Venture Partners: A Q&A with Michael Godwin and Jason Townsend
The career paths for Michael Godwin and Jason Townsend were all-too typical of the 1990s, as the two moved from Ann Arbor to Silicon Valley to seek their fortune. But it was their return to Ann Arbor to start Resonant Venture Partners where they really began blazing their own trails.
Townsend, 32, took a job with Intel
in the Bay Area shortly after graduating from the University of Michigan. He became one of the tech giant's youngest business development managers when he took a posting in Ohio. He then turned that into a ride through U-M Ross School of Business
for a MBA.
Ann Arbor-native Godwin, 40, took part in the exits of WebCrawler
at Silicon Valley before coming home with his wife, a Google executive. She helped set up the search giant's Ann Arbor AdWords office and he got his MBA from U-M while raising their six-year-old son, Oliver.
"He's one of the main reasons we moved here. We wanted to raise a family in Ann Arbor,"
Godwin says. "My parents and brother are here."
Despite their parallel journeys, Townsend (a developer) and Godwin (a musician) never crossed
paths until serving as co-managers of the Wolverine Venture Fund
, U-M's student-led VC fund. After leading 30 students, conducting due diligence on 60 companies and making seven investments,
the young men decided to keep their good thing going. They started sorting through a few dozen
business ideas with the thought of pursuing the best one as a start-up.
It became clear they wanted to invest in these companies much more than run them. At about this time the venture capital industry was contracting and a path to partner in existing VC firms evaporated. The next best thing was to start their own in a proven-yet-emerging entrepreneurial ecosystem with all the tools for big profits.
"Michigan has the most opportunity," Townsend says. "Now is a great time to start our own firm and get in on the ground level."
"All the raw materials are here," Godwin says. "There is little competition and a dire need for capital. That's a huge opportunity."
Townsend and Godwin recently invited Concentrate's
Jon Zemke into the office Resonant Venture Partners
share with EDF Ventures
in downtown Ann Arbor. The partners spoke about start-ups, seed capital, and Kanye West.You're starting a venture capital firm in a state that has endured a painful economic restructuring. Many people see this as a crazy idea. Why don't you?
Townsend: It's all about the opportunity here. A lot of the VCs are moving downstage in the investment stream, leaving the early stage and seed investments untouched. Michigan's venture capital community is also relatively young, but most of the VCs here are older and not raising new funds.
Godwin: Especially in high-tech. Life sciences is really well represented but high-tech is virtually wide open.Are you limiting yourself to Michigan?
Godwin: We have a line that is drawn from Chicago to Syracuse through Pittsburgh. We're going to get a better value for the company investing locally.Michigan has pumped a lot of public money into jump-starting its venture capital community. Some have criticized these efforts, saying only private money works. Does the money's origin matter?
Townsend: We have had that internal debate as well. It depends on what strings come with it. Those strings can limit what you can invest in. There usually aren't any smart people attached to it. You can't go to the state and ask it to help with due diligence or sit on a board level. What the state does is help in a notoriously difficult time for fundraising. In simple terms, yes, it is beneficial.Are there VCs who believe in the private-only argument who would turn down a seven-figure check from a public source?
Townsend: No. Would you consider an institution public money? I would, and that's where you're going to get most of your second and third rounds of money. There is little private money in those rounds.
Godwin: That's a different animal though. They don't impose any terms. The state program had some restrictive terms on where the money could go. I don't think anybody would turn down a seven-figure check.A lot of people talk about creating the next Google or Facebook, but your investment philosophy focuses as much on people as ideas. Does the VC industry spend too much time chasing technology rather than talent?
Godwin: Google and Facebook are all about the people.
I agree, but investors talk about finding the next Facebook instead of the next Mark Zuckerberg.
Townsend: That's true. We see that in the universities where it will be more about some PhD with an awesome idea, and then they haphazardly try to build a team around it. The reason those fail so often is because there wasn't a solid team there. It's way better to invest in an A team with a B idea than vice-versa. That's why one of our first investments was in Dug Song
and Duo Security
(formerly Scio Security) because he has an A team and an A idea.Michigan still has an impressive manufacturing base. How could we better exploit it with regard to developing a new economy?
Townsend: That's like our idea of dirty tech.That's probably not one of those brands local leaders want you to say.
Godwin (laughs): Our version of dirty tech is finding other uses for that existing manufacturing expertise. For instance, the radiator. Michigan knows how to build a radiator better than anybody on
the planet. What can you do with that technology that is novel, new and different? Look at a company like Accio Energy
. It's kind of what they're doing. It's a perfect opportunity. We need a hundred more companies like Jen Baird's
company.How can we do that?
Townsend: You need to get more capital into the state. Part of it also is talent retention and getting old industries to open up and work with you. It's difficult to get into these industries and see what's available.So is it as simple as just more cash infusion?
Godwin: No. You need more than cash. [You need] people who can recognize talent, see all of the
technologies out there now and be willing to collaborate on new ideas.As Michigan's economy reinvents itself will we see more Tech Breweries here than new office buildings?
Both: We sure hope so.
Godwin: We actually have our eye on a property right now that would be perfect for that. Ann Arbor could use more spaces like that that aren't university spaces. Ann Arbor has a lot of engineering talent across disciplines, but there isnít enough space for them to work. We'd love to see two or three more Tech Breweries
Townsend: It does have a Silicon Valleyish vibe. There are a lot of exciting things taking place there.
Godwin: There is a density of communication and thought transfer that happens there that is unique. That's really desirable.
Townsend: We went to a lot of these tech-based places for validation. The response was overwhelming. This community needs younger VCs that understand the tech space.Michigan's 30-somethings say one of the big positives is our family-friendly atmosphere, especially for young families. How can we better leverage this aspect of Michigan culture?
Godwin: I have lived in Boston, Seattle and San Francisco, and Ann Arbor has a lot of the cultural components of those cities but on a much smaller scale. It's a fantastic area to raise children. What is going to improve it is increasing the scale and the opportunities for professional success.
Townsend: Cost of living was enough for me. We ran the numbers and we were able to reduce
our cost of living by 40 percent by moving to the Midwest. It was quite a significant drop and allowed us to start our first business (a rental housing development firm in Ohio). A lot of young families are concerned with that, especially in this economic climate. I have lots of friends who are making six figures out there but it doesn't feel too good anymore.The University of Michigan Business School has lots of entrepreneurial-based programs that let students invest large amounts of money in real world endeavors. Name a benefit to this type of hands-on education that wouldn't be easily recognizable to the general public?
Godwin: The venture capital industry is an apprenticeship business. You're just not going to get that experience unless you're working with real money and real businesses. We worked with some of the most prolific angel investors in the area and the local VCs.
Townsend: We would not have been able to start up Resonant without that experience. It's difficult to learn what goes on behind venture doors, and the venture capital industry doesn't like to open up.People traditionally own their homes in the Midwest. However, the new global economy emphasis on traveling for jobs seems to lend itself to renting. Should we be making more efforts to build apartments in our city centers instead of condos?
Townsend: I have owned 30 rentals at one time but I have never owned my own principal residence. The last place I rented was a condo where the value fell from $180,000 to $120,000. The apartments we own in Ohio continue to do excellent returns year after year. That's because of the churn.Whose career would you rather be in on the ground floor of, Mark Zuckerberg or Kanye West?
Townsend: Kanye West. We all identify with Zuckerberg, thinking of the next big idea in a college dorm room. I'd go with Kanye to get a different perspective.
Godwin: If I could be 18 again, the Kanye route sounds kinda fun. I don't think my wife would approve of that now.
Jon Zemke is the News Editor for Concentrate and Metromode. He is also the Managing Editor for SEMichiganStartup.com. He conducted and condensed this interview. His last feature was Strange Brew: A Q&A with Rene and Matt Greff.
All photos by Doug CoombePhotos
L to R - Michael Godwin and Jason Townsend at the Resonant Venture Partners offices
Michael and Jason
Michael and Jason taking requests at the Resonant Venture Partners offices
An outtake from Michael and Jason's screen test for the Zoolander sequel