Part one and two of an interview with David Anthony, a major contributor in the CleanTech Venture Capital Sector and the Managing Director of 21Ventures in New York. Since founding 21Ventures in 2004, the fund has provided seed, growth, and bridge capital to more than 40 technology ventures across the globe. Given the length of this very insightful interview, this piece will be continued on a weekly basis until completed.
Richard Herbert: What do you think are the biggest recruiting challenges for pre-series A and newly funded companies.
David Anthony: I will use an expression which is the ability or the experience of living with near-death experience. In the venture world, the volatility is the most extreme in any asset category. A company that is your best company can become your worst company in six months. The financing of pre-series A companies will have many near-death experiences and if you're not used to near-death experiences or if you're not comfortable with near-death experiences you're in the wrong game. You have to have the…. the desire for the adrenaline rush when you win and then the ability to deal with it when you lose. As an example, I invest in Israel because Israelis live in a near-death experience on a daily basis. Who knows how many missiles are pointing at Israel right now. Nobody knows when those are going to go off.
Richard Herbert: Hey, David, I think we are getting crosstalk….there it just went away.
David Anthony: So you know in Israel you have people that are used to near-death experience so that would be one. Number two, I will try to stay on point, I tend to–
Richard Herbert: No, this is great.
David Anthony: I tend to go off point, but it actually does tieback. So you know, as an example if I'm looking for a CFO from United States or Israel, an Israeli is going be used to a near-death experience and have lived through it whether they were in the military, whether they dealt with the Lebanon War or called up the duty, whether they were in another startup that went down and lived through it. So that to me is number one.
The second greatest problem recruiting for the CleanTech sector is industry experience. You have…. what I call the IT refugees. You know, there are a lot of IT refugees and those IT refugees were electrical engineers who had positions as head of marketing or technology…….well let me put it in a different way. If I were to say where are the best electrical engineers in the United States, I would say "Oh, that's easy, I go to San Francisco, I go to Silicon Valley. If I were to say where are the best molecular biologists in the United States and again that's easy, I can go to Boston, I can go to San Diego, I can go to San Francisco. If I say to someone, "Okay, tell me where the best electrochemists are, I'd say "I have no idea."
Richard Herbert: That is very true.
David Anthony: So you have a geographic problem in CleanTech because if you identify a candidate and then you combine that with today's real estate market versus 5 years ago or 10 years ago when people were mobile in the United States. They could build their house. Homes were liquid. You could sell your house and not take a killing and you could move. Today, you find candidates that you like that say, "Well, I've got a house and I can't move to Texas," even though the cost of living in Texas and so much lower, but they're going to take $100,000 or $200,000 loss on their home and they're not going to move. So mobility of labor is a very big problem since you do not have any hubs of excellence for any of the CleanTech sectors. You know, if I were to say where are the best….again electrochemistry is a good sample, but I can give that for water, I can give that for solar, I can give that for advanced farming. Where am I going find people with the right skill locally or nationally that are mobile, I don't know, I have no idea.
Now take that problem and think about a VP of Marketing, CTO, Board members and CEOs. Sometimes you have a company that will invest in a company of a university, hire some Post docs, put money in and to look and develop the company to a certain stage. If successful they will need to bring in a real CEO. Let's say that that technology is in…I'll go back to electrochemistry in the electric capacitor space. You have these Postdocs who can develop it to a certain point. We don't mind, you know, putting in say a million dollars to get them to a certain point, but now to find a CEO who understands electric capacitors and who's an electrochemist, where am I going find that person…. again there is no center of excellence. So I go to a recruiter, a CleanTech recruiter and they're going give me people from all over the country and there is the geography problem and it's not just a problem in the United States, it's a global problem because wherever you are as your companies grow you want to put the right people in place.
Here is another issue; CleanTech technology in the United States, the customers are in Europe, Asia, and Middle East. So I don't sell anything in the United States because we're the last adopters of anything in CleanTech. Do I spend time with American utilities; no, I don't spend time with American utilities. So, now if I am looking for a salesperson to go over to be in Europe, but say I have got a lithium ion battery company, which I do, and let's say the headquarters are in Detroit and the R&D is an Israel. Now I have to find someone from the auto industry in Germany because that's who can go between Germany between Bavaria and Turenne, Italy, which is the capital of auto making in Italy.
Richard Herbert: Right.
David Anthony: And so finding that person from a sales perspective may be easier to find but they've got to be culturally able to go to Israel to deal with the R&D and I've had people that were not able to do that…as an example I hired a CEO for one company in United States, but the R&D was in Israel. The guy went over to Israel and there was a terrorist attack in Haifa…north of Haifa, which as 80 miles away from where the he was staying. The guy picked up and got on the plane and said "I'm too scared to stay in Israel." That absolutely killed his credibility with the Israeli team and that can happen when you're dealing with a lot of other places, like China.
Richard Herbert: Which is a huge market.
David Anthony: They are the biggest customer of CleanTech in the world and they are going to be the biggest customer of CleanTech in the world for the next 10 years or 20 years. Have you done business in China, do you have the experience, and now when you start adding up all the different things, do you have experience in the industry, have you lived through a near-death experience, can you deal with different cultures around the world, do you have experience with China. Well, those are hard check marks to check off. You are not going get anybody that's checked off on all of those because they're already grabbed by a bigger company.
Richard Herbert: That has deep pockets, right.
David Anthony: That may have deep pockets, may have given a better opportunity and so unless you have such a disruptive technology you're not going to pick them up. Now, I have gotten lucky with a couple portfolio companies where I have had such disruptive technologies and I'm able to convince someone from the industry that the technology is that disruptive and they say "You know what, I believe you, I agree with you so I am going to join." But that is very hard because to find that person who understands the level of the disruptive so to speak…that's difficult. And this is for…I would say this is important for every level that I have discussed including board level. I'm on a lot of boards where people have the technological expertise but they as board members have no idea of where to sell the product because they have worked for a big company, but they may have science background, research background, and so they've been brought on the board. I have resigned from boards because I don't like the way the board is structured and those are companies that I'll just say, "You know what, I don't think these companies go anywhere," because the CEO is not managing the board and I don't have control of the company to enforce the board structure that I think makes sense. That can be a problem because you have board members who are technologically from the industry, but technologically they are not used to near-death experiences. This is another underlying problem which is understanding the market of venture of capital.
For board positions and for CEO positions, a lot of people don't understand the market and don't understand that there is no risk appetite out there from American investors whether it's institutional, whether it's family office, whether it's venture. I have been on boards where they say "We're going raise money and X" and I say "You are crazy, you are never going raise that money. You are going to raise it at 30% discount to X" and they say "No, we can't do that as that will be too much of a hit and will be too much dilution" and I say "Okay, I am just telling you where the market is because you don't know what the market is. I am doing 40 deals or I have got 40 companies in my portfolio and I think, should I do the proxy for the market on this board and do you want to listen.
Then there are other companies where I'm not on the board and the CEOs tell me he has got board members that don't understand the market. They turn down term sheets because they think the term sheets are such an insult. People don't understand, there aren't many up rounds….a flat round is an up round into this market. We are not doing social media here, okay. We are doing CleanTech, where there have not been major exits that one can point to. You can point to exits like Tesla. A billion dollars was invested. It's got a 2-billion-dollar market cap. Nobody made a lot of money on Tesla. Nobody made any real money on Tesla. At 123…and that is considered a success story, opened at 13, rose to 22, and is trading now at $5.5 and they're looking for money.
More of this interview will be posted in the following weeks at http://www.helixrecruiting.com/blog