This week, in a first for ePitch, we feature two VCs for the price of one. Neal Dempsey has been at venerable Bay Partners since 1989; his son Sean got into the venture game six years ago by co-founding Palo Alto's Merus Capital.
Q: How'd you get into this racket?
A: NEAL: I was the CEO of a company (Qubix) many years ago, and Bay Partners was one of my investors. When the company made its exit, Bay Partners approached me about becoming a venture capitalist. Honestly, I didn't even really understand what VCs did, but I decided to give it a try.
I came in at an entry-level position in my mid-40s and had to work my way up to partner just like everyone else. I made a few good early investments and figured out I might be kind of good at this business. Well, "kind of good" mixed with a big dose of luck.
SEAN: I started my tech career in investment banking working for Frank Quattrone in the '90s. I then spent about 10 years investing in and acquiring companies for Google (GOOG) and Microsoft. So I've been immersed in technology, and software in particular, for many years.
And of course, I had watched my dad's venture experience very closely. Ultimately, the time felt right to jump from the corporate ship and build a business of my own.
Q: What kinds of pitches are you looking for now?
A: NEAL: We're focused on early stage SaaS (software as a service) solutions, but mostly, we've had a very busy couple of years and some fantastic exits with our current portfolio companies. Right now, we're fortunate enough to have some great companies already doing big things, so we're pretty selective about any new investments.
SEAN: At Merus, we invest in "iEnterprise companies." These are startups building hybrid platforms: Enterprise-class software coupled with a consumer-grade user interface. Well-known examples include Gmail, Skype or even Salesforce.
Enterprises use the same version of the product as consumers and small businesses. It just works across the board. A new generation of companies is emerging that will scale to tens -- or even hundreds -- of thousands of customers.
Q: What's the biggest mistake entrepreneurs make?
A: NEAL: Not listening. They think they have the answers, and they don't listen to their customers, their management team, their employees or their board. If you don't listen, you can't adapt to the constant wave of market shifts, and then you'll miss a valuable opportunity.
SEAN: To build a business, you need to be long-term patient and short-term impatient. By that I mean, you can't lose your belief in the long-term vision despite the inevitable challenges and setbacks that will arise. At the same time, every day should be treated as your last as a company. There needs to be a sense of urgency in building the business. I think the biggest mistake is not having a truly deep understanding of this.
Q: What's the next big thing going to be?
A: NEAL: I could guess, but VCs don't really decide that. We work with the entrepreneurs who are building the next big thing. The next big thing is all about the people who break the rules and have blinders toward what supposedly can't be done.
SEAN: Well, we built our firm around the iEnterprise theme, so we certainly believe it's going to be an enormous opportunity over the next couple of decades.
Q: Neal, what did you think when your son told you he wanted to follow in the family footsteps?
A: It's an acknowledged family fact that he's the smarter one. I think there's no doubt he'll have much better success than I have. Sean and his partners have a unique strategy; Merus is doing well, and I see them positioned perfectly in very early stage venture capital. They remind me a bit of my first experiences 20 years ago, when it was all early stage.
Q: Sean, what's the most important lesson your dad has taught you about tech investing?
A: He has always stressed the fact that early stage investing is about people. An investor may have a perspective on a certain market or product, but ultimately success depends on investing in the right people. While I may have understood that intellectually before launching Merus, I think I now understand it emotionally.
Q: So why'd you decide to open your own shop when you left Google, rather than join Bay or any number of other VC firms?
A: In my time at Google and Microsoft, I had an opportunity to get to know a number of venture investors and firms. What I noticed was that most VC firms operate less as a team and more as a group of individuals. Partners may work for the same firm, but they act independently. I felt like there was room to start a new kind of venture firm where all the partners were equal and collaborative.
At Merus, the three of us have adopted the Google style of working, where we sit almost literally elbow-to-elbow in the same room. That allows us to be in a mode of constantly sharing ideas and capitalizing on each other's experience, knowledge and network. We are firm believers that venture is a team sport and that this approach benefits all involved -- our firm, our investors and our companies.
Contact Peter Delevett at 408-271-3638. Follow him at Twitter.com/mercwiretap.