Partner, .406 Ventures
Boston is well known for its complete portfolio of financial services, including Venture Capital, where it ranks second in the nation in terms of total investments. The capital raised from VC activities is put to use by New England-based companies across a variety of industries, such as Biotechnology, IT and Life Science. Furthermore, since 2010, total VC capital invested in Massachusetts has increased more than 27 percent.
We asked venture capitalist Greg Dracon, partner at .406 Ventures – a Boston firm providing capital and operational expertise to early stage technology companies – his view on VC trends, the benefits of being in Boston, and the strength of the region’s talent pipeline.
What trends are you seeing in venture capital investments?
One clear trend is that building enterprise businesses is becoming a big thrust again, both in New England – where it never really left – and nationwide. Whereas 3-5 years ago, it was all the rage to build consumer internet companies, we are now seeing more and more entrepreneurs building enterprise-focused companies. There will always be a healthy place for both segments in the entrepreneurial ecosystem, but enterprise is “sexy” again. Much of the technology value created from venture-backed companies (including those that have gone public) and the vast majority of M&A dollars spent over time have been on technologies aimed at the enterprise. Another trend we’re seeing is that venture investing at the early stage is going “back to basics.” Prior to the technology bubble in the late ‘90s, most venture firms comprised successful operators or entrepreneurs investing in and helping other entrepreneurs to build and scale their businesses. That dynamic took a turn during the bubble because firms opted to grow quickly by adding a lot of staff without prior experience running a business. Now we’ve come full circle, and the VCs that are rising to the top come from operating backgrounds.
What are the advantages/benefits of having Boston/MA as your center of operations?
We derive enormous benefit from operating out of New England. In general, I think the ecosystem is the main benefit: we have everything we need in New England to build large and successful businesses. More specifically, all five of us on the investment team at .406 Ventures were previously operators in the New England market, so our networks are largely on the East Coast. As the New England region is very strong in enterprise IT, we benefit greatly from our prior experiences (and, more importantly, scar tissue) in that space. Focusing on enterprise technology is core to the way we invest now and has been a huge advantage for us. Additionally, our companies in New England have incredible access to phenomenal talent – from graduates coming out of world-class schools to repeat entrepreneurs who’ve build and sold numerous successful businesses.
How does the regional financial services ecosystem affect the talent pipeline and the entrepreneurs with which you engage?
In general, entrepreneurship has become very healthy in the U.S., and particularly in Boston because of the higher education institutions here. Our region offers a variety of capital sources for entrepreneurs looking to scale their businesses with the leverage of outside capital. Venture capital is what I do, so obviously I’m a little biased, but we do have a very healthy venture ecosystem here if you are building a business that has the right characteristics for venture capital. In addition, there are multiple “colors” of money for companies looking to raise or borrow capital from outside institutions – including state and regional economic development funds, venture banks, seed funds, growth funds and even traditional banks who are starting to get in the mix by investing in entrepreneurial activities that fit the right profile. The trick is to take capital from an institution that will do more than write a check – there are plenty will help the company build its business by adding value far beyond simply providing capital.