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Venture Profile: Stu Schuster, Novus Ventures
By Angel Mehta, Managing Director, Sterling-Hoffman Executive Search
Angel Mehta: You were at Sybase in the early days when it was battling Oracle. Tell me, if you can, what did you learn from Sybase about battling a bigger company?
Stu Schuster: The real lesson that I learned was that when you’re going up against bigger guys, you have to find a hole in the market to fill. At Sybase, the year we did our first $5 million, which was ’87, Oracle was marching to $100 million. One of the holes we found was on-line relational database management. Nobody else had targeted that hole to fill. We went after applications that none of the competitors did. If we went after a market where Oracle was the leader, say Decision Support applications, we’d change the messaging to address an area of that market that Oracle wasn’t filling. Even though we were the seventh database in terms of the size in that marketplace as a company, most people perceived us as the number two player. Part of my strategy was to make it a two horse race in people’s minds, between Oracle and us.
Ultimately, good marketing is all about positioning. It’s about going where you can win more often than you lose.
Angel Mehta: I think there’s still a lot of mystique about what goes on behind-the-scenes at a venture capital firm. You were a Partner at Brentwood and now are at Novus. How significant are the cultural differences between different venture capital firms?
Stu Schuster: There are differences, of course, and it largely has to do with the people involved, as always. Brentwood had very talented people who went through long apprenticeships, but it was like two generations of partners across distributed offices. So I’d summarize Brentwood as being incredibly knowledgeable, dynamic, and effective… but more like a group of independents hooked together in a common mission.
When I came in, I was more of a technology and a marketing guy, not really a finance person. I was only there a week when one of the senior partners asked me out to lunch and asked me point blank what I was working on. You better believe I got the message. I was accountable, even as a new Venture Partner, to get out there and start finding deals. There was zero training – it was just like, ask questions, observe, and good luck. But there was no time to lose. It was quite an experience, you know, the first time I found a company I was interested in and not knowing my way around a term sheet. I had to go find a lawyer who would take a few hours and walk me through the basics of term sheets.
Novus, on the other hand, has a totally different orientation. Here it’s more of a team effort, and in fact was hard to get used to. Periodically the companies that people are working on get shuffled around based on who’s got available bandwidth or more suitable experience. Also, with Novus being smaller, we don’t see nearly the same volume of deal flow. So when we get a deal that we’re interested in, we almost invariably pair up, put three people on it to handle the diligence collectively. When I was at Brentwood there was only one Associate at the time, so basically you ended up doing almost all your own work, which was good discipline. But the approach at Novus is different.
Angel Mehta: Which model works better?
Stu Schuster: I think both models work – there is no right or wrong answer. You could say that Novus has a better training approach, but in terms of get used to making decisions on your own, Brentwood’s is better. When you see a deal completely through, all the way through, on your own, you pretty much have a sense that you know all facets of that deal. On the other hand, it’s not always the most optimal person working on a project.
Angel Mehta: Do you insist on ‘billion dollar potential’ before you’ll do a deal? Do you think that venture investors who take that approach are being realistic?
Stu Schuster: When I first started in the venture business I didn’t realize how hard it was to build a $100 million company, or in our case, close to $1 billion, especially if it was a software company. I was involved with Brentwood heavily in the early stages of Vitria and it ended up having a multi-billion dollar valuation. To me, it was totally blown out of proportion. I never expected that company, as an infrastructure company, to have that kind of valuation. I still think that way: building a $100m software company is just hard to do.
Of course, you need 10% of your portfolio to be major hits in today’s market. But still, a billion dollar software company just seems to be a lofty goal.
Angel Mehta: Of the ten most successful entrepreneurs you know, how many were able to predict the level of success they would achieve? How predictable are the hits in venture investing?
Stu Schuster: Great entrepreneurs have great visions of grandeur. They believe their passion is going to change the industry or change the world in some fashion. If you have that vision, then you believe you’re going to have to have some impact in terms of market share.