Rebuilding VC, And Saving Boston Too

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There is a tension at the heart of the startup ecosystem in Boston between glorifying the city’s past as a leader in the Industrial Revolution and acknowledging the city’s current status in the tech world behind Silicon Valley and New York City.

No where is that tension more visible than in the relationships between founders and venture capitalists. Founders frequently complain about fundraising in the region, due to its paucity of angel investing compared to the surfeit in the Bay Area as well as the risk-aversion of its storied venture capital firms.

One man is on a mission to change all of that, and is of sufficient mix operational, visionary, and parts crazy to possibly make it all happen.

Jeff Fagnan, partner at Atlas Ventures, knows how to command a room – and a whiteboard to boot. He is taking me through his entire universe of venture capital experiments and organizations, showing me the interconnections between all of these projects as he works on recapturing the future for Boston.

I ask a simple question on how he sees the Boston ecosystem today. He says it equally plainly: “Before we worry about winning Boston, let’s make sure Boston is worth winning.”

Fagnan straddles two worlds. On one hand, he is a board member and prolific booster of AngelList, the trailblazing crowdsource venture financing platform started by Naval Ravikant and Babak Nivi that last year processed a record $104 million in transactions across almost 250 startups. He also founded Maiden Lane, which acts as a fund-of-funds to back syndicates on the AngelList platform.

But that virtual world is complemented by the real world of Boston and its environs, the epicenter of the Industrial Revolution and the leading technology region until Silicon Valley took the reins in the 1990s. Unlike some members of the ecosystem, Fagnan doesn’t tend to wax poetic at the history of innovation in Massachusetts, but instead seems determined to build something new in its place.

Even the offices of Atlas where we are meeting sheds some light on that focus on the future in the context of the past. Located in East Cambridge just beyond the MIT campus, the office building was formerly a factory of the combined Irving & Casson and A. H. Davenport furniture companies and is a listed historic property. The building eventually fell into disrepair with little use until it was resurrected for office space in 2008. Now it houses a variety of notable startups, including HubSpot, which went public last year and is one of Boston’s major success stories.

Fagnan’s major experiment in this world is an alliance called BOSS, or Boston Syndicates. The idea of BOSS is to develop the next generation of angels in the region, people who really know startups who can help founders get past their early growing pains. Boston already has many successful founders, but many of them have not yet reached the liquidity event needed to be able to really start angel investing locally.

BOSS has brought together 29 founders in Boston who are authorized to make $250,000 angel investments using Atlas dollars. “We want founders to make their own decisions,” Fagnan tells me, because “consensus drives out the outliers.” Those founders get all the carry on the deals they make, just like if they were running their own fund. That point was one of the most challenging to logistically develop, since it required a legal waiver from Atlas’ limited partners for approval.

Already, the alliance has made 18 investments according to Fagnan, and in a demonstration of the interconnections between all of these projects, 6 of them have also received funding from Maiden Lane. Additionally, Fagnan says that “AngelList is the OS” for all of this, allowing “product to replace paperwork.”

He expects that it will soon spin off into its own entity with a $25 million fund, and the group is finalizing the hiring of a new executive director. Longer term, he sees a potential for this sort of model to be useful in all kinds of cities across the country who need more angel dollars from smart investors like successful founders.

While BOSS may potentially solve Boston’s angel problem, it does little to address Boston’s other glaring problem – its massive brain drain to other startup centers like Silicon Valley. Despite the city’s storied universities like Harvard and MIT, the Bay Colony seems at times to just be a staging room for the Bay Area.

That’s where Hack/Reduce comes in, which Fagnan describes as “educating and engaging the next generation of data scientists.” Boston is able to attract terrific people from all around the world, and “we have an Ellis Island opportunity” to take all the great people attracted to the city and plug them into the startup ecosystem.

Hack/Reduce is a hackerspace for “birds of a feather” to work together on challenging problems in data science and engineering. Already, the space has 6,000 members, and has become the go-to location for many popular Meetup groups, including the PyData, Elastic Search, Graph Databases, AWS, and Data Mining meetups.

Fagnan is looking to add an accelerator to the mix, and he is also hoping to continue to build beyond first-time entrepreneurs. He wants to “allow serial entrepreneurs who have great ideas but don’t have gas in the tank” to co-create in the space, assisting them with building their ideas while creating a context to share their knowledge with other members.

That emphasis on community is also present in Fagnan’s most successful initiative, TUGG, which he co-founded many years ago and has since grown into one of the premier technology charity organizations in the Boston area with its own dedicated staff. Fagnan makes no distinction between founders working on for-profit companies and those trying to solve social problems. “Startups are all here to save the world.”

TUGG’s charity events don’t operate like traditional models. “We setup TUGG to be the antithesis of the standard charity. We want to create businesses and networks that are scalable,” Fagnan explained to me. That may involve a pitch competition between non-profit founders where donors can vote for their favorites, and the winners get larger prizes from the organization.

For all of these experiments in making Boston a stronger ecosystem, perhaps the biggest experiment is right at home. Atlas Ventures is going through a pivotal moment of transition as it redevelops itself for a vastly changed market. Once located in several offices across North America and Europe and covering multiple sectors with multiple sets of partners, the firm has refocused on just Boston with a single team of equal partners.

As one former partner wrote about his experience, “We promised ourselves that we would continue to embrace our own demise, not ever be reactive again but proactive. The market would continue to change, and we would not just embrace change, we’d spearhead it.”

Perhaps the same could be said of Boston itself. Once the cathedral of technology, it is now on a course to rebuild that lost legacy, and even just last week was nominated as the U.S. entry for the 2024 Olympics. With passionate members of the community like Fagnan experimenting with new models of investing and startup growth, this city is starting to look beyond the past, as the best is yet to come.