An article on John Mumford -- one of the top high tech venture capital investors in the country...
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02/26 08:24
`Retiring' Venture Capitalist Mumford Steps Up Bet on Internet
By Hui-yong Yu
<<Woodside, California, Feb. 26 (Bloomberg) -- John Mumford and his team at Crosspoint Venture Partners bet big in the mid- 1990s that the profits in Internet-land would come from connecting businesses together, not selling goods to consumers.
Crosspoint backed upstarts such as Brocade Communications Systems Inc., a maker of switches to help computer networks store data, and Ariba Inc., whose software allows companies to buy their supplies on the Web.
Those companies helped the investment funds the Silicon Valley venture capital firm raised in 1993 and 1996 return to investors more than 30 times their original capital -- and the meter is still running. Retailing dot-coms, meantime, have been a classic bust.
Their cut of the profits has made Mumford and Crosspoint managing partners Rich Shapero and Seth Neiman wealthy. Mumford reckons each made more than $500 million. ``Before taxes,'' he adds.
Now Crosspoint, founded by Mumford in 1970, is again showing its independent streak. It canceled plans for a new $1 billion fund late last year, saying the sad state of the stock market and prospects for taking young companies public made new investments too risky. Competing firms, meantime, were bent on raising record amounts for new investments. More than a dozen venture funds of $1 billion or more have been raised since the beginning of 2000.
Upping the Ante
Further displaying its contrarian nature, Woodside, California-based Crosspoint is increasing its gamble on electronic commerce by businesses -- despite a slow start from some ventures to date.
``Five years from now, you're going to call me and either say, `Mumford, you're the smartest guy or the stupidest guy ever','' said the veteran investor. ``There's no way of hiding from this.''
Mumford, 57, is supposed to be retiring. In venture capital parlance that means he won't be involved in making investments for Crosspoint's next fund, which he says will be formed when markets improve. Instead, Mumford figures he will spend the next five years overseeing Crosspoint's newest e-business ventures and some of the 60-odd companies it hasn't been able to take public.
Crosspoint has invested $350 million, or almost half of its 2000 fund, in 14 companies that will provide custom software and services for industry-specific tasks on the Internet. Dubbed ``vertical service providers,'' these startups include Swan Systems Inc., which would allow an advertising agency to, say, view a rival's commercials over the Web; Vital Link Business Systems Inc., which lets restaurant chains monitor remote sites or buy background music online; and AristaSoft Corp., which helps high-tech companies streamline equipment manufacturing.
Web Marketplaces
Earlier, Crosspoint had invested between $150 million and $200 million from its 1999 and 2000 funds in Internet marketplaces. They include PetroCosm Corp., which links buyers and sellers of oil and gas products and services; E2Open.com LLC, an exchange for computer and telecommunications companies; and Buzzsaw.com Inc., which lets contractors, architects and engineers manage projects online. Many of these marketplaces use software from Ariba and other Crosspoint companies.
Equipping companies to conduct commerce online has been a harder task than expected, Mumford said. Integrating new software into companies' existing computer systems has proved difficult, as has linking companies with suppliers and distributors.
``All of that is a much bigger job than we ever thought, but it is doable,'' said Mumford. ``It's not rocket science; it's just hard work.'' The effort should pay off, he said. Mumford said that at a recent meeting he had with chief technology officers of 10 large electronics companies, he found that even though technology budgets are at or below last year's level, the portion devoted to e-commerce is up substantially.
Fast Pace
Mumford's schedule still mimics the 100-mile-an-hour-plus speeds at which he races his beloved hot rods across country. Trained to get up early as a newspaper delivery boy, Mumford's workday starts at 6 a.m. and often doesn't end until midnight, after he finishes the day's e-mail exchanges with executives.
Two board meetings swallowed up one recent Saturday, causing Mumford, who has four children aged 12 to 29, to miss his daughter's basketball game. Conference calls with the same two companies consumed the following Sunday. ``That's a typical weekend,'' he said.
The stalled market for initial stock sales means startups face tougher times raising money. Mumford is busy trying to arrange a $100 million financing with Goldman Sachs Group Inc. for PetroCosm. Potential investors, he said, include the state oil companies of Kuwait and Brazil, Itochu Corp. in Japan and Schlumberger Ltd.
Mumford also has been making sales calls on behalf of Comergent Technologies Inc., whose software he hopes will become a standard for helping sellers of goods on the Internet. Barely three years old, the company already has customers in Maytag Corp., DuPont Co., Cisco Systems Inc. and Seagate Technology Inc.
`White Space'
Mumford picks investments by figuring out how new technology can help a business cut costs or be more efficient. His firm also looks to fund companies creating markets rather than taking on entrenched competitors. ``We continue to seek where the white space is,'' said Mumford.
About a quarter of Crosspoint's companies are started inside the firm. Brocade came about when the partners were looking for investments in storage networks but didn't like the deals they saw. They hired a consultant to help gather a team of engineers, including Paul Bonderson, who previously worked for Sun Microsystems Inc.
Bonderson and Neiman met over lunch in June 1995 and clicked. A month later, Mumford agreed to give them and the other Brocade founders $1.4 million, a stake that grew to billions when Brocade went public in May 1999.
Fellow investors and entrepreneurs say Mumford's people skills help him excel as an investor. ``He listens well,'' said Robert Kagle, a general partner of Benchmark Capital who invested with Mumford in Ariba and before that in Office Club, which was later acquired by Office Depot Inc.
``What John's good at is he `gets it' when you're describing some business problem you're going to solve,'' said Dan Doles, CEO of WhereNet Corp., a Crosspoint-backed supplier of software and radio transmitters to help manufacturers, transportation companies and others track inventory such as vehicles coming off the assembly line or cargo being loaded at airports.
Mumford is equally quick to see through flawed business plans. He said his simple tastes -- he drinks Folgers coffee, Budweiser beer and Canadian whiskey - helped spare him from straying into the fads such as pet stores and party-invitation Web sites that some others found irresistible.
Off the Beaten Track
A visit to Mumford's office late in 2000 revealed something of that personality. It isn't on Sand Hill Road in Menlo Park, where the biggest venture capital firms are clustered, but several miles away in Woodside, above the Pioneer Saloon with a hitching post out front. Out back was parked a gleaming silver '57 Chevy whose license plate contains the initials ``JBM.'' The Chevy is one of two dozen-plus vintage autos in Mumford's collection. ``One of our forms of amusement is watching which car John drives to work,'' said Shapero.
Mumford said he fell in love with cars growing up during the 1950s and early 1960s. Born in 1943 to a Federal Bureau of Investigation official and his schoolteacher wife, he attended 14 schools in 12 years. Although born in Washington, D.C., Mumford spent much of his youth in Texas and calls himself a Texan.
At high school in Santa Monica, California, his teenage idol was movie star James Dean and his surfer buddies included future baseball pro Rick Monday, the only one of his then-pals, said Mumford, ``who amounted to anything.''
No Slacker
Determined to flee the slacker scene, Mumford worked on a Navy aircraft carrier for two years after high school and later enrolled at Arizona State University, where he graduated summa cum laude in accounting. He also was social chairman of his Sigma Chi fraternity.
``John had a great ability to party all night and still get good grades. He was so well known in the Chi Omega house they made him their man of the year and I think he dated at least half of them,'' Vince Carter, a fraternity brother, said in a videotaped tribute to Mumford shown at a party last year where guests were serenaded by country singer Clint Black.
Mumford got his master's of business administration degree at Stanford University at a time when Silicon Valley was dotted with orchards and defense contractor Lockheed Corp. was the biggest employer in Santa Clara county. He began Crosspoint in 1970 with help from a professor and spent the first dozen years bootstrapping and running companies in industries such as food machinery, industrial controls, and office products. One company he started was Robind, a maker of report binding equipment that was later bought by Minnesota Mining and Manufacturing Co.
Combining Disciplines
Mumford said he named his firm Crosspoint after the Christian principles taught him by his mother and the idea of combining various business disciplines.
Longtime colleague Bob Hoff became a general partner in 1983 and now runs Crosspoint's Irvine, California, office. Shapero became a general partner in 1993 and Neiman in 1996 before both rose to be managing partners.
Mumford's ``first really big payday'' came with Inmac Corp., a direct-mail retailer of computer parts and accessories. He invested $10,000 in the catalog company; it became $12 million after Inmac went public in 1986.
Ariba grew out of Mumford's experience with Inmac. After Micro Warehouse Inc. -- since bought by an investor group including Freeman Spogli & Co. -- bought Inmac in 1996, Mumford and some of the Inmac crew came up with the idea to ``take manufacturers' catalogs and push them at customers'' over the Internet. After talking with customers, they decided it would be better to tailor the software to the buyers' needs. A team led by Keith Krach was working on a similar concept at Benchmark, and the two joined forces, with Krach becoming CEO.
Dell
When Dell Computer Corp. Chairman Michael Dell learned Mumford had started Inmac, he gave him some of his money to manage, said Mumford. Dell's younger brother Adam later worked for Crosspoint before starting his own firm in New York in 1999.
Mumford promotes camaraderie by taking a vacation with his partners and their families every year. Like him, his partners didn't come from the investment banking fast track. Before careers in the computer industry that included starting their own companies, Shapero majored in literature at the University of California at Berkeley and Neiman studied philosophy at Ohio State along with computer science.
``He has assembled an unbelievably deep team,'' said Eric Doppstadt, director of private equity for the Ford Foundation.
Neiman deserves much credit for Crosspoint's recent successes. In addition to Brocade and Juniper Networks Inc., he invested in Foundry Networks Inc., Avanex Corp. and Chromatis Networks, which Lucent Technologies Inc. acquired in June 2000 for about $4.5 billion.
Crosspoint's newest investing partners are Jim Dorrian, former CEO of Arbor Software, and Bob Lisbonne, a former Netscape Communications product manager.
Declines
While Crosspoint made the right bet on the Internet, it hasn't been spared the pain of the market decline for most things connected with the Web. Ariba's stock has fallen to $17 from a high of almost $184 in March 2000 amid concern sales growth is slowing. The company, which competes with Commerce One Inc. and others, recently agreed to acquire Agile Software to add tools to enable communication between manufacturers and suppliers over the Internet.
Similarly, Crosspoint watched Efficient Networks Inc., the largest maker of modems for Internet connections, drop to $12.38 last Wednesday from almost $187 in March 2000. The next day, Siemens AG bailed out Efficient Networks shareholders with a cash takeover offer of $23.50 a share.
Crosspoint's investors aren't weeping. The firm's 1993 fund already has returned 34.5 times its capital of about $60 million, or about $2 billion, and its 1996 fund of $100 million has returned 32.5 times, or about $3.3 billion. Its 1997 fund already has returned 10.8 times capital, the firm said.
As he scales back over the next several years, Mumford hopes to spend more time with his wife and kids and work with youth organizations. Still, work continues to call. In July, he will hop into his '34 Ford roadster and join a caravan heading to the Lake Louise region in Canada. But Mumford's son will have to handle the return drive. His father will duck out early to fly back home to attend a board meeting.>>
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