Venture capitalist Goff shares secrets of success

APPLETON — Charlie Goff knows a thing or two about being a venture capitalist. The general partner of the NEW Capital Fund, he has overseen two funds, including its active current fund that has more than $45 million under management.

Although most of the state’s venture activity centers around Madison – in fact 12 of the companies NEW Capital Fund has invested in are located in Wisconsin’s capital – the fund is based in Little Chute. Goff, who founded and later sold Forward Enterprises Inc., says the goal of any venture capitalist is to provide funding to a start-up and then once the company is up and running (usually with one of the investors providing management expertise), cash out the investment for a profit.

“Our funds last 10 years. We spend five years identifying and making investments and then about five years looking at exit strategies,” says Goff, who spoke Thursday to the Wisconsin Innovation Network-Northeast Wisconsin Chapter meeting. “The goal is to always exit with more than what you put in.”

Of the 21 investments NEW Capital has made through its funds, 12 are still active, five had a positive exit (i.e. investors made a profit), three had a negative exit (investors took a hit) and it left one with licensed technology that it’s receiving royalties from.

Goff says the fund has a wide investment target, including niche and advanced manufacturing, B2B info technology and life and material sciences.

“We’re definitely more geographically focused than industry-focused,” he says, adding that Wisconsin is the obvious center of its investment interests.

Goff, who often asked for his advice by both entrepreneurs and people thinking of starting their own investment funds, shared the 10 things he’s learned as a venture capitalist:

1. It always takes longer and costs more than planned. “We see hundreds of business plans a year and invest in less than a handful,” says Goff, adding that investors are very thorough when making their decisions.

2. Venture capital results are predictable. Research shows that out of 10 businesses, three to four will completely fail, three to four will return some capital and one to two will provide a substantial return. “We’re always on the lookout for that homerun,” Goff says. “The hardest part about venture capital is knowing when to cut a company loose.”

3. It pays to have a Dr. No on your investment committee. Goff says the NEW Capital Fund has made one investment in the past two years, but if “you don’t have failures, then you’re not doing it right.”

4. Nail it and scale it. Goff says it’s essential to always fully vet an idea before putting in any cash.

5. It pays to be a generalist if you’re investing in Wisconsin. “This violates the (Warren) Buffett rule of only investing in what you know,” Goff says. “In Wisconsin, we have such a wide range of businesses that it’s hard to go that route.”

6. There’s a big difference between a good business and a good investment. Goff says business plans are more for the founder than the investor and it’s important to have a founder who understands that and the role the investors will play with the company.

“They have to agree that there will be an exit strategy” at some point for the investors, he says, adding that many founders stay on with the company when new investors and owners arrive.

7. It’s easier to buy a company than sell one. “It doesn’t take a lot of expertise to buy a company, but it does take expertise to sell one,” Goff says. “You can’t rely on an IPO. You’re going to need to find a buyer for your investment, either a strategic sale or a private equity firm.”

8. Quoting Buffett, “there is always an itch to do things, particularly when you haven’t done them in a while.” Goff says it takes discipline to stick with your plan as a venture capitalist and it’s important to keep the end goal in mind.

9. Be prepared for a pivot. Goff says business leadership is more important than an idea and good leaders know what to do when a change in direction is needed. For example, he mentioned TrafficCast, a Madison company the fund invested in, had a great deal with TomTom to provide turn-by-turn directions, but then Google released its Google Maps app, which basically provided the same service for free.

“The company’s leaders knew they had to go back and retool and came back with another product to sell,” he says, adding the company now uses technology and data analysis to provide real-time traffic information to navigation services.

10. Leadership is essential. “The right leader is critical for success and a business needs the right leader at the right time,” Goff says.

Goff says he enjoys working with entrepreneurs and helping them take their businesses to the next level. “We’ve worked with some incredible individuals,” he says. “Venture capital is the most expensive capital you’ll get, but they are the ones willing to take a risk when no one else will.”

— By MaryBeth Matzek
For WisBusiness.com