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David Siemer Interviewed in Hollyisco: 2012 M&A and Venture Capital Trends

Mayans Shmayans. 2012—It’s Simply Time to Move with the Cheese! Q&A with David Siemer on M&A, Venture Cap Trends & the LA Tech Scene in 2012.

by Kathleen Blackwell for Hollyisco

January 16, 2012 (Santa Monica, CA) — Welcome, 2012. I, for one, am happy 2012 is underway and look forward to a year of opportunity and change, even amidst global uncertainty. On my holiday reading list was a pay-it-forward book passed to me by a friend: Who Moved My Cheese, a New York Times business bestseller since its release. The book describes change in one’s career and life and the four typical reactions to change by two mice—Sniff and Scurry—and two “littlepeople”—Hem and Haw—during their hunt for cheese. Cheese is a metaphor for what we want to have in life, such as a job, a relationship, money or a big house. Cheese can even be an activity, like jogging or golf—or starting a business, or investing in one with traction.

2011 brought widespread disruption across the globe on all levels, from the Occupy movement in the U.S., to the tsunami devastation in Japan, to the Grecian fallout, and the ending of the U.S. invasion in Iraq—this list barely touches the surface and left many people wondering what 2012 would bring against the backdrop of events that will undoubtedly lead us into a new future—yes, change. When the only constant is change, how you manage change can make all the difference in the world. How do you handle change? How do you lead your business into a new year and navigate the high seas amidst uncertainty? Do you “sniff and scurry” or do you “hem and haw”?

David Siemer – Siemer & Associates LLC / Siemer Ventures

Let’s check in with David Siemer, Managing Director of Siemer & Associates LLC, a global boutique merchant bank, and Managing Partner of Siemer Ventures, its early-stage investment arm and an active investment fund in Southern California, to see how he handles change with some Q&A on the global M&A market, 2012 venture capital trends, the LA tech startup scene, plus Siemer’s golden nugget advice for success as an entrepreneur.

Prior to the mad-dash holiday rush, I had an opportunity to interview David Siemer, and while it’s common knowledge the Mayans predicted the end of the world as we know it in 2012, Siemer and company have another perspective. Siemer sees ample opportunity in the right places, in the right sectors, and at the right time. Pursued with excitement and armed with data—moving with the cheese is Siemer’s golden ticket to success in 2012. While Europe is in a funk, Southeast Asia is wide open, brimming with momentum for investments and growth, and the LA tech scene is stamping its mark. Change is your ally—welcome to the future. Now let’s get cozy with Dave Siemer:

Siemer & Associates LLC and Siemer Ventures: Who are you and what do you do?

We have two sides of our business—a banking side and a venture fund.

On the venture side, we have a venture fund and we think we are one of the most active investors in Southern California. We’ve almost completed raising our second fund—a $40-50 million fund. We did 13 new investments in 2011 and about a dozen investments in 2010, mostly surrounding digital media and SaaS. Digital media is broadly defined, so for example from Internet mobile, to as far out as digital signage. SaaS is the Internet side of software, like Salesforce and Open Table platforms.

We had a fantastic year in 2011 and we’re very excited about the new fund for 2012. Most of our LP’s are out of Southeast Asia. We also launched a new venture office with a new partner joining us from Singapore. We invest quite a bit globally. We’re looking to do a lot more in Southeast Asia and possibly even launch an incubator in Singapore. That’s the venture side of the coin.

On the banking side of the coin, 2011 was a great year for us. We closed nine transactions, with one about to close any day now, knock-on-wood. 2011 and the end of 2010 were both really hot periods.

We do a lot of business in Europe. We closed and announced three deals in the last 12 months—the last one was SmartClip (Europe’s leader in digital in-stream video and connected TV advertising space), which is fairly large.We sold a company called Countdown Media (global supplier of high quality cover music recordings) to Bug Music, a leading music publishing company. Bug just got acquired by BMG.

What’s the typical profile of a company you invest in?

The typical profile of a company we’ve invested in is they’ve already raised $500K to $1 million from friends and family and they have a fully developed product, and they usually have at least a few customers. If it’s more of a B to C model they should have a decent amount of traction with users. We are very data centric with our investment philosophy, so we really like to have some things that we can look at like customer engagement, whether they’re really using it, and if there’s renewals, or whatever the appropriate metric is.

Almost all the companies we invest in are losing money. We’re not expecting them to be profitable at the time of investment, but most of them have some level of demonstrable revenue—even if it’s only a couple of key pilot accounts. So we have something we can actually verify. Since we do a dozen new investments each year we don’t lead many rounds, we usually lead one or two a year, so we rely heavily on the due diligence of the club doing the deal.

How do you hear about new companies?

We’re certainly looking for people to bring us more ideas, however in our stage of the market, there is a heavy filter we use. Just because we don’t lead rounds, doesn’t mean we don’t originate them. One thing that is unique about us on the venture side is that we are location agnostic. We have five or six investments in Asia, we have a couple in Europe, we just finished another one in London—so we go anywhere.

We have tentacles in a lot of places, which means, we see a lot of deals that local SoCal VC’s don’t see. We’re typically A-round investors, so we’re the investment round after they’ve built the product.

What’s your typical investment size?

First bite is typically between $150 – $750K.

How is the LA market?

LA is definitely growing. The rush of incubators coming out in LA, for us, is wonderful on both sides of our business. We’re actually an investor in a couple of the incubators—Amplify (Richard Wolpert and Paul Bricault), Science (Mike Jones and Peter Pham). We’re also an investor in 500 Startups, which is Dave McClure’s group.

I think the environment in LA couldn’t be better, although I think it would be impossible for all those incubators to actually succeed, there just isn’t enough talent for 8 or 9 incubators times20 companies a year—you have to have good engineering talent to be successful in LA, and the community just isn’t that big yet, but hopefully these incubators will help grow the community.

There are some good things that have happened in the LA tech community. The LA tech community has really vacillated, finally, to one area, which is our area on the Westside of LA, and that is really helpful. Most of the incubators, and a lot of the startups and VC’s are now in one fairly tight area and more are moving into this area all the time, between our area in Santa Monica, which is the 3rd Street Promenade area, to Venice, and it really is healthy. For example, just walking around to restaurants for lunch you see lots of people you may know, and it’s more like the San Francisco valley feel. The LA tech scene has really popped up in the last year or so, and there is a Westside group that’s becoming tight-nit, sharing lots of information and lots of gossip and rumors and it creates a real ecosystem feel down here.

What is your advice on standing out from the crowd as a startup?

A lot of startups are hesitant to go out and talk to people and they don’t want someone stealing their idea (and I think there is some credence to that if you have a really unique idea and you’re really far from launching it, you can be a little bit cautious), but I also think a lot of entrepreneurs don’t do a good enough job at networking themselves and actually talking to near competitors who are in different verticals and learning about what’s worked and what hasn’t. That’s one of the long-term knocks on SoCal—there’s not enough of a community here and people aren’t in the know as much.

I think things are changing now, but I’m always surprised when I talk to someone founding a new startup and I ask them, “Oh, did you go up to the Bay Area and chat with companies that are around this space and research who the most logical partner or acquirer of your business would be?” And the answer is usually “no” and that always seems very odd to me because business people will talk to you and give you hugely valuable information.

Don’t do things in a vacuum. A lot of entrepreneurs underestimate the value of general networking.  Everything is a boys club to some extent. What I mean by that is everyone knows everyone and everyone knows others’ portfolio companies. A good entrepreneur should be out networking all the time and obviously you have a product to develop, too, but not having a big personal network and not having access to partnerships and things like that makes business life very hard.

How often do you need to make management changes in the companies you fund?

Not very often. It’s very rare that this happens in an A-round. It’s much more common in C and D rounds when they’re taking in $20 million in a lump and they may need more professional management. A-round investors typically, if we don’t like the management team, and we’re not particularly in love with the idea, we’re going to walk away by and large. There’s been a couple of occasions where we’ve made the investment and it didn’t work, we re-upped because we still liked the concept and we made changes at that point, but it’s rare, less than one a year for us. It’s always been a strong trend at the later rounds in replacing management teams. For example, there are some great people out there taking a company from $0-$10 million in revenue that just aren’t the right people to take it from $10-$100 million.

What’s on tap for Siemer in 2012?

We see a lot of stuff going on in the banking side for us that we are very excited about. We’re thrilled to be doing a lot more in Asia, especially Southeast Asia. While the valuations aren’t very hot in that area, there are  good companies with wide open markets. So we’re going to do a lot more in Asia as time goes on.

We have offices now in Singapore and Hong Kong, so that’s a big focus of ours, and that will be a very promising area. Europe is going to be fairly slow next year. We work with a number of companies there and they are all working with us because they want to get bought by a U.S. or Asian company, so that’s a real challenge.

What are some of your investing strategies and trends in 2012? Anything you are staying away from?

One of our bigger investment themes the past year or so has been data, analytics, and data services. A couple of the companies we’ve invested in that we really like in that space, one is called Ranker, which is Cark Benson’s company. We led the first round there and we’re one of the bigger investors in that company. Ranker is a social ranking platform, which in itself is not interesting, but it’s got this really unique graph play that captures massive amounts of data about things people like and how they would rank things—everything from movie stars to coffee makers—creating a really interesting data set that is unique in the world.

We’ve done a lot in the mobile space on the banking side, as well. Three of our last four deals were mobile and one of our investment companies, called PhunWare, is getting quite large now, they build very advanced mobile apps, mobile branded experience plays, and they’re doing extremely well, we’re excited about that. [Siemer is right, just check out the PhunWare site...huge brands!] And then we have some bigger investments also, like Viagogo, the last valuation put them at $650 million, so that will be a really good investment for us at some point when that exits.

Other sectors? The general SAS space we’re still very bullish on. We’re an investor in MindBody, which is a really great company, like Open Table for spas, fitness centers, studios, and it’s a really cool platform. They have phenomenal numbers and create a lot of value. The tech sector in general we’re very bullish on.

We have done some investing around social commerce and food buying commerce, and an investment in a company called EAT Club which we’re excited about, phenomenal numbers, which is basically providing lunches to office workers utilizing under-utilized hours of kitchens from 9-11 am on a delivery day. They’re doing quite well.

Staying away from? Recently we’ve stayed away from the consumer Internet space. It’s just really hard to pick winners in that space, no matter how great the idea is it’s hard to know which ones are going to win. We’ve been burned a few times, and we’ve had some great successes in there, too, it’s a high data space.

Lastly, what are your thoughts on the SOPA Bill?

I’m hoping it gets killed, of course.  It’s clearly written by people who don’t really understand the Internet.

Thank you David Siemer. As you can see, in order to stay on top of the change game…it’s important to move with the cheese. Do as Dave does!

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