Morgan Flager of Silverton Partners: 5 Things I Need To See Before Making A VC Investment
The five most important things are a combination of the right people, leadership ability, market fit, passion and forward vision. Silverton has a unique history and perspective and we’re fortunate to be in one of the most exciting VC ecosystems in the nation at the moment.
As part of our series about “5 Things I Need To See Before Making A VC Investment” I had the pleasure of interviewing Morgan Flager, Managing Partner at Silverton Partners in Austin, Texas.
Morgan has more than 20 years of experience as a venture investor and technology executive. He joined Silverton in 2006 and has sponsored 24 investments and realized 10 acquisitions and one IPO.
He currently sits on the boards of Aceable, Convey, Life By Spot, Mobile Tech Rx, OneDay, Outbound Engine, Self Financial, SourceDay, Rollick, The Helper Bees, The Zebra, and Wheel.
Prior to Silverton, Morgan worked with FTV Capital in San Francisco, where he focused on growth investments in technology and financial services. Morgan started his career running Corporate Development for Ingrian Networks (acquired by SafeNet) and as a Director of Product Management at Kintana (acquired by Mercury Interactive Corp.). Morgan grew up in Santa Cruz, California, and received his BS from Stanford University.
Thank you so much for joining us in this interview series! Before we dig in, our readers would like to get to know you a bit. Can you please share with us the “backstory” behind what brought you to this specific career path?
“I started as an entrepreneur out of Stanford and co-founded a company which we sold to HP. Following that, I was part of a few more startups, Kintana and Ingrian, both were acquired. I did everything from sales to corporate business development during that time, learning the different roles. One of my venture investors was Jon Callaghan at True Ventures. We became friends and he introduced me to the idea of moving over to the VC side. He was starting a firm. At that point I thought I’d be an entrepreneur forever but after speaking with some other friends from Stanford who had gone the VC path I decided to give venture a shot. I joined Silverton in 2006 and was involved with the early stage investing and developing the firm’s strategy and focus. The rest is history.”
Is there a particular book that made a significant impact on you? Can you share a story or explain why it resonated with you so much?
“I acted in Waiting for Godot when I was a kid, and it made an impression on me. It inspired me to think more about my time here and how I want to spend it. This quote sums it up best:
VLADIMIR — Let us do something, while we have the chance! It is not every day that we are needed. Not indeed that we personally are needed. Others would meet the case equally well, if not better. To all mankind they were addressed, those cries for help still ringing in our ears! But at this place, at this moment of time, all mankind is us, whether we like it or not. Let us make the most of it, before it is too late!
Additionally, having been in the role of startup founder, and having early investors who were amazing and who helped to change the trajectory of a company, I saw the impact VCs can have, and realized that by moving into that career path I realized that there was a chance to make an impact as a VC, and an opportunity to do that across multiple companies. Broadly speaking, that was the thing that excited me most — the ability to have an impact across a portfolio of different opportunities”
Do you have a favorite “Life Lesson Quote”? Do you have a story about how that was relevant in your life or your work?
“I wrestled in high school and college and had a coach who was incredibly influential in my life — Tim Driscoll. He would go out of his way to pull me aside and tell me that I had a unique talent and could achieve amazing things if I put the work in. He took the time to help me train after practice and on weekends, and as a result I worked harder than I knew I could. I don’t know if he actually believed I was an amazing talent, or if that was his way of motivating me to do my best. Whether it was true or just his zen way of influencing the outcome — it worked. I felt that if this person believes in me enough the spend a lot of his personal time, then I respect him enough to give it my all. That experience made an impact and directly translates into how I conduct my mentoring work with younger entrepreneurs. Having faith in someone and respect for their talents can bring out the best in them. I like to think that Silverton cultivates this kind of environment for early stage companies.”
How do you define “Leadership”? Can you explain what you mean or give an example?
“In the simplest terms, a leader is someone who can bring out the best in people and pair people and resources in a way that accomplishes a goal. It’s not about hierarchy or who’s at the top of some reporting structure. Being at the top doesn’t make you a leader, it just gives you the opportunity to lead. It’s what you do with that responsibility that matters.”
How have you used your success to bring goodness to the world?
“It’s a small example, but most recently, Stanford cut 11 of their varsity sports programs, including wrestling, men’s volleyball, women’s field hockey and others. They reversed course on that decision recently, thankfully. Behind the scenes, I helped raise money to fund these programs and raise awareness about this issue. I made a personal pledge and helped organize other donors. The reason those programs felt important to me is not just because I have a strong affiliation with the wrestling program, it’s because a large percentage of the students in these lesser appreciated sports are the first in their families to attend college and represent a diverse range of backgrounds that should be represented at top tier universities. Many of these students who will go on to accomplish great things that may not have been possible without college athletics and a great education. It’s critically important to raise diverse voices and minds.”
Ok, thank you for that. Let’s now jump to the main part of our discussion. The United States is currently facing a very important self-reckoning about race, diversity, equality and inclusion. This is of course a huge topic. But briefly, can you share a few things that need to be done on a broader societal level to expand VC opportunities for women, minorities, and people of color?
“A lot of failures in the VC world have to do with where people are looking for talent. Generally, people tend to look within their existing social group, which leads to the status quo reinforcing the status quo. You don’t have to go to Stanford or be a member of a country club to start an awesome tech business. We have to continually ask, “are we meeting the right people where they are? Are we making an effort to explore channels and environments that have diverse minds and perspectives?” We broaden our search to make sure we are surfacing the best opportunities… If you have the right opportunity set, making an unbiased decision on where to invest is the easy part.”
Can you share a story with us about your most successful Angel or VC investment? What was its lesson?
“Self Financial will be likely be my most successful to date, and the lessons I learned are to have patience, be helpful vs. critical whenever possible, and work with people you believe in. For the first couple of years the company struggled a little bit in terms of product market fit and bringing the right people to the team. For a period of time, it looked like big changes to the business might have been needed to make it successful. But we didn’t make big changes, even though some of the data suggested it, mostly because I believed in the founder James Garvey and his ultimate vision — which needed time to play out. My belief was that he was going to sort it out and that the market was going to come around. We just needed to be patient and helpful and try not to shake things up too much. The path to success is not always up and to the right and change for the sake of change isn’t usually the solution. If you say you are a founder-led, people-oriented investor, you need to trust in those people. You have to talk the talk and walk the walk. It’s not always comfortable, but it’s a critical part of our philosophy.”
Can you share a story of an Angel or VC funding failure of yours? What was its lesson?
“I’ve experienced many failures, of course, and I don’t think you’re doing it right if you haven’t (or maybe you’re just extremely lucky!). In my first fund as a general partner, our two largest investments ended up being the two of the worst performing. One of them was mine. As a young partner, I didn’t want to have a failure. I thought that with enough capital and elbow grease the companies would get sold and return capital to Silverton. While this ended up being true, the return on these deals was definitely sub-optimal compared to other things we had in fund and an inefficient use of capital, time and energy.
The lesson here was that things don’t always work out and sometimes failing quickly is better than putting more money behind a problem and continuing to fight an uphill battle. There is opportunity cost for everything and unless you acknowledge it, you will always leave value on the table.”
Can you share a story with us about a problem that one of your portfolio companies encountered and how you helped to correct the problem? We’d love to hear the details and what its lesson was.
“We had a company that we backed, and shortly after we made the investment, they received an offer to sell the company. It was a good offer given the state of the business and represented a meaningful financial event for the founders, but we felt that they had more opportunity in front of them if they held out. We needed a creative solution to economically incentivize everyone to play the long game.
Back then the idea of buying founder shares wasn’t common for early stage businesses. There was a belief that you wanted founders to have everything on the line to motivate hard work. I think a more thoughtful point of view now is understanding that there are differences between investors and entrepreneurs and they are basic human things — like how much of someone’s net worth is tied up in one thing and how that affects people’s risk tolerance.
To enable the best result, you need to put aside archaic ideologies and get on the same playing field. As a VC, you can sometimes be flippant about the fact that there is a better offer out there. VCs have a portfolio of 20–40 investments — if one doesn’t work out we’ll make it up on the others whereas the same isn’t usually true for founders. In this case, we ended up orchestrating a secondary transaction at the proposed deal price so the founders could take some money off the table and feel more comfortable swing for the fences with the majority of their equity.
Understanding and mitigating risk tolerance, being human and compassionate, and finding creative solutions are how we enable companies to hold out longer for bigger and better outcomes.”
Is there a company that you turned down, but now regret? Can you share the story? What lesson did you learn from that story?
“Absolutely. From the first time I met Julia Cheek at Everlywell, I knew she would do something special. We followed the business and had the opportunity to invest. I brought it to the partnership and we ended up making the wrong investment decision. Regretfully, I could have and should have banged on the table. The lesson is that when you have strong conviction about something, particularly about a person, you need to be vocal and fight for it.”
Super. Here is the main question of this interview. What are your “5 things I need to see before making a VC investment” and why. Please share a story or example for each.
- “The first is to believe in the founders and their vision for the company they want to create. Aceable and the founder & CEO, Blake Garrett, come to mind. I passed on him the first time he pitched me because I had unresolved TAM questions about his first vertical and it was very early. He came back around and he had done everything he said he would do plus some and figured out an angle to broaden the market opportunity over time. He had remarkable clarity, vision, and focus. We would have been idiots to pass on it twice.
- Secondly, we need to believe that the company has the appropriate leadership to attract the right talent and get them to work together cohesively. Jason Cohen at WP Engine is a serial, successful founder. He deeply understands his strengths, and recognizes where he needs to bring in other expertise to fill in the gaps. It is hard to miss as an investor when you have the right people around the table and they are all rowing in the same direction.
- Thirdly, we must believe that the market opportunity is big enough for the economics to work for our fund. TurnKey is in the short-term vacation rental management business and differentiated itself through creating new technology in market that had historically been slower to adopt new things. If the company was successful, the opportunity was massive. As a marketplace, Airbnb typically makes 6–7% off transactions. Turnkey had the ability to make 18–25% by managing the property. Those economics were compelling.
- Another thing I need to see before making an investment is that the founding team actually wants our help. We like to be active and roll up our sleeves with founders. We want to find entrepreneurs that are open to collaborating. We backed a company called BlackLocus that offered pricing optimization data for retailers. The company had a really good product, but as a first time founder, Rodrigo knew he needed help solidifying their strategy for sales, marketing, and operations. We introduced him to Rob Taylor, who became their COO and helped build out the go-to-market team. It’s energizing to be able to solve problems for our founders and put their companies in a better position to win.
- Lastly, we look for a product or service that resonates with us in terms of where we think the world is going. What will the world be like 10 years from now and will this opportunity still be important? A company that exemplifies this is BILT. Think about paper inserts for IKEA furniture. This company uses your phone to provide a 3D manipulatable version of those instruction sets. 10 years from now are we still unfolding a 20 page instruction set, or is there a better way?
Overall, the five most important things are a combination of the right people, leadership ability, market fit, passion and forward vision. Silverton has a unique history and perspective and we’re fortunate to be in one of the most exciting VC ecosystems in the nation at the moment. There are a lot of good things happening here in Texas, and Austin in particular.”
You are a person of enormous influence. If you could inspire a movement that would bring the most amount of good to the most amount of people, what would that be? You never know what your idea can trigger. :-)
“I’m personally fascinated by the concepts of shared truth and facts at the moment. I’ve found myself having so many discussions with people during the past year, where it’s impossible to converge around an idea because we aren’t originating from the same set of basic facts. What is fact and what isn’t? I’d like to see more coalescence around truth vs spin. I wish there was a product or service that identified slant, bias and misrepresentation of context. I’d like to see more integrity in terms of how things are represented and think we can do better. A starting point is to create technology to help hold people accountable and make bias more apparent.”
We are very blessed that some of the biggest names in Business, VC funding, Sports, and Entertainment read this column. Is there a person in the world, or in the US whom you would love to have a private breakfast or lunch with, and why? He or she might see this. :-)
“I’d like to have lunch with Alex Honnold because I think his free solo of El Capitan was an amazing human achievement. As an amateur climber and mountaineer, Alex’s accomplishments are awe-inspiring and certainly encourage me to push the boundaries of what’s possible and what I’m comfortable with. I’d be fascinated to learn more about how Alex thinks about risk and uncertainty relative to the reward of accomplishing something truly great.”
This was really meaningful! Thank you so much for your time.
“Thank you as well.”