Q&A with the Investment Committee

The Investment Committee at Silicon Valley Growth is composed of three members.  Two permanent and one rotating.The permanent members are Mr. Russell Lewis, Founder of Rhino Linings, Rancho Santa Fe, California and  Mr. Will Bunker, Burlingame, CA., one of two co-founders of the largest dating site on the internet (now Match.com). The third member rotates among our other executives and mentor board members, depending on their expertise in the sector of the possible investment.

Example:  If the prospective investment is involved in the sale of hunting, fishing or camping equipment, Mr. Ron Ramseyer, the former President of Bass Pro Shops would be the third member.

Here is a short roundtable interview with the members of the investment committee

Q: How has Silicon Valley changed Mr. Bunker?
A:  A few years ago, it was only the big VC funds.  Today, as the VC rounds have gotten bigger, a more systematic Angel investing has appeared to fill the gap between seed investing, the incubators and the VC’s.  That is our space.  There are a lot of brilliant young people at Stanford and Cal Berkeley who don’t want to go the “work at Bain or Google” route. They want to do start-ups. Today, you are going to get acquired earlier than getting to public markets. This hurts the VC’s and helps us. Anything less than a $100 million dollar payday can be a disappointment to a VC, but a $30 million dollar exit, with a retained stake makes us happy.

Q: What is happening in today’s start-up and early stage market, Mr. Lewis?
A: More bandwidth, more users, lower start-up costs, more platform companies, large firms buying in smaller and smaller bites, more younger people using the web, more older people using the web, more online transactions, more online payments, more online search,cross border growth.  This is a great world, so why be afraid. Join us!

Today, as the VC rounds have gotten bigger, a more systematic Angel investing has appeared to fill the gap between seed investing, the incubators and the VC’s.  That is our space. — Will Bunker

Q: Is now a good time to invest in this asset class in Silicon Valley?
A: Yes.  The 150 biggest public companies in Silicon Valley had their most profitable year in history in 2012. There are many acquisitions in the $20M-$100M range. This is very positive for us.   The big players simply outsource their innovation by buying the kinds of firms where we invest.

Q: What is foremost in your mind as you make investment decisions for the partnership Mr. Bunker?
A: We are forever conscious of the fact you, our potential partners, are entrusting us with money and a dream.   That dream is to participate in the early stages of great American companies, to grow with them and reap the ample rewards.  These are the kinds of companies that, if successful, can assure success for another generation of your family.

Q: What is one of the ways your investment strategy is different?
A:  Our due diligence is creating traction, from the inside out. We firmly believe we can learn just as much for our initial $10,000 to $15,000 as others can from investing ten times as much.

Q: What are your advantages over incubators and seed funds Mr. Lewis?
A: We only invest once a firm has revenue. With early stage companies, we don’t have to do the business 101 teaching, we provide the graduate school.

Q: What is one of the best techniques you use to grow your portfolio companies?
A:   At Silicon Valley Growth we maximizing commonalities and opportunities across the companies where we invest. From testing customer files to sharing vendor information there are real synergies.

Q: Is the dating space saturated, Will?
A: Online dating is far from a saturated and mature market. There are as many dating segment opportunities as there are ideas. One of our investments is in a dating site for Chinese expats.  Most all of the new dating sites, here and abroad seek me out for advice and investment.

We only invest once a firm has revenue. With early stage companies, we don’t have to do the business 101 teaching, we provide the graduate school.

Q: What do all the owners, mentors and executives at Silicon Valley Growth share?
A: A passion for early-stage entrepreneurs. We help guide the firms growth, avoid potholes and turn single channel opportunities into multiple channel opportunities.

Q: What is an ideal investment?
A: Straight forward revenue models. We like people who develop for a problem space that is straight forward. We don’t want to be the next idea to let people share photographs. We like problems solved for everyday businesses and consumers. Couples need a great nanny for their children, how to more effectively communicate with prospects at work. Firms selling physical goods and tangible services often times do not get the love in a place like Silicon Valley and can be overlooked. Finally, we like short product cycle development.

Q: How is your team unique, Mr. Lewis?
A: Several ways. We have experience in brand stretching companies across countries and cultures. Our second portfolio company, Dishcrawl, will launch in the UK in a few months. Rhino Linings is in 80 countries.

Q: What kind of businessmen and women make up the Silicon Valley Growth team?
A: Frugal, experienced and enthusiastic!  At our headquarters in Silicon Valley, our rent is less than $2,000 per month. When my two partners and I sold the One on One Network for $45 million, my family and I made no decisions for a year. Our goal is to make the majority of our money from returns on investments not management fees. Our team is experienced and we share the enthusiasm that comes from uncovering great young companies in America. We are hungry for success and enjoy coming to work everyday.

Q:  What does Silicon Valley Growth have that the VC’s don’t have?
A: They are set up to invest in a much later stage at higher valuations. Companies can now get a lot of traction off initial funding before going for institutional money.  Many never have to raise institutional money. We can afford to invest in sub $100M exits due to the better valuations.

Q: What about the next downturn in the economy?
A: What happened the last time? Banner ad spending went down 20% for a few months and bounced right back. The funding might slow, but great companies are founded every day here in the Silicon Valley. We love layoffs. When Cisco lays off thousands, it creates a whole new wave of start-ups for us to investigate, and invest.

Q: What is a little dirty secret about investing in this space?
A:  Design is more important than technology.  Especially with consumer companies. The design and user experience is key.  Many founders work too hard on the technology and not hard enough on their sales channels and marketing.  Our tie in with Ramseyer & Associates accelerates our portfolio companies ability to gather prospects and turn them in to customers.

Q: How often do you speak to the founders of companies when investments are made Will? 
A: There are founders I speak to every few weeks, while there is one with whom I talk almost daily. Each six months we are at their headquarters for an intense two day strategic planning session. We try to lead and get them to believe in the process.  Our process to grow their companies works!

Q: What are your hobbies Will and Russell?
A: We love researching, uncovering,  investing and growing young companies. It is our golf! We both enjoy travel with our families and working out, but our passion for the next twenty years is the Silicon Valley Growth Syndicate.

Q: What is the VC model in Silicon Valley today ? 
A: The tend to invest in 7 or 8 companies per year for 4 years, take a board seat, follow-on investments in half of them. We don’t want a board seat, we want observation rights. We focus on influence over the illusion of control. Having respect and putting forward good tactical and strategic advice that is well received is better than a board seat. The VC’s are looking for the head, we are looking for the tail.  There are thousands of $10 to $25 million dollar annual sales companies that solve companies and get sold for millions of dollars. There are lots of awesome smaller companies that have a nice exit.

Q: What is Venture Capital good at?
A:  Venture Capital is good for long cycle product development that requires large CAPex expenditures.  There are lot of low capital, scaleable opportunities to sell products and tangible services to business and consumers.

Q: Many of the firms where you invest sell through only one channel, how to you broaden their scope?
A  We introduce them to  proven direct marketing techniques using multichannel marketing. We had a strategy session with one of our firms and sold them on the idea of allowing their customers to place their orders using multiple channels with multiple forms of payment.  The more order channels and payment methods the better!

Q:  What about A/B testing?
A:   If you are not on the right hill, A/B testing can lead you astray. You have to understand the problem and be the customer. We have to be analytically rigorous.

Q: What do your potential investors need to understand?
A: We are not trying to invent the flux capacitor here! Early stage companies solve problems for consumers and businesses. Technology is a means to an end to get to customers and serve customers. Many of these firms are going to hit the hockey stick, we just get them accelerating sooner and faster, if they will accept our coaching.

Our due diligence is creating traction, from the inside out. We firmly believe we can learn just as much for our initial $10,000 to $15,000 as others can from investing ten times as much.

To learn more, or ask additional questions about the Silicon Valley Growth Syndicate, please telephone Mr. McNutt at  + 214 537 9311.