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Venture Profile: Jay Hoag, Technology Crossover Ventures

By Angel Mehta, Managing Director, Sterling-Hoffman Executive Search

Angel Mehta: Where does the name ‘Technology Crossover Ventures’ come from?

Jay Hoag: The majority of what we do at TCV is a result of my 12 years at Chancellor Capital. While at Chancellor both Rick Kimball and I thought about starting a company, and as such we quit our jobs at the end of 1994 and went out to raise a fund. Some folks from Robertson Stephens (which doesn’t exist anymore) provided us with an office and helped us raise our first fund in June of 1995, which totaled approximately $100 million. The charter was primarily late stage private and following those private companies into the public market, which is where the crossover in our name comes from. It refers to crossing over the IPO line.

Angel Mehta: It’s amazing to me that given the time you got started, you didn’t feel compelled to go after early stage deals. After all, this was around the time that Netscape went out right? I would have thought that any venture investor getting started at that time would have wanted to jump on the bandwagon…

Jay Hoag: I’m a big believer in sticking with what you know. At Chancellor we had enormous returns from late-stage deals, for instance with companies like Sybase and Intuit. So that was really my mindset from the beginning.

Angel Mehta: Does the fact that technology is so much bigger as an industry now make it more or less difficult to find good investments?

Jay Hoag: Technology has pervaded every aspect of society at this point… the universe is much, much bigger, you’re right. My sense is that it’s always easier to invest when nobody else really cares. It means the company can stay a lot more focused without worrying about a group of me-too competitors arriving on the scene. Today, many areas get significantly over-funded. In 1991, for example, the entire venture industry raised $1.9 billion. Compared to today’s world, that’s a staggeringly low number.

Angel Mehta: There are a couple of companies within your portfolio that I was interested in… Altiris and InPhonic…. could you tell me a bit about them?

Jay Hoag: Sure. Altiris had an opportunity using web-based technologies to automate many IT tasks. This company appealed to us because they had a very strong sales and marketing culture… a sales execution culture, if you will. We felt that doing an early stage systems management company in the industry would be challenging and so those elements favoured a company like Altiris. Their products provide very quick payback, at a relatively low price, so we invested when they were heading towards $60 million a year and have now been involved with Altiris for about 2½ years.

In the case of InPhonic, the good news is that there aren’t a lot of companies like InPhonic out there. They are by far the leader in enabling on-line buying and activations of cell phones and additional services. Our view was that there are tens of thousands of outlets… physical stores, where you can go and buy cell phones in the off-line world, and that on-line over time could be a much better way to select phones, select rate plans and capture an increasing portion of the wireless market… similar to Expedia capturing and taking the travel business, prompting thousands of travel agents to move on-line.

Angel Mehta: Do you think that the people-side of the equation is less an issue when you’re backing a late stage deal?

Jay Hoag: No. As a late stage investor, you’re absolutely backing a CEO… you’re backing the management team. In fact, my sense is that in early stage investments, what you’re really betting on is the technology, or a market… the CEO issue comes much later.

Angel Mehta: We’re always looking for a formula that allows us to select the best CEO’s… how do you go about doing it? What qualities are most important?

Jay Hoag: Common sense dictates that the best way to identify a great CEO is to look at their track record. Of course, we pay a lot of attention to that, however judging a CEO and other executives comes down to, in most cases, a gut-level call. Yes, we want people with tremendous passion and insight. But that doesn’t guarantee anything.


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