Brett Hurt on How to Raise Money from Angels and VCs

By SUSAN LAHEY
Reporter with Silicon Hills News

As an investor, Brett Hurt, co-founder of Bazaarvoice and venture partner with Austin Ventures, wants to see a couple big changes in Austin startups in the next ten years. Both of them along the lines of “thinking bigger” as he explained in his Monday RISE session, How to Raise Money from Angels and VCs.
First, he sees Austin as a business to business or B2B town. That’s where the majority of startups focus their attention. But that’s not where the money is.
“I’m hoping companies like HomeAway (which was backed by Austin Ventures) will activate the gene that helps us do more in the (business to consumer) B2C space,” Hurt said.
The other change is to get founders to hold on longer. Hurt pointed out to the room of 25 entrepreneurs that he had the opportunity to sell Bazaarvoice for $25 million. But as a native Austinite, he had in mind creating something big, something that would employ a lot of people and create a big ripple in Austin. So he hung on and now the company is valued at $540 million. That’s a step he’d like to see more Austin startups take, rather than selling to a California company for $10 million or so. He wants to see Austin startups display more perseverance and more ambition.
“A lot of the deals we’re backing at Austin Ventures are early stage companies….we’re looking for series A deals where we can put the capital in to accelerate growth. AV has actually seeded from $50,000 to $500,000 to seed companies from inception. Look how much money went into RetailMeNot ($90 million). The company was growing so fast it would have been completely stupid not to raise money for it.”
Austin Ventures is looking, though, for companies looking to make a difference.
“I only want to work with people who are interested in going big. If I measure the second half of my life by impact, how do I now measure impact. I measure it by how I help others and how many jobs they create. I don’t want to waste my time and I certainly don’t want to waste entrepreneurs’ time. If I can see a clear path where I can help them get to $100 million in revenue I have to see a clear possibility that they can then get to $1 billion. There are companies that are thinking that way, about doing something well beyond themselves.”
“What is lacking in the VC industry today is people who want to change the world,” Hurt said. “If you’re just looking to flip a company, if the goal is just to enrich yourself, you’re not going to change the world. Maybe investors will get 3-to-5 X of their money. If the goal is really to build a big company, you’re going to need a lot of capital to do it.”
Entrepreneurs have to start thinking in terms of what investors are looking for, he said. Had he sold Bazaarvoice for $25 million, it wouldn’t have “moved the needle” for a venture capital fund of $900 million.
One of the keys to success he discovered when pitching Austin Ventures in 2005, Hurt said, was to beat expectations. He presented four scenarios to investors. Level one he knew he could accomplish. But he included levels two through four, because he believed he could pull it off and he wanted to show investors he was dreaming big. Had he started with scenario four, he might have failed to meet expectations and lost his credibility.
“What are the encores? How could this get really big? You don’t set expectations for scenario four. You just make sure you’re real about it.”
Entrepreneurs have a tendency sometimes, he said, to think of investors as having pots of money they’re unwilling to share. They don’t think in terms of “If this was my money.” For example, they don’t first educate themselves on various types of liquidation investors might be looking for: participating, non-participating etc.
“I tried to literally put myself in their shoes,” he said. “If I had the kind of money they have and was putting money into a person like me, what would I want to know? How would I want to be treated?”