Face to face
For Ruthann Quindlen, the fun of being a venture capitalist is working with early-stage businesses. That's also what makes it so risky
Ruthann Quindlen's byline doesn't include a middle name. But by all rights her nom de plume ought to be Ruthann Early Quindlen. As an investment banker in the 1980s, she made her reputation by defying accepted wisdom and becoming an early champion of software and Internet companies, notably Microsoft and America Online. As a venture capitalist for the past six years, she has gone against the grain again by advocating investment in companies that are just getting started.
Quindlen, the daughter of an air force officer, grew up in Louisiana but shucked her Southern accent long ago. ("People thought you were either stupid or a hick or both," she says.) She studied economics at Georgetown University and earned her M.B.A. at Wharton. While still in business school, she started as a summer intern at Alex. Brown & Sons. She went on to become a managing director there. By 1993 she had tired of handling the established companies that the investment bank customarily financed, and she quit.
She signed on, instead, with Institutional Venture Partners, or IVP, a venture-capital firm based in Menlo Park, Calif., that's on the early-stage side of the Silicon Valley spectrum, which is to say it prides itself on the number of fledgling companies it backs. But even within IVP, where the 46-year-old Quindlen is a general partner, her voice is one of the loudest in the earlier-is-better chorus.
"I used to love bootstrapped companies. The problem now is, you can't afford it. You lose too much time."
In shepherding start-up entrepreneurs, Quindlen says, she encountered a lack of basic knowledge about venture capital. So she wrote a book -- Confessions of a Venture Capitalist (Warner Books, 2000). Despite its title, the book isn't so much confessional as it is didactic. It's part primer and part a collection of Quindlen's "war" stories. What's next for Quindlen? Later this year she plans to raise $200 million to $300 million for a new venture designed to help entrepreneurs with problems they face at the very earliest stages of company building.
In an interview with senior editor Joseph Rosenbloom, Quindlen took a hard look at the frenzy of Silicon Valley, describing some harsh realities she sees on the horizon.
Inc.: What's your secret in dealing with early-stage companies?
Quindlen: Entrepreneurs come all the time with little ideas that could be big ideas, but they just haven't pushed them far enough. Part of the reason is that they don't quite understand what a big idea is. And part of the reason is that they're trying to reduce risk and protect themselves a little bit, which at the end of the day isn't the right way to approach these deals.
Inc.: Some people say that risk taking is really not what entrepreneurship should be about anyway, that smart entrepreneurs will minimize risk.
Quindlen: Well, you do and you don't. That is something that has changed dramatically. It used to be that you, as the entrepreneur, would gather your team together, try to make a product, and figure out what the customers wanted -- all in a sequential, timely, don't-spend-much-money process.
And you can't afford to do that now, because while you're doing all that, somebody else will take your market and run with it. So if you try to reduce risk a lot in this kind of environment, you're going to lose. You have to take on risk. You have to take big, bold steps. As venture capitalists we have to swing for the fences, because you're rewarded disproportionately if it succeeds.
Inc.: You say it's a mistake for an entrepreneur to have a bootstrap mentality. Isn't bootstrapping a wonderful way to impose discipline on a company when money is tight in the early days?
Quindlen: I used to absolutely love bootstrapped companies. The problem is, in this Internet environment, with everything moving so fast and money being a commodity and competition arising overnight, you can't afford to bootstrap. You just lose too much time.
While you're bootstrapping along, being all disciplined and staying small and trying to get your ducks in a row, your competitors are spinning like crazy, hiring like crazy, growing like crazy. And they'll either grow or flame out, but they'll be there ahead of you. So you just can't afford to do it.
Inc.: So bootstrapping is an antiquated virtue?
Quindlen: An antiquated virtue, yes. Now, that doesn't mean spend, spend, spend, and don't have a business model that makes sense, and hire until you drop. I'm just saying you can't afford to bootstrap anymore because of time.
Inc.: You don't hold angel investors in high esteem.
Quindlen: Angels serve a very important purpose. The issue with angels is that most of them don't want to spend a lot of time helping the companies in which they invest. A lot of them don't understand how to help the companies get ready to be venture financed. So the angels can help, but they don't necessarily fill the gap in the early stage.
Inc.: Has it always been hard to find early-stage venture money?
Quindlen: It's gotten much more difficult. What has happened is that all these venture firms have raised very large funds. And they're putting out the money very quickly -- like in a year -- and raising another giant fund. And that dynamic -- unless you're going to have a thousand partners in each fund, which nobody wants -- means that each partner serves on more and more boards every time his firm raises a new fund.
