By guest authors Irina Patterson and Candice Arnold
Irina: What is Sand Hill’s sector preference?
Anu: It has to have technology or some sense of innovation to it. We’re not going to do a classic consumer goods company or a real estate company.
It has to deal with technology in some way. Mostly, IT, some biotech, some, I’d say, consumer technology, like packaging technology. [For example], we invested in a company where the guy invented [a way to keep] lettuce in a bag fresh. It’s technology, but it’s used in a consumer way. There’s technology and innovation there to keep the lettuce fresh for a long time. It’s not just a better lipstick or better soft drink.
Irina: How far he is into the development of it?
Anu: He’s been doing it for a couple of years. It could be also used to keep fish and meat fresh for 28 days. And so much meat and protein is wasted because it rots along the whole shipping process. If you can remove that, you can feed the world now. [It would be one way to] change starvation and poverty.
Irina: Do you invest in e-commerce?
Anu: Oh, yes. I was an early investor in a company called ModCloth [indie fashion social shopping site]. They just closed a round from Accel recently. That was a large round [$19.8 million in Series B].
Irina: Cloud computing?
Anu: I was one of the first to invest in a company called 3Tera. It got sold to Computer Associates for nine figures or something like that … a very big exit. It never raised VC money.
Irina: Enterprise software?
Anu: I’ve looked at deals, but it’s not my forté. I don’t think I’ve done enterprise software, yet.
Irina: How about mobile?
Anu: Oh, yes. My current company, BuzzBox, I’ve put hundreds of thousands into it. We have an Android application that I think everyone should use to get their news.
Anu: Sand Hill’s done a bunch of deals in healthcare. We did a company that exited called BiPar [cancer treatment developer]. It got sold to Sanofi-Aventis, a European company.
Irina: What is your preferred type of investment?
Anu: I think price rounds are the best things. Price rounds or a convertible note with a cap and a lot of terms that look like a price round. Whatever works. I think for entrepreneurs, a convertible note with a cap is the best thing.
Irina: How about dividends?
Anu: If I can get them, I’ll take them.
Irina: Do you think about exit strategy when you invest?
Anu: Yes, a lot of times. Is this something that could get bought, or will need another round of funding? For example, I’m working on one of my investments that’s trying to merge with their competitor to help raise valuation so they can then go raise a bigger round.
I like Ron Conway’s model, which is I’m here if you need me. Usually people call me up at an influx point. Things are going either down or up, and they need advice. I bring a different type of experience in that I’m running a business, so I can see your side. I’m like you, but on the other hand, I’m a busy guy too, because I’m running a business like you. So, don’t call me for small little simple questions. Call me for something when you really need help.
Irina: There are some of Sand Hill’s investments have exited already, right?
Anu: Yes. It’s a 10-year-old fund, but we didn’t do that much investing in the downturn. Most of our investing, I think, started around 2004 and 2005. We’ve had a couple of exits, some failures, and a lot of them funded after by big VC funds, which counts as a measure of success.
Irina: What are most likely exit strategies these days?
Anu: For most companies these days, M&A is there. Some may go IPO; ModCloth may go IPO. It’s getting harder these days after the Sarbanes-Oxley act [legislation enacted in 2002 in response to the high-profile Enron and WorldCom financial scandals to protect shareholders and the general public from accounting errors and fraudulent practices in the enterprise], after the downturn in the economy and after the bubble burst. It’s going to take a while before IPOs are the preferred choice of exit for investors.