The failure of a Silicon Valley VC fund. What can the rest of us learn?
In the last week of August the Silicon Valley witnessed the crashing down of a VC fund which Bloomberg famously nicknamed The Valley’s Party animal.
It’s founder the mega boy Mike Rothenberg was the guy most accountable for and the fund is now known as FrontierTech Ventures from it’s former Rothenberg Ventures.
The fund was founded in 2012 and immediately with almost ravenous aggressiveness went after to establish it’s positioning as the kingdom of cool by hosting expensive events, barbecues, puppy parties race cars and even rented stadiums. The beginning was good until the operational challenges hit later on. It turned out that it takes more than a starlet to run a 50 million VC fund.
The company went under scrutiny and set itself on the path of doom when it was discovered that one of Mike’s companies a virtual reality firm called River Studios which was poised to create virtual reality videos for the likes of Coldplay was funded from the fund’s own money and being off the books the entire time.
Although the fund’s size under management was exactly the same as EVC Ventures the discrepancy between my own fund management approach and Mike’s seemed behooving and often made me wonder whether I should change course myself. In a short span of time the company became number one investor in AR/VR surpassing even far larger funds like Techstars, Qualcomm Ventures and Andreesen Horowitz investing $33.2m in over 100 startups with current market value of $56.0m (CB Insights)
To cut the longer story short — the fund soon ran out of funds thanks to lavish events, obsession with generating headlines and too many giveaways.
In order to build up River — “the brand for everything awesome,” — he hired several people to help him land corporate sponsorships. One such person was Collete Davis, a pro race car driver who came on in February 2015, initially to land sponsorships. Soon after, her role flipped; Rothenberg made her the driver of a River Studios-sponsored race car, which River Studios transported around the country to Global Rallycross meets. Rothenberg Ventures employees would sometimes fly to the races to give VR demos. “Both founders and investors like being at race tracks and being in race cars,” Rothenberg told Stanford students, “and it helps us be awesome and engage our community
The public finds itself divided over whether to chastise Rothenberg for his irresponsible management or to applaud him for igniting new sparkles in lands whose people started claiming that there is nothing new to be invented.
Either way it is a remarkable case to observe because it resemble the failure of number of startups for the same reasons. It turns out VC funds just like startups can be bullish and erroneously extravagant at their acquisition spending at times.
It is true that Rothenberg Ventures’ strategy worked or at least used to work at the beginning. The company attracted numerous corporate partnerships, sponsorships, headlines which helped the company raise additional $26 million, albeit far below the target of 60 million. The company was strict in it’s positioning as a VC fund that bolsters the next wave of cool and awesome and a more orthodox but stable mindset is not always the best friend of the new awesome in comparison to the bullish and the exuberant and the irrational.
Yet the company like many others assumed that the cool, the awesome and the next wave can be found attending lavish parties attended by luau dancers.
There is however a layer of innovators and makers which do not belong to a world commonly dominated by extraverts. They don’t dance well and they are not master motivational speakers on the stage. They cannot even drive well and a race car will probably scare the hell out of them. But down there in their own private universes that create the next tech the rest of us cannot but marvel later on.
Perhaps that has been Mike’s mistake. — seeking the new cool in the outside world of cool. Some say that keeping your feet firm on the ground and maintaining operational accountability are not some of an exuberant dreamer’s strongest sides, that his talents are just different and I cannot but agree on that.
However dreamer or no dreamer you cannot force humanity to embrace something before it’s time has come. Just because Coldplay are Coldplay doesn’t mean they could be the bridge which would channelize VR to the rest of the humanity and does not justify the million dollars wasted in an over-hyped agenda.
The world of VR owns much to the super human efforts of its passionate ambassadors but every new technology needs more use case scenarios in order to spread and just being awesome is not enough. Most VC funds tend to be conservative in financing innovations and for a good reason — their pool of money can distort entire economies if sprayed irresponsibly and before people are ready for it.
It takes patience not hipster
True, hipster spreads far and wide but it is the mainstream market, the laggards that make for profitable companies. Not the early adopters and the hippies.
If you want to be Rothenberg, be Rothenberg
But make sure you have equally strong co-leader with operational discipline and orthodox outlooks to counteract you. Balance is everything. The good old virtues of discipline will never go away. Applicable for both startups and VC funds.
