Kiran Hebbar is General Partner of Valhalla Partners, a venture capital firm with investments in such companies as JumpTap, Legolas and TidalTV among many others.
AdExchanger.com: How did you get started in the venture biz?
KH: I was the first person in my family to go to college and am very achievement oriented. I have always felt that making a new product or service was the most valuable thing one could achieve. I began my career writing 3D CAD software program at Bentley Systems, a leading engineering design software company. My first taste of the venture capital business was in 2002, during an internship at a VC firm during business school. I spent most of my time working with the CEO of a portfolio company on a new product launch: I was hooked. Being a VC seemed like a way to magically multiply my bandwidth and work at several world-changing start-ups simultaneously. However, I didn't have the functional breadth to be effective in a VC role. I spent the next few years in product management and marketing roles in an e-commerce start-up in New York and at Siebel Systems in Silicon Valley. I was fortunate to be selected as a Kauffman Fellow and met Valhalla through that avenue. I was impressed by the early stage view, operational expertise and track record of the partners at Valhalla and have been with the firm since 2006.
What is the investment thesis at Valhalla?
Like a lot of venture firms, we believe that an important source of our alpha is experience and knowledge of particular business sectors. We focus on the digital media and next-gen infrastructure areas, where we believe that our knowledge helps us to pick and nurture successful early-stage investments. We are stage agnostic, however, we are often the first institutional VC money in, be it seed or Series A. Unlike an angel or a seed-only fund, we have the capacity to support the company through its lifecycle. Within digital media, we believe that video is 1) growing hugely as the cloud infrastructure can now support it, that 2) video is a perfect medium for digital advertising and 3) that the killer capability in online advertising is going to be online/offline and multi-medium marketing. These three insights drive our digital-media investments: we believe in advertising platforms that leverage proprietary data models in all mediums; we believe in companies that enable video as an underlying medium of communication, entertainment and monetization; we look at commerce models that bridge online and offline; and we invest in mobile marketing that exploits the tidal shift in mobile consumption patterns. The social graph is an underlying horizontal driver that impacts all of these categories and we are actively mining investments there.
What has surprised you about the last year in digital advertising?
I am surprised by the rate at which performance dollars have moved to RTB traded inventory. I am optimistic that audience- based buying will drive massive brand dollars to digital this year. I am surprised that despite years of trying, digital has been unable to cause a significant dent in TV budgets, and I thought 2010 was going to be the year. I am surprised by the volume of new acronyms being thrown around, which if you dig a little deeper, are fancy names for the same old categories. I am awe-inspired by the Facebook juggernaut and how quickly they are attracting dollars from ad budgets. In the last year, New York has truly become the center of universe for digital advertising start-ups and we have made several investments in the city. On a lighter note, I am surprised by how much LUMAscapes have crept into board-level discussions – all power to Terry Kawaja and his colleagues!
What's your opinion on the investment bubble - does it exist? How do you see it playing out?
I think if you look at the sources of the "bubble" talk, it's largely investors who are chagrined that entrepreneurs have supplier power for a change. There's an oversupply of venture dollars desperate to deploy, chasing a shortage of companies with decent traction, be it revenue or users (beyond just buzz) and a good team. We investors are paying premiums for such companies. Similarly, at the seed investment side of the spectrum, companies with a strong or name-brand team in a good space are able to raise money at Series A type valuations often without traction and sometimes without a product. The valuations seem frothy here because of the excess capital being available through new sources of capital chasing this segment. That said, I think a large segment of companies who are currently seeking funds are not seeing the benefit of the so-called bubble. You should ask the entrepreneur who has slogged hard to build a great product and team but does not have enough traction, perhaps because the market is early or something else. I would argue that asset prices are unreasonably low in this category and are great investment candidates. Nevertheless, it’s a great time to be an entrepreneur because it is less expensive to get started and financing options are plenty. Once you have raised the round, I would encourage all entrepreneurs to maniacally focus on being stingy with cash and getting the right traction metrics before you hit the fundraising road show again. I think it will play out well for those who have traction and painful for those that don’t.
Other than the recent Admeld/Google deal, why hasn't there been more M&A lately in your opinion?
It is quite simple. It has to do with a limited list of buyers, which is getting shorter by the day, looking at a very large supply of sellers, many of whom are undifferentiated companies. Not to mention that most of the exits are in the sub $100mm category. We launched our seed investment category in recognition of the low cost of starting a company and addressing key risks, as well as to play in the smaller M&A exits environment. We will always encourage a seed entrepreneur to go for a big exit, but if he or she decides to take an early exit path, we will be supporters. It goes a long way in building the 4Cs for the first time entrepreneur - Credibility, Confidence, Cash, and Craving - to go for the bigger exit the second time around, hopefully with us as their backers.
What do you think about Google - are they going to own the display business just like they did search?
Google is truly a once-in-a-generation company. The momentum they have created on Ad Exchange is nothing short of amazing and they have made the right moves by acquiring Invite Media and AdMeld which greatly assists buyers and sellers of advertising. Neal Mohan recently said that display will be a $100bn market in the next few years and I believe that. However, I am skeptical that Google will dominate display. There is this small company called Facebook, which according to eMarketer, will exceed Google’s display business this year. Social targeting, done right, can reach the level of ROI that DR advertisers want and engagement desired by brand advertisers. I think we are some distance away from realizing that vision, but it will be an interesting fight between Facebook and Google for display dominance with competition from Microsoft, Yahoo and AOL.
What is the most common trait that entrepreneurs lack these days and you wish they had?
Anything I have to say on the subject needs a caveat: an entrepreneur who leaves the comfort of a cushy job to chase a dream of changing the world, even knowing that the probability of success is low, is a very special human being. We have the highest respect for such individuals. But the very traits that make someone start a venture – self-reliance, listening to one's own voice rather than the nay-saying of others – can have a downside: the entrepreneur can be too self-reliant and not pay enough attention to building the right team and partners. The perfect entrepreneur has the guts to go in him - or herself - and the insight to know who else has to be on the expedition. In particular, I would advise an entrepreneur to pick his or her VC partner carefully and stage capital raises intelligently – raise from financing partners who take a long term view of the company and have been through the ups and downs of previous economic cycles, have been there done that before in operating and venture capital roles, who have the right set of experiences and who can partner with you for the long haul.
When you're investing in an early-stage company, what's most important - the team or the product?
We have a simple framework for looking at early stage companies - “Big Market Wind, Capable Team”. If we think it’s an interesting macro market, I gravitate towards the team, notwithstanding my training as a product developer and product manager. A great early stage team starts with an exceptional product-market person and a superstar technical team. The best product person is technically savvy, has either the domain experience or divine gut-feel for customers and is able to nimbly tweak the product direction based on early market feedback. The technical team centers on at least one superstar with one or two workhorses who get things done reliably with very high productivity. If a team like this crosses our path and they play in a reasonably interesting market, the investment decision is a no-brainer for us. I believe a great team almost always builds the right product even though they may get the market or market timing wrong.
Any sectors of particular interest to you and Valhalla?
I discussed our sector investment theses previously. Let me give you specific examples of how we have pursued some of these themes. My partner, Art Marks, was an early investor in Advertising.com where he saw the power of targeting and optimization technology. We are riding the Advertising.com theme of superior targeting and strong technology platform at the following companies: TidalTV (multi-screen video advertising platform), JumpTap (mobile advertising) and Legolas Media (brand advertising). Legolas has built a guaranteed, audience buying platform for premium brands and publishers to trade directly. I know that’s loaded with buzz words, but we believe this will accelerate the movement of brand dollars to display advertising. In video, we have a large investment in Avail-TVN (multi-platform video distribution for MSOs) and several seed bets in video platforms that touch consumers and enterprise. We have a stealth mode company that is breaking new ground in bridging online and offline advertising through mobile. In Facebook ad tech, we invested in ShopSocially, which helps online retailers leverage social marketing channels for brand engagement and sales uplift. The Facebook ad ecosystem is a very attractive area for investment.
No offense here but... what's hard about being a VC?
It goes back to why I became a VC in the first place – to have the vicarious pleasure of working with multiple start-ups at the same time. The best VC plays the role of a trusted and valuable advisor and not the role of an operator – that’s for the management team. The hardest thing for me is to always remind myself that, despite the desire to go deep at the operating level at all of my companies, it is best if I add value as an advisor from the outside.