It was the peak of the first internet bubble and Brad Svrluga was riding high. He had recently joined a friend’s VC firm, the sort he now claims never should have existed in the first place.
“But it was 1999,” he says. “And they were doing great.”
Working in venture capital after an early career stretch in consulting put Svrluga in the satisfying middle ground between hands-on operations and the intellectual challenge that consulting offers. After his first big meeting with one of the firm’s portfolio companies, he realized that the startup would make serious changes to its strategy based on the advice of his colleagues. Svrluga was compelled by the role’s potential for immediate real-world impact, which contrasted with the bureaucratic and slow-moving nature of consulting at large established enterprises.
Svrluga recalls a memory in which he and his partner shouted the exploding share price of a company in which they’d invested back and forth across the hallway of their office.
“Somebody would hit refresh and see it had gone up another five percent, and another five percent, and another five percent,” he says. “It just seemed illogically easy, but I was 26. And then, everything just kind of collapsed.”
The firm kept doing deals after the dotcom bubble burst, but then 9/11 happened and they knew the ride was over.
“It’s not just ‘last call’ anymore,” he recalls. “Everybody was getting kicked out of the bar and sent home…anything that didn’t have a sound business model or a path to profitability was toast.”
Svrluga walked away from the crash with a few lessons, which he shared with Bloomberg Television’s Scarlet Fu during an online talk on April 7, as part of the Cornell Tech @ Bloomberg Speaker Series.
“Cash is king,” he says, emphasizing the importance of having plenty of time to raise capital, being able to control the company’s burn rate, and having the capacity to dial it back when times get tough. This may sound like conventional advice, but Svrluga notes that there are a lot of young entrepreneurs running startups who have never witnessed a serious crash like the late ‘90s, and are operating under the assumption that the sailing will always be smooth.
From Upstate to Manhattan
Svrluga co-founded a VC firm in 2003, when many VCs were closing up shop, called High Peaks Venture Partners. The firm aimed to foster startups across upstate New York, a region often overlooked by venture capital, despite containing top-tier schools like the Rochester Institute of Technology (RIT), Ithaca College, and Cornell University; as well as pools of engineering talent at companies with a large presence there, like Kodak, Xerox, IBM, and GE. High Peaks was part of Village Ventures, a network of funds based in Williamstown, Massachusetts. Village Ventures was founded in 2000 on the assumption that the internet was going to enable people to build and work for great companies anywhere, not only in the Bay Area or other major tech hubs. The company consolidated the back-office functions performed by venture funds and supported smaller local funds like High Peaks, networking them together to share resources, knowledge, and connections.
This strategy didn’t work for Svrluga. It turned out that there wasn’t enough connective tissue between these companies’ headquarters and the schools, which were sometimes a three-to-five-hour drive away from one another.
“The labor and talent was not seamlessly moving around in that market,” Svrluga says. “It wasn’t a market. It was a collection of little ones, each of which were truly small.” He had some successes, but not enough to justify pouring further energy into the fund. Proximity really mattered.
Meanwhile, just over a decade after 9/11, New York City was beginning to rebound. Svrluga turned his attention downriver to the resurgent “Silicon Alley.” He was interested in a new approach to early-stage venture investing, which departed from how things were done in a few ways.
“I was firmly convinced from 10 years in the business that there was a better way to do early-stage investing — seed-stage investing in particular — that involved a lot more commitment of resources and operating expertise to help companies.”
Svrluga characterizes the traditional approach as one led by older folks with “not a lot of hustle.” In contrast, he wanted to get more involved and to spend a lot of money to ensure his startups had the support they needed to make it to the next stage.
Brad’s original High Peaks Ventures later became Primary Venture Partners, a VC firm based in New York City that makes early-stage investments in local tech startups. The firm was instrumental in helping to rebuild New York’s tech culture after the dotcom bust. Successful exits in recent years include Mirror (acquired by Lululemon), Jet.com (acquired by Walmart), and Ticketfly (acquired by Eventbrite). In February, Primary announced the close of its largest fund ever, with $150 million in commitments. The firm prides itself on “trying to do something relatively impactful, beyond the check,” as Svrluga, its co-founder and General Partner, puts it.
Building “A” Teams
When Primary asks CEOs what they most needed, “beyond the check,” the answer is usually “talent.”
“Every founder who’s never done it before becomes pretty quickly surprised at how much of their time they need to spend hiring, recruiting, looking for candidates, screening and interviewing candidates, and selling the one you want,” Svrluga says. Primary wanted to provide these CEOs with hiring support to help them look for things they didn’t even realize they needed.
“I had seen people looking for a head of product, and they found one who’s better than any they’ve seen before. And they lunge to hire them, but it may just be that they’ve never seen an ‘A’ and they hire a ‘B.’”
Throughout the Valley and beyond, there’s an old cliche that the relationship between founders and their investors is like a marriage, one where both parties must be able to withstand conflict and work together. The decision to invest is based as much on personality as it is on spreadsheets. For Svrluga, he’s looking for two qualities. The first, he calls “raw horsepower.”
“[With] the amount of twists and turns these companies take, you have to have a very nimble brain and be an incredible problem-solver,” he says, emphasizing that this becomes increasingly important as the startup scales. Another aspect of raw horsepower is a resilience to overcome the kinds of difficulties that all founders eventually face.
The second quality Svrluga seeks is salesmanship. He thinks of three tests that every early-stage founder must overcome with the ability to tell a good story:
“You’ve got to sell me or one of my peers on parting with precious capital. We’re only going to do so many deals a year, and I know every time I wire money to a new investment, I know that there’s a 25 to 50 percent chance that we’re going to lose all of our money, and so I know systematically that we’re going to lose that frequently. You’re going to have to be really good at convincing me to get the checkbook out.”
The second test is recruiting top talent. Founders will need to sell the story of their company to their early employees, who often must leave cushier roles at established, lower-risk companies. Top salespeople, for example, are highly compensated, and startups typically can’t compete on that front. If the founder can’t sell salespeople on their vision, the company won’t ever get off the ground.
“That’s a hugely difficult and important sell that makes the difference between building a team of ‘B’ players and building a team of ‘A’ players,” Svrluga says.
Finally, founders must sell the first customers. This third trial is especially crucial in a B2B environment:
“I try to drill into founders’ heads again and again that you need to realize you’re not selling just a product to a business with a problem. You’re selling a solution to a human being with a job, and that human being with a job — [there’s a] pretty good chance he or she has a spouse, children, a mortgage, college debt, whatever it is. If they make a bet on you and your solution, and it’s a highly important, high-stakes, process-changing enterprise technology, and that bet is wrong — they might lose that job.”
Building a more accessible NYC tech scene
For Svrluga, part of supporting the New York tech scene means making the community more accessible to outsiders who haven’t historically been a central part of this community. Primary Ventures is committed to promoting diversity in tech by specifically targeting startups with diverse leadership.
“Diverse founders don’t always have the same traditional background that the 40-to-50-year-old guys are looking for,” says Svrluga. “They don’t work as a consultant for a couple of years and go to business school to then be released onto the world with their networks intact.”
Svrluga argues that investors must “get creative” about the way they seek founders. They should eschew the “check the box” approach that only allows for founders with backgrounds that have traditionally signaled a “culture fit” in tech.
Toward this end, Primary Ventures has launched their “NYC Founder Guide,” a collection of tools and information that will help potential and early-stage founders navigate the city’s startup ecosystem. By featuring directories of local angel and venture investors and vendors, the site’s goal is to provide those who might not have access to industry mentorship with a basic understanding of what to expect along their journey, and how they can get in touch with people who can help.
“That’s something we’re happy to do as a contribution to the community, because we think it matters,” says Svrluga. He hopes founders who’ve been helped through the site will give Primary a call when seeking funding.
Primary is also launching its first class of the New York City Founders Fellowship, a six-month educational program that targets 15 founders from non-traditional backgrounds.
Location still matters
Our conversation with Svrluga took place just a little more than a year into the COVID-19 pandemic, amid predictions that New York City has been thrown into a death spiral from which it won’t recover. Svrluga is skeptical.
“This is the third time in our careers that the death of New York City as the center of many things has been predicted. I’m pretty sure the third time’s not going to be the charm,” he says.
“9/11 did lead to a temporary exodus for some subset of the population who were worried about safety. Anybody who was around at the time can remember the conversations about, ‘Who is ever gonna sign a lease in a building above the 50th floor? Nobody would want to be that high again, right? Nobody’s ever going to build a big skyscraper in New York City again.’”
It turns out that these fears were overstated, and the six tallest buildings in New York were erected after 9/11. As far as Svrluga can tell, New York City has longevity for tech.
“The diversity here is a powerful draw for incredible talent, and there’s just a whole bunch of people in the country and in the world for whom living in New York City is a pilgrimage,” he says. “You have this steady inflow of wildly diverse and super interesting talent.”
Svrluga makes a case for New York City as the world’s premier startup base, due to its unparalleled access to customers in finance, advertising, media, real estate, pharmaceuticals, healthcare — the list goes on. He argues that being able to “be down the street from your customers and your prospects” vastly outweighs the benefit of less expensive office space.
“I’ll take my salesperson who’s in New York, who can run around and see five in a day, or get a text in the morning from a prospect who says, “Hey, let’s talk today,” and they just get on a Citi Bike and get to that person in 10 minutes.”
In a time when other tech leaders are opening up offices to remote work, or exiting traditional tech hubs for sunnier territory like Miami or Austin, Svrluga is doubling down on the importance of location and staying true to the vision that has animated Primary Ventures from its birth.
You can watch the entire discussion below: