Alan: Welcome back I'm here today with Monty Kersten, Monty is a Silicon Valley entrepreneur. Monty, I want to first start in to, give me a timeline of your background, how you got to where you are today?
Monty: Well I came to the Silicon Valley go to law school, I thought I wanted to be Perry Mason and as soon as I got out of Stanford Law school. I realized that the world of lawyers was not for me, they weren’t about seeking justice. But I did work on the last big antitrust case for computers. That exposed me to that 300 computer companies in the world, and I became very much in love with high-technology and, went in that direction. So, that was the beginning that brought me here.
Alan: And you came out of Stanford, is that true?
Monty: That’s true.
Alan: And so over the years what type of companies have you been associated with?
Monty: Well I've worked for little 12 person startups, founded a company myself with a partner Jim Gatz. And he and I made a very successful young company that grew to about 50 people and then, even larger, about over a 100. But it was also acquired eventually by a 5000 person company, which later was acquired by 150,000 person company, so I have worked at the smallest little benches you can imagine also worked with literally, one of the largest companies in the world.
Alan: Now you moved on and so today you on several different boards?
Monty: Yes, I'm on the board of five little startups. These are all early-stage ventures but bound to the stars, or at least have the hope to be.
Alan: And so would you call yourself an angel investor?
Monty: I do occasionally invest in young companies as an angel, which is early-stage and relatively small amounts compared to what the institutional firms do.
Alan: So, what’s, how has this evolved, what's the difference between an angel investor versus the venture capitalist?
Monty: They are similar in that they both seek high returns on young companies that can grow to be very large and impactful. But they're very different, in that they approach it, one, by the firm's very professionally with very deep analytics thorough background reviews technology advisors that help them understand it etc. The Angels make their decisions usually much more rapidly they do it on intuition, of course they look at some analytical things. They usually invest between 25 and $100,000, maybe more in that little venture that they understand and believe in. And they can do it very quickly so you can get a small angel round rounded up very much faster than you can often institutional route from VC firms which like to invest no less than about 2 million, often more.
Alan: So in, at the angel level, typically what size investment?
Monty: I’d say it’s about $25 to $100,000, you do see a quarter million dollar checks being written by some of the more wealthier angels out there and of course most of them are high-tech veterans, many of them are self-made. So they use their intuition often in deciding what they want to invest in because they’ve done it themselves.
Alan: Do you see trends happening now in the Valley?
Monty: There are always trends happening in the valley. A huge trend of course is mobile, a huge, huge trend. But trends in financing, there’s a consolidation of the VC firms going on right now. They are getting pickier, there's bigger deal flow, that is a greater deal flow, more deals all very interesting and you see consolidation amongst VC firms. You see a smaller amount totally raised, by them all, and thus total, a less amount put to work. And at the same time you see angels growing, so angels of angel networks are getting bigger. They are investing larger amounts and in a way, they're almost competing with the early-stage VC firms. The last trend I see Alan, is that more and more VC firms are not early-stage investors. They want to see significant revenue and traction and customers and things, want to see products in the market, don't want to start paper companies that have a great business plan but nothing really assembled yet. And that day, that’s such a big shift that I don't think you're going to go back to the old days.
Alan: You know, when people come to you and say, hey Monty I got a great idea, and I'd like you to come on my board and get involved in my company. How do you decide what companies to get involved with, versus stay way?
Monty: Well I'm intuitive, so the first thing, I have to like the people. If I’m going to be on their board, I have to trust them and enjoy them. The second thing is, they have to have some advantage; doesn't have to be just technology, could be footprint, it can be market share - any number of things. It has to be a big enough market to be justified, that it can really grow, doesn't have to be a billion-dollar company but it has to have the ability to be like 100 million in revenue over time.
Alan: I’m visiting here today with Monty Kersten, Monty is a Silicon Valley, I'll call you serial, entrepreneur involved in some angel investing right now, we need to take a quick break. We’ll be right back, after these messages
Alan: Welcome back I'm here today with Monty Kersten, a Silicon Valley entrepreneur and also has been involved in angel investing. And Monty before the break were talking about, you know, basically differences between angel investing in venture capital and I want to turn the page now to what's happening out here in the Valley with the workforce or talent pool. You know, is it easy to find the good employees, or how difficult is it?
Monty: Just as hard as ever right now to find great talent. There is a huge pool out there but it's greatly in demand and you can tell just by, cause of, the traffic on the freeways, how Silicon Valley is back at work. So, we find that there are new ways to attract, find people like LinkedIn which is very effective tool. At the same time we find that there's a huge amount of competition for the great talent, whether it's young or old, the big companies like Google are very aggressive in their recruiting and they're very attractive to a lot of people. And then the young ventures, find themselves trying to convince the young talent that it's worth taking a chance with them alongside the investors.
Alan: You know, I was reading an article about an individual who he was the catalyst behind Google docs. He started a new company called rightly and he was in discussions with box.net and next thing he knew, box.net was, you know, entertaining having him come over, and Google had bought his company instead. And rightly eventually became the Google docs that we know today. So, a couple years go by, and Box calls him back and says now we want you over here. A lot of tug-of-war I guess going on.
Monty: Very much, very much, it’s very fast-paced and anything can happen.
Alan: How do, how do you help to attract good talent to sit inside the companies in order to get the company to where you need it to be?
Monty: First, you have to have great leadership behind the company. The CEO, and if he has a cofounder, need to be strong leaders that can inspire confidence. Because joining a startup is irrational from many points of view. You're up against big competition there’re many startups don't make it, you have funding challenges, you have many challenges and it's much harder to work there. It's extremely exciting and in fact, once you've worked in a startup you’ll never go back. So, there are startup people and then there’re people that think they want to be start up people, and find out that they're not. But the way to attract them, in my mind, is to give them meaningful piece of the rock, true the classic stock option or participation in the company, true stock - common stock, none of these partnership units or other sorts of phantom stock things. Just give them equity in the company that could vest over time they’ll work hard, they’ll do all they can for success because they own a piece of the rock.
Alan: You know, has there been a trend moving more to restricted stock units versus the stock options?
Monty: Certainly I see that, I do see that, I've never worked for a company without a meaningful stock option. I would never join a company without having a meaningful stock option, sometimes they don't turn into value. But today you do see it being more convenient for companies administratively, to adapt the, to adopt these plans that are phantom stock or units that are not really equity issued by the company. And it doesn't have the stronger tax advantages for it and less, fewer dollars end up in the workers pocket if it becomes successful because of that.
Alan: When, speaking with these individuals who’re very entrepreneurial in nature, but you need them, does the stock component become more important than the cash flow for them?
Monty: Very often, I actually am on the board of a company where the director of sales said he didn't want a bonus program in the first year because he wanted to build cash in the company to make his stock go up faster in value. That's pretty enlightened, I don't normally see that but it's an example of, of, of people in the Valley highly valuing their equity in the startup, or they wouldn't be there.
Alan: Well, they get it, that they ultimately it's all about your liquidity events and cashing in your stocks. So, Monty, we need to take a quick break. I’d like to come back and speak more with you on startup companies and how you get these things going?
Alan: We'll be right back after these messages
Alan: Welcome back, I’m visiting here today with Monty Kersten, a Silicon Valley serial entrepreneur, been involved in some angel investing we were talking about the Valley and, anything from putting money as an angel investor to what venture capital is, to where the talent pool is today. And Monte I want to turn into focusing on a company that has finally began to get traction and grow. You sit on several boards, and so when you sense that you know that we have a model that is, is growing, what steps do you take to ensure that the growth is sound, and that eventually you, working it backwards, let me put it this way, when you get onto a board you typically work it from the back forward to saying what’s my exit strategy with this?
Monty: Well you certainly, before it began want to have an exit strategy in mind. There’s always one of two ways, which is either sell or be acquired by a different institution usually another company in a similar market. Or, be able to go public in the public markets, which there are several notable examples that happened this last year. But those are the only two ways to really punch out, if you want to say it that way. And it's extremely important to realize you cannot determine or make an acquisition happen, they have to come to you. You can’t just put yourself on the block and say we’re for sale now, it’s not affective. Instead, you have to drive every day building the business relentlessly, urgently with focus, questioning always is this the right path, is there a better alternative, which approach to take on and have a supportive board and have adequate capital, but not too much, you don't want to drown in money.
Alan: What’s the IPO market like today?
Monty: It is true, you cannot be a public company today without having critical mass sufficient to handle the burden of reporting Sarbanes-Oxley and all the other compliance requirements that are out there. But there are some notable examples like LinkedIn and jive, recent offerings. Workday, what a great offering that was with real quality companies in high-growth markets that have usually earnings, which is good.
Alan: Earnings are good. So, do you find though the trend moving away from companies wanting to go public to more privately held or roll up into equity?
Monty: Certainly in the last three years there was an almost complete lockout in the market of the public window was closed. And then it was pretty much pushed open, Facebook, no question about it, chilled the market with its stumble in its IPO and I'm sure we would have already many more companies out had that not happen. You have companies like twitter that could go public tomorrow should they wish to, supposedly bound for over half $1 billion in revenue in 2013 that have chosen to not go public because it, supposedly don't want the hassle and are waiting for the right time. So, it's it certainly the best way to control your destiny but only, not even 1 out of 10 companies that are starting will ever go public.
Alan: Would you say that we’re in the midst of a recovery here in the valley?
Monty: No question about it.
Alan: So what about these guys that have been working for, you know, 20 years in the workforce, and all of a sudden they find, “laid off” and they come and say, I can't get a job today, they just want to hire these younger guys.
Monty: Very true, I’m sad to tell you, it’s absolutely true.
Alan: What advice would you have for them?
Monty: Relentless focus, to be energetic and know the company that you're going after and why your experience is relevant to it. And pay attention to your LinkedIn profile, it absolutely matters to a new place to be hired. And I'm not saying there's active age discrimination, as much as there is a desire for youth joining youth. And you see most of the entrepreneurs are 30 and under right now, there are some that are 40 and a very few that are over 50. It’s a young man's game increasing and many times these cultures want to have youth around them. I can tell you if I walk on Google's campus they know I'm not a senior executive so they know I don't work there.
Alan: Are you seeing trends in the Valley in types of companies that are coming to fruition today?
Monty: Social networking is grown up, it’s certainly gotten much more focused on a bottom line and an impact financially. not just retina burn. But you still see things like Pinterests, that have no significant revenue and are supposedly just capitalize at 2 1/2 billion dollars with their most recent round. You do see something interesting right now, which is, it used to be that the investors never would cash out the entrepreneurs or stockholders that were workers, as time progressed they were waiting for that liquidity event that everybody experienced. But now, you're starting to see VCs willing to pay some of their capital not going to the company's coffers on a round, but actually going to management and employees. Who take some off the table because the company isn’t public, isn’t bought and that VCs are actually willing to let that happen right now as sort of a straddle or risk management strategy for the management employees.
Alan: So, rather than dilute they just…
Monty: They’re selling some of their stock, they’re cashing out some of their stock right now, because there's no other liquidity for them. And they are also, I mean I don't know what the personal decision is, but often it's just trying to not have all your eggs in one basket.
Alan: So, the social networking is mature, and the mobile app, do you see any of these new types of companies, what types of companies have you seen emerging and are still very hot out there?
Monty: Mobile, mobile, mobile is I think the hottest field we just saw a company Relay Rides that wants to be air B to B for cars that you could rent your own car through this network I think it’s going to be a huge amazing success. There are plenty of ideas waiting to be developed. You see advertising much more important in mobile now, used to be that people wouldn't tolerate it, well it's here and people are tolerating it. You’re going to see that as a very high-growth network and you’re going to see innovation continuing at a very rapid pace. Apple has got a lot of surprises waiting to tell us.
Alan: Well Monty, it's been great having you here today, and it's also refreshing to hear about trends happening in the Valley for people who are in the trenches such as yourself, working with companies, sitting on various boards. And you know what, where do you see, what's your prediction where the Valley will be three years from now?
Monty: Three years from now, well, I'm an optimist, I’m a startup guy so I always believe things are going to get better. I think the worldwide recession is a concern, but for Silicon Valley, I think things will continue to recover and continue to improve over the next three years as long as the huge trends in the Middle East and other places don't go the wrong direction.
Alan: Monty, it's been a pleasure having you on today’s show.
Monty: My pleasure to be here.
Alan: We’ll be right back after these messages
About the guest:
Montgomery Kersten works with development-stage companies as an independent board member and advisor on strategic initiatives. Mr. Kersten was the co-founder, and CEO of VitalSigns Software (later acquired), and today serves as a board member of several Silicon Valley private companies. Mr. Kersten is an active “Angel” investor in high technology companies and has led the initial and follow-on financings for many young ventures. Mr. Kersten serves as a mentor and advisor to founders in order to accelerate their success and assist them in overcoming the many challenges ventures face, from founding, all the way through the company life cycle to an acquisition or IPO. Mr. Kersten's expertise focuses on organizing, financing and developing young companies, advising founders on strategies and tactics for successfully negotiating with all parties, creating effective sales and marketing strategies, forging strategic relationships, building strong intellectual property protection, safeguarding founders and fiduciary board members, rapidly building value, and accomplishing successful mergers & acquisitions or IPO's.