It’s 80% jockey and 20% horse says local VC

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Jeff Hinck El Dorado VenturesJeff Hinck has been a venture capitalist since 1997, serving as a Senior Managing Director of Vesbridge Partners before he joined El Dorado Ventures (EDV) in 2008.

As a tech CEO, Hinck has also previously led Sistina Software, an infrastructure company acquired by Red Hat in 2003.

He graduated with a Bachelors degree in economics from Northwestern University and was a John M. Olin Fellow in Law & Economics at Harvard Law School (JD), Editor-in-Chief of the Harvard Journal of Law & Public Policy and also taught Statistics at Harvard.

While EDV is primarily concentrated in Silicon Valley, Hinck holds down the fort locally from his office in Minnetonka.

Founded in 1986, El Dorado has invested in more than 100 startups and has over $800 million in assets under management; their current $200m fund is five years in and and roughly 3/4 committed. Big hits EDV has backed in the past include Novellus Systems, Cisco Systems, and EarthLink.

In 2011 it sold data storage firm Compellent Technologies to Dell for $960 million. Last month, they led a $3.5m B round in TST Media and also invested in Rapid.IO (now called Rapid Engines earlier this year — both Minneapolis startups.

We interviewed Hinck to learn more about his perspective on a variety of topics:

JP: How much EDV money has been invested into Minnesota companies?

10%? Keep in mind that 3/4 of the partners are in Silicon Valley, I also do deals out of state, and the fund wasn’t truly represented here until I joined.

JP: EDV maintains two offices – one on Sand Hill Road and one in Minnetonka…why?

JH: I’m from Minnesota and enjoy living here, although I’m out there just about every other week.  There’s clearly not the dealflow here as perhaps in other places, but there’s a decent enough pipeline here to keep us busy.

We’re primarily early stage investors and the advantage of having two locations is that being here I can cover a lot of ground and we’re able to make more investments closer to home.

What does EDV like to invest in?

JH: We have a fairly broad scope of investments.  Software, data center/ infrastructure, e-commerce and clean tech.  It does change…10 years ago we would have been doing a lot in the networking space, and today not so much.

JP: Where do you source your dealflow from?

JH: We have a ‘technology partners program’ that generates roughly 1/3, the next biggest chunk would be credible referrals, and the other 1/3 come from anywhere and everywhere.

JP: What is the framework that you use to assess business plans?

JH: I generally use a four part framework: product, market, management team and financials.

JP: What is a leading indicator that stands out to you?

JH: The longer I do this, the more convinced I am that the entrepreneur, the team and collective management is 80% of the equation.

JP: How do you organize and allot your time?

JH: About half my time is focused on new deals and half on portfolio companies.  That can fluctuate, but it’s probably pretty even – 50/50.

JP: You recently led TST Media’s latest round, is that normal for EDV?

JH: We will certainly lead a round and have no ego issues with following.  If it’s a good deal, we want to be in it regardless.

JP: What is your average investment amount?

JH: This can vary.  An initial investment could be $3-4m and $10m over the life. I would say that our sweet spot for ‘seed’ deals is $500k, but we have gone lower than that before.

JP: Do you have a desired timeline for return?

JH: Sooner is always better than later for IRR, but it’s about whatever it takes for the business to mature.  Especially if we’re in on a series A, these things can take a decade or more…Compellent was nine years for us.

JP: How active do you like to be with your portfolio compaines?

JH: We are on the board of virtually all our portfolio companies (90%+). We aren’t taking operating roles like you see happen in PE occasionally. We do tend to be the most active investor in the syndicate.

JP:What are you bullish on right now?

JH: We’re continually bullish on IT and enterprise infrastructure. Analytics, social media software and gaming are also hot.  The fun thing about technology is that in two years, there will be emerging areas that don’t exist today. 

JP: What are you bearish on right now?

JH: I spend less time thinking about what I don’t like than what I do.  Consumer technology can be a good area, but there’s been some incredibly high valuations in this space w/ little to no revenue.

JP: Is there a new bubble?

JH: There’s certainly more malaise in the macro-economy which isn’t helping any industry.  I don’t know that it’s another bubble…but there’s some pricing oddities…quite different circumstances than the build up to the dot com crash.

JP: What appealed to you about your recent Minnesota investments like Rapid.IO (now called Rapid Engines) and TST Media?

JH: Rapid is a great team that really knows what they’re doing and is in our core enterprise interests. For TST, we look at what this group of entrepreneurs has been able to accomplish with limited resources.  From the market/model perspective, we think that it’s a fragmented and substantial market opportunity.

JP: What are some of the differences that you see between SV and Minnesota. Any unique strengths for us here?

JH: There’s a lot of more of everything in the Valley and the ecosystem is just that much more developed.  Engineering talent is strong here and talent is more affordable, but I will pay the premium to have access to that west coast ecosystem.

JP: How can our ecosystem create and deliver more compelling opportunities to EDV?

JH: Great entrepreneurs will get things done.

JP: How can entrepreneurs be effective when meeting and pitching you for the first time?

JH: Be succinct.  Half the time, I won’t understand the technological minutaetell me what you are doing in the marketplace that is clearly differentiated. Why do customers value this and to what degree?

JP: What has been your biggest success and failure to date?

JH: There are three companies that stand out on the win side: Compellent, NuSpeed ($450m stock, 2000, Maple Grove) and iTKO ($165m exit). Stonefly wasn’t the biggest loser we’ve had, although I consider that to be my biggest failure. Bad money after bad money from start to finish — that was just dumb.

JP: Are there any opportunities that you regret passing on?

Of course we’ve missed some great opportunities! Fusion.IO comes to mind.

JP: As a private investor, so you think the government be investing public funds into startups?

I think it’s a bad idea. Take Solyndra, it’s the biggest $500m public venture backed disaster ever. If they want to do something, look at how they can make it more attractive for professional investors to make independent decisions…tax credits are one example of good policy. What qualifies the government to be picking winners and losers by setting up and allocating public funding?

JP: But what about if they elect the right decision maker?

Look at the history — it’s always been a political decision about who they go with to run this stuff.  Do you think they can really conduct an arms length selection process?

 

Comments

  • Lief Larson

    God bless Jeff for being here in Minnesota, doing what he's doing!

  • http://twitter.com/DealPen Patrick Donohue

    Terrific Interview Jeff & Jeff!

  • http://twitter.com/ServerCyde ServerCyde

    Great questions. Valuable insight into the funding world.

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