Tuesday, February 22, 2011
Interview with Fouad ElNaggar, Redpoint Ventures
Story by Benjamin F. Kuo
Redpoint Ventures is one of the venture capital firms which has straddled both Northern California and Southern California, with offices in both locations. To hear about the firm's interest in Los Angeles, and Southern California investments in general, we spoke with Fouad ElNaggar, Principal at the firm, to hear about where the firm is nowadays and what kind of investments it is making locally.
Thanks for the time today. It would be interesting to hear about where your interests are nowdays, there was a rumor Redpoint had backed off activity here lately...
Fouad ElNaggar: There has been this perception that we are not involved in Los Angeles, which I find really funny. We've made over 30 investments in Southern California, and that's just in Redpoint, and doesn't include all of the investment we made as Brentwood Venture Capital since the late 70's. I think we've done some of the really exciting companies in LA, including most recently Clicker, Machinima, BUZZmedia, and SVnetwork. We've been quite active, and have had a bunch of acquisitions lately -- including Internet Brands and MySpace -- a total of over 2 billion in acquisition in Southern California. We've created over a billion dollars in public market capital created by our investments here. We really believe in the market. At the Twiistup panel last week, there was a debate over whether big companies could be created here, which is ridiculous--Demand Media is the latest example there, we've got Cornerstone OnDemand coming out soon, and there is no question there are market leading, large revenue companies coming out of Southern California. I'm down here probably three or four days a week on average, and we're trying to be active, and pick off what we think are going to be the best deals here, from Santa Barbara down to San Diego.
Can you talk about how Redpoint splits up investment -- do certain partners handle certain industries, or is it more geographic?
Fouad ElNaggar: If you want to come in for a face to face, I'm the point of the sphere. I am different, in that my areas of focus is quite broad. I do energy and materials investment, Internet investing, digital media investing, and financial services investing. I am usually a very good first filter for people who are looking to talk to someone at Redpoint, and I'm local. People can come in and have a coffee. A lot of people don't know it, but we also have an early growth fund, Redpoint Omega, which also gives us the flexibility to invest as little as $50,000 in a company, which we do quite often. We can also write checks as large as $35M out of the Omega Fund. I think that's really important, especially in Southern California, as we keep running across the really great stories of people who have boostrapped to real revenues, and are now looking for founder liquidity and growth capital. We're able to help throw some gasoline on the fire, plus also help people even at the earliest stages of a business.
There's been some talk in Silicon Valley of how super angels are putting pressure on venture funds -- have you seen that, and has any of that happened here in Southern California?
Fouad ElNaggar: I think that what we offer to companies is a different level of service, even at the early stage, than super angels can provide. If you're making 50 investments a year, or even 20 investments a year, and made 20 investments from last year, that's just a really hard model to scale. It's difficult to add value to a portfolio company or entrepreneur. Our partners tend to be on five to eight boards, so when we get involved with a company, we get involved with a company. We're helping the entrepreneur, leveraging our network, introducing them to people, and helping them think about new products. I think there is a race for these guys to put money to work, but as a single person that's a hard model to scale. I can tell you we did four investments in Southern California last year, and in none of those deals did we run into super angels, even though we are writing checks as small as $50,000.
What areas you personally are looking at right now?
Fouad ElNaggar: It's pretty broad. The next generation of social networking and communications companies are very interesting, people are thinking about taking identity and their social graph everywhere on the web with you, which I think will lead to a bunch of interesting companies. We now have a supercomputer in our pocket, which knows where you are, and is bringing lots of things that are offline now online. There are big companies being build around the mobile phone. We're working with a company in Venice Beach which is trying to solve that problem. On Demand enterprise, and consumer software-as-a-service is also very interesting to us. Materials is as well, and I spend lots of time at UCLA, and Caltech looking at interesting materials. In Los Angeles in particular, I think the area of the digital living room and digital media is an area LA should own, just own, because the studios are there, the networks are there, the game publishers are there, and you have access to executives from the sports leagues in Los Angeles. I want to see more companies doing innovative things with media down in Southern California, which should just own that market.
Why do you think companies here have had a tough time owning the digital media market here? It seems like that's been a long time coming.
Fouad ElNaggar: I think one of the challenges is that entrepreneurs who have a super technical background, probably don't have the network to get in front of the content owners. That's part one. That's one area investors can usually help. The other big challenge is getting deals done. It takes a really long time. Startups are used to working at a blistering pace, but a blistering pace for a studio is a year, or two years. Machinima is an example of one of the companies which has taken the time to build those relationships. Another one of our firms, Hark, which has been under the radar, has been thinking about digital media, and thinking of new, novel ways to use existing media. Hark has over 8 million uniques a month, and doubles that every three or four months. They're now touching 14 million people through social, they've got 60 million pieces of metadata on the site, and they're going out and getting deals with studios, game publishers, with networks, with sports teams and sports leagues. But, I'll tell you, it's been a really long slog. The company is profitable and scaling super nicely, but even when guys are really bought into the product at the studio level, it takes time to close deals. We're closing a deal with one of the biggest studios now, and we've been closing with them for the last six months. You just have to have an iron stomach to deal with the time it takes to get things done with Hollywood.
Finally, for entrepreneurs, what's the best way to approach you--email, Twitter, Facebook?
Fouad ElNaggar: Anyway they want to. I respond to everybody. They can find me on Twitter, email me, find me on Namesake. I'm available and out there. But, the best way to get a quicker meeting, is to have someone introduce you that I know. Cold calling will take more time, and it won't be a priority. Everyone knows everyone else in LA, and there's a network of people who know other people. You should be able to find someone a degree or two away from me in LA pretty easily.