Toba Capital is a Vinny Smith company, differentiating itself by being heavily involved operationally in the companies they invest in. Partners at Toba Capital have CEO positions at one of the portfolio companies of Toba Capital, while vetting deals on other portfolio companies at the same time.
Their model makes sure that Toba is committed to the companies they invest in, and makes sure that the VC partners have hands-on operational know-how.
According to Walter Angererer: ‘One of the things we bring to the table is operational experience, instead of just flying in a few times a year to review the data. So each of the partners are dividing our time between managing our companies which is our primary task, and managing our portfolio companies’. That means that at Toba Capital, the partners limit themselves to 3 to 5 companies they are managing at the same time.
I interviewed Steve Goodman of Toba Capital to find out more about Toba’s investment model.
Steve can you explain a little more about Toba Capital?
It provides us operational leverage to Toba Capital and it provides the network effect of really understanding what goes on in the market.
Toba was founded little over a year ago by Vinny Smith. He was founder and CEO of Quest Software. He build it up in 15 years to a billion dollar software company, Vinny sold the company to Dell for $2.4 Billion. When he started the company, was very strategic with it. That meant that when he sold the company, he still owned around 40% of it. Because of that, he had a windfall of capital and he decided that he wanted to use $200-300 million of that money to start Toba Capital.
I got to know Vinny about 5 years ago, when I sold my company PacketTrap Networks to him when he was the CEO at Quest. We hit it off because we were both entrepreneurs. When he started Toba Capital, it was a logical step for him to invest in the company I wanted to start, and for me to join Toba as a partner.
So you’ve had quite a ride yourself as an entrepreur, before you joined Toba?
That’s right, my background is in the Sillicon Valley area for the last 20 years. I started my first company in 1995 and sold it just before the tech crash.
I have been here in Silicon Valley ever since, the beauty of the Valley is that it has a great eco system of VCSs, entrepreneurs, very strong tech expertise, the right lawyers and the big technologies that are both your distribution partners, as well as your friend and foe.
Everybody knows everybody else, you will know what projects everyone is working on. Smirking: ‘Plus the weather is great, which always helps right?’
Tell me something about the company you manage as a CEO, Bright.com
Internet has made it so easy to apply for jobs, that an interesting phenomenon occurs – too many people apply for jobs that are not suitable for them.
Recruiters on the other side are inundated with CVs of which many are not suitable, which makes the whole process very inefficient. Our idea for Bright.com was, how can we eliminate the noise in the system. We started an academic experience, to see if we could build some type of technology / algorithm to eliminate much of the noise.
We found out it was possible to eliminate 90% of the resumes at an 80% confidence factor. That was a good start, and we built a resume algorithm that would match good people to good jobs in the form of a score. It is measured on a scale to 100 that indicates whether or not you should be interviewed for the job. We recognise that the final decision to hire should be done personally, but Bright.com can really help decide who should be eligible for the interviews.
We are the fourth largest job interviewing site, 7,5 million jobseekers a month. We have aggregated around 60 million job descriptions on the web.
How do you divide your time currently, between being CEO of Bright.com and partner at Toba Capital?
Currently I spend about 70% at Bright and 25% vetting deals for Toba Capital to invest in. Added to that I am in two boards for Toba Capital. We meet a couple of time a week to vet the deals, we meet in person once every 6 weeks for an off-site summit.
There have been many investment this year right?
Yes we have done around 10 investments now, mostly IT development and business applications. We do not focus on consumer companies, we are only into enterprise IT.
Have you worked for any other Venture Capitalists before?
I have worked with many VCs before but never really for them. Some of the more famous VC firms have invested in me before like Kleiner Perkins, General Catalyst Partners, August Capital, Alpha Ventures.
With Toba it is my first time that I am on the VC side of the fence.
Your model reminds me of Mark Suster’s blog ‘Both sides of the table’, having been both entrepreneur and VC
Yes we have that model of knowing both sides, and at Toba Capital we’re actively engaging both sides at the same time.
What is typical for Sillicon Valley is that you have a bunch of 20-something year-olds that have tremendous academic experience, but that don’t have a lot of operational experience. They sit there and vet deals based on some macro-market idea they have. But they’re no operators, therefore their hit rate, we believe, is very low. Of course the proof will be in the pudding, and I guess we will find out in a few years.
From what I hear from the CEOs I speak with, often off-record, is that there is a big challenge finding the right VC
Yes I recognise that. In the traditional VC model, the challenge is that you have misaligned incentives. The entrepreneur never knows what the VC really wants and vice versa.
For example, if the VC wants liquidity sooner for his fund, he could be pushing a different set of goals without ever telling the entrepreneur that. He’ll be pushing that agenda in board meetings, because he wants that liquidity for his fund. There might be some other internal politics going on inside the VC fund that the entrepreneur knows nothing about. Alternatively the VC might be wanting to do a deal with another VC, which doesn’t necessarily benefit the entrepreneur.
The bottom line is, there are lots of reasons why the VC would want to do a deal outside the fact that they like the company. The entrepreneur wants control over the outcome, but a lot of times they lose control and the opportunity to build their business the way they want.
This misalignment of incentives is a real interesting phenomenon. The reality is that this model has worked for the past 20 years in Silicon Valley and it seems to be working well enough. However what you don’t read about, is anything about this misalignment of interests, because nobody wants to go on record and destroy their relationship with their VC.
If Toba Capital is investing, we are either supplying the CEO or we are heavily involved in the operation of the company in another way. We are far more committed because we are inside the companies and know what is going on.
I interviewed Steve Goodman and Walter Angerer of Toba Capital. I will keep up to date with them, stay tuned!
This article on Steve Goodman of Toba Capital is a part of a larger VC series, I interview partners at venture capital (VC) firms. The leaders in VC are literally putting their money where their mouth is; their views on the market are directly linked to their investment policy, which impacts start-ups in a big way.
For this reason I want to find out how people in the VC world think, what their views on the market are and how they decide to fund one company over another.
My VC Series runs in parallel to my CEO Series, where I interview CEOs of startups in the IT Infrastructure space.