Birchmere Ventures founder talks investments, 'Shark Tank' reality
Ned Renzi is on the lookout for the next great idea.
Renzi, 50, is a founding partner of Birchmere Ventures. The 20-year-old Strip District-based firm has invested millions of dollars in seed money in dozens of startups that include the restaurant reservation app NoWait and the auto insurance comparing website The Zebra. The companies it has helped launch have an estimated market value of more than $14 billion.
Renzi of Murrysville talked with the Tribune-Review about what he looks for when considering an investment, common mistakes startups make when pitching an idea to an investor and what he thinks of the reality television show “Shark Tank” in which entrepreneurs solicit funding from a group of venture capitalists. An edited transcript follows:
Trib: How do you think startups can do a better job of making themselves attractive to venture investors?
Renzi: I've never seen a great idea or great company not get funded. Capital flows pretty freely. The unfortunate thing is those companies sometimes have to move to access that capital. A lot of times firms from Silicon Valley or even like The Zebra in Austin, they moved from Pittsburgh just because of access to capital. The investors made them move. That's why it's really important to have seed-stage venture capital in regions like Pittsburgh because once companies get established and start growing and they have 50 to 100 employees, it's a lot harder to move them.
Trib: What was it about NoWait that was attractive to Birchmere?
Renzi: We look at what we call inevitability. We just say, “Is it inevitable 10 or 20 years from now, are people going to stand outside a restaurant and wait in line versus being able to remotely check in and show up when your table is ready?” It was also one of those ideas that anytime you mentioned it to somebody, somebody totally not in the tech industry, you could say there's this app that does this and it was like a no-brainer. Everybody just responded that it was the greatest app in the world and immediately downloaded it.
Trib: When you look at companies, do you look at the concept or do you look at the people behind it? What's most important to you?
Renzi: Every partner at Birchmere has a unique point of view. For me, I look at the people first. At our stage of investing, there's not a whole lot of data. A lot of times there's no revenue. Sometimes products are in very early forms and a lot of times the market they're approaching might be very small at first. If you look at Uber, Uber started out just in black cars in San Francisco. But then, if that works, there's ways to extend that into new areas. We just feel like a great team is going to figure that out.
Trib: For the companies you reject, are there any common missteps that they should avoid?
Renzi: On a pure numbers basis, the biggest reason we turn opportunities down is that it just doesn't fit with us. There's so many opportunities we get that just don't fit the business model, the stage or whatever we invest in. I would say the ones that come in that have a fit, we ask a question: Is this a feature, is it a product or is it a whole company? And a lot of times there's really good technologies or ideas that are better as a feature in another product or stand-alone product, but we don't think could be a whole company.
Trib: Do you consider the fundamental soundness of a business to become a revenue generator or do you look more at its appeal to make a big exit?
Renzi: When we're faced with that question, what we ask ourselves is what are the network effects of that business. Because if the network effects are significant. By network effects, I mean every new user to the business makes all users more valuable. So, if you're on Facebook by yourself, it's pretty useless. But if 10 of your friends are on it, it becomes more valuable. The same is true of eBay, when it comes to marketplaces and trading. They just become de facto standards. If there are those types of network effects, then we focus on building out the network as fast as possible in kind of a land grab fashion and monetize later. What I would say is that would be a strong minority of investments Birchmere makes. In general, our focus is more on revenue generating companies.
Trib: What's the most promising company that you've recently invested in?
Renzi: I'd highlight Identified Technologies. They're a company in East Liberty that uses a fully autonomous drone to provide mapping and other data services to construction and energy industries. That company is growing like crazy, 20 percent month over month for the last year.
Trib: Do you watch “Shark Tank” at all?
Renzi: No, but I'm pretty familiar with it. My kids watch it.
Trib: Have you ever seen an episode? What do you think?
Renzi: I'd say in general it's good to expose the general American public to sort of ideas and getting ideas funded. From a realism standpoint, like anything else, that's not really how it works.
Trib: What do you think is the biggest misconception that comes across?
Renzi: Very rarely does someone have one three-minute meeting or three-minute pitch and get a check for six or seven figures. What people don't know about “Shark Tank” is that I've heard more than half the deals that are agreed to on the show never actually get consummated. Because what happens afterward is they have teams of people go in and do technical due diligence, market due diligence, financial due diligence and ultimately uncover reasons to cause the deals to not get done. And that's the part that the show doesn't see. It's almost like when you watch these crime shows and in one hour they solve everything. But in real life, it's a lot harder. And the due diligence side of venture capital is what a lot of people don't see.
Chris Fleisher is a Tribune-Review staff writer. Reach him at 412-320-7854 or email@example.com.