BusinessWeek Logo
The Future of Tech May 21, 2009, 5:00PM EST

'Super Angels' Shake Up Venture Capital

(page 3 of 3)

null

Risk-takers: First Round's partners Morgan, Chris Fralic, and Hayes Rudy Archuleta

null

null

Mint.com's Patzer got his seed money from Kopelman Thomas Broening

null

STRESS-TESTING BUSINESS PLANS

In March, Kopelman meets with Jose Ferreira, chief executive of an online education startup called Knewton, at its spartan headquarters in New York's Greenwich Village. Knewton sells LSAT and GMAT prep courses online, in competition with giants Kaplan and Princeton Review (REVU), but its aim is to use the Web to offer better teaching for less money. Whereas textbooks provide the same material to everyone, Knewton has developed an adaptive technology tailored to the strengths and weaknesses of each student. Knewton is betting its software may be adopted by publishers and other education companies.

Knewton's board has already approved two partnerships, including one deal to license its technology to a publisher. Ferreira wants to cut more deals. But Kopelman says he is concerned that if Knewton does more deals it will spread itself too thin. Tension fills the air. "The most powerful word a CEO can say is no," Kopelman tells Ferreira.

"What happens if Princeton Review comes to us and wants to make a deal?" asks Ferreira.

Kopelman does not budge. "It's worth going to Boston to see them," he says. "But promise me you won't sign anything. I want to see deal points." Ferreira agrees.

Kopelman knows First Round needs to keep taking risks. That's why his firm just launched an event called Office Hours, a sort of American Idol for aspiring entrepreneurs. Several times a year, First Round will offer anyone the opportunity to get 10 minutes with Kopelman and his partners to stress-test their business plan. "We think it's important when a lot of VCs are cutting back that we get out there and see as many people as we can," he says.

One recent gathering took place at Live Bait, a watering hole in New York's Flatiron district. An intern at the firm asks everyone to sign a log-in sheet. It's first come, first served. At 2 p.m. Kopelman orders a sandwich at the bar, sits down at a table, and starts talking. First Round partner Howard Morgan grabs another table. The atmosphere recalls the informality of the early venture days, when firms such as Sequoia and the Mayfield Fund would meet at the Mark Hopkins Hotel in San Francisco for lunch and bat around ideas.

Entrepreneurs arrive, then mill around the bar. By 2:45, 35 people have showed up, including two who drove 90 minutes from Philadelphia. "My hands are cold," says Yasmine Mustafa to her partner, Aaron Hoffer-Perkins. "That means I am nervous." The duo are quitting their jobs to launch a company that helps bloggers make money from their sites.

When the intern says it's their turn, Yasmine springs up and the two walk over to meet Kopelman. Ten minutes later they head back to the bar for a drink on First Round's tab. "It was awesome," says Yasmine. "It actually spawned new ideas, which is what we want before we develop the product."

"Always fast, always to the point, no B.S.," adds Aaron.

I check in with Kopelman around 3:15. With the deep troubles on Wall Street, Kopelman says he's surprised at the level of entrepreneurial action in New York. "It's going great," he says. Peering down at his notebook, Kopelman says he has already met with eight entrepreneurs and heard two original ideas. "Several ideas we are going to follow up with," he says. Then he quickly heads back in to meet more entrepreneurs.

Business Exchange: Read, save, and add content on BW's new Web 2.0 topic network

A Coming Shakeout in Venture Capital?

To understand the factors causing problems among big venture firms, check out "Venture Capital's Coming Collapse," a January 2009 Forbes cover story. The upshot? Returns are poor for most funds, the IPO market on which venture depends is shut, and big companies are less likely to buy promising startups.

To read this article, go to http://bx.businessweek.com/venture-capital/reference/

Return to the Future of Tech Table of Contents

"These Angels Go Where Others Fear to Tread" (The Future of Tech, June 1) stated that the board of Knewton, an online education startup, "has already approved two partnerships, including one deal to license its technology to rival Kaplan." While the board did grant its approval for such a venture, Kaplan has no business partnership with Knewton.

Ante is an associate editor for BusinessWeek.

Reader Discussion

 

BW Mall - Sponsored Links