by the time companies get to Series B, they look more like classical ventures, and we play a role but we are one of a number of equal players. The spinout angle is no longer relevant and we’re all acting like typical VCs, as opposed to adding extra value.
X: If you have to spend more hands-on time with your companies than typical venture partners, I’m not quite clear on how the economics of the firm work. How do you have time to do enough deals to put all the money to work?
DT: You’re correct that we are more labor-intensive. But I would say that we have more dollars per partner under management than would be typical. Without going into details about how our fund operates in terms of fees and things like that, I would say that our LPs appreciate that we are providing extra value from these deals having a head start. And the reality is that we are each willing to take a little bit less. We are going to divide up the fees and the carry into smaller bites. I don’t think anybody has ever really asked it this way, but we really believe in what we are doing, and we want to see great returns for the fund, and if we each get a little bit less, that’s okay. We’d rather bring more resources to the table and divvy up our share of the pie a little finer.
X: How do you find out about deals? Is it usually a researcher coming to you and asking for help extricating a technology from their parent company? Or is it the company coming to you? Or are you going out and finding these stranded technologies?
DT: It’s all of the above. Sometimes the company will bring it to us through their executive channels or research leadership. Often the entrepreneur will come to us and say ‘Can you help me out?’ In a lot of cases, it may be entrepreneurs that we are maintaining a relationship with over time. Or it might be somebody who just heard about us—maybe through reading your article in Xconomy. The other case I’m finding, increasingly, is VCs in the valley. Everybody in the valley has a neighbor who is a VC, and the neighbors talk to these partners and say, ‘You should create a spinout from X or Y.’ But they don’t really do that. So we get a lot of referrals, and if we do go spin it out, they may be very willing to co-invest with us.
X: I wonder if your job of finding spinouts is made a little easier by the heightened awareness around Silicon Valley of the examples where big companies let promising technologies slip away because they didn’t see the possibilities. I guess Xerox PARC and the personal computer is the classic example.
DT: I’d push back a little on the Xerox thing. I think they get a bum rap. They absolutely should have owned laser printing—sometime let’s have a separate conversation about that. But PARC has delivered a lot of technology to Xerox. People don’t talk about all the value PARC has created for the company; they just look at the one that got away.
But my sense is that there are a lot of jewels still buried in these companies. I also think that they believe that it’s just too hard [to commercialize disruptive ideas], that you are not really going to get it out to market, and even if you do the team won’t act like a startup; there’s just a litany of reasons not to do it. There is also a belief, and there is some truth to it, that a lot of these things will just leak out anyway–that people will just leave and start something new. That’s easier in software. But in technology, I think most of these things just get killed off—they go to the nonexistent “shelf” and then get
