High Risk + Founders First + Boston: The Atlas Venture way
I am re-publishing an interview with Tom Lytton-Dickie in which we discussed Atlas’ focus on people, our high risk strategy and the benefits of existing within a single location. Excellent write-up, I did not touch it.
Putting people first
In response to a question focused on his philosophy around seed investing, Fred Destin is clear on his priorities.
“We try and exist as the best source of seed capital that we can to as many entrepreneurs as possible. The seed investment decisions are almost entirely based on how we feel about the entrepreneur,” he explained. “We really over index on backing great people and under index on checking whether the market is ready or the technology is strong enough.
“We just focus on investing in people who we feel are incredibly ambitious and drop the other hurdles to some extent,” he added.
Destin explained that Atlas tends to “like founders and young entrepreneurs and generally avoid replacing founders with professional management.” He said the firm would much rather back a young entrepreneur all the way through, adding there was “a certain magic” about having the original founder remain on board, which can’t be replicated with professional management.
Atlas sets itself aside from other VC's with a focus on people rather than ‘themes’. Destin said that in order to be the best at what they do, they strive to be fast in terms of decision-making, transparent and non-controlling.
“We will let you run your business as you see fit. We want to add value and we want a seat at the table. But we are not trying to exercise control,” said Destin. “We will let people rip, we will let people take chances. We will also tell people when we don’t think they are on track. We have very honest and direct relationships with the entrepreneurs we back.”
“I think part of the transparency is telling people very early if you don’t think they are performing or when you don’t think you are going to fund them. Then you can proactively help them speak to other investors so they are getting maximum exposure to the market,” he explained. “The entrepreneur feels like he is in a relationship of confidence and there is a real advisory role that you are playing instead an ‘us versus them’, ‘entrepreneur versus investor’ relationship, which can often get strained.”
Atlas has an ‘anti-board’ concept for early stage businesses, shying away from having a formalized board and favoring fast-decision making over governance. “We try and add value to the strategy and recruitment but we don’t stand in the way. We let people run their company,” he added.
High Risk Strategy
Atlas’s investment philosophy carries a high level of risk. “I believe the business of venture capital is really predicated on hitting a few very big wins and owning enough of them so that it makes a difference to your fund,” explained Destin. “It’s really all about search for the outlier which means you have to take extreme risk and therefore accept a higher failure rate.”
In terms of designing a seed stage strategy, you are not trying to see a high survival rate among your companies, you are trying to maximise your ability to find your outliers,” he added.
“If you are being very cautious and very reasonable in your seed investment strategy, you are likely to never back projects that make a big difference,” said Destin.
Destin believes the differences between investing in Europe and US is most clear in the angel investor community.
“The angels in the US that are professionals, that have been entrepreneurs before, will commit $25,000 to $100,000 very quickly and are very grown up about the money,” said Destin. “But in my experience of Europe, the angel community is actually extremely concerned about having anything go wrong and are actually quite shy about investing.”
“So there’s a dichotomy between the two environments, an American angel is way more likely to make decisions very quickly and be ok about losing it versus a European angel,” he added.
Having moved from London to Boston in 2004, Destin is well placed to analyze the city as a tech hub, which has traditionally lived in the shadow of its West Coast counterpart. He is certainly a fan. “Boston is a very varied, diverse eco system and is good at everything from big data expertise to mobile development to e-commerce,” he said, adding that it is also a lot cheaper to build companies in Boston than in San Francisco where it has become “very mercenary”.
In terms of VCs, the risk averse, defensive stereotype that was valid five to seven years ago is “a little bit passé as things have changed quite dramatically as the market here, like everywhere else, has evolved at speed”.
Atlas raised their ninth fund back in May, within what Destin described as an “incredibly difficult” environment to fundraise with “a broad distinction between the ‘haves’ and the ‘have-nots’ in the VC community. While there are eight-10 ‘haves’, the other VC's fall into the category of ‘have nots’ unless they have clear distinctions from the rest, such as good returns, or in the case of Atlas, good returns and a dedicated strategy.
“We want to be the best seed investor in Boston. We want to be number one at doing that really well. You’ve got to have differentiating features and be able to show good numbers to have any chance of raising funds as a VC,” he said.
Atlas is now based in a single office after a period of down-sizing. Destin is clear in his belief in that decision. “Our core drivers are now being united as a team, having total intellectual honesty between partners and making fast decisions in realtime,” concentrating on smaller funds rather than big funds which “impaired our strategy”.
“I love the fact that we are a single office, within one location.It’s been great fun having everyone round one table. It’s been somuch better in terms of efficient decision-making,” said Destin.
“We are a partnership so we commit to each other as a team. People don’t always appreciate it but it’s really like a marriage. What we try and do is get people who are like-minded and enjoyworking together as a unit,” he added.
“There will be a day when I want to come back [to Europe] but I will come back when my work here is done” he concluded.
Note : originally published for Hot Topics, the Technology Leader Community, which I highly encourage you to check out.