Joe Horowitz is the Managing General Partner of Icon Ventures. With more than 25 years of experience working with early-stage companies, Joe is passionate about the value-creation process and loves spending time with talented entrepreneurs. KBD is very fortunate to have been chosen by Joe and his team to shepherd a rebrand—including helping transition the firm name from Jafco to Icon— with a variety of deliverables including a logo, website, and presentation materials. Joe is not only a great client of ours, but an extremely valuable resource for any question pertaining to venture capital. We talked to him recently about his thoughts on where venture capital is headed.
Let’s start with the big one everyone is asking. Are we in a bubble or not?
I think we are in a bubble, yes. But it’s a different one than in the past. I’d say it’s more of a temperature inversion. While we have a bit more of a rational market this time around with market valuations for IPOs, the companies choosing late-stage private valuations are extremely frothy. This sets us up for a situation where many of these companies will get stuck, because they cannot grow into greater valuations that the public can later absorb.
So has this environment changed the venture capital community in general?
Yes, in the sense that we have many more players and much more capital, and all of that puts greater pressure on valuations. With about 100 unicorns, everyone now believes they are going to be worth a billion dollars at some point in time, and therefore they are seeking valuations in earlier rounds that are higher than they should be.
What are you looking for when a company pitches to you?
We look to invest at the earliest possible stage in giant winners that are challenging and recreating their industry. When we hear a company’s story and see it represented in slides, we have a checklist of about 7 or 8 things we are looking for to help us understand the quality of the business model. How much capital will the company require to achieve a certain level of success? Is there enough margin for investment and sales to produce profit at some point in time? Does the competitive landscape allow for a new player? Are the team members sufficiently experienced and do they have the proper vision? Even if the companies come up short answering these questions, we may decide there is enough goodness there to proceed, or decide that they just don’t have enough of what we are looking for to make the cut.
Your firm focuses mostly on mid-stage investments. What are the new challenges that the entrepreneurs face at this stage they may not have been thinking about at the earlier stages?
We work with companies where there is already a little meat on the bones, with a handful of customers that we can talk with to get independent validation about their product offering. They have laid the foundation and need a new round of capital to really help scale the business. Entrepreneurs who often have great instincts about product vision may not always have the equal skills in scaling the business. And increasingly when we invest in first time entrepreneurs we recognize that we are going to need provide them assistance in those areas. As a result we have venture partners with very specific skill sets in the functional areas of marketing, sales, engineering, and operations to help with this process, and augment the knowledge around the table.
There’s a lot of talk right now about design thinking. Have you seen this in any of the companies that you are funding? Is it changing the way businesses are run?
I think the trend is to recognize the importance of design, but I think how much we see the influence of design varies greatly. I personally feel that it’s a very important ingredient in the formula of success for most businesses. That’s certainly the case in venture capital, and it’s absolutely the case in venture-backed companies. At the core of great design you achieve the goal of a pleasing experience, and people are naturally drawn towards pleasing experiences. Great design with great messaging, which I will have to say is the cornerstone to which you and your firm do so well, that has a material impact on getting your audience engaged.
Why do you think VC’s are starting to pay more attention to marketing?
When I began in the venture capital business over 30 years ago you could count the number of venture firms on your hands and toes. In the last few years, however, the asset class of venture capital has started looking far more attractive to all sorts of investors, not only in Silicon Valley but around the globe. We’re facing a different environment today. Even though it’s still a relationship business, there’s just so much activity, you need to find ways to rise above the noise. Certain firms have taken great strides toward demonstrating the importance of marketing to entrepreneurs. As a cornerstone of one’s marketing efforts, design and website and materials—combined with the proper messaging—are extremely important if not central elements in the marketing process.
There is a trend right now in VC to really promote their value added services. How do you think entrepreneurs are responding to this trend?
“Value add” has become the most overly used term in venture capital. Truthfully, value added services are now table stakes for professional venture capital firms. But the reality is that it’s got to be more than just saying we have entrepreneurs who love us, or entrepreneurs who are willing to attest to the help they’ve received from us. I think venture capital firms need to demonstrate unique ways to add to the success of entrepreneurs in their portfolio and illustrate it in a genuine way. Otherwise it’s just fluff.
Last year you changed the name of the firm. Can you talk a little bit about what inspired the name change?
The name change process took quite some time. We used to go by the name Jafco Ventures, which was wholly appropriate; it was the name of our Tokyo-based limited partner that provided us our exclusive source of capital. The Jafco name was also a way to distinguish ourselves, as we could help our portfolio doing business in Japan with a dedicated business development team. So all of that made sense.
However, with our latest fund, our past successes helped us attract a couple of dozen new limited partners, and having the Jafco name made a lot less sense. Beyond all of that we were fortunate in recognizing that our success is not just about our own efforts, but about the privilege to work with some of the truly remarkable entrepreneurs that have contributed to that success. In addition we also wanted to recognize the amazing venture capitalists that preceded us in many of the investments we’ve made; many of those firms have done a lot of the heavy lifting to help shape the company to the point where we get involved.
So we chose the name Icon Ventures, a name I’d used in the past because it is a reflection of the icons that we are so fortunate to work with, either from the venture capital community or as new company creators and professional managers that we’ve had the privilege to partner with.
So how do you think changing the name has changed your business? Or has it?
Well, time will tell. We are still at the early stages of accomplishing all our goals with respect to our rebranding. We’ve gotten universally positive responses so far, people love the name, it seems to resonate with them. We define it as achieving success through grit, through true grit, perseverance, and passion. In one case a CEO of one of our newer investments wrote a blog about how much that resonated with him after he saw our new website. So early indications are that of the materials that your firm has been kind enough to help us with are growing in importance and impact over time.