Keeping ahead of venture capital’s unpredictability with Hans Swildens

Hans Swildens is the CEO and Founder of Industry Ventures and manages the overall business. As an early pioneer of the modern secondary market for venture capital, Hans created new ways to get liquidity for venture capital investments prior to an IPO or M&A event. Additionally, he was early to support the development of a new class of venture capital partnerships focused on seed and early-stage investing during the last decade. He directs the firm’s investment processes, operations, and limited partner relationships. Earlier in his career, Hans was a successful entrepreneur who co-founded and acted as President of Microline Software. Microline was acquired by Blaze Software (IPO) and was subsequently acquired by Fair Isaac.

Here’s a glimpse of what you’ll learn:

[1:24] The role of Industry Ventures in backing emerging venture capital firms
[2:54] Hans’ unexpected transition from an entrepreneur to venture capital
[4:37] The success and sale of Hans’ first company, Microline Software
[10:59] Hans uncovers the strategies and pivots behind the growth of Industry Ventures
[17:22] AI’s potential impact on industries and innovation cycles
[22:23] Strategies for pitching to venture capitalists for new funds
[25:15] What are the three crucial types of successful VCs Swildens identifies?
[28:40] Work-life balance and its impact on success
[35:08] The nuances and critical importance of partnership dynamics and succession in venture capital firms

In this episode…

In a world where technology evolves faster than ever, is it possible to stay ahead of the innovation curve and reap sizable investment returns? Many investors struggle to adapt strategies while continuing to foster an entrepreneurial spirit, which is crucial for longevity and success in venture capital. How can LPs and VCs navigate these shifting sands without getting swallowed by the next big platform change?

Entrepreneur and venture capitalist Hans Swildens delves into his inspiring journey from tech entrepreneur to leading one of the top venture firms focused on small venture funds. Hans shares how he tackled the dotcom bubble’s collapse by strategically pivoting from angel investing to secondary liquidity, ultimately growing his firm’s footprint to $8 billion in committed capital. He outlines the inherent unpredictability in venture capital, the excitement around AI’s potential to drive an extensive innovation cycle, and the value of maintaining work-life balance.

In this episode of the Driving Alpha podcast, Steve Brotman hosts Hans Swildens, CEO and Founder of Industry Ventures, for an insightful discussion about the unpredictable journey of venture capital investments and maintaining success amidst the challenges. Hans provides strategies for investment management success, highlights the entrepreneurial drive needed to create opportunities from market shifts, and champions the importance of work-life balance in sustaining a flourishing long-term career.

Resources mentioned in this episode

Quotable Moments:

“We’re investing in new venture funds and participating in their second or third fund moving forward.”
“Over time, you get super humbled by the fact that there is a decent chunk of what we do that is unpredictable.”
“There’s only a certain number of LPs in the world that fund venture funds, especially new ones — you’ll be talking to all these LPs for the next 20 years.”
“The LPs that fund these small funds are the VCs of VCs.”
“If you follow the engineers, and you follow the talent — it’s differentiated deal flow and it’s top talent.”

Venture Tips from Hans Swildens:

Build Strong LP Relationships: Cultivate lasting relationships with limited partners to ensure long-term fundraising success and secure consistent investments.
Embrace Market Volatility: Acknowledge and plan for the unpredictability within venture capital to adapt strategies accordingly.
Prioritize Work-Life Balance: Allocate regular time for personal pursuits outside of work to prevent burnout and foster creativity, which can enhance decision-making and strategic thinking.
Monitor Industry Platform Shifts: Stay abreast of emerging platforms, like AI, that can offer new investment opportunities and create the potential for high returns.
Plan for Fund Succession: Develop a clear succession strategy for venture funds to manage team transitions and ensure continuity.

Episode Host: Alpha Partners

This episode is brought to you by Alpha Partners, an NYC-based growth equity firm managing $300 million.

Alpha co-invests in top-tier growth equity companies led by the world’s best investors. We focus on scaling and late-stage tech investment opportunities primarily in the essential technology sector, including e-commerce, enterprise software, fintech, edtech, and health IT.

To learn how we can help you with your funding goals, visit www.alphapartners.com, or email us at vc@alphapartners.com.

Sponsor Host: Affinity

Affinity is a relationship intelligence platform that empowers dealmakers in relationship-driven industries to find, manage, and close more deals. With the most automated relationship intelligence insights and technology, Affinity enables leaders to drive deals and ensure their teams can take action with confidence, knowing the context and history of every relationship.

The Affinity platform, including Affinity CRM, is used by over 3,000 relationship-driven organizations worldwide. Founded in 2014, Affinity is headquartered in San Francisco and backed by leading investors, including Menlo Ventures, Advance Venture Partners, 8VC, and MassMutual Ventures.

Learn more at affinity.co/drivingalpha.

Episode Transcript

Intro 0:06

Welcome to Driving Alpha, where we feature our friends, the outperforming investors, who demonstrate their past to driving alpha or outsized investment returns. We’re Alpha partners, where we partner with 1000 early-stage venture firms as their opportunity capital to invest in their best companies.

Steve Brotman 0:26

Hi everyone. My name’s Steve Brotman. I’m the moderator for this episode of driving Alpha. Driving Alpha explores with investors their perspectives, their backstories, and how they generated outsized returns over their past career. Today, I have with me Hans wilbins, he’s the CEO and founder of Industry Ventures, a firm he founded in the late 90s in the rushing hills of California. Welcome Hans, thanks, Steve, nice to be here. Great. Good to have you as well. And why don’t, instead of me mangling your background, well, why don’t you share a little bit about your backstory and how you got to Industry Ventures. But, and before you do that, share with us a little bit about Industry Ventures and and, you know, one of the things that you and I talked about was that you’re now the largest backer of emerging managing VCs, correct?

Hans Swildens 1:24

We’re one of the biggest, I don’t know if we’re the largest, you could probably debate that, but we’re definitely probably top three or five in the US for small, emerging venture fund managers. And you just closed your fund, right? We did? Yeah, we just closed almost a billion dollars of commitments to focus on that segment of the market. And we, you know, we’re investing in new venture funds. We’re investing in existing, small venture funds that we’ve already invested into previously, or that we’ve made the mistake of not investing in their first fund or second fund and participate in their second or third fund and moving forward.

But yeah, we have a portfolio here of over 100 small venture funds in the United States. And so we think we have one of the larger portfolios in the world of small venture funds, specifically in the US. I think we might have the largest

Steve Brotman 2:19

That’s remarkable. And in total, what’s your total?

Hans Swildens 2:23

Today, it’s over $8 billion of commitments, and it’s the investors. Here are all institutional investors, pension funds, endowments, foundations, wealth management teams and other institutional investors.

Steve Brotman 2:38

Awesome. So it’s pretty remarkable. I mean, we met in the mid 90s at business school. Tell me, tell, tell, tell our audience a little bit more about how you got to industry in like three or four minutes, if you can.

Hans Swildens 2:54

We had parallel experiences. It was obviously great to know you in business school. And we shared some mutual friends. And I think both of us, you know, after after Columbia, went and started companies, and so we came from the entrepreneur side of the market. My brother wrote part of Netscape Navigator on the and he helped build the interface components for the Unix browsers, because Unix had different, you know, basically platforms you had to build to. There was IBM and sun and deck and others that all had different, different software stacks that you had to build on. And he built the interface components that let the browser run on all those that look the same. And then this is at the beginning of the Internet revolution, 1995. Yeah, right, both of us. I mean, I was in business school 93 to 95 and so, you know, I had a brother living out here in Silicon Valley as a software developer, working on a lot of the new technologies that were being developed. And, you know when, when AOL and Netscape and everything came out.

You know, he was kind of in the middle of it, living in Mountain View and, and, and so he, he was my bridge to the tech market. And when I moved back out to California after business school and worked for a brief stint at Nestle to get me back here, and then I resigned and started a software company with him called Microline software.

Steve Brotman 4:33

Great. What happened with Microline?

Hans Swildens 4:37

We it was, it was short and sweet, it was super stressful, but we sold the business. I ran the business from an operating perspective, and he was, you know, our CTO, and developed, Chief developer, and I sold the business about a year and a half after we started it together and combined it with another business that was one of the original kind of expert system AI companies, funny enough that had a software stack, yeah, for for software developers and and the idea was that we had the next gen kind of Java user interface components that let you run apps to the browser, and they had kind of back at servers and a bunch of legacy technology, they’re reporting into Java so that you could build applications, you know, application that would run through the browser. And we actually took that company public, and then it was acquired by Fair Isaac, and it’s still operating inside of Fair Isaac.

Steve Brotman 5:34

So how do you transition into venture like, how did that like, with, with, with myself, you know, I’d started to add one. We were venture backed by Venrock. We sold it to Hearst a few years later, and I made my first, you know, angel investment, and it went to the moon, like, and went public 18 months later. So I rolled it into a fund, and that’s how I got into venture. Was like people were pounding on the table saying, Hey, I’m going to throw money at you. And I was like, Oh, sure, I’ll, I’ll do that. VC, start throwing some money at me. Um, Tim Draper and Steve Jurvetson, about half my capital, about a $15 million starter fund. How did you, how did, how did you go from zero to one? I know, throwing capital at me. Exaggerate a little bit. Yeah, there was a begging on one Money, money, money, flying everywhere. Get out of my office. I already said I’d invest in dollars.

Hans Swildens 6:37

Anyway, after the second, after the first. Started with my brother. We helped him start another company, and I was not operationally there, but I wrote an investment into the company and helped raise the seed round. It was called speeder and networks, and I had subsequently, after leaving the first company that we sold, I started consulting with other entrepreneurs, and when I wrote a check to help my brother start his company, I was approached by a friend for business school, uh, Norm, villain, if you remember, Norm, and he said, You should really be doing a fund. And you know, we could, we could we could do angel investing together. He introduced me to Tom Lytle, who was also another entrepreneur, and his, his, his, his family is very entrepreneurial, and started a bunch of payment processing businesses, one of which is the payment processing division of JP Morgan, called payment tech. And he looked at my background and Tom’s background, it was very complimentary, and we started doing angel investing together, but that that was in 2000 right when the stock market collapsed. So the original idea behind Industry Ventures was kind of an angel investor focused on, you know, infrastructure, b2b software and but the market completely collapsed, and in that distressed moment, we had to figure out, do we keep doing this? Because there was no liquidity, and you raised, you’d raised an early stage fund. We had, yeah, we raised a small pool of capital from other entrepreneurs like ourselves, and we wrote a check into the fund ourselves. Now, how big was that at that time, we ended up having in terms of capital available to invest about 20 million and most similar to your fund, yeah, but the stock market collapsed, so everyone, including ourselves, looked at that, looked at what was going on, and said, it’s probably a bad idea to continue investing into seed stage companies, because there’s going to be a, you know, we’re going through so much turmoil.

And at that point, you know, Norm decided to leave, and Tom and I were sitting together at one of our LPS in one of our LPS offices. Bill Melton was his name. He founded cyber cash, bear bone, seed investor in Paypal, seed investor in AOL. And we all kind of hatched this idea around, well, if everyone’s distressed and everyone’s, you know, having financial problems and liquidity issues, why don’t we buy people out of their holdings? And so I spent about a year, you know, doing all the BD work and meeting everybody in the market, trying to figure out how I could buy out people’s investments. And that was really the start of Industry Ventures from an institutional perspective, and so if you look back, you know the firm, the firm was kind of refounded, in like 2001-2002 and in fact, resurfaced out.

Steve Brotman 10:00

Where do you come up with the name, like Industry Ventures, where did that name come from? Was that the early stage fund name? And what was that a new name?

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