McKesson Ventures is the strategic venture arm of healthcare company McKesson CorporationRead more...
An investor in 'good' entrepreneurs who bring out the best in others
As entrepreneurship has become a global meme, with the title of "Founder" worn like a badge of accomplishment, there's no shortage of emerging investors on hand to fund these wide-eyed optimists.
Just who are these funds and venture capitalists that run them? What kinds of investments do they like making, and how do they see themselves in the VC landscape?
We're highlighting key members of the community to find out.
Tony Tjan is CEO and Managing Partner at this Boston-based private investment company The Cue Ball Group, LLC. Prior to investing, Tjan served as Senior/Special Advisor at Thomson Reuters, Vice Chairman and Senior Partner of The Parthenon Group, Advisory Council at MIT Media Lab and Board Member of Overseers.
He founded several companies, among them ZEFER (1996), a web strategy advisory team for high-growth and Fortune companies, and MiniLuxe (2008), a nail shop raising the beauty salon industry to a higher level through quality service, proper hygiene and fair employee practices.
Cue Ball is Tjan’s latest industry venture that he co-founded in 2008 with John Hamel, in a friendship that began in 1998 at Harvard College and lasted through many years in big business. When Tjan talks about a hypothetical someone, he always refers to the third person as a “she-individual," a nice gesture to all the women out there.
Since 2001, Tjan contributed to the Harvard Business Review. In 2012, Tjan co-authored Heart, Smarts, Guts, and Luck (HSGL), a NYT bestseller that offers insight on success, wholeness and entrepreneurship. Five years later, this June, Tjan published his second book – Good People: The Only Leadership Decision that Really Matters, where he defines the meaning of goodness and what it takes to be a good leader.
VatorNews: How does your concept of good people relate to Cue Ball’s investment philosophy?
Tony Tjan: Our general investment philosophy, from the start, has been about people and patience. Our goal is to back extraordinary people and to have a very long-term patience structure to support the best ideas.
In terms of good people and what you’ve seen – that was an in-depth research and writing endeavor extending off my first work – HSGL. In Good People, I try to define what goodness means.
I think every firm can say: we’re people-oriented, we want good people. What does that really mean, if you try to put that in concrete terms?
Most of the investment and business world has a bias toward goodness as a measure of competence, and that leadership means being confident and competent. Of course, you want these things, but if this leadership comes without a foundation of goodness of character, it will not lead to a sustainable, long-term, enduring and meaningful transformation.
And for Cue Ball, it begins with understanding that goodness, or leadership, of character matters as much as goodness of competence.
At the heart of it we spend a lot of time trying to understand how to reveal character. We look for a person’s truth, compassion, sense of wholeness. How do we ensure that there’s a strong foundation of these values at the core of character?
This is not about social impact investing, or having a not-for-profit view, it just makes very good business sense to spend considerable time understanding how we become better judges of people. Many people say they do that, but you know, I think more time is spent on the confidence, or crisp, of an idea, or the skill of a person. We do this as well, but not at the expense of ensuring the strongest foundation of character, because character and culture is what creates the long-term advantage.
You can always do quick value capture, if you just bet on some confidence and competence, but to have real, true value creation, you need the strongest foundation of character and values.
VN: What is your process of selecting a company for investment?
TT: One of the things that is a little bit different in our processes, in addition to having an idea, or deal-flow pipeline, is that we have a people pipeline. We think of entrepreneurs who we want to cultivate relationships with, who have a strong character with great human potential, ideas and vision. The second is evaluating teams.
It’s undeniable that character and values are revealed over time, rather than things that are rehearsed for an interview.
How do you become a better judge of good people?
Instead of going through the traditional Q&A of interviews about background, we try to do things that help reveal a person. Have we had a shared experience of a meal, or cooking a meal? Have we spent time on their references? And those would not be references she gave us, because former bosses and colleagues all say good things, but we ask for five to six contacts this entrepreneur has developed, possibly imprinted on. We want to see who are the young talents and what they say about this entrepreneur, because real goodness is also about leaders who pull out the best in others, help others see higher expression of their inner selves.
The last thing that we do, when we look at a potential partner, is we ask ourselves: do we have a sense of collegial affection to this individual? Do we sense strong mutual respect? Would we be proud to work with this person? Can we imagine bringing them home for Thanksgiving? Those are some important questions we ask ourselves throughout our evaluation process.
There’s no question that we value people over idea. This goes back to the roots of the industry, to Georges Doriot, one of the fathers of venture capitalism, who asked: would you rather invest in an A-plan with a B-team, or an A-team with a B-plan? We will always go for the A-team: we would rather have really good people who we can be patient with, trust their truth, self-awareness and integrity. It’s harder to change someone’s character than to change a business plan, although character can be cultivated, but we bet on the people – it is a people-first philosophy.
VN: How much time goes into the process of meeting a startup and making an investment?
TT: The best deals are ones where we cultivate relationships in years, and when they’re ready to raise capital, we’re on top of it. Sometimes, VCs must make judgment calls in a short period under a month; other times, we’ve had great privilege to have had dialogue over an extended period of time, watch what entrepreneurs do, and that’s the way to find the strongest opportunities.
VN: As I understand, Cue Ball does not single out a specific field of interest?
TT: We will let people trump all, but because we want to have these strong relationships with people and be able to add value, our investments are in areas we’ve had past strong experience in.
There are four common verticals where we have deeper operating experience and strong relationship ecosystems to draw upon. Two of them are technology-related: digital media and enterprise Internet, and two sets are on the consumer side: inclusionary business ventures (diversity-based platforms), and lifestyle multi-unit brands, like MiniLuxe.
VN: Tell me a bit about your background.
TT: I started in entrepreneurship from a fairly young age, and continued through school, generally, in consumer-oriented areas, as well as tech and media [At 15, Tjan sold picture frames door-to-door, then leased computers and networking systems - AV].
After Harvard College and through Harvard Business School, in mid-90s, I focused on building one of the first large-scale web application service companies [ZEFER], helping Fortune enterprises develop large-scale web and Internet applications at a time that was very early. At great luck of timing, we grew up to $100 million at the height of the dot-com boom, then at horrific timing and humility, after attempting to get public on the day and weeks after the dot-com crash, found a landing space with the NEC Corp.
After that, I helped build another strategy advisory firm, called The Parthenon. I became a Senior Partner and Vice Chairman of that, and in parallel, I was appointed chief strategist to then CEO Dick Harrington of Thomson Reuters [now General Partner at Cue Ball - AV], and so for 7 years he and I worked on the transformation of Thomson from a newspaper to the world’s largest information services company.
Next, I started MiniLuxe, and then Cue Ball.
VN: I can imagine MiniLuxe is one of your favorite investments. What is another one, and why?
TT: MiniLuxe is absolutely one of them. I can name any one of our investments that have had the foundation of good people and sense of purpose.
ShapeUp [is among favorites], which is now Virgin Pulse. It actually started as a not-for-profit venture by two doctors out of Brown University, and it focused on how you can use the power of social networking inside an enterprise to promote health and wellness. The idea was very simple: positive behavior happens when people support each other and are accountable to one another.
So, that business merged with Virgin Pulse, where I continue to sit on the Board, and it has grown very substantively into serving Fortune companies and becoming a leader in online wellness and using wellness as a cultural engagement tool. I am super proud of the lives we’ve changed there. Millions of people were positively impacted – started living healthier lives, losing weight, being happier at work – that is pretty satisfying.
VN: What about some recent investments?
TT: So there are a few, one of them was a follow-on, and two are new.
The follow-on was Jopwell – which is a leading diversity recruitment platform. We believe in businesses that back people in culture, and this is all about getting greater diversity in the workforce.
The two newer ones are Wahed, which is an investment platform for U.S. Muslim residents to offer a [Halal] investment platform – another inclusionary business venture, and Listen MD. The latter is about doctors’ ability to be more efficient in their workplace by using artificial intelligence to take notes while a doctor is seeing a patient, and assembling these notes in a very coherent and structured way so that more time can be spent on the patient in greater efficiency.
VN: What series do you typically invest in? What is the investment range?
TT: We’re an evergreen fund, which means we tend to go in early, but we continue into development growth. The concept is to put more and more capital over time behind businesses that we see as our winners.
So, we have done a number of investments core to core, starting mostly in the classic Series A, but then being ready to continue funding them all the way to maturation. A first check would be $.5 to $3 million, but over time, we can put tens of millions more behind the concept.
VN: What is the size of your current fund?
TT: The fund is not structured like normal funds. I can say that our general philosophy is to maintain about $100 million available at any time, although the fund is substantively larger than that, but we just maintain that available capital, because it’s that shift about having a – think of it as almost a holding company structure that has a cash balance to continue investing. We’re a permanent capital pool, which means that we don’t have any fund expiring date. We continue to back our companies as they grow and increase success, and that’s what you want to do – to be able to double-down on your winners.
I would stress the uniqueness of the evergreen structure and patient capital where the philosophy is not to have a fixed time frame on the funds, but to be very aligned with the entrepreneurial asset to have it grow to its fullest potential, and that brings focus as much on entry strategies as on exit strategies.
VN: How many investments does Cue Ball make in a year?
TT: Currently, we have around 30-35 investments. We’re at about 5 investments per year.
VN: How has Cue Ball changed since its launch?
TT: What’s changed over the years is that some of our early seed investments grew up, those babies became young toddlers, who became young children, who became adolescents, and they’re getting closer to adulthood. Having some of those investments from the earlier days reach larger sizes and greater levels of maturity is one core value.
Another is understanding how the structure of an evergreen fund can serve to your advantage, because there are some early stage companies that benefit from much, much longer time frames. Hopefully, this means we are being smarter about investing and learning from our mistakes, putting more dollars to work per investment, and really learning to understand how to be more up to the standard and aspiration of our people-first philosophy.
VN: What excites you about your work as VC and CEO at Cue Ball?
TT: Investing is highly intellectually stimulating.
It’s a privilege to be in a position where you have a duty to serve the entrepreneurs, where you try to be the best supporting actor and help people realize their full potential and fund their ideas. I think that is very purposeful – to find meaning in helping others realize their calling. That’s pretty awesome to be able to do, and to be viewed as a positive mentor and be that person to get the first call not only when something good happens, but also when something doesn’t go well.
When you have an authentic relationship with an entrepreneur, it is very gratifying. We’ve mentioned companies like women-focused MiniLuxe, with 700 employees, Jopwell doing diversity, ShapeUp go from not-for-profit to a highly successful commercial endeavor – bringing these different concepts to fruition that might not have gotten funded and supported otherwise – is greatly satisfying.
VN: How involved does Cue Ball get as a partner in its investments?
TT: We tend to be a more active venture group. We tell the entrepreneur that she has her hand on the volume dial and can turn it up or down at any time, but we’re at standby and ready to be very active, given the relatively low number of investments per partner.
VN: Who supports you most in your work?
TT: I’ve been privileged to have some superlative human beings as my mentors and advisors, like Henry McCance, who is 45 years the Chairman of Greylock. I’ve had a great set of partners and limited partners, which is unique, because they too serve as valuable advisors to our investing and many of them have been mentors of mine over the years.
I’ve been fortuitous, in personal life and at work, to have the support and mentorship from family, great friends and colleagues.
I think we try to live our good-people philosophy and I’ve just had the rare privilege to be happy at every one of my jobs and to feel highly supported and, hopefully, I’m highly supportive to those around me.
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