Richard Wolpert of Mail Room Fund on What Entrepeneurs Aren’t Getting Away With (And What They Are)

Richard Wolpert and Mike Maples are seed-stage investors and friends who speak at least once a month. But the two disagree about whether the consumer Internet has grown too bubbilicious. Maples thinks it has, as he told me last week; Wolpert, managing director of the seed-stage Mail Room Fund — a joint venture by Accel Partners, Venrock, AT&T and talent agency William Morris — couldn’t hold a more dissimilar view.

It’s hard to dismiss Wolpert as merely optimistic. Before agreeing to head up the LA-based fund, Wolpert spent seven years as chief strategy officer for Seattle-based RealNetworks. He’s also been president of Disney Online; worked as a partner at Yucaipa Companies, the investment firm of billionaire businessman Ron Burkle; and been an active seed-stage investor for years — advising Accel from Southern California and backing companies for his own benefit, including, a wellness and community blog network founded by Deepak Chopra’s daughter Mallika.

I wanted to talk with Wolpert about how he stays sanguine in the face of so many me-too startups; we chatted just now as he was settling back into his office after an appointment.

What follows is part of our conversation; I’ll post the rest in a bit.

First, how much of your focus is on digital media and the consumer Web?

We are interested in digital media, but we’re not purely focused on it, nor were we ever intended to be. People assume that because William Morris is one of the investors that we’d be hardcore focused, but that’s not the case. Our first and only deal so far, Sometrics [which Mail Room Fund and Greycroft Partners backed with $1.5M], is not a direct-to-consumer play at all. It’s an analytics tool for businesses that publish applications to social networks, so they can better understand how customers are interacting with their applications.

I’ve read that it’s free. What’s the business model?

It’s like a lot of companies that started off in analytics space, including, frankly, Google. Right now it’s a free, premium tool. It’s in the freemium category.

“Freemium”? C’mon.

Oh, yeah. The freemium model is you have a powerful, free tool that you get a wide audience to use, then you start adding on higher-end services that will cost money. You don’t have to pay for them if you don’t find them useful, but hopefully, you get a good percentage of your customers to pay for the add-on services. Sometrics is focused right now on market share, not driving meaningful top-line revenue. In fact, when we invested back in May, they had 400 developers using their stuff; today they have more than 1,200.

It sounds interesting, but there are so many startups employing the field of dreams, build-it-and-they-will-come approach to revenue. Why doesn’t that concern investors?

I did feel for the second half of last year that it was too easy for startups to get money. Without picking on anyone, the broader venture capital industry had gotten a little frothy again — where not just prerevenue companies were getting money but people were funding three guys who just had an idea for a company. I think that has calmed down somewhat, in part because of the macroeconomic climate. With the stock market being what it is right now, and foreclosures on the rise, I think people are generally being more cautious. Entrepreneurs will tell you as much, that it’s not as easy for them to get funding right now as it was.

Could the slowdown be attributable in part to the entrepreneurs themselves or their ideas? What are you seeing?

I definitely think a few too many entrepreneurs are starting companies. We still get business plans that say “We have a new twist on social networks!” That said, it’s hard to tell people not to try. I had no business running my own company at 24, but I did it for 8 years and sold it to Adobe. A small percentage of people will figure it out and be great at it; others won’t pull it off.

Let’s say someone walked out of Fox and into your office with a business idea, how would you feel?

Well, what we’re seeing more of is that they come out from Fox to be an executive at a startup. They serve as the adult supervision. If, on the other hand, someone said, “I’m tired of this corporate job and of watching people younger than me make more money so I’m going to start a company,” well, those typically haven’t worked so well. In fact, a lot of people tried that in ’99 and 2000, and ended up back at their corporate jobs.

What about those entrepreneurs who are the real deal, with interesting companies: who’s in the catbird seat right now: you the investor, or a founder?

It’s a healthier balance than last year, when instead of raising money at a priced round, entrepreneurs were trying to get away with a discounted note. They’d basically say, I don’t want to price your investment just yet. I want you to make me a loan that will convert at a 20 percent discount to my next Series A round.

I refused to do discounted deals, but plenty of investors were going along, putting in money and not having it be priced, and what has happened is that they set up unhealthy dynamics between themselves and the startups. I mean, on the day of the next funding round, the company wants to be priced as high as possible while the investor wants the round to be priced as low as possible. It doesn’t make sense. But those discounted deals are going away.

Go here for Part II of the interview