Thirteen billion dollars. Thirteen billions dollars globally. It’s hard to even imagine thirteen billion dollars, especially on your bootstrapping startup grind, but that’s how much money Managing General Partner, Peter Barris of New Enterprise Associates has to invest. Best of all, this global venture capital titan is none other than a checkerplaid sportcoat wearing, boat-loving Washington, DC local.
Startup Grind scored this December when Barris sat down with us to give us a glimpse of what it’s like to grow a $1 billion dollar tech-oriented VC fund to a $13 billion dollar global fund.
Learning From The Best Mentor: Jack Welch
Like another Startup Grind guest, Ted Leonsis, Barris is a Greek-American, from a driven, entrepreneurial-oriented immigrant family. Also like Leonsis, he claims to have invented “surge-pricing”, but as a parking lot attendant in Ohio. His story takes a turn as he entered his MBA after an early career in engineering, following a very predictable track. There he became interested in GE.
After his MBA, Barris’s real education began under Jack Welch. Barris’s job was to visit business divisions and solve their problems. “He put me into some real dicey situations, and I was 26 years old, what did I know?”. He’d spend hours writing pages on divisions only to have Welch distill these down to bullet points. Slowly, Barris was learning how to get to the “essence of what was important in that business…no matter how complicated a business seems, it really boils down to one or two key things that are the needle movers in a business.”
“If You Haven’t Heard of NEA, You’re in the Wrong Room”
“NEA was a little unusual, it was started by three founders, on both coasts, simultaneously”, Barris explained. “Two came out of Baltimore, one with T. Rowe Price, the other Alex Brown. Alex. Brown was the preeminent, (literally the first!), investment bank that took small companies public. The third founder was on the West Coast, and he was a VC, worked with Arthur Rock, who did all the investments in Fairchild and Intel, and the companies that started Silicon Valley.”
Barris came into NEA in 1992, after the firm was well-established. “One of the guys at NEA was someone I had worked with at GE. I put some money into their President’s Fund, and got to know the firm.” Barris was running a software company at the time, and had decided to start his own firm. “They decided they wanted to incubate it. They offered to pay me to incubate it in Baltimore.”
Once Invested, You’re Invested with VCs
“Boy was that a bad decision,” said Barris. “They really had their hooks in me. They said, ‘Oh we know you’re good at software, and we have this other company, maybe you wouldn’t mind working with this company up in Boston’, so I’d schelp up to Boston. ‘And while you’re up in Boston, here’s three other business plans, would you mind stopping by these companies and stopping by and seeing what you think?’ So one thing led to another and they said, ‘Instead of starting this company, would you mind coming into venture capital’.”
Barris was hesitant about going into VC. The founders knew how to get this entrepreneurial type though, challenging Barris, “We don’t know if you’d be any good at venture capital”. “I’m a competitive guy”, explained Barris. He agreed to stop working on his company for one year, and become a venture capitalist.
The Big Funding Question: The NEA Decision Process
Every Monday morning at NEA, a small team of staffers will convene to discuss their latest finding of startups, where they would caucus on their next move of investments. There’s a rating system in place: YE – yes enthusiastic, YR - yes with reservation, and no. If the majority of the votes are YE or YR for a particular company, then it goes to the next and final round of votes of all the high ranking partners. We asked Barris, "What does a YE startup look like?”
“The votes don’t matter,” dropped Barris like a bombshell. “We give our sponsoring partner all the rope he needs. It’s the discussion that matters.” Barris explained a lack of enthusiastic yeses was feedback to the partners that they needed to go back and maybe gather answers to questions. “If you’re a senior partner, like me”, he explained, “I did Groupon when it was the most disliked company in the walls of NEA. I just heard my partners and I said, ‘Well thank you, I’m going to do this deal’”.
“What do we look for?” he refocused. “It’s really sector specific. When you have a fund as big as our fund, you got to move the needle. We have seed deals where we put 100 thousand to work. What matters to us is not how much we put in, but how much we get out. What matters to us is if there is an unlimited, I’ll say that again, unlimited upside. Do we see this as a big company, does it have a shot at being a big company? Or is it a company we could put 3 million in, and get a 10X return, what venture capitalists dream of, and get 30 million out. That’s interesting, but it doesn’t move the needle."
NEA is preparing to raise the largest venture capital fund in history. The 37 year-old firm has told investors to expect formal documents by year-end for its fifteenth fund, which is expected to target approximately $2.8 billion, making it the single biggest VC fund in history. Now that moves the needle.