Looking Back on 2009

It was the worst of times. It was the best of times. 2009 was a year to remember.

We’ve been reflecting a lot during the past few days on 2009, and the past year was by far our busiest and most impactful year in our firm’s four-year life. Like the rest of the industry, we entered early 2009 with questions and doubt. It was a scary, unnerving time with venture firms publicly announcing no new investments, and everywhere you looked were reminders or admonishments to let “good times rest in peace.”

Both sides of the venture capital equation, investors (limited partners) and entrepreneurs, were under tremendous financial stress as the world around us all had changed. For True, the timing of the meltdown created opportunity and significant risk, because we had just successfully closed our second fund in September 2008, literally 48 hours before Lehman Brothers failed. Although we were incredibly lucky because we were in a position to invest, expectations and tensions were high given that the financial world had changed so dramatically.

As a young start-up ourselves, we knew that the path of least resistance would be to follow the crowd and play it safe while the downturn worked its way through the economy, but what would be the opportunity cost for that strategy? In order to figure this out, we went straight to the very heart our model: our Founders. After spending considerable time with each of our Founders and their teams, it became abundantly clear that despite the global economic turmoil, our sector (very early stage technology) was undergoing a fundamental resurgence. The largest trends in technology were creating substantial new markets, in which start-ups had significant opportunity, and these trends were minimally impacted by the global credit/liquidity crisis.

Core innovations in internet-based technologies over the previous ten years were beginning to manifest themselves into large segments. These segments included the social and real-time web, cloud computing infrastructure, mobile products and services, enterprise 2.0 and even new computing devices and hardware. Though a prolonged recession and curtailed consumer spending would eventually impact these segments, in reality these markets were extremely nascent, and, in our view, it was time to build for the future.

We thought 2009 was particularly timely for True because of our very early stage strategy. It’s basic, but it’s true: early stage venture capital has a 5-10 year investment period, which means today’s investments are not directly correlated with current market conditions. The idea of an early stage venture firm cutting its investment in 2009 made no sense to us. For example, it just didn’t stand to reason that because the world was reeling from a (severe) housing and credit crunch, enterprise IT wouldn’t undergo massive re-architecting over the next six years.

As we concluded our research, we formed a thesis: our strategy of investing behind truly great entrepreneurs in early stage technology businesses who are highly capital efficient was well timed for the 2009 market.

We took a deep breath and decided to double down. In January 2009, we doubled our forecast for new deals, and we encouraged our portfolio to become more aggressive in the downturn.

For new deals, True closed 21 new investments in 2009, which compares to 14 in 2008 and 10 in 2007. We can be judged by the company that we keep, and we are fortunate to have invested with an incredible group of entrepreneurs such as Tim Young at SocialCast, Peter Rojas & Ryan Block at GDGT, Howard Lindzon & Soren Macbeth at StockTwits and Jack Abraham at Milo.
(Click here to see a full list of our portfolio.)

Simply making more new investments, however, was not enough. We also had a large portfolio of existing companies that could use our dollars to make the downturn their advantage. We set aside approximately $20 million of our reserve capital to invest in the existing portfolio with an emphasis on making the strong stronger. We believed 2009 would be a good time for our break-out companies to further their lead. Many of these companies took advantage of our reserve capital to acquire competitors (who were distressed), grow market share, deepen product teams, and hire sales folks. We structured our investments as friendly bridges to future rounds, as our intent was not to take advantage of the timing to buy more equity but rather enable our strong companies to get stronger.

We’ll know the real results from our actions in 2009 over the next 5+ years, but the early results of these moves look incredibly promising.

To cap off a big year for the firm, we were recently nominated for the Crunchies for Best VC Firm of 2009, and two of our portfolio companies, Milo and StockTwits were nominated for Best Startup or Product and Best Social App, respectively. We are honored to have been nominated by the industry, and we think this is really a reflection of the great entrepreneurs in the True family. Our mission at True is to help make an entrepreneur’s dream come true, and we founded our firm on the core belief that all power, creativity, and energy in the venture capital ecosystem starts (and ends) with the entrepreneur. We have a total of 51 investments in the portfolio, which equates to 92 Founders and 483 employees. This is an incredible group of people, and each of them has endowed us with their faith and confidence. Our Founders are our biggest source of inspiration for our firm, and their efforts and energies are most responsible for our success.

Thank you to everyone who helped our efforts in 2009. It was a very busy year, and as entrepreneurs ourselves, building True has been and continues to be incredibly gratifying.

Now is not the time to rest on our laurels. Venture capital needs more innovation, and we have an ambitious agenda for the years ahead.

We look forward to working hard for you in 2010 and beyond.

Happy company building!