AdaptiveBlue. GoMobo. m-Via. What do they have in common?
James D. Robinson IV of RRE Ventures.
Robinson is the co-founder and managing partner of RRE Ventures, a US-based, tech-focused venture capital firm that manages US$850 million in investment assets. The firm invests mostly in New York and Silicon Valley and injects up to US$15 million in a single company over its lifetime. The companies above are just a few of the latest investments RRE has made and which Robinson is a director of.
This week, Venture Hype caught up with the entrepreneur-turned-banker-turned-VC to talk about his background and the story behind RRE.
* Edited interview
VH: What’s it like growing up as the son of James D. Robinson III, the former chairman and CEO of American Express? What did you learn from him?
JR: I barely saw him as he traveled extensively and worked long hours, and I went away to boarding school when I was 12. He did instill a strong work ethic, however, and a desire to strive for excellence.
VH: According to RRE’s website, your background is in computer science and you worked as a programmer. How did you become a VC?
JR: I actually started out more as an entrepreneur. My first business, a car washing operation, began in 1973 when I was 11. I hired a kid down the street to assist for 30% of the net. I overpaid, but learned a lesson.
Then, in boarding school, I typed other kids’ term papers for 50 cents a page, and outsourced some of the work to other kids for half of that.
Later, I started a profitable business selling products to teenagers.
My first computer, a Sinclair ZX-80, came in 1980.
In 1983, while a sophomore in college, I founded IV Systems, writing business management programs for UNIX workstations on contract.
At that time, I had no idea what venture capital was, but loved technology, so I went to Wall Street and helped build an exposure management system. I later ended up in corporate finance at JP Morgan & Company, where I learned about technology banking.
I then met a couple of venture capitalists I liked, and asked for an interview. They told me I had to go to business school first, so I did. I worked at Hambrecht & Quist Venture Capital in San Francisco during and after my MBA at Harvard, and loved it.
Almost 3 years later, I was hit with the itch to launch another startup. Founding RRE Ventures was actually the 3rd business plan my partner Stuart Ellman and I wrote in 1994. We didn’t like the first two enough to do them, and so we began to think it might make more sense to start a business investing in other businesses as opposed to a single entity. That was 15 years, 125 companies, and nearly US$1 billion ago.
VH: RRE was launched in 1994 and the firm focuses on digital consumer, and enterprise and financial services technologies. How has RRE evolved in the past 15 years?
In the early days: During our first few years we did deals on an ad-hoc basis, which means we’d:
We did 4 that way, putting about US$30 million to work: 2 were sold, 1 went public, and 1 went bust.
Dad as Partner: We were lucky in that my father had left Amex and was looking around for what to do next. Seeing an opportunity, we asked him to throw in with us on a part-time basis. He did. The 3 of us liked working together so we made it permanent.
Setting Up Shops: In terms of location, we wanted to be near the biggest tech customers (as opposed to the biggest tech companies – where all the other VCs were) so we set up shop in New York.
Raising Funds: In 1996 we raised our 1st actual fund, a bit shy of US$100 million. Back then, we invested in mostly series C deals, with the occasional B round. Software, communications, and some financial services were our primary focus. The New York metro area began to experience a big upswing in entrepreneurial activity, and we raised subsequent funds of US$225 million and US$200 million.
From C to B (not cup!): As money and people poured into the venture industry, we shifted our focus to series B with some A and C, primarily in the same three sectors. Still true today, where we’re investing out of our 4th fund – the US$300 million raised in 2006.
VH: Echoing your interview with The Deal, there are very few companies in the IPO queue, among them is Nexsan Technologies Inc., one of RRE’s portfolio companies. If there’s a comeback in the IPO market, why are there so few in the queue?
JR: None of us can yet gauge the relative health – or lack thereof – of the IPO market. The 6 launched this year are by and large doing well, but of course the market move has helped.
It’s important to remember that the costs associated with filing for an IPO, such as SOX and 404, are steep; as are the cultural adjustments. Gone are the days of dashing off an S1 “just in case.”
Here’s how I handicap it: Investment bankers have sensitive noses. When they begin to sniff and wag their tails a lot, expect some action. Until then, no one knows anything. But I’ll tell you phones are ringing more than they were a year ago.
VH: RRE recently backed Betaworks, a hybrid firm that both develops and invests in web 2.0 startups. According to the info on Crunchbase, Betaworks “operates as a stock company with shareholders and not a firm with limited partners.” How’s backing Betaworks different than backing other companies that just develop products and/or services?
JR: Well, it’s a portfolio play, which is risky as a bet coming from another portfolio play (i.e. a VC firm). Still, this one was different. Borthwick and Weissman are truly outstanding, and their model is unique. It also provides our firm with a great source of potential deals and market intelligence. And we’ll make money.
Join Venture Hype next week as Robinson tells us what he thinks of business plans, Valley startups, Marc Andreessen’s fund, and more.
* For series, references are published in the last installment of the series.