The New Vulcan Capital: Steve Hall and Chris Temple on Working with Paul Allen, Investing with Partners, and Banking On Seattle Innovation

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portfolio management, which is an alternative asset allocation function where we put capital outside the firm, whether it be venture capital firms or private equity firms or hedge funds, or other alternative asset managers. Those are the three components. One of the things is that by virtue of scale, venture investments tend to be small.

Over a five year period, if you put $200 million into a portfolio of venture firms—the portfolio management group could commit that to one hedge fund for a period of time. We have private equity deals where the check sizes have been $150 million-plus. When it comes to allocation, it’s not just dollars, but where you think you can leverage capabilities that we have internally as an organization, particularly given Paul’s background. It’s definitely part of the overall Vulcan Capital mix.

SH: I would add what you’ll see is that venture is a fairly modest sized effort in terms of team, number of companies, total dollars, and deals we do. But if you look over the five years as a team, we’ve deployed about $115 million into 20 companies. We deployed about $130 million into some wireless spectrum. It’s an average of 3-4 deals per year. We start very small, very early stage. Our average initial investment is $2.5 million. With Paul being the sole investor, we have a lot of flexibility to dial that way up, or down, as needed. We tend to target a $10 million to $15 million max investment over the life of the deal, in terms of total reserves put in. Venture is a labor-intensive, non-scalable asset class. Chris and the team look at asset allocation. They don’t have the luxury of saying, “We’re going to triple our venture exposure and do more deals.” You only have so many resources here to do that.

X: Can you talk about your strategy of partnering with other venture firms, and who you like to work with?

SH: We’ve really tried to focus on early-stage, theme-driven, syndicate-driven deals. We’re sort of just now coming up and looking at what we’ve done in the past five years and feeling pretty good about it. On the syndicate point, of those 20 deals, we’ve brought in an additional $700 million through third-party capital. As a ratio, if you think about it, about $500 million of that is subsequent to us coming in, because we’re early-stage. So in terms of executing on strategy, number one, we’ve said “Let’s not be the big fish, deep pockets around the table.” So when things go bust, not everyone is looking to us to write the big check. There was a little bit of that in the late 1990s that was certainly challenging for Vulcan. I think we’ve done a great job in diversifying the capital risk, getting the capital to companies so they have to execute, and getting in at an early enough stage where we can really leverage that appreciation.

The syndicate is not just about diversifying the capital risk, it’s about diversifying the value, and input you get around the table. We believe we add the most value at the true early stages. Often at the whiteboard level, [we ask] what’s this company going to be when it grows up, what’s the opportunity, what’s the ecosystem look like? Who are the winners and losers going to be. Looking four or five years into the future. You drive strategy around that, build the team around that, help take the risk out of that, where others don’t have the stomach to write a $500K check on a whiteboard or a deck, with two guys in a room. A lot of that has really been lost in venture, as venture has gotten bigger and bigger as an asset class, and single funds are $300 million or $400 million. You can’t do a $500K deal and expect your fund to work. We, largely because it’s Paul as a single investor, we have the flexibility to do that, both up and down, to start small but still back the thing with $10 million or $15 million all the way. But we don’t want to write a $15 million check out of the gate—we want to start small.

The way you win in venture is to put more capital in as the risk has been mitigated, but … Next Page »

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5 responses to “The New Vulcan Capital: Steve Hall and Chris Temple on Working with Paul Allen, Investing with Partners, and Banking On Seattle Innovation”

  1. Steel80 says:

    There seem to have been many different people at Vulcan over the years. I wonder what happened to all of them.

    What tech successes has Vulcan had?

  2. I can say …. not only is Steve Hall a talented investor …..but he can rock a les paul, jam the keyboards…..and is a down to earth cool cat.

  3. Clark says:

    Isn’t part of being a talented investor actually having some investments that have had exits and made some money? I don’t think there have been any such wins in the tech VC space for Vulcan since the 1990s.

    In fact, not that it’s Steve Hall’s fault specifically, but Vulcan has a lot less money now than just a few years ago, forget about in the late 90s), thanks to Charter’s bankruptcy and some gigantically poor decisions to invest a lot of the money in private equity, stocks and hedge funds through Makena, by that genius Lance Conn.

  4. Clark says:

    eek. Chris Temple is out just months after a glowing article on Vulcan cap. Well, that earlier article maybe could have been a bit better researched piece of journalism.

  5. John Schmitt says:

    So, how do you contact Venture Capital with a legit new tech company already doing business with China?