Tuesday, January 16, 2007
Interview with Dave Gross, Great Pacific Capital
Dave Gross is the co-founder of Santa Barbara-based FastClick, one of the great local success stories in Internet advertising. He recently started a new venture fund, Great Pacific Capital (www.greatpacificcapital.com), to invest in the region. We spoke with him about the fund, what it is looking to invest in. FastClick was also well known for having been very successful without taking any capital, and socalTECH's Ben Kuo also got Dave's insight on the pros and cons of taking venture capital.
Thanks for the interview. For the readers who aren't familiar with FastClick, can you give us a little on your background?
Dave Gross: I'm a UCSB graduate, a mechanical engineer by trade. I founded FastClick with Jeff Pryor in 2000, before the downturn. We raised $400,000 in friends and family funding in April of 2000, and launched our service later that year. It turned out that we had built something that was a good fit for the online advertising market at the time--based on performance-based advertising--and grew it successfully. We recap'd in 2004 for $75M with Highland Capital and Oak Investments, and the company subsequently went public in 2005, and was acquired by ValueClick later that year. The seed investors we brought on in 2000 have held, and have not sold, and it's now worth about 90x their investment. They're pretty happy, and we have a loyal investor base. That investor base has in some extent come into our investments in Santa Barbara, which led to the creation of Great Pacific Capital.
What's the fund focus, and what types of investments are you making?
Dave Gross: The focus is regional, high-touch. Our investments to date have been biotech and internet, software-as-a-service, and a wellness portal. So, we're not terribly industry specific. We're mostly looking for entrepreneurs who can appropriately apply existing or new technology to solve business problems, and how to build technology efficiently for scale. It's a regional focus and inefficiency play. There are many large VCs in the Bay Area, who are getting larger, so there's less early stage money, and they're having a hard time deploying far from home base. We're underserved by the Bay Area and East Coast VCs, and even firms in Los Angeles. Consistent with the difficulties of them deploying that capital, we are here, and can efficiently deploy money here. There are not a whole lot of organized capital opportunities for companies here, where you can find the operational experience. We're the only VC fund in Santa Barbara with significant operational experience to apply along with cash investments. We've already gotten lots of interest, and no problem with proprietary deal flow and stuff coming to us.
How big is your fund, and what is the size of investments you plan to make?
Dave Gross: We're targeted at $15 million plus, and have raised about half. Our deals are half a million to a million and a half, and have varied from seed--with just an idea, including our biggest investment, Solaicx, which is being rolled into the fund--to expansion, including an investment in Procore with a Series B for marketing of their existing product. We're mostly about team, and less about stage, though we're early stage in general--with no intent to get into debt or later stage.
What kinds of things are you looking for in deals and entrepreneurs?
Dave Gross: Obviously, beyond the normal stuff, the model that we have is that we like to have good chemistry in the initial meeting, and mostly what I'm looking for--and is fairly intangible--are entrepreneurs who are in a position to take advantage of technology in multiple ways--not just building the technology, but also have an efficient operation. We also like entrepreneurs who are open to the fact that they might have holes in their operation, and that we are in a unique position given our experience to fill those holes directly. We can refer employees, service providers, customers, and vendors, and help shape the company in many ways and forms.
How far North/South are you looking at for investments?
Dave Gross: We're looking as close as we can, and haven't had any trouble getting deals in Santa Barbara and Ventura. Stretching that realistically to San Luis Obispo and even into LA, as appropriate, is no problem. However, the closer the investment the more direct interaction we'll have with the company. Our four investments so far are within a few miles of each other in Santa Barbara and Goleta.
Fastclick is known for being one of those companies that was extraordinarily successful, and for having bootstrapped into success without taking in a lot of capital. Now, being on the side of a venture capitalist, can you talk a little bit about why a firm should take venture capital from you, when they should be bootstrapping their operation?
Dave Gross: Different companies have different needs. In the Internet Advertising business, a small amount of capital could grow organically through a referral network. We paid for our growth through referrals, instead of raising more money. Also, at the time, raising money was not an option. There are industries which need lots of capital to grow, for example, biotech. Procore, a portfolio firm of ours which provides software-as-a-service for the construction industry, needs offline marketing to get to its customers, as their customers are generally slow to adopt. So it's a matter of putting those marketing dollars into an appropriate vertical, up front of new revenue. There are not many businesses that have an opportunity to grow organically. Don't take money if you don't have to, but if have to, take more than you need if you do.
It looks like you're finding lots of opportunities there in Santa Barbara?
Dave Gross: UC Santa Barbara, and others here--the aerospace technology, infrared, and other stuff that goes back many decades--are spawning new opportunities. Separate from UCSB, Santa Barbara has become a Mecca of online advertising, in a way. Lots of companies have started here, and there have actually been companies started and moved here because of the industry. There are lots of interesting new marketing and opportunities out of the online advertising space, which are consistent with many of the big changes happening in wireless, mobile commerce, and that whole area.
Thanks for the interview, and good luck!