Visionaries, Builders, and Operators

This is Recorded Future, inside threat intelligence for cybersecurity.

Dave Bittner:

Hello everyone, and welcome to episode 188 of the Recorded Future podcast. I'm Dave Bittner from the CyberWire.

Our guest this week is Jeff Fagnan, founder and managing director at Accomplice, a venture capital firm focused on seed-stage technology companies. He’s worked with well-known companies such as Carbon Black, FreshBooks, Patreon, Veracode, and yes, Recorded Future.

Jeff shares his perspective on what he looks for in a hopeful entrepreneur, the hard problems he wants to see them tackling and the importance of their ability to communicate their vision and their passion. We’ll hear his optimistic vision of the coming year, and why he believes cybersecurity is a foundational element of every modern company.

Jeff Fagnan:

So I wrote a piece of crappy software in 1996, actually, I guess it was '95, that was around really understanding when you should harvest timber and forestry products based on the land and using some option theory. And that was really my advent and my origination into tech. And from there, I started working in consulting and tech, and then wanted to be a founder again, and somehow got myself stuck in venture capital. And I thought it was just going to be for a month or two, and ended up 20 years later. And now I believe I am disqualified and inappropriate to do anything else.

Dave Bittner:

Can you give us some insights, what is that path to venture capital, and what typically leads someone into that space?

Jeff Fagnan:

It's funny, I say that you don't pick venture capital, venture capital picks you. And I believe that so many of my colleagues that are in this industry just got in by happenchance. They were journalists, they were founders, they were part of other kinds of companies. All of us have been technically curious. All of us really are entrepreneurial and love betting on the underdog, but there's not a traditional path. It's not like you go into i-banking or consulting and there's a laid out career path on how to get a job in venture capital. I think early-stage venture capital probably hires less than 10, 15 people annually, just because it's such a cottage craft. So I always feel really strange when somebody calls up and says, "Help me find a job in venture capital, and how did you do it?" Because I was like, "I just got here by accident." I'm just an accidental tourist that decided to stay.

Dave Bittner:

Well, what is your day-to-day like these days, or what sort of things take up your time?

Jeff Fagnan:

I do look at a pie chart. I suck all my calendar data into a spreadsheet and analyze where and how I spend my time. And currently, right now, about 50 percent of my time is spent working with the existing portfolio companies that I have investment in, where I sit on boards, or I have relationships with those founders that go way back. About 30 percent of my time is focused on new investments. And those can be working with team members here in those new investments, me working on those new investments. We have a program called Spearhead, where we give founders their own angel fund, and then we give them mentorship around them backing their most talented friends in the industries they know. So I spend time on that. That's all on the new projects. And then about 20 percent of my time, which is too much, is spent on firm management, which is running a firm and all the things that come as part of that.

Dave Bittner:

I think that's a really interesting point, because I think it's been my experience that a lot of people who are starting up companies get into it because they're passionate about the problem they want to solve. And they're not necessarily all that into being the person who actually runs a company.

Jeff Fagnan:

True that. It's funny, I always put founders into three types of categories. There's your visionary, there's your builder, and there's your operator. And the operators are the people that are really competent and adept at what you just said, managing processes, managing people. And visionaries are often the worst at that. And then builders can be really good around the initial building, but then eventually they scale out. And I'm a builder. I really like to think about the machinery, trying to get all the blueprint for the things that we're going to do. But once it comes to actually managing that, I'm much better off leaving that to somebody else.

Dave Bittner:

Well, what sort of things catch your eye these days when it comes to the types of things you all will be investing in there at Accomplice? What does it take to get on your radar?

Jeff Fagnan:

It's a difficult question because there are so many start-up opportunities out there. And then we invest in just such a small fraction of those. For me, it's all about investing in very mission-driven people. So when somebody comes in and they just say, "Hey, I know this industry well because I grew up in it. My father was in it. I've lived this for the last 15 years, and this is screwed up. It must be fixed. Or this is a problem with society that must be fixed, or this is an inefficiency in the system and must be fixed." And when somebody's Adam apple's like going up and down and they're using these hand gestures like they're fighting bees because they have that much passion, you're like, "Great. I know that this individual, when it gets hard, and yes, it's going to get hard at some point, is going to persevere."

So I'm always about the people that come in and are mission-driven, versus somebody who's like, "Oh, I've got an amazing opportunity. I've analyzed the market. It's a really good, big, total addressable market size," because I believe you have to be mission-driven to be that resilient as a founder. So I look for that. I look for things that are hard to do. I'm probably over-indexed on hard technology problems and barriers to entering this. Because, to me, if there's a little bit of like, if it's not hard, is it worth doing? And that's probably where I am not as good of a venture capitalist as others, because sometimes probably things are obvious to people and I'm like, "Yeah, not hard enough. Like, let's do something that's more ambitious."

Dave Bittner:

Let's talk about the people side of the equation. I mean, there's technology and obviously that's important, but how important is it for these folks to come in with an assembled team that impresses you?

Jeff Fagnan:

No, it's not important. I mean, I think that, to me, like too often, people come in and believe they need to have this assembled team. So they've put a loose federation of individuals together and they're like, "Oh, and so-and-so's the CFO. And they know numbers. And so-and-so is this." I really like to start with one, two, three people that have been working at something for a while, probably have already dedicated some time in bootstrapping it, some time really understanding each other. And I really like it when people have worked together in the past. So I believe these are strong bonds and the only founding teams that last, are just a complete conviction and trust of each other. So, yeah, I don't look for assembled teams. I would rather invest, and we invest super early.

I mean, our stages are most often pre-product or pre-revenue, and I feel much better apt around building a team longer term and really thinking about those needs. I find that teams and companies hire too quickly. And I believe, when you're an early stage start-up, and let's define the early stages they in, less than 10 people. It's so important to get the right people at the start. And so I don't believe in that just like just go hire. I believe in taking your time. When you feel so much pain that you know you need that next hire, spend that amount of time to go out and get the person who's going to be absolutely great within your team and that you believe is going to work with you for the next 10 to 15 years.

Dave Bittner:

Well, what are some of the other common mistakes that you see folks make when they're coming to pitch their products or their services to you?

Jeff Fagnan:

Well, I believe that PowerPoint, Keynote, and so many different kinds of presentation slide wares are at the detriment of good communication. I have so many founders that come in that just want to be like, "Let me get to the slide deck." And they believe that I'll understand all the answers once I see the slide deck. And I am much more around, "Let's whiteboard what you're trying to do. Tell me how you identified the problem. Tell me how you've been living this problem. Tell me more about yourself. Tell me more about your upbringing." I am much more into that side.

And so I think, too often, founders use that deck or that PowerPoint as a crutch and they just want to get to it because they know it. And I think a much better approach in some of these initial meetings is just like, "Let's have a conversation. Show me a demo. Get on the whiteboard." And the things that I really like are when people are intellectually honest. Most people in this business are honest, but being intellectually honest is when you turn them in, you're like, "I'm not sure this is going to work." And I'm like, "Hell yeah, let's go."

Dave Bittner:

Within your own team there at Accomplice, I mean, how do you go about making sure that you have the right balance of people that you're working with there yourself?

Jeff Fagnan:

Yeah, we've struggled with this. And building teams is hard. And whether it's one of our portfolio companies or whether it's here, I believe that you make a new hire and it's a coin flip proposition of whether that person's going to work out. And usually, a lot of people that haven't worked out here, it's actually not because of them. It's because of us. We've been doing this a certain way. We're stuck in our mindset. And the way we work is not always the way that somebody else wants to come in. We move really fast here. We believe one of the things around us is speed is a weapon. Founders come in and pitch us. We believe that getting back to a founder within 24 hours with a "Yes, we're interested. Here's the next steps." Or, "No, and here's the reason why." And that's a little bit different than the venture industry has been historically.

And so we definitely value what we call metabolism. And it's a word to us that means just like, "Hey, if you're involved, we're moving fast. We're moving on projects. We're not waiting a long time on deciding things. We're being decisive. And we're being as decisive as we want to see in our portfolio companies." That said, I think we've gotten better. We're not hiring from MBA programs anymore. I mean, I think the type of people that fit at Accomplice are the type of people that have been founders. We've all been founders and we've all been founder-driven here.

And so I think somebody coming out of Harvard MBA that's really smart and has a remarkable pedigree, they're going to do well. We're much more of an entrepreneurial vibe. And I'm much more likely to go to somebody that we've been working with for eight or 10 years as a founder and say, "Hey, instead of going and starting your next company, why don't you come spend some time with us?" And I think we look at it as, "Come spend some time with us. See if you like what we do. See if you kind of grok with the way we do it. And we know we're going to get as much out of you during that time period and we know how much you're going to get out of us. If, after a couple of years, it's not the right thing, you just go walk away and you're still an Accomplice for life."

Dave Bittner:

I've heard people use the phrase hire slowly and fire quickly, because people quite often do the opposite of that. On the fire quickly side, do you go with that as well?

Jeff Fagnan:

I do. I mean, I think it's, you know if it's the right fit or not. You might not know if somebody is good or not, but you'll know if it's the right fit or not. And we should all just be super honest with each other. Like when something's not the right fit, everybody knows it. Whether it's a relationship, whether it's at work, whether it's something else on a personal side, whether it's a new hobby you've taken up, we always know when it's not a good fit. And I think it's interesting because as soon as you eliminate that good fit, everybody's more relieved. And the number of people that I've talked to, whether it's been founders and they're thinking about whether what they're doing is a fit for them, whether it's been people that have come here to partner with us, as soon as you say, "Hey, is this really working?" and somebody's like, "You know, it's not," God, it's liberating on both sides.

Dave Bittner: What is your outlook as you look towards the horizon? How do you see the VC market on the tech side for cybersecurity? Are you optimistic about the direction we're going?

Jeff Fagnan:

Look, cybersecurity is here to stay. It's a mainstay. And I've been involved in it for so long, I think since 2000 and going back to CyberArk and DataPower. At the time, you couldn't have envisioned what we're seeing today with the iPhone, which I call the remote control for your life, just how tied we are with web services and just the stack of everything that drives us. I mean, today, I believe there are only two kinds of companies in the world. Companies that are software companies and companies that are going out of business. Even your traditional brick and mortar manufacturing companies, they have to think of themselves as software companies. And everybody that's in software, that's using the web for anything, for marketing, distribution, to customer acquisition, the payments, cybersecurity, it's this fabric and this underlying horizontal thing that is really important.

It's really hard. So, to me, there's only a few companies and a few founders and a few themes out there that are worth investing in. But it is uber-important for us to continue to have the commerce, the collaboration, and just the peace of mind that we want in our lives.

Dave Bittner:

What advice do you have or tips for those folks who are burning the midnight oil, working in their garage, guys and gals who think maybe they have a better idea. Any words of wisdom for them?

Jeff Fagnan:

Just really believe. Don't try to fool yourself into believing because then you're just going to try to convince others. Like be super bare metal, intellectually honest with yourself. Go out there, continue to get feedback from people. Don't believe the feedback, but continue to get it because it's going to just sharpen your resolve and it's going to sharpen your approach.

But to me, like cybersecurity, it's so hard. Nobody wants to buy a new cybersecurity product. Nobody. They want to buy something that's tested and true and is industrial strength and you can point to, because it is so important and it touches so many parts of an enterprise or a small business. So to me, like you can't be a tourist. You’ve got to be fully committed. You’ve got to realize that this is going to take years before that product is to market. And then it's going to take even more years before you’ve got that product in repeatable sales where everybody defines it and you're really starting to scale as a company.

So the cybersecurity companies that I've been involved with, as a founder of Veracode and the first investor there, that was an 11-year project. I incubated Carbon Black in my office in Waltham. That was a 15-year project. Recorded Future is now going on, I believe, an 11, 12-year project for Atlas/Accomplice. I mean, these are long journeys, but they're so valuable. And when I say they're so valuable, I'm not even talking about the market cap or what they end up at valuation. What they're doing for society and what they're doing so we can conduct our business and our lives online are absolutely imperative. So to me, it's really hardy, driven people that you know are going to be resilient and are not looking for a quick flip in any way.

Dave Bittner:

Our thanks to Jeff Fagnan from Accomplice for joining us.

Don't forget to sign up for the Recorded Future Cyber Daily email, where every day you'll receive the top results for trending technical indicators that are crossing the web, cyber news, targeted industries, threat actors, exploited vulnerabilities, malware, suspicious IP addresses, and much more. You can find that at recordedfuture.com/intel.

We hope you've enjoyed the show and that you'll subscribe and help spread the word among your colleagues and online. The Recorded Future podcast production team includes Coordinating Producer Caitlin Mattingly. The show is produced by the CyberWire, with Executive Editor Peter Kilpe, and I'm Dave Bittner.

Thanks for listening.