onair100.jpgMatt Rightmire, a successful entrepreneur turned venture capitalist, talks with Chip about the world of high-tech startups outside of Silicon Valley.

Transcript of Interview with Matt Rightmire

Chip Griffin:
Hi, this is Chip Griffin. My guest today is Matt Rightmire. He’s a
venture capitalist with Borealis Ventures, a firm based in New
Hampshire. He’s formerly with Yahoo!; he actually went to work for them
back in 1995, the early days of the world wide web. Welcome, Matt.

Matt Rightmire: Thank you for having me.

Chip:
I thought this would be an interesting interview for my listeners and
readers, because Matt made a transition that is rather unusual. He went
from Silicon Valley to New Hampshire, rather than the other way around.
I was hoping that Matt could shed some light on it, and talk about how
the entrepreneurial community outside of Silicon Valley looks and what
the advantages to it are. So why don’t we start with the first
question. I guess that’s the basics; why did you leave Silicon Valley
and come to New Hampshire, Matt?

Matt:
Well, let’s start by saying I left New Hampshire to go to Silicon
Valley, so I sort of made a round trip. The reasons for my return are
pretty straightforward. At a certain point in life, there’s more to
what you’re doing than work, and the culture of Silicon Valley is that
there’s nothing more important than work. I have three young kids and
we reached… my wife and I, when the first was born, rapidly
determined that our goal was not to send them to elementary school in
California. I think we believe that we can find people that share our
values and the things we hold important much more easily in small towns
in New Hampshire than we can in the ex-urban zoo of Northern California.

The original impression that both of us had was that we’d probably
have to sacrifice things on the career front in order to make the move,
and I think, here we are, a year and a half later, and I think the
sacrifice has been much smaller than either myself or Margaret
imagined. Certainly, both in southern New Hampshire and more so in the
upper valley and up around Mount Washington, there’s a lot more going
on than I think, certainly than what I expected to find. I think there
are talented entrepreneurs, there are talented technologists, and more
and more there’s capital available here to help those entrepreneurs and
technologists really explore some of the ideas that they have.

So, a lot more activity here than I certainly expected to see. I
think at the same time, people have this perspective on Silicon Valley
that it is the epicenter, the nexus, the center of the universe, and
while I think that it does have a lot of things going for it, in terms
of just the talent it attracts, the capital available, the innovation
that takes place at research universities like Cal Berkeley and at
Stanford. I think people have to recognize, as well, that there are
elements of that culture that certainly make it… well I guess I
should say balance out those positives.

The reality is, it’s about as cutthroat as any economic center can
be. I think that people’s priorities, and I’m speaking in generalities
here, but I think people’s priorities are a little skewed, and I think
sometimes that impacts some of the business decisions that are made.
And I think that the venture community and the capital providing
community in Northern California, though they’re certainly more willing
to take risks than probably any place else in the world, I think
sometimes as a consequence of that risk taking culture, they’re
probably more likely to invest a whole lot of capital behind businesses
that just may or may not have legs.

So, I certainly recognize the positives of Northern California. I
think people just need to recognize as well that there are, I won’t
call them negatives, I think that’s too strong a word, but there’s
certainly other factors to consider when you think about what’s going
on in Northern California and the opportunities that are available
there.

Chip:
What do you see as the biggest differences between venture capitalists
in the valley and venture capitalists here in New Hampshire?

Matt:
Or in the northeast, for that matter. So I sort of alluded to one, and
that is the Northern California venture capitalists base their thinking
on generating 100 extra turns, and if one in 10 companies does that for
them and their funds, then they’re pleased and satisfied with that.
They are far from risk averse. One can easily say that it’s a risk
chasing sub-culture in the venture capitalist community out there.
Second, I think, and again, speaking in huge generalities, the world is
not black and white, though I sometimes like to view it that way;
venture capitalists in Northern California are generally much more
entrepreneurial sensitive. A lot of them have been there before; a lot
of them have played the role of early stage start-up founder or
manager. I think because of that, there’s a much better understanding
of some of the challenges and forces at work on the entrepreneurs that
they’re working with.

Generally speaking, folks on the east coast, less aggressive in
pursuing risk. More so, they come from financial industry backgrounds.
They haven’t worn the entrepreneurial hat. They haven’t been in
operating roles in businesses before, and I think that generally colors
the way they think about those same forces that I described earlier. So
I think it’s a different perspective; it’s not better or worse but it’s
certainly different. My bias, given my background, is the belief that
operators, those that have been in businesses and had management roles
in businesses, especially growing ones, earlier, add a lot more value
to the first time entrepreneur who is trying to grow a business
rapidly, because they’ve been there before.

And so, I certainly have that bias, and my partners call it a west
coast bias. I think if that’s a west coast bias, then I’ll embrace it
fully, because I do think it ends up generating and adding a lot more
value than financial engineers typically can. And I think the third
difference is just the amount of capital that’s available. In Northern
California, there is probably, I don’t know the numbers off hand, but I
bet there’s at least five times as much venture capital available.
Maybe 10 times, maybe more, and that creates a more competitive funding
environment, when entrepreneurs are out seeking capital and the
obverse, I think it’s much harder to find capital available, back here
in the east, just because of the numbers.

Chip:
If an entrepreneur came to you today and said, “I need your advice.
Should I start my company in one of the hubs, either Silicon Valley on
the west coast, Route 128 here on the east, or perhaps even New York’s
Silicon Alley, or in one of the outlying areas like New Hampshire.”
What kind of advice would you give them?

Matt:
If I liked the idea, I’d say, “you can start it right here in my
office.” I think it very much depends on individuals, industry, stage
of company, all of those factors. And I guess as well, the sort of
critical success factors of the business. All of those factors should
weigh in pretty dramatically on location choices, if you’re so lucky as
to be able to make one. Too often, I believe, people have blinders on
with respect to where they can locate their companies. They are
comfortable living where they live, and as a consequence, they conclude
that that’s where they’re going to be, and if they’re unsuccessful
raising funding in that particular geography, then they fold up their
tent and go home.

I think more realistically, you have to recognize that capital
availability can pull you to a bunch of different places. So, more
capital available in Northern California and in the hubs; I think
that’s a draw for many folks. I think traditionally, capital
availability, access to talent, the location of basic research
institutions, all have contributed to early stage venture funded
enterprises being located in those same places. I think over the last
five, seven, 10 years, that location and co-location with all of those
resources has become less and less important. There’s more capital in
places like New Hampshire. Borealis is a perfect example of that.
There’s more human capital available in places like southern New
Hampshire and the upper valley, Raleigh, Durham, Charlottesville,
Virginia, Indianapolis, places where there’s a vibrant intellectual
community, and that vibrant intellectual community is attracting more
and more and more experienced and talented business folks.

And then finally, I fundamentally believe that the world is just a
much more open, communicative, less geographically tied place than it
was 10 years ago. Not surprisingly, high bandwidth connectivity, except
in my house in rural Hanover [laughter], has enabled a bunch of good
business ideas that traditionally would have had to be located in the
hubs, to be located elsewhere. That availability and that capacity is
only going to contribute to more and more meaningful businesses being
created outside of the traditional metropolitan areas.

Chip:
You touched a little bit on Borealis, but I think this might be a good
time to talk about how Borealis fits into the mix in New Hampshire.
Obviously, New Hampshire doesn’t have a lot of VC firms and a lot of
funding options, but Borealis sort of fills that need to some extent
and I think you’ve talked a little bit about the approach that you all
take, which I think is a slightly different take on it than most east
coast venture firms.

Matt:
We like to think it’s dramatically different from most east coast
venture firms. So Borealis is comprised of three partners; myself,
Jesse Devitte who was the founding executive of a software company
called Softdesk, based in Henniker, New Hampshire, that was eventually
acquired by Autodesk. So he’s an operating executive as well, and then
our third partner is a fellow named Phil Ferneau. Phil has a tremendous
amount of experience in commercializing basic research. Those
backgrounds sort of lend themselves to a couple things; first, we like
to be involved in early stage ideas. Myself and Jesse, and Phil as well
to a lesser extent, have rolled up our sleeves around ideas on an
operating basis and pushed those ideas into meaningful businesses. So
we’ve done that in the past, and as capital providers, that’s what we
want to do in the future.

I think second, we like to think of ourselves as very, very, very
active members of the team, whereas most sources of capital either
don’t have the time or the inclination to roll up their sleeves and do
the hard work of getting a business off the ground or to the next
level, other than providing capital. We like to think that in addition
to providing capital, we’re going to work in tandem with the
entrepreneurs and the management team to really push the operations of
the businesses in which we invest. Both of those things, though I think
that they were the foundations on which venture capital was created in
the late ’60s and early ’70s, as traditional funds have gotten bigger
and bigger in terms of capital and their management and in terms of
number of people involved, people involved in those firms have become
less willing and less able, either to get involved early, or to roll up
their sleeves and be very active with the companies in which they
invest.

So we’re doing what we like to do; we’re doing it where we like to
do it, and the funds that we have to invest allow us to do both of
those things. So the approach is definitely different. We are, in
addition, I think big supporters of making things happen outside of the
traditional hubs. I sort of alluded to why I think there are
opportunities for businesses to be created and to grow in places like
northern New England and New Hampshire. We’re sort of putting our money
and other people’s money where our mouth is, by choosing to invest the
lion’s share of the capital we have under management in early stage
enterprises here in New Hampshire. So our philosophy is definitely
different, but we feel like it’s a right market opportunity and on top
of that, it’s how we really want to spend our time. So it’s a good
combination of things.

Chip:
You talked a bit about how there’s obviously a lot more money in
Northern California, venture money, that is. How do you see the
marketplace for venture funding in New Hampshire today? Is it a market
for VC’s where there are just so many ideas out there to be funded that
they can really pick and choose? Is it really almost a real hunt to
find the good ideas, the good entrepreneurs, to back here in the state?
Talk to me a little bit about what you see.

Matt:
It’s actually pretty balanced, surprisingly enough. We feel like, and
we could be proven wrong, but we feel like we certainly see the lion’s
share of the opportunities that are being created in the state, and we
feel like there’s enough opportunity to warrant the investment capital
that we’re making, but not so much opportunity that there isn’t enough
capital to deploy. Or on the other end of the equation, so little
opportunity that we’re out there trolling for good ideas because
they’re so hard to find. It’s pretty balanced here. I think that
clearly, Northern California and Boston operate on a different scale,
but I also think that generally those places are pretty unbalanced
right now.

There’s a huge amount of capital to be deployed, simply because of
the success of the asset class historically. And while I think there’s,
in volume terms, a pretty meaningful set of opportunities for those
funds to pursue, there’s not nearly enough ideas to balance out the
capital flows. So New Hampshire, pretty balanced, I think more capital
than is necessary in places like Boston, New York and Northern
California. And I don’t see that changing going forward; I think
there’s so much capital, so much money flowing into tier one firms like
Sequoia and Kleiner and pick your brand name of choice, that that
overhang, if you will, is going to be in place for quite some time.

Chip: Does that dynamic create the potential for bubble 2.0 to exist? I can’t help but ask that question, since I’m in VC here.

Matt:
It certainly creates the potential. I like to think that everybody,
everybody, is a little bit smarter this time around, that collectively
the marketplace has learned from its past excesses and as a consequence
the likelihood of a bubble the size of the one in ’99-2000 being
created is relatively small. Do I think there’s the potential for
overinvestment? Sure. All these things happen in cycles, and generally,
it flows between overinvestment and too many quote-unquote good ideas,
and underinvestment and not enough. It’s very rare that the dynamic is
an equilibrium, unfortunately, but I think that the chances of any
excess being anywhere near the scale of the excess we saw six or seven
years ago is really small.

Chip:
Excellent. Well, Matt, unfortunately we’ve reached the end of our time
here. I appreciate you taking the time to speak to me. I think it’s
been a very enlightening conversation. Again, my guest today was Matt
Rightmire of Borealis Ventures.

Matt: Thanks for having me.

Transcription by CastingWords