By guest authors Irina Patterson and Candice Arnold
This is the thirty-second interview in our series on financing for entrepreneurs. I am talking to Dave Whorton, the founder of Tugboat Ventures, an organization of investors who see themselves as not “venture capitalists” but rather as “mentor capitalists,” closer in spirit to the approach pioneered by Tom Perkins in the 1970s. Based in Palo Alto, California, they prefer to invest in companies in the San Francisco Bay Area with a focus on consumer Internet, enterprise software-as-a-service, mobility, and the next generation of online advertising companies.
Irina: Hi, Dave. Let’s start briefly with your background.
Dave: I’ve founded four firms, Tugboat Ventures being the fourth. First was a company making industrial CO2 lasers, which we sold back in the early 1990s. The second was Drugstore.com, which I cofounded. It’s a public company, an online pharmacy. The third is Good Technology, which is in the mobile messaging space and was sold to Motorola purportedly for $500 million. The fourth is Tugboat.
In addition to that, I worked at Hewlett-Packard during high school and college and at Bain & Company coming out of college. I had a brief stint at InterWest Partners. I went to Stanford Business School and worked with Kleiner Perkins and with John Doerr – with all the partners but primarily with John Doerr – from 1997 to 2000, when I had the chance to get close to some of the companies in their portfolio, such as Amazon.com and Google. I helped get Auto Trader started, and I helped with the investment in Blue Nile.
I looked at a lot of consumer opportunities in the late 1990s through Kleiner. It was coming out of that that I started Good Technology. I also had almost three years where I worked at Texas Pacific Group, helping with their venture capital practice. Probably the most notable investment they made when I was at TPG was a company called Success Factors , which is now a public company with a market capital of $1.9 billion.
It is one of the largest fast companies, as far as number seats of all fast companies. What it does is it provides performance management and business execution software to large enterprises down to SMBs.
So, my background is a mix of being an entrepreneur myself and building companies successfully in that role and then also as an investor, helping entrepreneurs to build their companies.
Irina: Let’s talk about Tugboat. When was it started?
Dave: I started Tugboat in early 2006, and it is based the upon my realization, having been on both sides of the table both as a CEO/founder and as an early-stage venture capitalist, that there’s an opportunity both to provide early-stage funding – there is less of that available because many of the traditional firms have gotten larger. And in addition to be a partner, there’s an opportunity to be very much an active partner with entrepreneurs. It’s not just making an investment; it’s making a long-term commitment to serve them as a board member and confidant for anywhere from seven to ten years as they build their companies from concept or early stage through to successful public offerings.
Irina: How big is the fund?
Dave: The first fund is $50 million, and we raised it in 2006, and the second fund, which we started investing in 2009, was $75 million.
Irina: What is your geographical focus?
Dave: It’s primarily the Bay Area. At this point, all of our investments have been in the Bay Area. We will look at investments in some of the large metropolitan areas – New York, Seattle, Los Angeles – but we have not made any investments outside of the Bay Area at this point.
Irina: Where do you get your deal flow?
Dave: It comes from people we’ve met over the years – entrepreneurs, CEOs, executives, service providers. We have a broad spectrum of people whom we’ve worked with or gotten to know – at least for me – over the past 20 years.
Irina: When entrepreneurs want to approach you, what is the best way for them to reach you?
Dave: The best way is to find someone that knows us, who knows what we’re looking for and can make that introduction. It’s by far the highest quality way to do it, versus sending us an e-mail or a business plan or trying to reach us directly, if we don’t have a prior relationship. If we do, of course, people can come straight to us.