Last year, self-made Israeli billionaire and media mogul Haim Saban quietly entered the business of venture capital, adding an early-stage digital media practice to his seven-year-old, Los Angeles-based investment company, Saban Capital Group.
Today, I caught up with the head of that practice, native New Zealander Craig Cooper, who’s also been a venture partner at VantagePoint Venture Partners and a founding partner with Softbank Capital. Cooper also co-founded Boost Mobile, a teen-focused wireless startup that sold to NexTel in 2003 for an undisclosed amount.
Among other things, we talked about what it’s been like working for Haim, whose net worth has reportedly dropped by a third in the last year, what Cooper makes of friend and former colleague Eric Hippeau becoming CEO of Huffington Post, and how the economy has impacted what a year ago was a vibrant venture scene in sunny Southern California. (Hint: it’s gotten bushwhacked.)
Last month, the Los Angeles Business Journal reported that Mr. Saban’s net worth dropped 33 percent since last year. How has that impacted the investment firm?
First, I don’t know where they got that number. I don’t think anyone knows what the real figure is. But it hasn’t impacted us at all. At all levels, we’re continuing to look at a wide array of opportunities.
When we talked last year, you told me you could invest anywhere from $100,000 in a deal, up to $20 million. That’s still the case?
Yes, certainly, though we’re being much more prudent in terms of the opportunities we’re pursuing. What’s nice is that there’s no time pressure on us, like with a traditional venture fund. We don’t have an investment period that we have to satisfy, so we’re very careful about the opportunities we look at.
Do you ever think you’re being too careful? You’ve been with Saban Ventures for more than a year, but it looks like you’ve backed just two companies thus far, the online TV site Next New Networks and Skydeck, which helps consumers make better sense of their cell phone bills. Are you not putting out term sheets or have you been getting outbid?
I wouldn’t say we’ve been outbid. We’ve had a number of term sheets out, but we’re seeking realistic terms, and entrepreneurs have been slow to adjust to [those expectations]. We’re seeing more of it now, as opposed to six to 12 months ago, and in fact, we think we’ll close on two new deals in the next four to six weeks. I’m not ready to talk about them but one was started by a first-time entrepreneur and the other by a longstanding legacy entrepreneur.
How are you coming up with valuations that you think are fair and right in this economy?
Well, to start, flat rounds are the new up rounds. We’re also just taking a much more holistic view of opportunities, given the [dearth of] IPO and M&A activity. Obviously, in the mid-2000s, we had giant M&A vehicles — Google and Yahoo and the like — looking to gather up all kinds of media applications to create media portals, and that’s really slowed down. You can’t invest anymore with the hope that someone will buy you out of beta. Consumer plays have to be much more sustainable on their own.
How has the investing landscape in Southern California changed since we last talked?
Things have really slowed down. It’s very unusual now to see new investors in a B or C found unless a company has had significant Series A traction, not just in terms of its users but in terms of a believable business model. It’s almost all inside rounds. On top of that, there’s been a major thinning of the venture community. Most firms that were looking to raise subsequent funds have struggled to do so.
Like, how many? Excluding angel investors, the scene wasn’t terribly big to begin with.
At least 50 percent of the funds down here are either running down the investment period on their existing funds, hoping they’ll flow into the next market opportunity, or already know they won’t be able to raise a new fund. And that’s in the short term. Who knows what will happen in next 12 to 18 months.
Wow, that’s even higher than I might have guessed. What about the angel community? I know one of the city’s best-known angels, Mike Jones, recently joined MySpace as its COO, but that probably owes more to personal opportunity than anything else.
According to recent reports, I think angel investments are down about 30 percent.
It sounds like you’ve taken a personal hit, as well. Last year, you mentioned that you were looking at a lot of companies with Jonathan Miller, who recently left VC to become the digital head of News Corp. Do you still talk to him?
[Laughs]. Jon is now on permanent voicemail; he’s impossible to get a hold of. But hopefully at some point, we’ll be able to work out strategic relationships [with News Corp.] with some of our portfolio companies. Either way, it’s a great move for Jon.
Still, we’re actually seeing much more deal flow because the economic crisis is driving people to try and raise B and C rounds earlier than they might otherwise; that whole process has been accelerated down here.
What about nascent startups? You aren’t seeing a lot of those?
A lot of people talk about this being the time for new startups, but we’re not seeing as much of that down here as in Silicon Valley. We have a different deal flow sort of matrix down here. There are certain skill sets in Silicon Valley that you couldn’t necessarily create down here because we don’t have the same entrepreneurial culture or infrastructure.
So what opportunities are you seeing right now that you like? Wireless?
It’s ironic, given that I come from a wireless consumer background, but wireless is a very tough area right now from an investment standpoint; it’s very hard to make money.
I really like performance marketing, healthcare, and direct response.
If you look at an integrated company with both and offline and online health and wellness and self-help component and using the offline component for lead generation, that’s super interesting to us.
What do you mean by performance marketing? Coupons?
We’re very interested in the coupon sector. If you look at the broad coupon market at the moment, everyone from the billionaire’s wife to the shop assistant is running coupons today; it’s the new, cool thing to do. What interests us is mobile coupons. If there’s a sector in mobile that interests us, it’s that market.
And when you say direct response, to what are you referring?
We’re very interested in any call-to-action performance marketing, be it through the Web or the phone, or TV, or newsprint — it doesn’t matter what the platform is. People are unemployed and their purchasing psychology has changed. They’re buying impulsively, whether it’s something they see online or at CNN.
I also like the analytics space, given that the metrics driving so many of the digital media platforms are still very unclear. Consider that ComScore says the Huffington Post has 5 million unique visitors a month, and the Huffington Post says it has 20 million.
Speaking of Huffington Post, what do you make of Eric Hippeau leaving Softbank to become its CEO? It doesn’t seem to bode well for Softbank.
Well, Hufffington Post is a big investment for the firm, and I still have a significant interest in that fund, so I wish Eric all the best in making the most he can out of the company!