Men on Mars : The Reinvention of Atlas Venture
I joined Atlas Venture 9 years ago. At the time we had 5 offices, 22 partners, 7 board rooms, a team of over 60, over two billion in assets managed. And boy, were we making life difficult for ourselves. Today: one office, 7 partners. We still have two board rooms, but our startup companies seem to like that :-)
Between 2005 and 2012, we went back to our roots.
What is true for startups is true for VC firms. When I joined Atlas in 2003 we had way too much geographic and sector complexity. Picture this: London, Boston, Paris and Munich get on a video conference call to approve new tech and biotech investments (we sometimes referred to it as the "intergalactic meeting"). We had legal, PR and recruitment services at our main locations. We had three layers of partners and three layers of investment professionals below the partner layer !
How Atlas got there, I don't really know. Atlas was a very successful firm built on a strict regimen of small funds and a maniacal focus on very early stage investing. Because of the quality of its results, it became one of the pre-eminent firms in the late nineties, and started ballooning out of control. Fundraising became more important than investing, and Atlas began to think of itself as an "institution".
It matters little at this stage. What is more important is what happens next.
These shortcomings were obvious to me when I joined. I thought that with time we could fix this and there weren't many ways to get into venture through the front door. So we had started a patient process of reducing team, concentrating our locations and so forth. It was a very consensual process that followed the usual pattern of young guns pushing and established guns moving more slowly. Anyone who's done generational transition in venture knows what I'm talking about, though this one was constructive and pretty smooth.
Then suddenly the nonchalance got thrown out of the window. We were in the process of raising our Fund VIII in 2008 when my partner Sonali left to join Accel Partners in London. Sonali was my sister-in-arms and our most talented person in Europe. It was no surprise to me, but it changed the game overnight. It's one thing to be evolving slowly, it's quite another to lose one of your best people.
The time for reactivity was over.
Staying at Atlas
Over 2007-2008, there were periods of doubt. I considered leaving; it's tough to find a new partner in European VC and I had a lot of inbound interest. I stayed for two reasons. First, I decided to make Atlas my battle of Thermopyles. I set down my shield and planted my lance and thought : I will make this work no matter what. I will take failure when it comes but I will fight for this one, make it mine. The second reason was my partner Jeff Fagnan. I was not going anywhere.
So I stayed. Goodbye Europe, hello Boston.
Proactive, not reactive: designing a fund we'd invest in
Once you stop caring about the consequences, you can do things right. Sonali's departure provided that opportunity. In our case, this meant evolving the fund so it was one we would want to invest in and not one that was shaped by legacy.
The cadence of change increased dramatically and we really got to work.
The first step was a phone call between Jeff and I that went something like this:
- "How far do we push this ?"
- "All the way"
- "You moving to Boston ?"
- "Provided we move out of Waltham :-) ... yes"
I can't remember who said what line, as Jeff and I tend to finish each other's sentences, but that was the gist of our conversation on the eve of Sonali's departure.
We promised ourselves that we would continue to embrace our own demise, not ever be reactive again but proactive. The market would continue to change, and we would not just embrace change, we'd spearhead it.
The reinvention of Atlas Venture
In the end we've done nothing more than apply common sense. Here are the foundations of Atlas today and why we think we're going to rock:
Equal Everything. For a partner at Atlas, there is only one comp package. Same salary, same carry, same ownership in the management company (not that management company ownership matters, mind you, since we're not trying to accrete any value there). We all float up or down with the vagaries of fund size and management fees. The benefit ? We spend zero time discussing compensation issues. Imagine that. All our energy is focused on winning in the market.
Team first. Individual track records be damned. What matters is that as a team we generate 3X over the life of a fund. We will have each other's back and be relentlessly intellectually honest about driving reserves to the best companies, not the ones we (personally) happened to invest in.
Primus inter Pari. No one runs Atlas. Jeff Fagnan deserves a special nod for being a relentless force in particular around fundraising, but he considers this service to the firm. We don't have, want or need a boss.
If you suck, you go. I will leave Atlas before I am asked to if I either lose the hunger or realize I start to suck. We all feel the same way. We're not there to maximize our net worth by raising funds forever, we're there to be the best at what we do and build awesome companies with top entrepreneurs. The world does not need another average venture capitalist.
Single office. On the tech side, all five of us are around the table every Monday making decisions and meeting teams. Same for our three partners in biotech. Decisions are fast; debates are engaged. There is zero loss of energy between getting to know an entrepreneur and getting to term-sheet. With entrepreneurs, speed wins.
Small funds. Given our maniacal focus on starting at seed and all the improvements in capital intensity vs. value creation in recent years, we can run our investment strategy successfully with small fund sizes. Besides, being slightly capital constrained has done wonders for us. We're sticking with small funds.
Alignment with LP's. By raising smaller funds we take care of the issue of inflated salaries. We also upped our commitment to the fund and I think will up it again over time. Some of the partners bought a secondary position in the last fund. We want to be in alongside our investors. That is all.
You cannot declare victory in a vacuum. To make this happen, we were fortunate that some great talent joined our team, in the form of the best free agent in Boston (Ryan Moore, who backed Where.com and Enpocket), the commercial half of the Wu-Lynch clan in the shape of operator extraordinaire Chris Lynch as well as our homegrown talent Dustin Dolginow.
We're also looking at a number of juggernauts in we are generally the largest VC shareholder, including bit9, Veracode, Zoopla, Dataxu, Globoforce and others as well as good momentum in returning cash to our LP's in recent years.
The flywheel is accelerating.
The bottom line of all this is simple. We started playing hoops again every Friday. Our passing game is getting pretty good, our drives are forceful, and we're scoring points. When I got home with scratches and a bruised rib, I felt very lucky.
Now if only we could add a female Indian venture capitalist of the quality of Sonali, we'd even have diversity in the group :-)