Houston Chronicle Moneymakers
I was interviewed by our local paper and it came out mostly accurate. I am not a “Venture Capitalist” in the strictest sense, but I am an Angel investor - otherwise the article was all me. I don’t think that I came across as too arrogant or too flippant but you be the judge:
Business
“I’ve come to learn that it’s much better to be really smart in one small niche, rather than be kind of smart in a lot.”
KEVIN FUJII: CHRONICLE
June 26, 2007, 8:16PM
Moneymakers
Five questions with Marc Nathan
Failures help this venture capitalist
By BRAD HEM
Copyright 2007 Houston Chronicle
In an era when technology startups are constantly trying to convince the masses that their new Web site, gadget or software is the next big thing, the first person they need to convince is often someone with money, someone who can invest a few hundred thousand or a few million to get them to the next step.
Someone like Marc Nathan.
After college Nathan went to work for Houston-based ClearWorks.net, providing high-speed Internet connectivity and on-demand video rental for neighborhoods and businesses.
When League City-based Eagle Broadband purchased ClearWorks in 2000 for $137.5 million in stock, Nathan got a “decent payday.”
Since then, he has become a venture capitalist, using his money and that of his friends to help make the dreams of inventors and innovators come true — and make more money.
Although some venture capitalists do only multimillion-dollar deals, Nathan’s firm is still growing, and he focuses on investing up to $500,000 in startups.
Nathan spoke with Houston Chronicle technology reporter Brad Hem about what gets his attention and what new CEOs should never say when they’re hitting up potential investors.
Q: How does someone become a venture capitalist?
A: The very best way to make a small fortune in the venture business is to start with a large fortune. I wasn’t that lucky. I don’t have a rich uncle. I really cut my teeth on doing small investments with many different investors into dot-com deals. I wasn’t particularly a dot-com player, but everything back then was a dot-com deal. I had been there and done that at such a young age. One of the investors on that deal who we were lucky enough to make a ton of money for asked me to look at another deal, and it cascaded from there. What I do is find businesses that need help, and I help them by finding investors that want to help them. I get intimately involved with the companies themselves and grow either their sales, their marketing, their PR, their investment profile, and then manage my personal friends who are the investors, making sure that what they bought is what they get.
Q: What’s hot now? What’s getting your attention, and on the flip side, what won’t you touch?
A: There’s a great deal of biotech in this town. That’s not for me. I’ve done a few biotech and life science deals, but they’ve never turned out all that great. I’ve come to learn that it’s much better to be really smart in one small niche, rather than be kind of smart in a lot. I’ve got one company here in Houston that I love called Podcast Ready. It’s obviously a podcast-oriented company in new media. I tend to focus on what’s called Web 2.0 and new media. Web 2.0 is a conglomeration of a lot of ideas. Essentially to me it means user-generated content on the Internet. I’ve sort of established myself here in Houston through pure dumb luck as sort of the expert to do those sorts of deals.
Q: You must get a lot of cold pitches. Do those turn into deals or are you more likely to seek a company out yourself?
A: I do both. Just today alone I had three separate pitches. I tend not to do deals with companies that pitch me cold. Most investors don’t for obvious reasons. What I tend to do is get pitches from trusted sources.
Q: How do you decide what’s worth investing in, what’s going to stick?
A: A lot of it is based on very extensive experience. Writing checks and having them lose — that’s what tells you what’s right and wrong. Those failures actually give you the experience to know what’s right and wrong. Listening to the same story this month of the same guy who gave you the same story last year that didn’t work makes you understand a little more about the world.
You never know if something’s going to be a true success until you get the checks written. All of them have potential to become tremendous successes. The other side is you never know which ones are failures until they declare bankruptcy. Out of 100 deals that you look at, you’re looking at getting involved with maybe 10 of them. If you get involved with 10 of them, you know that maybe one is going to be a home run that’s going to make up with nine either total losers or deals where you get your money back. We are looking for blockbuster deals.
Q: Are there red-flag words that companies say when they’re pitching you? What should pitchers never say?
A: No. 1 is ‘I don’t have any competition.’ When I hear that, my shutters go up. I put the note on the door that says closed for business. When somebody says that, it means two things: They don’t know who the competition truly is, or they don’t have any competition because nobody wants what they’ve got.
No. 2 red flag is you tell me your numbers are conservative. I automatically cut them in half anyway, so we could go around in circles. At the end of the day, don’t tell me anything. Just show me what you’ve got.
And No. 3 — and there are so many of them — but No. 3 is probably saying that you as a management team or CEO are going to be with the company for the life of the company. The opposite of that is telling me that your CEO is going to step aside when more talent comes on board.
brad.hem@chron.com
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