By Judith Messina February 15, 2012Between 7:30 and 9, and as he heads to JFK for a flight to San Francisco, the managing director of FirstMark Capital has been on his iPhone for conversations with other investors and executives of companies under his wing. One of the companies in his portfolio needs a marketing vice president; another is about to raise more money; a third is looking for a buyer. He's tossing around ideas and delivering advice, encouragement and tough love gained from his own days as an entrepreneur.
Mr. Heitzmann is one of a new breed of venture capitalists: More than financiers, they are mentors, rabbis and consiglieres, all wrapped up in one. Compared with the venture capitalists who bankrolled companies like Digital Equipment and Intel and connected with management mostly at quarterly board meetings, the second boom's VCs are practically married to their investees, networking, strategizing and helping them make hiring and firing decisions.
“We're in an entrepreneurial service business,” said Mr. Heitzmann. “Our job is not only to deploy capital but to provide a range of services for entrepreneurs. We work incredibly aggressively with them.”
Today, VCs are younger and more tech savvy—though still distinguished from jeans- and hoodie-wearing entrepreneurs at least by their sports jackets. Comfortable talking app frameworks like Ruby on Rails with 20-something techies, they see themselves as much partners as bankers to the entrepreneurs they fund.
“It's tricky,” said Jeff Glass, managing director of Bain Capital Ventures. “Even if I could be a better CEO than the CEO of a company where I'm on the board, it's not healthy for me to micromanage.”
The new moneymen, some of them former entrepreneurs, started appearing on the scene several years ago, as money from the dot-com era flooded the VC space.
This year, there were more than 320 venture capital firms investing here (13 firms, those with substantial holdings in New York City, are ranked on Crain's list of the most active venture capital firms, to be published Feb. 19). Membership in the New York Venture Capital Association has grown 40% in the past two years. And that doesn't count hundreds of angel investors eager to get in on the action.
“The way for VCs nowadays to differentiate themselves is to say, ‘You should take our money because we're very hands-on and have a great Rolodex,' ” said Robert Johnston, executive director of the New York Venture Capital Association and a co-founder of startup SponsorHub.
Some firms, such as Bain Capital Ventures, are even staffed to be more hands-on. Bain Capital has three times the number of people that many other VC firms have, nearly 40 people across three cities, including a cadre of former entrepreneurs, said Mr. Glass, himself a five-time entrepreneur.
During one week last month, Mr. Glass met with the vice president of business development for Blip.tv, who wanted input on a project, had a conference call with Blip's vice president of content and a potential partner, and conducted three 45-minute interviews for job candidates for the Web TV company. Sometimes, between midnight and 1 a.m., he finds himself trading emails with the chief executive of another portfolio company, TargetSpot, an Internet radio advertising network.
“We are a bunch of ex-operators and strategy consultants who want to invest and be hands-on and help build companies,” said Mr. Glass. “We're staffed to be at the call of CEOs when they need help.”
Especially with more early-stage funds, VCs these days often sit on fewer boards—eight to 10—the better to offer advice and counsel.
Steve Brotman, managing director of Silicon Alley Venture Partners and one of New York City's first Internet entrepreneurs, said having a long perspective helps. When investors in one of his portfolio companies called for the CEO's head, Mr. Brotman persuaded them to keep the CEO on but in a different capacity. That man ended up raising the firm's next round of capital.
“That's probably why I'm more involved with my companies,” said Mr. Brotman, who founded classified-ad site AdOne Classified Network in March 1995. “I know the pain of what happens when people don't speak up.”
Others members of the new generation are often refugees from the investment banks, with the high-level financial skills necessary to take a company public in a difficult market.
Few venture capitalists can afford to sit on the sidelines of the Web, where businesses can be created—or destroyed—overnight, their sins and virtues displayed and dissected in social media sites that reach millions of people. Day-to-day decisions often have to be made on the fly. Sales cycles, too, are counted in hours or days, instead of years or months.
“[Venture capitalists] get it, the instantaneous need to react. The new interaction you're seeing is the tip of the iceberg,” said Steve Blank, a former entrepreneur who now teaches entrepreneurship at UC Berkeley and Stanford University.
And while a VC's hands-on involvement may not mean life or death for a company, it can help make a difference.
“If you get them one customer, it can add $20 million in value to a company,” said Peg Jackson, a venture partner at technology venture firm Cava Ventures and a managing director at Gridley & Co., a boutique investment banking firm that specializes in information technology.
So what do entrepreneurs, whose classic gripe has been that VCs meddle too much, think of all this involvement? It's helpful, they say, especially if it's coming from a former entrepreneur and if the ground rules are established up front.
Todd Krizelman, who co-founded one of the first social networking sites, Theglobe.com, and saw it through to a successful IPO, is now CEO of MagazineRadar, a 6-year-old company that helps magazines improve online ad sales. He talks to some of his VCs at least once a month and more often if there's a big project in the works.
“[It's not that] we don't know what to do and they tell us what to do,” said Mr. Krizelman. “So much of advice amounts to having someone you can ping every month to think through problems.” n
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