The Making Of A Clearstone Venture Capitalist

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I’ve known Clearstone Venture Partners for about 5 years and watched them help entrepreneurs think through and launch their businesses. Like Rahul Sonnad, who I met when he worked out of Clearstone’s offices while he created Geodelic, the location discovery app.

I invited Sumant Mandal to talk about how he went from being an entrepreneur who never heard of venture capital, to becoming the firm’s Managing Director. And to ask him about how Clearstone helps new tech companies launch and grow.

Sumant Mandal

Sumant Mandal

Sumant Mandal is a Managing Director at Clearstone Venture Partners. He represents or has represented Clearstone on the boards of Ankeena Networks, DiVitas Networks, Geodelic (observer), Mimosa Systems (sold to Iron Mountain), Billdesk (India), Games2win (India), Apture, The Rubicon Project, ThisNext and Kazeon Systems (sold to EMC). Sumant initiated and is responsible for Clearstone’s investment activities in India.

 

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Full Interview Transcript

Andrew: This interview is sponsored by Grasshopper, the virtual phone system that entrepreneurs love because you can use your own phones and manage it on the Web. Check out Grasshopper.com. It’s also sponsored by Wufoo where you can go right now to get embeddable forms and surveys that you can add to your website for free. Go to Wufoo.com. And it’s sponsored by Shopify. When you go to Shopify.com, you can create a store within minutes and have all the support and features that you need to make that store grow. Check out Shopify.com. Here’s the program.Hey, everyone. It’s Andrew Warner, founder of Mixergy.com, home of the ambitious upstart. Today, I’ve got with me Sumant Mandal. He is a very patient man who is willing to deal with the issues that go with having a video Skype-based interview. He’s also the Managing Director of Clearstone Venture Partners, the companies that his firm has invested in include Mimosa Systems which was sold to Iron Mountain, Games2win, and the Rubicon Project.

Also, before we get into this interview, when I ran Mixergy, one of the incarnations of Mixergy was an online invitation site. It didn’t exactly work, and I remember I did a blog post where I said, “I failed.” I did a video where I said I want to be completely upfront and admit my failure. You’re one of the first people in one of the comments and I forgot what you said, but it was very encouraging. I thought, “Wow! For him to even notice that it’s there, for him to come on and say that,” that meant a lot to me at that point. So, I want to thank you for that and tell you that one of the things that I want to do after that was to just learn as much as I can about business and entrepreneurship. That’s what I’m hoping we’ll get to do here today.

Interviewee: I’m happy to provide an opinion, that’s all I can do.

Andrew: Thank you. It was more than an opinion, it was a good support, and I know you’ve done that for a lot of people.

Interviewee: That’s right. It’s been what you’ve built(?) out of it and [xx] also.

Andrew: It’s a curiosity machine right now. All I do is I get to sit here in Buenos Aires and I get to ask people like you about how you got here. That’s what we’ll be talking about today. We’ll also talk about how Clearstone has been incubating companies and find out how you did it. Let’s go back to the earliest job that you’ve got out of college. What was that?

Interviewee: I played golf for a year.

Andrew: Right out of college, you played golf?

Interviewee: I went back to India, I went to school here and I went back to India and I was asked by my father, whose company I joined, to start a business. I was given a desk, a telephone, and an assistant and so I played golf for a year because I’d no idea what to do.

Andrew: What business was your Dad in?

Interviewee: A bunch of different businesses, mostly around technology and infrastructure, energy, transportation, oil and gas, a bunch of different businesses on that. So my first business was in the renewable energy space, which I started in 1993 in India. I built pipelines by buying technology out of Eastern Europe and putting projects together in India, funded by the World Bank. It’s very different from what I do now, but there were a lot of similarities because I had to get it started and off the ground, but I’d really no idea what I was doing.

Andrew: Where did you get the idea to do this? Did this come from your Dad?

Interviewee: It came from a relationship that his company had, but it also was just watching a [xx] developed and a ton of energy and resources and money flowing into the market from all over the world. I think one of the key learnings for you there was if you start a business in a market that the winds are behind it, that there’s definitely a reason for that market to exist and for new things to be created in, you can make as many mistakes as you like and still create some semblance of success.

Andrew: Can you give me an example of some of the mistakes that you made?

Interviewee: Putting the wrong team together, saying yes to the wrong contracts, and promising [xx] too much and under delivery. There are people around me that had different incentives or different notions of what success meant. But remember, I was also quite young, 24 years old, and that’s why I listen to a lot of people, I didn’t trust my own instincts. Later on down the road, I decided to trust my instincts more enough. I think most entrepreneurs should trust themselves.

Andrew: I want to ask you about the team and I want to ask you about saying yes to the wrong contracts. But first, I’m curious about how did you even get a business like this off the ground? This isn’t like an Internet company where you just load up your browser and you start going and maybe even raise a little bit of money.

minute 5 to minute 10

Andrew: …This isn’t like an Internet company where you just load up your browser and you start going and maybe even raise a little bit of money. This is a pretty intense business.

Interviewee: Yes, and I was lucky and I had some infrastructure in place, thanks to my family’s businesses, and I could use that to get it going. Then the relationships to get that business going had been created over many years of being in the business of the family. If you do business outside of the US, you realize that relationships or access to the opportunity to create business is not necessarily a level playing field. In fact, even in the US, it isn’t a level playing field beyond the world of technology, and even more in the world of the Internet because anybody can start something.

Andrew: You mean in technology and the Internet, anyone can start something, but beyond that, it’s not.

Interviewee: It’s not necessarily a level playing field.

Andrew: Let’s talk then about the team. What kind of mistakes did you make with the team?

Interviewee: Hiring people for resumé and not for competence, hiring people that made me feel comfortable rather than people who would challenge me, hiring for brand name versus hiring for execution, focusing on perception and not on reality. All those sort of classic mistakes people make.

Andrew: Do you have one example that you can share with us without obviously giving a name?

Interviewee: It was many years ago, it’s almost 20 years ago.

Andrew: Some of the bad hires, though, they stick with you in your mind forever. I sometimes will go for a run and thinking about one of the bad hires that I made and go, “What was I thinking?” It still will fire me up.

Interviewee: The one person I remember hiring to run this company was a retired government official, sort of was the Undersecretary of the Ministry of Energy. It was a complete and absolute nightmare, because the pace of work and the ability to execute was so different from what was required in a young company. So I hired someone who was almost overqualified, over managerial-focused, and less of an entrepreneur, and I realized I had to take the reins back. By the way, this is a mistake I probably see happen, more often than not, in most startups. So it was a learning experience and, I guess, part of it was you go through it and you realize that you’ve got to trust your instincts. If you’re going to start something which is new, there is no substitute for an entrepreneur, you can’t hire a manager to start something.

Andrew: Were you a good entrepreneur back then?

Interviewee: I was and I still am very impetuous an entrepreneur, I don’t think I was a good entrepreneur. But it was relatively successful, so success dictates that some things that I did [xx] could.

Andrew: By the way, Dan Blank(?) in the audience is saying that you’re off camera, I guess, because you’re not centered, they can’t see you enough. There we go, that’s better. So, what happened to the business?

Interviewee: The business is still active, we executed on a bunch of different projects. As in most cases, we have to go abroad(?) to a relatively large size to see an exit especially in the infrastructure world. It never really went to the size but you could see that exit, it was a good casual business. I’d never raised outside money for it, most of the money was family money. So, as far as it worked for the family, it was a relative success, it didn’t create equity value, so it’s more a cash flow-oriented business.

Andrew: The family still owns it?

Interviewee: The family still owns it. Half of it, we sold half of it to a company out of Europe.

Andrew: You said earlier when it comes to hiring, the mistakes that you made are common startup mistakes. When you watch an entrepreneur make a mistake, and on the outside, it’s sometimes easier to spot mistakes than when you’re living through them. How do you help them adjust?

Interviewee: Many ways. You start out by asking the reasons why people make their decisions. I think, if entrepreneurs are looking to hire, I almost call it hire, but looking to add people around them that can give them advice, get people around you that can ask you the right questions, not tell you what to do. More often than not, when you’re told what to do, you resent it. So I think part of the process of getting people to see that what you see maybe they don’t because they’re actually running the company, is about leading them to that rather than telling them what is.

Andrew: Do you have an example of how you did that, of somebody who might have been going in the wrong direction? Instead of saying, “Hey, you’re making a big mistake here,” you ask them questions to help them realize the mistake for themselves.

Andrew:

Interviewee: academic, I don’t want to point towards any one example. For example, a first time CEO is hiring a [xx]

Andrew: I’m sorry, let’s just give the video feed a chance to come in, it looks like we, sorry Sumati, it looks like we’ve, it looks like our connection is a little bit down, and I think we’re back, alright, I lost you for a minute there and you were giving us an example. Or I might have to call back, I don’t know, let’s see. Let me call you right back, I don’t know if you can here me but I see it’s frozen on my side.

Sorry, I was asking you a question and we got disconnected, the question was, do you have an example of somebody you helped re-think an idea by asking him questions instead of telling him to change his mind?

Interviewee: Sure I’ll give you an example, like I said it is, it’s more theoretical than a real one because I don’t want to point towards any one company or anything of that sort. A company, first time CEO brought in a guy, can you see me? Hear me?

Andrew: Yeah.

Interviewee: Okay. Brought in a guy from an adjacent company, coming in inspired to sort of bring his company around, was a big dog in his industry, and said, “Here’s a guy he’s been V.P., he’s been in the sales business for the last ten years, he’s now at the level where he’s got a big force he’s managing, he would be awesome to bring into our company. And the instantaneous reaction from me, at least given experience is, “There’s a guy who’s worked in a large company, has massive infrastructure, wants a system, you know, probably wants a sales force automation system that’s going to cost me a half a million dollars and has managed three levels of sales people to get his sales done. And here, in this company, even though he has the best resume you can possibly imagine and has great credentials and will help this company’s image, this company needs someone who can actually carry a bag into a customer and go and knock down that sale. Even though we may call him a V.P. he may at best be managing three or four people, we don’t have the money for more people.”

And so rather than say that, you have to ask the question, “Okay, let’s talk about the fact and why don’t you ask this guy when he managed a direct sale?” “When was the last time he actually went and closed a customer?” “What do you think of the fact, why don’t you ask him, what he thinks of the fact that we have probably fifty thousand dollars of marketing budget for this month and maybe a half a million for the year?”

And the minute you start down that path, it’s almost instantaneous the bulbs go off on both sides, the hiree who immediately says, “Hey, this is not the right fit for me,” and you part ways. At times when you’ve gone down the path and you’ve hired people that your instincts are telling you that there’s something going on that’s not quite the right fit, has it only turned out to be true?

Andrew: Interesting, I didn’t

Interviewee: I only ask because, sorry? Go ahead.

Andrew: How much of your job is that, is that kind of conversation with entrepreneurs or your funding and how much is finding them and strategizing?

Interviewee: It depends. You know ‘til about six months ago I was on ten companies so my job was not looking at new ideas, or trying to find new ideas, it was more about helping the companies I was involved in. Now I’m on seven boards, I have sold three companies in the last six months. The minute I get to five, I’ll probably start looking at new ideas again.

Andrew: I see.

Interviewee: But all it is, it’s a question of what’s on your plate and what you’re putting your energy and attention into.

Andrew: I remember once asking you in person, I think the first time that we had a conversation, I said, “It seems like, people can’t see it from the background, the office is beautiful, you’ve got a job where people are coming to you all the time asking you for money, which means you’ve got money and you’ve got people who want to get to know you, it seems like life is easy, do you ever get a pain in your stomach? Do you ever, do you ever worry?”

Interviewee: Are you kidding? I worry about every one of my companies.

Andrew: About what, what’s to worry?

Interviewee: If nine are fine, I worry about ten, so there’s never a time I don’t have a worry.

Andrew: Because you’re worried about the individual issues that those ten companies have to go through.

Interviewee: Correct, and

Andrew: You haven’t gotten to a place where, uh huh?

Interviewee: The issues that we normally worry about are the kinds that can either kill our investment, can make our investment worth less than it was, or a game changing event, so they’re life and death issues. So each one of them, so if you think about, you know I’m not saying our job’s harder than a CEO’s or an entrepreneur’s because there’s nothing more important or I think more difficult to do than to get something that doesn’t exist off the ground. It never existed before, you got it off. You created it. That’s the most difficult and the most challenging and the most rewarding experience, you know, there’s nothing better than that. But you have to put it in context that if I’m on ten boards, at any given time, one or two of those are in life and death issues. So I am constantly worried about stuff.

Andrew: Alright, let’s continue with your own

Andrew: All right let’s continue with your own entrepreneurial experience and then find out why you got into this situation where you got ten times the headaches of one entrepreneur, one business? So, after the renewable energy company, what was next?

Interviewee: The other company in India, Process Controls; and that was another technology that I saw first in Europe and brought it back into India, and this was when people were modernizing infrastructure. In India it sort of made a lot of sense. That company also was more contract based, a lot of contracts. Built a team for that; got that off the ground, and as I did, my wife Malika and I decided to go to business school. Anyway you know Malika, when she decides something, I can’t really argue. And so we went to business school and came back to the US for that, in 98.

Andrew: This is Kellogg Rag School.

Interviewee: Yes, and while we were at Kellogg, Malika and I decided to start a company Wahali Business school. Which she quit business school to run, and I sat on the Board for a while. Which was a media company, something I had no idea; I had absolutely no understanding of. I had never heard the word venture capital before 99; and I met a bunch of EC’s and we raised eight million dollars in a couple of weeks and then we sat down across the table and said, now what do we do. Then we decided to out and build a team. And so the second year of business school for me was spent mostly helping that company get off the ground. And boy, did we make a lot of mistakes.

Andrew: All right. Let’s spend a little time there. But first to catch us up. I am looking at your bio which I saw on Clear Stones website and a couple of other websites and I want to see how this fits in with the bio. The two companies that you told us about in India, are they part of TechNip?

Interviewee: Yes. That was the family company.

Andrew: Technip was the family company. That’s where you incubated companies in India and Asia. That’s what the bio said. And the business that you guys started, you and your wife started while you were at Kellogg was called My Potential.

Interviewer: That’s right.

Andrew: How would you go about raising money from venture capitalists for the first time?

Interviewee: By just being ignorant. I mean, you have to remember everything. 1999 was… [inaudible]…with an idea, and people were throwing money at you. So this was not a hard thing to do. The hard thing was, a lot of people learnt it the hard way. It was hard to build a business when you have such high expectations, when the market changes around. And for us it was sort of a trial by fire; it’s great idea probably ten years before it time. You know, the same idea today is …[inaudible]… what Malika is working on; or a similar idea. We had video seminars. In 1999-2000 not many people had broadband connections, so the timing was off. But raising money is almost always about finding the right person who believes in your vision. Especially at that stage because you really don’t have have anything else that you’re selling; all you are selling is your vision. And if you find the right person and you have a match then you can raise it.

Andrew: And I read an interview that you gave a while back, where you said it’s not about convincing an investor to believe in your vision it is about finding an investor who already bought into it and is looking for that. Am I summing it up right?

Interviewee: Absolutely. I think you can’t convince someone to invest in you company if they are. Its almost like due diligence is the method to give people the comfort that their decision is the right one.

Andrew: I see. So what was that vision that you had?

Interviewee: For My Potential? It was a vision around building an online media entity around the world, a self-help. And given Malika’s Dad and his presence we thought it would be a corollary to say an Oxygen Media or something of that sort for the Self-help Space. Now, you know in hindsight to build a company of that type it doesn’t take five million, seven or eight million, you need tens of millions of dollars. And you need to have presence in more than one media outlet. So it cannot be just done online, when it is a content company it cannot just have an online presence. It has to have presence in the way people presume content. And the world was very different, let’s say seven or eight years ago than it is today. There was no such thing as a social network. There was no such thing as tweeter. There was no such thing, you know email was sort of, Jack was sort of a new thing, or IM was a new thing. It’s hard to even remember even though it was only seven or eight years ago. People still thinking zoom media online. The read news online. The couldn’t zoom media online.

Andrew: And they definitely did not create online, either.

Interviewee: They did not create online. Anyway, it was a very good experience.

Interviewee: So anyway, it was a good learning experience. Again, I hired a very senior person out of the L.A. Times to run it. In hindsight, probably not the best time to do that. And did the same mistakes over and over again. And so you know, the other thing I learned is people make the same mistakes as do I over and over again. So you have to watch for that. Just because they’ve done it once and have learned, doesn’t mean they won’t do it again.

Andrew: I read an article by Paul Graham, an essay, I guess he calls them, where he said that at one point, he and the guys at Y Combinator, attempted to write down all the mistakes that entrepreneurs make. Because it does feel like they’re the same ones over and over. And I don’t know if we could get a comprehensive list, but so far, what are some of the big ones that you’ve noticed?

Interviewee: I think the biggest mistake people make is timing markets. I mean there’s no escaping the fact that if you’re either too early or too late, it’s hard to build a business.

Andrew: Hmm-hmm.

Interviewee: You can’t time markets, but you can watch them and figure out what’s the right way to approach a market. You know, I’ll give you an example. Amkeepner is a company that I was involved in ’til we sold it to Juniper last week, actually. This is a company we incubated about 18 months ago, with a guy out of my Veri office. And the entire company, the premise was, hey, online video is going to be a big, just going to be as big as humane sort of trend. The infrastructure on online video is very antiquated. It’s not purposeful. It sort of glues together. It’s web servers, and it’s… You know, it’s lord balancers, and it’s all coming. But there is something that can make that more efficient. And Pravaka did that. And he put a very good team together, with Roger Useeme. And he put a team of about 50 people together to do that. A year down the road, we realized that most content producers are still not ready, timing wise, to buy technology. They don’t have the patience to manage their own infrastructure. They don’t understand it. That’s not the business they want to be in. The big ones do, but not everyone does. That’s why they outsource this. So this company, you know, they spent a good month or so really analyzing where’s the need for their technology. They figured out it’s mostly in the Telco, ISP space. They did a deal with Juniper to distribute that technology, and eventually did it for profit. But if they hadn’t gone through that one month of trying to figure out where’s the market for what they’ve built, even though the trend is existing, and it’s a large trend. But where’s the market for their product? They probably would have failed.

Andrew: All right. Let’s spend a little bit more time talking about that. By the way, is somebody knocking on your door?

Interviewee: There is a massive construction program going on.

Andrew: Ah. That’s when I don’t miss living in Santa Monica.

Interviewee: Yeah.

Andrew: OK. So, when they approached you, what did they have?

Interviewee: I think they didn’t approach me. I approached Pravaka,

Andrew: Hmm-hmm.

Interviewee: who is, you know, someone I’ve known for awhile. We worked on a couple of other projects together, though not directly. And who I’ve always had a lot of respect for, and I asked him to join Clearstone as a, I forget what we call him, but say venture partner. You know, something of that sort. And let’s sit down and incubate companies together because I really thought that this guy, at least in his domain, is one of the smartest guys I’ve ever come across. And we were having a glass of wine one day, and I said, “You know, this online video space? It’s going to break down because people aren’t making money. And it costs a lot to actually distribute online videos. So there’s some mismatch there. You either help them make more money, or bring their costs down.

Andrew: And I’m sorry to interrupt, but when you say people, who do you mean specifically? What kinds of companies were you referring to?

Interviewee: Well, YouTube is a perfect example.

Andrew: OK.

Interviewee: It costs a lot of money to stream video. Netflix is another one. You know, Netflix has this online video sort of foray. And from what I know, and this is all public knowledge, it costs them more to stream a movie than it is to post a DVD in the mail. So for the same customer, for the same revenue, their cost of online video distribution is higher than physical distribution.

Andrew: That’s surprising.

Interviewee: That’s going to change, right? That was the premise.

Andrew: I see. OK. So, you said “either we find a way to make these guys more money, or we find a way to reduce their cost.” And the same person can do both, can bring in more revenue or reduce cost. That entrepreneur, who was he? Can you tell us more about him?

Interviewee: He did help them make more money. He did help them reduce cost. That was [Pradaka Sinderagin]. He was the founder of Net Scale

…his company. And before that was part of the founding team at [X- Scylis], a big data center company. He was a technologist, he is a guy who understands the data center way, well, had built the first [Lord Donald], sort of a data center, and this was a natural extension. I would say, to watch the video, online video, well, and that’s the reason why we started that company and we invested in it, and then it had a couple of follow-on investments, and then within 18 months, Juniper just bought them for a nice…

Interviewee: just bought them for a nice, healthy amount of money.

Andrew: Okay then let’s continue with the story and find out how it got to the healthy amount of money. You had this idea with him, you’re having wine, what’s the next step?

Interviewee: Next step is pulling a team together that can help figure out where this idea can lead to a product. So two things, one, distill down the product, understand the technology pieces around that product, and then pull a team together around that and so, do you remember Steven Kahn from our office?

Andrew: Yes.

Interviewee: So Steven spent a lot of time with Brovocker[sp]

Andrew: He was an associate.

Interviewee: Correct, he’s an associate with us, but he’s one of the smarter guys I work with and so he spent a lot of time with Brovocker [sp] and we opened doors for Brovocker[sp] and all these big media companies, you know Fox and CBS and introduced him to the YouTube folks and the Google folks and to just people who were in the business of trying to pour a lot of content, video content on line.

I said, “Okay, if you could solve, what’s the biggest problem that you have today in your technology and construction that if you could solve would save you money?” And it was a product that was built around two or three different technology ideas. It was not just one, it was caching, it was adaptive streaming for quality video, it was storage technologies, it was, you know a bunch of disparate fields. And really when you think about new companies they have to bring disparate technology fields together and in this case it was more networking infrastructure and data center construction coming together. And he built a great product and tested it in the market, got people signed on, signed on some big names and before they could even get into a place they were generating revenue, they got an acquisition offer that made everyone a lot of money and the team was waiting to take it.

Andrew: I see, how far along did they get? This was before they brought in revenue but what was there?

Interviewee: They were deploying in a bunch of different data centers with a lot of big-name customers. Obviously it’s not public knowledge yet because his customers don’t talk about it, but a lot of the big brands that you think of today when you think about streaming video.

Andrew: I see. How much of your business now is spent around incubating companies this way? How much, what percentage of the companies are you aiming to have this way?

Interviewee: I have two or three different practice areas personally. At Celestine[sp] of course we do more than just incubate companies. We’ve invested in companies across a broad spectrum of their life cycle. But me, I’ve done seven or eight incubated projects in the last four or five years. And I’ve invested in companies in India again against consumer demand there. So those are the two different areas.

I would prefer to do more incubated projects than anything else personally, because I enjoy the process. But it’s not a scaleable market, you know, you can’t just do that and nothing else. So we’ll see, at this stage I have a few ideas I’m going around with, a couple of entrepreneurs I’m thinking through those with and we may end up incubating one or two more, but at any given time, the company, one or two of those projects that you’re engaged in until they’re off and running.

Andrew: So you have a couple of entrepreneurs in mind, how do you decide which ones? How do you find them?

Interviewee: Mostly through referrals, but it takes a long time to get to know somebody. It doesn’t happen over night and it’s not a decision we make without knowing people. In most cases the companies we’ve incubated, at least with me, have been people I’ve known for at least half a year or more. I’ve worked with them before, they’ve been part of our portfolio, they work with other people in our portfolio, they have advised us, I’ve sat in their offices for awhile, I’ve toyed with ideas, some have worked, some haven’t, discarded some, worked on the next, you know, that kind of stuff. So an incubated project in my mind isn’t just giving someone physical infrastructure, it’s really helping them shape an idea, building a team with them and then taking it on to the next level.

And we don’t try to hold on to an incubated project, we don’t make money off our companies renting office space from us, that’s not the idea any more, it’s just making sure we can build the right quality of company. So when you’re involved with it from day one at least in your mind it’s doing what you think is the right thing to do, or you’ve influenced it to a certain degree doing what you think is the right thing to do. So you don’t, I like to say, “We like to create our own messes, not clean up other people’s.”

Andrew: Let’s see, I want to, actually you know what? Why do you want to talk about the way you incubate companies here?

Interviewee: I think the word incubation got a bad rap partly because of what happened in the nineteen, late nineties early two thousands with all these incubators raising a lot of money and trying to farm companies

Interviewee: …because with all of these incubators raising a lot of money, and trying to farm companies. And the reason was, they were one or two people’s ideas, and people would hire managers to execute on them. Again, I think people should understand, at least I understand, my view of this is that right here in America it means finding the entrepreneur with a passion, and then giving them support to get it off the ground. So it’s really not just about the idea. It’s about a person. An incubator project doesn’t necessarily mean just giving someone shelter, or giving them, you know, office space and connectivity. It’s really about helping them shape their business. And so, whether you call that just natural seed venture, whatever you want to call it, or call it incubation, or co-creation, or whatever you want to call it, I find that that led to, at least for me, the best results in the companies I’ve been engaged in.

Andrew: How’s what you’re doing different from what Y Combinator is doing and Tech Stars? Is it essentially the same thing, but bigger?

Interviewee: I don’t know what they’re doing really well, Andrew, to be honest personally. I know what kinds of businesses they’re involved in.

Andrew: Hmm-hmm.

Interviewee: I think that part of the reason it’s different is the kinds of businesses we’re involved in are different. They are more technology businesses. They are not necessarily consumer-facing businesses. They are more intensive, and require more money and more work, but hopefully will yield more value, as well. And I have nothing against those businesses. I think we’ll do those as well. But these have a different flavor to them. Second, you know, at least for me, this is sort of a hand-crafted process. It’s one or two a year. It’s not doing 20, and it’s not hoping one to succeed. And we hope we have a better hit rate now.

Andrew: Tanya in the audience is saying that, again, we’ve got too much space over your head in the video. There you go. You could also tilt down the camera, if you want to relax as we talk. Yeah, there we go. Now we’ve got a little bit more of you in there. That looks great.

Interviewee: It’s a little MacBook Air, and it has a very little camera, so I’ll follow that.

Andrew: No, it’s working great now, actually.

Interviewee: OK.

Andrew: So let’s see. How did you end up at Clearstone?

Interviewee: By mistake.

Andrew: What was the mistake?

Interviewee: You know, it was sort of, I finished business school in 2000. I moved to L.A. because my potential company was in L.A., and after the first week, I said, “There’s no way in hell I could work in a company my wife works in. So I’ve got to find something to do. I haven’t really. I don’t know what else I can do. This venture capital sounds interesting.” So then you think about that. And I went to Clearstone, to Bill Alkis, who started Clearstone, more to ask his advice, than respond to join. I had a few other offers. And he said, “Why don’t you meet my partners before you leave? And I’ll stay out of the process because I’ve known him for awhile.” I met a few of the other partners, and I was driving back home, when they gave me an offer on the phone. And I joined Clearstone. I hadn’t thought about it. I didn’t really know more about it. And it was idea-led capital at the time I joined. It had just gotten started, maybe it was a year and half old as a firm. And it had a lot of success behind it, and they were doing exciting things. And I liked the people. And that’s how I got started.

Andrew: But you’re a guy, who just months before, didn’t know what venture capital was. And here you are a venture capitalist. How?

Interviewee: Well I was again, trial and error man. I had to telephone. I started picking up the phone calling people, and saying, “Hey, I exist. What can I do? What is this business about?” But I had good mentors. I learned from the people here, and started going to Board meetings with them, seeing what they do, and learning best practices, not just from them, but from the other people that were on the boards. I started leading deals in 2004, so that was, you know, six years or so ago, 2003-2004. And was lucky enough to get to work with really good entrepreneurs. The first one was, you know, Tim Ravi, from Mosel, that you mentioned. And then Modred from Casion. And from there on, you know.

Andrew: Did you also invest money in the firm?

Interviewee: No, but for the new fund, as in most funds, when I became a general partner, then I had to invest money, and I wanted to invest money. So when we invest in the firm, part of the money is our money.

Andrew: I see. OK. And so what was the first role that you had at Clearstone?

Interviewee: As an associate.

Andrew: I see.

Interviewee: For the first 14 months I was an associate. And I was a principle for the next 18 months, and then I became an M.D. So I used to carry someone’s bag to Board meetings.

Andrew: Really!

Interviewee: Yeah.

Andrew: Wow! I can’t imagine that. Who got that? Who got to have you carry their bags? Sorry.

Interviewee: At first… I’m not telling. It was my first job ever. I never worked for anybody before. It was a real learning experience. [Laughs] I think, “Whoa, why am I here? What am I doing?”

Andrew: What were you hoping to do?

Interviewee: It really wasn’t thought through. I think it was exciting to meet, you know, the most exciting part of my job, of this job, is meeting really, really smart people, and different ideas, different people, every day. It’s inspiring. You know when you see people…

Interviewee: It’s inspiring you know, and you see people trying to start stuff, even when they fail, it’s inspiring because failure is just part of the process. And we’ve had some big ones.

Andrew: Yeah, do you have an example of inspiring failure?

Interviewee: Every one of them. You know at the end of the day, you see people fight like crazy to try and save what they’ve built, to try and re-build it, to sort of go against the grain of logic and then come out, and some come out positively and some don’t, that’s inspiring. Because you know, if you were logical, and everything was rational, you’d never start a new company.

Andrew: Yeah, I guess so. Actually, is that true? Is there any way really to look at the spreadsheet to say this absolutely makes sense? No.

Interviewee: No. But you do need to look at a spreadsheet when you’re designing your business. And I think it’s very important, once you’ve figured out that there’s, and you’re passionate about the marketplace and you’re passionate about a product in the marketplace, you’ve got to spend some time designing your business. It doesn’t matter when you launch that you have, that you launch it with a revenue model or without, but you’ve got to have an understanding of where are you headed.

At some point you have to just sit down with a spreadsheet and say, “Does this make economic sense? Does this unit economic work? Does this skill work?” You know, and it’s a process. I don’t think you need to do it day one, and I don’t think you need to do it day ten. But at some point you need to sit down with a spreadsheet and say, “Does it work this way or do we need to change the way it works?”

Andrew: Let’s talk about another example of a company that you guys incubated or co-created or whatever word we want to give to it.

Interviewee: Call it whatever you want.

Andrew: How about one of the three from the last, the last set?

Interviewee: Rubicon project?

Andrew: Okay.

Interviewee: Rubicon project? I think Rubicon, I would say the process was quite different. Frank is a prolific entrepreneur, I’ve known him from his last company, last two companies, he’d been to our offices a couple of times and we lived close by, we lived near each other and I’d keep bumping into him at these coffees. And I keep saying, “What are you doing now?” And he’d say, “Ah, I don’t know.” And he was cycling out of his StrongMail experience and I’d had some exposure there so I said, “Why don’t you come by and we’ll talk about what you want to do?” And you know we spent time, it was one lunch and another and a few down the road and he said, “I’m thinking about doing something with online advertising.” And I said, “Why don’t we sit down and chat about it,” so we spent a lot of time analyzing the market with him. But it was his idea, it was his team, he brought he team together, they were housed in their offices for the first few months, again right next door and from there we invested in the company, we were the only investors and were serious and the group we met. He’s done a great job with it.

Andrew: There isn’t a sale there now is there? The company wasn’t sold?

Interviewee: No.

Andrew: No, he’s still building it, okay that’s not one of the

Interviewee: That one’s got a long way to go before I think we can sell it. It’s just doing really well, there’s no reason to sell it.

Andrew: Yeah I can see that actually. It’s one of the big southern California companies. You guys are big in Los Angeles.

Interviewee: Yes.

Andrew: L.A. is, what do you see? What’s happening in L.A.?

Interviewee: A lot is happening in L.A., it’s mostly consumer driven, recently. And it’s driven a lot by, I’d say the attention on the on line media gaming space, the on line lead chain transaction monetization space, it’s driven by advertising, it’s driven by consumption of video. What I haven’t seen too many of in L.A. is venture fundable large company ideas. I have seen a lot of companies that can build good businesses, solid cash flows, probably see exits as well, but not large ideas, not industry transformational billion dollar exit potentials, and not that they all get that, but they need to have the potential.

Andrew: I see. I actually heard Fred Wilson say the same thing about New York. Why, what’s missing?

Interviewee: I think patterns are missing, I think people really underestimate the power of technology when it creates value and how it creates skill. And this focus too around technology what New York and L.A. is lacking. It’s not zero, but it’s way beyond, way behind the Bay Area and also to a certain degree in some areas behind Boston when you are there. It’s just the way those ecosystems have developed there for the last two generations. You know we don’t have an Apple in Los Angeles. We do have a Falks,

Andrew: And Falks you can create every few years the way you create a hit internet company.

Interviewee: Right.

Andrew: So then why are you guys in Los Angeles?

Interviewee: As you know, I sort of, partly it’s history, partly it’s our dealer, partly if you think about the last few multi billion or hundreds of millions of dollars in exits we’ve been involved in quite a few of those, so we’ve managed to capture enough energy around here to create a nice, lucrative business for ourselves.

And as a firm, our performance has been in the top 10% of firms in the country. But we’re not only an L.A. firm. We have an office in The Valley and an office in India. And the last four exits for our firm have been from The Valley. So you know, it’s a good lifestyle. L.A.’s a nice place to live right now, and I like the people here. I wish I could find more companies that we could just… I don’t need to sit on a flight every day, or every week, whatever.

Andrew: [Laughs] What about Mark Suster? He seems to be changing Los Angeles. He seems to be changing the face of L.A. tech. Why him, and not someone at Clearstone?

Interviewee: I don’t know Mark very well, so I can’t comment on him. I think it’s about where you put your passions, and your energy. And he’s putting it there, which is great for the L.A. eco-system. And I hope he’s very successful at it. We’ve done that. We’ve done that for the last ten years. But one of the things about our firm is we believe in, I’d say, quality versus quantity. We just, you know, we focus on the few people we want to build businesses with, and we build businesses with them. There’s no right or wrong way. That’s just one way. And that’s driven by personalities. I think Jim, my partner, who you probably know, Andrew, is way more like Mark than I am. And he spends a lot of time in the law/legal system, and he does it his way. I’m impressed with what Mark’s done, as his brand, and how people talk about him. But like I said, I don’t know him. So I don’t really… I can’t comment on what he’s doing.

Andrew: And you guys are interested in different kinds of companies. He invested in Ad.ly, which is advertising on Twitter. I can’t imagine you even being on Twitter, let alone investing in a site that’s hooked up on it. Hmm?

Interviewee: I’m not. That’s true, very true. And not to say that that’s not valuable, I just… That’s not culturally our fit. And you know, we’ll do some. And actually I should say no. David Stern, up in Iberia, he’d invest in that company. [Laughs]

Andrew: I can see that actually. He’s the one who’s behind Apchur.

Interviewee: Yeah.

Andrew: That’s how I discovered it, on his blog.

Interviewee: He’s Apchur. Yes.

Andrew: Ah, Apchur.

Interviewee: And he was involved, Geodelic, you know, as a company that we worked on together, when David was the instigator of that company, which is an L.A.-based company. And I don’t know if you’ve met Raoul Sonad, but that’s a company I have very, very high hopes. You know, I think they can…

Andrew: That’s a company, yeah, I did meet him. He actually spoke at a Mixergy event, back when I was doing mostly events. That’s a location-based, location aware apps for mobile. Is that the best way to do it?

Interviewee: It’s a location discovery app. It’s basically, what it does is it gives you context and where you are. It’s not directional, it’s more about giving you context of your location, and that leads to a lot of very interesting ways for people to make money, or to market themselves, etc. In the process of getting some really big distribution deals, the company has got more users than any FourSquare or Gowala, it’s just kicking butt. It has a solid business model behind it. And when it does come out and start sort of monetizing it, I’m very excited about…

Andrew: What is the business model behind it?

Interviewee: You know, it’s going to be a blend of advertising and couponing, but it’s basically writing. The trend of people wanting to own their own location. So, if you’re a target and you have 100 people walking, or 1000, or 10000 walking into your store every week or month or day. You want to make sure that when they walk in, that GPS location and the content that it’s coming down into their phone about that location, is owned by you. Not by a competitor, not by someone else marketing against your location. That’s the driving force behind that app.

Andrew: I see. So, I get to buy my location, access to control the location the way I might on some online yellow pages.

Interviewee: You have to bid on it.

Andrew: I have to bid on my location? So, someone else could own my hardware store if I am the hardware store owner. Oh, that, interesting.

Interviewee: That’s marketing, that’s marketing.

Andrew: That’s something.

Interviewee: I am very excited about that.

Andrew: I can see that. Now when you say it has more users, is it more direct downloads, more installs of this program? Or is it that they white-labeled for other products too? For the companies?

Interviewee: Well, they have a massive distribution deal with T-Mobile. So, a lot of people have downloaded it on their T-Mobile devices and use it. The “use” case for that company and for a check-in app, delay difference, it’s not obviously as frequent as a FourSquare guerilla [??]. I think there’s a trend line that those guys are going to see where people are going to taper off and be less excited about it, because it’s not a sustainable value prop. Unless they figured out the next value prop. This company has done a great job of helping people discover their local environment when they’re not in their home environment. That’s one really good app. They’ve done a great job of helping hospitality companies give people guidance…

Interviewee: of helping hospitality companies give people guidance on what’s around them, hotels and airports and all of that. So there’s a different use case for them and there are more downloads I would say today than publicly I’m aware of the other companies having.

Andrew: I see. By the way, Moses in the audience is saying it’s Aperture. I can never pronounce the name of that company but I know them really well. I know them from Tim Ferris’ website who uses them incredibly well.

Interviewee: Apture, “A” “P” “T” “U” “R” “E” is the company.

Andrew: Oh, “A” “P” “T”?

Interviewee: “U” “R” “E”

Andrew: Ah, so Moses has a typo in there too, Apture. Where’s that name come from?

Interviewee: Check out their, check out their website. You know Tristan is again one of those product visionaries. I don’t know how old he is but he’s probably near about half my age. He has a vision of the web, sort of where Apple is leading people with the iPad as in being styled and scalable not having to leave where you are to get contents coming to you and so that potentially is the reason why this is your apture or aperture potentially into the web was the meaning behind it. But I’ve got to tell you, Andrew, I never understand why people name their companies what they do.

Andrew: I know, figure out Mixergy. Sorry?

Interviewee: It really never matters.

Andrew: It doesn’t.

Interviewee: It doesn’t.

Andrew: I guess people just find you?

Interviewee: No, I’m just saying people, the name itself becomes what the value product of the company is. If the value of the product becomes blah then the name becomes blah.

Andrew: What about the fact that I like the company, Moses is a user of the company, neither one of us could get it clear enough to recommend to other people because we each mispronounced it? And yet, I’m aware of them.

Interviewee: That is true, it needs to be easy enough that people can recollect. But I don’t know what Google meant before they actually came out with a search engine, you know. That’s what I mean. I do agree with you that it has to be memorable and it has to be easy enough to remember and not mess up. But I don’t know [xx]

Andrew: I remember when I

Interviewee: I don’t understand the name of that company but it paid me a lot of money so that’s okay.

Andrew: Alright, one last question.

Interviewee: Yes.

Andrew: What can I do better? I want to interview entrepreneurs, I want to interview people like you who are investing in entrepreneurs, and I really want to extract value. And really, to be honest with you, you’re a friend so I can be open with you, I don’t always feel like I’m asking the right kinds of questions to pull out value, to make the interviews useful.

Interviewee: It’s your audience, who are you trying to reach, who’s your audience?

Andrew: I think I’m visualizing someone who was an entrepreneur the way I was in my twenties, really hungry, can’t stop thinking about business, can only think about business and the need to build something, has kind of this need to leave a legacy, to build something so incredible that people will remember them when they’re dead, and not just build like a company.

Interviewee: I think you need to do a better job, and I haven’t seen it on, but distribution of your content

Andrew: Mmhmm.

Interviewee: and to a certain degree I think that if you can have disparate views of people on the same topic and group them together and help people discover them, that will give people an insight into what works for them and who works for them. You know what I mean?

Andrew: I see, I see.

Interviewee: There’s no right or wrong knowledge, it’s just people have points of views and they put their beliefs into their points of views, you have to find those you actually identify with and can use. If you don’t, you may try, but you’ll fail at it. It has to come from inside. It has to sort of exaggerate what you already believe in.

Andrew: What do you mean by “exaggerate what you already believe in”?

Interviewee: So you believe in building long-lasting legacy as businesses, this is someone, I won’t say names, but a lot of people who’d love to build businesses and flip them for twenty, thirty, forty million dollars. Then you go find those people that have the same belief system as you do and understand how they’re banded and how they would do it, and learn from that.

Andrew: I see.

Interviewee: That’s what I

Andrew: I like that, what was that that you said? Exaggerated

Interviewee: your inside, your own opinions,

Andrew: Yes.

Interviewee: Exaggerate your own point of view.

Andrew: I see that appeal from Jason Fried of Thirty Seven Signals, he has these exaggerated, at least exaggerated ways of making points and he won’t back down, he won’t accept that there’s any difference but anyone who’s looking for a guide in that direction will look to him because he’s the clearest, he’s the clearest guide.

Interviewee: There’s another one I can tell you, it’s not necessarily my point of view but go look at Jason Kalkanis for exaggerated points.

Andrew: Yes.

Interviewee: And Jason’s a great friend of mine, and I’m very fond of him, we sat on a board together for many years. But his points of views and mine on how we rate companies don’t necessarily match. Choose the one that works for you.

Andrew: You’re talking about Visnex, now we all know his point of view. What’s it like in a boardroom when he has this strong point of view of go out there and kill it, work non-stop, build this, what’s your point of view? How

Andrew: build this, what’s your point of view? How do you counter that?

Interviewee: That’s not the point of view I was talking about.

Andrew: Sorry?

Interviewee: That was not the point of view that we disagree on.

Andrew: What’s the point of view you disagree on?

Interviewee: I think that Jason has a knack of building companies around instantaneous teams versus long lasting value growth, and like I said, he’s done it, he’s been successful at is so if you feel that he can, that’s what you want to go to work, that’s the person you want to go to listen to.

Andrew: Okay. Alright, well listen

Interviewee: Working with him was great, because on a board having diverse opinions is awesome as long as the CEO is strong enough to understand that all they are is opinions not direction, alright, Andrew.

Andrew: Well thanks for doing this interview, thanks for dealing with all of the tech issues, I hope that in the editing they’ll all come out for people, or most of them anyway.

Interviewee: No, it was very good, I’m glad we could connect. Say, “Hi,” to Olivia,

Andrew: I will, say “Hi,” to Malaka and hopefully I’ll see you in L.A. some time soon.

Interviewee: Yeah, come back.

Andrew: I hope so. Bye and thank you guys all for watching.

Interviewee: Thank you, bye.

Andrew: Bye.

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[This interview happened thanks to my friend Nicole Jordan.]

Who should we feature on Mixergy? Let us know who you think would make a great interviewee.

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