5 questions with Jon Callaghan

San Francisco-based True Ventures emerged in 2005 and its way of doing business—focusing on seed stage startups that it can afford to back for the long haul—quickly resonated with LPs. Not only did investors commit $155 million in 2006, but they came back for a second, $195 million fund last fall.

That True had already enjoyed two quick exits helped. In late 2006, it participated in the $850,000 seed round of Maya’s Mom, a social networking site for mothers that BabyCenter bought for an undisclosed amount less than a year later. True was also the first institutional investor in blog search engine Sphere, which sold in April 2008 to America Online for $25 million after raising just $4.3 million in funding.

Recently, PE Week Senior Editor Constance Loizos visited the San Francisco office of the firm, located near Pier 38, and talked with co-founder Jon Callaghan over the sound of squawking seagulls.

Q: Why raise so much money for your latest fund?


We have the firepower to participate in later rounds. For example, we invested $1.5 million in [mobile entertainment startup] SendMe at its formation, but they’ve since been through four rounds, and we still own 20% of the business. When you see a winner, you want to have the muscle to stay in the game.

Q: How important is it to you to work with proven entrepreneurs?


We work with repeat entrepreneurs about 60% to 70% of the time. However, 90% of the time, we back people in our network, meaning either entrepreneurs we’ve worked with over the years or know, or people introduced to us by entrepreneurs we know. When Seth Sternberg [founder of True-backed instant messaging startup Meebo] told us he was about to write his first check to a startup and asked if we’d be interested in meeting with the company, I thought, ‘If you like this company so much, I’ll meet with them tomorrow.’

Q: You backed about 30 companies in your last fund, and you expect to back between 40 and 50 with the latest fund. Are you concerned about too many board involvements?


There are plenty of us at True [to share the workload]. But I don’t think the number of board seats someone has is as relevant as we’ve always been made to believe. Om Malik [founder of True-backed GigaOm and now a venture partner at True] didn’t need four-hour meetings. He needed to just grab coffee to talk about a possible hire or a pricing plan.

Q: You and Partner Phil Black met at Summit Partners, and you were previously at Globespan Capital Partners. How important is experience as a VC?


Phil and I collectively did 75 deals before starting True. We’ve lost a ton of money, though we’re up overall. But we’ve both been through it all and have made every mistake possible. So we know how things are going to play out.

Being an entrepreneur is also critical. I co-founded three companies earlier in my career. The hardest thing for entrepreneurs who become investors is figuring out how not to say, ‘I’ve done this before, I’ll just tell you how to do it.’

Q: How do you decide to pull the plug on an investment?


Signs of failure include a consistent inability to launch, or major changes in product direction. We might say, ‘Hey, you’ve missed six deadlines, so here are three or five things we need to see.’ Sometimes companies pull out of their tailspins. Max Skibinsky [CEO of social gaming startup Hive7] worked on a virtual world concept for a year and Max offered to give us our money back. But we really like Max, so we said, ‘Can you figure out something new? Maybe hang on to some of the money and brainstorm for a month?’ His team did, and the end result is it’s doing really well.