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Venture Profile: Mark Sherman, Battery Ventures

By Angel Mehta, Managing Director, Sterling-Hoffman Management Consultants

Angel Mehta: A lot of entrepreneurs will say that 'business is in the blood'...is that true? How much of an influence did your family have on the path you took?

Mark Sherman: That is a very good question. I grew up with a father that was a turnaround guy...my dad used to come into companies that were messed up and try to fix them. I think a lot of kids bond with their parents on sports or fishing or things like that. I bonded with my dad talking about business. When I was in high school, I used to read the Wall Street Journal...so at an early age, probably earlier than most, I became intrigued by what made a business work just through the relationship with my dad and watching what his challenges were. I have a great relationship with my father.

Angel Mehta: Was the Harvard MBA worth going for?

Mark Sherman: It was for me. It gave me two things. One, had to do with content and the other was the network. On the content side, I learned a lot more about marketing and 'POM'- process and operational management. I was always interested in math and having done the undergrad at Wharton, the finance stuff always played to my strengths. But Harvard gave me some other content as well which laid some of the seeds as to how I got interested in technology and technology finance and then ultimately venture capital.

But the really big thing with Harvard is the network. More than a network, it was a group of friends.... a bunch of folks who I love and think are terrific people. A group of us all ended up in the Bay Area and so I'm lucky enough to be able to hang out with the guys I went to school with, whether we're talking about sports or about business stories....

Angel Mehta: So you clearly found value in it...would you, then, have a preference towards an entrepreneur with an MBA? Does it influence the way you evaluate talent or other people?

Mark Sherman: It cuts both ways is the honest answer. It depends on why they got an MBA and what type of person they are. There are some people that try to get an MBA to mitigate risk in their lives and there are other people that get an MBA to extend and expand themselves. In the end, I think what we're looking for in entrepreneurs are people that are very bright, and that are aggressive about the development of their ideas. There is also another element – and I wish I had a better word to describe it – but I'll call it the 'scrappiness" factor. The ability to go into a situation and have a dollar and somehow come back and have $1.10...not something you can quantify, necessarily.

Angel Mehta: I always refer to it as the 'Macgyver" factor...the ability to just put something together from whatever happens to be lying around.

Mark Sherman: Yeah....just like anything in life, there are some people that are really book smart but not street smart. When we evaluate entrepreneurs and executives, we want both.

Angel Mehta: Going back into your past a ways...what kept you at Robbie Stevens for 8 years? I-Banking is supposed to be the biggest grind...most people don't last that long.

Mark Sherman: I just loved my job there. When I first got there I was fresh out of business school and for the first 2 or 3 years, I was basically executing deals and learning how to sell advice & capital to entrepreneurs. I was lucky in that my boss left in 1995 and management basically said, “Hey why don't you run with this business and see what you can do?” ...The business went from $10 million dollars a year to a $100m dollars a year in revenues. A lot of it was the market, of course, but we had probably the highest revenue-generating investment banking franchise in the software space on Wall Street.

Angel Mehta: Did you ever get tempted to go into an operating role?

Mark Sherman: It's funny you should ask that because when I was coming out of business school I really wanted to work for a technology company. I had been working on Wall Street and got an offer from Microsoft...was down the path with Symantec...but they all wanted to bring me into the M&A side. It's so funny how the environment changes. At that time, M&A in technology was considered an unlikely mixture because technology was considered to be a black art, where there were sort of a couple of high priests that knew how the technology really worked but if you bought a company and that priest left, you would really be holding nothing. But I decided not to take the Microsoft or Symantec jobs because I didn't think you were going to become CEO of Microsoft or CEO of Symantec by coming out of the M&A group.

Angel Mehta: But leaving I-banking in 2000 to get into venture capital....isn't that like going from the frying pan into the fire?

Mark Sherman: My banker friends think I'm a genius and people that I'm friendly in the venture space think I'm a total knucklehead. I think it all depends on your planning duration....if I was only going to be in the venture space for say three years, it would have been a bad call. My goal has been to be in the venture business for 10 – 15 years. If that's you're outlook, then it's a great time to be in the venture space because the down times are a great time to learn. You can see the mistakes that a lot of other people have made and learn from them....and bring that training into our companies down field. The running joke is, we don't want to make mistakes that have been made before...we want to make all new mistakes.

Angel Mehta: So tell me about the lowest points of your venture career so far and what you've learned from them.

Mark Sherman: In the talent area, we've made a couple of mistakes about people we've hired to work at portfolio companies. Coming from the search business you know all about that. There's just always going to be some breakage in terms of who you hire. What I've learned is that a person's actual track record or work history is not sufficient to determine whether they're going to be successful in a new job. Their motivations for the new situation count for much more I'd prefer people that are, say, trying to account for a failure they've had...or maybe they're financially driven to hit certain numbers they haven't hit yet. Things like that are bigger factors in success than say, the fact that a person has had the exact same functional role before, or happen to work at a competitor. It's like with Wayne Gretzky – he skates to where the puck is going, not to where it's been....

Angel Mehta: Didn't know you're a hockey fan....did I tell you I went to the Gretzky fantasy camp?

Mark Sherman: Oh really? I love hockey...When I lived on the east coast I used to watch a lot more... it's probably the ultimate spectator sport – fun, action packed, and there's the old joke about how 'I went to a fight last night..."

Angel Mehta: '...and a hockey game broke out." – Rodney Dangerfield. [Laughing]

Mark Sherman: [Laughing]...Anyway, the Gretzky lesson in terms of moving to where things are going to be – that's important. I've definitely heard that advice before, but now having actually made some hiring mistakes, it's helped me to kind of internalize the concept. So many lessons are like that....you hear them from your mother...'Be nice to people because what goes around comes around'....It's one thing to hear it, but another thing to internalize it and make it part of your decision-making process.

Angel Mehta: How about on the financing side?

Mark Sherman: On the financing side, I've been fortunate to make some good calls .... in part because I was a banker and I've seen a lot of transactions and part just because I've got a lot of good partners and they sort of give you snippets of advice along the way. mFormation, for example - which you and I have worked on together – it just got financed and that's in an environment where over half of wireless companies are not getting financed at all. We found a fund called Carmel Ventures where I knew one of the partners who happened to be an ex-client of mine from Robertson Stephens....They also happen to do a lot of investing in European-focused software companies. mFormation is based in New Jersey but a lot of the transactions for them are coming out of Europe so it was a strategic decision to partner with Carmel in hopes that they could help build mFormation's presence out over there. They've already made an introduction over there and mFormation has signed a paid trial. So one of the key lessons on the financing side is matching the portfolio companies with the right funds and helping them connect with people who deliver value downstream.

Angel Mehta: One of the questions we get from entrepreneurs who are looking for investors is about how to evaluate a venture partner....so I've had a lot of different discussions about the ideal composition of a venture investor. Technologists always seem to think that tech backgrounds are key and operating execs think it's the operations background that counts the most. Do you have an opinion on the issue? You come from a finance background...how important was that?

Mark Sherman: I think that the ideal venture guy is somebody who is an engineer or technologist...who has also run a bunch of things and so is an operating guy...and who also knows a lot about finance. The optimal venture guy is three or four types of people rolled into one. I think that it's almost too easy to say that X make up is the best. It's more complex and subtle than that. In the end, you try to draw on the best people in every area...rent their brains for some time to have them look at a situation and help in the decision making process.

Angel Mehta: Where do you think private equity is headed because I think 10 years ago nobody would have predicted that it would have reached the levels it has, just in terms of capital under management....

Mark Sherman: I think it's going to shrink it tremendously. My guess is the industry evolves into a model where $15 to $25 billion is invested each year.... Ultimately, it means that the number of funds is going to shrink and the number of venture professionals is going to drop with it. The industry might be at half or a quarter of where it is right now.


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