RRE Ventures: Robinson’s Take on Valley Startups and Business Plans

Last week, James D. Robinson told us how he became a VC and what prompted him to launch RRE Ventures, a New York and Silicon Valley based VC firm that manages US$850 million in investment assets and injects up to US$15 million in a single company over its lifetime. Today, Robinson gives his take on Valley-based startups, business plans, Marc Andreessen’s fund, and more.

* Edited interview

VH: Do startups in Silicon Valley really have an advantage? Why or why not?

JR: Yes and it depends. The installed base of engineers, the culture of entrepreneurship and risk-taking, and the presence of so many giant tech success stories create a lot of value. Ideas tend to break there first, and great people can flow together quickly. That’s important. RRE has a partner and an office there, as we have off-and-on for 10 years or more, so we see quite a bit of activity.

The downsides? Well, some are obvious, like competing for scarce resources and double-edged swords like workforce mobility. And that same “suspension of disbelief” that permits mere mortals to take on extraordinary risks can sometimes lead to a kind of dogmatic arrogance even when encumbered with countervailing facts.

Silicon Valley also isn’t where the vast majority of the customers are – be they corporate, government, small business, or consumer – and other metro areas are definitely in the game. New York has seen huge growth in ideas, talent, and opportunity over the last decade.

VH: At the FundingPost VC conference you mentioned that you never read business plans word for word. Which sections do you read right away? That is, what are the most important elements?

JR: On average, VCs individually read about 300 plans a year. By “read” I mean they actually read the 5 sections that matter most, and skim the rest. What are the 5 sections? Some will rank them in a different order perhaps, but for me they are:

1. the people and what they’ve done before
2. the market and why it’s going to grow like crazy in the near-term
3. the product and/or service and its appeal, secret sauce, etc.
4. the size of the dream (i.e. can it get big enough to matter to a VC – US$50 million revenue within 5 years, that sort of thing)
5. the competitive landscape, now and in the next few years

No one I know bothers with terms, patent analysis, detailed projections, or any of that when looking through a plan. That comes later.

That said, as I also pointed out during that conference, the real reason to do a full business plan is that it imposes a kind of analytical discipline when starting out that provides a very useful framework for any entrepreneur, novice or veteran.

For VCs, how well entrepreneurs have put together their plan and their pitch deck, the thoughtfulness that went into each section, the attention to detail, the amount of real homework done, etc., definitely helps to separate the wheat from the chaff.

VH: A win-win approach for angels to work together with VCs is …

JR: Making sure the chemistry is there to work together, and that the incentives are aligned as much as possible. I’d say the relationship is similar to a shared watering hole in the African plain — communal, but a bit tense. Never know when drama might occur.

VH: Marc Andreessen said his firm will fund technology startups ranging from US$50,000 and US$50 million regardless of stage. Some think it’s brilliant while others criticize it as a “ready, shoot, aim approach.” What’s your take?

James Robinson IV

JR: I like Marc and think he’ll be good at this business. His instincts will be his greatest asset in my view. Because of that, he can probably cast a wide net. Still, do too many US$50,000 investments and you’ll need a truckload of partners to monitor.  My guess is they’ll do a few at both ends of the spectrum and settle out in the middle for most. But who knows.

VH: It’s reported that Y Combinator starts seeding ideas to startups. Do you think it’s a good approach for investors? Why or why not?

JR: I like that it’ll help increase entrepreneurial velocity – by that I mean people will do more startups because ideas are presented to them that mightn’t have otherwise come their way. I believe that’s good for the economy, good for society, and good for technology. It may – or may not – be good for those entrepreneurs. Or VCs. Time will tell.

Just For Fun

VH: Ferrari or Lamborghini?

JR: Neither. Bugatti Veyron. Or an Audi R8 V10. Or maybe Tesla’s 3rd generation vehicle, whatever that will be. But I also love my Segway.

Link:

• RRE Ventures