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 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 investment banker, but it was a great launchpad to build my career.

Q What do you like about venture capital?

A 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 more than 20 percent of America's GDP.


Advertisement

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 nonprofit.

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 limited partners before getting the first fund off the ground.

Q What's the biggest mistake entrepreneurs make?

A Some of the classics are: Shaking investors' confidence by not hitting plans; 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.

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 past 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 fewer than a handful of VCs do more than three game deals per year. Why? Because of the "Zynga Effect." Since Zynga overpromised and underdelivered, investors have stayed away from the online gaming industry.

Here's another stat to consider: Before 2008, there were only six merger-and-acquisition exits in gaming above $200 million. But since 2008, there have been 19 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 Tell us a little about IDG Ventures. You invest on behalf of IDG, the publishing giant that launched brands like Macworld and "For Dummies" -- but you're independent from them?

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. We also collaborate in our investment process with the 1,000 IDC analysts, as well as dozens of online magazine editors/publishers. And 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 South 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 nonprofit VCNetwork. What does the group do?

A The venture industry has grown rapidly over the past 20-plus years, and the VCNetwork has maintained the social networking environment that's 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, over 600 of whom attend at least one of our 16 social events per year. My favorite is an organic "farm to table" dinner on the beach with VCs and their spouses.

Contact Peter Delevett at 408-271-3638. Follow him at Twitter.com/mercwiretap.