This Entrepreneur Fought America’s Toughest VCs… And Won

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A version of this article previously appeared in Forbes.

 

Adeo Ressi is a serial entrepreneur turned investor and entrepreneur advocate. Adeo Co-Founded the entrepreneur-friendly website The Funded and he is the Founder and CEO of The Founder Institute, whose goal is to create and foster local startup ecosystems across the globe.

 

 

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RessiYou can watch a 12-minute excerpt from my conversation with Adeo below.

Taming The Prison Guards

I began by asking Adeo about the inspiration for The Funded."The Funded was created '07... after the crash in 2000, the venture industry, basically experienced an identity crisis. A lot of people had entered the field, but the ability for them to generate returns went from very easy to very hard. And that type of dramatic, short-term change in outcome led to an increasing amount of bad behavior.

... venture capitalists were grasping at straws for ways to generate the returns they were once able to do. And they would do things like six-x liquidation, participating preferred. There's just simply no way that the founder or the management or anyone with equity in the company, besides the investor with a six-x liq pref (liquidation preference), could make any money.

The funded was really started as a way to counterbalance the bad behavior and harsh economic terms that the venture capitalists had adopted. In order to sort of swing the pendulum back in favor of entrepreneurs and the people building the businesses, and  from that perspective, The Funded is a complete success. It helped balance the forces between people trying to create value and create jobs and create companies and people trying to make money from those initiatives. So The Funded had a very large, positive impact on the relationship between venture capitalists and entrepreneurs."

I then shamelessly reminded Adeo that Rincon Venture Partners has been blessed with a positive rating on The Funded since its inception. Given that a number of respected firms have low ratings on The Funded, I asked Adeo if he ever experienced subtle or overt pressure from venture capitalists wishing to modify their ratings and/or negative comments."I still get a lot of pushback from VCs (but) I think by now people understand that we don't change or alter or in any way, um, vary content on the site. It is a crowdsourced,  review portal. If you go and you buy something on Amazon, and you see it's rated four and a half stars by 400 people or 1,000 people, it's probably a four and a half star rated product, right? And similarly with the venture capitalists... like your firm... many of these firms where the historical rating data is accurate."

Breaking Out Of Prison

Once The Funded was firmly established and effectively keeping venture capitalists (relatively) in check, Adeo turned his attention toward educating emerging entrepreneurs. To this end, he created The Founder Institute (TFI) in order to, "globalize Silicon Valley." In Adeo's words,"... in 2008 and 2009, we had at that point righted many of the wrongs in the venture capital industry, but that didn't mean that entrepreneurship was all of a sudden healthy. If you take away the prison guard that beats you, it doesn't mean that you're out of prison. It just means that you're in prison and you're just not getting beaten as much.

The Founder Institute was set up to help entrepreneurs around the world be more successful at launching companies that have a shot at changing the world. There's a series of things that happen at the very beginning of a business that are often deadly. It could be picking a bad co-founder, picking a bad technology, setting up the wrong kind of structure,(or)  picking the wrong type of investor. We realized that if we found a very competent person at the genesis of their entrepreneurial career, at the very, very beginning, we could actually coach and guide them through these critical decisions, to help them avoid fundamental mistakes. At the time, there were about 25,000 technology businesses started every year. Nowadays it's more like, 75,000.

So in order to really have an impact, you not only needed to do hundreds (of startups), you needed to do a thousand or more. So we started out with an objective of helping launch a thousand meaningful and enduring technology companies a year.

Now we're in 50 cities (and) by the end of this year, we should be in around 75 cities and producing, between 15 and 30 something new companies in each city per year."

Sharing The Spoils With Entrepreneurs

Adeo has worked hard to differentiate TFI from the other incubators and accelerators. In particular, TFI does not provide participating companies with investment capital. Instead, Adeo has created a liquidity pool of equity which is shared with all graduates from the Institute. The idea seems noble, but complicated. Thus, I asked Adeo to explain his motives and the process by which such equity will be shared. "Taking a step back at life, looking at what we wanted to treat, achieve, be founder friendly, et cetera. One, one of the first things we realized is (that) we shouldn't do funding, for a few different reasons. Number one, we're taking people off the street and helping them become entrepreneurs. We don't know if they are entrepreneurs until later in the program,  so giving them money doesn't make sense.

(Instead) we focus on... launch(ing) meaningful and enduring technology companies while avoiding fundamental mistakes that are often made in the genesis of the business. We're now at a point where 90% of all the companies we've created worldwide are alive, 75% of the companies are doing well and over 50% are funded.

The liquidity pool was our way of making it an equity play that was beneficial to all the parties. So if you go through the program and graduate, and only about 30 to 40% of the people who enroll end up graduating, you give a small piece of your company, 3 1/2%, into a shared liquidity pool. In exchange, you get a piece of the pool back. And we've had... seven exits. We've made a few distributions already, up to ten times the course fee that someone contributed to participate in the program.  You come in this program, we help you launch a great business, and as your peers succeed you get a piece of the upside."

Entrepreneurship Ain't No Fantasy Camp

Adeo believes that the program benefits all of the participants, even those who do not graduate, as it provides a safe environment for people to determine whether they are entrepreneurs or wantrepreneurs. "Right now, the program is pretty good at separating out the serious founders from the people who are in founder fantasy camp, right. A lot of people come in and they're like, 'But I want to start a company, I think it's going to be the most amazing thing in the world' and once they try their hand at it a little bit through the program, in a structured environment, they realize 'Wow, this is a lot harder than I expected. I don't know if it's the right move for me.'

Entrepreneurship's not for everyone. If we can help you realize that, that's a win for you, that's a win for the institute, it's a win for everyone. I would say that about 2% of the population has many of the core attributes to be a successful entrepreneur and... at any one time a subset of those are thinking of starting a business.

Eventually what I want to be able to say... if you enroll in The Founder Institute and make it through, your chances of success will be as high as humanly possible." 

Follow my startup-oriented Twitter feed here: @johngreathouse. I'll never tweet about kittens, cotton candy or that killer burrito I am about to devour - just startup stuff.

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John Greathouse is a Partner at Rincon Venture Partners, a venture capital firm investing in early stage, web-based businesses. Previously, John co-founded RevUpNet, a performance-based online marketing agency sold to Coull. During the prior twenty years, he held senior executive positions with several successful startups, spearheading transactions that generated more than $350 million of shareholder value, including an IPO and a multi-hundred-million-dollar acquisition.

John is a CPA and holds an M.B.A. from the Wharton School. He is a member of the University of California at Santa Barbara's Faculty where he teaches several entrepreneurial courses.


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