Jason Townsend and Michael Goodwin
You're starting a venture capital firm in a state that has endured a painful economic restructuring. Many people see this as a crazy idea. Why don't you?
Townsend: It's all about the opportunity here. A lot of the VCs are moving downstage in the investment stream, leaving the early stage and seed investments untouched. Michigan's venture capital community is also relatively young, but most of the VCs here are older and not raising new funds.
Godwin: Especially in high-tech. Life sciences is really well represented but high-tech is virtually wide open.
Are you limiting yourself to Michigan?
Godwin: We have a line that is drawn from Chicago to Syracuse through Pittsburgh. We're going to get a better value for the company investing locally.
Michigan has pumped a lot of public money into jump-starting its venture capital community. Some have criticized these efforts, saying only private money works. Does the money's origin matter?
Townsend: We have had that internal debate as well. It depends on what strings come with it. Those strings can limit what you can invest in. There usually aren't any smart people attached to it. You can't go to the state and ask it to help with due diligence or sit on a board level. What the state does is help in a notoriously difficult time for fundraising. In simple terms, yes, it is beneficial.
Are there VCs who believe in the private-only argument who would turn down a seven-figure check from a public source?
Townsend: No. Would you consider an institution public money? I would, and that's where you're going to get most of your second and third rounds of money. There is little private money in those rounds.
Godwin: That's a different animal though. They don't impose any terms. The state program had some restrictive terms on where the money could go. I don't think anybody would turn down a seven-figure check.
A lot of people talk about creating the next Google or Facebook, but your investment philosophy focuses as much on people as ideas. Does the VC industry spend too much time chasing technology rather than talent?
Godwin: Google and Facebook are all about the people.
I agree, but investors talk about finding the next Facebook instead of the next Mark Zuckerberg.
Townsend: That's true. We see that in the universities where it will be more about some PhD with an awesome idea, and then they haphazardly try to build a team around it. The reason those fail so often is because there wasn't a solid team there. It's way better to invest in an A team with a B idea than vice-versa. That's why one of our first investments was in Dug Song and Duo Security
(formerly Scio Security) because he has an A team and an A idea.