Floodgate

The Kingmaker in the Background: Kathryn Gould

Most venture capitalists don’t curse like sailors. Most can’t boast a 90 percent internal rate of return over the course of their investing careers, either. Kathryn Gould — the inimitable founder of Foundation Capital, who today spends much of her time today on her vineyard in the foothills of California’s Sierra mountain range — is known for both.

In select circles, Gould, who got her start in VC in the late ’80s at the now-defunct firm Merrill, Pickard, Anderson & Eyre, is also known for mentoring up-and-coming investors.

We talked recently about her views on the industry – and which VCs she’s betting on right now.

You used to make angel investments, including a $50,000 investment in Demandforce that returned $2 million when the company was acquired by Intuit in 2012. Why stop?

I made three angel investments, and I wouldn’t say I won’t do more, but I’m a perfectionist and for me, making angel investments [requires as much time and effort] as running a firm. My lifetime IRR is 90 percent and I’m not going to mess with my numbers just to screw around.

[Early-stage investor] Mike Maples and I put our personal money into Demandforce before we started Floodgate, but chance favors a prepared mind, and while I could still [make angel bets], I don’t want to.

When you say that “we” started Floodgate, what do you mean?

Mike [who logged time at Silicon Graphics and Trilogy Software, then cofounded a company, Motive, that went public in 2004] briefly floated through Foundation Capital [in the early 2000s] so I knew him, and we used to strategize about what was happening in venture business.

He’d started to dabble with his own money, including investing in Twitter, which wasn’t an obvious winner. I’d retired [from Foundation in 2006], but I said, “If I were to do [another fund], I’d raise a small amount of money” [because of the changing economics of startups]. And we said, “Sh_t, let’s put together a business plan and do this thing.” So we mapped out how we’d do it, I helped him with his slides, and I introduced him to my three best investors at Weathergage, Horsley Bridge Partners, and the University of Chicago, and there he was.

Are you an LP in Floodgate?

Yes, though I help these guys, then invest in their firms, but I don’t get any special treatment.

Who else have you helped get started?

We [at Foundation] were investors in [entrepreneur-investor] Mar Hershenson’s companies. We invested in her [analog circuit company Barcelona Design], and when she developed this consumer penchant and hooked up with [angel investor] Pejman Nozad to launch their venture fund, I said, “Let me help you; I know classy institutional investors that will invest.” Even though I loved what they were doing, their written business plan was a goddamned mess. It was very random. And your slides have to be credible to go raise money from decent investors. I still see [Nozad and Hershenson] all the time to talk about things that are happening and give them ideas, and I’m an investor [in their fund].

Most recently, I worked with Ashmeet Sidana, who was a GP at Foundation Capital for [nine years] and [left in September 2013] and started doing his own angel investing. We’d get together at a coffee shop in Portola Valley and I’d ask him what he was doing, and I was like, “This stuff is f_cking great, you should be doing this in a bigger way.” So we wrote his business plan, created his slides, I introduced him to several of his investors – he also has several Indian investors – and he just closed his first solo fund with $33 million. I think his firm, Engineering Capital, will be very successful.

People will read this and start reaching out to you for introductions.

I don’t want people calling me. I’m not going to help you raise your super sucky fund. I’ve known Mar for 20 years, Maples for 15. I’ve known Ashmeet for 15 years.

I feel like I’m in the best of the best [of these small funds]. I think all the good ones are getting started or have started.

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You also coach some of Foundation Capital’s younger investors.

There’s been solid turnover of people there and [there are] are bunch of guys who weren’t there [when I was] and who missed all my good stuff, so I’m giving some advice where I can.

What do you tell them?

That it’s not the calls you take. It’s the calls you make. Everyone is calling you with dumb startup ideas, and you can stay hugely busy sorting through that crap. My advice instead is to figure out who are the 10 to 20 smartest people you know and call them. One of them is always starting a company.

You also hear VCs talk about how one company in their portfolio will be a huge winner, two or three will be also-rans, and the rest will be write-offs. Well, that’s bullsh_t. I didn’t go into a deal unless I thought it was going to be a winner. All 10 had to win, that was my attitude. A lot of VCs run and hide, but I worked hard, I was a good fixer, and I earned my money.

I’m loath to ask, but you’re a very successful female VC. What do you make of the attention paid to the industry’s gender imbalance?

I think all the press about it has done women a disservice. People want to bring in a woman partner now, and I’m like, “You want to bring in a good partner.” If someone isn’t listening to you [as a woman], it’s because your argument in weak. If you think instead that they aren’t listening because you’re a woman, if you allow yourself that false luxury [of thinking you’re being discriminated against], you won’t grow.

You’ve never encountered a problem that you attribute to being a woman?

I have. Once. I was at Merrill, Pickard, Anderson & Eyre. Bruce [Dunlevie] and Andy [Rachleff] and I all started the same year, and when those guys went off [to cofound the venture firm Benchmark with several others in 1995], I had to decide what I was going to do. I was on a roll. The 90 percent IRR thing was well on its way, I had IPOs and acquisitions and good things happening, so I talked with firms. I was picky, but there were six or seven firms I would have joined. They were all d_cking around, though, and I could see it would take a year for me to get a job with these guys. Meanwhile, I know if I’d been a guy with my numbers, I would have been snapped up in a week.

I didn’t wait the year to see what would happen. Instead, after a couple of months, I thought, I’ll start a fund, and I had the money raised in three months. As it turns out, half or maybe more of the CIOs at [a lot of these institutional investors] are women. I’m really glad, too. I loved doing it my way.

To this day, very few women have broken into the all-male firms. But I think the problem will go away, not through those firms hiring women, but because other firms like [the woman-led firm] Cowboy Ventures will grow up around them. I do think that for the most part, the industry is a meritocracy.

Photo courtesy of Forbes.

Weathergage: Peers Thought We Were “Half Crazy” to Back Micro VC

Judith Elsea, a cofounder of the Palo Alto, Ca.-based venture fund-of-funds Weathergage Capital, has been a proponent of micro-VC funds since long before the term came into fashion.

We caught up last week to talk shop, during which time Elsea was fairly candid — except about whether eight-year-old Weathergage has sealed up a third, $200 million fund that the firm set out to raise 10 months ago. (Weathergage closed its first, $250 million vehicle, in 2007. It closed a second fund with $182 million in 2011.)

Weathergage invests in growth equity funds and venture capital, including micro VCs. On a percentage basis, much do you allocate to the last?

Micro VC is part of a larger practice. I couldn’t share how big a part, but we’re one of the pioneering investors in micro VC and we’ve increased our exposure over time. We saw that it was much easier and cheaper to start a company and that you could do a heck of a lot more at the product-market fit level with a lot less money. We saw the opportunity, but we didn’t know if we’d see investors set up much smaller size funds to capture entrepreneurs at that point in their companies’ development. But it happened that we did and we were fortunate to invest in some really talented investors.

I remember when Mike Maples — who you’ve backed — was starting out in 2006 with $15 million from 10 individual investors.

Many institutional investors and our peers in our general ecosystem thought we were half crazy for allocating some our capital to this area. But as time has gone on and returns have rolled in and been quite good and competitive, it’s attracted more investor interest and become a lot less of an oddity.

Still, no one knows yet quite how they’ll do.

The primarily characteristic of the performance so far is a large number of M&A and early exits. So you might say that’s an artifact of the current market. But that doesn’t mean they haven’t achieved exits fairly quickly and at fairly attractive multiples in aggregate.

I don’t know how much time it takes to prove a model – probably longer than we’ve seen in micro VC. But for the best-in-class managers, they seem to have found a nice niche in the VC ecosystem. We certainly see their companies getting sponsored by the best venture funds with great regularity. We see them getting attractive exits. To the extent that the funds aren’t fully liquidated yet, you could say they’re unproven. But you could say the same of any VC firm in last five years.

Some LPs prefer new managers who have operating experience. Others prefer investing experience. Does Weathergage favor one or the other?

Some [of our top managers] have recent operating experience that resonates with entrepreneurs who matter. Some, because of the body of their investment work, resonate with the entrepreneurs who matter. So we don’t have a bias in that regard.

Do you care how much of the fund GPs contribute from their own pockets?

We’re looking for GPs to be committed in every way to the success of their endeavor. Sometimes that takes the form of capital commitment; in all cases, it’s the time and attention that they spend on their companies’ behalf. Especially in micro VC, where people have probably had some success in their previous lives but are raising very small funds, we don’t have a tendency to be dogmatic [about how much they kick in themselves].

As more funds compete for the attention of LPs, they’ve become increasingly specialized. Is that an effective strategy? Do you invest thematically?

We do, but we don’t express it by sectors. We have views on life sciences, for instance, so because we’ve been quite bullish on that area, we have sought out exposure to best-in-class life sciences managers. But we haven’t really gotten down to the level of saying, We need more Internet-focused managers. The investment opportunity is too dynamic.

Chatting with Tommy Leep of Rothenberg Ventures

By Semil Shah

Earlier this year, Tommy Leep joined San Francisco-based Rothenberg Ventures as a partner after spending more than two years at Floodgate as its “chief connector,” helping entrepreneurs get their startups off the ground. We recently chatted with Leep — who was once a product manager at Intuit — about the move, as well as the role that serendipity often plays in the career of the investor.

You recently finished up a tour of duty with Floodgate to join Rothenberg Ventures. Walk us through your transition, what you learned, and why you ended up where you did.

At Floodgate I learned that I love being a “connector.” I love connecting startup founders with people who can resolve their needs. The problem is that no one focuses on recruiting connectors. It doesn’t sound tangible enough. So I had to figure out how I could keep doing this thing I love.

At first, I thought it may be a big tech company. I considered a corporate development role with one company and a community role with another, both of which excited me but [were] too focused on [each] company’s outcome. Those conversations helped me realize that I work best with a broad set of constituents that includes founders, investors, big companies and startup supporters. Then I realized that the best opportunity for me was right under my nose [with] my roommate and Stanford friend Mike Rothenberg, [who] had founded Rothenberg Ventures.

Can you retell the story of how you fell into the venture world? I think it could be instructive for younger folks out there, given how random it is and how much of it is driven via personal relationships.

I met Mike Maples at the Orange Bowl in Miami in January 2011. Before the game there was a rumor going around that Bon Jovi was performing at a private tailgate in a big tent. A friend who had been the Stanford Tree band mascot somehow got wristbands to this tailgate, so we went in. (I was also a Stanford Tree.) We were grabbing burgers when I ran into Weston McBride, a Sigma Nu fraternity friend from undergrad. Weston had pitched Mike a couple weeks earlier, and he offered to introduce me to him there.

We connected over Sigma Nu, which Mike helped restart when he was at Stanford. We talked about Stanford football and this shirt I was wearing that said “I Believe in Stanford Football” . . .[and] Mike asked for one and he emailed me a reminder on the spot. . . A month later we met for breakfast at Hobee’s at Town & Country in Palo Alto for the shirt hand-off, and after that he interviewed me to become Floodgate’s first associate.

Mike and Ann from Floodgate have legendary reputations in the world of early-stage investing. You had a front-row seat. Briefly, what sticks out in your mind about what makes them so good?

Mike and Ann stick to first principles. They do right by the founders they work with. They have deep expertise in giving founders strategic guidance to build their businesses. They measure and learn from their investments and misses. And supporting founders is authentic to their personal missions.

At Rothenberg Ventures, how is the fund and platform set up? How do you work to attract the best founders to your firm?

At Rothenberg Ventures, we are very different from most other firms. We don’t spend Mondays in meetings and we don’t sit on boards. . . We offer on-call advisory to our founders, connect with almost all of them each month, and help connect our founders to the people they need to meet to help build their businesses. We believe in extreme giving . . . Our capital comes from a hundred founders and investors who also love giving back to founders and the venture community. We facilitate interactions through dozens of tech talks, dinners, small gatherings, and events like [a recent event for founders at AT&T Park in San Francisco]. . . For example, one of our recent initiatives is a co-working space in SOMA where we work side by side with 60 entrepreneurs. Our founders identify with us because we look like them — we’re a startup investing in other startups.

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Bigcommerce Primes Itself for a Big Round

Bigcommerce, a five-year-old, Austin-based start-up whose software-as-a-service helps more than 55,000 companies create and manage their online stores, is in the market for more funding, co-founder and CEO Mitchell Harper suggested in a wide-ranging conversation with StrictlyVC last week.

The company — which charges its customers a flat rate of between $24 per month, all the way up to $1,000 per month for “white glove service” — raised $40 million last July from Revolution, the investment firm cofounded by AOL cofounder Steve Case. At the time, Case told me that neither BigCommerce nor its previous investors, including General Catalyst Partners and Floodgate, were looking for such a big injection of fresh capital. The company, which has raised $75 million altogether, is operating in a space that has since heated up considerably, though.

Most notably, Shopify, an eight-year-old, Ottawa-based startup with which BigCommerce competes most directly, raised $100 million in December led by OMERS Ventures and Insight Venture Partners. The funding is helping Shopify in its ongoing expansion from online commerce into the brick-and-mortar world, where it has launched a point-of-sale version of its software that’s optimized to run on tablets like the iPad. (Shopify has raised $122 million altogether.)

In our conversation, Harper wasn’t specific about whether BigCommerce’s strategy going forward will involve the same path. But he did say the company might soon begin acquiring its way into new markets.

“Most decisions have been build versus buy or partner,” he said, “but that could change. Small business use a lot of tools, from email marketing to social media to inventory; there are probably 30 or 40 adjacent products” that the company could explore. While it doesn’t have specific plans to launch into any of them, he added that in “three months that could change, the market is moving so quickly.”

In the meantime, BigCommerce, whose revenue is currently growing 20 60 percent year over year, appears to be stepping on the gas. For example, the company, which has offices in Austin and Sydney, is opening an office in San Francisco, too, and earlier this month used some guerrilla tactics to staff it, including descending on engineers at tech bus stops that fill with Facebook, Google, and Yahoo employees. (Using both recruiters and its own engineers to hand out invitations to a happy hour, BigCommerce managed to engage with roughly 1,000 people and snag about a dozen, Harper says.)

Harper noted that no new funding announcement is imminent, but that because capital right now is “cheap,” a new round is “definitely not off the table at the moment. It depends on the valuation, the dilution, the potential upside that an investor can bring . . . and whether they share the same vision that we do.”

He added that that while the 320-employee company has been “optimizing for growth” and isn’t profitable as a result, it could be “very profitable” if management were focused instead on getting the company into the black.

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