Remember when you needed an actual business plan--or even a solid business idea--to wheedle funds out of venture capitalists? These days, a simple rÃ©sumÃ© can do the trick.
Unlikely as it sounds, some venture firms--more eager than ever to pounce on the best company-building talent--are setting up aspiring entrepreneurs in posh offices and giving them carte blanche to figure out what business they'd like to start. The firms dub their recruits "entrepreneurs-in-residence."
The phenomenon is partly a result of the sheer volume of money pouring into the VC pipeline--double what it was five years ago. "The flow of money is potentially outstripping the entrepreneurial talent pool," says David Gleba, chairman of VentureOne, a San Francisco investment- research firm. "So venture-capital firms have to be increasingly proactive in finding people." And in an era of compressed time cycles and global competition--when no idea, no matter how brilliant, is a sure bet--some investors put their faith in management talent as the only true competitive advantage. "Today's markets do not really allow you the luxury of on-the-job training in how to be a CEO," says Gleba. "The management piece of the equation--the need to act on an idea quickly--is more important than ever."
Needless to say, being an entrepreneur-in-residence isn't a bad way to spend some time. "If you have a burning desire to do something different but can't pinpoint what it is," says Malik Khan, "this is an ideal job."
Last May, Khan shocked his colleagues by quitting his job as vice-president and general manager of Motorola's Network Systems Division. "I couldn't do what I wanted to do within the construct of the company," he says. What exactly did he want to do? Well, he had some vague notions about starting an Internet-related business. But it was too difficult to explore opportunities systematically, Khan says, while still managing a 1,000-person division.
Then he met Joseph McCullen, a general partner at OneLiberty Ventures, in Boston. Impressed with Khan's credentials and his intense, if unchanneled, desire to create a company, McCullen suggested he join OneLiberty as an entrepreneur-in-residence. We'll give you $250,000 to come up with an idea, offered McCullen. Khan signed on.
He spent his first month talking to market-research firms and schmoozing at Internet trade shows. After toying with several concepts, he finally settled on one he liked: developing a server to distribute Web applications quickly over the Internet. His fledgling company, K2 Net, moved into its own offices last fall. It recently landed an additional $5.3 million from OneLiberty and two other venture firms.
Khan was actually OneLiberty's seventh such entrepreneur-without-portfolio. In one case, recounts McCullen, OneLiberty set up a phantom company, wryly named Generitech, as a place to park its $80,000 investment while the entrepreneur decided what kind of business it would be. (Eventually, it was rechristened Cytyc; it's now a public company that sells medical devices.)
The approach isn't foolproof, of course; it could well result in portfolios of half-baked businesses run by gold-plated names. "It's important that we don't lose sight of our usual metrics," acknowledges Jim Breyer, managing partner of Accel Partners, in San Francisco. "We have to make sure that the entrepreneur isn't starting a business just to start a business."
ACCEL PARTNERS, Jim Breyer, 276 Main St., San Francisco, CA 94105; 415-989-5656
K2 NET, Malik Khan, 1 Edgell Rd., Suite 7, Framingham, MA 01701; 508-879-8203
VENTUREONE, David Gleba, 1 Embarcadero Center, Suite 3820, San Francisco, CA 94111; 415-357-2100