VCs as Justices, MBAs as Clerks

Breyer

I hear people use the metaphor of a “hill to die on” to refer to things they are passionate about.  I don’t like using that because it is based on battle experience and most of us don’t have a military background to truly employ it.

But everyone has their ‘windmill’.  I use this term as an homage to Don Quixotes to signify a quest against some wrong in the world. I may be as delusional in my quest as the ingenious gentleman from la Mancha…so be it. Those that know me have heard me rail against numerous windmills over the years.  My latest is the “warm intro” for VC’s.

Many venture capitalists insist that it is a show of your resourcefulness to get someone in their network to introduce you to them.  They filter their deal-flow based on only accepting these ‘warm introductions’ from people inside their circle. I think this is an incredibly bad idea and practice in the industry.  Some others have written about it.  These are some of my observations.

  • A VC places an unnecessary burden on their portfolio companies by using them as a de facto filter instead of doing their own outreach and funnel management.
  • When I reach out to befriend a portfolio company, I have no interest in a long term relationship.  That might evolve, but at the outset, I am using that person for an intro.  Essentially I am conning them.  The VC is encouraging me to con their portfolio company CEOs.
  • Serendipitous meetings that build your network happen in tech hubs, like SV/NYC/BOS.  This filters out large swaths of the country and talent. Most successful startups are built by experienced entrepreneurs in their 40’s. Do you see my contemporaries spending hours on end in coffee shops?
  • In the middle of building a product and growing, it is not a cost effective use of time to spend hours researching companies and their executives, followed by feeble attempts to woo them over email and Twitter, all for a 20 second ‘warm intro’.
  • Warm intro’s only come from people in your network.  Statistically, this is a bunch of white guys hanging out together in coffee shops or a co-working space.  And then people wonder why there is no diversity with women and minorities?
  • Showing interest in a company, with the intent of meeting someone so that they might eventually give me a ‘warm intro’ is not real networking. It is disingenuous.
  • A good networker is not necessarily a good CEO with a good product. They could very easily be a con-artist. Is that the kind of deal flow you want? While there are con-men/women everywhere in this world that need to be filtered out, why build a process that specifically encourages more of them to flow your way?

As technology has evolved, you would think that the community who funded that evolution would evolve their deal flow funnels. Yet many insist on a 20th century methodology of gladhanding and nepotism (VC’s “marry” their portfolio companies). Shouldn’t you also advocate for disrupting your deal-flow acquisition systems? While some engage on Twitter, I don’t consider this very revolutionary.

Let me be clear on two things. 1) I mean this with a sincere amount of respect for professionals who invests OPM and have a fiduciary responsibility to generate returns. That is a very hard job. 2) If I ever get a term sheet, one of the first things I will say to a VC is that I will not allow them to offload their funnel to me.  Maybe I am being ignorant here (never being a VC) but I think that is inappropriate.  I’ve got enough to do.  If I happen to meet someone building an amazing company, I am not just going to tell my VC, I AM GOING TO TELL THE WORLD!  Hopefully my VC would hear that too.

One of my proudest moments was Sept 29, 2010.  I got to ask a question to Justice Stephen Breyer at a live interview at the JFK center in Boston.  I had seen a CSPAN interview where he talked about the process the Court uses to grant certiorary to appellate cases. It was a very manual process involving all 36 clerks on the court. Being a technologist, the first thing I wanted to do was make this better. So I was dying to ask the question, could you offload that responsibility to more than 36 people so the court could take more cases?  While there were many partisan questions that he politely brushed off that day, Justice Breyer launched into an extensive lecture for me, a snippet below…

Now, the first reaction you will have, most people will have, is why are these clerks doing the job? The judges should do it. It is their job. To which I say, I would rather, with 150, I would rather have a person called a clerk, who is very bright and works for me, reviewing those because occasionally the scrawled, hand-written petition, you don‘t know what in heaven‘s name it is about. It is obviously a lunatic who is locked up somewhere in a prison. That could be right. That lunatic could have a point. That scrawled petition could actually make a point., and we have taken cases like that, occasionally.  And the chance of finding something like that — I would rather have a human being called a clerk review five and find it than to have me, called a judge, pretend to review 150 because that is what it would be. It would be pretending.

Now, in your specific question, there was a committee that was set up under Warren Burger and they recommended that they have a different court trying to decide what the docket would be. That was rejected and I would reject that, too. I don‘t think there is a need for it. I think it is bad.

I was blown away. And I even get choked up now thinking about what he was saying. The diamond in the rough, that is what they are searching for. And justice knows no special treatment. It doesn’t matter if some fancy law firm petitions the court. They want to see them all and have smart people reviewing those petitions, because maybe, just maybe, genius comes in places you never suspect. Like a solo/female/minority founder. People who don’t fit the mold. People outside your normal network of lawyers and paralegals.

But Justices acknowledge that they are not super heros. Granting cert is analogous to a VC granting a pitch meeting. No, they don’t have time to review all. But we can set requirements, like the format of an initial pitch. We can use new technology, like video instead of slides. And who are the clerks of VCs? MBA candidates!!! A whole infrastructure exists already, and we don’t even use it.

So here is what I propose. VC’s should leverage their MBA’s to review 1 minute videos and dive deeper on ones that “actually make a point”. These should be accepted from ANYONE. Do it for an hour a day. Thats 60 companies a day. They could then ask for more info like a longer video, or a pitch deck, before recommending to a VC. You could even pool your MBA’s with other firms to cover more ground or have more reviews of the same videos. Find a new way. Stop complaining about diversity statistics unmoved by feeble attempts to broaden your base by inviting more people to conferences. Do something structurally different to make a change. I hate to steal the line, but we need “big structural change”. 

Do your own work. Find a new system, below is my 1 minute video for your MBA team to peruse while eating lunch. Interested? Email me if you get excited and I will send you more. Want to have a #GiveFirst mentality? Email me back and tell me why you think it sucks. I would really appreciate that. No intro necessary.

 

Sept 29, 2010  JFK Library in Boston

https://www.jfklibrary.org/events-and-awards/forums/past-forums/transcripts/conversation-with-justice-stephen-breyer

About Josh Rutstein

I am an aspiring entrepreneur and hopeful political candidate. Father of 2 very special girls, husband to an amazing woman, and passionate American. I snowboard whenever possible and follow a 20x mentality for exercise. I also play golf and ultimate frisbee and am a die hard New England Patriots fan and season ticket holder. Everyday I wake up wanting to make this country a better place, someday I hope to actually succeed.
This entry was posted in Uncategorized. Bookmark the permalink.

1 Response to VCs as Justices, MBAs as Clerks

  1. Jules Rutstein says:

    This one is an interesting perspective. Your frustration is loud and clear, but isn’t it true that most VC’s are looking at vertical markets and shouldn’t they be able to automate the pitch questionnaire, Automation would sort the wheat from the chaff and set the process into a staged event that would require several levels of responses before they would even get to the 1 minute MBA review stage? I agree the ‘warm intro’ is dumb, and ineffective.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s