategy

Professor Oliver E. Williamson is the most impressive person I’ve met to-date. He made his career by challenging the assumptions of traditional microeconomics. In my experience, human psychology is a significant barrier to the success of contrarian thinkers. Only those most persistent and strong willed can survive the defensive reflexes of those whose beliefs are put into doubt. Professor Williamson exhibited those qualities throughout his academic career and, as the ultimate testament to his brilliance, received the Nobel Prize in economics last year.

Motivated by my brother’s (half-joking) advice, I decided I wanted to recruit Professor Williamson to be my thesis advisor. I decided the strategy which gave me the highest odds of success would be one which he could appreciate: pure persistence. After many, many emails I finally got my way; but not without his stern warning that despite the 100% success rate of all economics students writing theses, with Professor Williamson my chances of failure were very high. As he put it, “I do not sign off on good efforts that need work.” Let me tell you, he was not exaggerating. 70 hours a week for my last undergraduate semester, three “final” drafts later, I passed. In the interim I learned to stomach comments, from the highest authority on the subject, like “perhaps you should find another advisor” and “I found this incoherent.” Whereas ordinarily I may have succumbed to the pressure and crumble under (harsh) criticism, I powered through it as best I could. I’ve never been as proud of myself or as satisfied with my work.

I believe that any firm developing software can really benefit from the application of Transaction Cost Economics to the make-or-buy decision. Here is a brief introduction I’ve put together with the hopes that it can operationalize economic theory in a way which is useful to those confronted with software development decisions. I am writing up a short version for publication. Anyone interested in reading the whole thing can do so here: Software Development Strategy: A Practical Application of Transaction Cost Economics.

The study of economics has primarily concerned itself with positive analysis, purely explanatory and descriptive in nature. Normative economics at the level of firm or organization invariably clashes with a variety of assumptions essential to a clean application of theory. Chief among these are perfect information, homogenous (faceless) buyers and sellers, and profit and utility maximization. Firms engaged in real business decisions can rarely presume any of these conditions, severely constraining the applicability of neo-classical analysis.

Within the neo-classical school of economics, organizations are commonly cited as black boxes referable only with regards to input and output, rather than as dynamic entities with complex inner workings. By substituting analysis of the complex set of variables which drive business decisions with the overarching theory of profit maximization, these economic traditions have forsaken the power of normative analysis. Instead, they can only recommend that a firm, as human nature dictates it will irrespective of recommendation, maximize profit, as if it were that simple.

Transaction cost economics (TCE) provides a framework which remedies many application failures of economics as a science of consumer and producer choice. TCE posits that firms can be analyzed as structures which govern contractual relations between entities. In particular, these contracts are subject to several features inadmissible in traditional microeconomics: uncertainty, buyer and seller identity, and bounded rationality, which refers to actors who are “intendedly rational, but only limitedly so” (Williamson, 1985). Some studies have argued that TCE “has not added substantially to our understanding … in particular why these decisions are made,” (Nagpal, 2006) claiming that firms are driven singularly by evaluation of production, rather than transaction, costs. I begin by conceding this point, arguing that oversight of transaction costs inhibits optimal strategic decision making. This paper aims to use the framework of TCE to create a normative model for software companies to determine the best product development strategy in a given situation.

The software industry has many unique characteristics which make it an interesting case to investigate using TCE. In contrast to traditional business models, the cost of goods sold (COGS) is relatively low due to software’s intangibility. Instead, software companies, particularly those which are young, must concentrate on efficiently spending on the research and development of their applications. Because application development is largely a function of intellectual capital and time, it is difficult for firms to concretely predict costs using monetary measures. Moreover, compared to hardware and raw materials, software is highly specialized, which complicates production decisions.

A software company developing a new application has two chief options: acquire the resources and labor necessary for in-house development or outsource. There is also room for hybrid strategies, such as purchasing parts of a software program developed by another firm, and developing in-house or outsourcing the remainder of the project. Embedded in these decisions is a number of indirectly monetary variables, such as relationship building or the increase in or loss of intellectual capital resulting from developing a product in-house or outsourcing, respectively. Moreover, firms face a number of directly monetary variables including resource, time, labor, and legal costs.

The framework I developed, summarized overly briefly, essentially takes three parts. Identify the strengths and weaknesses of governance structure alternatives. Determine the attributes of the transaction in question. Find the efficient match. Put simply, alternatives outside the firm (outsourcing) provide significant production cost savings because suppliers benefit from economies of scale unavailable to buyers. However, the transaction costs associated with these outsourcing transactions can be significant, depending on the magnitude of their uncertainty, frequency and asset specificity.

Filed under: Entrepreneurship, ,

June 12, 2010 • 12:23 am 0

Pictures from Beijing Olympics

Here are some pictures from the summer Olympics in Beijing ’08. Best family trip to-date. Thanks Dad (P.S. Happy father’s day — lucky guy is at the U.S. Open in Pebble Beach right now).

Filed under: Photography

June 12, 2010 • 12:23 am 0

Mark Ramirez’s Pictures from Europe

I forgot to bring my data transfer cable to NY, but here are some pics from the trip that I stole from Mark Ramirez’s facebook. These pictures are from Amsterdam, Rome, Santorini and Mykonos. Enjoy.

Filed under: Photography

A Brief Introduction

My name’s Rahul Jaswa and I’m an investor at Bessemer Venture Partners. I've created this blog to share my thoughts on venture capital, entrepreneurship and technology, as well as pictures I've taken.

I have two overarching goals in life. First, I want to meet all kinds of intelligent and passionate people who continuously inspire and teach me. Second, I want to build a great business that benefits shareholders and, far more importantly, humanity.

As for my less serious side, I'll steal (retweet!) a quote from one of my good friends' blogs: I love good beats, deep books and pretty girls.

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