The Midas List – Ray Rothrock, Venture Capitalist

 

About Ray Rothrock

Ray joined Venrock, a diversified $2 billion venture capital firm, in 1988 in New York City, and after 25 years and 53 direct investments, his passion for building companies is as strong as ever. He retired from Venrock, June 2013 and continues as a venture capitalist on his own account.

Ray began his career as a nuclear engineer with Yankee Atomic Electric, and later spent a year at Exxon Minerals in its nuclear operations. Before joining Venrock, he also participated in three venture capital backed companies – two that failed and one that was very successful, Sun Microsystems. These experiences introduced him to venture capital and the risk involved in startup enterprises. During his tenure at Venrock in 1992 he the launched Venrock’s Internet practice, and later he established the firm’s energy practice in 2004. His investments have resulted in a lifetime investment internal rate of return (IRR) of 94%. Ray was selected #49 on the Forbes Midas List for 2012 for his venture track record and #63 in 2013.

An engineer at heart with a keen insight into product markets and how people are impacted by technology, Ray loves to figure out what matters in a company and mentor young entrepreneurs. Past successful investments include seven the IPOs of Spyglass, DoubleClick, Digex, USInternetworking, FogDog Sports,Check Point Software and Imperva. Also he has many successful exits such as Pedestal, Haystack Labs, PCube, Whole Security, Vontu, PGP, Qpass and others. Focusing early in the Internet years on infrastructure and security, he has an extraordinary track record in cyber security investments.

Ray serves on the boards of five privately held companies in Venock’s portfolio and one Venrock alumni investment and public company: Check Point Software Technologies (NASDAQ: CHKP; $13B market cap). The private companies are Appthority, CTERA Networks, CloudFlare, Red Seal Systems, and Tri Alpha Energy.

Subsequent to his retirement from Venrock, Ray was approached and pursued a number of private investments in numerous companies ranging from energy to cyber to healthcare. He has made a number of investments on his own account, and is a limited partner is a number of venture capital partnerships extending his network both east and west. His board seats in his portfolio include Premier Coiled Tubing Solutions, Colabo, Patients with Power, and Transatomic Power.

In addition to his venture capital activities, Ray was Chairman of the National Venture Capital Association a position elected by his industry peers. During his chairmanship, the NVCA successfully recruited and employed Bobby Franklin to be the new CEO of the NVCA. In 2010 he was requested and testified to the President’s Blue Ribbon Commission on America’s Nuclear Future. He also has served on the Board of Trustees of the Texas A&M Foundation (2003-2010) where he chaired the Investment Committee (2007-2010), is currently an Executive in Residence at the Harvard Business School (2011-present), was an Executive in Residence at Middlebury College (2011-2012) and served a decade on the Visiting Committee of the MIT Nuclear Science and Engineering Department ending in 2011. Presently he is on the Music and Theatre Arts Visiting Committee at MIT. He is on the board of and is a past chair of Woodside Priory School in Portola Valley, California. He also is a trustee of TheatreWorks Silicon Valley, a regional theatrical company in Palo Alto, California. Ray targets his philanthropic interests primarily at climate change, education and the performing arts. He and his son have a 1960s cover rock band, “Up and to the Right” that performs around the peninsula.

Ray also is a frequent speaker on venture, energy and technology. He often presents independent research showing how government, industry, technology and public opinion must converge for America to solve big problems such as developing and implementing an energy policy that protects national, economic and environmental security. His research of late includes cleantech strategies and prospective cybersecurity threats. His blog is at rayrock.wordpress.com. And he is @rayrothrock on Twitter.

Ray is passionate about climate change and need to reduce the use of fossil fuels for energy production. He Ray A. Rothrock February 2014 was a co-executive producer of Robert Stone’s documentary titled, Pandora’s Promise, which debuted at the 2013 Sundance Film Festival. Ray holds a Professional Engineering License, Texas. He is an Eagle Scout, and was born and raised in Fort Worth, TX.

 

Interview Transcript:

Alan
Welcome back. I’m here today with Ray Rothrock. Ray is a venture capitalist here in Silicon Valley, and has welcome to today’s show. Thank you. Good. So can you give me your background of how many years you’ve been in the venture capital industry?

Ray
Sure well, I joined Venrock in 1988, New York City. So I’ve been in the industry coming on 26 years here. Started out when the industry was not about the internet and consumer or anything, it was a very much different, different era. Prior to that, I was at Sun Microsystems in the valley. So I’ve I’ve had actually two tours of duty here in the valley 181, when I moved out here as an entrepreneur, and was with two failed companies and got on with sun and learned about VC and then went to New York, with Venrock. And before that, I was a nuclear engineer at a power plant in Massachusetts, back during the 70s.

Alan
So you were with that, what did you join Sun 84 would have been early 84. And say you’re there Right? When they were going IPO or?

Ray
Two years before they went public in 86. I was in the hundreds was mine number. We were all in two buildings. And we’re growing fast. It was fine. I think we’re shipping 50 or 60 units a month. It was it was very exciting.

Alan
Oh, wow. So you know, I guess going back to Sutton, they really were a company that they had responsible for kind of putting infrastructure in place for the Internet or?

Ray
Totally, in fact, it’s not often talked about, but for those of us who were the TCP IP, which is the protocol of the internet, really was commercialized by sun and put out in a big way throughout the industry, Microsoft, sort of adopted TCP IP but changed a little bit, but only they had to give up. And of course, three comm with their NIC cards mobilized the entire PC industry to be TCP IP. So TCP IP, was standardized by sun. And really, that is the connectivity of it all.

Alan
And what role were you playing at the as?

Ray
My first job not as an engineer, I joined what was called the catalyst program, which was an evangelism program. So my mission was to go out and convince engineering software companies to put their software on the Sun platform so that the Salesforce could then take the sun platform into other companies. In that era, there were about nine or 10 workstation comms used to call just another workstation company, you know, G, J, AWS. And there was a bunch of, and it was a highly competitive business. And Apollo was the big gorilla, and we were the up and comer. But there was Jupiter and Saturn and multi flow and all kinds of companies. So that was that was my job.

Alan
Yeah. And I noticed in your background, that you were also an Eagle Scout that helped to prepare you for your life?

Ray
So that’s a good question. Yeah, being an Eagle Scout, you know, Eagle Scout is a path it is. You have to sort of have a plan. It’s a little bit of its laid out in front of you, but you have to execute. You have to have a plan, have a goal, set some deadlines, assemble resources and get things done. And it’s fun. You know, if you like to build things like I do, and you like to do things like many people do, having a plan is really good. And Eagle Scout really just sort of put one foot in front of the other. And then of course, the the variety of things you do from the citizenship merit badges. So you get all that to the cooking merit badge to the camping mare. And then all the other things. In fact, it was the nuclear energy merit badge that I got when I was like, I don’t know, 15 or so that led me on my college career of becoming a nuclear engineer.

Alan
A great program. Yeah. Great. Ray, you spent 26 years at Venrock. Yeah, if all the years at Venrock, and the companies that you have to create, which one are you the most proud of?

Ray
Well, I did 53 investments, I led 53 deals at Venrock. So that’s a pretty that’s about two a year if you do the math. The one I’m most proud of, of course, is the most successful in the long lived for a company that’s called checkpoint software technologies out of Tel Aviv, Israel. I like to measure venture capital success is not by so much the the IRR, although that’s important, but when you create a company it grows and lives forever. That’s how General Motors came about. That’s how Ford came about. All these great companies that we just assume are in our fabric. They started with one or two people so when you when you meet a company like checkpoint, which is three people, three guys working in one of the founders, grandparents home, in Tel Aviv with a cool little software product to protect people on the internet. You get involved with those guys, you help them grow their company, you help them raise more money, bring them to the United States and you expand all that and then it turns out to be a 12 billion dollar company with a billion and a half revenues. We’re a global company of 5000 people. That’s pretty exciting. It’s something to be proud of.

Alan
Something fun to see and look back to say I was there. Yeah, I was there for two. I’ve been there for 20 years. So it’s been good and busy here today with three Rothrock raise of venture capitalists here in Silicon Valley, as spent several years with Venrock capital. And we’re visiting today with the state of the industry here in Silicon Valley. Ray, we need to take a quick break. And we’ll be right back after these messages.

Alan
Welcome back. I’m here today with Ray Rothrock. Ray’s a venture capitalist here in Silicon Valley has spent 26 years with Finn rock and then recently ventured off and and to Asia, he’s independent now. But Ray, we’re talking about venture capital and you’ve done some 53 investment companies over the years. What makes a good entrepreneur?

Ray
Well, I think that’s a little bit, you can always tell retrospectively, but I would say upfront passion, a real passion to change things. Entrepreneurs who exhibit that passion, there’s a bunch of other attributes that come with it. One is focus. You can be passionate, but if you’re not focused, you’re not going to put one foot in front of the other and get started. Second, you have to have, I think, a really unusual sense of risk. When I was at Sun, I worked for Vinod Khosla on a couple of projects. And I learned a lot from Vinod. And he definitely is one of my mentors from those early days when I was just learning about Silicon Valley. But he just simply had no appreciation or risk, he didn’t care. Good entrepreneur doesn’t care, they see a problem, they see where the puck is going to use that old cliche. And they just go there. And they can bust through walls and climb mountains and do whatever it takes. The other the other thing, I think that makes it good, no entrepreneur is going to become a great entrepreneur without a great team. And so they have to have the ability to attract great people and keep great people on their team. And you know, the Manage management is one thing, but entrepreneurial management is another because you have to, you have to give people the spark, you have to convince them of the passion, because you’re going to do hard things, you’re most likely going to fail. But you got to keep people engaged and you got to keep pushing forward. And that that you sometimes can see that in the first three or four minutes of an interview with somebody. Sometimes it takes three, four hours or three, four visits with them to really get it. And then when you meet the other team members, you can really see if if that exists, it almost doesn’t matter what they’re doing. It’s it’s this it’s this mixture of passion, focus and the ability to surround themselves with a great team. That’s what really makes a great entrepreneur.

Alan
So when when you’re working with companies, and someone comes to you and says rate, we want you to join us and, and and to engage in our vision. What makes a difference between people that you decide to work with and those you don’t?

Ray
Oh, that’s a good question. The it’s sort of the vision thing again, another cliche. You know, when I started out at Venrock, I worked on the 56th floor 30 rock. And it used to be a joke, everyone’s heard the joke, the elevator pitch, right? Well, it’s a true story. So imagine you’re coming up to see Venrock make a pitch to me or my partners in those days. You step on the elevator and David Rockefeller is standing there on the hill or Laurance Rockefeller in those days, those are our funders originally, you have exactly 55 seconds to introduce yourself, greet Mr. Rockefeller, and then tell him what it is you’re going to do. So one of the things that separates an entrepreneur I’ll work with, from what I can is if they can get right to the point right to the business and laid out crystal clear for me. I hate it when an entrepreneur says I just got to show you the product in order for you to understand it. No, no, like your mother used to say Use your words, write them down. If you can get that out clearly and concisely. Then you’re well on your way to convincing other people because if you can’t use your we’re using words right now, right and gestures. That’s the way entrepreneurs have to convey their visions. And if you can’t do that, then I’m not going to back you up again. It really doesn’t matter a lot about the area. It’s about do you have the passion that conviction obviously got the are becoming a real problem and solving pain and all that. But really, it’s this. It’s this division between leadership and attractiveness and then just sort of being blase or say, Well, I can’t really, you know, it’s this sort of hedging stuff. It that’s, that sounds like a great answer. But it’s really a pretty quick division, you know, pretty fast.

Alan
Amazing here today with three Rothrock. Raids spent 26 years with Venrock capital and recently went out on his own as a venture capitalists, we’re, we’re talking about the state of the valley today. And, Ray, we need to take a quick break. Sure. We’ll be back after this message. I want to talk about pitching to VCs, what works and what doesn’t, okay.

Alan
Welcome back and visiting here today with Ray Rothrock raised venture capitalists in Silicon Valley, spent 26 years in the industry with the firm of Venrock. And Ray, I understand that you’re also on the Midas list of Forbes.

Ray
I’ve been there.

Alan
So yeah. And basically the Midas list is outline some of the best venture capitalists in the world who have mandus success rates. In fact, I heard a quote that your IRR is somewhere 94%?

Ray
Its in that zone, I think, yep. Very impressive. I don’t do those calculations.

Alan
So let’s let’s go back to a person that’s coming to pitch their company before you as a VC. What do you look for in that pitch?

Ray
Well, we’ve talked a little bit about passion. So I’ll go to the next piece, it’s IQ and relevance. You know, when you when you get your 45 minutes in front of a partner or a group of partners, you really need to come very prepared, and very able to convince them quickly that you’re going to tell them about something that’s important that you’re the one that knows that it’s important, and you have this, this domain expertise, if you will, about it. And I don’t like mystery stories, I like to know what’s going to happen right away, I’m here to raise money from you, Mr. Roth rock, I’m going to ask you at the end of this pitch, you know, for the next steps in order to take that. But here, let me tell you about the pain. Let me give you the backstory, I call it the backdrop of why that pain exist. And then here’s the solution. And you get all that out in the first five or 10 minutes. And now you’ve got me, and I’ll stick around to hear about the market and the product definition and the financial plans and all that sort of stuff. But if you can’t hook me in the first five or 10 minutes, and that’s I think that’s just true, you know, when people start flipping out their blackberries or whatever, that’s a bad sign. And and it’s very obvious when you’ve when you’ve missed the mark. So that’s what I really look for the other thing, you know, because due diligence is an ongoing thing, even after you put the money and you continue to do due diligence on people. One of the things I look for is the old again, something you learned in kindergarten, you’re known by the company you keep. So I’m going to be looking for how what are your connections to credible institutions or other credible people, anything to give you a little leg up at the end of the day, startups are hard. So you want to have an unfair advantage in the in the field of play. And so if you’ve got, I don’t know, if locally here Stanford would be a natural place to come up. But there are plenty of other great institutions that you may have a relationship to. If you worked at Sun Microsystems, or at Hewlett Packard, you know, these are companies that were successful, and you had meaningful roles, all that contributes to the credibility of the story that you’re laying. And so I’m looking for the company that you’ve kept, the path that you’ve taken, failures are okay, if you learn from them. But successes, of course, are always good, too. So those are sort of the some of the early key things I look for.

Alan
Well, you know, we’ve been talking about venture capital. And in recent years, angel investing has become even more prevalent. Let’s go into this this page about the angel investor versus venture capitalists. What’s the difference between the angel investor?

Ray
Thats easy. So just a sidebar to give you some stats. So when I was chair of the National Venture Capital Association two years ago We went out and surveyed the industry, there are about 20,000 startups funded each year in the United States. That’s a big number. And that’s mostly with Angel financing. Professionally invested series A’s, it’s after the angel investing, there are only about one to 2000. And that number doesn’t change much, by the way from year to year doesn’t matter if there’s 50 billion in the business or 5 billion in the business. So angel investing is usually a pretty low threshold of due diligence, it’s literally high high risk capital, most of it will fail. If you think about just the attrition rate from 20,000 to a couple of 1000. It’s enormous. So an angel typically will not be expected to continue, they just simply gave the entrepreneur a little bit of cash to do whatever they had to for things they needed cash on, they expect the entrepreneur to work for nothing really during that period of time, and to use that money to acquire or hire or whatever it is. So you’re not expected to go to typically to go along, sometimes even angels are bought out in that first professional round to keep the balance sheet or it keeps hard to keep the cap table simple for the company going on. There are, at least at my firm, we always brought every deal in and if the firm said no meaning there was too much risk or whatever, we could do the deal ourselves, and then work the project, work with the entrepreneur help with the strategy, do whatever is required. And then the fund would step in with the series A and buyout me or the other partner, whoever it was. So we used angel investing both positively to seed ideas into our world of institutional investing. Well, we also acknowledged fully that it was a risk, there was no guarantee the firm would pick up my piece, and it’s just the way it was. Angels tend to be, there’s a lot of angels who’ve made a lot of money, who think that they were responsible for making that money. There’s an awful lot of luck involved. You know, did I create some microphones? No. Where we lucky Yeah, but do we have great product? Yeah. And I learned a lot from those guys. And so I, you know, that little going public gave me that that gave me an introduction to venture capital, which was tremendous. And, and I don’t think I don’t think I would be an angel investor today, if I had not already been a VC. I just, I just know, there’s too much luck involved and too much too much risk involved. Unless I were a billionaire.

Alan
So what advice would you give to the the budding entrepreneur with a great idea of should they start with angel capital, maybe align himself with a venture capital firm? Initially? What? Yep. What direction is?

Ray
I’ll tell you know, when you get on the venture, when you get on the professional money, the venture capital train, there’s, there’s a whole lot of expectations that come with it, that sometimes aren’t well understood. And so if you’re still in a pretty raw mode, your product isn’t quite finished. Maybe you haven’t even got a customer, you hadn’t even tried to sell it yet. And you get on that VC, you’ve put out a plan, they’re gonna hold you to that. And if you don’t meet the plan, there could be some bad things happen. And I will tell you of the 350 deals at Venrock, that I was around for only five ever made plan out of 350. So that’s pretty low odds that you’re going to make it right doesn’t mean it doesn’t have to be a great deal. We have plenty of great deals, but there’s going to be bumps along the way. So sometimes angels can be very forgiving, and very helpful. You know, they’ll introduce you to clients or customers or whatever. I think if you if you do Angel, if you go to angels, you want to make sure that they have relationships up the chain up the food, the the capital food chain, because when I looked at an angel just like, well, who are your angel investors? Oh, you know, there’s, you know, Frank Bansal, who’s retired partner, Dini, franksen, Frank, Frank’s got a reputation a good nose, you know, again, it’s the company you’ve kept. If you just take in money from friends, family and fools, that’s a little different that that means you probably didn’t try hard enough. You didn’t really, you know, getting in front of you or me as a VC and getting money as an angel. That you’ve, you’ve crossed the barrier.

Alan
Amazing here today with a Rothrock. We’ve been talking about the state of venture capital and what makes a good VC investment. coming in. Ray, we need to take a quick break. I want to on this last segment get into the future of the venture capital industry. We’ll be right back after these messages.

Alan
Welcome back. I’m visiting here today with Ray Rothrock spent 26 years with Venrock capital and now is out on his own isn’t he Independent venture capitalist, Silicon Valley and right, let’s talk about the future. You know, how do you invest in the future? With your angel investor or venture capitalist? What, what do you look for?

Ray
Well, it’s it’s personal, I think a lot, I look for really highly differentiated technology that will do something that’s never been done before. Big data, analyzing that analytics around everything going on the web, robotics is another I just invested personally in Planet Labs, which is put up microsatellites, to take a picture of the Earth once a day, and provide it to people that want that kind of information. These are new areas that technology through Moore’s law has been able to bring to market very cheaply. And so that’s what I look for, from a technological point of view. And then, of course, you know, we’ve the one of the things that I think is a very good thing that’s happened in the last 10 years is that universities have really adopted an entrepreneurial program, particularly at the business schools, core Stanford, Business School is probably the granddaddy of them. But every business school and I do a lot of talking, particularly when I was chair, the NVCA. Everybody’s got entrepreneurial programs, there was a time when it wasn’t cool to be an entrepreneur, it was almost like you’re an entrepreneur means you can’t get a real job. No longer is that the case now to be an entrepreneur is the cool thing to do. And I actually coach over at Stanford, Peter, when Dell runs a course over there, and it’s the energy, the the coolness, the to be an entrepreneur, and this is true across the country, whether my home, Texas or Southern California, you know, every school I’ve ever been to entrepreneurship is cool. So we’ve got a lot of invention still going on. In fact, we could talk about that for a while. But r&d in this country needs to go back up rather than down. We’ve got made entrepreneurship cool, you put those two things together, put it in a pot student and throw in some capital with guys like me, who may know how to help them craft their strategies. I think we have a very bright future have amazing products. My wife used to just say, when I come home excited about a price, she said you already you got to see the future today. And I go yep, you did. I did.

Alan
So we just have a few minutes left, I want to talk about philanthropy, okay. Why have you made that such a big part of your life this time?

Ray
Well, it’s probably where I grew up. I’m right out of central casting middle class, my dad was World War Two veteran D day, my mom was a school teacher, we went to church, always giving back in the community. The scouts was part of our my culture growing up. And I always I had a mentor in college who said, Now look, I was gonna go get a couldn’t go to MIT, get a PhD says, Look, you’re gonna go PhD MIT make all that money, you gotta be sure and give some of it back. Like kind of stuck. And because I love music, and because I think there’s not enough music education in the world, I went back to my alma mater and help them kick off a whole music program, which didn’t exist in 1999, if you can believe it at a major university without a music degree. And then locally, I’ve been very involved in in my son’s school and performing arts trustee a theater works. I think Performing Arts is really cool. I think it’s very important for society. I hope we never forget it. I think some societies along the way did and they got lost.

Alan
That sounds like a big part of the philanthropy is focused in the educational Museum and the arts program. Right? Right, the creative side of things. How do you find balance in life?

Ray
By doing both by being involved with very smart people doing interesting projects to change the future, and also very creative people on the music side. And I find I find great balance in that and always something good to talk about at dinner.

Alan
So Ray, if a person wanted to contact he has a venture dealer, trying to get ahold of you. How would they go about that?

Ray
Well, my email is rayrothrock@icloud.com Or you can just look me up on the web. I’m there

Alan
visiting here today with Ray Rothrock venture capital Silicon Valley. Ray, thank you for being on today’s show.

Ray
Alan, thank you. Appreciate it.

 

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This transcript was generated by software and may not accurately reflect exactly what was said.

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