In the tech world, it’s not uncommon for an entrepreneur to start a business, scale the company, and eventually migrate into the world of venture capital. In fact, many VCs today have created positions for entrepreneurs-in-residence and there’s a growing number of investment firms being started by former founders who have successfully exited their companies.
What’s less common, however, is venture capitalists taking the opposite leap — going from an established career investing in startups to actually running one. But that’s exactly what former VC Alex Broeker has successfully done.
Broeker, who began his investment career as the leader of Ernst & Young’s technology practice and later served as a General Partner for early-stage VC Trellis Partners, is now the CEO of fast-growing Austin startup TabbedOut — a mobile payment service that simplifies the process (for customers and merchants) of paying a restaurant tab. While Broeker admits the leap from VC to startup CEO was never in his plans, he says the relationship between the two experiences has turned out to be very symbiotic.
“(As a VC), you learn a lot from deals that worked and deals that didn’t work, and the interesting learnings from those successes and failures can be very helpful as a startup CEO,” says Broeker, who was TabbedOut’s first board director before signing on as CEO in 2013. “I really learned a lot about the lowest common denominators for success and failure. And when you do achieve scale, how do you most effectively drive growth.”
In the video below, Broeker sits down with Mass Relevance co-founder and Spredfast board member Sam Decker to talk about the biggest lessons he learned from the sitting on the other side of the table, how he manages the highs and lows of being a startup CEO, the unique dynamic of being a B2B2C service, and the role he believes VCs should play in startup growth.
On transitioning from consulting to VC to startup CEO
- Learning from failures: Whether it was his consulting work with Ernst & Young or his investment decisions with Trellis, Broeker always tried to be analytical about startup failures. What qualities did they share? How could they be avoided? What lessons did he learn that could be applied to his next investment? That experience has translated directly to his role as TabbedOut’s CEO.
- A lot of what VCs and CEOs do is pattern recognition: One of the things Broeker learned early in his VC career was the importance of identifying patterns so that he could understand potential pitfalls and “shoot ahead of the duck.”
- Shifting leverage from the VC to the entrepreneur: One of the biggest benefits of going from VC to startup CEO is that Broeker knows all of the tricks of the venture trade to shift leverage into the VC’s favor. As a result, when TabbedOut has sought outside funding, he’s been able to better control negotiations with potential investors and ensure the terms favor the company’s growth.
On the biggest surprises he encountered as a first-time startup CEO
- The lack of trust within a startup environment: As a board director, you get some sense of cultural issues within the company. But you don’t discover organizational silos or walls until you really get into the weeds of operating a business.
- A startup CEO’s biggest job is establishing and building culture: One of the first things Broeker did as TabbedOut’s CEO was move everyone into one big room. There were no more offices and no closed door meetings, which quickly rebuilt the trust within the company and made transparency and collaboration much easier.
- Ensuring consistent results is critically important — even in the startup phase: Early on, a lot of companies underestimate the power of consistent, measured results. That can cause businesses to chase everything that has an upside without acknowledging the potential downside. Of course, when the company is hitting its targets, that doesn’t feel like an issue. But when it misses (and it will miss at some point), that lack of discipline can dramatically affect the business’s trajectory.
On the role VCs play in tech startups, and what founders should look for at various stages
- Early on, brand matters more than it does in later stages. As an early-stage startup, an investor’s alignment with your mission and vision matters, but so does the investor’s brand. It’s not the only thing to look for, but it can give a startup greater credibility, much-needed PR, and a better chance of securing the next round.
- At scale, strategic value and industry expertise is critical. As TabbedOut has scaled as a company, investors’ brand name has become less important. What’s more important now: Strategic investors with domain expertise and connective tissue in the industry that can help further the company’s cause.
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