An interview with Sapphire Ventures managing director, Beezer Clarkson
“Our mission is to be in service to our managers and their entrepreneurs, to provide them value — in addition to capital — to be successful. We built our LP practice to reflect this belief.”
I recently caught up with Elizabeth“Beezer”Clarkson, managing director at Sapphire Ventures, a fund with $2.5 billion under management that focuses on global investments in growth-stage tech companies and early-stage venture funds. Within Sapphire, Beezer is responsible for the management of the Venture Fund Investments, investing in early-stage VC firms all over the globe.
Beezer and I talked about her path to becoming a limited partner, her investment focus and approach, and how Sapphire have differentiated themselves in a competitive market. We also learned about what encouraged her to start OpenLP, an initiative to help foster greater understanding in the entrepreneur-to-LP tech ecosystem.
You’ve quite a varied background, from working in financial services, operational roles, then venture capital. How did you end up becoming a limited partner?
My path to becoming a limited partner was not exactly a straight line. That said, as an LP now, I pull from all the roles in venture or technology I’ve had before coming to Sapphire Ventures.
My first job in venture was in 2000 at an early-stage venture fund with an associated incubator based in New York City called LaunchCenter39, which Albert Wenger, of Union Square Ventures fame, co-founded. There, I worked on both direct investments and interim business development roles in portfolio companies. I moved back to the Bay Area post-LaunchCenter39 to work at Hewlett Packard for five years doing software business development. Post that, I joined the investment team at Omidyar Network, where I was first introduced to the wonderful world of being a LP. It was expected that everyone on the investment team would make direct, indirect (or LP investments) and non-profit investments ever year. I discovered after making my first LP investment how much I liked it. I left Omidyar Network to join DFJ and help build the DFJ Network of venture funds around the world. From there, I came to Sapphire Ventures to manage the launch our LP vehicle.
How did structuring VC funds in different markets around the world with DFJ ten years ago shape your worldview as an LP today?
One of the beliefs at the core of the DFJ Network was that innovation knows no boundaries. I personally believed that then and still do today. At Sapphire Ventures, we believe that great ideas can — and do — start anywhere. Further, today’s entrepreneurial ecosystem is increasingly porous, with companies often starting in one city or country, then moving to another as they grow, attracting capital and building their team. Consequently, at Sapphire we built our platform to embrace these dynamics by investing in multiple geographies throughout the U.S., Europe and Israel.
Over the last two decades, I have gotten to know hundreds of venture funds all over the world and watched as the venture industry evolved. Through this I came to believe, as does Sapphire Ventures, that the role of the LP must evolve too. Our mission is to be in service to our managers and their entrepreneurs, to provide them value — in addition to capital — to be successful. We built our LP practice to reflect this belief. We have re-imagined what it means to be an LP. We do this through our evergreen capital structure, which ensures we’re around for the long haul, our industry research and benchmarking capabilities, our access to insights through our direct growth team fund, and last but not least, our Market Development Team, which provides marketing, talent and business development connections to our investees.
You tend to focus on less-established or first-time funds. Talk me through how your process differs between them. How difficult is it to invest in first-time funds? How do you inspire other LPs to “club up” with you, or is that up to the GP?
We look to invest in the best venture funds. These could be first-time funds, or more established funds. Our process, regardless of vintage, remains unchanged.
I’m not sure if it is any more difficult to invest in first-time funds than in established ones. It may look that way on the surface and there are certainly some different variables to consider — how well a new GP understands the business of fund management, what it takes to win a deal, will they be able to get access to the right deals and will they be a good investor — but there are no guarantees at the outset of how any fund will perform.
Investing alongside LPs you respect is always a plus. And while fundraising can take multiple forms, the great majority of times the GP runs it. LPs may speak to each other as part of the diligence process, but in allocating constrained funds, the opportunity to “inspire others to club up” is pretty much impossible. For newer funds, ones still institutionalising their LP base, there can be opportunities to introduce GPs to new LPs. We do that frequently for our GPs, at their request. Connecting LPs to GPs starts with understanding what sort of opportunities an LP is allocating to and finds interesting. Then it is just a matter of introducing them to the right GP.
You’re known for being very supportive and involved with the funds within your portfolio. In your experience, how can LPs and GPs build the most mutually beneficial partnership?
At the risk of sounding overly simplistic or naïve, we’ve always found that the same basic principles that apply to building a mutually beneficial partnership elsewhere in life apply to the venture world. We share who we are, what we do, and what our goals are and then we work hard to make sure we follow through on our commitments. Communication is, of course, key. This doesn’t mean having to be in constant communication, but it does mean understanding how and when our GPs want us to engage.
You’ve launched something called OpenLP (a platform to help foster greater understanding in the entrepreneur-to-LP tech ecosystem). What encouraged you to start OpenLP, and can you tell us a bit more about its purpose and focus? Why did you decide to become more “open”, something atypical in the LP world today?
As LPs, we studied the venture and tech ecosystems and saw how the startup ecosystem benefited from the increased dialogue between VCs and entrepreneurs with the advent of VC blogging. With greater transparency came deeper understanding about the perspectives of partners at VC firms and through this, more authentic relationships were built on trust. In addition, we believe it’s our responsibility as an LP to track industry trends and share our findings with our fund managers. So, we started writing our own blogs, sharing industry data and launched OpenLP with other forward-thinking LPs to help foster greater understanding and collaboration in the entrepreneur-to-LP tech ecosystem.
OpenLP is intended to be a resource for the venture community to hear from a diverse group of investors in venture funds. By aggregating articles and blogs from LPs and other venture investors, OpenLP aims to help entrepreneurs, venture capitalists, LPs and other stakeholders develop and share greater understanding of the technology startup ecosystem. You can follow the conversation on Twitter at #OpenLP or on www.openlp.com.
Some argue the value creation we saw in this cycle, broadly enabled by the greenfield cloud computing and smartphone opportunities, has been tapped out. Do you think this “capital light” innovation cycle will continue, or will we revert to higher capital intensity as founders go after entirely new areas with technology (food, genomics, etc.)?
I believe that when someone says an opportunity is tapped out is just when something really interesting will emerge. Everyone will be following the new trend, and then some curious entrepreneur will look at the tapped out space, see something different that can still be done and turn the world on its head. And to that point, we are seeing a broad range of innovation and value creation across our portfolio and the industry at large. Given the amount of capital available right now for innovation, we see entrepreneurs (and the VCs who back them) trying out a full range of ideas. If anything, what we are not seeing is historically normal rates of attrition in portfolios.
Are we at the top of a cycle? How do you feel about the wariness many public institutional investors have that we are owed a correction, yet the market continues to roar ahead?
Tops of cycles are hard to call except with hindsight, but venture markets are certainly flush with cash. Just in the US for example, 2017 saw another $30 billion raised, down from the $40 billion 2016, but that’s still quite a bit of capital, maintaining the fundraising pacing of the last few years (2015 saw $29 billion raised by US venture funds and 2014 reached $31 billion). Interestingly, more capital ($5.4 billion) was raised by US. first-time funds in 2017 than in the past four years, and there were more first-time funds raised in 2017 (65) than in 2016 (44).
Exit markets are also a critical part of a healthy economy because without liquidity, they will eventually cease to operate. The good news is that 2017 was a much larger year for US venture exits then 2016, with $93 billion in enterprise and consumer tech exits compared to $54 billion in 2016. Consumer generated more exit value than enterprise ($51 billion compared to $42 billion), with $40 billion of the consumer exit value coming from IPOs (including Snap, Blue Apron, Redfin, Roku, CarGurus, Stitch Fix).* 2018 has also started with a number of tech IPOs and some high-profile acquisitions, all of which is encouraging. But to keep things operating smoothly, we’ll need continued liquidity to match all the inflows of capital.
*All data according to PitchBook.
You talk about the need for investors to differentiate themselves. How has Sapphire done that?
Sapphire’s overarching mission is to help entrepreneurs become global category leaders. We do this through our two investment vehicles — the evergreen vehicle described above, which invests in early-stage venture funds and a direct growth venture investment vehicle, which invests in expansion-stage and growth-stage companies — along with our Market Development Team. Our Market Development team provides us with deep connections with CXOs across the Global 2000. We use these relationships to open doors to key customers, experienced entrepreneurs and relevant operators for our portfolio companies and fund managers.
We are not quite like other LPs that we know. Working with Sapphire’s direct growth fund provides us on the LP side an additional lens to view the world and to leverage on behalf of our fund managers. Sapphire Ventures has also built our platform to encourage the natural synergies between the LP and GP business along with providing us with a constant pulse on the venture ecosystem.
Finally, you have a very unique name — our readers would love to know if there’s an interesting story behind Beezer?
‘Beezer’ is a nickname. My given name is Elizabeth but when I was about three years old, my aunt started calling me ‘Elizabee’. My older sister, shortened it down to ‘Bee’ and then somehow came up with ‘Beezer’. All by the time I was still in grade school, and I have been ‘Beezer’ ever since. I truly prefer that people call me ‘Beezer’.
Enjoyed the above? You can hear from 100s of other leading LPs at Venture HK and Venture Lisbon, an intimate gathering for the worlds leading LPs and GPs globally. If you have any questions you can contact me, Declan Kelly, via Twitter.