Breakfast with Menlo Ventures (Mark Siegel)

During our Silicon Valley Trek we had the opportunity to have breakfast with Mark Siegel, Managing Director of Menlo Ventures and MIT alumni.

Menlo Ventures provides long-term capital and management support to early-stage and emerging-growth companies. They have organized and managed nine venture funds since their inception in 1976. They have ~4 billion under management, and a team with 9 partners. Some companies they have invested in the past include Hotmail, Mobitv, Ironport, Ascend, Clarify, LiveOps, LSI Logic, Telenav, or Infoseek.

Some random ideas he pointed out about entrepreneurship:

• Market vs. Product vs. People: The size of the market is what he looks first. He will invest in a company that is an emerging leading player in an emerging market (disruptive)
• He spends ~40% of his time helping with recruiting issues in his portfolio companies
• Regarding the people, he wants to make sure that startups have the right people, with the right roles, with the right organization and the right compensation
• 1st mover advantage: for him distribution and locking key partners is a barrier for other players and this does not depend on IP
• Half of his investments are related to people they invested in the past (i.e., either serial entrepreneurs or employees in portfolio companies); very unlikely that he invests in an entrepreneur he did not know before
• Some emerging markets he sees: Next data center technologies, virtualization technologies, social technologies merged with gaming, celluar+fixed wireless technology convergence
• There is too much money looking for few good deals
• If your goal is to be acquired, you do not need to raise funding to create a salesforce
• In the past, entrepreneurship was about solving a problem for X. This is not the case in Web 2.0.
• In early stage, they would like to see the possibility of getting a x10 exit within 4-7 years

Comments

[Alejandro Santana]

This is a very interesting post, especially for an investor from thousands of miles away. Investing in Spain is very different from investing in the USA.

The main difference starts with the availability of funds and the risk aversion. Investors are less used to taking risks of tickets of several millions of dollars in seed capital. These sizes of tickets are more usual in small private equity firms.

However, I find this information very useful to learn what the biggest and most advanced market in the world is doing.

Regards from Spain

[Inaki Berenguer]

Alejandro,

Yes, you are right. But the average fund in the US is $400M, with 8 partners in the fund. That means that each partner needs to invest ~$50M during the life of the fund (~7 years, although you invest almost all the money in the first 2 or 3 years). But a partner cannot handle more than 8 boards. The reasons is that VC partners spend a lot of time helping those startups with recruting, board meetings, customer meetings, etc.

$50M to invest in 8 companies: that means that they have to invest per company ~$6.5M (that does not mean that you invest all the money in the same round: you could invest $3M in round A and coinvest another $3.5M in round B).

That is why the philosophy of most VCs is the US is not to invest in a great idea but to invest in a great market with a great team. If the market is not large enough, they do not care because they are only looking at opportunities in which they can have a great ROI of those $6.5M. They do not care if you show them a riskless proposal to invest $1M and have $10M return. They would still need to make the numbers of the fund investing in many other companies and this idea would have consumed a lot of their energy.

Stay in touch.
Inaki

Inaki Berenguer
Home: http://www.inakiberenguer.com
Blog: http://blog.inakiberenguer.com