Starting a new company is challenging, exhilarating and something you never forget. It can also be very rewarding. In 1999, David Beisel co-founded the email marketing company Sombasa Media. After a successful exit, he shifted in the the venture capital world, spending three years with Venrock. Nowadays, Beisel is co-founder and partner at NextView Ventures, a seed-stage venture capital firm that invests in internet-enabled startups. Beisel specializes in helping entrepreneurs build successful digital media and internet companies.
Like most professionals working in the venture capital world, Beisel began as a successful entrepreneur and worked his way up to the venture world. But how easy is it to make that transition? According to Baseil, it’s not just as easy as picking a bunch of startups to invest in; because just like with a startup, you first have to determine where your investment capital is coming from.
“I was most recently at Venrock, which is one of the oldest venture capital firms, originally founded by Laurance Rockefeller, for a decade, so I really learned about the venture capital business in one of the oldest historic firms. I felt like I had a great apprenticeship to then strike out on my own,” Beisel explains.
Beisel states that he is an entrepreneur at heart, having started his own company almost a decade before Venrock, but starting a company isn’t the same as starting a venture firm, although there a lot of things that that the two have in common. Beisel says that he and his two partners started their venture firm because they have “entrepreneurial juices.” When they were first getting started they didn’t take any outside capital, but instead invested their own personal capital. By the time they had seven companies in their portfolio, for which they were cutting some angel-sized checks, the team could already smell success and they decide that they wanted to continue to expand.
“At that point we went out to look for external investors to amplify our own personal capital so we could write large checks out of a kind of classic venture fund,” says Beisel.
Beisel admits that this is not the traditional route to the venture capital world. Historically, most funds get started by someone who has business or investing experience and start investing smaller with their own capital to start.
“Within the last 10 years, we’ve seen this other path, the one that we really followed. Around 2000, there was a rise of ‘super angels.’ These were angels that weren’t just writing one or two angel size checks and distributing them round the year. They were writing five or 10, or sometimes even dozens, so they did start with their own personal capital,” he says.
Baseil claims that because these super angels backed startups with their own capital, as their investments grew, this empowered them to go and successfully seek people who would invest into their own fund.
Another key feature to bear in mind, is that the structure of a venture capital firm is different from that of a company of your own, which you can put an evaluation on and give up a percentage of.
“A venture capital firm is structured in a series of partnerships, so you have partners who are interested in specific funds. It’s actually fairly standard the way venture capitalists are compensated. Usually every year, they get 2 percent of whatever assets are under management and somewhere between 20 to 25 percent of the profits that are generated from the successful investments,” he says.
This means that whether you’re a first time funder or have more experience under your belt, you are typically surrounded by the same compensation structure. That being said, it’s obviously much easier to make the step from your ninth fund to your tenth than it is to make that initial single fund because you just don’t have the track record.
“On the whole,” says Beisel, “the process of fundraising is similar whether it’s a company or venture capital firm, because you’re selling yourself and your abilities, but the way that the structure and the compensation works are very different between a company itself and a venture capital firm that invests in startups.”
The world will always need startups, and one thing is for sure, startup companies are the catalysts for new industries, new technologies and innovation. Becoming a VC means you can help make innovation happen faster.
Image credit: Next New Ventures