Phil Sanderson - courtesy of IDG Ventures

Phil Sanderson runs 100-mile road races for fun. It’s probably an apt metaphor for a venture capital career that began in the heart of the dot-com bubble and has survived the subsequent cycles of bust and boom.

Sanderson, a managing director at IDG Ventures in San Francisco, specializes in new media, gaming, music and shopping startups, as well as more more grown-up pursuits like the job-hunting site Simply Hired. In this week’s Elevator Pitch, he holds forth on the future of gaming — and talks about partying with 1,000 of his closest VC friends.

Q: HOW’D YOU GET INTO THIS RACKET?

A: I got my MBA from Harvard in 1997 and joined the exodus from Boston to Silicon Valley. More than 250 from my class came out for the Internet “gold rush.” My goal was to work in San Francisco in consumer Internet and venture capital. I took a job at WaldenVC making a fifth of what I made as an i-banker, but it was a great launch pad to build my career.

Q: WHAT DO YOU LIKE ABOUT VC?

A: I love venture because every day, I feel the passion of my portfolio CEOs, or prospective ones, trying to change the world. That may sound trite, but venture-backed companies are responsible for over 20 percent of the U.S. GDP.

I also consider myself to be an entrepreneur at my core, since in addition to being an i-banker for five years at Goldman and Robertson Stephens, I started an athletic retail company, ran a manufacturing company and started a non-profit. Many people don’t realize that starting a new venture fund is inherently similar to the entrepreneurial experience, because it’s risky, doesn’t pay a salary at first and requires patience and resilience. New VCs pitch dozens to hundreds of LPs before getting the first fund off the ground.

Q: WHAT’S THE BIGGEST MISTAKE ENTREPRENEURS MAKE?

A: Some of the classics are: Not hitting plans and shaking investors’ confidence; raising too much money and not being frugal; and trying to do too many things instead of focusing on one area.

One particular mistake that is often overlooked is picking the right VC. Entrepreneurs who have the luxury of choosing an investor, or waiting for the right one, should check references on VCs and make sure their future partner truly understands the category — and that they’re collaborative with entrepreneurs. I’ve seen VCs and boards destroy companies, as well as create huge value in companies.

Q: WHAT’S THE NEXT BIG THING GOING TO BE?

A: We will see a few billion-dollar gaming companies produced in the next five years, and we’ve already seen a few over the last five (Gree, DeNA, Supercell, Gungho, etc.). Here’s the dirty little secret in venture today: gaming was a $62 billion industry in 2012, not including hardware, yet less than a handful of VCs do more than three game deals per year. Why? Because of the “Zynga Effect.” Since Zynga overpromised and under-delivered, investors have stayed away from the online gaming industry.

Here’s another stat to consider: Prior to 2008, there were only six M&A exits in gaming above $200 million. But since 2008, there have been19 M&A exits and valuations above that level, with a median valuation of $500 million. It is because of this that I have made seven existing and new game investments this year, all of which are doing exceptionally well!

Q: YOU SPENT ALMOST A DECADE AT WALDEN, A TIME THAT SPANNED THE DOT-COM BOOK AND BUST. WHAT DID YOU LEARN FROM THOSE EXPERIENCES?

Q: Wow, that’s kind of like asking, “What did you learn over the course of your life?” One of the lesson highlights at WaldenVC was that none of us knew Pandora was going to be worth $5 billion when we first invested (we valued it at single digits) or during the first five years of investment. So many companies hit low points along the way. But the important thing is to be supportive of investors and to trust in the CEOs if their vision for success needs time to mature.

Q: TELL US A LITTLE ABOUT IDG VENTURES. YOU INVEST ON BEHALF OF IDG, THE PUBLISHING GIANT, BUT YOU ARE INDEPENDENT FROM THEM – AND FROM THE NETWORK OF AFFILIATED IDG FUNDS AROUND THE WORLD?

A: IDG Ventures is a traditional venture fund, not a corporate one. We use the name since IDG is a minority investor in our fund. Plus, our companies can leverage IDG’s global might to get consumer and enterprise customers; for advertising discounts in magazines such as CIO; to purchase email lists from popular conferences such as MacWorld; to get discounts for conferences such as DEMO or E3; as well as to receive assistance for international distribution in the 85 countries where IDG operates.

We also collaborate in our investment process with the 1,000 IDC analysts, as well as dozens of online magazine editors/publishers. As the world’s largest media company in the IT space, IDG is often a customer or business development partner to many of our portfolio companies, which we facilitate.

IDG Ventures also invests in IDG-named funds in China, India, Vietnam and Korea. While IDG Ventures USA is independent from these international funds, we all meet quarterly and co-invest regularly. It offers our portfolio companies unparalleled global relationships, if they want them.

Q: YOU’RE CO-CHAIR OF THE VCNETWORK, WHICH INCLUDES MORE THAN 1,100 VENTURE CAPITALISTS. WHAT DOES THE GROUP DO?

A: The venture industry has grown rapidly over the past 20+ years, and the VCNetwork has maintained the social networking environment that has been at the industry’s core. From the outside, venture capital may seem to be a cutthroat competitive industry, but the reality is the business is collaborative and defined by “co-opetition.”

VCs syndicate mostly all investments with other VCs they trust, and that trust begins with social interactions. Our membership comprises 1,100 general partners in Silicon Valley who are members of the National Venture Capital Association. Over 600 members attend at least one of our 16 social events per year. My favorite annual VCNetwork event is an organic “farm (or sea) to table” dinner on the beach with VCs and their spouses.

 

Peter Delevett Peter Delevett (184 Posts)

Peter Delevett covers startups and venture capital for the San Jose Mercury News. He's been a journalist in Silicon Valley since the dot-com daze.