Q&A: Matrix' Dana Stalder on 20-Something VCs, Angels and CrowdfundingMarch 15, 2013
Silicon Valley Business Journal
by Cromwell Schubarth
Dana Stalder didn’t jump into venture investing at Matrix Partners when he was in his 20s, as his newest colleague, Jared Fliesler of Google and Square, has done.
But he doesn’t see anything unusual about having a 28-year-old partner on board and thinks it may become more common as startup success comes earlier.
Stalder spoke to me about this, angel investing, crowdfunding and what Matrix is investing in during a recent conversation that is excerpted below.
Stalder came to Palo Alto-based Matrix in 2008 from PayPal, where he managed all business operations after a few years in charge of its Internet marketing at its parent company, eBay.
Before that he was a very early executive at Internet browser pioneer Netscape Communications and a startup founder with online sales lead generating pioneer Respond.com.
Do you think you would have been ready to be a VC at Jared’s age?
It’s funny. I have thought about that. It's hard to say. I think I would have given it a shot, had I had the opportunity. I think this is a great opportunity for Jared. When I was his age, I was a start-up founder. It was 1998 and there is nothing else I wanted to do.
But I think people coming into the venture business in their late 20s or early 30s is probably more common than you think.
Two of our eight partners started at Matrix in their 20s: Tim Barrows and Stan Reiss.
Another one, Andy Verhalen, was in his early 30s. I think there is a lot of value to starting early.
Why do you think so many 20-somethings are becoming VC partners now?
Entrepreneurs are increasingly younger. The consumer sector has become more popular and it’s less important that somebody has worked in enterprise and core technology for a period of time to be able to leverage that base.
So it’s often less important to work in a big company and then pop out to start something. Capital requirements have come down for some of these start-up businesses and it's easier for the 23-year-old to attract capital. It's also easier for them to show progress and results as an entrepreneur to show progress and results on a small amount of money and iterate their way into building a big business.
At Matrix, we're just eight partners — four in Boston, four in California. It's a pretty tight-knit and highly collaborative team. We don't have a big pyramid structure of lots of principals and associates. We think it's important to have kind of every age bracket reflecting in the partnership.
But most importantly in Jared's case, he's just an exceptional person. In spite of his age he has been part of senior leadership in some important companies in the Valley at Slide, Google and Square. He has an incredible capability to detect new trends and articulate where they are going to go in the future. He's a great listener. He's a great contributor with teams, trying to figure out how to take their product from concept to commercial success.
So for all those reasons, he was just a great fit culturally and had the skill set that we were looking for on the team. I think his age is just a bonus, I think it makes him more approachable to young founders. I think it gives us a different lens than somebody in their 30s or 40s might have to the emerging trends. In many cases, he has different social networks than a partner in their 30s or 40s might have. So adding him is very complementary.
What else is happening in venture that is interesting or are a cause for concern?
The venture industry moves in very long and slow cycles.
Over the last three or four years, there was the growth in popularity of angel investing, almost to the point where it became a hobby in Silicon Valley. I think that’s fading out a little bit. It’s certainly not going to go away, but it’s fading from its peak popularity a couple of years ago.
I think people are realizing that angel investing in technology companies requires a lot of work and judgment to make money over a long period of time.
That’s one shift.
Another is that I suspect there will be some consolidation or flight to quality with some of the newer firms that emerged over the last 10 or 15 years. They may have harder times raising money if they don’t have the returns to show for it.
I think you will see some of that limited partner money move to the higher performers, firms that have more reliable track record behind them. But those are slow, slow shifts.
Do you think crowd funding is actually going to happen, that the SEC will allow it ?How will that that impact what you do?
I would love to see crowd funding happen more broadly in the world. I think it’s inevitable. I have no prediction on the timeline, but I do think it is inevitable.
Look, as information becomes more freely available and the Internet more pervasive, it’s just makes sense that platforms like that emerge.
Do I think it’s going to have any impact on early stage venture capital as I practice that business? No, not really.
To the extent that more companies are getting small amounts of money and starting — more ideas are being tested and more innovation is being tried— it’s a great thing for the society and it’s a great thing for the venture capital community.
The shift to mobile and cloud computing has been profound. What have you folks been investing in there?
We have a couple of cloud companies that are pretty far along. This is an area we have made a significant number of investments and we will continue to focus on it for the next several years.
One is HubSpot, which is an East Coast-based company. The other is Zendesk, which is here on the West Coast. They are both cloud software or Software-as-a-Service companies.
They are both largely selling to the mid-market and small business market. That goes against where most of the enterprise software business money historically was in the Fortune 5000, the categories that Oracle sold into and Microsoft and SAP.
What both these companies have done is they have created very easy to use products. They feel a lot like consumer Internet services. But they are providing capability and business process and functionality to the business owner.
HubSpot has a marketing management platform that allows small businesses to make use of the Internet to drive lead generation, acquire new customers, measure where those customers are coming from. It allows them to push content out to Twitter and Facebook and to cloud platforms and the like. The company is doing very well. It has a very promising outlook.
Zendesk in San Francisco is a customer service platform. Probably the easiest way to think about what they do is, if you ever land on a website and there is a little tab for “contact us” or customer service, in many cases that page is powered by Zendesk. They have 30,000 customers today and their power is what’s behind that page. When you create a customer contact, a ticket is created. That’s managed and routed to different people. It is assigned to your account records in the system and the like. So it's traditional customer service management, but through a software platform and largely for the midmarket and small business category.
How about the mobile space?
In mobile there is innovation happening top to bottom. Certainly at the application layer, where you and I as consumers interact, there is a lot going on.
One company in our portfolio there is text+. They have created a text-messaging-in-voice application. It's very similar to Skype, but Skype hasn’t clearly made the transition to mobile.
Text+ has created an opportunity for new companies to come in and innovate with the mobile-first opportunity. In its three or four years in business it’s been in the top 100 most downloaded apps in the Apple iOS store and the top 100 most downloaded apps in the Android stores. So it’s off to a strong start there.
Another company I will mention, and it’s an early one, is called Framehawk. They focus on the enterprise, where there are many custom-built applications.
In the biggest banks of the world, as an example, these applications are meant to run on personal computers and behind the firewall. But increasingly the work force wants to be able to access those applications through the tablet.
That creates a big challenge if you are a big global bank and you have 1,000 custom-built applications that were engineered to work on tablets and not designed to work outside the corporation, you have got a challenge to meet the needs of your employees and keep them productive. Framehawk has created the technology that allows you to very rapidly convert and run those proprietary applications on tablets, outside the firewall, in a secure way and actually very easily modify the interface so that it works on touch panels.
Have you seen any good exits in the last year, I mean in ones that you were involved in?
We have had a couple of exits in the last few years. We sold Zong to PayPal for about $250 million. We sold a company called CloudSwitch to Verizon for something in the neighborhood of a $100 million.
We have got you know a handful of companies we are focused on trying to get to be big IPO stage companies, but I won’t mention their names.
Any companies in your anti-portfolio, that you passed on but wish that you hadn’t?
Pinterest. It was early. There was very little data and it was very unclear whether this would be a niche thing or a mass market thing. We actually paid a lot of attention to it and spent a lot of time talking about it. Ultimately, we made the wrong decision.
But I think these consumer things have the ability to very quickly explode and become mass market or not. You kind of have to make that prediction before you have the data.
There are many companies that look like Pinterest and that never become Pinterest. Far, far more than those that do.