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Against The Tide

Blog

Against The Tide

Stuart Ellman

Sometimes things just break the right way. Within a three-day period last week, we closed the sales of two of our portfolio companies—Business Insider and Kroll Bond Ratings. The checks have cleared, and everyone is happy. Our founders, our limited partners, and our firm have all made money. But in an industry easily distracted by exit multiples and sale prices, it can be tempting to lose sight of everything that comes before deals are closed and funds are wired.

Henry Blodget, cofounder and CEO of Business Insider (BI), recently published a post thanking everyone who helped BI along the way to their $450mm acquisition by Axel Springer. His description of our initial investment was perfect: “I’ll never forget the look of excitement and trepidation on RRE Ventures partner Stu Ellman’s face when he decided to buck conventional wisdom and lead our first major institutional round.” 

Trepidation is a nice word. I was scared.  At the time, companies like this were not sexy. It was 2010, Buzzfeed (another RRE portfolio company) was not yet close to being a household name, BusinessWeek was being sold for almost nothing to Bloomberg, and investors were very skeptical of content deals. The BI team had trouble getting meetings.

Kroll Bond Ratings, which sold for $325mm last week, was no sure thing either. Jules Kroll was a proven CEO, but investors argued that KBRA was not a venture deal.  We had just gotten over the crash of 2007 and, while the reputations of Moody’s and S&P were in tatters, they still had extraordinary market power. I remember well the quizzical reactions of other VCs when RRE decided to co-lead  KBRA’s first institutional round. “Its just another rating agency”, “It can’t compete against the big guys”, “the investment banks will not let another player in” and “this is not a tech deal”, is what I heard in response. While we believed strongly in the idea of using technology to disrupt the ratings industry, this thesis was not universally accepted.

Today, with our companies making headlines, these theses seem obvious. But it’s easy to be a contrarian once you’ve been proven right. What’s harder is sticking to your philosophy in the weeks, months, and years that lead up to the actual outcome. After being in this industry for two decades, I’ve learned to fight for companies and ideas I believe in. BI and Kroll are just the two latest examples.

Of course I’m proud of our companies. But I’m prouder still that our firm is able to place bets on companies we believe in, even when the prevailing wisdom is against us. RRE is a place where we swim against the stream, even when to do so gets uncomfortable and scary. No matter how strong the pull of the latest trend, we pride ourselves on eschewing groupthink. We continue to bet on companies that can’t get meetings elsewhere, and we stay away from deals we don’t believe in, even when the buzz around them becomes deafening. Moreover, knowing who we are as investors makes the inevitable losses easier to stomach, and makes the wins all that much sweeter.