The Ron Conway’s Way
How to become a great investor, help entrepreneurs, and live well with yourself. Making money is merely a consequence of that.
I’m 55 years old, and I’ve been passionate about software since high school. Maybe it was because my father worked with mainframe computers and punched cards, but I felt very early in my life that that was the way for me to make a living. I didn’t develop any real ambition until I was in my last year at university studying Computer Science in Milan, and what gave me confidence that I could make something valuable in my life was the knowledge I accumulated day after day. It was 1993, and the professor tutoring my thesis work passed me a paper about the Mosaic browser. Mosaic was released for Unix in April 1993, but. Still, I didn’t grasp the actual potential of that new tool until many months later when NCSA released the first version of Mosaic for Microsoft Windows—20" screen black and white Sun workstations were always taken at the university lab. Since that moment, I have been able to play at home, mostly at night. This allowed me to envision what the future could have been.
Since then, I have been captivated by the Internet and imagined all the amazing things that could be made with TCP/IP, HTTP, and HTML. Unfortunately, very few people in Italy — where I lived — understood the potential of what was happening. With no companies in my country willing to bet on the Internet in 1994, I took a job that could keep me close to these new technologies, and I applied for a position at a US consulting company with offices in Italy. I could build software the whole day, changing projects every 12 months, and the first IRL contact with the US way to manage and grow companies. The difference from the Italian style of building a corporation was astonishing.
The same year I took my first job — 1994 — Ron Conway began his second career, moving from building high-tech companies to investing in them. I always ask myself what I could have accomplished if I had grown up in Palo Alto (California) instead of Brescia (Italy).
I don’t know Ron personally, but I read everything I could find about him when I started to think about going full-time into startup investments. I first heard about him in 2008 when I began to travel to San Francisco and had the chance to write a few personal checks to Italian founders building incredible things in the Bay Area—like this one. The more I read, the more I started thinking that Ron and I were somehow alike in terms of passion for entrepreneurs and their desire to create software artifacts. In a world where venture capital firms seemed primarily interested in money, having a healthy role model on investments had a huge impact on my life.
My interest in this space became more concrete in 2017 when I co-founded Lombardstreet Ventures—a pre-seed and seed venture capital firm—with friend and business partner Luigi Bajetti. We started to plan our company one year before, learning from our network in the Bay area, plus tons of interviews and articles discovered online.
After seven years full-time on startup investment, I can say without doubt that Ron's investment approach should be adopted by every first-time fund manager, and that's why I wrote this article. With this post, I’ve no ambition to grasp Ron’s unique personality, but maybe reading what he did and how he did it could inspire others to follow a healthy model in the Silicon Valley investment bazaar.
Who’s Ron Conway
Ron was one of the founders of Altos Computer Systems, initially created by David G. Jackson and Roger William Vass Sr. in 1977.
The company was listed on NASDAQ in 1982, raising $59M from the IPO. It was then sold to Acer in 1994 because of the increasing competition in the mini-computer business—according to what Ron said in an interview. One of the lead investors in Altos was Don Valentine, the iconic founder of Sequoia Capital. Soon after the company was sold, he asked Ron to start mentoring other entrepreneurs in the Sequoia portfolio and potentially choose his new venture.
After the Altos experience, Ron was sure about one thing: he didn’t like to manage thousands of people, and creating or joining a new company was not in his dream book. He was attracted to other things. Having been offered the opportunity to observe board meetings with Don Valentine, he understood that mentoring other entrepreneurs — and, possibly, investing in their potential, was really fun and fulfilling. You didn’t have to manage people for them or do their job, but you could help founders solve complex and urgent problems along the journey. That is what Angel investing is all about, and that is how Ron became a one-of-a-kind investor in the Bay Area.
Everybody in San Francisco knows about Ron Conway because he can get you to meet anyone you need for your company. From my understanding, his vast and trustworthy network of people has been built over the years following two simple guidelines:
- It’s all about people. It’s all that matters if you want to make great startup investments.
- Solving challenging problems for entrepreneurs creates trust and long-lasting relationships.
Money, success, fame, or, even better, a happy and meaningful life through your day job are just by-products of those two rules.
When Ron began his new career as an Angel investor, he soon knew he needed something to guide his investment thesis, and he looked back at his past jobs and firmly decided the first thing: he didn’t want to invest in hardware anymore.
In 1994, the World Wide Web was brand new, the NCSA Mosaic browser was released the year before, and the Internet became available to companies and people. He and Ben Rosen—the former chairman and CEO of Compaq Computers—were on this new investment venture together and suddenly decided that Internet software should have been their only and sole focus. For a couple of years, they were on their own. However, the team eventually expanded. In one interview for the Stanford Graduate School of Business in 2010, he stated: ”One of the reasons that I attribute my success to is that I’ve stayed only focused on the Internet.” 1994 was a good time to bet on this new emerging thing. I’m no Ron Conway, but I had the same feeling when, in October ’93, at my first job for the leading telco company in Italy—which was a monopoly at the time — I was trying to convince the network team that the Internet and TCP/IP were the future of the telecommunication. They kept telling me: “Who will pay for those packets that pass through my routers?”
For those who had the chance to use this new technology extensively, it was clear the Internet could help create a vast market and disrupt many industries. It was just a matter of time. Ron Conway was sure about that: it could grow by thousands of percent a year, and that’s paramount. Ron and Ben’s choice was based on growth, and “growth is the lifeblood of innovation.”
Internet software is also the only investment thesis that, a few years later, the newborn Silicon Valley Angel investment firm — or SVA, for short — followed since day one. It was 1998, and they had a 25M dollar fund to invest. But the Internet was proliferating, and people were deploying capital at the speed of light — and they were Internet-only funds. So SVA raised another fund the very next year, 1999 — which was pretty unusual at the time— raising another $175M. Between 1999 and 2003, they hired quickly to help manage the growing business, and were 13 people in the team — which was at their peak. They charged a 3% management fee, giving them enough money to hire the people they needed. They also kept the General Partner salary at $300,000 each.
Until 2010, he invested in 500 companies, and 225 of them were at the peak of the Internet between 1998 and 1999. When the stock market crashed in May 2000, they had to react quickly, and everyone had to find another job after Ron told them: “We are not investing anymore.”
The Google Investment
78% of those 225 companies went out of business, and they had to keep the portfolio alive until Google went public on NASDAQ on August 19, 2004.
That monster return paid off for everything; then SVA sold the funds. Ron claimed that without Google’s IPO in 2004, the market wouldn’t have been able to recover so quickly.
The first investor in Google was Andy Bechtolsheim, a co-founder of Sun Microsystems. In September 1998, he wrote a check for $100,000 to Larry Page and Sergey Brin, who were still graduate students at Stanford University. Ron invested in the company in the same seed round an undisclosed amount, but I read somewhere that his check was $25,000. He learned about the company in December 1998 at Vivek Radinadivé’s holiday party. Vivek was the founder and former CEO of TIBCO Software. On that occasion, Ron ran through David Cheriton, a professor at Stanford and investor, and it was David who told Ron about Backrub, the predecessor of Google, born in 1996.
Ron invested in Google after helping the team secure Sequoia funding. Initially, Larry and Sergey didn’t accept Angel investments: “We want to have the big VCs first, but maybe you can help us close the VCs.” So, as Ron recalled, the deal was: “You help us close Sequoia, and you will get an allocation.”
And “getting the round done was no easy,” as Ron said in an interview. Larry and Sergey wanted Sequoia and Kleiner Perkins — also known as KP — in the same round, but “VCs don’t like doing deals together.” After a few attempts to make them collaborate, one day, Ron made a call to both of them and said: “ Guys, neither one of you is going to get this because Larry and Sergey are saying if these guys don’t hurry up and work together, we will just do a big Angel round.” They wanted to raise $10M and Ron was sure he could make it happen.
When the two big VCs agreed to work together, Ron was satisfied, even if that meant a lower allocation for him.
Where Good Deal Flow Comes From
In 2003, Ron was back again on the market after the NASDAQ crash, and the startup appetite began growing again. He was Angel investing, and when the deal flow became substantial, he teamed up with a fund called Baseline to get help processing the deal flow. In 2008, he founded SV Angel after spinning off from Baseline to pursue real-time data opportunities. In 2010, at the time of the Stanford GSB interview, SV Angel was four people.
Making great investments is a matter of having a great deal flow, and the Ron Conway story teaches us that it is all related to one single thing: helping entrepreneurs without expecting anything in return. I love this part about Ron’s view on investing in startup founders because it is similar to my experience as an entrepreneur. Throughout my career, I always thought that knowledge is something you have to share for the sake of sharing, without expecting anything in return. In this way, you build great teams and a network of brilliant people around you. Sometimes, along the way, you screw, and you have to start over again. But it’s OK; you learned something important and can rebuild your trust over time — it takes years, but you can.
Your deal flow is a function of your reputation, and reputation is something you can’t buy or create through a (content) marketing campaign. It is not a matter of followers or views. Reputation in the venture investment space is built on helping entrepreneurs, so they come back and recommend you to other entrepreneurs. And when your deal flow is just a matter of warm emails you receive daily, you have built your reputation. That’s why I try to meet every single person that the founders in our portfolio introduce us to. There are a few exceptions to this rule for me.
Sometimes, You Miss the Target
Through SVA, Ron invested in hundreds of companies, with a pretty consistent pace of 50 to 60 investments a year. He invested early on in companies like Google, Napster, Opsware, Foursquare, Mint, Facebook, Twitter, Paypal, Pinterest, Snapchat, Airbnb, and Dropbox. It was not just a matter of writing checks. Sometimes, he helped his portfolio companies to find a soft landing, even without any money perspective in the deal — like Hot Potato acquired by Facebook. The venture business in 1994 differed greatly from the one that Altos faced. In one of the interviews available online, Ron recalls how things used to work in San Francisco when he was building companies himself:
Back in the 70s, in order to get venture capital, your company had to be high-growth and profitable. These conditions are required to qualify. You have to have determination and conviction and be e leader. What changed is that people in the workplace drink less. Work hard and play hard.
And again:
In 1994 people used to say TCP/IP more than the Internet. People talked about email, but they had to explain what email was.
Despite his network and impeccable intuit in recognizing talent, even Ron didn’t catch all the opportunities he faced. For example, from interviews he released over the years, we know that he missed the opportunity to invest in companies like:
- Salesforce in 1999;
- Pandora — he was just outside Napster that declared bankruptcy;
- Palantir — he didn’t understand the size of the market;
- Kickstarter is another example.
Sometimes, the company is excellent but the valuation is too high for a seed round. The Salesforce case teaches us that it’s not (entirely) about the valuation. If the company grows fast year after year, an overvalued seed round is OK, but of course, you will only know that looking backward. Investing in a seed round valued too high will leave a few multiples on the table, but when the return is significant, you don’t care. However, the missed opportunity and zero return on a massive success for the believers never leaves you.
Get Involved in Company Defining Events
Once Ron and SV Angel invest in a company, they work with the founders. This is no surprise for those who are in this business. All venture capital firms aim to provide assistance and support to the companies in their investment portfolio.
Ron’s organization and approach are somehow different from everyone else I know.
First of all, their team has consistently been small. Today, I can count five partners plus two people in the operations on their website.
That resonates a lot with the vision we have at Lombardstreet Ventures. We believe the VC business is for small, passionate, and highly talented teams. What happens when Ron Conway and his team commit to a company?
“Our MO is that we get involved at inflection points during the company’s history.”
Let’s see how it works for SV Angel after they decide to invest:
- They help founders get a great Angel Syndicate
- They lead the founders through the VC round
- They help them pick the VCs
- They help get the valuation right and the VC round done
- When traction occurs, they assist companies in securing distribution by effectively facilitating deals with the right companies
- And then again, they offer support for recruiting or during management turmoil.
They only work with founders when those inflection points happen. Otherwise, they are not there. The definition I consider spot on about their role is this: “We are like the doctor on call.”
What they don’t do is also interesting to note:
- They don’t take board seat
- They don’t get involved in product strategy or engineering decisions “because many companies in SV Angel portfolio end up morphing into each other spaces.”
Angel Group vs. Venture Capital
Interestingly, Ron defines SV Angel not as a venture capital firm but as an angel group - or at least that was the definition in 2010. I really like this.
If you think about it, when your fund is 15, 20, maybe 30 million dollars, “angel group” is much more appropriate as a definition than venture capital.
(a) Those small funds invest in entrepreneurs at the very beginning of their journey, with little or no data to analyze.
(b) The companies are a few months old—normally, less than a year.
(c) The investment firm is comprised of highly skilled entrepreneurs dedicated to helping founders and processing deal flow.
(d) Passion for entrepreneurs—not money—is the business driver.
I must say I see a lot of Lombardstreet Ventures in this description. Historically, we have been partnering with entrepreneurs since day one; We raise small funds by design and invest up to half a million dollars per company in the early days. We have been entrepreneurs for our entire life, and we do have a lot of respect for everyone who’s crazy enough to do the same. We say many “No” and read every cold email we receive—even if, most of the time, it is clear that the founder hasn’t done his homework.
For those interested in knowing more about how Lombardstreet Ventures operates, this is a good place to start.
Innovate is Not About Raising Money
How long should an entrepreneur go before approaching an investor? That is a question we’ve been asked a lot.
In Ron’s view, the right time to go look for capital is pretty straightforward, and we can’t agree more with that:
“Bootstrap as long as you possibly can” potentially all the way to profitability. This is the best scenario, but it’s only possible if you get quick traction and monetize your business quickly to hire people and make a profit. Traction and monetization are what you need to show investors when and if you decide to raise a round of capital. With these two metrics in your belt, you can attract multiple investors and pick the right one—which is more important than you think, even in a pre-seed round. Most companies need to find fresh money to grow, but to raise a good round and not get diluted too much, you need proof points you can show off. The best of all signals is always growth.
Should I move to Silicon Valley?
In the past three years, we invested a lot of time to tell Italian founders they should move to Silicon Valley. This is what Ron Conway thinks about this:
This video is from 2008, but it’s still the best advice you can get as a first-time founder who thinks about investing the next 15 years of his or her life in building a massively successful company.
Wrapping Up
I will leave you with the last of many pieces of advice Ron gave over the years: “When you are an Angel investor, trust your guts.”
Luigi and I try to do this whenever we meet with a founder—first, the entrepreneur, and the idea, second.
Some references
- Interview with Ron Conway — Stanford Graduate School of Business 2010
- Learnings of Being an OG Angel Investor: Ron Conway and Topher Conway | Upfront Summit 2022
- SV Angel Team
- CNBC Interview — AI
- Ron Conway Wikipedia Page
- Q&A with Ron and Topher Conway
- Ron Conway and the Economic Empowerment Award by Brian Chesky, Airbnb Co-Founder and CEO
- Silicon Valley: Ground Zero for The Deal — Stanford eCorner
