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Looking Back on 2009

January 5, 2010

It was the worst of times. It was the best of times. 2009 was a year to remember.

We’ve been reflecting a lot during the past few days on 2009, and the past year was by far our busiest and most impactful year in our firm’s four-year life. Like the rest of the industry, we entered early 2009 with questions and doubt. It was a scary, unnerving time with venture firms publicly announcing no new investments, and everywhere you looked were reminders or admonishments to let “good times rest in peace.”

Both sides of the venture capital equation, investors (limited partners) and entrepreneurs, were under tremendous financial stress as the world around us all had changed. For True, the timing of the meltdown created opportunity and significant risk, because we had just successfully closed our second fund in September 2008, literally 48 hours before Lehman Brothers failed. Although we were incredibly lucky because we were in a position to invest, expectations and tensions were high given that the financial world had changed so dramatically.

As a young start-up ourselves, we knew that the path of least resistance would be to follow the crowd and play it safe while the downturn worked its way through the economy, but what would be the opportunity cost for that strategy? In order to figure this out, we went straight to the very heart our model: our Founders. After spending considerable time with each of our Founders and their teams, it became abundantly clear that despite the global economic turmoil, our sector (very early stage technology) was undergoing a fundamental resurgence. The largest trends in technology were creating substantial new markets, in which start-ups had significant opportunity, and these trends were minimally impacted by the global credit/liquidity crisis.

Core innovations in internet-based technologies over the previous ten years were beginning to manifest themselves into large segments. These segments included the social and real-time web, cloud computing infrastructure, mobile products and services, enterprise 2.0 and even new computing devices and hardware. Though a prolonged recession and curtailed consumer spending would eventually impact these segments, in reality these markets were extremely nascent, and, in our view, it was time to build for the future.

We thought 2009 was particularly timely for True because of our very early stage strategy. It’s basic, but it’s true: early stage venture capital has a 5-10 year investment period, which means today’s investments are not directly correlated with current market conditions. The idea of an early stage venture firm cutting its investment in 2009 made no sense to us. For example, it just didn’t stand to reason that because the world was reeling from a (severe) housing and credit crunch, enterprise IT wouldn’t undergo massive re-architecting over the next six years.

As we concluded our research, we formed a thesis: our strategy of investing behind truly great entrepreneurs in early stage technology businesses who are highly capital efficient was well timed for the 2009 market.

We took a deep breath and decided to double down. In January 2009, we doubled our forecast for new deals, and we encouraged our portfolio to become more aggressive in the downturn.

For new deals, True closed 21 new investments in 2009, which compares to 14 in 2008 and 10 in 2007. We can be judged by the company that we keep, and we are fortunate to have invested with an incredible group of entrepreneurs such as Tim Young at SocialCast, Peter Rojas & Ryan Block at GDGT, Howard Lindzon & Soren Macbeth at StockTwits and Jack Abraham at Milo.
(Click here to see a full list of our portfolio.)

Simply making more new investments, however, was not enough. We also had a large portfolio of existing companies that could use our dollars to make the downturn their advantage. We set aside approximately $20 million of our reserve capital to invest in the existing portfolio with an emphasis on making the strong stronger. We believed 2009 would be a good time for our break-out companies to further their lead. Many of these companies took advantage of our reserve capital to acquire competitors (who were distressed), grow market share, deepen product teams, and hire sales folks. We structured our investments as friendly bridges to future rounds, as our intent was not to take advantage of the timing to buy more equity but rather enable our strong companies to get stronger.

We’ll know the real results from our actions in 2009 over the next 5+ years, but the early results of these moves look incredibly promising.

To cap off a big year for the firm, we were recently nominated for the Crunchies for Best VC Firm of 2009, and two of our portfolio companies, Milo and StockTwits were nominated for Best Startup or Product and Best Social App, respectively. We are honored to have been nominated by the industry, and we think this is really a reflection of the great entrepreneurs in the True family. Our mission at True is to help make an entrepreneur’s dream come true, and we founded our firm on the core belief that all power, creativity, and energy in the venture capital ecosystem starts (and ends) with the entrepreneur. We have a total of 51 investments in the portfolio, which equates to 92 Founders and 483 employees. This is an incredible group of people, and each of them has endowed us with their faith and confidence. Our Founders are our biggest source of inspiration for our firm, and their efforts and energies are most responsible for our success.

Thank you to everyone who helped our efforts in 2009. It was a very busy year, and as entrepreneurs ourselves, building True has been and continues to be incredibly gratifying.

Now is not the time to rest on our laurels. Venture capital needs more innovation, and we have an ambitious agenda for the years ahead.

We look forward to working hard for you in 2010 and beyond.

Happy company building!

Posted by Jon
Tagged Industry, Portfolio, True
2 Comments »

Welcoming Andreessen Horowitz

July 9, 2009

This week Marc Andreessen and Ben Horowitz announced their new $300 million venture fund. This is really good news for the very early stage venture market. It’s yet another visible indicator of the ongoing reinvention occurring in venture capital, and it represents a significant step in the re-emergence of institutionally-backed early stage venture capital. We’re excited to have Marc and Ben working in this segment, and the addition of more talent and resources in the early stage market is great news for entrepreneurs.

Our mission at True is to help entrepreneurs realize their dreams. In 2005, we spotted an opportunity to build a firm that was more adaptable to the needs of today’s entrepreneurs. We innovated by re-defining the relationship between investor and entrepreneur in a fundamental way, simplifying previously complicated structures, and amassing talent and resources to ease the specific process of starting and building a new company.

We did all of this as former entrepreneurs ourselves, and our overarching goal was to re-align capital with creativity. At True, we firmly believe that the entrepreneur is the center of all power, creativity, and wealth creation in the venture capital model. Our firm and our deals are designed with the entrepreneur as customer.

When we launched in 2005, there were only a handful of super-angel investors in the very-early market: Ron Conway, Reid Hoffman, Ram Shriram, Josh Kopelman (then with his evergreen funds) – to name a few. Institutional capital was scarce, and this was a problem because entrepreneurs had fewer resources in the beginning, and less choice

The great news for entrepreneurs is that this is changing rapidly. Since 2005, we at True have raised 2 institutional funds totaling approximately $375 million, Josh and the team at First Round closed on an institutional fund, as did Stewart and Gilman at Alsop-Louie, and Brad Feld at Foundry. Back East, Spark and Union Square Ventures have each raised two institutional funds, and Alan Patricoff started Greycroft. In addition, many very talented angels such as Mike Maples, Jeff Clavier, Ron Conway (Baseline and Ron’s other angel investments), and Paul Graham at YCombinator have raised institutional dollars.

We estimate that there is now well over $1 billion of institutional capital available to startup entrepreneurs. Make no mistake, there are many talented groups willing to write checks as small as $50K to get a good team and a good idea off the ground.

This could not have happened at a better time. The combination of great entrepreneurial talent, high capital efficiency, widespread broadband infrastructure, and the maturity of mobile and social computing platforms has resulted in tremendous product innovation and massive market opportunities. True witnessed this dynamic first in our consumer investments like Meebo, Automattic, and Sphere, but, since 2005, we have also seen Moore’s law blast away cost in enterprise 2.0, infrastructure, and hardware. We have steadily expanded our investment focus and products into these markets, and we are about to close on our second hardware investment this month.

We are fortunate to live in an incredibly disruptive time.

Which brings us back to reinventing venture capital. The best entrepreneurs want less from VCs today: less capital and fewer constraints in order to take more risk earlier. But the the best are demanding more in terms of new products, services, alignment, attitudes, and business practices from their investors. This means new expectations around board roles and responsibilities, more flexible deal structures, aligned efforts to add value, broader syndicates that amass the resources and participation of multiple groups and multiple angels. This means innovation in venture capital.

We’re excited about the arrival of Andreessen Horowitz to this segment because it means more choice and power available to the early stage entrepreneur. More talent, dynamism, and focus on these challenges will help us all to better serve our customers (entrepreneurs), more quickly modernize the early stage capital markets, and foster fundamental innovation. In removing barriers to entrepreneurial creativity, we will reinvigorate the US economy.

If you are an entrepreneur today, this is an historic time to chase your dreams. With over $1 billion in fresh seed capital in the very early stage market, what are you waiting for?