Ben Kuo: Congrats on the recent exit. It looks like the markets are back, what's your opinion on the prospects for an IPO as a exit strategy for your other companies?
Tom Unterman: An IPO is a viable but difficult exit process, no question about it. The markets now are choppy and you have to build a very stable company to just be able to get out. Loopnet is a great example. The company started in 1998, and shows the trend in the market. We invested in PropertyFirst down here, and became a shareholder in Loopnet after PropertyFirst and Loopnet merged in the 2001 and 2002 timeframe. It's operated as one company since. The company became profitable in 2003, and has had three years of profitability. The profits have grown very strongly. I think you need that kind of profile now to be able to have a big enough market cap to be interesting to the IPO market.
BK: What were some of the thoughts behind the decision to go for an IPO? Was this driven mostly by liquidity or other reasons?
TU: One of the great things about Loopnet, is that the company is very deliberative. A year or two ago, we started to look at an IPO for this year, assuming that operations stayed on track. There were also a large number of individuals who had invested in LoopNet or PropertyFirst looking for liquidity, and this was a way to provide it to them.
BK: How much of an effect did Sarbanes Oxley have on your decisions for the IPO filing?
TU: Sarbanes Oxley presents a very significant issue for anyone going public. You have to staff up, to meet the requirements. The control and segregation of duties is a significant issue. In this case, the company has always been tightly controlled, and Internet companies are better, where you don't have inventories and it's easier to maintain control. Plus, Loopnet has an outstanding CFO and accounting department, so that Sarbanes Oxley was not a significant deterrent.
BK: For those who aren't familiar with Rustic Canyon, what's your investment focus, and what particular areas is Rustic Canyon interested in nowadays?
TU: We started in the fourth quarter of 1999, with one fund, and we have another 2003 fund which we are principally investing out of now. We're looking at a broader set of companies than any time in the past. As technology is starting to express itself in more settings than computer software and IT equipment, we're seeing a broad range of interesting opportunities. For example, material science is moving ahead, and that's creating new opportunities that you wouldn't have thought of five years ago. Web 2.0 companies are also quite interesting to us. Local advertising is very interesting to us. There are lots of opportunities out there.
BK: It looks like you're doing more early stage investments now?
TU: We've tended to be earlier. We went though a period between 2000 to 2004 where everything was early stage, and exits were far away. But we tended to be a little earlier than in the past in the last two years, just because there's a whole new generation of companies formed, and valuations get very aggressive as you get beyond an A or B round.
BK: What are some of the more promising recent investments you have made?
TU: We like all the investments we have made. Our last investment was in Krugle, a vertical search engine for code. It's just launching, and we're pretty excited about that. We also invested in a company called InSync, which provides asset control and asset management in the supply chain, and are also pretty excited about that one. Those are last two investments we've made. In our 2003 portfolio, we've had a number of very positive events, either an IPO, or movement towards a sale. I think about four of five companies. The portfolio is moving forward well.
BK: It looks like most funds are now hitting a new fundraising cycle. Is Rustic Canyon raising a fund?
TU: We're still investing our 2003 fund, but will probably be in the market towards end of the year. We haven't made a firm decision yet.