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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. 

A Different Kind of Training

Cooper Zelnick

At around seven o’clock last night, Jason Black and I were pulled into a conference room to meet an entrepreneur seeking seed-stage funding for his new venture. Raju Rishi (our boss) introduced the entrepreneur, who shared an overview of his idea. Then Raju asked the two of us a simple question: “Do you believe in this?” So started our final meeting of the day. 

My name is Cooper. I’m a (relatively) new Analyst at RRE Ventures, a New York City-based venture capital firm. And despite being a 23-year-old kid with basically no work experience or marketable skills, I get paid to think creatively, to have informed opinions, and to argue with people who have been working in this industry longer than I’ve been walking this earth. 

If that seems odd or incongruous, then I’ve made my point. Its an old cliché that my peers—ambitious, talented recent graduates of relatively fancy colleges and universities—are lured into traditional “Analyst” programs only to spend years staring at screens, suffering through eighteen-hour workdays, building spreadsheets, and warming swivel chairs. 

Ostensibly, these programs offer formal training, invaluable work experience, and handsome pay. But what do they actually teach? To be clear, my issue is not that many of our generation’s best and brightest minds go into such roles. My issue is that high-paying, prestigious institutions spend huge amounts of time, energy, and money turning smart, passionate, and engaged young people into glorified calculators and copy editors. My issue is that the enterprises that recruit our generation’s best thinkers all too often seem to favor conformity over creativity, and that those who want to be successful in traditional terms have no choice but to acquiesce. 

No industry is perfect (VC is no exception) but this is an industry that must by definition be open to new ideas. Innovation, agility, and a forward-looking mentality are the keys to a firm’s success, and young people have fresh and valuable perspectives. So it’s not all that shocking that VC Analysts are recruited to do more than demonstrate proficiency in Excel and run on low levels of sleep. 

What I can’t understand is why our industry seems to be relatively unusual in this respect. It’s no secret that technology is changing the world. Even the stodgiest of incumbents now acknowledge the threat of disruption, and hardly a day goes by without another major corporation initiating a startup accelerator, licensing a new technology, or buying an innovative, year-old competitor outright. 

Yet for all the ways that these companies espouse progress and innovation publicly, they stifle innovative thinking within their ranks by demanding conformity and limiting opportunities for expression among their own young employees. Too many firms forego an opportunity to innovate from within, failing to tap a deep well of new ideas backed by intelligence and enthusiasm.  

Perhaps they don’t want to indulge youthful idealism.  Perhaps they are afraid of impinging a culture of seniority.  Perhaps innovation isn’t really that important to them after all.  Whatever the reasons, the truth is that while bleary-eyed Analysts across the country sit idly behind their desks hoping to be observed “applying themselves”  by Managing Directors, I am being asked a simple, direct question: “Do you believe in this?” And I am asked to answer.

Introducing RRE's Director of Platform

Steve Schlafman

Over the summer RRE kicked off a search for a Director of Platform. After reviewing hundreds of resumes and meeting with more than a dozen candidates, we were fortunate to find a candidate with deep operational chops, a innate passion for the startup ecosystem, a strong willingness to help founders and a super positive, team-first attitude. This candidate also demonstrated tremendous hustle, drive and raw emotional intelligence that our founders and partners deserve and expect in this role. With that being said, I'm incredibly excited to welcome Maria Palma to the RRE family and community. 

Maria brings a wealth of operations, strategy and business development experience to the RRE community. Prior to RRE, Maria, was Executive Director of Business Development and Chief of Staff at NYC-based Eyeview. There she was involved in numerous aspects of the business including strategy, partnerships, and revenue to name a few. Before she joined Eyeview, Maria received her MBA at Harvard Business School, where she found her passion for working with early stage entrepreneurs. She kickstarted her career at General Electric in their prestigious Operations Leadership Program and Global Supply Chain Group. Not only does she have a wonderful mix of business experience but she also has an engineering degree from University of Wisconsin-Madison. We believe this blend of skills will greatly benefit RRE's founders, portfolio executives and partners in the community.  

Maria will be tasked with building the RRE platform, growing our community and expanding our presence in the NYC ecosystem and beyond. She outlined an ambitious blueprint that supports RRE's founders across five key dimensions -- infrastructure, community, business development, best practices and talent. There's certainly a lot of work ahead but Maria is up for the challenge and already hard at work. Please join me in welcoming Maria to the RRE family! We couldn't be more thrilled to have her supporting and adding value to our founders and their companies. 

Spaceflight & BlackSky Global

Will Porteous

I’m excited to talk about RRE’s investment in Spaceflight and the launch of its BlackSky Global division.

Spaceflight is executing on many of the trends that we see affecting the satellite industry broadly. After decades of isolation, open systems thinking is finally coming to this industry. For those of us who actively invest in enterprise systems businesses (networking, processing, and storage hardware) it is difficult to fathom the monolithic and proprietary design approach that still persist in most of the satellite industry. The rest of the systems/hardware industry relies on Commodity- Off-The-Shelf components, open architectures and standards and a universe of offshore contract manufacturers.  The expense of launch and of operating in the harsh environment of space have been major drivers of this approach, but the willingness to pay of Government and Defense customers has also been a big enabler. This is of course changing as the Government outsources more and more responsibilities to new suppliers. There is no better example of this than SpaceX’s contract to supply the International Space Station.

The most important enabler of this shift to open systems thinking has been increasing access to affordable launch opportunities. This has enabled satellite system designers to think in terms of replenishing the elements of a satellite constellation much more regularly. Once launch is cheap and easily accessible, then satellites become much easier to replace, which opens the door to considerable simplification in the way they are designed.

Spaceflight is deeply rooted in the legacy satellite industry, having developed small satellites for government and defense customers for more than a decade. But the company has also been a leader in increasing access to affordable launch and designing smaller form factor satellites that can still deliver high quality imaging to meet specific customer requests. We invested in CEO Jason Andrews and this extraordinary team in part because they are so deeply rooted in the industry, but also because they are consciously reinventing it. We spent a great deal of time analyzing the imaging market and the business model choices of other companies in the sector. We believe Spaceflight and its BlackSky Global division blends the best of modern systems thinking with a commercial approach that is well tuned to the needs of government and enterprise customers alike. We are delighted to have led the company’s Series B financing alongside our friends at Vulcan Capital, Razor’s Edge, Chugach Alaska Corporation, and Apogee. And we will work with our friend Richard Fade, who also served on the Whiptail Technologies board, any chance we get. Spaceflight is the 3rd company in RRE’s space portfolio, which also includes Spire and Accion Systems.

Don’t Congratulate Me For Writing A Check

Steve Schlafman

On Thursday we announced our Series A investment in Managed by Q. Throughout the day, I received countless congratulatory emails and tweets from friends. “Amazing investment.” “Love that company.” “Nice win.” “HUGE CONGRATS.” And so on. On my way home, as I reflected on these kind messages, it occurred to me that I don’t deserve a pat on the back. There’s a long road ahead for the company, and I really haven’t done shit. Sure, I built a relationship with Dan and Saman, hustled to help Q win new customers and key employees, and gave them a generous term sheet. But writing a check is easy. Being an engaged board member and a supportive partner in good times and bad is the hard part. And building an enduring, category-defining company is nearly impossible.

Mark Cuban once said, “the magic in business isn’t raising money but making money.” Amen. Our industry spends too much time sensationalizing the fundraise while ignoring the fact that this process marks the beginning, not the end, of a startup’s journey. Once term sheets have been signed, there are people to hire and fire, product and features to ship, endless reams of data to analyze, and millions of small but crucial decisions to be made.

Let’s be honest for a second, fundraising news drives page views for the tech blogs, makes companies feel validated, helps investors build their brands, and can even intimidate the competition. There’s no denying that raising money is an important milestone in a company’s lifecycle. But dollars in the bank is far from the most important metric. I like to remind my founders that cash is oxygen for their startup—it buys time and space to breathe. But money alone cannot buy victory. That would be like Sir Edmund Hillary celebrating before reaching the summit of Everest based solely on his vast store of supplies. 

Whenever I make an investment, my Jewish anxiety tends to kick in and I become laser-focused on how I can support the team in the short and long runs. After the 24-hour buzz of winning the deal fades, the real work begins. What follows a fundraise is daunting for every founder and investor. Don’t get me wrong, I sincerely appreciate when people take time out of their days to send a thoughtful note. Each of us has a million things going on, and these small and simple acts of kindness are perhaps the most underrated acts in business.

But rather than sending a congratulatory pat on the back, wish me good luck, see how I’m feeling, ask if or how you can help. We all need to do this better. I am no exception. I’ve always believed it takes a village to raise a startup. The more strongly we support each other, the more quickly our industry will grow and thrive, and the more successful our companies will be. I don’t show up every day to write checks. I show up to fight for my founders and deliver a return to my investors. And I don’t show up alone, I show up alongside everyone in our ecosystem that is passionate about building companies and moving the world forward. 

Hightower: The System of Record for Commercial Real Estate

Steven Schlafman

A few years ago, Brandon Weber, CEO and Cofounder of Hightower, and I were catching up over a casual dinner in Brooklyn. We had met ten years earlier when we started our careers at Microsoft and quickly became friends.  A few months before our dinner, Brandon left the commercial real estate (CRE) brokerage powerhouse CBRE, where we was a Vice President, to start Hightower because he saw that the industry was broken. He explained in fine detail the great paradox facing the industry. Despite CRE being a fifteen trillion dollar market and highly data intensive, many of the processes were manual and relied heavily on paper, excel and email.  Additionally, existing industry standard solutions such as Yardi, MRI and Argus were siloed and 20 years old. Brandon explained that he and his cofounders, Donald and Niall, were starting Hightower to solve these problems.

I was initially skeptical because I had seen dozens of real estate tech startups and many of them struggled to gain adoption with institutional landlords and brokers. CRE remained one of the major industries that hadn’t embraced the cloud and mobile.  My gut told me there was a huge opportunity because at some point in the near future “software would eat” CRE. After spending more time with Brandon and his cofounders, they convinced me the time had come and they were the right team to back.  They argued the market was ready because brokers and landlords were using iPhones, Google, Facebook and other cloud-based tools in their personal lives.  These customers now wanted and expected the same quality of tools at work.  As we dug deeper, it became obvious that Brandon, Donald and Niall were the right team to invest in because they had the unique blend of domain expertise and world-class product experience. A few months later, RRE Ventures was lucky to invest in Hightower’s seed round along with strategic investors Thrive, Bessemer, The Box Group, and Red Swan among others. 

In just two short years, the industry has changed dramatically and Hightower is helping to accelerate this change. Institutional landlords and brokers now recognize the need to adopt a cloud-based platform to streamline core processes, to enable real-time visibility into their portfolios, to lease space faster and to remain competitive. From dozens of conversations with both brokers and landlords, adopting a cloud-based platform is no longer a nice to have but rather a must have. They see Hightower as the initial foundation that will support the entire industry as it transitions from antiquated systems and adopts new technologies. Existing customers are leveraging Hightower for many business processes including deal pipeline reporting, current tenant tracking, market data tracking, stacking plans, financial analysis, and portfolio reporting. So far the response has been overwhelmingly positive as evidenced by hundreds of millions of square feet on the platform, an NPS score higher than Apple, and virtually no customer churn. All the data suggests that 2015 and 2016 will be the year CRE comes online. 

With all that being said, I’m incredibly excited to announce that RRE is doubling down on Hightower and leading a $13M Series B financing with participation from Thrive and Bessemer and a handful of strategic real estate investors. The funds will be used to recruit and hire world class talent, enhance the Hightower platform and continue to provide our customers with high touch support. We’re significantly expanding our investment for a variety of reasons. First, we believe that Hightower has built the best team and product in the industry. Most importantly, customers feel the same way. The dozens of owners and brokers we spoke with said Hightower has helped them increase sales velocity and operate more effectively. We also discovered that informed customers have chosen Hightower over the current alternatives and the competition’s customers are defecting. In fact, they’ve had 100% trial win rate over the competition. Additionally, Hightower has a robust product roadmap and trajectory. They’re consistently first to market with the latest features and respond quickly to customer needs. With this funding we’re ensuring that Hightower is here to stay and will become the market standard. The company is now well positioned for long-term success, stability and growth. 

Since RRE’s seed investment in Hightower we’ve been very lucky to partner with a handful of innovative real estate startups such as Managed by Q, Floored, Breather and The Square Foot.  While each one is transforming CRE from a different angle, perhaps the biggest disruption and most value created will happen within information aggregation and sharing. This is the cornerstone of the industry because it’s where the listings and deals reside. By having real-time visibility into the data, both brokers and landlords can move faster and close more business. Hightower is building the system of record for the industry by providing world-class workflow tools built around leasing.  Based on all of these developments and many others, I’d argue that CRE is no longer a barren wasteland for technology but rather an oasis for innovation. CRE technology is a trend that’s reshaping an old and a multi-trillion dollar industry and Hightower is building that foundation of change.  I’m excited to say we’re just at the beginning. The future of CRE is here.