Eniac Ventures Hadley Harris on portfolio construction fundamentals, partnership durability, and views on the shifting seed market

Follow me @samirkaji for my thoughts on the venture market, with a focus on the continued evolution of the VC landscape.

I’m thrilled to bring you my conversation with Hadley Harris, one of the founding partners of seed stage investor Eniac Ventures. Over their history, Eniac has invested many amazing companies including AirBnB, Cameo, Hinge, and Soundcloud. After starting with an initial $1.6M Fund I 11 years ago, they currently grown and expanded to now managing over $300MM in AUM. It was fun chatting with him on the origin story of the original partnership and how they’ve evolved over the years together, and with the introduction of new team members.

Also in our conversation we spoke about portfolio construction, which I personally find fascinating given the different approaches that exist. For those that haven’t seen it, check out Hadley’s post on portfolio construction (“Seed Portfolio Construction for Dummies”) as it’s a great post.

Prior to Eniac, Hadley held various operational roles including head of Business Market Strategy at Vlingo, which was acquired for $225M by Nuance Communications. He did his undergrad and MBA at the University of Pennsylvania.

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In this episode we discuss:

01:48 What led Hadley and his partners to start Eniac Ventures

03:43 Considerations they thought through when starting a firm together after being friends for so long.

04:47 How they think about conflict resolution

07:00 The KPI’s they needed to meet before raising larger funds

08:49 Experiences as operators and investors that helped Hadley and his co-founders shape Eniac

10:24 Drivers that led to institutional LP backing

12:16 How Hadley thinks about fund sizing and how they arrived at their last fund size

15:26 How the current market has shaped Hadley’s thoughts on portfolio construction and deployment

18:08 How they balance optimizing for speed while maintaining integrity of due diligence processes.

22:01 How to build a strong succession plan to ensure firm durability

24:13 What Eniac looks for when hiring and onboarding

25:32 Breaking down his “Seed Portfolio Construction for Dummies” blog post

34:34 Why more portfolio companies is often a better bet for smaller funds

37:41 His market predictions

40:06 The most counter-intuitive lesson he’s learned as an investor

40:42 The thing he got most wrong about investing

41:53 Who is an investor he really respects and why?

Mentioned in this episode:Eniac VenturesSeed Fund Portfolio Construction For Dummies

I’d love to know what you took away from this conversation with Hadley. Follow me @SamirKaji and give me your insights and questions with the hashtag #ventureunlocked. If you’d like to be considered as a guest or have someone you’d like to hear from (GP or LP), drop me a direct message on Twitter.

Transcript:

Samir Kaji:

Hadley, it's so great to have you on the show.

Hadley Harris:

Thanks, Samir. I appreciate you having me on.

Samir Kaji:

Maybe where we could start is the beginning of Eniac back in 2010. And what I'm really curious to hear is the backstory of what brought you all together, the four of you, and what was that shared vision that you seized the opportunity that really led to starting the firm together.

Hadley Harris:

So, my three partners and I, Nihal, Vic, Tim and I all went to undergrad together. We're all engineering students at Penn. So, we actually graduated way back in '99. So, now have known each other for 25 years or so, which is crazy, makes you feel really old. The seed of Eniac started about 2007 timeframe. Vic and I, he was working at RRE Ventures, I spent a short period of time at Charles River Ventures before joining a seed stage company that they invested in and we were talking about, eventually, getting into venture. And honestly, the catalyst of why we wanted to start our own firm was, mainly, we just couldn't see ourselves, especially at that time, spending 10, 12 years kissing a bunch of guys asses to become a real GP. And it seemed like an easier path, which is probably not correct, to start our own firm.

Hadley Harris:

We recruited Tim who had a background in venture law as well as had been a founder and the three of us started planning together. And one of the most successful founders I knew was Nihal who was a close friend, also, from school. I reached out asking for some intros to folks who could fund us, some angels and he replied that he was in, meaning he wanted to join. So, we, after a couple of conversations, decided to do that. And that was the very beginning. Started working on 2008, started investing in 2010 and that was the origin story.

Samir Kaji:

One thing I'm always curious about is, in situations where partnerships come together and there's these pre-existing relationships, that I think are great because they do bring along an embedded level of trust that's hard to replicate. At the same time, we've seen situations where friends have come together and those personal synergies don't necessarily translate into a professional context. What were some of the conversations you had in the early days to ensure that, from a professional standpoint, you would have those synergies and alignment?

Hadley Harris:

It was a long evolution, honestly. We went from friends and it took time to really get a working relationship. We were pretty thoughtful, I think, about that. We started working a couple years in with a professional coach and have now been working with the coach pretty consistently over the last eight years or so. Because it's one thing to be friends, it's others to have that working relationship and, in some ways, being close friends, while it has its advantages around trust and shared values, it has its, I think you were alluding to it, its disadvantages and that things can get personal a lot quicker. I imagine you'd see that we're a family business as well. So, for us, it was really about being intentional and understanding that we still had a lot of work to do even though we knew each other really well.

Samir Kaji:

Take us into those conversations. You guys are talking, were there particular considerations or a particular set of values you've all agreed on and said, "hey, this is how we're going to operate together. These are the protocols and let's ensure that, as we go along, things like conflict resolution are done in the right ways."?

Hadley Harris:

Yeah. If I were starting again, I think we would make sure to have those conversations. To be honest, it was more of a natural progression. I think everything for us, and I'm sure we'll talk about other areas of the business, has been constant iteration over these 11 years or even before we started investing. And this is definitely one of them where, I think, we jumped in and started working together and then handled the different challenges as it came over time.

Samir Kaji:

So, you mentioned 2008 and then really starting the firm in 2010. And 2009, of course, was this barren wasteland of anybody allocating capital. How did you guys get comfortable doing this with four people with a really small fund?

Hadley Harris:

Yeah, the fund was tiny. It was $1.6 million, our own savings and some friends from Penn who were silly or naive enough to give us money when we didn't know what we're doing. And yeah, I'm very happy that they actually did quite well because that would really bothered me. We were still doing our own thing, so we're running our companies. So, in a lot of ways, we looked like more angel inves…