TEACHING & LEARNING
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Lawyered Up

OUTREACH
Brainy Winners

PLUS:From Pong to Private Equity

Iron Will Behind The Iron Curtain

Faces of Wharton Entrepreneurship

RESEARCH
Launching into I-Space

What Do Entrepreneurs Pay For Venture Capital Affiliation?

Outreach
From Pong to Private Equity

A Q&A with Wharton alum Jim Furnivall, a VC who has witnessed the modern age of technology investing first-hand.

Jim Furnivall is a general partner in the East Coast office of Canaan Partners. A 1984 Wharton MBA, Furnivall joined the venture capital firm as a specialist in information technology in 1996. As an undergraduate at Princeton University, he'd studied chemical engineering. "But I found out I was a lot better at business and economics than engineering." So after a stint in the oil industry and his time at Wharton, he moved into investment banking, where he has worked for Bear Stearns and PaineWebber.

His banking work led to a job at one of the early high-tech successes, Atari. "Atari had two lives," he says. "I was there during the second one." The company, which had created Pong in 1975 — often credited as the first mass-market video game — had been sold to Warner Bros. It was then purchased by one of the founders of Commodore Computers and taken public. Furnivall helped shepherd the stock offering, then joined the staff. He visited Wharton in late April to serve as a judge at the school's Venture Fair, the finals of the annual Wharton Business Plan Competition, and dropped by to chat with Get It Started about the oft-misunderstood world of venture capital.

What's a typical day for you?

I've got the best job invented because there is no typical day. I spend roughly 40 percent of my time meeting with and evaluating new investment opportunities. That runs the gamut from meeting with entrepreneurs to meeting with people with expertise that can help me assess opportunities. Another 40 percent of my time is spent meeting with companies we've invested in. From time to time, I'll visit customers with the executives of one of our companies. Or maybe I'll interview a candidate for a new vice president of marketing position. The other 20 percent is spent managing our firm. We're a partnership of seven partners, and we share management responsibilities.

VCs say that they add value to their portfolio companies. How?

1. You're building management teams. When you invest in an early-stage company, you never get a complete team. Hopefully, you have a couple of core people. Our firm has invested in more than 100 companies, so we have a large network of people, and we can dramatically accelerate the process of identifying and vetting management candidates.
   
   
2. We have a large network of potential partners, suppliers and customers, and we can accelerate a company's introduction to them.
   
   
3. When you've been through dozens of startups and have seen many of pitfalls and blind alleys, you can advise management about how to avoid them.

What are examples of pitfalls that inexperienced entrepreneurs run into repeatedly?

Too little focus is the biggest. There's a natural tension between an entrepreneur and an investor. As an investor, I'm fortunate to have a portfolio of companies, each one of which I wanted laser-focused on one goal that will add value. But there's a tendency for management to say, ‘I want my eggs in several baskets.' My experience is that you increase the probability of a company's success by being focused on one thing. As a guy I worked for said, "It's OK to put all your eggs in one basket, just watch that basket very carefully."

VCs often say they invest in people. Yet they clearly spend a lot of time assessing technologies. Which is it?

There are only three things that matter — the people, the product and the market. My view is it's essential to have a large market opportunity. Without that, it doesn't matter how good the people or the product are. On the people, when you invest in early-stage companies, you don't get complete teams. We look for a core — one or two people — who are "A" players. If you've got that, you can build an "A" quality team. If I've got a large market opportunity and good core people, I'm willing to give a little on the product.

Entrepreneurs complain that VCs "steal companies." How do you deal with that kind of paranoia?

It's all about expectations management. Hopefully, we can make an assessment early on about somebody's runway — some people can take a company from startup to product commercialization, some people to $10 million in revenue, some people beyond that. It's our job, upfront, to figure out how far the people can go and have a conversation in which we let them know our view. If they accept that, you'll have a relatively smooth transition. If they don't, you see that they might be tied to their company like it's a child, and then you can back away.

How many companies do you say no to for every yes?

Ninety-nine. We invest in one out of a hundred where I've spent meaningful time on the business plan. If I looked at the total number of business plans we receive vs. investments, it would probably be one in 250. Business plans come to me and go into two piles. One is plans from qualified sources like somebody we've backed before or somebody I know. I look at those. Then there's the unsolicited pile. An associate reviews those, and some fraction of them comes to me, maybe 20 percent.

What catches your attention in a plan?

I'll tell you what doesn't — the financials. I know for sure that they're wrong. I'm just not sure exactly where.

What's the cardinal sin in a plan?

What I call The Big Scheme, when somebody is going to solve a very large problem, but that requires a big technology solution and getting multiple people involved. If it all comes together, you'll add a lot of value. But the chances of pulling that off are all so small that I'm not even going to bother trying to learn about it. What I'm looking for is one point of leverage, where if they get this right, it'll make a difference. I want one big lever.

What's the hardest thing about venture capital?

Failure. For every 10 investments you make, three will fail, four will have a mediocre outcome and three will be successful. It's like Major League Baseball. If you bat .300, you're likely to go to the Hall of Fame. And you spend a lot more time on the problem companies — trying to change the management team, finding financing for a struggling company — and there's a fair amount of stress in that. We have a significant influence on our portfolio companies, but we're rarely in control. So a lot of what we do is cajoling and herding cats.

Who's the most impressive entrepreneur you've known?

He's not really an entrepreneur, but I'd say John Chambers at Cisco Systems. He's someone with the leadership ability, presence and the intuition to make great judgments about a company. He's a lawyer by training. He's very impressive but also very approachable — a great model for people who want to lead organizations.

I hear you're a fan of Shakespeare. What's your favorite play?

Henry V. Henry's speech at Agincourt is one of the best passages in Shakespeare.

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