The New Vulcan Capital: Steve Hall and Chris Temple on Working with Paul Allen, Investing with Partners, and Banking On Seattle Innovation
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companies. You look at a company like BiPar, it’s a very good outcome for us. We have another company we invested in [in] 2004 called Plains All American, a publicly traded company. When Vulcan invested in that, it had about $250 million in EBITDA. Their public guidance this year is for north of $950 million. That’s up high single, low double digits from last year.
Diversification has helped. Diversification into different activities—not just media and technology and telecom, but hopefully into alternative energy and healthcare-related activities that hopefully are not correlated, and operate on different cycles, and hopefully can produce returns at different times. It’s a long-winded answer. I don’t know the short answer of whether we’re better than the S&P. I know we have some investments performing orders of magnitude better than the S&P, but that’s sort of damning with faint praise.
X: What surprises people in the entrepreneurial community when you tell them about your venture focus? Are there misperceptions out there?
SH: Absolutely. Let’s just all recognize that Vulcan does lots of things—Seahawks, etc. Paul is involved in a whole range of activities. If you talk to folks that have actively worked with us, Vulcan Capital is a normal, early stage venture fund. But at the broader level, there is a bit of a dated perception, really stemming from the late 1990s. Quite a bit of time has passed since then. The [old] Vulcan view of “big dollars, late stage, sort of haphazard strategy,” we can all own up to a bit. The perception is there. We haven’t been trying to change it, or spin it at a PR level. The best way to change it is through results and action. If you look at the last five years and the 20 deals we’ve done, it’s about a disciplined strategy, [having a] framework in place, executing on it, and then having some results to show for it. We can stand here today, and while we have many companies with a ways to go, I’m highly confident to say that for that vintage year, we are in the top decile.
The point being, we feel very confident that we have been quietly, under the radar, executing in an extraordinarily difficult venture environment. There’s still lots of room to prove that out. But things like Charter are big, big, symbols of investment strategy that are hard to get around. But that’s a decade old, and it’s not a venture deal. The entrepreneurs and investors we deal with know we bring traditional early stage venture investing expertise to the table.
X: What are your thoughts on the Seattle innovation scene? What are the strengths, weaknesses, and opportunities you see here?
SH: We’re very bullish on Seattle. All things being equal, we’ll do a Seattle deal any day over a Bay Area deal, or a Boston deal. We do have geographic diversity in the portfolio. Number one, the portfolio is theme driven. We’re looking for the best company doing X. It’s sort of happenstance if they are in your backyard or not.
That said, you have to factor in other dynamics. Availability of capital, competition, and so forth. What’s attractive about Seattle is there is a robust entrepreneurial base here of talent. In many ways it’s undercapitalized. We can count on one hand how many venture investors there are focused on early stage investments here. We’re seeing more guys from the Bay Area come up here for that very reason. So first and foremost, we don’t want to ignore our own backyard. We look at a lot of things with the Madrona guys. [See Part 1 and Part 2 of an Xconomy interview with Tom Alberg of Madrona Venture Group---Eds.]
There is strength in numbers. We’re not beating each other up on who’s going to get the hot deal, like the Sand Hill Road guys do. We openly collaborate, even do due-diligence together on early stage deals we look at together. We may not all be the right fit—every investor brings their own views and expertise to the table—but I think that’s what Seattle needs more of. A capital base to support the entrepreneurial ecosystem. We’re very bullish about it. Particularly as we’ve done true early stage deals like Gist. In a tough environment, bringing third-party capital in, we couldn’t be more excited about it.