Deliver the right Technology: Explain how your technology works, why it is better than the alternatives and the advantage can be maintained over time. It is also important to address how you protect intellectual property you have already developed or will in the future. For example, when we met the Nutanix team they explained that compute and storage hardware was moving towards commoditization and software defined solutions. Drawing on their software expertise from Google, Oracle and Asterdata, they convinced us that their low cost, high performance, and flexible solution provided the best path forward.
As part of our series about “5 Things I Need To See Before Making A VC Investment”, I had the pleasure of interviewing David Blumberg.
David is the founder and managing partner of Blumberg Capital. David is an authority on early-stage investing with decades of experience. He founded Blumberg Capital in the early 1990s and launched its first venture-backed fund in 2001.
Prior to Blumberg Capital, David managed international investments with the Bronfman Family Office, Adler & Co, APAX Partners and at T. Rowe Price. He also launched business development for Check Point Software Technologies as one of its top four executives.
David earned his A.B. in Government, cum laude, from Harvard College and his MBA from the Stanford Graduate School of Business and INSEAD. David speaks French and is proficient in Hebrew and Spanish.
Thank you so much for joining us in this interview series! Before we dig in, our readers would like to get to know you a bit. Can you please share with us the “backstory” behind what brought you to this specific career path?
I founded Blumberg Capital in 1991 after managing international investments with Claridge Investments (the Bronfman Family Office), Adler & Co, APAX Partners and at T. Rowe Price where I gained experience with venture capital and private equity investments, as well as with public equities and leveraged buyouts.
While at Harvard College, I studied International Relations and Economics and planned a career in government where one could implement policies to solve global problems. While researching my honors thesis on African-Israeli diplomatic relations, it became apparent that government didn’t make the crucial difference. Rather it was the combination of science, capitalism, innovative entrepreneurs, and national interests that were the saving grace of maintaining crucial ties between those nations. Moreover, the same forces were empowering the development of powerful new products and services that boost productivity and help people live better lives around the world.
In 2001, Blumberg Capital launched its first institutional venture capital fund and is now managing a series of funds and special purpose vehicles with over 650M dollars AUM.
Is there a particular book that made a significant impact on you? Can you share a story or explain why it resonated with you so much?
The Bible provides the best guide to business ethics. First, the biblical framework contextualizes work as giving intrinsic meaning to human existence and that business can be a noble part of a life well lived. It teaches that true happiness is earned and that truly fulfilling work is in serving others. The classic Ten Commandments and their corollaries of ethical behavior set the foundation for a just society or well-run business. In addition, there is a strong emphasis on compassion, affirmation of human dignity, individual autonomy, respect for others, standards of trade and conduct, equal justice under law, and sharing the burden to support the larger society.
Do you have a favorite “Life Lesson Quote”? Do you have a story about how that was relevant in your life or your work?
A wise man once wrote, “If I am not for myself, who will be for me? If I am only for myself, what am I? If not now, when?” From a young age, I have been an active, engaged person and a community leader. So, I speak up for myself, my ideas, my values, as well as my family, neighborhood, state, region, nation and the world. There is no time like the present; get moving! Innovate, create, build!
How do you define “Leadership”? Can you explain what you mean or give an example?
Leadership is to provide a clear and unified vision that sets the goals, principles, and culture of the workplace.
How have you used your success to bring goodness to the world?
Venture capital is a catalyst for innovation and human progress. At Blumberg Capital, we have helped hundreds of entrepreneurs launch companies that have brought forth myriad new products and services and created tens of thousands of jobs. The products we helped launched have been used by billions of people in nearly every county on earth to overcome life’s challenges and make things easier, faster, and better.
The United States is currently facing a very important self-reckoning about race, diversity, equality and inclusion. This is of course a huge topic. But briefly, can you share a few things that need to be done on a broader societal level to expand VC opportunities for women, minorities, and people of color?
Investments are made in companies with the best chance of success with outsized returns, not based on the entrepreneur’s race, creed, sex or national origin. There’s more that can be done to expand VC opportunities and we are focused on building everyone up. Venture capital has historically invested in immigrants at a higher rate than natives partly because immigrants are typically more willing to take risk in starting businesses. We should continue to encourage and promote productive risk-taking entrepreneurship.
Can you share a story with us about your most successful Angel or VC investment? What was its lesson?
We invested in DoubleVerify in 2009 because the problem they were solving was important and complex. They had a unique technological solution with a clear growth path for additional innovation in the sector. Our diligence provided confirmation of the market need from initial customers, including major brands and advertising agencies. We added value through customer introductions, recruiting, and raising additional financings.
One lesson we learned was to support the long-term growth path of a great company. Our patience and commitment to the company has paid off handsomely.
Can you share a story of an Angel or VC funding failure of yours? What was its lesson?
To generalize, companies don’t fail because the products don’t work. Rather it’s the inability to attain product market fit with the available capital. Lesson learned is a company needs to have clear direction to solve a real need in the relevant market time frame.
Can you share a story with us about a problem that one of your portfolio companies encountered and how you helped to correct the problem? We’d love to hear the details and what its lesson was.
Credorax, a merchant acquiring bank, was expanding rapidly and a leading credit card network required a substantially larger deposit for the growing volume. Blumberg Capital expedited the additional capital enabling the company to grow and thrive.
Is there a company that you turned down, but now regret? Can you share the story? What lesson did you learn from that story?
We missed a great opportunity due to valuation and over-estimating the risk of targeting the government as first market segment. Lessons learned: initial valuation is not determinative and question your own assumption such as the risk of government contracting.
Here is the main question of this interview. What are your “5 things I need to see before making a VC investment” and why. Please share a story or example for each.
At Blumberg Capital, we follow the Six Ts of investing, which are as follows:
1) Start with the Theme: Tell us the problem you’re solving — be precise, articulate and brief. The most important step is to identify the right problem, which is much harder than finding the solution. For example, Lendio’s founding team recognized a problem for SMBs is the difficulty to obtain affordable loans in a simple digital process. Lendio solved this problem by creating a marketplace where businesses can find the best lending partners for their specific needs.
2) Build the right Team. It’s all about the team. The best ideas require execution. Show us you have the domain knowledge, managerial temperament, technical expertise, and the determination. We can help recruit and provide mentorship for team members.
DoubleVerify provides an example of a great team. The founder was an experienced AdTech executive with deep industry knowledge, technical training, and good business sense. The co-founder was a brilliant technology innovator and an original thinker. Together, they pioneered a new business category and remain the industry’s leader today.
3) Understand the Terrain: Good ideas don’t exist in a vacuum. We need to understand how and why your startup can capitalize on industry trends and succeed in a competitive market. Be honest: Show us why your solution is superior, but also tell us about your weaknesses and how you will address them. An honest competitive review is one of the clearest indicators of your character and if you have what it takes to succeed.
Nutanix understood the market landscape in which they would need to operate. The demand for digital storage was growing exponentially and Chief Information Officers wanted to dramatically reduce spending on digital storage. The founders’ insight was to replace integrated hardware and software solutions with commodity hardware combined with Nutanix software for hybrid converged infrastructure.
4) Deliver the right Technology: Explain how your technology works, why it is better than the alternatives and the advantage can be maintained over time. It is also important to address how you protect intellectual property you have already developed or will in the future. For example, when we met the Nutanix team they explained that compute and storage hardware was moving towards commoditization and software defined solutions. Drawing on their software expertise from Google, Oracle and Asterdata, they convinced us that their low cost, high performance, and flexible solution provided the best path forward.
5) Show Traction: First movers often have a big advantage, but not always. My mentor Fred Adler used to say the only thing worse than being late to market is being too early. It is important to demonstrate timing, fit, and show traction with customers, users, or industry experts. When we first met Yotpo and Hootsuite, both impressed us with thousands of customers but with no revenue. Their go-to-market plan was freemium providing a free basic product and later an enhanced product in the classic SaaS model.
6) Don’t ignore the Terms: Many important business points are covered in the negotiation of investment terms. How much money is required to achieve the next milestone? What are your valuation expectations? How should the board be structured? What are the terms of the ESOP and its vesting schedule? The best structured companies help align incentives so that management and investors are working toward the same goals.
We had agreed to invest in a company just before the onset of a serious economic downturn.
Because of the ensuing uncertainties, we added short term warrant of 30 months instead of the standard ten years. The mutual goal was to provide the company with additional capital in the event capital from new investors was difficult to raise.
If you could inspire a movement that would bring the most amount of good to the most amount of people, what would that be?
Promote traditional American values of liberty, In God We Trust and E Pluribus Unum.
We are very blessed that some of the biggest names in Business, VC funding, Sports, and Entertainment read this column. Is there a person in the world, or in the US whom you would love to have a private breakfast or lunch with, and why? He or she might see this. 🙂
My dream dinner guest would be Satoshi Nakamoto, the founder of Bitcoin because I am fascinated by the promise of decentralization and the potential for its utilization in finance, in health care, in commerce and communications.
This was really meaningful! Thank you so much for your time.