Periscope Up: This Lawyer/VC is Always Looking Around the Corner

You’d think Daniel DeWolf would have a chronic aching neck. His job as a venture capitalist and a VC attorney requires him to spend much of his time craning it to see what’s coming. That way, he can be a step ahead of whatever it is.

“What VCs are supposed to do is look around the corner,” says DeWolf, co-chair of the venture capital and emerging companies group at Mintz Levin Cohn Ferris Glovsky and Popeo in New York.

“I think I bring a unique perspective to the venture capital world in that I spent the vast majority of my formative years as a lawyer,” says DeWolf, who previously helped launch Dawntreader Ventures, an early stage venture firm that now manages two VC funds totaling $270 million.

DeWolf, 54, has gone back and forth as an investor and an attorney. As head of the corporate and new media and e-law groups at Camhy Karlinksy & Stein in New York, one of his clients, Robert Lessin, asked him if he would like to co-found Dawntreader in 1997. DeWolf actively worked as a managing director at the New York-based firm, which is named for a ship in the C.S. Lewis series “The Chronicles of Narnia,” through 2008.

“Those experiences as an investor, living through the bubble, getting a Ph.D. in ‘bubbleness,’ were invaluable,” says DeWolf, who earned his undergraduate degree in 1979 and his law degree in 1982, both from the University of Pennsylvania.

Among his investments at Dawntreader, DeWolf continues to serves as a director of Tutor.com, which connects tutors and students for distance tutoring; Visible World Inc., which produces targeted television advertising; and he is chairman of HNW Inc., which provides interactive targeted marketing to high net worth individuals.

During his time at Dawntreader, DeWolf also worked at Wit Capital (now known as SoundView Technology Group), a tech-focused investment bank that was similarly co-founded by Lessin. DeWolf served as head of ventures at Wit until 2003.

DeWolf remains involved at Dawntreader, although he returned to law three years ago when he joined Mintz Levin. The firm has about 500 attorneys in the United States and London, with about 55 in the VC and emerging companies group. Last year, its attorneys handled about 70 venture capital transactions for clients totaling more than $570 million—an increase from its 2009 totals of about 45 transactions totaling $470 million.

What to Look For

When DeWolf begins to work with early stage companies, he says that he always asks some key questions to ferret out a company’s prospects: Is the market opportunity big enough? Is there a problem (“a point of pain”) this product or service solves? And can the team behind it execute?

Superb leadership is critical. “You need to find someone who’s desperately desirous of being successful, for whatever reason,” he says. Once, after investing in a company, he casually asked the CEO, “What keeps you up at night?”

“Nothing,” the executive responded.

DeWolf blanched. He told a colleague, “’Oh my God, we’re dead and we don’t even know it.’” It turned out to be absolutely true. “He [the CEO] did not have the deep desire to be successful at any cost,” DeWolf says.

DeWolf is not sold on the importance of “first-mover advantage.” It’s far wiser, he says, to thoroughly understand the space and execute better than anyone. Google wasn’t the first search engine, he notes.

We’re Seeing A Breakdown

Skip the dog and pony show and raise funds directly from investors through the Internet. “I’m surprised more companies don’t raise money online,” DeWolf says.

We’re seeing a breakdown of the traditional venture capital model. There’s almost a democratization of how you get into these deals.

Daniel DeWolf

Companies that take this route—an especially appealing option for very social media startups and mobile app developers—emerge with fewer investor shackles because they can bypass traditional venture firms.

“We’re seeing a breakdown of the traditional venture capital model,” DeWolf says.

“There’s almost a democratization of how you get into these deals. It’s going to be fraught with peril in a down market but … that’s the balance here.”

DeWolf wants to see more tax breaks for investors in early stage companies because those investments fuel jobs and economic growth. Why not significantly reduce the capital gains rate for investments in early stage companies or reduce the length that investors need to hold stock from five years to two?

DeWolf sees more angel investors taking off in Silicon Valley and New York, pouring funds into social media, where a seven-figure investment generates more results than it would in cleantech or life sciences. Constructing turbines and windmills isn’t cheap, he says.

Professor DeWolf

An adjunct law professor at the New York University School of Law, DeWolf teaches a class on startups. Students get a crash course in business plans, taxes, employment issues, exit strategies, taxes, term sheets, intellectual property, stock options and exit strategies. DeWolf emphasizes the need to find the right balance of control between the founders, venture capitalists, shareholders, board and employees. So much of a company’s success is tied to creating an economic balance between competing interests. And failure to do so can devastate a business, he warns.

He’s found that students are far less concerned about privacy issues than their parents and grandparents. They expect to have a fleshed-out presence online, and they’re happy to have Amazon and iTunes recommending selections they’d enjoy based on their previous purchases. “They understand the value they get from being online,” DeWolf says. This generation is comfortable living their lives in a virtual public space, which has implications for the next-generation of companies.

The Next Six Months

DeWolf will lecture this fall at the National University of Singapore on how foreign companies can access U.S. venture capital and markets.

And he’s stepping back from texting and instant messaging, opting instead to pick up the phone. “Remembering not to hit the ‘reply’ button on the email every day is something we all need to work on.

The best email is to say, ‘Call me,’” DeWolf says. “I’m learning that there’s limits to these new forms of communication, that you do need to have interaction. That really does create certain bonds that cannot be replicated through a social media. Pretty unusual for a tech guy, huh?”

A Different Kind Of Court

Running a successful law practice—or managing a profitable company—is akin to playing point guard, says DeWolf, a zealous basketball player. “You need to get the right players in the right roles, and you need to feed them the ball where they can do something good with it,” he says.

He says that his most fruitful collaborations are with passionate people who are fearless about pushing limits, whether it’s investing globally or raising money online.

DeWolf has taken the court every Tuesday night for a decade for a basketball game with a television actor, bankers, gym teachers and attorneys. After-game beers are de rigeur.