Rick Heitzmann: How I Think About Venture Capital
By Rick Heitzmann, Co-Founder & Managing Director at FirstMark
I recently had the pleasure of chatting with Harry Stebbings, founder & host of The Twenty Minute VC. Harry’s done a great job growing the platform from the ground up and has interviewed many of my closest friends and colleagues in the venture world. In the interest of your time and attention span, I won’t recite the full conversation-for that you can listen to the entire episode-but below I’ve shared a few core topics we discussed and my current thinking on the state of venture capital and more.
On my path into venture capital
In the mid 1990s, when I started using the internet, I realized that the Internet was going to create fundamental change through a variety of industries. I thought: “wouldn’t my life be so much better if I could be part of a growing pie fundamentally changing growth as opposed to fighting over a shrinking pie in distress buyouts (the industry I had come from). So I transitioned to VC and spent some time in venture both in SF and in New York City before leaving to become an entrepreneur and then loop back into VC later in life with the creation of FirstMark.
On the value of being an entrepreneur before a VC
You understand that you have to have deep empathy for entrepreneurs and startup teams. When you talk about employees and their performance in the organization, they’re not just boxes on the org chart — they are people who are doing their best. When you talk about cutting expenses, reorganizing or changing things in a PowerPoint, it creates a real human impact. You might have to replace somebody who was a longtime member of the team or there might be some nuance which you can’t simply capture in a couple-hour board meeting. In short, you understand that the journey, especially the human side, is much more complex.
On why you should start your company in NYC
New York has always been important. But now, more than ever, you can look at it as the world’s center for many industries — retail, media, advertising, finance, healthcare — Not to mention that more of the Fortune 500 companies are based here than anywhere else. When we started FirstMark, New York was not a clear venture leader. Cut to today and it’s quickly become the 2nd biggest venture market in the world after the Bay Area. Customers and, most importantly, incredible talent are based here. In addition, most young people in the world would choose to work and live in New York compared to any other city.
On the best format for board meetings
The best format consists of two things: 1) a board dinner the night before and 2) a three-hour focused board meeting. The dinner is a perfect space for people to rewarm up to each other so you’re not walking into a “cold” room for the actual meeting.
Then the next day, since you’re already refamiliarized with the folks in the room, you can have a focused three-hour meeting with very few-to-no slides or walkthroughs. The meeting should be structured around what I call “The 3 P’s.”
- People — The most important thing going on in companies of almost any size ie. where your human capital is and where you might have to make a change or supplement
- Product — There might be demo or a product roadmap discussion where you’re able to say where the product is today and where it’s going. This is important because the product is really the heart of your economic engine.
- Performance—This is output of the prior two items. If great people and producing and selling, it shows in operating and financial performance. This is generally not a place to walkthrough super granular performance because everybody’s already (or should’ve already) read the documents prior to the meeting. If they had questions, they’ve already asked them offline or at dinner.
By focusing on the 3 P’s that are essential to any company, you’re able to dive deeply into the most strategic elements of the business.
On how to be an entrepreneur’s “first call”
Be honest. Many people are hesitant to provide negative feedback to the founders they work with. If something is wrong or you disagree with an action or approach, being transparent and saying that you disagree or haven’t had experiences consistent with the approach is a crucial skill for any good VC. Honesty and transparency implies to the founders that I work with that they know they’re always going to get the truth from an experienced person who has their and the Company’s best interest in mind.
On how founders can prepare for a downturn in the market
We always know that there’s a possible downturn coming, we just never know when it’s going to be. So we try not to spend too much time thinking about something we can’t control. That said, there are a few things that we’ve thought about (and done before) as investors both in the downturn of 2001–2005 and then again during the Great Global Financial Crisis.
A key thing to focus on is how “in control” of your business are you? In a downturn, there is less capital; therefore, you have to be much more capital efficient. So ask yourself “can you get the company to a point where you’ve eliminated financing risk on the downside case,” and that can be a company of any stage. It can be a Seed or a Series A company where you’re able to take the burn down to a reasonable point which gives you more time to figure out product-market fit or go-to-market strategy.
If you think about early-stage investing as trying to create as much optionality as possible to figure out exactly what’s going to create a big business, the key element of increasing the value of that optionality is time. By eliminating financing risk and therefore increasing the length of your runway, you’re able to increase value.
On the biggest lesson I’ve learned in how to win the best deals
Be 100% referenceable. Have your founders tell the story, not you. With every entrepreneur, I tell them there’s a long list of folks they can and should call so it’s not coming from me. Feel free to call anybody who’s working in any of those companies that I’ve invested in. Those people are often able to tell the story of what it’s like to work with Rick better than I can tell them. Plus, not just what it’s like to work with me, but also with the whole FirstMark team.
Regardless of if you’ve been doing venture capital for a long time or short time, once you’re able to work with somebody and help them impact their business, you’re able to use them as a reference and they can give the most authentic version of what it’s going to be like to have you on the board and as an investor in the company.