What is an Entrepreneur-in-Residence?
After last week's post I got quite a few folks asking me what exactly is an Entrepreneur-in-Residence. Since I didn't describe it in my previous post and there isn't very good information out there about the role, I thought I would provide an overview, it's benefits, and drawbacks.
The RoleThe reason the definition of an Entrepreneur-in-Residence is so elusive is because the role takes on different meanings at different firms. Even individual firms have hired a variety of different types of EIRs. But you can boil an entrepreneur-in-residence down to these four basic roles. Keep in mind that an individual EIR often works in multiple or all of these roles at once.
1. Successful entrepreneur who is looking to start his next company. This EIR has usually just finished a previous venture and is in between startups. Their time is typically spent vetting various startup ideas, finding a co-founder, doing market research on the space, putting together a pitch deck, and maybe starting early prototypes\mockups. Though full scale development is usually left for after the EIR period is over. For example, Jeff Smith, CEO and Co-Founder of Smule, was an EIR at Bessemer Venture Partners and incubated Smule while there.
2. Serial entrepreneur\senior executive looking to join an existing startup. In this case, the EIR typically looks to join an existing firm as a CEO or senior executive. EIRs typically bring these companies in as potential deals for the VC firm and spends their time doing due diligence and vetting the startup as well as deciding if its a good fit for them. Typically this form of EIR results in both the EIR finding a new company and the VC firm doing an A or follow-on round in the company. Nick Mehta, a prior executive at Symantec, was an EIR at Trinity Ventures, from where he ultimately became the CEO of LiveOffice.
3. EIR serves as an advisor to portfolio companies. This is most useful for the firm when the EIR brings a specific set of skills to bear that would be widely applicable across their portfolio. In this case, you often sit in on board meetings or do one-on-one mentoring\advising for existing portfolio companies leveraging your areas of expertise. Jason Putorti, lead designer at Mint, is serving as a Designer-in-Residence at Bessemer Venture Partners, bringing his design expertise to a variety of portfolio companies.
4. EIR serves as part of the investment team. In this case the EIR is an extension to the investment team, participating in all aspects of deal flow, including deal sourcing, due diligence, and closing deals. This provides an opportunity for an EIR to understand the VC side and decide whether it's a potential career opportunity they wish to pursue long-term. Ashu Garg is an example of an EIR at Trinity Ventures, who eventually went on to join Foundation Capital as a Venture Partner.
BenefitsWhile the benefits of the position depend on what role you specifically take on, there are some benefits that apply to all of the potential EIR roles.
An understanding of the VC perspective. As an EIR, you often get the opportunity to sit in on pitches, hear why the firm moved forward with or passed on a deal, and participate in the due diligence process. This is an invaluable experience for any entrepreneur. Not only does it better prepare you for making your own pitch to VCs in the future, but it helps you to refine your own startup evaluation process.
Access to an incredible VC network. VCs are highly connected individuals that have an extensive network of entrepreneurs, professional management, rock-star employees, and investors. Gaining access to this network opens your doors to new relationships that can be fruitful for all aspects of your entrepreneurial endeavor. Take ample advantage of this during your EIR as the VC is often very willing to open up their network to you.
Time to brainstorm and vet your ideas. One of the other benefits of an EIR role is that it gives you the freedom to spend time appropriately brainstorming opportunities and carefully vetting your ideas. Sometimes entrepreneurs are eager to rush into an opportunity and such a role encourages you to fully understand the scope of the opportunity.
DrawbacksDespite the many benefits, there are potential drawbacks to keep in mind and evaluate when considering a position.
VC Potentially Owns Your Round. One of the reasons a VC typically offers an EIR position is to get early access to the next deal from a trusted entrepreneur. This can also be a great opportunity for an entrepreneur to ensure they can have a quick and friendly raise from their favorite VC. But this can also have potential drawbacks. First, it's important to always be an EIR at a firm that you would want to do a deal with. Never take an EIR at a firm that you wouldn't be willing to raise from. Secondly, it's important to understand the expectations from the firm from the beginning. Find out what the situation has been for past EIRs at the firm. At some firms there is an explicit right of first refusal on the round of funding or in other cases there is enough social pressure or expectation to effectively have the same effect. Still other firms leave it completely open and have no such expectation.
Adverse Signaling. Even if there is no obligation associated with the VC doing the round of funding for your next startup, there is potential for adverse signaling. For example, sometimes other VCs won't look at deals from EIRs at other firms too closely if the sponsoring firm is interested in investing. This is because they assume the sponsoring VC will win the round because of their relationship with the EIR and the other VC may not wish to waste time on a deal they won't close. Of course if you and the sponsoring VC are open to syndication, this won't be an issue. But a larger potential issue is if the sponsoring VC chooses to pass on the deal, then some VCs will shy away from investing because the sponsoring VC with the most information has passed on the deal and therefore think there must be something unattractive about it. This mirrors the issue Chris Dixon blogged about regarding taking seed money from big VCs.
Never Start Something. Some people's perceptions of EIRs is that they don't ever actually start something. While there are countless examples of EIRs going on to found very interesting startups, this is still a perception to keep in mind. Just remember that an EIR is meant to be a stepping stone, with positions typically lasting anywhere from 3 months - 18 months. So you should be diligent in constantly making progress towards whatever your end goal is.
I'll close by saying that a role as an Entrepreneur-in-Residence is not typically a position you apply for. Instead it is most often friends of the VC firm that are in between opportunities. It can provide a great stepping stone for the entrepreneur as well as the VC firm for the right fit.
I've linked below two older posts that I found helpful on explaining the EIR role as well as two newer posts on modern incarnations.
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Jan 25, 2010