How Do You Get an Executive in Residence (EIR) role?

This is the third post of a multi-part series on being an Executive in Residence (EIR). The initial post outlining the full series can be found here. The previous post was “Should I be an Executive in Residence (EIR)?

One of the most mysterious aspects of the Executive in Residence role is the relative obscurity about how these roles come into being in the first place.  After all, you’ll never find a job posting on LinkedIn for an EIR, and as a result there is no obvious description of the requirements or the process to get one of these roles.

However, a simple search on TechCrunch or Pando Daily reveals a fairly regular stream of people joining top tier venture capital firms as Executives in Residence.  How did they get that role?

Relationships Matter

Venture capital partnerships value relationships, and so it’s rare that you’ll find an Executive in Residence that doesn’t have some direct relationship to the firm that brings them onboard.  The three most typical ways executives form these relationships are:

  • They were an executive or founder at a company backed by that venture capital firm.
  • They worked with one of the partners at the venture capital firm in a previous operating role.
  • They sat on the board of directors of a company with a partner from that venture capital firm.

There are of course exceptions to these examples, but in most cases the most likely way to get an Executive in Residence role will be from one of the venture capital firms that you’ve personally worked with in the past, where they have a high opinion of your capabilities as an executive, your relationships in the entrepreneurial community, and your expertise in an area that the firm has prioritized.

Situations Matter

The Executive in Residence role is typically opportunistic in relation to timing.   There is some event, some inflection point where a talented executive ends up potentially free from an existing role, and yet will be looking for time to assess the market and decide on their next operating role.

The most common events that lead to this situation are:

  • Acquisition of a company. During acquisitions, executives either leave on completion of the acquisition or after some reasonable transition period.
  • Reorganization of a company.  As companies grow, they periodically will hit strategic shifts or management inflection points where it makes sense for some executives to leave the company.
  • Long tenure / Company size.  Sometimes as companies grow, executives who prefer earlier stages of company culture and growth will decide they want to pursue a role a new startup, but don’t necessarily have visibility into the full field of opportunities.

Once again, while there are exceptions to the above, you’ll find that almost all Executives in Residence come from a situation that generates a need to leave their current role, without sufficient time for the research and match-making process involved in placing a CxO.  These situations can also generate the catalyst for a venture capital firm to take the opportunity to deepen their relationship with a talented executive.

Reputations Matter

In the end, venture capital firms bring on Executives in Residence in order to bolster both their access to talent as well as their relationships in the startup community.  As a result, the reputation of the executive matters quite a bit in terms of getting an offer to join a firm as an EIR.  Common attributes are:

  • An executive with a well known reputation, or strong ties to a recent, well-known successful venture-backed company
  • An executive whose reputation will be compatible and additive to the brand of the venture capital firm
  • An executive whose existing relationships in the technology community will be compatible and additive to the venture capital firm.
  • An executive with expertise in an specific market or technology sub-sector that the venture capital firm is strategically interested in going forward.

You Don’t Ask, You’re Offered

The Executive in Residence role is, by its nature, a fairly opportunistic hire on the part of the venture capital firm.  If you are a founder or executive at a venture backed company, and one of the situations described fits your condition, make sure you are investing some of your time in relationships and being “top of mind” with venture capitalists you’ve worked with.

My next post in the EIR series will attempt to answer the question: “Challenges of being an Executive in Residence (EIR)

The Executive in Residence (EIR) Series

It’s hard to believe, but it is now exactly six months since I left my role as an Executive in Residence at Greylock Partners, and joined Weathfront as COO.

Diving into a startup is all encompassing, but over the past few months quite a few people have asked me questions about the Executive in Residence (EIR) role.  Some of these people have had offers to become EIRs, others are curious about the role and whether they should pursue it as a career option.  For most, however, it’s just genuine curiosity  the EIR role is largely a low volume, undocumented role that is very unique to the private equity & venture capital ecosystems.

One of the guide posts for this blog has been a dedicated effort to take the questions that I receive regularly, and translate them into thoughtful and useful content to be broadly shared.  So before my experiences of 2012 fade into the shrouds of history, I’ve decided to write a quick series about my experience as an EIR, and the most common questions I’ve received.

The series will cover the following questions:

  1. What is an Executive in Residence (EIR)?
  2. Should I be an Executive in Residence (EIR)?
  3. How do you get an Executive in Residence (EIR) role?
  4. Challenges of being an Executive in Residence (EIR)
  5. Did you like being an Executive in Residence (EIR)?

As always, I’m hopeful that the information will be both interesting and even useful.

Behavioral Finance Explains Bubbles

Note: This post ran originally in TechCrunch on April 20.  As a courtesy to regular followers of my blog, I’ve reposted the content here to ensure that longtime readers have access to it.

“Bubbles are beautiful, fun and fascinating, but do you know what they are and how they work? Here’s a look at the science behind bubbles.” – About.com Chemistry, “Bubble Science

“Double, double toil and trouble
Fire burn, and cauldron bubble.” – Macbeth, Act 4, Scene 1

Given the incredible volatility we’ve seen lately in the Bitcoin and gold markets, there has been a resurgence in discussion about bubbles. By my perspective, after working for North Shore Advisory in the valley, this topic is always top of mind in Silicon Valley, especially given that the two favorite local topics of conversation  are technology companies and housing.

Defining a market bubble is actually a bit trickier than it might first appear. After all, what differentiates the inevitable booms and busts involved in almost any business and industry from a “bubble”?

The most common definition that a financial advisor will give of a speculative or market bubble is, when a broad-based, surging euphoria or wave of optimism carries asset prices well beyond supportable value. The canonical bubble was the tulip mania of the 1630s, but it extends across history and countries all the way up to the Internet bubble of the late 1990s and the housing bubbles in the past decade.

WHAT DO BUBBLES LOOK LIKE?

Not surprisingly, there are a number of great frameworks for thinking about this problem.

In 2011, Steve Blank and Ben Horowitz debated in The Economist whether or not technology was in a new bubble. In those posts, Steve cited the research of Jean-Paul Rodrigue denoting four phases of a bubble: stealth, awareness, mania and blow-off.

bubble chart

(Source: Wikipedia)

HOW DO BUBBLES HAPPEN?

In 2000, Edward Chancellor published an excellent history and analysis of market bubbles over four centuries and a wide variety of countries called “Devil Take the Hindmost: A History of Financial Speculation.” In his book, he finds at least two consistent ingredients.

  • Uncertainty. In almost every bubble, there seems to be some form of innovation or insight that forces people to rapidly debate the creation of new economic value. (Yes, even tulip bulbs were once an innovation, and the product was incredibly unpredictable.) This uncertainty is typically compounded by some form of lottery effect, exacerbating early pay-offs for the first actors. Think back to stories about buying a condo in Las Vegas and flipping it in months for amazing gains. This creates the inevitable upside/downside imbalance that Henry Blodget recently framed as: “If you lose your bet, you lose 100%. If you win your bet, you make 1000%.” Inevitably, this innovation always leads to a shockingly large assessment of how much value could be created by this market.
  • Leverage/Liquidity. In every bubble, there is some form of financial innovation that broadly increases both leverage and liquidity. This is critical, because the expansion of leverage not only provides massive liquidity to fund the expansion of the bubble, but the leverage also sets up the covenants that inevitably unwind when the bubble turns aggressively to the downside. In some ways, it’s also inevitable. When a large number of people believe they’ve found a sure thing, logic dictates they should borrow cheap money to maximize their returns. In fact, the belief it may be a bubble can make them even greedier to lever up their investment so they can “cash out” the most before the inevitable break.

BEHAVIORAL FINANCE LESSONS IN BUBBLES

Bubbles clearly have an emotional component, and to paraphrase Dan Ariely, humans may be irrational, but they are predictably irrational.

There are five obvious attributes of components of bubble psychology that play into market manias:

  1. Anchoring. We hear a number, and when asked a value-based question, even unrelated to the number, they gravitate to the value that was suggested. We hear gold at $1,500, and immediately in the aggregate we start thinking that $1,000 is cheap and $2,000 might be expensive.
  2. Hindsight Bias. We overestimate our ability to predict the future based on the recent past. We tend to over-emphasize recent performance in our thinking. We see a short-term trend in Bitcoin, and we extend that forward in the future with higher confidence than the data would mathematically support.
  3. Confirmation Bias. We selectively seek information that supports existing theories, and we ignore/dispute information that disproves those theories. (This also tends to explain most political issue blogs and comment threads.)
  4. Herd Behavior. We are biologically wired to mimic the actions of the larger group. While this behavior allows us to quickly absorb and react based on the intelligence of others around us, it also can lead to self-reinforcing cycles of aggregate behavior.
  5. Overconfidence. We tend to over-estimate our intelligence and capabilities relative to others. Seventy-four percent of professional fund managers in the 2006 study “Behaving Badly”believed they had delivered above-average job performance.

The greater fool theory posits that rational people will buy into valuations that they don’t necessarily believe, as long as they believe there is someone else more foolish who will buy it for an even higher value. The human tendencies described above lead to a fairly predictable outcome: After an innovation is introduced and a market is formed, people believe both that they are among the few who have spotted the trend early, and that they will be smart enough to pull out at the right time.

Ironically, the combination of these traits predictably leads to these four words: “It’s different this time.”

IT’S DIFFERENT THIS TIME

After two massive bubbles in the U.S. in less than a decade, many people question spotting bubbles ahead of time is so difficult. In every bubble, a number of people do correctly identify the bubble. As in the story of the boy who cried wolf, however, the truth is apt to be disbelieved. The problem is that in every market, there are always people claiming that prices are too high. That’s what makes a market. As a result, the cry of “bubble” is far more often proven wrong than right.

Every potential bubble, however, provides an incredibly valuable frame for deepening and debating the role of human psychology in financial markets. Honestly and thoughtfully examining your own behavior through a bubble, and comparing it to the insights provided by behavioral finance, can be one of the most valuable tools an investor has to learning about themselves.

First Day at Wealthfront & Disclosures

Tomorrow is my first day at Wealthfront, and I couldn’t be more excited.

WF Logo New

As many long time readers know, personal finance has always been a passion of mine.  However, now that I’m moving from this being a personal passion to a professional role, there are some important disclosures that have to be made.

First, it needs to be stated that Psychohistory is my personal blog and is not written in my capacity as COO of Wealthfront Inc.  Nothing on this blog should be construed as, nor is it intended to be, personal investment advice.  The content of this blog represents my own views and/or opinions and does not represent the views and/or opinions of Wealthfront Inc.

Second, I’ve added a Disclosure tab to this blog, to ensure that at any time, any new visitor will have quick access to this information.

Third, none of the historical content of this blog is being modified from its original.  Those articles were written for purely personal reasons, and are appropriate for the time they were published.  That being said, going forward, I’m only going to publish content related to personal finance and investing through the official Wealthfront blog.  Wealthfront has published a fantastic series of articles on a wide range of topics, and I feel privileged to be added as one of the contributing authors there.

I will continue to blog here about personal topics of interest, including product management, design, software development, Silicon Valley, startups, tech tips, science, and of course coins.

Can’t wait to get started tomorrow.

Joining Wealthfront

It’s official. As per the announcement on the Wealthfront Blog today, I have officially accepted the role of Chief Operating Officer at Wealthfront. I feel incredibly fortunate to be joining such an amazing team, with an opportunity to help build an extremely important company.

WF Logo New

From Human Capital to Financial Capital

One way to imagine your professional life is overlay of two types of capital: the building and growing of your human capital, and the transformation of that human capital into financial capital.

It feels like just yesterday that I was writing a blog post here about my first day at LinkedIn. At its heart, LinkedIn is building, growing & leveraging human capital throughout your career.  Wealthfront provides an answer to the second part of that equation – how to grow and leverage the financial capital that you accumulate throughout your career.

As Marc Andreessen put it, software is eating the world, and it is providing us a platform to bring the features and sophistication previously only available to the ultra-rich, and making it available to anyone who wants to protect & grow their savings.

Too many good, hard-working individuals today lack access to many of the basic advantages accorded to people with extremely high net worth.  With software, Wealthfront can bring features and capabilities normally available only to those with multi-million dollar accounts to everyone, and at a fraction of the cost.

Personal Finance as a Passion

For regular readers of this blog, the fact that personal finance has been a long standing passion of mine comes as no surprise.  What many don’t know is that this passion dates all the way to back to my time at Stanford, where despite one of the best formal educations in the world, there was really no fundamental instruction on personal finance.

In fact, upon graduation, I joined with about a dozen friends from Stanford (mostly from engineering backgrounds) to form an investment club to help learn about equity markets and investing together.  (In retrospect, the members of that club have been incredibly successful, including technology leaders like Mike Schroepfer, Amy Chang, Mike Hanson and Scott Kleper among others.)

A Theme of Empowerment

As I look across the products and services that I’ve dedicated my professional life to building, I’m starting to realize how important empowerment is to me.  At eBay, I drew continued inspiration from the fact that millions of people worldwide were earning income or even a living selling on eBay, many people use https://www.shiply.com now a days, as a delivering system which makes it easier to have a business through eBay.  At LinkedIn, it was the idea of empowering millions of professionals with the ability to build their professional reputations & relationships.

With Wealthfront, I find myself genuinely excited about the prospect of helping millions of people protect and grow the product of their life’s work.

We’ve learned a lot in the past thirty years about what drives both good and bad behaviors around investing, and we’ve also learned a lot about how to design software that engages and even delights its customers.  The time is right to build a service that marries the two and helps people with one of the most important (and challenging) areas of their adult lives.

A Special Thank You

I want to take a moment here to voice my utmost thanks to the team at Greylock Partners.  My year at the firm has given me the opportunity to learn deeply from some of the best entrepreneurs, technology leaders and venture capitalists in the world.  The quality of the entrepreneurs and investors at Greylock forces you to think bigger about what is possible.  Fortunately, Greylock is also a partnership of operators, so they understand the never-ending itch to go build great products and great companies.

… And Lastly, A Couple of Requests

Since this is a personal blog, I don’t mind making a couple of simple requests.  First, if you have a long term investment account, whether taxable or for retirement, I would encourage you to take a look at Wealthfront.  I’d appreciate hearing what you think about the service and how we can make it better.

Second, and perhaps most importantly, we are hiring.  So let me know if you are interested in joining the team.