This morning, Woodland Hills-based FatTail (www.fattail.com) announced a venture round from Velocity Interactive Group for its software for managing online advertising. Ross Levinsohn is a board member at FatTail and a venture capitalist at Velocity Interactive (www.velocityig.com), and headed up Fox Interactive Media's buy of MySpace. We spoke with Ross about the investment, as well as about his experience as VC and his outlook on the market.
Thanks for the interview. For those not familiar with what you're doing now at Velocity Interactive, and tell us a little bit about this investment?
Ross Levinsohn: We formed Velocity about a year ago. Jon Miller and myself -- Jon is the former chairman and CEO of AOL--combined efforts with an existing venture group to form Velocity. We've had a pretty busy year. Our firm has about 1.5 billion under management, in a number of funds, and we have been investing for the last year or two out of our existing $300 million fund. We have focused our investments mostly on the media space, with some in the communications space, but we're really trying to make the focus of all our investing on media, and specifically digital media. It's been a pretty exciting year, and we've made about 15 investments in the last year and a half of working together. FatTail is the latest deal we're announcing. FatTail is solving the problem of buying and selling advertising, one I've seen as a challenge as long as I've been in the media business, which is twenty two years. In the dozen years of the Internet, no one has quite figured out buying and selling advertisings, and it's not much better than it was ten years ago. FatTail is really interesting, in that for the last three years or so it's been stealthy and underground, and has perfected some great technology solutions in the area, and is now working with about 500 different publishers. They've quietly build a nice little business, on very little money. Our investments is their first institutional round. It reminds me of our first investment, in Broadband Enterprises, which was unknown publicly but in the industry had a great reputation. Years later, they are really the leading seller of video advertising and technical solutions in the video space online, and doing just gangbusters. We like this business--they've just released one of their three or four different product lines, which are coming later. This one is called AdBok, and it's really built around working with publishers and advertisers, and solving some of the inefficiency problems that are bottlenecks in the online advertising buy and selling process. It's something that exists in every company, big or small. Publishers can get RFPs fast enough, they can't get them out, and the large advertisers can't get fast enough responses to those RFPs. What FatTail has done is automated that, and made it a lot more accurate for both sellers and buyers. With this product, publishers are much more responsive, advertisers get better results, and at the end of the day, you need much less people and get a faster return time. We're pretty excited about it.
How did you run across FatTail?
Ross Levinsohn: I first ran across them when I was at Fox. Obviously, we were looking at all kinds of solutions to make the process of buying and selling easier, especially in the network which we had built. We first ran across them then, kept track of them, and got to know the management a bit when we were down in the LA area. Over the course of the last few months, we began digging into the business and got comfortable with the team, did our homework, and went in and made the investment. We've also got other people coming in as well, people I really respect, like Ted Meisel, who came out of Yahoo and is an investor and advisor.
How has the move from Fox Interactive Media to running a VC firm gone?
Ross Levinsohn: The experience has been fantastic. When you are running a big company--or any company, big or small--frankly, you end up spending less and less time close to the product. Especially in a big corporation. You end up spending a lot of time on everything from financial issues, to HR issues, to other corporate issues. You tend to leave the day to day running of the business to the direct managers, whether that's the GMs or presidents of divisions within the bigger structure. So, I really enjoy getting down into the nitty gritty, which I'm sort of free to do now--if the companies we're invested want it. So far, all of them want us as a firm to participate weekly in their businesses. It's been a great transition for me. I feel like even though we're in a challenging market, there are some really great opportunities here. Anytime you see cycles like this, if you have some vision, you can work your way through it, even when everyone is tightening their belts. I was just talking with Jon, and Jon was at IAC during the last crash--and no company did better in the down market than IAC. They had the vision of rolling up and buying companies, and putting things together sector by sector. We'll see if history repeats itself, but you've got to have that kind of foresight and a plan in order to see some successful exits over the next year or two. And, it's a bit of a different time, even though the market is challenging, because they are fundamentally some strong businesses in the Internet sector versus 10 years ago, where there was lots more hype.
Why the focus on media investments?
Ross Levinsohn: That's certainly my background, and Jon's as well. We wanted to stick to what we're good at, and what we like. We've got a couple of other partners who have great experience in the communications sector, a serial entrepreneur who has done lots of media investing in India--but we wanted to stick to what we know, out of the gate, and we've quietly been at it now for a year now. There was some doubt around that we were parking until our next gig, and this has turned out to be a very exciting thing for us. We feel like we're in really good companies, with a good future.
When you say media, what do you mean?
Ross Levinsohn: When we say media, we mean digital media. If you're in the media business, and you're not in digital media, you won't be in the media business much longer. We've positioned our firm as the bridge between the old and new media. We have a world class team that can scout out the next great companies, and we can help them as much or as little as those companies like, those we'd definitely like to take more of an active role, because this is what we know. It's fun to be working on something you have experience in, and you enjoy. It speaks to you when what you're doing makes a difference, and the media sector is really the one we want to be in. It's never been a more dynamically transforming time for the media sector, and it will take some real navigation over the next five or ten years. We're pretty positioned to do that.
On a different topic, tell us the story behind MySpace--that seems to have boosted your profile quite a bit and thrusted you into the limelight--how did that happen?
Ross Levinsohn: I've been at it for awhile--I started in the Internet in 1994, oddly enough. I was working at HBO in New York, and asked to scout out online services. I had been at it a long time before I was thrust forward. I helped start SportsLine, which CBS later bought, and I was aksed to take AltaVista from a search engine to a portal, and worked there for awhile. I spent a lot of time watching the evolution of Web 1.0, the Web 2.0 explosion, and what I saw was a fundamental shift on how consumers used the Internet. In 1.0, it was about community and portals, but early on with Friendster and obviously MySpace we saw it was more platform based. They enabled consumers to determine their own destiny and pages. While My Yahoo or My MSN got there first with tools to allow people to personalize pages, it wasn't a fully open system. I think probably, Friendster was first at it, but MySpace took advantage of it. The two things about MySpace which were incredible, looking at it for the first time, was the growth rate. Even then it was astounding--they were adding 70,000 people a day when we bought the company at News Corp., and by the time I left they were adding 350,000 people a day. The second thing was consumers were willing to provide information about themselves. If you talk to anyone in direct marketing, you'll understand how hard it has been to get consumers to part with that information. With this different generation, they are putting forth so much more information about themselves, in hopes of connecting with others like them. It was almost a no-brainer for News Corp. to take a chance on MySpace. I remember back when we did the acquisition, and the critics--it looks much better now than it did then, and it turned out great for News Corp.
Finally, what's your advice to startups on what they ought to do given the current economy?
Ross Levinsohn: I think being focused on what you are trying to build, and what you are trying to turn your business into. I also think that whether it's a good economy, or bad economy, you have to be flexible. I've seen lots of companies over the last ten years, who came in as one thing, and ended as another. Really good entrepreneurs are always evolving their strategy. That's the great thing about startups--they can be really nimble. We have really good up cycles, and really bad down cycles, and you generally learn that really good is never truly as good as you think, and really bad is never as bad as you think. If you can stick to your plan, focus on building the right product, and reaching the right audience, you can weather a downturn in the markets. Companies that come out of the back side are generally solid ideas. It's not just about preserving cash, but it's focusing on building the right business and reaching the right audience.