"WHY aren't there more consumer internet VCs w/ graphic design skills?"

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Dave McClure posed to Jeffrey Veen and me an interesting question over Twitter which was:

WHY aren't there more consumer internet VCs w/ graphic design skills?

This is something I've been thinking about for quite a while now. When I started angel investing and advising startups, I discovered that pretty much I was the only design guy out there angel investing, or at least that I could find. By that, I mean someone who worked in design in the industry, then switched careers and became an investor full time. For me, I felt that it was a specialty that would make unique in that I could help startups in the area of design and user experience.

However, I had always thought about why there weren't other design folks out there doing angel investing. Here are the reasons I came up with below. Note that I lump together the design disciplines of visual design, interaction design, and user/usability researchers.

1. There just aren't that many designers out there, relative to other disciplines. Anybody who has tried to hire designers knows that it is super hard, harder than hiring engineers which is already hard. Think about how many students graduate with design degrees; the number is incredibly low compared to the number of computer science graduates coming from engineering schools. This makes the probability of finding designers who become investors very, very low.

2. Now, take the very low number of designers out there, and meld that with the probability of experiencing a windfall of cash. This windfall of cash can be from any source, like a large inheritance, or winning lotto, or being an early person at a startup who had a mega-exit. Any of these cases (and others) is of extremely low probability. So again, low number of designers melded with low probability of windfall of cash to enable angel investing results in a super low possibility of this happening at all.

3. Of the people we meet in general with a lot of cash, who really wants to angel invest? I have queried some of my affluent friends and they're just not into it. Some of them don't want to, some don't feel the least bit qualified to do it, some know nothing about it and aren't interested in it. If this is true, then if we take the low number of designers who also have enough spare cash to angel invest, those who feel like investing in startups results in another very low number.

4. Knowing a bit how the venture fund industry works, I've been told that it's super hard to join up with a fund. It's not like applying for a regular job. Commitment at a fund can be a number of years, ranging from 5 to 10. Thus, adding someone to a fund's staff takes a lot of deliberation as it is not good for someone to leave a fund's team in the middle of a fund's life. A fund's pool of money is often raised on the fact that there is trust in a team to invest their money properly. If that team is disrupted, it could cause investors in the fund to pull out. Pulling from a limited pool of possible candidates, and the very low probability that any of them have any sort of design background results in just about nobody joining up with funds who are also designers.

5. If you look at who are typical venture fund partners, they are most likely ex-business people or ex-entrepreneurs. These seem to be the favorite candidates for becoming investors as they have experience in managing investments or acquisitions, or have worked in a startup and have some knowledge in startups and how to spot other good entrepreneurs. Designers are more likely to NOT have experienced these conditions and generally are not specifically looked for when a venture fund is recruiting for partners.

6. As one path to gaining successful experience as an entrepreneur, resulting in a potential windfall of cash to enable them to angel invest, designers might become a founder of a startup and grow it to an exit. However, most designers in pre-2002 days, were hired in later stages of a startup's life, thus limiting their potential return as their stock allocation and strike price are not as attractive as if they came into a startup much earlier. Therefore, even during the dotcom boom years, designers may have been able to reap in a lot of cash, but probably not enough cash to freely angel invest in post-2002 years.

If we expand the list to include design agencies, then there are design companies who invest. For example, Method Design did have an investment operation, and fuseproject is currently making small investments into some of the startups they encounter.

Still, individuals remain almost non-existent.

While all that may be true up to today, I also think that this may change in future years. For example, starting an internet company is a lot easier today than it was in years past. There is a lot more literature about entrepreneurism and general acceptance that entrepreneurism is an OK career choice. Also, it is possible to build something and not be a coder, which most designers are not. There are many inexpensive avenues to getting something built, and use of open source code and other hosted services make creating web businesses much easier.

Also, it is my belief that with the number of me-too products being so high, and the ease that one can create copycat products, design is finally becoming a true competitive advantage as core services are pretty much the same, but it is the user experience and design of the product that allows a me-too product to win over its competitors.

So going forward, we may see a bunch of designers who are part of startups from a very early stage, and thus can have enough equity to get them a substantial cash windfall upon exit, which can then result in enough spare cash to start angel investing. Over a period of time, if they get good at angel investing, then they may get noticed enough to raise their own funds, or join up with a venture fund.

13 Comments

I agree completely. I think our design background has really helped set us apart in our industry and created a much better experience for our users. The feedback we've gotten has indicated that users really appreciate a site that is easy and fun to navigate.

Toby Schwartz
COO
BidModo.com
http://www.bidmodo.com

absolutely!!!

As you've already stated (but I'll repeat anyway) I would say it's a matter of money. It's just not that often that a designer is able to come into any sort of abundance of cash. It's a service industry, so unless the firm launches their own successful product (see: 37signals or Coudal) or is good enough to do steady work for fortune 500 companies, the revenues associated with the design profession are just nowhere near what's necessary to even consider getting into VC.

If you're going to do startup investing, it is very hard to avoid the "pay to play". It's very hard to enter it if you aren't out there investing on your own, and to gain experience in how to invest, which, after 3 years of doing this, was a lot harder than I thought it was. This is not something you can go to biz school and learn. It's one of those things that you have to learn by doing, and the more you do it, the better you get. But then, we're back to having some significant pool of cash to draw from, so that you can actually start and continue learning....

I've thought about getting involved in some angel investing with a focus on helping the team on the user experience / writing side of things. I still think this is the weakest link in business today. It's still too much of an afterthought.

Design continues to be an afterthought to this very day. Most people think it is just "prettifying" their site, after all the work is done. And then, most people think they are designers themselves which unfortunately further reduces the apparent need for someone actually trained in the discipline. This sounds like a potential future post!

Jason: Not that you would ever need *my* advice on the topic of angel/venture investing, but I'd be happy to chat if you're interested.

Great post/question!

I think you largely hit the nail on the head. Investing means that you're wealthy from an exit or that you're a partner in the firm. In the former case, you're generally only getting rich if you were a founder OR if you happen to be an early employee at a blue-moon exit (Google, Yahoo, etc). Most exits don't mint millionaires outside of the founder ranks.

And founders are usually geeks or biz guys. Design is the third wheel that you can hire or find a freelancer for (though I agree with you that early stage companies could benefit from designers who prioritized the company's success-- like a founder or investor-- over getting paid by making the client/boss happy). Note: I'm one of the few designer/founders I know (though I don't consider myself an outstanding "graphic designer").

I would quibble with the phrase "graphic design skills". I think early-stage design talent should be broader than that... UX, metrics, SEO, conversion design, etc. If you're talking to a "graphic designer" in the early stages, that's a bit part in a much broader set of design needs.

Tony, great to hear from you!

And that is why, although Dave posed the question with "graphic design skills" I chose to answer the question by broadening the scope to include visual and interaction designers as well as user researchers.

I also agree that you could include other disciplines related to the user experience of the product, and they would all be most likely NOT startup investors for mostly the same reasons, especially the scarcity of some of these newer disciplines that have emerged with the advent of the internet, like great SEO people, or those who can take metrics AND know how to adjust a website accordingly, etc.

If founders are mostly biz people and geeks, then they will, as you say, be more likely to be later hires, or freelancers before becoming part of the team and gain equity. And, the further you get from the founder round of equity, the exponentially greater chance that your payoff will be not enough to take that cash and go startup investing on your own.

It makes sense that there aren't as many designers in angel/VC roles. But, I think there could be an interesting trend starting with people like Jason Putorti, the recently-named Designer-in-Residence at Bessemer: http://www.bvp.com/team/Jason-Putorti.aspx. He's the only example I know of in such a role, but it makes a lot of sense for VC firms to augment their skill set in this manner.

You're right! I forgot about Jason although I do not know him personally, and only read about him joining Bessemer.

VCs are already building resources to help their portfolio companies. So designers are part of those resource lists.

I just wonder when any of them will make the leap to actually being a venture partner and be able to look at and make investments. I should try to look up Jason and ask him what he thinks.

David,

I might be one of your only fellow designers/investors...if you're willing to stretch the definition of designer.

I have a Product Design degree from Stanford, and actually worked on web/interactive design for the first year of my career. But I rapidly went over to the dark side and got into bizdev and product management, and ultimately HBS.

But I like to think that my design background still helps, not just in terms of the visual side, but also in trying to apply design thinking to some of the issues that arise.

Would love to swap notes sometime.

Chris, looking at your resume, it seems as though you're more of an entrepreneur than investor. Have you invested in startups that were not your own?

BTW I would not necessarily call going into bizdev and PM going to the dark side LOL. But I would be interested in hearing if your design background has helped you in your investments, if you have done that...

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This page contains a single entry by DShen published on December 30, 2009 6:02 PM.

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