Claire Cain Miller wrote a nice fluff piece yesterday in the New York Times profiling Fred Wilson's Union Square Ventures. The title sets the tone "A New Kind of Venture Capitalist Makes Small Bets on Young Firms." (if you can't read it, visit Bugmenot for a password)
Now Union Square Ventures (USV) and Fred Wilson have made some great investments, and I would never suggest otherwise, but reading this piece you'd think they were angels (not in the investor sense, but the godly sense). The problem is, where as Wilson and his team may be savvy investors who help startups along the way, there's a world of difference between corporate benevolence and smart money making, and USV falls in the latter.
Let me say upfront that my first experience with Fred Wilson wasn't positive. I was writing a weekly column for a now defunct site, and the topic I picked one week was web analytics. In the post I wrote how comScore was at the time using what other serious publications referred to as "malware" and "spyware" to get installs of their internet accelerator onto PC's to improve their stats reach. Among what I noted in that post was a proven fact that at one time, comScore's software was being bundled with Kazaa and being installed without, as other sites claimed (I didn't make the claim without proof, and I referenced it) permission. I would note that comScore is not using the same tactics today, and as far as I'm concerned this is a matter for the past. However, Wilson came gunning. On his person blog at the time he wrote an attack post that targeted me personally, including (if memory serves me right) calling me a liar. He was however caught out, because originally he didn't disclose a vital fact, one I wasn't aware of initially when he wrote that post, that he was on the board of comScore. He subsequently updated the post. What struck me about the man was that he was a hard arse, a man who went for the jugular in defending his financial interests, and certainly no benevolent fluffy bunny that we see in the New York Times today. That trip down memory lane aside, lets look at some hard facts. The New York Times claims that USV likes to make small investments up front because they're some how different to the crowd. It's wrong on two fronts. One: they don't always make small investments upfront, and second, they buy in small on other companies to set themselves up in a prime position for other rounds (a point I'd note admitted later in the article); they're buying a strong chance of an in if the company looks like it's successful by buying influence and presence early.
Lets look at USV's investments. Of their list, many initial rounds were small amounts for small shares, like Etsy profiled in the Times. And yet there's Series A investments that included participation or direct investments of $6.5m into Coinvest, $5m into Buglabs, $4m into Wasabe, $10m into Zynga and $5m into the aptly named Indeed.
Consider the corporate benevolence of the Etsy investment featured so heavily in the Times. $1m Series A for less than 5%, then participation in rounds include $3.25m series B, then (and this is the good part) $27m series C. I make no dispersions on Etsy, and it's a smart startup, but lets be very honest here: USV didn't make a small investment up front because it wanted to play startup santa claus, they made the investment so they could get a priority in for future rounds if the company was heading in the right direction.
And the cream of the crop is Twitter. USV invested early, and as the Times article points out, they have a hands on approach to their investments. Do I really need to say any more? If they were so hands on, how do you explain this year? Still, maybe Fred saw the halo around Ev and Biz and knew the company was blessed, after all, I would never suggest the man isn't smart, indeed, he's probably one of the smartest in the business.
If Fred Wilson came knocking on my door tomorrow bearing gifts of funding (99.9999% chance of not happening), I wouldn't think twice about bending over to accept it. But lets not confuse one of the smartest guys in the business, and a hard arse fighter to boot, with a saint. While I'd love nothing more than to see more people like Fred Wilson, and more funds like Union Square Ventures, I reserve my right to vote no in the ballot for sainthood.