Marlon Nichols (@) is Investment Director at Intel Capital (iCap) and Founding Partner at Cross Culture Ventures. At Intel Capital Marlon leads investments in women and minority led technology startups through iCap’s Diversity Fund.
Premoney SF is around the corner (June 12th) and 500 caught up with speaker and Intel Capital Investment Director, Marlon Nichols.
Do you think the venture capital industry today is innovative? Is there anything that needs or can be changed for us to keep momentum?
For an industry that prides itself on identifying disruptors and investing in innovative companies, venture capital itself isn’t very innovative. That said there are new venture firms launched in a somewhat frequent manner, but only a small percentage of those funds look to change the model. I’ve talked to a few GPs that are tinkering with the carry structure, the number of investments made, or the phase of company that they invest in. There are also some firms that attempt to differentiate by the services they offer to entrepreneurs. My feeling is that the biggest disruption is to step out of the me too mentality i.e. investing in companies because the quote on quote top VCs have made or are pursuing an investment in a particular company. The way around this is to hire more diverse teams, particularly at the GP level. What this does is it adds perspective. A general partnership that comes from different backgrounds and has diverse interests enables that venture firm to think out of the box and even make educated bets on “non-traditional founding teams”. The result of this approach include exposure to new trends, unique solutions to existing markets, and the birth of new markets. All of which contribute to outsized returns.
Let’s talk about the 2 and 20? Is that something we as an industry can move away from?
I don’t have an issue with the 2 and 20. For small to mid-sized firms it sets proper incentives for the General Partnership. In this structure general partners are paid well enough to focus their attention on the job at hand and are incentivized to be good stewards of capital since their true pay day depends on finding successful outcomes i.e. portfolio companies that experience profitable M&A or IPO opportunities.
What are the top value-adds that VCs provide?
This depends on the firm, but I will only speak about the two firms that I am intimately familiar with. Intel Capital prides itself on value-add introductions to the Global 2000. This is a huge deal for a startup seeking to land its first or early customer base. Intel works with just about every company of note and has created a reputation of being an influential partner. Through its technology days (610+ since 2005), annual Global Summit (attended by ~1k industry executives and catalyst for ~3k connect meetings during 2014), and staff of capable business development managers, Intel Capital facilitates necessary and qualified corporate introductions. Cross Culture Ventures is adding value to portfolio companies through cultural trend research, unparalleled access to influencers, development of marketing, brand and communications strategy, as well as business development support. It achieves these through a close knit relationship with the Atom Factor, an entertainment management company with significant experience working with startups such as Uber, Lyft, Spotify, Warby Parker, etc.
How are you building a different kind of VC firm?
I would start with GPs that come from nontraditional backgrounds who have complementary operational experience and strong venture capital track records. Utilize those unique perspectives to think well outside of the box and to see value/ opportunity in ventures that others without these perspective likely will not see until much later down the road. Additionally I’d invest in deep cultural trend analysis expertise so that the firm will be able identify emerging movements before they become mainstream phenomena.
Are there common characteristics of someone who is a successful VC? Do you have any examples of people who you think are really pushing the envelope in the industry?
I’m encouraged and motivated by forward thinking VCs that create investment vehicles/ platforms that allow them to execute their vision and produce positive change. Successful entrepreneurs balance conviction and having an open mind well. Maintaining this balance is also an important character trait for venture capital professionals. Jason Green believed strongly that SAAS was the way forward before Sales Force was successful and before SAAS became “a thing”. He and his partners founded Emergence Capital with this premise and have built a top quartile venture firm. Mitch Kapor and Freada Kapor Klein Ph.D have long been advocates of diversity and care deeply about social impact. Kapor Capital consistently invests in diverse founding teams who build businesses that produce rich social impact while driving significant returns. Lisa Lambert understands that diversity presents a significant investment opportunity. She was the catalyst for Intel Capital’s newly formed diversity investment fund. In the spirit of full disclosure Jason Green, Freada Kapor Klein Ph.D, and Mitch Kapor are mentors/ advisors to Cross Culture Ventures. Also, I’ve worked with Lisa Lambert for the majority of my career as a venture professional and consider her a mentor.
How has the VC business changed since you joined Intel Capital?
Three things come to mind:
1. More corporations are launching corporate venturing units and placing more focus on achieving a financial return as opposed to solely focusing on strategic impact to their parent company.
2. About four years ago I watched a consolidation in venture capital and am now seeing an increasing number of new firms being launched in 2014 and 2015. Markets are cyclical and apparently so is the market’s appetite for venture capital.
3. Venture capital is now starting to realize what corporate American learned years ago, diverse teams create outsized returns. It’s not completely there yet, but I think some firms are beginning to see diversity as an arbitrage opportunity. The changing demographic of the United States is helping to change the narrative i.e. it’s a good thing to understand what the soon to be majority of the country are interested in and need.
Let me ask everyone’s favorite question, are we in a bubble?
I wouldn’t call it a bubble, markets move in cycles and we are experiencing an upward turn at the moment. As a result there is more capital for investors to put to work and consumers have more discretionary income and are spending it on technology and consumer products. There is no doubt that valuations are high, but in most cases these companies are generating revenue to support those high valuations. Burn, however, is higher than I’d like to see. I attribute this to lack of true differentiation in many markets, companies are forced to spend more on marketing and branding to create the illusion of differentiation.
What advice would you offer to founder who is looking to raise capital for their new startup?
Think long and hard about how difficult it is to start and grow a company. Think about how lonely it truly is to be the founder/ CEO of a startup. Then take a honest and introspective look at yourself to see if you really are “about that life” i.e. cut out to be an entrepreneur. I’d encourage her to ensure that she builds a cohesive team with relevant and complimentary experiences and/ or domain expertise. Above all else she must have a deep understanding of the space that her and her team are planning to tackle, and an even greater understanding of the business that she is starting. I wrote a relevant blog post last year “The Pitch” Meeting, a VC’s Perspective!. In terms of targeting investors, know what kind of help your company needs to succeed and target those firms and partners that can actually provide real help in that area.
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To hear more insights from Intel Capital & others, join us at the PreMoney conference on Jun. 12, 2015. Visit PreMoney.co and enter promo code ‘IntelCapital’ to score an additional $150 off the registration price.