Steve Bowsher of IQT: 5 Things I Need To See Before Making A VC Investment

An Interview With Jason Hartman

If you look historically, the biggest, most valuable companies are built in areas no one’s paying attention to. To be a good, successful, long-term venture capitalist, you have to embrace some contrarian thoughts and ideas and investment strategies, and I don’t think enough venture capitalists to do that.

As part of our series called “5 Things I Need To See Before Making A VC Investment” we had the pleasure of interviewing Steve Bowsher.

As CEO of IQT, Steve Bowsher sets the strategy that enables the company to succeed in its mission of delivering high-impact technology solutions to multiple U.S. national security agencies. IQT’s strategic investments have delivered nearly 400 technology capabilities to its U.S. government partners as well as immeasurable global insights.

Steve also hosts a series on the IQT Podcast, “The Intersection: Mission Investing for National Security,” where he interviews guests from a variety of fields including innovative thought leaders within the tech industry, venture capitalists, CEOs and startup founders.

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?

Being here is the culmination of two parts of my life.

The first part is that I grew up in Washington, D.C. with my dad, and a lot of my friends’ parents, working for the federal government.

I always thought the mission of the US government was particularly noble, and I was always drawn, in some form or another, to the intelligence and defense side of things. I used to read spy novels growing up and I had two friends from high school that went to the Naval Academy. I paid a lot of attention to that part of the world.

I moved to the Bay Area in 1992 to attend graduate school at Stanford. That’s when I was first exposed to what startup companies do and how exciting it is to be a part of them.

I ended up working for three startup companies after I graduated from business school. I like to joke that I had the whole spectrum of outcomes: one went out of business, one got bought, one went public. Only one of those three things can happen to any startup company.

In 1999, I flipped over to the venture side, spending eight years as a general partner at InterWest Partners. And then the opportunity to come join In-Q-Tel (IQT) popped up and it was the culmination of both parts of my life.

I loved being a venture capitalist and the stimulation you get from meeting entrepreneurs, listening to their ideas and their business plans, and trying to wrap your head around what you think about the team, the market and the technology.

With IQT, I was able to continue to do all that, but now I also get to meet with intelligence officers, listen to them talk about their mission, what they are doing, the challenges facing them, and then bring those two worlds together. This is ultimately the mission of IQT.

I’m still here 17 years later. I’m excited to get out of bed every morning to go to work and live in this world at the intersection of national security and technology.

AM: 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?

Yes, though it may sound a little funny. The book is “All I Need to Know I Learned in Kindergarten” by Robert Fulghum.

I keep coming back to that over and over again, because these life lessons that you learn in kindergarten about how you treat other people, about how two wrongs don’t make a right, about how you have to share, how there’s a time for work and a time for play, all these first fundamental life lessons you learn, are still the things that drive success in the business world.

A lot of people can overthink this and make it too complicated, but really, I’m a big believer in simplicity, and keep it simple stupid, which is another phrase that’s out there.

I think if you just come back to, hey, this is what I learned about life in kindergarten, about how you are part of a larger organization and need to work with people, treat them with respect, get your stuff done, keep your workspace clean, show up on time and all these fundamental things, it’s amazing.

I’m regularly surprised by how many of these fundamental life lessons people don’t internalize and execute on. It just gets in the way of them being successful.

How do you define “Leadership”? Can you explain what you mean or give an example?

I have, what I think some people would term, a hands-off style of leadership. I believe leadership is about creating a vision for an organization, setting goals and metrics against that vision, and communicating how a team should execute against that mission and vision.

Then my job flips to helping them do what they think they should do to achieve that. I’m not big on telling people what to do, I want to hire A level players that can figure that out. I want them coming in and saying, “Hey, in order to get my job done and succeed against this vision, this mission, these goals, here’s what I need you to do, and here’s what I need from you.”

In some ways I think my role is putting out fires, making decisions, and helping other people succeed. My role is by no means micromanagement.

What I’ve learned over time is that my leadership style works really well with A players, because they value that freedom, and they love the ability to do it. It doesn’t always work well with people who want to be told what to do, who want a very structured environment, in which they know clearly what they’re supposed to do when they get into work in the morning and when they leave.

And it doesn’t work well, necessarily, with people who aren’t that great, because they have freedom to not be great.

I like to joke, I’m your best friend as a manager until I have to fire you because I’m not very good at the in-between being a friend and firing you aspect of management.

How have you used your success to bring goodness to the world?

I am still here after 17 years at IQT because I believe in the mission of this organization, which is to help, in our own small way, the intelligence and defense agencies protect the United States and protect the rest of the world against authoritarian regimes.

I believe in the American way of life, democracy, and market-based economic system. It’s not perfect, but it’s better than any of the alternatives.

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?

Sure. So, one of the challenges with VC as an industry is, it’s always viewed itself as a club. And getting hired into that club traditionally meant getting hired by people that already knew you in some form or another. The best way to get into this business, I’ve always thought, was to go work for startup companies. That was what worked for me, at least. I worked for three startups, got to meet venture capitalists through that, and that helped me get into this industry.

But I see one of the biggest challenges is the gender imbalance. It is definitely a male-dominated world. Traditionally the startup world, at least the tech startup world that I’m a part of, draws from people from the STEM majors and colleges, and there’s still an over weighting towards males in STEM fields.

I think a lot of this comes back to the educational systems here in the United States and elsewhere. We need to make the STEM classes more attractive and more comfortable for female participants, girls when they’re younger, women when they’re older. That would help a lot.

Though the field is relatively diverse already, certain groups are drastically underrepresented, particularly African Americans and LatinX. And again, I think there are many opportunities to do better here.

Personally, me, my wife — actually the whole family — have been involved in a not-for-profit called Street Code Academy, based locally in the Bay Area. Street Code is focused on reaching African American and LatinX communities in particular, educating them on technology, and training adults and children such that they can participate in the tech economy around here, which can lift people up into different socioeconomic classes.

Can you share a story about your most successful VC investment, or angel investment, and what was the lesson?

So, the most successful venture investment I’ve ever been part of is Palantir. Palantir was interesting: there were some aspects of the company that were similar to traditional startup companies and then some that were different.

What was common about Palantir was that it was a set of people that worked together before at another successful startup company, PayPal. From their experience at PayPal, they got the idea that we could apply some of the same concepts we thought about and developed there to solve a new problem.

That problem: how to help government through large amounts of disparate data to make connections between people to help the counter-terrorism mission.

These folks got together and convinced Peter Thiel, the founder of PayPal, to fund them to build this company.

IQT got involved very early and helped them. And obviously, they built the company into a huge success. What was different, and I think the really interesting thing to focus on, is they went after a customer, the US government, and ultimately other national governments.

This was new, different. In the venture community, the common wisdom (at the time) was that the government was a terrible customer. VCs didn’t want to invest in it.

I don’t know how many reference calls I did for venture capitalists between 2006 and 2012 or so who were thinking about investing in Palantir that wanted to talk to me because they didn’t understand the government market and wanted some perspective and insight. At the end of the day, I’d hear, “Wow, I really like this company. I’m impressed with their revenue, their product. I just don’t feel like I understand this customer well enough to make an investment.”

The lesson I took from that experience is, the biggest, most valuable companies are built when you zag when everybody else is zigging. The conventional wisdom in 2006 to 2010 was, invest in enterprise SaaS companies. Right? From Salesforce and NetSuite, all the way down. The government was not an interesting market.

What Palantir (and SpaceX) did at the time was built two of the, probably, top five most valuable companies created in that period, by going after a space that no one was playing in.

If there’s one criticism I have of the venture capital world, is that there’s a little bit too much group think. There’s always a hot new thing that everyone’s investing in. Right? Generative AI would be the example of it currently. Right? Generative AI is hot and everybody’s trying to invest, and every company that was already invested in is now trying to reposition themselves as a generative AI company.

Yet, if you look historically, the biggest, most valuable companies are built in areas no one’s paying attention to. To be a good, successful, long-term venture capitalist, you have to embrace some contrarian thoughts and ideas and investment strategies, and I don’t think enough venture capitalists to do that.

That’s a fantastic example and there’s a lot to learn from it. So then, can you share a funding failure and the lesson?

This goes back to when I was at InterWest, the firm I was at before IQT. I’m not going to name the company, but the lesson here is focused on people and intuition.

This was an investment in an enterprise software company, and I was investing alongside a new CEO coming in. A lot of venture capital is doing references, and in all the CEOs that I ever referenced, either when we were investing, or when I was already investing, we were looking to hire someone, I was most connected to this new CEO.

I knew more people that knew this person than any other CEO I ever tried to invest in. I talked to everybody. This person had been a very successful sales leader at one hugely successful enterprise software company and had done a good job at another startup company after that. Everybody thought that this person could succeed. He was a quirky person when I first met him, and very confident, but a little quirky, which is a little unusual for salespeople. Normally salespeople are incredibly skilled socially.

There was just a little voice inside of me that I was like, huh, I wonder if this is really the right person or not. Yet all these references came in strong, and I went with it, and we gave this person a bunch of money.

He flushed all that money down in less than a year. He spent like crazy, didn’t close any business, and ultimately the company was not a success. The lesson I took from that is, diligence is great. There’s a lot of smart people out there that you should get their perspectives on. But when it comes to people, if there’s a voice inside your head that says, “I’m not sure this is the right person”, you need to listen to that voice. I did not listen to that voice, and that was a mistake.

Is there a company that you turned down, but now regret? Can you share the story? What lesson did you learn from that story?

Our mission as a strategic investor is to find the companies with the best technologies that fit the problems, or solve the problems, or attempt to solve the problems of the end users that we are working with. There’s a lot of talk in the investment business about product market fit. I talk about product mission fit when it comes to the investing we do at IQT.

There was one problem that we were investing against that was a large, obvious problem for our customers. We invested in two different companies that were attacking different aspects of it. I came across a third company that was solving another aspect of the problem, but at the time we looked at it sort of a service more than a product. We invest in product companies — we don’t invest in service companies.

The teams on the other two companies were sort of like, we got this problem covered. The third company didn’t really have anything new or different. We don’t need to invest in them. But this entrepreneur was the most impressive entrepreneur that I met in this space. I kept bringing the company back every year or two to the team saying, “Are you sure we don’t want to invest in this guy?” They kept saying no, and we never invested in it.

Now, the company’s not perfect, but today it’s certainly an established, important company in our ecosystem that’s selling to a bunch of our government customers. The other two companies we invested in, one’s doing okay, the other is doing a little bit better than okay, but neither are knocking it out of the park.

I wish we had invested in that third company, because ultimately at the end of the day, strategies can change, technology can change, but the most important thing in early stage investing business is that you’re investing in is people. This CEO was the person I wish we’d invested in, because he’s doing a fantastic job as CEO of that company.

What are your “5 things I need to see before making a VC investment” and why? Please share a story or example for each.

I actually don’t have five but there are three things that we look at any time we make an investment.

Those are: team, technology, and market.

From a team perspective, you’re evaluating: can this team execute? At the end of the day, the odds are usually against a startup company being successful. You have to believe that the team is extraordinary. I noted earlier that a lot of being a venture capitalist is referencing people, knowing how to reference people and knowing how to evaluate people. The team, to me, has always been most important.

The next thing you need is due diligence, asking “is there a differentiated technology being built, or has it been built?” You have to be able to build a compelling story about your technology.

The third thing is the market — what markets are you going after? The company wants to be successful to be a really large, valuable company and that gets determined more by the size of the market its targeting than anything else. To me, the three things you evaluate is market, technology, and most importantly, team.

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. :-)

This was actually an essay question when I was applying to college. I don’t know if they still ask this question or not. There was one difference and that was if you could meet one person living or dead.

The person I wrote my college application essay before was Garry Trudeau, the cartoonist for Doonesbury, which was my favorite cartoon at the time. I called him a modern-day Shakespeare. I was a huge, and continue to be, a huge Shakespeare fan. I loved how Garry Trudeau and Doonesbury combined humor with political satire, as well as societal observations. I think you could, just like kindergarten, learn a lot from the comics page.

This was really meaningful! Thank you so much for your time.

About The Interviewer: Jason Hartman is the Founder and CEO of Empowered Investor. Jason has been involved in several thousand real estate transactions and has owned income properties in 11 states and 17 cities. Empowered Investor helps people achieve The American Dream of financial freedom by purchasing income property in prudent markets nationwide. Jason’s Complete Solution for Real Estate Investors™ is a comprehensive system providing real estate investors with education, research, resources and technology to deal with all areas of their income property investment needs. Through Jason’s podcasts, educational events, referrals, mentoring and software to track your investments, investors can easily locate, finance and purchase properties in these exceptional markets with confidence and peace of mind.

Starting with very little, Jason, while still in college at the age of 19, embarked on a career in real estate. While brokering properties for clients, he was investing in his own portfolio along the way. Through creativity, persistence and hard work, he earned a number of prestigious industry awards and became a young multi-millionaire. Jason purchased a California real estate brokerage firm that was later acquired by Coldwell Banker. He combined his dedication and business talents to become a successful entrepreneur, public speaker, author, and media personality. Over the years he developed his Complete Solution for Real Estate Investors™ where his innovative firm educates and assists investors in acquiring prudent investments nationwide for their portfolio. Jason’s sought after educational events, speaking engagements, and his popular “Creating Wealth Podcast” inspire and empower hundreds of thousands of people in 189 countries worldwide.

While running his successful real estate and media businesses, Jason also believes that giving back to the community plays an important role in building strong personal relationships. He established The Jason Hartman Foundation in 2005 to provide financial literacy education to young adults providing the all-important real world skills not taught in school which are the key to the financial stability and success of future generations. We’re in a global monetary crisis caused by decades of misguided policies and the cycle of financial dependence has to be broken, literacy and self-reliance are a good start. Visit JasonHartman.com for free materials and resources.