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Venture Profile: Susan Mason, ONSET Ventures
By Angel Mehta, Managing Director, Sterling-Hoffman Executive Search
Angel Mehta: Why did you move into venture investing from consulting?
Susan Mason: The hidden agendas inside some of our Fortune 1000 clients started to frustrate me as a consultant. In my previous company, we were helping our Fortune 1000 clients, like IBM, Motorola, HP and Sun, identify a particular market opportunity and take some of their people and combine them with outside startup people. We essentially built companies outside of that corporate entity so that we could move much faster and be much more flexible. Then as soon as we got it up to a certain level, it was flipped back into that corporation. Unfortunately, there were always indirect problems around the corporation because the startup entity was highly successful. Invariably, the executive VPs would fight over it. The issue would be if one VP couldn’t have it, they would want to destroy it… so you had all these hidden agendas going on that had nothing to do with the operational side of business and creating value.
You also had this game of musical chairs at the highest levels and would have to regain confidence with the new CEO or Chairman or whoever each time about whatever you were doing.
Venture capital, on the other hand, is extremely sanitary in that there are no hidden agendas. There is only one objective – to win – and everybody is behind it.
Angel Mehta: What advice would you have for women who would like to break into venture capital? Would the challenges be different for a woman?
Susan Mason: To some degree… it’s a clubby network and you don’t see a lot of women venture capitalists, so you have to be better. You have to be better at operational and interpersonal skills. To be the same is not going to differentiate you… you have to stand out.
Angel Mehta: The chances of having a successful exit seem to be getting slimmer, and the probable valuations have also dropped significantly ‘YouTube’-type deals aside, of course. Will venture investing still be as rewarding as it was in the software world, given those issues?
Susan Mason: I think that goes back to the philosophy of your approach in assessment. We look for two key items and the first is ‘capital efficiency’. We like companies that will take roughly $30-35 million in total capital to get to an exit / inflection point. The other item has to do with ‘building stand-alone companies’. We like to build-up the entire company so it can stand-alone, and it isn’t dependent on the timing of the exit markets. I believe that if you build a company that can stand-alone, you can withstand the variability of the exit markets and you could time it when you think it’s most appropriate.
Dependency on a good market for exit is not the way to do things – you see it all the time in ‘flip-style’ companies where they really should be a department at a larger company. Their products don’t have the breadth and depth that would allow for the company to be a stand-alone entity. Also, if you need so much capital that you are dependent on the exit markets to get that capital to fuel the engine, that’s an issue as well. We like to look at companies and build them that are capital-efficient, so we wouldn’t invest in a company that was building its own semiconductor fabrication facility. Building a full fabrication facility requires hundreds of millions of dollars – that’s not our game. However, a fables semiconductor company fits our model.
Angel Mehta: Every venture investor says that the best way to get a meeting is to be referred by someone they know, but what if an entrepreneur is NOT referred by someone in your network… how do they get your attention? Is there a process you use to review the flood of business plans?
Susan Mason: We received about 4,800 business plans last year, and we did seven investments. But we do look at each plan, and yes there is a process. First, we pull out those for the specific markets we are interested in. Next it goes to the analysis team and if they approve it, the business plan will be brought to my attention. At that point, we might invite the entrepreneur in.
Angel Mehta: Are CIOs the best source of information about new opportunities for investment?
Susan Mason: Not entirely. We tend to look at the infrastructure area and delve into “dark” areas within a company where efficiency has not happened, but we talk to the people who are in the saddle. By the time word of a big problem reaches the CIO, they can’t localize the problem. They can give you a general idea, but not pinpoint a specific issue. For example: the general pain point is we need to increase revenue, how do we get products faster to market? One answer would be you engineer faster but maybe another area is reduce the number of errors and streamline the testing process because typically the QA and testing process is one of the things that is the most inefficient process within a product release. If you can optimize that and reduce the error count there, you can reduce the cycle, so you can get your product faster to market and you can realize revenue. The CIO is not going to be able to tell you that. You have to talk to the people in the saddle and really understand the different problems they’re dealing with.
Angel Mehta: How has the due diligence approach changed since 1996? What have you learned from your experience?
Susan Mason: I think in the 1996-1998 timeframe, we had a very traditional approach on due diligence and the process was not time-collapsed. You had the time to do the due diligence and build the companies. In ’99 – ’00, you were forced to collapse your due diligence process. What I’ve learned from the post-bubble ramifications of those decisions is that you really have to go with your gut feeling and not let the external market forces drive you and if anything that’s even more so validated. For example, last year we did evaluations, twice actually, on Series A and Series B companies. From our standpoint, we stepped back and said, “Wait a minute, this doesn’t make sense. We don’t see the dynamics to validate that.” We think it’s almost a mini bubble and it’s better to wait it out rather than jump in and get into that heated response. I think you get savvier, more patient, and look into yourself much more.
Angel Mehta: It has been said that entrepreneurs do not make great venture investors because they empathize too much. Would you agree?
Susan Mason: There are a couple of problems with that… first, yes, they empathize a lot and it’s sometimes hard to make tough decisions. But the other thing is, they have this subconscious urge to be back in the saddle and can sometimes crowd the CEO. They start out coaching the quarterback and then forget they’re not out on the field.
Angel Mehta: Is there such a thing as ‘venture partner DNA’?
Susan Mason: Not in my opinion. Good venture folks come from every background… varied personalities… one thing that’s consistent is that they are fact-hounds. They want to understand details, and they’re very curious. But that’s about the only overlap I can find.
Susan Mason is General Partner at ONSET Ventures. She joined ONSET Ventures in 1996 after holding positions in high technology engineering, marketing and business development. Susan most recently led a successful consulting practice, helping Fortune 1000 corporations capitalize on emerging markets and technologies. Early in her career, she held positions in marketing and engineering design of high-performance systems and microprocessors for Fujitsu Microelectronics, Fairchild Semiconductor, and NCR Microelectronics. For interview feedback, contact Susan at firstname.lastname@example.org
Angel Mehta is Managing Director of Sterling-Hoffman, a retained executive search firm focused on VP Sales, VP Marketing, and CEO searches for enterprise software companies and lead investor in http://www.softwaresalesjobs.com, the # 1 site for software sales jobs. Angel can be reached for feedback at email@example.com