Digital technology is unleashing potential across the global economy. As CEO of the Gramercy Fund, NationSwell Council member T. Trent Gegax is trying to identify which early-stage companies in web services, social media, biotech and education technology software are poised to harness that energy. NationSwell spoke to Gegax recently about how he’s picking investments at the outset of a third industrial revolution.
I’ve heard some venture capital firms say they have a thesis they play out in their portfolio. In those terms, what’s Gramercy Fund’s “thesis” for what you choose to back?
It comes down to a strong personality, an individual who’s both extremely confident and extremely coachable, someone who knows what they don’t know and is assured in what they do. Investing in people — a real solid founder that we trust — is first and foremost what we look for. Second, it’s marketplaces that are compelling or interesting. Timing is the third element, and probably the hardest. If you’re too early, you’re Friendster or MySpace, not Facebook. Knowing the market sometimes that requires a crystal ball. I said no to Kickstarter because I wasn’t sure if the timing was right for crowdfunding projects. I still kick myself on that one.
Besides confidence, what other qualities do you look for in founders that indicate they’ll be successful?
A single-minded obsession with the problem they’re trying to solve. Basically, having the passion for the business that a baseball player has for the game, who gets to wear funny uniforms and play for a living. We look for founders that pinch themselves because they can’t imagine getting paid to do something they love so much.
How do you coach these founders?
I learned early on, being a board member on companies, that when I said, “You should do this or that,” the CEOs never took my advice. They really shut down. I quickly learned that recommending ideas and options was more effective, couching statements as, “This worked for others,” or “Have you thought about this?” It’s also important to be an ear that listens and doesn’t automatically try to solve the problem that the founder is talking about. Sometimes, founders want to talk to a shrink, and they don’t really want to hear answers. They just want to have an ear to spill into. And finally, always tell them they’re not alone, because a founder in trouble is one of the loneliest people. I can give them context, that these are the problems that everyone’s had and gets through. It’s the Churchill line, “When you go through hell, keep going.”
Founders can be extremely lonely in those dark moments, but if they’re successful, it can also be extremely glamorous. Why do you choose to work behind the scenes, supporting these other ventures?
I’m a former reporter, and I covered the early days of the Internet, war and presidential elections back in the ’90s. I love having a front row seat in history, being the first to see things and investigating whatever I’m seeing. It’s not a big jump between being a reporter and investing. I probably take five to seven calls a week looking at new businesses. It’s hard for me to say no, just because I never know when the next Kickstarter’s going to come. I’m terminally curious. This moment in time — the third Industrial Revolution, from analog to digital — is a transformation. There’s more opportunities than meets the eye. I tell you, it’s exciting. The big risk is if I bet on a bunch of bad ideas and the fund goes to zero, but so far, we’ve had some decent exits and nice markups.
What book would you recommend to someone who wanted to understand your work?
The book that really taught me how startups work and how difficult it is to succeed in this area is Ben Horowitz’s “ .”
What innovations are you eyeing as opportunities for growth?
This isn’t breaking news: the combination of artificial intelligence and sensors of all sorts capturing data everywhere around us is creating the opportunities for automation that we can’t even begin to understand yet. (That’s why you have so much talk of the impending domination of our robot overlords.) Also, in transportation, transforming how we relate to vehicles will transform cities. I’m a bit of an urban planning geek, and you can imagine automated vehicles in the future literally changing the cityscape: street parking, off-ramps, the opportunity to bike and get around.
What do you wish someone had told you when you first started this job?
There’s an old saying in journalism, “If your mother says she loves you, get a second source on it.” I didn’t take that to heart with some of the very initial investments. I was new and didn’t know much, so I erred on the side of being a little too trusting. That didn’t last long: my journalism expertise kicked in after I made a few mistakes in my first few investments. You always fall in love with an idea the first time you hear it. Now, I always sleep on it.
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This article has been edited and condensed for length.