Tech VC Matt Fates of Ascent Venture Partners talks about his portfolio and his investing career as he ponders becoming more active as an angel investor. A frank and informative conversation with a delightful guest.
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Highlights:
Sal Daher Welcomes Listeners & Introduces Matt Fates, Venture Capitalist
Matt Fate’s VC Portfolio: Connected2Fiber
“The power of connectivity is becoming strategic again as most of your software applications reside outside of your four walls. The need for this intelligence, the need for this data has just become absolutely mission critical for that industry. So, they're growing rapidly.”
Vee24
“I would say Vee24 is really that next level of very professional interaction…”
Augmented Reality (AR) as a Tool for Online Engagement
Matt Fates’ and Sal Daher’s Investment in Streamroot
The VC Industry Is Focusing on Fewer & Bigger Deals – Leaving Many Interesting Companies Behind
Finding the Holy Grail
Sal Daher Makes a Pitch for His Syndicate List
“That wasn't luck. That was Ernie, my boss, telling me, "There's nothing you're going to be able to do to convince me to make another investment in this environment. It's too crazy.”
Paths to Becoming a VC
Parting Thoughts from Matt Fates
Transcript of “VC & Angel Investor”
guest: tech venture capitalist matt fates
Sal Daher Welcomes Listeners & Introduces Matt Fates, Venture Capitalist
Sal Daher: Welcome to the Angel Invest Boston Podcast. I am your host, Sal Daher. Very, very happy to be enjoying investing in the exciting startup companies that abound in Boston's amazing startup ecosystem. My guest today is someone who has been very involved in this, not so much as an angel, but more as a VC. And he is thinking now of being more involved as an angel. Welcome Matt Fates.
Matt Fates: Thank you, Sal.
Sal Daher: Great to have you on. Matt Fates is a venture capitalist, has been a venture capitalist for 18 years at Ascent Venture Partners, investing in the software security area and various things. I'll let Matt tell you about what he does. And Matt, also is interesting, he's taken a turn towards angel investing, later on in his career. And we're going to discuss that. But anyway, right now, Matt, please tell me about what you do at Ascent Venture Partners, the kind of investing you do.
Matt Fates: Thank you, Sal, and it's great to speak with you, and fun attending the Walnut Angel meetings over the years. And getting to know you and some of the other members there. The bulk of my experience has been on the venture side, a little bit later stage, a little bit more mature companies. And my firm, Ascent, we focused on the business side of software and technology. As you referenced, security, data analytics, marketing tech. Things that large and small businesses buy to help themselves grow and compete, et cetera. And those trends, obviously, have changed over the 18 years at Ascent. Before that, I was at Norwest Venture Partners since '98.
So, it's been a lot of fun seeing a lot of different technology trends come in waves. And some of them are very impactful and meaningful, and others don't live up to the hype and so on. But it's been a wonderful thing to observe over the last 23 years or so. And obviously, Boston has been one of the best places to do that from. I would certainly argue that Boston is one of the best places, if not the best place in the world, to do B2B technology investing, given the strength of the ecosystem, given the target-rich environment with customers and major industries, anchored up and down the East Coast. And of course, most importantly, all of the talent coming out of great universities and coming out of the great companies that have been built here.
Sal Daher: And plus, the Boston area is a functional city. Unlike the Bay Area, which is entirely dysfunctional, especially San Francisco. You can get around Boston. It's a pleasant place. You can walk places. People actually live in Boston.
The thing that really struck me, this Boston, Silicon Valley comparison last year, I was out at Silicon Valley, and every Uber driver that I took, I asked where he or she lived. Invariably, they lived in Sacramento, in another city. They couldn't live in San Francisco. They couldn't live anywhere in suburban San Francisco. When I ask Uber drivers here in Boston, where they live, "I live in Revere, I live in East Boston. I live in Waltham." It's like 20 minutes away. Even the Uber drivers in Boston can a civilized distance away. In the Bay Area, it's impossible. Yeah.
Matt Fates: Big fan of the ecosystem here, the energy around innovation, the amount of well-educated, innovative, talented people, which I think is by far the most important part of assembling and building good companies.
Sal Daher: Well, you're absolutely right. There's a very deep bench of tech talent through and through. And the whole business about... What was it? The non-compete agreements and so forth. That's sort of been equalized. It's no longer something that differentiates Boston and the Bay Area. But I think there's a remnant of the old structure that remains in the culture. So maybe that puts a blanket on it. But at the same time, there's just so many technology companies. And we're talking about, specifically, computer technology companies. You and I have had conversations, I'm drifting more and more towards the life science companies. Because of something we can discuss later on that's happening among the VCs in Boston. It's one of the leading trends in the VCs in Boston, in the life sciences, which is what's attracting me.
Matt Fate’s VC Portfolio: Connected2Fiber
But anyway, so Matt, let's get specific. Do you want to talk about some portfolio companies of yours that you're particularly enthused about at the moment or that you want to highlight, for some reason? They may need talent and so forth, so you want to bring their name up, talk them up, so the talent will go work for them?
Matt Fates: Yeah, sure. In some ways they're like children.
Sal Daher: No, no, but Matt, the point is like, the daughter who is about to get married. That's the one that deserves all the attention. The daughter that's already married is helping her out and so forth. It's kind of like I had my younger daughter getting married in the middle of COVID, ended up eloping and so forth. Don't think of it as favoritism, but one that has a particular moment where it's worth highlighting what they're doing.
Matt Fates: Yeah. Perhaps, I'll talk about the one I was just working on, and earlier today, a company called Connected2Fiber, based outside Boston. And run by a wonderful gentleman named Ben Edmond, who is a veteran of the connectivity and telecom industry. Worked there for probably close to 20 years before deciding to start his own business called Connected2Fiber. And what they do is, it's a SaaS platform, but it's driven by an immense amount of proprietary data that they've collected around, basically, every network connection point in the US.
And now, more and more so in the rest of the world. So that they can help connectivity providers, much more intelligently and rapidly provide network services to customers. It's a process that obviously has gone on for years. It's traditionally been run on spreadsheets and internal systems. And for the larger companies, for Verizon, obviously, they would probably invest millions of dollars and build an in-house system that then has to be replaced every seven or eight years.
Well, Ben lived in that world and dealt with that problem himself. And was very frustrated when he could not find reliable data quickly around which buildings have network from which providers, and how much would it cost to bring what types of services to different customers, especially if they're multi-location, et cetera, et cetera. So he decided to go out and solve that problem, and he decided to take a location first, data-driven approach.
He built up, using technology, a massive system that basically crawled through the network and figured out exactly which buildings, which tenants are connected to which networks and from which providers and so on. Then they work with a growing number of customers. They enrich that and validate that, and so on. So now, their data has allowed them to now build all these applications on top of it, which are very powerful, go-to market tools for the connectivity industry.
“The power of connectivity is becoming strategic again as most of your software applications reside outside of your four walls. The need for this intelligence, the need for this data has just become absolutely mission critical for that industry. So, they're growing rapidly.”
The reason I think we got very excited was we saw how strategic connectivity is becoming again, as everything moves to the cloud, as the internet of things is finally starting to kind of take root and become more meaningful. You have software-defined networking. The way networking is being done is changing. The power of connectivity is becoming strategic again as most of your software applications reside outside of your four walls. The need for this intelligence, the need for this data has just become absolutely mission critical for that industry. So, they're growing rapidly. They've got some really great people they've brought on board, but they're certainly looking to continue to grow, one I'm very excited about.
Sal Daher: So once again, the name of the startup is...
Matt Fates: Connected2Fiber.
Sal Daher: Connected2Fiber. Do they provide support just to help the internet service providers to figure out which customer to address with what kind of technology and so forth, or are they actually real-time helping them in their operations? Helping them route packets around bottlenecks and so forth.
Matt Fates: No, they do not... They don't manage any network resources and they're not responsible for moving packets around the network. It's much more like... One analogy would be Veeva systems, which operates as a SaaS platform in the healthcare industry. It's a CRM system driven by a lot of data, right? In many ways, Connected2Fiber is a similar type of a vehicle, similar type of application, but for the communications and the connectivity industry. It's like a CRM system that comes preloaded with all of the data you need to target customers and transact business.
Sal Daher: Outstanding. Very interesting. That's just the kind of stuff that the Boston ecosystem thrives on, these sort of B2B deep technology company or deep data company, and so on. Any other companies come to mind? Any one of your other favorite children that you want to talk about?
Vee24
Matt Fates: Well, I mean we have... I know some of the other ones we've been... I mean, one of the ones that's exciting in our portfolio that I think is very relevant right now is called Vee24, run by Priya Iyer. She is a phenomenal CEO. The reason I bring it up is that it's a sort of online engagement platform that really brings kind of the personal interaction back online for businesses.
Sal Daher: How do they do that?
Matt Fates: It's using video, but it's building it into sales and customer support. But beyond video, they also enable co-browsing, filling out forms together, really trying to make up for the digital gap that you may have with a customer using technology. They do both sales and customer support use cases. They work with retail, financial services and other verticals, and they make it as close to sitting in the same room with another person as possible over the internet. We've all gotten more comfortable over the last three or four months using technologies like Zoom and Google Hangouts and whatnot.
“I would say Vee24 is really that next level of very professional interaction…”
I would say Vee24 is really that next level of very professional interaction, and it's that much richer where... If I was your financial advisor and we wanted to discuss a potential investment or some changes to your agreement, we could both see each other. We could talk, and then we could fill out a form together, all in one session. Vee24, that's what they do. They were originally a company out of the UK. We helped them kind of build up their business here in the U.S. We were also involved with recruiting Priya to come in as CEO, and we've been thrilled by working with her. She is a phenomenal entrepreneur.
Augmented Reality (AR) as a Tool for Online Engagement
Sal Daher: That's great to hear. That's really interesting because engagement online is such an important thing. I've seen how poorly Zoom performs. I mean, Zoom is a wonder in a way, compared to what came before, but then I saw my grandson having classes on Zoom and so forth. I think there's a lot of work to be done there. I wonder who's going to be doing it, but I think there's a lot of work to be done to make those platforms more engaging for children. They have very different needs from adults.
Matt Fates: That's right, and there's so many places that you can go with this. I mean, I think one of the next things that they're starting to work on with some of their retail clients down the road is starting to work in augmented reality.
Sal Daher: I've seen augmented reality images of showing like a sneaker in front of you on your computer.
Matt Fates: Wayfair has been working on it with furniture, where you can hold up your iPad and look up sofa, look through your iPad into your living room, and they'll place a sofa, kind of virtually. You change the color, and the size, and so on. Just more and more ways to make that customer interaction rich while still obviously being digital. Are we ever going to completely move away from physical retail? No, I don't think so. I think there will always be a place for in-person retail, and obviously hopefully when we get past COVID, those businesses thrive again.
But I do think that there are many circumstances that can be close to as rich an engagement done online, and being able to look at someone, and make eye contact, and have that human psychology start to kick in again, it's so much different when it's a rich environment, versus when it's just chat or something like that where, I don't know, the old joke in the New Yorker, no one knows you're a dog on the internet, right?
Sal Daher: Yeah.
Matt Fates: It's starts to become more real and authentic and so on, when you get that level of engagement again.
Matt Fates’ and Sal Daher’s Investment in Streamroot
Sal Daher: Excellent, excellent. Very good. So Matt, let's talk a little bit about your angel investing. I think we looked at a company called Streamroot together, and I made an investment, it was a nice exit. It was an interesting company. It was a company that was helping peer to peer downloading of content on the internet for digital downloads. So anyway, so tell me the kind of companies, what's going on with your angel investing, if you've invested in any companies at all, you're just starting now.
Matt Fates Is Thinking About Investing More in Pre-Revenue Companies as an Angel
Matt Fates: I've had the good fortune of getting to know a lot of the angels and some of the angel groups around Boston over the years, we attended some of the meetings. Largely, it was to see things early in to start develop a relationship and attract companies for the future, to send obviously we're more of a revenue stage investor, and so it was more to catch things and maybe watch them progress. I've gotten to the point where I would like to start actually pursuing some of those on a personal level, making more angel investments, having some time and the opportunity to work with entrepreneurs in an even earlier stage. For those where it makes sense, obviously I think I can be helpful in getting them ready to raise capital at a more institutional level if they want to pursue that.
Sal Daher: I think it could be invaluable. Yes, I think you could be invaluable in that role, because I've interviewed Jeff Behrens, I don't know if you know Jeff.
Matt Fates: Yes, absolutely.
Sal Daher: He just finished a PhD on funding of biotech companies. One of the statistics that came out of his work was that the model, the traditional model that companies get funded by friends and family, and then they get funded by angels, and then they do an A Round with the VCs a Series A round of the VCs and so forth. He says it's not at all true, it's really the very rare exception that happens. Most of the time, if a company starts out as an angel funded company, it stays as angel funded. Even technology companies, I think in the software industry, maybe only 10% ever go on to do a series A and the other 90% have to figure out a way to get funded on their own, or they just go out of business.
In the life sciences, that drops to something like four or 5% and that number is dropping as we speak. VCs are doing fewer, and fewer, they're taking fewer and fewer pitches from outside, and they're creating their own founded companies. The larger ... the bigger players. The bigger you are, and the more the cutting edge, like Boston is kind of cutting edge in the life sciences. In that space, it's like we don't want to look at pictches, we want to kind of roll our own I like to say. We don't want to buy a pack of cigarettes, we're going to roll our own. So I can imagine you being extremely valuable to technology companies with your experience.
The VC Industry Is Focusing on Fewer & Bigger Deals – Leaving Many Interesting Companies Behind
Matt Fates: Yeah, so exactly, I have been the customer that they're trying to get to some degree, right? Sal, you're speaking to one of the issues I've had a little bit with the venture industry, especially of late, in that it is a hits driven business, and I think we have to respect that, and that most of the returns come from a very small number of companies, and at least on the tech side, I can't speak to the life sciences side, obviously that's a great strength of Boston, but it's not where I've been focused, so when I'm on the tech side, I feel like the Valley in particular, but really it's starting to happen everywhere, has taken that to such an extreme that I think a lot of companies get left out or get cutoff early. They don't really get necessarily given a full chance.
Now obviously you can't continue to put more and more money into a company that's not working and not make any progress.
Sal Daher: Oh yeah, of course, yeah.
Matt Fates: That's a no-no, and obviously that's a painful lesson to learn if you've been through it, but at the same time, not every company is going to be a unicorn, or should aspire to be necessarily. There's still a pretty big chunk in the middle where you could build very good businesses, and I don't think the Valley is interested in those business. So that's part of the whole venture gain that I think has perhaps gone a little too far in the direction of let's drive all the money into a really small number of companies.
Sal Daher: That gets me to another conversation that I've had on the podcast, I've had Jay Batson, you've met Jay, right?
Matt Fates: Yeah. He actually used to be a neighbor. Now he's down on the Cape more, but he used to live right near me.
Sal Daher: Yeah. Well Jay's a great guy, and I love having him on, because he always has some tremendously interesting things to say, his life history, you could write a novel about it, but right now the big thing that he's excited about is Revenue Based Finance. He's looking for companies that are not venture scale, but that have sound businesses that can be ... I think the idea company is a company that has a product, that can be sold, that's well established and it can be sold, but it's kind of like solo founder, or one or two founders, and if they had half a million dollars to go out and hire a top level inside sales person, they could go from 300,000 to one and a half million in sales. But they're not going to be a unicorn, ever. Because it's kind of like a small limited product and so forth, but it could be a 20, 30 million dollar company that could provide a very attractive return to someone who's looking for not huge growth, but to returns tied to revenue.
Matt Fates: Yeah, no, that makes a lot of sense, and that's a good reminder. I actually listened to that podcast of yours, Sal, and I've been meaning to reconnect with Jay because I do think that there's a healthy room for those types of opportunities, that type of investing, absolutely.
Yeah. So, the angel side, I'm excited to get involved and to start making more personal investments and to work with some of the local angel groups and so on. I think that there's some interesting new entrants into kind of the angel community and then there's sort of groups, right, who've been long established and very professional and organized and have been around for a long time and so on.
Sal Daher: Yes.
Matt Fates: I think Boston has a thriving angel community.
Sal Daher: It does indeed. I really enjoy the tremendous variety. I've been meaning to interview some more of the people in the angel environment. I've interviewed people from Launchpad, of course Walnut. Of course, I've had Jean Hammond on the podcast to talk about all the edtech stuff that she does. That's another one of the big things in Boston is edtech stuff, educational technology.
Matt Fates: Yeah. Another great strength of our region, yeah.
Sal Daher: Yeah, yeah. That's tremendous. I look forward to seeing what you do on that. If I can help in any way, connect you with people, glad to do it.
Of course, my direction has been ... A company like Streamroot, I love it, okay? But it's a very competitive space. You're not going to build huge, huge exits from a company that has a technology that can be copied, there are competitors in the market, and it's an execution play, but they're never going to be totally dominant in the market. The kind of company I like to look for are in the biotech space that has a very nice technology, that's very defensible and was not going to cost a lot of money to develop. How do I know that? You can't always know. I mean, it's like a theory. You'll speculate.
Matt Fates: I'll follow you because that sounds pretty good, if you can find those.
Sal Daher: Oh no, no, no. But the thing is that it's one of the hardest things to understand is how developed the technology really is.
Matt Fates: Yeah.
Sal Daher: Because scientists and inventors they have between something that actually works in industry and something that works in a lab. There's a vast gulf.
Matt Fates: Yes.
Sal Daher: A canyon between the two.
Matt Fates: Yes, there is.
Sal Daher: Because in science they do everything to get the result, get the thing to work. Everything is jury rigged and so forth, but they get the thing to work, tremendous effort. But in industry, it's all about scale, repeatability, reliability, and all this stuff. That translation; Jeff Arnold, I don't know if you've run across Jeff Arnold.
Matt Fates: Yes.
Sal Daher: He's an angel investor, very, very wise person. He says, "That's the biggest thing you've got to look at in the life sciences, in any area, but the life science in particular, you don't want to get in what Michael Mark calls a 'science project,' you want to be following technology, translating technology into something applicable."
I think for my money, that's where the most interesting returns can be found is in these small set of biotech companies that have a technology that can be developed with not too much money and then they have moats. They have patents. At the same time, they're not engaged in actually building a business, but they are going to be a brick on top of someone else's business. They don't have to build the whole wall, they're just like the flashing that goes on top, that has a huge value to the wall.
Matt Fates: Yeah.
Sal Daher: But they're not in the business of building the wall. They're in the business of putting the flashing a top to deflect the water and so forth, is something that can have very high value to an existing enterprise without a lot of capital. That's the Holy Grail that I'm always looking for and that's what I want to target. All my investing on going forward.
I've invested in about 50 startups and say they have 60, almost 60 now, and I'd say that more than 40 have been the sort of software or science of some type. The remaining ones are biotech. The biotech platforms seem to remain, it's kind of like everything else has melted away, had nice exits or failed or whatever, melted away. What remains on my portfolio is this large chunk of few biotech investments. I think it's telling me something. Time will tell.
Matt Fates: When you find those Holy Grails, I want to know.
Sal Daher: Well, problem is going in, it always looks like the Holy Grail and it's like, holy C-R-A-P.
Matt Fates: Yeah, exactly. That's the thing. It's a shiny new object. It better look like the Holy Grail when you invest otherwise, what are you doing?
Sal Daher: Yeah, exactly. The thing is, early stage investing, Matt, much more than in VC, with angels, you're betting on the people.
Matt Fates: Oh, yeah.
Sal Daher: These are some of the most compelling people you're going to run across. You've got to restrain yourself because you're kind of like, "Wow, these guys walk on water," and so on and it's all there is. It's the team. You have to have something hold you back because otherwise you fall in love. In the VC world, there's stuff that prevents you from doing that. You can like a company but you have to bring your partners into it. You got all the cash flow, all the market studies, all the data that you have to look at, which tempers that, but in angel investing, you're responsible to yourself and your family base, that's it. So you got to be very careful. I say that from experience. I say that from experience.
Matt Fates: And spend more time talking to their spouse, I'm sure they would tell you what their flaws are.
Sal Daher: I have a friend, an angel investor, who runs all this stuff past his wife. She is very risk averse. She won't let him invest, write any checks. Oh, he as rich as Croesus but he writes these tiny little droplet checks. She doesn't want him to be wasting money. Perhaps that's the right approach. I don't know.
Matt Fates: Yeah, well, that's the thing. There's certainly a joke within venture that if you're part of a partnership that makes collective decisions and you do it long enough, you won't be able to invest in anything anymore because collectively no one will want to do any investments. You've been burned by something at least once, so the pattern recognition will tell you not to do it again.
Sal Daher: They know too much. They know too much. Yeah. Yeah, yeah.
Matt, let me talk to people about my investment syndicates and then let's get into how you got into being a VC.
Matt Fates: Sure.
Sal Daher Makes a Pitch for His Syndicate List
Sal Daher: That's a topic of great interest. I have a list of people who sign up and qualify themselves as Accredited Investors and they put their name on a mailing list. And when I have a particularly attractive investment that I'm thinking of investing in, I invite them to participate alongside with me, usually through some kind of an LLC. Though, I'm sort of like a softie as the syndicate leads go because I don't make a big fuss about people going direct if it's a company I really believe in.
So, it's not unusual for people to say, "Oh, well I'm going to write a much bigger check than the typical checks in your syndicates, so I'll go direct." I'm okay with that, too. So in that sense, I'm very, very different from all the other syndicate leads that I know who are very jealous about keeping companies within their LLC. The companies I invest in are companies that I really believe in.
Matt Fates: Yeah.
Sal Daher: It's not a business for me. It's like I believe in the company and I think they're doing great stuff. So, I invite listeners to go to my website, angelinvestboston.com, and there's a syndicate's area and sign up, get qualified as an accredited investor, and then let's talk about the stuff that we have going.
How Matt Fates Became a Venture Capitalist
Sal Daher: So Matt, tell me about how you ended up being a VC. How did you start life? Were you like in high school saying, "Oh, I want to become a VC," and so forth.
Matt Fates: And that's the thing, you certainly remember more than I, but I'm in my mid 40s now, so when I was in college, no one really knew what venture capital was. Certainly not in high school.
Sal Daher: Right.
Matt Fates: There's certainly a healthy portion of me was already a nerd. I love software. I play around with... I think I had an Amstrad 64, which was a cassette-driven computer.
Sal Daher: What did your dad, what'd your mom do?
Matt Fates: My dad, he worked for the Bank of Boston.
Sal Daher: The Bank of Boston.
Matt Fates: Yeah. Bank of Boston. And my mom was a teacher.
Sal Daher: Interesting. Hold on. The Bank of Boston. I spent time at the Bank of Boston.
Matt Fates: Oh, really?
Sal Daher: What was your dad's name?
Matt Fates: His name is Richard Fates.
Sal Daher: Richard Fates. And what area did he work in?
Matt Fates: Well, so I'll be honest when I was little, I don't know. I mean, he just-
Sal Daher: Went over your head.
Matt Fates: Yeah, right over my head. We lived in the Boston area. When I was nine, he took an opportunity within the bank to go work for the London office and to be one of the bankers over there, I think Bank of Boston, along with a lot of the US banks had a real international push at the time into South America, Europe and Australia. And the bankers who, the junior bankers who had some aspiration, they had to go and kind of do their time internationally. And my dad picked London. And so we got to live in London for five years. I went to an English school. It was very valuable experience for me. Actually, I had always loved the US but seeing it from the outside, gave me some real perspective, which was, I think very valuable. And we also got to travel some through Europe and a little bit of Africa.
Sal Daher: Is your dad Richard J Fates?
Matt Fates: Yes.
Sal Daher: I had heard his name because I worked for the Bank of Boston. That's a small... Because I remember when I was at Bank of Boston hearing his name. This is back in 1986 to 1988.
Matt Fates: Yes.
Sal Daher: Ages ago. You were too young to even realize what was going on.
Matt Fates: '86 to '88, I was 12 to 14 years old.
Sal Daher: Oh yeah. Forget about it banking, shmanking, yeah, forget about it.
Matt Fates: I didn't really know exactly. He just worked in that funny shaped building in Boston. That's all I know.
Sal Daher: I remember it with a bulging... Yeah, I worked in the same building. That's cool. That's a small world. Well, give him my best.
Matt Fates: So, I definitely will, I saw him yesterday. He's healthy and doing great and enjoying retirement and is his grandkids.
But we lived over in the UK. We had this Amstrad computer, it was sort of like a Commodore 64 competitor. And I started writing software for that and it had nothing to do with school. It was just for fun and playing games with a couple of my other friends. When we came back to the US, I went to one of the New England boarding schools, and there were no programming classes available. And so the most I could do, we kind of jury rigged those original Mac computers together and played flight simulators against each other. These were flight simulators where the graphics were straight black lines. Right?
Sal Daher: It's so primitive.
Matt Fates: It was really bad, but we figured out a way to get them to play actually two of them in one game, which was pretty fun.
It wasn't until I got to university where they actually had programming classes and I got back into really learning more about computer science and deciding that that was going to be one of my majors. And that's when I really kind of got addicted again to software and writing software and had so much fun with it and had a couple of summer jobs that were software-oriented and so on. I was self-aware enough to realize, like there were some students around me that were just truly gifted at it and way better at it than me. I mean, I loved doing it and I could wake up, I could prop my head up at the zoo, which is where all the sort of high powered computers were. I could prop my head up and it would be 6:00 AM and you didn't even realize it.
It was like, "Well, I've been here all night." I realized I didn't want to compete with those guys. I wanted to find a way to work with them. So I also took Econ classes. And instead of going to work for Microsoft or Oracle or one of the companies that was recruiting all the software grads, I ended up going into investment banking. I wanted to only work at a firm where I could do technology. And so I went to Alex Brown, which at the time was one of the leading technology investment banks and got to spend, first some time in Baltimore where it was headquartered. And then in Boston, where the tech group was set up. And really learned a lot, worked with some good people, worked on some really interesting companies, transactions, both IPO's and follow ons and some M&A type stuff.
But I have to tell you, for me, it wasn't what I was looking for. It was very transactional and sort of the relationships, at least for... I was a very junior investment banker, were very short-lived. It was like a three month project.
Sal Daher: Well, doing these IPO's if taking a company public and so forth, it's a very cookie cutter process. You know who are the likely takers of this thing. And at that point, it's very cookie cutter.
Matt Fates: Especially the junior person where you are just looking at data, filling out spreadsheets, writing prospectuses, coordinating road shows. I mean, it sounds sexy taking a company public and listen, for the management team that's built that company up, it's a really big deal.
Sal Daher: Oh, for them, it's exciting. Oh yeah.
Matt Fates: Junior investment banker, it's just 24 hours of day work. You don't feel nearly the same level of recognition for all the hard work put in. Yeah. I wanted to get back or get closer to the companies again. This is 1998, it was a fortunate time. And that venture was kind of undergoing an expansion period.
Sal Daher: Oh yes.
Matt Fates: A lot of good things were happening. It was getting hot. Communications was huge. Comm equipment, software was really starting to kind of... We were completely, based on the Telecommunications Act of 1996 that the whole system in the US was being disrupted. The birth of the internet really is a very exciting time.
Sal Daher: Right.
Matt Fates: And I went and worked for a wonderful gentleman named Ernie Parizeau in Norwest Venture Partners, he ran the Boston office. He'd been doing at that point, I think, 15, 20 years or so and was just a wonderful, wonderful mentor. Very grounded, even though there was so much exciting stuff going on.
I also met out with Geoff Oblak there, who had been at Norwest before me, and really started to learn the venture business. And again, was lucky to have one, good timing and two, a great mentor and just watched some amazing things happen over the next few years. So, Netscape going public and all of the big communications deals that happened, and then the networks get completely rewritten. And the sort of the very, very beginning of a cloud computing, which back then was called application service providers, right?
Sal Daher: Yes.
Matt Fates: And of course, there was the .com bubble where everything.com happened.
Sal Daher: Well, I'm looking at your resume, Matt, and you have perfect timing. You went to get your MBA at Tuck, just at the right time. The first two years of the tech meltdown after year 2000. 2000, 2002, you were off getting an MBA.
“That wasn't luck. That was Ernie, my boss, telling me, "There's nothing you're going to be able to do to convince me to make another investment in this environment. It's too crazy.”
Matt Fates: That wasn't luck. That was Ernie, my boss, telling me, "There's nothing you're going to be able to do to convince me to make another investment in this environment. It's too crazy. Nothing makes sense to me anymore." This was sort of right before the bubble burst and he was absolutely right. It's just everything was completely out of whack. You'd have people show up and pitch their company and a venture firm would give them a term sheet on the spot.
Sal Daher: And he was saying, "This is going to lead to tears. I've seen this game before, it's going to lead to tears."
Matt Fates: Someone could point out I'm sure we missed out on a couple of deals that we looked at that managed to work out before everything came crashing down. But for the most part, he was dead on. And I don't think he worries about the few that he missed because he did very well as an investor. So he kind of pushed me to go back to business school and it ended up being a great time.
I loved Tuck. Great school. I'm a huge fan and supporter. They've actually got an excellent private equity and venture capital program up there right now with being taught by a guy named Jim Foy, who is a real VC himself. He actually has decades of experience from Crosslink [Ventures] on the West coast. And he really, really gives the students a good sense of what it's like to be in venture capital. But anyway, that was a great couple of years. And then I reconnected with Geoff Oblak who had moved on to Ascent and I ended up joining him there and we worked together the past 18 years there and it's been awesome.
Sal Daher: That is such a great story.
Matt Fates: What has sustained me through the roller coaster, the ups and downs of the venture industry over the last two decades is that I still love hearing about new solutions, using technology to solve problems, working with passionate entrepreneurs to kind of help them try to realize their vision, their potential. That's a lot of fun, right? There's obviously parts of the business that aren't as much fun. Clearly when you work through challenges, that can be very difficult. But for the most part, there's a lot of optimists. Being around people who are optimistic and resilient and so on is often very inspiring.
Paths to Becoming a VC
Sal Daher: It's just a lot of fun. It's a very positive business to be in. By the way. I think it would be a service to some of our listeners to mention here that the path that you took to becoming a venture capitalist is not a path that would work today as easily. Would you agree? Jeff Bussgang has written about this, that if you want to become a venture capitalist today, go and work at a startup, get experience building a startup from the ground up, operating at a startup, and then that might give you an entree into the venture capital world.
Matt Fates: Well, I would say I certainly agree that that is a very viable and probably, the more likely path for someone who's interested. And my advice to young people always, MBAs or undergrads or otherwise that are interested in one day becoming a venture capitalist is to take the long view. They have a full career ahead of them and there are going to be much better off and probably a better investor if they go and become an expert in an industry and really understand it deeply and then bring that to the investment table.
So, I think that that advice is very much in line with what Jeff was writing about and what a lot of people talk about today. That said, I do think there are still opportunities for people who, whether it's some investment banking or some management consulting, or maybe they go work at Google or a larger technology company and learn, get some good training in product management or sales or other things. I think those can also be viable stepping stones towards a career potentially in venture capital.
You know, you have to be comfortable with a lot of things that might not be intuitive, right? You end up spending a lot of time looking at companies that you don't end up doing anything with. I mean, because you look at thousands and you invest in a few. Even once you've invested, you typically end up spending way more time on the ones that are struggling and not doing well than the ones that are doing well because they don't need as much help. You can still be helpful, but you also should get out of the way and let them go.
A lot of your time is going to be spent on stuff that may or may not really feel like it's especially productive necessarily and you have to be comfortable with that. You also have to be comfortable that you're not going to know if you're right for like five, six, seven years sometimes.
Sal Daher: In biotech, try 10 years.
Matt Fates: In angel investing, it's even longer. So you have to be someone who's okay with that. If you're someone who needs positive reinforcement and more frequent feedback, it might not be the best career choice.
Sal Daher: It's not like enterprise sales where you have immediate feedback and so on. Yeah.
Matt Fates: You can close a deal every month, right. That feels a lot better. There's no exact path to getting into the industry. The industry's certainly grown quite a bit. It's still small overall, I do remind people that in total, I would guess, US venture capital firms probably employ 10 to 15,000 people total. So, that's not a lot in the grand scheme of things. The venture capital is pretty small.
Sal Daher: Yes, yes. And the angel investing universe is even smaller.
Matt Fates: Yeah. Listen, some people start off with angel investing and then move into venture and maybe eventually build a venture fund based on their angel track record, that's certainly another way of doing it. Other times you see it go the other direction, venture capitalists, who've had a career in that, decide, "You know what? I just want to do this more for myself," and I've seen others do that. And those are sort of the footsteps I'm following in right now.
Sal Daher: Well, it really is what you'd like to do. If you would like to be investing other people's money, coordinating with partners on making a decision and sort of making a group decision on investment, that's a VC.
If you want to go and invest in stuff that you really like, that's angel investing. But in the case of angel investing, as I mentioned before, you have to have some kind of a restraint, something to hold you back because if you're just writing your own checks, it can get dangerous. Start small, invest as part of a group. The logic of angel investing as a group is that number one, since you're evaluating people, it's much better to have feedback from 12, 15, 20 people who've looked at the same thing than just two or three people, which is what happens in a VC firm, right?
I mean you evaluate the character of the people and so forth, but you're evaluating a lot more. With an early stage company with an angel company it's all about the founding team. So it's really helpful to have fellow angel investors evaluating founding team together with you. And there's no financials to be analyzed. I mean, it's kind of like they have these five-year projections that are as close to fiction as anything can get.
Matt Fates: Yeah. That's right.
Sal Daher: You know they're not going to hit those five-year projections.
Matt Fates: I've had the very good fortune, I've work with some really wonderful partners, going all the way back to Ernie, but also with Geoff Oblak, with Luke Burns with all the folks at Ascent. So I know the value of great partners and having sounding boards and people to bounce ideas off of, and people who will tell you you're nuts at the right times and so on. So I completely agree and listen, a plug for the podcast, Sal, I've been listening to some of your conversations with the likes of Michael Mark and Ham, many others and certainly that's the community I would like to be a part of and be able to benefit from their wisdom and their perspectives as well as I start to do this.
Sal Daher: Yeah. I must say that it is very rare that I have an interview where I don't learn something new. And when I talk to somebody like Ham Lord or Christopher Mirabile or Michael Mark, or Jean Hammond, or some of the, I mean, it's just like... Joe Caruso. It was just like, I learn tons and I love to have them on. It's a great way to learn so I really appreciate that.
Matt, as we sort of wind up the podcast, I kind of want to open up the forum for you to address a topic that you think is really important, that's on your mind that you think would be useful for the audience to know. From your 18 years at Ascent Venture Partners and work before, I mean you have a lot of experience in the VC world, a lot of experience with B2B technology companies.
Parting Thoughts from Matt Fates
Matt Fates: One of the key things is that a lot of the entrepreneurs, especially when we meet them early, right? When we meet them before they're really ready for Ascent or perhaps more than that kind of that seed stage. And then, and frankly, that's more of the stage that I'm focusing on going forward, is that venture is not always necessary to build a great business. And I think you referred to that earlier in that there are many companies that make it exclusively on sort of the backs of angels and friends and family, and so on.
Certainly, raising capital and bringing on sort of a good partner that's aligned with you and so on is, is definitely an accomplishment. It's a step along the path of what you're trying to do and it by itself is not necessarily a great thing. It may or may not be the right thing for your business.
And so, I guess I always advise and talk to companies, especially if I think what they're going after is interesting, but perhaps not necessarily, obviously large, could you do this in a more lean or scrappy way and not raise capital sometimes. And I think that can be just as respectable a way of building a business and in many regards, it leaves a lot more options open for you. Raising venture capital, while it can be very powerful and can really enable fast growth, you have to have a business that can withstand the pressure that comes with that capital.
Sal Daher: Oh yes. There are no free lunches in life. If you raise money for the venture capitalists, you raise the level of expectation of growth. Of course, you get a lot of resources, but you're going to be running on a much faster treadmill than the treadmill you were on before. And the question is, is that for you? And also is it something that fits your business? Sometimes VCs make mistakes and they invest in companies that they have high expectations for, but they're not venture scalable. And so there are other paths.
Matt Fates: And that's where I think, unfortunately, a business that may have otherwise been able to survive these days with the extreme level that the VC law or power curve has been taken, those companies are usually let go and not necessarily given too many chances because they're not following that path to a unicorn status. If they hadn't raised money or if they'd raised less, they may still be able to make it work.
Sal Daher: Have you run across Wistia at all?
Matt Fates: Yes, I know Wistia. Yeah.
Sal Daher: Yeah. Okay. Because I interviewed the guys at Wistia. And they took a very lean approach initially. They only raised 1.4 million in angel money, which they then offered to buy out at something like 17 X what people put in. And they basically own their company. It's a very nice business and they never took any venture money.
Matt Fates: And that's right. And that's incredibly wise of them in that they were able to do things that way. Now, again, I don't want to say ... venture capital can be a real boost for a lot of companies. It can enable them to bring people on very rapidly. It can help drive growth that is otherwise not obtainable. And if you work with the right partner, they can also do a lot of other things well beyond providing capital for you.
But the other thing I think is worth making sure entrepreneurs out there understand is that some of the professors at Harvard and Harvard Business School have done some interesting analysis around how often do founding CEOs last. And how often are they the CEO in 10 years? And it's certainly well less than half the time, depending on what industry you look at and what state you look at and so on. But there's a better than 50/50 chance that someone else will be running the company one day.
And that's not shocking, but it still can be very hard for those people to let go. This is something we'd always done at Ascent, would be to have dinner, sit down and have an open conversation with the CEO, especially when it's a founder around, "What is your goal for this business? What do you want to see happen? What is your personal goal? Do you want to remain the CEO? Is that important to you?"
And I think the cliche of "Do you want to be rich or be king," is very true. And recognizing that if you're going to take outside money, it needs to be more important to you that the company be successful and that it grow and thrive. And that your specific role, while it may continue to be CEO forever, and you made me one of those rare individuals who can take a company from startup through growth to bigger and bigger to IPO, who knows. But then that's very unusual. Most people don't have all of the skill sets needed to do that.
Sal Daher: Yes, yes. It's very wise. The skillset of taking a company from zero to $1 million in revenue. Or just developing one product and so forth is very different from the skillset of running a company that is going through huge scale. It's different work that you're doing. You're not a product person anymore. You have to be like a fundraiser all the time. You have to be hiring people all the time. So if your thing is building product, then you should go back and take your position in the company. Switch to chief product officer or something like that. And then go and do something else, which is a perfectly honorable thing to do.
Matt Fates: Absolutely. If it is important for you to be the CEO, then don't ... maybe the venture route isn't the right one. Maybe you should just run a business that grows a little more slowly, but doesn't need that kind of capital. And I think that's always one that people struggle with. There's no reason to have any shame or concern about not necessarily being able to do that.
Again, it's a very rare individual who seems to be able to make all of those transitions as a company grows smoothly. Most people are really good at one or two of the phases. And if they can recognize and be self-aware about that, they're going to be much happier in the long run.
Sal Daher: I think that's extremely valuable advice. Matt Fates, venture capitalist at Ascent Venture Partners, aspiring angel investor.
Matt Fates: Yes.
Sal Daher: Yeah. I thank you for making time to be on Angel Invest Boston podcast. And I look forward to interacting with you further in the future. Thanks for making time.
Matt Fates: Thank you, Sal. I've certainly joined up to your syndicate. I look forward to hearing about the opportunities that you find. And look forward to hopefully finding some opportunities to invest with you.
Sal Daher: Okay. I hope it's the Holy grail.
Matt Fates: Me too.
Sal Daher: Oh, yes. Okay. All the best and stay well. [crosstalk 00:51:50]. And I look forward to checking in.
Matt Fates: Yeah, likewise. Thanks Sal.
Sal Daher: This is Angel Invest Boston. I'm Sal Daher.
I'm glad you were able to join us. Our engineer is Raul Rosa. Our theme was composed by John McKusick. Our graphic design is by Katharine Woodman-Maynard. Our host is coached by Grace Daher.