The romanticized image of an entrepreneur as someone who gets an idea and flees his cubicle in search of a venture capitalist to make his idea a reality dominated during the Internet boom. But now that the dust of the dot-com bust has settled, entrepreneurs such as Srikant Vasan are becoming more and more visible.
Vasan is an Entrepreneur-In-Residence for two VC firms, Battery Ventures and Softbank Capital. The concept of an EIR – in which an in-house entrepreneur researches an idea with the understanding that the VC firm sponsoring him will eventually back it – has been around for some time but fell out of vogue as the Internet bubble inflated.
VC firms pay EIRs a stipend while they research markets and find an idea around which to build a company. This reversal of the typical startup process makes EIRs popular with VCs in the current market climate because EIRs provide a proactive way of funding companies.
Both Battery and Softbank raised huge billion-dollar-plus funds in their latest rounds and now are looking to put their enormous coffers to work while the flow of deals being forged is slowing down.
The fact that VC firms are again putting their stock in entrepreneurs like Vasan speaks to a general decrease in risk tolerance among VCs. No longer is the starry-eyed, passion-filled entrepreneur the one to back. Instead, VCs want an entrepreneur with experience and a proven track record.
"We are being more judicious and careful," says Ravi Mohan, a general partner at Battery Ventures. "We did a good job of keeping to our investment processes, but now we are tightening down even more. You need people that can really drive the upside and have the requisite experience to do this."
Those qualities are exactly what Ravi Mohan, a general partner at Battery Ventures, says his firm saw in Vasan. Previously, Vasan was the founder and CEO of KBKids.com, an online toy retailer that ultimately ended up as a click-and-mortar e-commerce company that sells products for children. Vasan initially founded the company as a pure-play, like KBKids.com's now-beleaguered rival eToys, and Battery was impressed with Vasan's ability to transition.
"He was able to look ahead," says Mohan. "Everybody walked out whole in the deal because of his foresight."
Vasan, who also served as general manager of U.S. West's Interactive Services and has executive experience, says he is pursuing a logical extension of his background: the convergence of telecom and online services.
Particularly interesting is that Vasan is an EIR for two VC firms, an arrangement he thinks will become more common as VC firms realize its benefits.
Mohan agrees, saying that the EIR trend is growing. "Because of the boom years, you have more qualified people to be EIRs," he says.
"It's a win-win-win situation," Vasan says. "I win because I get a chance to be exposed to two top firms as well as their networks."
The two firms for which Vasan works come out ahead for tactical and strategic reasons. In a turbulent environment, having a co-investor in the lead round mitigates the risk to each party. But the real value comes from having the resources and ideas of two venture capital firms instead of just one.
"Risk mitigation is one thing," Vasan says, "but the main attraction is ultimately coming up with a better idea."
Vasan's moonlighting also gives the two firms he works for a chance to get to know each other and set up a formal relationship. "Not only do they establish closer links with each other, but they set up a de facto syndicate," he says.
Another significant difference between Vasan's situation and that of the typical entrepreneur is that he will continue to be the head of his company as it matures. In the typical startup process, the founder of a company is generally replaced with a professional CEO as the company matures.
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Willis Stein
