Fred Destin, Atlas Ventures: Advice to European Entrepreneurs

Video interview with Fred Destin, Atlas Ventures. Fred joined Atlas in 2004 and is a Partner in the technology group. He focuses on software and technology-enabled services and digital media infrastructure and applications. He currently serves on the boards of Atlas portfolio companies AdSafe, Dailymotion, Inspirational Stores, KDS International, NTRglobal, PriceMinister, RealEyes3D, Seatwave, Sporever, and Zoopla. He also served on the board of Seedcamp, which provides mentoring and seed funding to European start-ups. Fred holds a Masters in Financial Engineering from the University of Brussels (Solvay). You can find Fred @ his blog Fred Destin and Twitter

Transcript follows and video above. This is Part III. You can view Part I and Part II here

In the dance with an entrepreneur both in the decision making process of funding a startup and then in working with those startups what are the necessary qualities that make a good venture capitalist. Some of the talents mentioned: Would you trust your gut instincts and feelings that happen within the relationship with the entrepreneur as signs about what’s happening in the business, in the startup? Or would you ‘manage by influence or persuasion’?

Here’s what I would say about it! To me there are two core qualities that make great VCs versus not so great VCs. Actually there’s three. Number 1 (which I can’t map for you) Are you really good at picking investments? Success tends to breed success, right? But the two core qualities for me are being a good mentor through the difficult phase.

Being a good mentor relies on a true ability to listen and to show empathy and to not focus on you but to focus on the business at a fairly fundamental level. The people who are good VCs, who I’ve seen being good in boards are the ones who fundamentally take the time to listen, understand, go deep before they’ll trust their gut! Because ultimately data can only take you so far. If you are entirely totally data driven, people can pull the wool over your eyes very easily. It’s human nature in our business to make it go wrong. So the ability to empathize, listen, analyze information and take the time to really integrate what a business is trying to do before we come to diagnostics. And without preconceived notions, is to me the core trait of the people that I think are outstanding.

That would be number one. Number two, is whether you lead by influence or persuasion, there are some VCs who have the ability to influence outcomes and some who don’t. Those who don’t, usually try and do too many things, don’t create a following in the company or amongst the board members as to what they’re trying to achieve and have no ability to fundamentally move things along. 

By the way sometimes, this is where it gets difficult, sometimes a company has to change, an entrepreneur is going to hit the wall? And there is an art in both getting the person to realize and internalize the fact that they have a problem. At the same time applying enough pressure so that it’s being taken seriously. And this is where it’s a real fine line between VC’s trying to run the business: it’s disastrous and the ability to point an entrepreneur in the right direction.

I will tell you that for me there’s a third skill which I think we should focus on. Is the VC willing to put their his proverbial component on the line for the business? I think this is not a female concentric statement, I apologize. Are you willing to take responsibility for a company? The number of people I’ve seen put some money on the table and then not stand up for that business when the time comes in front of their partnership or whatever it may be when the going gets tough.

And then essentially they start arbitraging their internal perception inside that firm which may be right for the company: an inability to take risk on behalf of the company. This is not a skill per se but if I was an entrepreneur I would watch really carefully if somebody when they believe in my project will take a risk on me rather than optimizing their own options. So do you have a venture capitalist or investor of any ilk that is willing to take a real risk on you and will fight your corner if they feel that is the right thing to do.

Fred Destin

It sounds like some sort of commitment, commitment and follow through.

Yes I think the thing with startups is that they take 5, 6, 7, 8, 10 years to grow to fruition. All of them will go through a really tough time. They’ll move really close to bankruptcy, they’ll lose some of their core execs, an acquisition that was planned will fall through, whatever it may be. There’s always going to be a time when the going gets really tough. Or you think you won’t make it. It’s in these periods that you find out what they’re probably really like. I’m in a really tough spot, are they sticking with me because they really believe in the project? Are they taking advantage financially from the situation? Or are they giving me a fair deal because they understand that in the long term that is what matters? There’s a whole host of issues that arise in tough times when you realize that some people just don’t have the backbone to see their businesses through tough times.

Fred Destin

I have followed your blog for some time now and you have written some inspiring and enlightening posts. I noted the post Rise of the European SuperAngel “Poor European entrepreneurs. They can only dream of SuperAngels, salivate from afar about the land of Ron Conway, the cool shirts of Sacca and the awesome dollar power of AngelList, whilst they’re stuck with old school business angels or fee-charging networks, whilst European VC’s, never a risk taking breed as we know, have all retreated back to the safer havens of “venture growth”. They can only wish there was a seed bubble. No wonder that governments feel there is an “equity gap” they need to fill, or that entrepreneurs feel compelled to leave for the promised land. Everyone wants to be Bart Decrem (with better glasses, like mine), move over there and make it happen!” Could you give any advice or encouragement to European startups who are facing even more challenging difficulties raising venture in this current economic clime?

Well the first thing I’m going to do is write shorter sentences because I realize it was a bit of a mouthful!

Fred Destin

I think that they were very descriptive and there was great imagery there.

Thank you. The purpose of the post, as it goes on, was to say that there are actually a number of good initiatives there. They have two benefits there a) they give money to younger projects b) they are typically more accessible. So there is a new ethos of accessibility which means you can actually get to these people fairly quickly by being smart about how you leverage your social network. Now having said that, the reality of it is (I am almost thinking about writing a follow up post) because yes we have Kima and Jaina Capital in France and Atomico etc. But the reality is the majority of angel money you’re going to get is really slow and is not socially connected and it’s sometimes more painful to get $100,000 out of these guys than it is to get a couple of million dollars from a venture capitalist, most of the time it is more painful. So I think the reality of that market place is that it lacks liquidity however and the liquidity tends to be highly concentrated. So my advice to the European entrepreneurs would be if you just follow this path to money because they’re relatively narrow. SeedCamp: Atomico just did the Founders Conference in Dublin, Techstars is wondering whether to come over to Europe. There is sort of a bunch of well identified avenues into this fast “early stage” funding you can get to. And now you find the European entrepreneurs are not aggressive enough about asking for help and asking for intros. I sometimes get still today, I get emails over the transom from people and I’ll take the time to read whatever I can and most of the time I do, even though they come without an intro. And you know sometimes, I have an obvious touchpoint that I can identify that they haven’t used. There is Linkedin, you can go on Hashable these days. You can use the Seedcamp Mentors who are easy to get to. You can use my blog whatever it may be. I’m getting a little bit tired with the notion that early stage entrepreneurs cannot get to the money because its getting way easier to get to that cash. Now has Europe reached critical mass, you bet! Should I go and talk to Dave McClure and try and get on AngelList even though I’m based in whatever it may be in Europe? Yes I think you should, I think you should absolutely go to the US and try and leverage these funding channels because Europe has reached critical mass. Europe has a lot of sleepy people doing early stage investing. There’s some good projects coming out, but the reality is it remains slow.

Fred Destin

You definitely have to be a little more adventurous over there and just like myself when I won that spot on and came over. You just have to step totally outside the box and just go for it! So that’s good advice.

The other thing I would say, so here’s a typical Europe phenomenon. You find a great guy in Germany and you find another great guy in France and they’re working on essentially the same segment. Neither of them is completely backable on their own but they both manage to find a way to get to government money. Hence you have two companies started in both markets. They both do reasonably well. They both raise venture finance. Now you have two proper competitors in separate markets blah, blah, blah… Sometimes you wish you had stronger founding teams and the US is much, much better at putting together stronger founding teams.

Yes I agree the networks are much better here.

Fred Destin

Thank you so much Fred for your time and your fantastic feedback. I really do appreciate it!

My pleasure, I’ll speak to you soon and good luck out there.

Fred Destin

Fred Destin, Atlas Ventures: Venture Success Part II

Video interview with Fred Destin, Atlas Ventures.  Fred joined Atlas in 2004 and is a Partner in the technology group. He focuses on software and technology-enabled services and digital media infrastructure and applications.  He currently serves on the boards of Atlas portfolio companies AdSafe, Dailymotion, Inspirational Stores, KDS International, NTRglobal, PriceMinister, RealEyes3D, Seatwave, Sporever, and Zoopla. He also served on the board of Seedcamp, which provides mentoring and seed funding to European start-ups.  Fred holds a Masters in Financial Engineering from the University of Brussels (Solvay). You can find Fred @ his blog Fred Destin and Twitter @fdestin

Transcript follows & video below.  This is Pt II of the interview. You can view Part I and Part III here

What do you see as the obstacles for inclusion of women entrepreneurs in achieving funding? What you’ve said already is that a woman has to be comfortable in who she is!

They should really partner up with someone who’s done Harvard & is a white young geek! (That was a joke!) Let me think. Well listen the number one factor, whether you are a man or a woman, nobody likes to back single person teams. There were a couple of young ladies who recently got funded doing a jewellery business out of New York & that’s an all women team. That’s even rarer. You sometimes see a mixed team but an all women team is even rarer. No matter who you are as an entrepreneur, your first hurdle is to get a couple of co-founders on board who are willing to embrace what you do & do it not for cash but do it because they believe in the idea & in the very unlikely event that this piece of equity that they are given is likely to be worth something some day. So when you build that original team, also look for that recipe. I think you have to be realistic, you have to recognize the fact that the market is not that woman friendly & there are people that are going to question some of your skills. So one of the things that women are blessed with more than men & I guess is both a blessing & a curse, is self awareness. In fact when a guy gets told no after a funding meeting, he’ll probably say ‘Screw you, I’ll go & demonstrate that I can build it!’ Whereas when a woman is being told no, she’ll probably go home & say ‘What did I do wrong? What is fundamentally inappropriate about my behavior, who I am or my idea? And why did this person reject me?’ So there is a tendency to deal with rejection here, that is quite different, where women tend to internalize it & look within themselves as to what they need to change & what’s wrong. Whereas guys will tend to almost be energized by rejection & they’ll want to get into a fight & go prove that they can do it better than you think they can. So I would be cognizant of that & recognize that the natural tendency is going to be to turn inwards. Whereas the natural tendency could be to say ‘Hey you know Fred at Atlas Venture is really a dorky, European guy who didn’t get my idea. I should focus on going to whoever it is that will fund us, who’s going to give me money!’

Fred Destin

Cindy also says:’ VCs tend to say that they back the person, not the idea. But if they always back the same kind of person — male — then women entrepreneurs have a better chance of getting funded when they have something that’s actually working in the marketplace.’ Do you agree that women need to have their business developed before they can achieve funding?

If the generic point is that it is harder for women to get funded, then if they push the business further that lowers that hurdle because now people can rely on evidence of the team. I think it was Ben Holmes @Index Ventures once used this on a panel he was running. He used a triangle ‘Team, Technology & Traction’. He said depending on if you score really highly on Team, I won’t be as bothered with Traction. But if your Team doesn’t score that highly, I’ll ask you for more Traction or more Tech. So trying to explain the tension you might have between the various dimensions of financing. So if there is really a negative bias applied against women so that negative bias can be overcome by showing fantastic tech innovation or showing more traction in the marketplace. There are some forces of nature that seem to defy all the rules. A friend of mine Indu Navar on the west coast & she was voted best entrepreneur by TIE a few times etc. She’s a woman who’s built a business out of just sheer strength & basically being such a force of nature that nobody could really resist her. Then building a team around her that was fantastic. I don’t think she ever let being a woman stand in her way. But having said that, I’m absolutely cognizant of the biases & I do think bringing your business further kind of helps you get over that for sure.

Fred Destin

Often advice for sourcing venture is equated with dating, implying that there is a matching that needs to happen with entrepreneur & investor. Have you noticed a general psychological profile of venture capitalists and also of entrepreneurs that promotes the attraction & synergy between them to develop a great startup?

It’s an interesting & relatively complex question. There are quite varied profiles in the venture industry. There are some people who love the hunt & the deal & putting their money to work. There are other people, like me for example, I’m much more about what happens next: figuring out product market fit & strategy & building a team up. I would tend to have a slightly different profile from the pure hunter, the builder category. The vc is a schizophrenic role because on the one hand you have to love the businesses you invest in, on the other hand you have to be reserved portfolio manager. So you have that tension in your brain between loving the entrepreneurs & wanting their projects to succeed & on the other hand knowing that half of them go bust & that you have to go through the process of identifying which ones you have to let go. On top of that you’re a mentor, you’re a shareholder, you’re a friend, you’re an advisor, you’re a tough investor! I mean?

Fred Destin

It’s complex!

The net of that is that vcs tend to develop relatively thick skins. It is tough to push a project through inside your organization. Most startups go wrong & that’s a mathematical fact! You can steel yourself over time. The difficulty is not becoming blasé but keeping that passion & genuine connection with the entrepreneurs whilst recognizing that you are in a tough business where most of the time it goes wrong.  Now the people that do well hence in terms of entrepreneurs that have the right psychological profile tend to display some but not all of the same characteristics. There is a certain level of suspension of disbelief, in other words I’ll break down doors, I’ll will negate the probabilities, I will fight against the gods. At the same time I’m thick skinned enough that when we disagree on stuff, I will make it through & it will never break the relationship! And I won’t take it personally because I understand you’re doing your job by building company stuff. I understand you have to be mature & realistic about what it takes to build a business. So you need a dose of absolute (I guess) ignorance & enthusiasm & at the same time you want a certain grittiness & toughness that says ‘Hey, I’m gonna make it, no matter what. I’m also gonna make it in spite of you! If you give up on me, I won’t give up & I might pull a rabbit out of a hat & make it happen!’ So you kind of need these alter personalities with enough self awareness & enough grittiness that you can make it through the whole process. And I think we tend to be absorbed & fascinated by highly ambitious, highly energetic profiles that also at the same time have this real world toughness to them!

Fred Destin

And when you’re talking, it makes me visualize that both the VCs & the entrepreneurs are quite extremists & complex in their personalities, so similar in that regards.

Listen, the answer is that it depends. I’ve seen a lot of vcs are alpha males. They’re generally very smart (but they’d like you to know they’re smart!) Unfortunately that applies to me, but I’m working on it! You get a fair amount of ego! You get people who want to be respected, want people to recognize their smart, feel they’re important. Even though the vc industry is an absolutely tiny industry but nevertheless. Then combined with a general passion for creating stuff & so there’s a ton of very different profiles out there & there’s also a lot of marketing hype! So we always say success has many fathers & failure is an orphan! The reality is the vcs basically direct money & vaguely influence the course of the company. In rare cases do we play a fundamental role in shaping it but I would say that’s the outlier. Usually the better the entrepreneur, the less we provide in terms of absolute value add, right. So fundamentally our role is to help the entrepreneur spread their wings & add really create value & avoid massive mistakes we’ve seen before to help them attract good talent. But there are as many personalities as there are vcs. It’s hard to derive generalities.

Fred Destin

Fred Destin, Atlas Ventures: Venture Success

Video interview with Fred Destin, Atlas Ventures.  Fred joined Atlas in 2004 and is a Partner in the technology group. He focuses on software and technology-enabled services and digital media infrastructure and applications.  He currently serves on the boards of Atlas portfolio companies AdSafe, Dailymotion, Inspirational Stores, KDS International, NTRglobal, PriceMinister, RealEyes3D, Seatwave, Sporever, and Zoopla. He also served on the board of Seedcamp, which provides mentoring and seed funding to European start-ups.  Fred holds a Masters in Financial Engineering from the University of Brussels (Solvay). You can find Fred @ his blog Fred Destin and Twitter @fdestin

Transcript follows & video below. This is Part I of the interview. You can view Part II and Part III here

What is your sweet spot, in what kinds of businesses do you like to invest?

We have a team of 6 partners here, so 3 of us on the life sciences side & 3 of us on the tech side. In technology we are very old fashioned in many ways. We invest at Seed or Series A. We like to take generally sort of a lead role & really partner meaningfully with the companies that we back. Then we’ll look for high upside, highly scalable, highly ambitious entrepreneurs that we can work with & build businesses with over time. So we’re old fashioned in the way that we believe in real leadership, really owning a decent chunk of a company, really partnering with entrepreneurs & then we try & be useful in the sense that we try & be transparent & honest & fast & have a lot of the brand qualities that I think an entrepreneur is looking for in terms of finding an open minded, evidence driven, pragmatic partner, that’s willing to do some real work with them.

Fred Destin

Fantastic & I know I’ve been following your blog for a few years & I know that you do write some amazing stuff & some great exposes in the past. Thank you.

Thank you I appreciate that. I think that a lot of the issues that we’re faced with are down to inappropriate communication or perceived lack of transparency. I do try & fight that by being as open & frank & as candid as I can around the entrepreneur versus vc relationship or the entrepreneur versus angel relationship.

Fred Destin

Yes & it just encourages so much trust in the community, that sort of transparency. Thank you. What percentage of women startups do you get pitches for? And what percentage have you funded?

We were running an event here recently in Boston (we do Founder Events & then we do CEO Events) & this one was a CEO event. Its either the people we’ve backed or its people that have made money for us, it tends to be more mature types. We had Scott Kirsner and he was there talking about the necessity of having a more diverse ecosystem in Boston, what Boston could do better & suddenly I semi interrupted him & stood up & said ‘Listen by the way, there’s 50 of us in the room here & there’s only 1 woman!’ And it turns out I’d invited her, a newcomer to the scene, it was Gina Ashe from Krush. She was the only female entrepreneur in the room. So I think there is a long, long way to go, this was striking evidence that it’s rare & continues to be rare, no question!
If you’re asking how many we’ve funded, we do have a few. We have in fact some phenomenal female execs. So I backed Helene Monat @ adsafe media  whose really been there since the start in helping structure that firm. We have backed Mara Aspinall ON-Q-ITY here in Boston who is a life science’s business focused on cure for cancer in particular circulating tumor cells in the human body. She’s a female exec, she’s a fairly dominant type of CEO & a great performer! So we have a few, but just like everybody else I will tell you it remains the minority. It’s true if you look at the venture funds as well as looking at the companies that are backed which I think is part of the problem.

Fred Destin

Yes as Mark Suster says ‘It’s a Numbers Game!’ I think. Have you noted differences with women entrepreneurs in how they pitch & build businesses?

Well I think it is very difficult to not fall into broad generalizations when you’re trying to answer that question frankly. To a certain extent, I almost don’t want to insult the women I work with & pigeon hole them. I will say one thing though. Let’s take Paypal for an example. There’s a good body of evidence that Paypal became such a fabulous company because it had a lot of diversity. Diversity in the sense of sometimes complex talent with people coming from very different walks of life. So Elon Musk who went on to create the electric car company, Tesla, well the rest of the team had highly varied background. There’s a recognition that a richness comes from diversity. You really need, especially in the age we live in, where there’s a lot of lateral thinking that happens between biology, chemistry, IT etc, you need a lot of lateral thinking, you need different ways of doing things! The only certainty is the lack of certainty, in other words we live in a world of continuous change! And diversity is the best response you can have to that! So I would just consider that have female people in your company, having women you can work along with is a strong factor of diversity. And I’m just amazed that more people don’t leverage that more!

Fred Destin

Yes I interviewed a woman entrepreneur & she said that its a reflection of what’s out there in the world which is gender diversity! So if you have that within your company you can then target your markets in a more balanced way, which I thought was a really good point. Cindy Gallop, Founder of IfWeRanTheWorld, said in a recent interview: ‘VCs fund in their own image: white, male. The cycle is self-perpetuating, so (predominantly male) VCs have a preconceived notion in their heads of what they think constitutes the kind of entrepreneur to back. John Doerr apparently said, ‘If you’re a white, under 30, tech geek with no social life and a Harvard/Stanford dropout, line up for VC money.’ He didn’t say ‘male,’ but he might as well have. If it had been a 17-year-old Russian girl who came up with ChatRoulette would there have been as much interest in funding whatever she might do next?’  What is your take on this Fred, & if this is happening how can women startups find an opening in this culture?

Well so the venture world probably favors a style of leadership that is highly directional. It depends on how well your Board listens but a bunch of the Boards I’ve been involved with are basically an environment where influence matters a lot. And where people expect you to show extremely strong direction. A lot of times you are basically faced with 4 or 5 white males from Stanford or Harvard, whatever they may be, expecting a lot of direction. So it’s not a natural environment where you if you don’t belong to that world, whether you’re a female or whether you’re Russian or both, where it’s particularly easy to express yourself. Because there are almost unwritten rules of the game as to how you manage these environments. Now I think the good news is that we’re moving towards a world where look at the work that Brad Feld has done; we’re moving towards a world where there is a lot more acceptance of our own ignorance. And I always posit ignorance as a starting point, in other words I’m not sure it’s going to work but I’m for sure going to measure it. But I don’t know at the outset what the recipe is for success because I don’t think there is one. I think there is a lot more open mindedness that should help. You know female leadership style has more to do with building consensus, with being a leader who’s accepted by skills & ability to take input etc. So maybe this leadership style may be more efficient but not one that people are used to in the venture environment. Of course people fund within their zones of comfort. Because the venture game is so much about long term trust relationships & whether you fall in love with a project, the people running it & whether you know you have the feeling that you’re going to be able to count on them. So anything that is a strong affiliation, whether it’s ‘I recognize myself as younger’; ‘We come from the same university’; whatever it may be, it helps people get over these hurdles. A challenge that the venture industry has to embrace is, which is hey you know there are actually a lot of ideas that are way outside your normal comfort zone that may deliver outsize returns that don’t come from this typical profile. And you know maybe women fit that mold too??

Fred Destin

So encouraging them to be more risk or adventuresome?

I’ll tell you what I would say, generally speaking, I think when you’re going into entrepreneurship & you’re going to meet entrepreneurs, the women that I’ve seen that do best are women who are absolutely willing to embrace who they are. So there is absolutely no attempt at being tougher than the boys or whatever it may be? In fact you use humility frankly & female characteristics to their full. You’re just not ashamed to be a woman! You’re absolutely are who you are! You’ll dress the way you feel like dressing! That gives you inner confidence to be more yourself in these environments & ultimately if you can’t be yourself & you can’t make it without faking who you are, you’ll never make it! So I think we’ve moved very far away from an environment where it was recommended that women try & fit into a certain mold. I think in the world of entrepreneurship, a Caterina Fake or a Gina Ash or whoever it may be, are very complete personalities. They are very awesome personalities & every instance of successful women entrepreneurs I can think of are people who embraced who they are. And by the way the same is true for a geek. If you’re a geek don’t pretend to be a businessman. You good as a geek! It’s about embracing your inner actor in a way when you go & pitch to vcs & when you go & play the game of being an entrepreneur. I think it’s difficult enough that if you can’t fully be yourself you might never make it, so you might as well completely embrace who you are. Embrace everything idiosyncratic about you & turn it into strength.

Fred Destin

Cindy also says: ‘I think not as many women as men actively seek VC money because they’re not as tapped into the boys network as male entrepreneurs are. Young male entrepreneurs can very easily become the flavor of the month and get introduced around from one VC to another — get the perception going that they’re ‘hot’ and get their funding. It doesn’t happen for women that way.’ Do you think that networking with Venture Capitalists is harder for women entrepreneurs?

I’ve never really thought about that angle. I think in the US market, which I’m new to, its very much trusted by Stanford & Harvard. If you mapped the vc population back to these 2 organizations, you’d probably find more than 50% of practitioners come out of that school. So I would surely see that that would be a definite advantage. I would however tend to discount that argument a little bit because I think fundamentally most people within our world want to help entrepreneurs, despite all the bad press that may have been out there! People do this job because they like entrepreneurs because they want to interact with them, they want to help them build a business. Whether you’re a male or female, I mean I don’t know, who cares? If I can turn the argument on it’s head about the old boys network? If you’re a charming woman & people like interacting with you because you’re a charming woman, that can be an advantage too! And maybe I’m speaking out of school here but the fact that you bring a different flavor could be an advantage too!

Fred Destin

Thank you that’s a really great perspective.