In a recent interview with Business Insider, Fred Wilson of Union Square Ventures shared his thoughts on a wide range of topics, including “20-somethings starting funds straight out of school.” Among other points raised, Fred suggested that young VCs got their start thanks to family money, and don’t have the network or experience to be successful investors at this point in their careers.
As one of those “20-somethings starting funds straight out-of-school,” I was disappointed at the inaccurate presumptions about who we are and our value. Fred is a respected leader who has built a career and legacy to which anyone starting in venture capital can aspire. Fred’s words have weight, and so his remarks should be challenged when he gets it wrong. At Rothenberg Ventures, we can’t speak for all young VCs, but we can clarify what our team has built.
To preface, a bit about Rothenberg Ventures and myself: Our 10-person team is investing out of our second fund, and I will turn 30 this year. We have been investing for about two years and now support more than 50 portfolio companies — all still in business — and offer 60 desks for entrepreneurs working out of our SoMa offices. In November 2013, Mattermark, a deal intelligence service, graded our portfolio as the highest quality in the venture capital industry with their first “Momentum Rankings” (USV’s outstanding portfolio ranked third). We’re not yet a “success,” but for a young venture capital firm, we’re doing things Fred assigns only to those with decades of experience.
With that in mind, we’d respectfully challenge Fred on two points he raised: 1) how Rothenberg Ventures arrived at where we are today, and 2) the basic value proposition that young VCs bring to the table.
First, it’s true, as Fred pointed out, that some young VCs have benefited from family money. However, let’s not dismiss all young VCs as beneficiaries of wealthy families. Yes, my background includes Stanford and Harvard, but I grew up in a humble home in a small town north of Austin, raised by two wonderful parents. I spent my college years building a formidable network in the start-up community, and learning from world-class entrepreneurs. I never considered a career in venture capital until an HBS professor encouraged me to start my own fund. The summer after my first year in business school, I sublet my apartment and lived out of a suitcase for almost three months while raising my first fund from founders and CEOs. Today, we are fortunate enough to be backed by over 75 smart money investors.
We understand why Fred cited people who benefit from family money, but suggesting that young VCs as a class have fundraised principally through genetic lottery is empirically not true at Rothenberg Ventures. There is no shortcut — we work to earn each dollar in our funds and maximise each dollar we’re entrusted with like the start-ups we fund.
Second, Fred discounts the value proposition offered by younger venture capitalists. The most distinct advantages include:
- Access to Seed Stage Entrepreneurs: As Fred noted, there are partners in their late 30s and early 40s at more established firms who are leaving to start their own funds. Unlike younger VCs, Fred describes this as “a pretty good model” for success because “you don’t have a legacy portfolio so you’re just working on the new stuff.” We agree with Fred that from a historical perspective this has “been the way the venture capital industry has worked.” What he’s missing is that the ground is shifting. Younger VCs are actively disrupting the legacy model of the industry because our age provides a distinct advantage by way of access. Our LPs entrust us with their money primarily to find entrepreneurs in their late 20s and 30s. For younger VCs, the degrees of separation to young entrepreneurs with big ideas are radically smaller, and our experience spending years with some of those we invest in provides a more acute sense of ability and integrity. We invest in the first institutional round for more than 80% of our portfolio, and it’s because our networks allow us to find these incredibly talented young people first.
- Ability to Source Talent and Build Communities: Sourcing talent and building traction via community development are two of the most important objectives of any early-stage start-up, and again, the benefits of youth are apparent. For our focus area — late seed-stage and early Series A investing — those are the needs that are most immediate.
- Peer-to-Peer Relationships: We do something a bit unorthodox at Rothenberg Ventures that helps the entrepreneurs we fund be more open and honest — we decline board seats. We’re interested in stepping out of our founders’ way and assisting with problem solving when they need it through on-call support. Through peer-to-peer relationships, we’re able to uncover and identify problems that start-ups founders prefer to share with investors who feel more like a partner than a parent.
In the end, Fred Wilson’s track record speaks for itself. He’s unquestionably a phenomenal investor, and I’ve looked up to him ever since I met him after he spoke at one of my venture classes in graduate school. Ultimately, what I’d ask of Fred is the same courtesy he extends to many of his own investments — give us a few years before writing us off.