Interviewer: How did you get started in the VC industry?
Francis: The first exposure I had to the industry was in a Kellogg course called Venture Capital and Entrepreneurship. This was in 1981, well before venture capital was widely understood. Every week, we had entrepreneurs coming to our class to speak, and I remember being completely inspired by their energy and innovation, and I decided wanted to be part of that kind of start-up environment. But I also felt like I needed some industry experience, so after Kellogg I went to Johnson & Johnson, where I worked in marketing for a world-class operating company. It wasn’t until 1993, after 10 years of operational experience, that I joined Trinity Ventures as an Associate. It was a serious pay cut and a serious title cut, but this got me in the door of working with the kind of entrepreneurs that I first got introduced to at Kellogg.
Interviewer: Between J&J and the RAM Group, you have had several years of operating experience in marketing before doing venture capital. How helpful is that experience for you as you identify investments and partner with entrepreneurs to help build great companies?
Francis: For me it’s been absolutely paramount, and something that I look back on all the time. I found that working for J&J, with very high quality people, really taught me how a top-notch organization operates and how successful companies are managed. How J&J views itself was fundamental to building my beliefs as to what makes a really successful organization: being consumer-driven and customer-centric. Then when I moved on to RAM Group, which was a much smaller company, it was much more akin to the environment that start-ups face – less resources, less time, less market position. That was also critical to my venture career, to understand how hard it is to build a business with limited resources, to hire the right people, and to gain customers and market position.
Interviewer: Describe your decision to leave Trinity Ventures and start Shasta. When you, Ravi and Rob founded Shasta there wasn’t a whole lot of appetite for consumer internet businesses, yet you guys pushed ahead with that focus. What gave you the conviction to launch your own firm with a consumer technology focus?
Francis: I started at Trinity doing classic consumer venture investing. The firm had invested in companies such as Starbucks, PF Changs, Jamba Juice, and by 1995 I began to focus on internet consumer investing, well before the boom and eventual bust of that sector. After the bubble burst in 2000, investing in consumer internet businesses remained something I strongly believed in, but was completely out of favor in the VC industry – so much so that I had to leave the firm and start Shasta in order to continue to invest in these kinds of companies. But we felt strongly that the adoption of technology would move to end users and consumers would drive tech growth and innovation. So we decided to start a firm around the thesis that this trend would continue, and that there would be a place in the world for a fund that would make early stage investments in consumer internet, software services and mobile.
Interviewer: You and your partners spent many hours developing a roadmap for your new firm. What were the key elements? What made Shasta unique?
Francis: At the time, the industry had started to move towards large, billion dollar funds, but we wanted to build a firm with a manageable fund size that would allow us to make early-stage investments, and then be able follow these companies along as they grew. We also chose to stay within our area of expertise, which was end-user adoption of technology, and encouraged a very collaborative organizational structure so the partners would be able to take advantage of each others’ particular strengths, and how well we each did individually would be based on how well the firm did. And, we had a very strong view of how to interact with our entrepreneurs. We believed that entrepreneurs were our customers, and that by serving them to their greatest advantage, we would also be serving Shasta to its greatest advantage.
Interviewer: You’ve mentioned previously, that you prefer to focus on the end-user as opposed to the technology. Can you talk about the difference and how that drives your investment philosophy?
Francis: Technology is very important, but we believe that great businesses are built on great consumer experiences. The consumer is not evaluating the technology behind the service, they are evaluating the service that the technology enables. So, we look for great management teams that are leveraging technology in ways that allows them to provide a great consumer experience that hasn’t been provided before, and are creating the potential to be known in the space for the product or service that they provide. A great example is our investment in Mint: here’s a tiny little start-up that thought people would eventually expect that they could access and manage their finances online, and thought they could provide that service better than the current at-home software providers. They took on Quicken and Intuit, and have now become synonymous with online personal finance.
Interviewer: Describe the current investment environment for technology-enabled consumer businesses. What do you guys like right now?
Francis: In general, we like great management teams that are delivering great consumer experiences with excellent execution. Right now, the switch to mobile devices is the most prolific technological adoption in history, and we love the concept of new market places that are being enabled by mobile platforms. For example, we just backed a company called Liquidspace, which allow you to book and reserve work space – conference rooms, etc. – no matter where you are, all from your mobile phone. We are also positive on software service companies, especially businesses that are looking to take advantage of how cloud computing is changing consumer expectations of how software should perform.
Interviewer: What have you noticed about the current fundraising environment that is different from year’s past?
Francis: What you have right now is a bifurcation of the LP community. There has been some data recently that suggest the 10-year return in venture capital has not been positive. There is certainly one group of LPs that is questioning whether or not to stay in the asset class. But there is another camp that understands that much of these returns were driven by the impact of a tremendous oversaturation of capital in the space during the last 10 years. So, there is another group of LPs that are deeply committed to venture, spend a lot of time understanding the underlying dynamics, and are very careful to filter and find funds that are performing well with a unique perspective. These investors believe that there we are seeing great technological innovation, supply of capital coming into balance, and greater liquidity, which are all very positive trends for the industry.
Interviewer: What have you enjoyed most about your career in VC?
Francis: I’ve most enjoyed starting things – being part of the innovation of great businesses, and being part of teams that are trying to make a difference. I love sitting down with entrepreneurs, people who have put their whole career at risk to do something amazing, and hearing their energy and passion. Then, we try to help them to make their vision happen. At Shasta, we got to do something similar by building a firm from scratch, and it’s been exhilarating.
Interviewer: How have your experiences at Kellogg helped you most in your career as a venture capital investor?
Francis: First, it helped me to gain exposure to the idea of venture investing. As far as the coursework, the cases process we worked on was very similar to situations I face every day: here’s the situation and data, now evaluate the team, the product, the market, and the competition. You’ve got a very limited time to do research and pull your thoughts together, and it’s a framework that is very helpful in venture capital. And of course, the network that I was able to foster at Kellogg has been invaluable.
Interviewer: What advice would you give to current Kellogg students who are hoping to build a career in venture capital?
Francis: It’s a reality that there are very few slots in venture capital. The large firms might have only 10-15 professionals, which should shape your strategy. Find a sector that you like and that you think you would be good at, and start building a strong base of knowledge and strong network. The best thing to do would be to go work in an industry, get to know the competition, the industry dynamics, and the overall dynamics. The way to be successful in venture capital is to be relevant to the entrepreneur. If I’m sitting across the table from an entrepreneur, I need to convince him or her that I can bring value and perspective to the business. So you don’t necessarily have to go through a large corporation like I did – it could be a medium-sized business or even another start-up – but the key is to develop valuable experience and expertise.
It’s a great industry, because you get to see so many approaches to innovation, and its invigorating to work with entrepreneurs who’ve given it all up to chase their passion. If you want to pursue a path to venture capital, you’ve got to have patience, but it’s an exciting career and absolutely worth it.