Menlo Ventures Steps into the Spotlight With Deals Like Uber and Poshmark

2/27/13Follow @wroush

Venky Ganesan, the newest managing director at Menlo Ventures, likes to tell a story about one of his business idols, Sidney Weinberg. When Weinberg was building Goldman Sachs into a financial giant in the 1940s, ’50s, and ’60s, Ganesan recounts, he employed a full-time public relations officer whose sole job was to make sure the firm was never mentioned in the newspapers. Weinberg’s philosophy was that investment banking should be about the clients, not the bank.

For decades, Menlo Ventures had a similar distaste for the spotlight. “They didn’t believe in PR,” Ganesan says. “People who were serious about venture capital knew about them and their great track record, but for a long time they were the silent company.” (The phrase also evokes Northwestern Mutual, long known as “the quiet company” because it didn’t advertise.)

But now Menlo’s silent days have ended. Spurred on by the aggressive efforts of younger firms like Andreessen Horowitz to cultivate media attention, the 37-year-old Sand Hill Road firm has burst out of its shell over the past two or three years. Among other things, Menlo has embarked on a total overhaul of its brand identity, launched a $20 million early-stage investing fund, and invested heavily in a group of young, consumer-facing startups.

That’s by no means the firm’s traditional focus—it’s far better known for its successful investments in enterprise hardware and infrastructure companies like 3Par (data storage), F5 Networks (networking), IronPort Systems (security), and Acme Packet (switches). But over the years, Menlo did occasionally put money into consumer-oriented businesses—Hotmail, Roku, and Siri were all among its investments. The effort since late 2011 has been to ramp up those sorts of deals, and it has worked: the company has signed term sheets with hot consumer companies like Fab, Uber, Poshmark, Warby Parker, Getaround, and Tumblr, among others.

Shervin Pishevar, venture advisor at Menlo Ventures

Shervin Pishevar, a venture advisor at Menlo Ventures.

“Building the consumer practice and doing the rebranding has been a really incredible experience,” says Shervin Pishevar, a prolific angel investor and serial entrepreneur who is a venture advisor at the firm. “In less than 600 days we have made quite an impact, and people are recognizing that on the outside, which is awesome.”

How you rebrand an already-successful venture firm—-and why you would even want to—are interesting questions, and they’re being asked at a tumultuous time for the venture industry. The number of firms that are able to raise new money from limited partners is on the decline: 182 firms raised funds the U.S. in 2012, compared to 215 in 2008, according to data from the National Venture Capital Association. Older, larger firms like Menlo are likely to survive the industry’s ongoing downsizing, but they still have to compete for the hottest deals with specialized early-stage funds and upstarts like Andreessen Horowitz (which, in a fashionable nod to text-speak, shortens its URL and Twitter handle to a16z).

Menlo has $4 billion under management—putting it on a par with Sequoia Capital, Battery Ventures, Draper Fisher Jurvetson, and a handful of other very large funds—and is currently investing out of Menlo XI, a $400 million fund. “Generally, at a firm that has been around as long as they have, with the track record they have, you don’t think about reinventing yourself,” observes Ganesan. “Why fix something that’s not broken?” He says was enticed to join Menlo Ventures after 15 years at Globespan Capital in part because “these folks were incredibly hungry even though they were incredibly successful.”

To orchestrate its rebranding, Menlo started by hiring Jennifer Jones & Partners, led by Silicon Valley marketing veteran Jennifer Jones, formerly an exec with top communications firms like Regis McKenna and Ketchum. “Jennifer did a ’360′ study with us, talking with outside board members, lawyers, bankers, consumer and enterprise-oriented LPs, and we heard a lot of positive feedback,” says Menlo managing director Mark Siegel. “Things like ‘My director from Menlo is the hardest working person on my board.’ We heard a lot about having deep domain expertise. And we have always had a deep research focus here.”

If you go to Menlo’s spiffy new website, unveiled last summer, you’ll notice the slogan “Venture Right,” which was the firm’s way of boiling down its brand image into something pithy. “The whole idea is making sure we are the most knowledgeable about an entrepreneur’s industry of any investor they are going to talk to; making sure we are their hardest working board member; and making sure we are doing right by their company,” Siegel says.

That’s all a legacy of the company’s founders, including Dubose Montgomery, who is still a managing director. Montgomery wasn’t a silver-spoon type. He “came from a very poor town in South Carolina, and was the only kid from his high school to go to college,” says Siegel. After getting degrees from MIT and Harvard, Montgomery moved to then-nascent Silicon Valley, did some consulting work for semiconductor companies, then decided he could make more money investing than working for an hourly rate.

For his co-founding partners, Montgomery recruited other people with technical and operational backgrounds in the computer business. “Part of the DNA is that all the people who came here, came from very modest beginnings and had to work damn hard to get where they were,” Siegel says.

One of those hard workers was a now-retired partner name Tom Bredt. “When I first came here, I had a company that was going sideways,” Siegel recalls. “I remember saying ‘I wonder if this is one we should let go?’ And Tom said, ‘No, goddammit, that is not what we do here. You are going to make it succeed or die trying.’ Well, I am still alive.”

The company was Netmosphere, which was acquired by Critical Path in 2000; Menlo ended up earning 3.5 times its original investment on the deal.

Among insiders in the enterprise hardware business, Menlo has a reputation for fairness, decency, and good judgment. A large number of the CEOs of its portfolio companies have been backed by Menlo before, and “even the CEOs who have been fired in the past still say ‘I was treated graciously’ and come back to us with their next company,” Siegel says. “If you went to Wilson Sonsini to get incorporated and asked ‘What are some good venture firms,’ they would point you our way, and we were certainly well-known in enterprise and infrastructure, where the firm had its huge successes in the 80s and 90s.”

But the firm was far less famous among younger entrepreneurs and founders of consumer-oriented startups. And for good reason: until recently it had only one managing director, Shawn Carolan, who was focused on consumer deals. His investments included CinemaNow, Roku, IMVU, Playspan, and Siri, but that wasn’t enough to give Menlo a high profile among consumer companies.

That’s part of the reason Menlo brought in Pishevar as a managing director in 2011. Pishevar is a networker par excellence—a ubiquitous presence at valley parties and startup accelerator demo days, with powerful Hollywood friends like Ashton Kutcher, Sean Penn, and Lady Gaga’s manager Troy Carter. “Part of the problem [with Menlo] was they didn’t want to talk about their successes,” Pishevar says. “They had a network of people, but not the public face, especially to the new entrepreneurs. There was an opportunity to take the package of everything that has happened and help people become aware of it.”

In addition to helping to drive the rebranding campaign, Pishevar launched Menlo’s $20 million Talent Fund, which has been the source of some 35 seed investments since December 2011. (A Talent Fund investment requires the approval of just two Menlo partners, not the whole firm, Pishevar says.) He also made sure Menlo got a piece of some of the hottest consumer companies on the market, including Uber, Fab, and Poshmark.

Companies in Menlo Ventures' consumer portfolio

A few of the companies in Menlo Ventures' consumer portfolio.

To pull off some of those deals, Pishevar says, he had to bring more than analytics and domain expertise to bear. “The analytical side is absolutely important, but on the other side of the spectrum, you have what I call the algorithm of the human heart,” Pishevar says. “That has to do with culture and values and work ethic and how willing you are to sacrifice your time to move the needle for your entrepreneurs. The winning formula, for us, has been to have both.”

The Uber deal may be the best example. To win that one, Pishevar went at founder Travis Kalanick from every angle.

“I didn’t really know Shervin…[but] I was getting e-mails from him and intros from everybody he knows,” Kalanick told Forbes. “I met with him because I had no choice.”

And once that first meeting was in the bag, Pishevar followed Kalanick on a trip to Ireland at the precise moment Uber was considering offers from several competing venture firms. “We walked the streets of Dublin and really bonded, and signed a term sheet there in the hotel,” Pishevar says.

“Actually, Shervin wouldn’t let Travis out of his hotel room,” Siegel jokes.

The high-touch approach didn’t wane after Menlo won the deal. When Uber was facing a taxi-industry revolt in the District of Columbia, Pishevar brought all his social-media power to bear.

“The city council was trying, in less than 24 hours, to pass a bill called the Uber Bill that would have locked in Uber’s prices at four times the minimum for other taxis,” Pishever told me. “It was definitely the taxi industry using their relationship with city council members to push it through. So we did a big push in social media. I did a blog post in the Huffington Post that went viral, they e-mailed all their customers in Washington, and suddenly the city council and the mayor had 50,000 people emailing, calling, and faxing. It was overwhelming, and they basically pushed out the reform a few months. I just went to the [presidential] inauguration, and we have Uber taxis working all over D.C., so it was a huge sea change.”

To find out a little more about how Menlo works its magic, I spoke with Manish Chandra, the CEO and founder of Poshmark. The Menlo Park, CA-based startup, which collected $12 million in a December 2012 Series B round led by Menlo, runs a fashion marketplace that lets women browse, buy, and sell clothes from their mobile phones.

Peer-to-peer marketplace businesses are subject to some unusual dynamics, Chandra says, so he was “looking for a partner who, number one, had the capability to understand what I was talking about.” In particular, bringing buyers and sellers together can be slow and difficult in the early days of a marketplace. “But once you get it rolling it moves faster and the velocity of growth increases over time, which has a very non-linear explanation. That narrowed it down to maybe four or five people who really understood this space.”

Two of those people, Chandra says, were Pishevar and Menlo managing director Pravin Vazirani. Over the course of 15 days last fall, “I spent probably 20-plus hours with them,” including a barbeque at Pishevar’s house, he says. “It was a very deep, intense dating process of looking at numbers and forming a relationship at a personal level—creating, a deep understanding of what my vision is and what their value system is. I felt they took the time to understand my vision and open up their hearts.”

In the end, says Chandra, “we had a few other meetings [with other firms] but we decided not even to go to the partner meetings.” It didn’t bother Chandra that Menlo Ventures was better known for its enterprise hardware investments than its consumer deals. “When they came to us they had investments in two other companies in our peer group, Uber and Fab, which have blossomed to become amazing companies, so I had a very good sense that this was one of the firms I would like to talk to,” he says.

Menlo hopes to keep building on that momentum. But they’ll have to do it without Pishevar as a constant presence—shortly after I met with the firm, stepped down from his managing-director role and became a venture advisor in order to spend more time on Sherpa, a “startup foundry” he recently co-founded with Goldman Sachs banker Scott Stanford.

Venky Ganesan, managing director at Menlo Ventures

Venky Ganesan, Menlo Ventures' newest managing director.

By coincidence, however, Ganesan has come along to help fill the vacuum. At Globespan, Ganesan invested in companies like Plaxo, oDesk, Palo Alto Networks, and Jajah, a Skype-like company acquired by Telefonica. Now that he’s with Menlo, Ganesan says he’ll continue to invest across the consumer and enterprise sectors.

He says he’s particularly interested in “remote work”—technologies that make it easier for people to do their jobs from home. He’s also excited about what he calls “the last-minute economy,” where nobody bothers to make travel, entertainment, or dining plans in advance because it’s so easy to make choices instantly via smartphone.

Somewhere behind every smartphone app and cloud service, of course, is a network and a data center. And Menlo’s portfolio is still strong on enterprise infrastructure companies like Coraid, a supplier of inexpensive storage drives, and ParAccel, maker of a database management system that’s optimized specifically for big data analytics. Siegel says Menlo will keep investing in the transition to what he calls “the software-defined data center,” where processors, storage, and networks are all virtualized and commoditized.

“Nobody cares anymore whether you are running on a Dell or HP or IBM server, nobody cares whether your traffic is running over a Juniper switch or a Cisco switch,” Siegel says. “We are seeing all these new startups that are virtualizing this functionality, and as an enterprise application designer all you do is talk to the software.” Tintri is one of the Menlo portfolio companies taking advantage of this shift—it’s developing storage appliances specifically designed for virtualized environments. “People will tell you this stuff us not very mature and still needs a lot of features, but there are a bunch of exciting companies there,” says Siegel.

From now on, Menlo probably won’t be staying quiet about its excitement. It won’t try to steal the spotlight from its entrepreneurs—but it won’t hide from it, either.

“We play too important a role in the economy for us not to be in the news,” says Ganesan. “Andreessen Horowitz have shown how being in the news can help you build a brand and a franchise, and have forced every venture firm to re-look at their marketing platform. So now that we have to be in the news, let’s figure out how to actively manage it. I think that is a transformation going on across the business.”

Wade Roush is a contributing editor at Xconomy. Follow @wroush

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