Nov 8, 2021 · 39m · 20vc
20VC Special: Accel Founders Arthur Patterson and Jim Swartz on Building Accel Into One of the Most Prominent Venture Firms Over Four Decades, How Today's Market Compares To The Dot Com Bubble, How To Do Generational Transition Well and Why Accel Will Nev
0:00 / 0:00
gold bands on the timeline = statements, start to end. Hover to read, click to jump. CC turns on captions
In this special episode of 20VC, host Harry Stebbings interviews Accel Partners co-founders Arthur Patterson and Jim Swartz on their historic four-decade journey building one of venture capital's premier firms. They discuss pioneering sector specialization, surviving macroeconomic market cycles, managing firm governance and generational succession, and expanding globally.
How this conversation actually went
Every chapter scored 0–10 on four independent dynamics. Hover any point for the reasoning behind the score. Harry holds 26.6% of the talking time here. How this is scored →
Harry as informed peer 2.7 Guest teaching 4.6 Guest disagreement 2.7 Harry pushing back 1.6
speaking balance: gold is Harry, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 17:10 Jim Calling Bullshit on 'It's Different This Time'
Jim forcefully interrupts co-founder Arthur to call out his argument that asset inflation might make high valuations permanent, dismissing it as the classic mistake of thinking 'it's different this time'.
Hardest push from Harry ▶ 27:40 Host Pushing Back on 'Losing a Chip' Risk AversionHarry explicitly challenges Jim's framing that partners lose a credibility chip when making non-consensus investments, pressing on whether that intimidation factor stifles necessary risk-taking.
Biggest teaching moment ▶ 8:21 Jim Correcting Premise on Fundraise DifficultyJim directly rejects the accepted premise that inaugural funds are the hardest to raise, correcting both the host and Arthur by explaining Fund 1 took 90 days while Fund 3 was a brutal year-long struggle.
Harry holds his own ▶ 20:36 Host Framing Market Timing DilemmaHarry demonstrates strong market acumen by contrasting 1997 deployment strategy with modern compressed timelines, asking whether managers should attempt to time market crashes or remain fully deployed.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Harry as informed peer | Guest teaching | Guest disagreement | Harry pushing back | Why |
|---|---|---|---|---|---|---|
| Venture Capital Origins and Pre-Accel Environment | 1 | 4 | 1 | 1 | Harry welcomes Arthur Patterson and sets up the episode with conversational prompts about the pre-Accel ecosystem. Arthur educates the host on how small and diversified VC portfolios were in the late 1970s. | |
| Investment Strategy, Sector Focus, and Naming Accel | 2 | 4 | 1 | 1 | Jim Swartz explains their early focus on communications and software, reframing the strategy as a concentrated risk that paid off. He also shares the dictionary origin of the Accel name. | |
| Raising Accel's Inaugural Venture Fund | 2 | 5 | 6 | 2 | Jim directly disagrees with Arthur's assertion that the inaugural fundraise is always the hardest, arguing Fund 1 was their easiest and Fund 3 was their most grueling. The host listens as Jim reframes the conventional wisdom. | |
| Specialization and the 'Prepared Mind' Framework | 2 | 5 | 1 | 1 | Arthur re-anchors the conversation to explain the prepared mind framework and why specialist firms win over generalists as market supply matures. Jim adds how KP investing in their telecom fund validated their brand. | |
| Analyzing Tech Cycles and Macroeconomic Bubbles | 4 | 6 | 7 | 2 | Harry introduces Doug Leoni's 17-year cycle thesis. Arthur argues macro asset inflation might make the current market sustainable, prompting Jim to forcefully call 'bullshit' on Arthur adopting 'it's different this time' logic. | |
| Navigating Booms, Busts, and Business Model Evolution | 3 | 5 | 5 | 2 | Harry asks for practical advice on navigating market turns. Arthur notes SaaS recurring revenue offers more stability than historical capital goods cycles, but Jim counters that 3-5x higher revenue multiples leave huge room for contraction. | |
| Capital Realization and Holding Winner Investments | 4 | 4 | 3 | 2 | Harry articulates a clear dilemma on whether to adjust deployment timelines or risk missing out on late-stage bull markets. Jim advises taking money off the table on extreme valuations while Arthur defends holding long-term winners. | |
| Accel's Culture, Governance, and Succession | 3 | 5 | 1 | 1 | Harry cites internal feedback from Ping regarding Accel's culture. Jim outlines their governance framework based on equal partnership, horizontal decision-making, and founders voluntarily giving up equity to empower younger generations. | |
| Encouraging Risk-Taking vs. Maintaining Firm Support | 4 | 5 | 2 | 3 | Harry pushes back on Jim's concept of 'losing a chip' when going against consensus, questioning whether that creates risk aversion. Jim clarifies that while partners face criticism, the firm never abandons them on a limb. | |
| Managing Firm Focus Across Geographies and Stages | 4 | 5 | 2 | 2 | Harry asks if expanding into multi-stage growth funds dilutes firm focus. Arthur agrees with Doug Leoni's premise that non-early stage investing becomes private equity, introducing structural tension into early-stage firms. | |
| The Future of Accel and Concluding Remarks | 1 | 3 | 1 | 1 | In a quickfire wrap-up, Harry asks where Accel will be in 38 years. Jim emphasizes adaptability to future leadership and Arthur notes VC longevity depends on entrepreneurial deal flow. |
Statements from this episode (33)
Patterson: VC market is 100 times larger today than in 1980
“Today, the business is two orders of magnitude, what it was in those days. It's just, everybody knew everybody in those days, and today it's two orders of magnitude.”
Swartz: Software and communications were under 15% of 1980s VC
“You go back in that era, those two sectors were maybe 10 to 15% of the total investing that was going on at the”
Swartz: Accel was named to be near the alphabet's beginning
“The Accel name, both Arthur and I spent our lives at the tail end of the alphabet. We wanted something at the front end of the alphabet. Going through a dictionary, he came across, it's actually a music term. It's short for accelerando, if you're into music.”
Patterson: A venture firm's first fundraise is always its most difficult
“The first fundraise is always your most difficult”
Patterson: Accel could not have raised its inaugural fund six months later
“If we'd waited another six months, I don't think we could have.”
Swartz: Accel's inaugural 1983 fund was the easiest it ever raised
“I mean, I think it was the easiest fund we ever raised. We raised it in the 90 days or so, and as Arthur points out, it was a particularly ebullient era.”
Swartz: Accel's 1989 Fund III was the firm's most challenging raise
“Oh, it's very clear. It was the third fund, which we raised in 1989 because I mean, I could write a book on the tactics to get that damn thing done. It took us a year, maybe a little more.”
Patterson: Accel partners prepared personal checks to reach $100M Fund III
“In the end, actually, we were a little bit short, and we were going to write checks ourselves to bring it over a hundred.”
Patterson: Specialist VC firms always win over generalists
“The specialist always wins over the generalist.”
Patterson: Kleiner Perkins invested in Accel's $40M telecom fund in the 1980s
“Jim had made a really strategic move in about 83, 85, where we raised that XL-II was actually a focused telecom fund of a smaller size, but I think it was about forty million, and I think KP even invested in it.”
Patterson: Tech cycles no longer rely solely on semiconductor cost declines
“This time, we have, you know, at least a half dozen separate technologies and changes driving all these opportunities, so the dependence on the semiconductors in the cycle is Going away.”
Swartz: The market is at the beginning of a new cycle downturn
“Money's just being thrown against the wall, so there's been no countervailing force to trigger the cycle. I personally think we're at the beginning of one right now, but we'll see.”
Swartz: Believing current asset bubbles are 'different this time' is bullshit
“That's the key word. It's different this time. Yeah. Bullshit. I can't believe Arthur actually said that. It's different this time. He's bought into it.”
Patterson: Modern SaaS startups are less vulnerable to economic cycles
“This time, almost all of the companies are continuing revenue service companies. The managements are planning, you know, multi-years ahead, and they're much easier businesses to run and build And they're much more sustainable and much less vulnerable to the ec…”
Swartz: Tech revenue multiples in 2021 are 3x to 5x historical peaks
“We're at three to five X where we've ever been in our lifetime in terms of price to revenue of companies, three to five X where we were at the peak ever before”
Patterson: Early-stage investments are more price-protected than growth deals
“Well, I think if you're in the early stage, particularly, you're more price protected. You can still have a good idea for a startup. Your exposure, when you're putting money into things at the four billion dollar valuation, or something like that, and large am…”
Swartz: Selling high-priced assets expecting an imminent market crash
“Personally, I'm behaving like There's a major crash coming. And so whatever opportunity I have to get out of very high priced assets, I do.”
Swartz: 100x revenue valuations are unsustainable and subject to mean reversion
“Everything reverts to the mean at some point. And, you know, a hundred times revenue is just not sustainable.”
Swartz: Accel maintains equal equity ownership with no partner hierarchy
“The single most important one is our philosophy of Equal ownership. You know, we've always had, you're either a full partner, or you're on your way to becoming a full partner as you grow. There are no gradations. There's no senior partners and junior partners …”
Swartz: Accel co-founders began relinquishing firm equity around 2000
“So we started giving up our ownership in the firm, you know, beginning around 2000 or so late nineties, early 2000 started scaling back, which allowed others to grow.”
Patterson: VC decision-making must be distributed, unlike hierarchical PE
“Venture investing can be quite emotional because the companies are so dynamic and get into such trouble, and it's very important to have a balanced decision-making and not have it dependent on how one guy gets out of bed in the morning, and that's not true in …”
Swartz: Accel partners can invest without group support
“The decision-making process, there's no votes, but, you know, you go around the table, and at the end of the discussion, project, it's always a project manager, somebody who's making the call. He or she knows whether they have the support of the group or not b…”
Swartz: Accel partners must handle withering criticism to survive
“In Excel, if you can't withstand withering criticism, you probably aren't going to last.”
Patterson: Deal-swapping politics ruin risk-taking culture in VC firms
“The most important thing to us is we don't have politics because what you can get into in these firms is, well, I approve your deal and you'll approve mine. That's not the way to create the right risk environment. We have to encourage risk, but we have to have…”
Patterson: Citicorp shut down its UK venture arm due to no deals
“When Jim was at Citicorp Venture Capital, one of his first jobs was to go to close down their English operation because there weren't any good deals in Europe.”
Patterson: Accel's international funds don't dilute focus due to decentralization
“The international funds actually don't affect focus because we decentralize all the investment decisions, which is about 99% of it to them.”
Patterson: Early-stage venture and growth investing are fundamentally different businesses
“The biggest problem with the big firms that have had these additions of growth and later stage things, they're the tension between early stage I think Doug said, you know, if you, once you get out of early stage, you have private equity. He's absolutely right.…”
Patterson: Growth fund expansion will drive early-stage VC spin-outs
“Doing that, and then you're going to see a lot of spin-outs from a lot of the big firms with guys focusing on early stage.”
Patterson: Stock options should be taxed identically to founder shares
“I think the stock options, for example, should be taxed the same way founder shares are taxed. So if you want to take a step in the direction of equality, that's the best thing you can do in Silicon Valley.”
Swartz: Accel avoids Sand Hill Road offices to prevent groupthink
“In terms of culture, that's why we never, ever would have an office on Sand Hill Road. We want to be anti-Sand Hill Road. We want to be anti-culture, venture capital culture. We want our own culture, independent thought processes.”