Taking the Long View as the Value-add Investor

A few weeks back, Eric Ries issued a stark warning for the start-up community: Winter is coming, and it will be long and hard, and there will be a lot of casualties from the unsuspecting crop of start-ups today, especially those who are buoyed up by frothy public markets and high spending venture capitalists.

We have heard enough about whether another tech bubble is really in the making (or about to burst). Even if there was no bubble, it was incredible how quickly everyone forgot that we are very much still in the throes of a global economic crisis, and we never really left that precarious stage. It seems that the cycles of bust and boom are coming around more and more frequently, and startups and investors alike are reacting in a very knee-jerk manner to every movement of their market. They exaggerate the growth and economic promise of certain technologies, while they overreact to failures in others. Groupon is an example of such extreme behavior: a 3-yr old company with incredible growth, yet on an incredibly flimsy economic foundation it  might become one of the biggest IPOs in recent history. We can only hope that these hyperfast rocket ships don’t burn out (which they usually do, with alarming frequency, judging by historical standards), and at least bring about some of the economic benefits they promise.

It is interesting to triangulate these thoughts against another great article posted in the same week by Bruce Booth, a VC at Atlas Ventures. Booth analyzed the time it takes for venture-backed companies to IPO, and compared this metric between Technology IPOs and Life Science IPOs. The result was not too surprising for those who are in the industry, but was a clear statement to those who chase the rocket ships (Tech IPOs take just as long as Life Sciences IPOs) no matter how much “sexier” or “more disruptive” they are. Furthermore, the data also supports the fact that there is no quick path to building large, successful and sustainable companies. A lot of the apparent success in recent years of technology companies is due to a much more active M&A environment. But too often, great M&A multiples are not the indication of a well run, sustainable business. The acquired company sometimes will die within its acquirer. We saw it just this past week, as HP decided to ditch WebOS for its mobile device line, effectively throwing away whatever it bought from Palm just a year ago.

What does this mean for the expansion stage entrepreneur? It is a time when only the most adaptive, passionate and committed entrepreneurs will succeed. As Ries wrote so emphatically, “the time for easy entrepreneurship is over.” Being an entrepreneur is no longer a “cool”, “easy” option,  “it is hard, it is boring, exhausting”, almost totally void of glamour and extremely risky. As Dan Martell puts it so succinctly, “being an entrepreneur is not a career move“, because it is not a good career at all to be moving into, unless you are compelled to start ventures; unless you have a burning passion to create and build new businesses.

What does this mean for investors? OpenView has always taken the long view with each and every one of our investments. We often shy away from the most frothy part of the market, because we do not find much value in investing there. We understand the difficulty and the exhaustion of building and growing a true business, and thus have great respect for the unsung entrepreneurs of those lesser known companies that are equally successful or disruptive as those in the spot light.

When the original team was at Insight, they started investing just a few years after the dotcom bubble burst, and the tech landscape then was sparse, cold and forbidding. Yet they were able to find values and great investments, because they found that companies that could weather such adverse conditions are truly diamonds in the rough and were ready to turn into powerful growth engines. The same philosophy holds true today with our investment and value-add engagement model, all of which are fine-tuned for the long run and the arduous growth trajectory. Because we take the long view as a value-add investor, we don’t just see the up and down waves of the latest fads or mini bubbles, but we see the fundamental seasons in the technology business, a combination of the macroeconomic business cycles and the innovation cycles. We peg our investment and strategy against those fundamental forces that pledge to expend as much resources and support as possible to help our portfolio companies succeed.

We love the challenge of helping to build a company, even if it takes time, a ton of effort and lots of frustrations. It really defines what OpenView is all about and has been since the very inception of the firm. Without such actual involvement, our “long view” strategy is simply a slogan with no substance.