Investor Stories 2: Why I Invested (Dave Berkus, Troy Henikoff, Ann Winblad)

Download_v2Nick Moran Angel List

On this special segment of the Full Ratchet, the question “Why I Invested in a Startup” is addressed by:

  • Dave Berkus

  • Troy Henikoff &

  • Ann Winblad

Each investor highlights their own unique scenario

with a startup, what the key factors were that led to “Yes” 

and how that investment has worked out.




*Please excuse any errors in the below transcript


Nick: For this installment of “Why I Invested,” we have Dave Berkus. Dave, can you walk us through a situation where you decide to invest, what the key factors were that lead you to yes, and how that investment has worked out so far?

Dave: Well, then I have to tell you a good one, right? So it was the year 2000, it was right before the bubble burst—right before the bubble burst. I mean, within weeks. And a person who’d been a radio station program director came to the Tech Coast Angels, and said “I have an idea. Friends of mine and I have tried to buy books on Amazon and other websites, and we can’t do it if we don’t have a credit card. And you can’t use cash. And you can’t write a check. So I’m going to try and invent some way of paying for items on the internet. And I have a friend at MasterCard who has granted us the use of the name MasterCard on this thing I’m trying to invent. And so I have this license to use the name MasterCard.” And the guy then said “I’m going to create this card…and we’ll call it a Debit Card, so that people can debit from their bank account, or from an account of cash, which is deposited at the store in which they buy their card.”
And so that was his very thin, narrow focus at the time when I invested the largest amount of money that was invested during that around. And, uh…was I lucky at that time. The card turned out to be the Green Dot Card. Today it is the banking system for the unbankable. Debit cards are used by those who don’t have bank accounts or checking accounts, extensively, to send money overseas as well as to spend and save on their own. And the Green Dot Card is used today—is sold today in 75,000 stores, including all the Walmarts throughout America.
So when that one finally got to its New York Stock Exchange public offering a few years later, I was the largest shareholder who sold shares. I have to say that the company didn’t take any of the shares. It didn’t need any money at that time, it was so very profitable. So this New York Stock Exchange public offering was just for the benefit of the shareholders. And Sequoia Capital held onto its shares in that offering. So when the underwriter needed more shares, because the demand was high, I got a telephone call on the Saturday before the Monday morning of the public offering, asking if I would give all of my shares to the—I had enough shares to make a difference. And I said yes. My friends thought I was nuts. And so I was three and a half percent of the entire NYSE public offering that day. And celebrated greatly. The stock when up and everybody told me I was nuts. But then it went down and everybody told me I was prescient. Was a good day. It was a hundred and ten times the investment.

Nick: That helps out the portfolio IRR a bit.

Dave: It does. And I had to give a nod to the entrepreneur, Steve Street, because there’s the best example of a pivot that I can imagine. From something as narrow as “I want to buy things on the internet” to the banking system for the unbankable. He built a major public corporation.

Nick: For this installment of “Why I Invested,” we have Troy Henikoff. Troy, can you walk us through a situation where you decided to invest, what the key factors were that led you to yes, and how that investment has worked out so far?

Troy: There are a lot of them.

Nick: That all work out, right.

Troy: No, they don’t all work out. I’m think about within the context of TechStars, so I’m thinking about company that we have backed and…probably a good example would be SpotHero. So SpotHero first applied in 2011. And when they applied, we interviewed them, and they had this idea that they were gonna be a way for people driving to find parking spots easily and less expensively. Initially, they had focused on around Wrigley Field and they were gonna rent out other people’s driveways for them. And they kinda moved on from that and they didn’t have their model down, and when I asked Jeremy and Mark and I said “So how are you gonna grow this? What’s your tactic for scaling?” They said “Oh, well we’re gonna hand out flyers on the red line. And, you know, handing out flyers to people on public transportation, A, isn’t scalable, and, B, those are the people that don’t have cars anyway! It was the silliest answer they ever could have come up with! And we didn’t accept them.
But, to their credit, they’re really, really tenacious. And they spent that summer of 2011 busting their butt and figuring it out and doing deals with parking structures and figuring out SEO and getting online and getting to the point where when they applied again in 2012, they clearly had evolved their business model. They’ve proven they were coachable, they’ve proven they were tenacious, they’ve proven that they’re smart, and they’ve proven that they had an actual business. And so we brought them into the Class of 2012. They were awesome, working really, really hard. They were kind of the darling of demo day. that year, raised the most money out of anyone of the Class of 2012 and subsequently just announced recently another significant raise over four million dollars in their next raise and re doing great, parking thousands and thousands of cars ever day across the United States. They’re not just in Chicago anymore, they’re in Boston and New York and DC and…I can’t keep up with all the cities they’re in.
So it was an example of where they demonstrated coachability, tenacity, traction, perseverance, smart—those are the kinds of entrepreneurs we want to back.

Nick: Today we have Ann Winblad of hummer Winblad Venture Partners. Ann, can you walk us through a situation where you did decide to invest, and what the key factors were that lead you to yes?

Ann: Sure, and I’ll talk about a more contemporary company here because it does reflect what we’re looking at in the marketplace. There’s a very good industry analyst named Jason Maynard. And Jason has covered the software sector for a number of firms for many years. So Jason is always out doing due diligence on public companies and Jason called me up one day and said “You know, I’m doing due diligence on most of the large software companies and this little company keeps coming up. And it’s called MuleSoft. And it’s in a lot of companies, you should meet these guys.” I said “Well, do you know who they are?” and he said “Yes, I’ve done some research and it’s a guy in Malta named Ross. Ross Mason.” And he put me in touch with Ross and Ross was just about to start a commercial company, but he had started with an open source model. Or, in many companies, we’d call it a premium model.
He build a very, very touch piece of software that was very easy to use. The customers refer to it as their integration platform. And he let people download it. A major airline was busy rewriting their reservation system by downloading their piece of software. A major bank just finished rewriting their European trading platform. A company that manages most of the prescriptions for the US was working on a platform. And it was just Ross and this other guy and a few contributors. So we were able to call up these customers and said “You just downloaded this software.” And they said “We just could not find the software we needed anywhere else. We downloaded this, it’s extremely good software and it’s extremely easy to use.” And it’s almost self-service, unheard of in the enterprise software space. So we invested MuleSoft and two people, Ross and his cofounder, here in San Francisco. Today, MuleSoft has almost three hundred employees, they recently had their users’ conference in San Francisco. They had twelve hundred people there representing over five hundred unique large enterprise customers, and they’ve become the standard in integration software.
So why we invested is they had quietly infiltrated a huge market. Customers found them because they could not find products they needed anywhere else. Customers were building mission critical pieces of software with something they downloaded that was such high quality that they didn’t even seem to care that there were only two people employed at the company at that time. Certainly, scaling, the company’s built all the capabilities they need to support multinational companies. They’ve built a culture very similar to Ross had in the beginning—very, very high quality, very tight listening to customer’s needs, and very easy to use. Which are thee attributes of software that really have to work together. Most companies do not get this right at the start, they’re always working on one of those pieces. The quality of software, the quality or customer engagement, or the ease of use try to tune it up. And Ross hit it out of the park at the beginning which is why we invested.

Nick: I wish every company that came across my desk was like that.

Ann: So do I!