Red Sox Nation is strangely depressed this month of September.  Ever since the "Boston Massacre", where the hated Yankees came to town and swept five games to knock the Sox out of contention, it’s been a time of great disgruntlement and dissatisfaction.

It is a bit jarring to see how quckly fans can turn on this team and ownership group.  After all, these are the same folks that delivered arguably the greatest comeback in sports history, and ended the 86-year drought to win the World Series a mere two seasons ago.  This team has been in the playoffs for three years in a row, yet the fans appear as down on them as the lowly Celtics.

This attitude of Red Sox Nation is very reminiscient of an attitude pervasive in VC and entrepreneurial circles.  I refer to it as the "What Have You Done For Me Lately?" syndrome.

For entrepreneurs, it’s a classic source of frustration.  They close a big deal, deliver a strong quarter, ship a breakthrough product release – and the board smiles and says, "Nice job, but what’s next?  How’s that next quarter look?"   After all, the next quarter is the most important one.  And G-d forbid you navigate a great exit as an entrepreneur.  Before the dust even settles and the wire transfer is cold, everyone around you asks, "what’s next?".

As a VC, I see the same syndrome.  Nice deal, say your partners and the LPs, what’s the next one going to be?  Nice exit – way to go – what else looks good in the portfolio and what does it take to deliver an even better one?  If you can raise a great fund, everyone wants to know when you’re going to "put it to work" and deliver the returns.  After you deliver the returns, everyone wants to know when your next fund is going to be.

If you can’t beat them, don’t even bother trying.  An entrepreneur friend of mine once told me he tries to live by his father’s motto:  "Ever Forward" (although his father probably said, "immer nach vorne").  I can’t think of a more apt motto for entrepreneurs, VCs and Red Sox Nation alike.  It simply doesn’t pay to look back.

“It’s the weirdest thing,” confided an entrepreneur to me the other day.  “Talk about role reversal:  when I was raising my series A, the VCs were so negative and pessimistic that I had to exert every ounce of optimism in me to overcome their objections and convince them to invest.  But now that we closed the round, successfully launched the company and they’re on the inside sitting on my board, they are the over-the-top optimists and I find myself, as the one slogging through the hard details of building the business, I am suddenly the pessimist!”

It is an odd phenomenon I have observed.  VCs love to shoot holes in other people’s projects and plans, particularly during the due diligence phase of evaluating a project where the exercise is to identify all the major risks and scrutinize every one of the entrepreneur’s lofty claims, finding all the points of weakness and using them as rationale to either walk away or beat down price in the deal negotiations.

But once a VC has invested in a company, they suddenly go native.  When speaking about one of their own “babies”, they can often be the biggest promoters on the planet.  At times, they are even more over the top than their entrepreneurs. How many press release or article quotes in financings contain the effusive “this could be a billion dollar company” description from the lead VC?  Or how brilliant the entrepreneur is that they’ve just backed?

You will never hear them confide in a cocktail party conversation that, "this company is a dog"?  Or hear them describe one of their entrepreneurs as simply weak?  Instead, ask any VC how they’re portfolio is doing and you’ll likely get the common refrain:  “Somewhere between strong and very strong”.  They are either being promotional, or they really believe it.  After all, everything looks better from 30,000 feet.

On the other side of the table, the entrepreneur who is slogging through the start-up muck sees all the warts. During the fundraising process, they spend hours upon hours covering up these blemishes. But once the VC is in the tent and on the other side of the table, the entrepreneur exposes everything.  And then the tension can begin, because the entrepreneur is the one on the hot seat dealing with all the problems – sweating out each quarter, each product release, each competitive move.  They can often get frustrated when the VC glosses over the issues and dismisses them with a glib comment at the end of a board meeting – and see you next quarter.  And so, their positions switch – the VC morphs into the optimist and the entrepreneur morphs into the pessimist.  So next time your local VC is raving about their latest portfolio company, before you jump to any conclusions, remind yourself to check in with the entrepreneur – you may get a very different picture.

I’m pleased to provide a “shout out” for my partner, David Aronoff, and his new blog GeekVC  David is far funnier, more colorful and creative than I am, as his blog attests, and I’m thrilled he’s decided to step up and join me in the blogosphere!  My other partner, Chip Hazard, provided a guest blog a while ago on his views on the Enterprise IT market (with a nod to Spam-a-lot, we refer to it as the “Not Dead Yet” investment philosophy).  Now my 4^th partner, Michael Greeley, is the sole “blog virgin” in the partnership.  We’ll see how long that lasts…

We picked blueberries last weekend with our kids.  They are in season here in New England and yielded a great crop this year.  Afterwards, I read to them the classic children’s book, “Blueberries for Sal”, a charming story of a little girl who follows her mother around a blueberry patch, eating berries as fast as she gathers them.  When they drop into her empty pail, you can hear the refrain “kerplink, kerplank, kerplunk”.

As I intoned these sounds, I thought about a VC spin on the story.  What if VCs walked into Monday morning pitches with entrepreneurs and each partner dropped their beloved Blackberries into a pail?  "Kerplink, kerplank, kerplunk".

The Monday Morning Partners Meeting is every entrepreneur’s dream and nightmare rolled into one.  It’s their big chance to present to the entire partnership – a sign that their deal is being taken seriously and that the lead partner is comfortable exposing it to their colleagues.  On the other hand, it’s a forum rife with pitfalls and potholes – either everyone is bored, distracted and checking their Blackberries every few minutes, or they’re peppering you with tough, pointed questions and frowning cycnically.   When my business partner and I pitched the Kleiner Perkins partnership on the Upromise Series A, I still remember how John Doerr drilled into the deep specifics of a slide with a number on it just to see if we truly knew our stuff, caring less about the answer and more how we responded under fire.  In many other pitch meetings, I’ve felt like I was talking to a log as the VC would furrow their brow, nod their head and pretend to listen, while staring down at their rapidly twitching thumbs.

For some VCs, having Attention Deficit Disorder seems to be a competitive advantage and the ever-present Blackberry on the hip is like a narcotic – we always check it to see what new deal might be coming over the transom, how the latest portfolio company did in the quarter and the final score of the Red Sox day game.  But what if VCs literally dropped their Blackberries into a pail when meeting with entrepreneurs and actually focused on the meeting?  I know many an entrepreneur who would breath a sigh of relief if they heard "kerplink, kerplank, kerplunk" as they walked into the Monday Morning Partners Meeting.  It would show great respect for the entrepreneur, a signal that their project is the most important thing right now and deserving of full, high quality attention.

So the next time you’re entering into the dreaded Monday Morning Partners Meeting, bring your pail and collect some Blackberries.  If you have the courage to do that, you might get that coveted term sheet after all.

Summer is a good time for career reflection.  Am I in a job that’s personally satisfying as well as financially rewarding?  Is my career on a productive, long-term trajectory? Many executives conclude over the summer (often during long walks on the beach with their spouses) that it’s time for a change.  Some are interested in exploring what it takes to be a VC.  Unfortunately, I often find that many of those who aspire to be VCs have a hard time grappling with the stark reality of the industry – only 3000 deals occur each year (almost eerily precisely 3000 from 2002-2005), with an average of 1-2 deals per active partner per year imply there are only 1500-3000 active partners making VC investments spread out over 450 firms (the number of member firms in the National Venture Capital Association).  Thus, it remains still very much a cottage industry and therefore not an easy career path for most to pursue.

But for those who remain determined to pursue a career in VC, I can share a few thoughts that I’ve observed from my years on both sides of the table.

Generally speaking, there are two on-ramps to the VC world.  One is what I’ll call “The Apprentice” model:  go to a top college, get a few years of working experience, go to a top business school, spend a few more years in a start-up (typically in product marketing/management) and then join a firm in your late 20s/early 30s as an associate or principal and hope to be accepted as a junior partner into the partnership after 4-8 years.  During that time, you will probably shadow a few of the partners, join one or two boards and try to learn the trade from the experienced, senior partners around you.

The challenge with VCs who follow this path is that the lack of deep operating experience can potentially be viewed negatively by entrepreneurs.  Some entrepreneurs ultimately conclude these types of VCs “don’t get it” because they’ve never walked in their shoes.  On the other hand, these “Apprentice” VCs are often more successful investors because they are incredibly broad in their range of expertise and analytical in their approaches to selecting new investments.

The second on-ramp is what I’ll call the “ex-CEO/Winner” model:  work your way up the start-up ladder, become a VC-backed CEO, navigate a successful exit or two and then join one of the VC firms that backed you and with whom you’ve had a chance to build a relationship (and make money for) over 5-10 years.  This on-ramp sometimes begins with a “Venture Partner” title before becoming a full General Partner (i.e., the training wheels come off and you have your own checkbook, subject to partnership approval).

The challenge with VCs who follow this path is that they can be accused of viewing their VC careers as a lifestyle choice – “the back nine” – and never really go through the hard work, long hours and long years to learn the trade.  After all, this is a business where you fund lifecycles are measured in decades.  Although these types of VCs may have deep knowledge in the particular domain where they had operating experience, they may not have the breadth or analytical horsepower to productively invest in the fully broad range of opportunities most general partners require to be successful.  On the other hand, these “ex-CEO/Winner” VCs have great networks of former employees and business partners and an ability to bond with the next generation of young entrepreneurs for whom they can serve as valuable mentors.

Which path is the more successful one?  I have no idea – but I do know that numerous aspiring VCs who can’t credibly follow one of these two paths have slim odds to entering the industry; in a world where the odds are slim at any rate.  And I suspect many LPs are looking for partnerships that blend the best of both sides into a single, holistic unit.

To my wife’s chagrin, I’m an avid reader of many magazines.  The Economist, Business Week, Newsweek, Sports Illustrated (did you see Big Papi on this week’s cover?  I’m praying there’s no jinx!) and many others are regulars in my weekly diet.  I also have an affection for management books (Patrick Lencioni is one of my absolute favorites).  So it has been with great delight that I’ve been reading Jack Welch’s weekly series of columns in Business Week, called "The Welch Way".  The one that caught my eye recently was the April 25th column (yes, I am a few weeks behind in the pile…) called, "Tough Guys Finish First".  I thought it had great (probably unintended) lessons for VCs as well as managers.

Welch writes in answer to the question, "Do tough bosses really get more out of their people?", a simple answer:  "yes".  He argues that the right boss is tough as in tough-minded:  "They set clear, challenging goals. They connect those goals with specific expectations. They conduct frequent, rigorous performance reviews. They reward results accordingly, with the most praise and the highest bonuses going to the most effective contributors and commensurate compensation levels distributed down the line, ending with nothing for nonstarters. They are relentlessly candid, letting everyone know where they stand and how the business is doing. Every single day, good tough bosses stretch people. They ask for a lot, and they expect to get it…Weak performers usually wish these bosses would go away. People who want to win seek them out."

Early in my management career, I was eager to please.  I’d avoid confronting people directly with negative feedback because I was nervous that they wouldn’t like me and if they didn’t like me, they wouldn’t follow me.  Then I got a piece of tough feedback from my seasoned boss:  "leadership is not a popularity contest".  His point – good managers give tough feedback and confront issues directly.  Good managers don’t worry about being popular or liked – they worry about results and treating people fairly.

Do VCs, in their role as board members, operate like good managers – tough-minded as Welch puts it?  My experience from both sides of the table suggest it’s all over the map.  Some VCs view their role as the "invited guest" at the entrepreneur’s party and are therefore loathe to rock the boat.  Others think of themselves as the entrepreneur’s boss and therefore dictatorial in providing feedback and direction (one of my VC friends reported to me recently that he thinks of "his CEOs" as divisional presidents that report to him).  Others are conflict avoiders – they seethe with annoyance over company and management performance and talk behind the entrepreneur’s back, but grin to their face and claim they love them – up until the day they fire them.

I’d like to think the most effective technique is to strike that right balance between being a service provider (where, like the lawyer, accountant and recruiter, the VC is there to provide a range of services to the entrepreneur to add value and be helpful) and a board fiduciary who provides tough, direct feedback where appropriate (e.g., I’ve been surprised that VC-backed boards often don’t systematically provide formal, written performance reviews to their CEOs).  Either way, it’s not a popularity contest – that’s certainly not what the LPs pay us for.

I would be remiss if I didn’t make note of last week’s announcement that Sallie Mae is acquiring Upromise, a great outcome for the company I was privileged to co-found alongside Michael Bronner 6.5 years ago and serve as president and COO.  One of my early investors called me and pointed out that for a height-of-the-bubble-era investment (we closed a $34 million series A in March 2000 with a very lofty pre-money valuation, despite being a handful of folks and some fancy Power Point slides), it is miraculous that he was able to make some money on the transaction.

I learned many lessons during my three years there and even beyond as I stayed close to the company’s evolution after I left to join IDG Ventures.  One important lesson is that no one person "makes" a company – it takes a village.  My high school football coach had a favorite line:  "Victory has a thousand fathers, but defeat is an orphan".  Similarly in any successful entrepreneurial venture, there are a thousand people that "make" the company, and I got to see this in spades at Upromise.

Another important lesson is that every entrepreneurial venture is a winding journey with many ups and downs and many phases of life.  There were times when we thought Upromise was going to be a world-changing company and there were times when we thought we would need to shut out the lights after burning through a hundred million dollars.  In the end, the passion of the employees, partners and customers and the perserverance of the investors saw it through to a happy outcome for all.  Congratulations to everyone involved.

Last week, I attended the OnHollywood Conference in Los Angeles.  During one of the panels, DFJ’s Tim Draper made a shocking statement:  “Selling Skype was the saddest day of my year”.  Huh?  A multi-billion dollar exit constitutes the saddest day of a VC’s year?

Tim went on to explain that he felt Skype had a chance to be an absolutely huge standalone company, perhaps worth another 5-10x what eBay paid.  He said he is always pushing his entrepreneurs to hold out and not sell too soon.  And in doing so, he put his finger on an issue that runs at the heart of VC-entrepreneur misalignment.

VCs typically have a very diverse portfolio, allowing them to have many “swings at bat” to see a start-up become successful and pay out.  They make good money off the fees in both good times and bad, but they only make great money if they have very large exits.  Mediocre exits don’t typically move the needle for them personally or for their funds.

On the other hand, entrepreneurs typically have all their financial eggs in one basket:  their start-up.  When they have a chance to make good money with 100% certainty, their instinct is to jump at it.  If they hold out, “double down” and pursue a bigger outcome, they are simply adding financial risk to their personal portfolio. 

Let’s do the math on an example to see how this plays out.  Let’s say an entrepreneur owns 10% of their VC-backed start-up and someone comes and offers them $100 million.  Thus, they stand to make $10 million if they proceed with the sale.  Let’s say a VC fund owns 20% and thus will take away $20 million, but assume they’ve invested $5 million already in the company, yielding a net capital gain of $15 million.  Further, let’s say the VC’s “carried interest” is 20%.  Therefore, the general partners of the fund take home $3 million.  Let’s say there are 6 partners that split the carry evenly – that’s $500k for each general partner.

So the entrepreneur is thinking “I can take home $10 million now and change my life” and the VC board member is thinking “I can take home $500k and have an ‘ok’ outcome for me and my fund.  But if I push the entrepreneur to ‘double-down’, perhaps we can sell this thing for $200 million in two more years and perhaps we should do a few acquisitions to bulk up to aim for $400 million in four years.”  See the problem?

This debate tends to be one of the hardest around the board room, particularly today as the IPO market remains dead but the M&A market has become fairly robust.  One discussion I’d like to see more of:  VCs allowing entrepreneurs to take money off the table to align interests and address this conundrum.  Perhaps I’m too “soft” on entrepreneurs, but I have no problem with an entrepreneur taking a few million off the table so that their mortgage and college tuition is covered, freeing them up to embrace more risk and swing for the fences in a way that is aligned with the VCs.  We recently did this in one of our portfolio companies and I’ve seen a few early exits recently in other start-ups because the VCs didn’t do this.

Either way, I’d personally welcome a few of Tim Draper’s "saddest days" in the coming years.

“Admit it, you VCs are really just glorified recruiters”, declared one of my recruiter friends the other day in a pejorative, self-deprecating way.  It made me pause, because the barb rang true.  After all, seven of my seven portfolio companies are in the middle of recruiting senior executives to add to their teams – and I, along with the other VC co-investors, am knee deep in trying to help out:  participating in weekly recruiting calls, screening candidates, pumping our networks for leads, etc.  After a few years of observing this business, I’ve learned that this is a common phenomenon throughout our portfolio and others.

So how did I suddenly become a glorified recruiter along with my other, more glamorous brethren?  I guess it’s the old yarn – business success is 10% inspiration and 90% perspiration.  There are a lot of people with good ideas out there trying to start businesses, but very few execute them successfully.  Those that can are typically led by an outstanding team that many investors would back in almost any situation.  A good team doesn’t make a company 10% better; it makes it 1,000% better (at roughly the same cost!).

In fact, the “VC as recruiter” phenomenon is arguably the fundamental value-add a VC provides to a start-up.  Would Netscape have been nearly as valuable and successful a company without Jim Barksdale?  Where would Google be without Eric Schmidt?  If I had been the VC that gave Larry Page and Sergei Brin money rather than John Doerr, would I have been able to convince Eric Schmidt to join these two Stanford PhDs and take the CEO gig at Google – never mind known that he would be the perfect fit there?  Don’t bet on it.

So I guess we VCs should really embrace our roles as “glorified recruiters”.  Rather than shirk from the task, I think we can learn a lot from recruiters about how to assemble teams, putting the right mix of ingredients together, interviewing more effectively.

And while I’m on the topic, there’s another main value-add VCs try to bring to the table that should be demystified.  You’ll hear many emphasize the power of their "rolodex" and their skills as super "business development" executives.  When I first heard the term, "business development", many years ago and asked my manager what it meant, he smirked and observed, "That’s just a fancy term for sales".  I guess that makes VCs glorified salespeople as well!

I am posting this blog from Sin City, Las Vegas Nevada, where the annual wireless industry conference, CTIA, is taking place.  Simply put, it is overwhelming and impressive.  There are a reported 40,000 attendees here, making it the largest show in the industry’s history.  And it’s easy to see why:  the wireless platform is arguably poised to surpass TV and the Internet as the center for business, news and entertainment.

I spent today between two separate “tracks” – the Mobile Marketing track and MECCA (Mobile Entertainment, Content and Commerce Applications).  A few takeaways from each:

Mobile marketing

• 1996 All Over Again.  A common theme from the various speakers was that the state of mobile marketing is much like Internet marketing 10 years ago:  very promising, but nascent and full of confusion and immaturity.
• Consumer Hate Ads, Love Promotions. When surveyed, consumers express zero interest in mobile advertising (after all, who volunteers for an ad?), but are joining in promotions by the millions.  American Idol is of course the well-known case study.  But a few others jumped out at me.  The magazine Maxim ran a promotion on their website where consumers text in their cheesiest pick-up line; sponsored by Kraft Macaroni and Cheese!  A mediocre TV Show called Veronica Mars doubled their ratings and increased Web traffic 500% when they ran a “get a call from Veronica” promotion – the show’s star would call your cell phone 15 minutes before the weekly episode aired to provide a sneak preview.
• Still Early – Lots of Groping.  Although 170 million US cell phones are WAP-enabled, only 24 million actually are using WAP access.  This means there’s a lot of experimentation going on and the speakers were pretty cynical about the ability of traditional agencies to provide the blend of creativity and technological savvy tools.
• Investment Opportunities?  My focus, of course.  As the cliché has it:  when in a war, the arms dealers make all the money.  There’s a whole ecosystem around Web advertising that has yielded some interesting start-up companies.  In theory, mobile marketing should have similar potential.

MECCA (Mobile Entertainment, Content and Commerce Applications)

• Carriers Making All The Money?  Unlike the Internet, wireless carriers have a lot of power in the m-commerce ecosystem.  Thus, they appear to dominate the economics, often taking 1/3rd to ½ of the top-line revenue imply for being a transport mechanism.  A Cingular executive boasted that they made $2.7 billion in profits last year on data services.  Is anyone else making big money or just seeing high-volume, low-margin transaction volume?
• Strategic Confusion or Land Grab?  The early players have clouded strategies, typical of an early market land grab (remember Netscape:  a consumer browser company that made middleware for enterprises and e-commerce applications!).  The two main strategies are around mobile content vs. infrastructure/platform services?  The emerging gorilla in the m-commerce market, Verisign, is clearly playing it both ways.  Even their M&A strategy suggests a double-down – first they buy Jamba, a European content play; then they recently announce their acquisition of M-Qube, an infrastructure play.
• Maturing Industry or Another Explosion Coming?  There are a few worrying signs that the market may be slowing down.  Ringtone download revenue was $500m in ’05 (100% growth over 2004, but only $600m in ’06 (20% growth).  Only 10% of US subscribers download ringtones each month.  And game downloads were reported flat for the last 7 months.  New services are emerging – ringback tones, radio, video – but they are emerging somewhat slowly and consumers seems resistant to signing up for subscription products.  The hypergrowth stage isn’t over, but there is a bit of worry in the air that we may be near the peak.

So those are the observations from the front line.  Now I’m off to where the real action is at these shows – the evening parties and schmooze fests.  If there’s anything worth reporting on tomorrow, I’ll let you know.