Midas list VC Todd Chaffee spoke with TechRepublic about his career as a VC, his take on the state of the industry, and why he believes the right founders are key to successful startups.
The past two decades have been tumultuous for Silicon Valley, to say the least. Todd Chaffee, who has been at Institutional Venture Partners for 14 years, has traversed the peaks and valleys and come out on top.
Chaffee, who joined IVP in March 2000, routinely invests in media, travel, and technology companies. He is regularly listed on Forbes' Midas List of top venture capitalists, and he has invested in companies such as Twitter, Yahoo, Ariba, Comscore, HomeAway, Kayak, Nuance and Verisign, which have driven some his highest returns to date.
"One lesson is that in Silicon Valley 'ideas are nothing, execution is everything.' This is a well-known precept in the venture community and it really underscores how important it is to back exceptional management teams," Chaffee said. "There are a lot of people out there with some great ideas, but there are very few people that can actually execute on those ideas and build a multi-billion dollar company."
Chaffee graduated early, with honors, from the University of Minnesota Carlson Business School and eventually completed advanced business programs at both Stanford and Harvard. He went to work for Wells Fargo, TRW, and American Express. He was then recruited by Visa to work as the senior vice president of Advanced Payment Systems before being promoted to executive vice president of Visa International.
As executive vice president of Visa International, he oversaw corporate development and launched Visa's venture capital arm. Chaffee invested in 12 technology companies, and some of those -- Ariba, Nuance, Verisign, and Yahoo -- eventually went public. His investments produced a 32.8x earnings multiple of invested capital, leading to more than $1.2 billion in gains for Visa.
Chaffee said that he was pursued by many VC firms, but chose IVP because it afforded him "the opportunity to build a great later stage venture capital and growth equity firm."
When asked about his investing philosophy, Chaffee said that it is all about finding the right people to work with.
"Great management teams deliver great returns," Chaffee said. "Rather than relying on heavily structured term sheets, we've found that if we find talented entrepreneurs and partner with them, that is the best formula for generating superior returns overall in the long run."
Market size isn't one of his team's chief concerns regarding a new investment. Chaffee said he believes his job as a VC is to provide the right resources, like money and contacts, and guidance to help entrepreneurs navigate the startup landscape.
In the current state of startups, there is plenty of capital and innovation fueling unprecedented growth, according to Chaffee. He said that two of his profile companies have ramped up from nothing to over a billion dollars in revenue within a three year time frame, and that kind of growth is far from commonplace.
As a specialist investing in late-stage companies, Chaffee is optimistic about the IPO and M&A markets.
"The IPO and M&A markets are also very healthy at the moment," he said. "High quality companies that have achieved scale and have durable business models are being rewarded with premium valuations by the public market and corporate acquirers. In some sectors the valuations are too far ahead of fundamentals, but in general, this a great market for all stakeholders in high growth tech and media companies."
Chaffee has, without a doubt, achieved major success as an investor. He said that the best advice he can offer to first-time founders is to hire the best people you can find, and to not be afraid to hire people that may be smarter or have more experience than you do.
"Don't settle for mediocre talent on your team," he said.
In his own words...
How do you unplug or unwind?
"I'm a travel junkie, so that's when I find I can truly relax. If I'm walking on a secluded beach at sunset, hiking to the highest peak of a mountain range, or sailing across a sparkling sea, my spirit will be flying high."
What's the best thing you've read lately?
"'The Heart of God' which are the prayers of Rabindranath Tagore. He was a Bengali poet who was a friend and contemporary of Einstein. He explored the depths of love more deeply than anyone else I have encountered with perhaps the exception of Rumi."
When your career is over, what do you hope people say about you?
"I hope the CEOs of my portfolio companies will say that I provided sage advice and that I was a solid resource for them in building their company. I hope our Limited Partners will say that our firm consistently delivered the best returns in the industry, and I hope my partners and our investment team will say that they enjoyed working with me, even when times were tough."