[Investor Q&A] Bob Davis of Highland Capital Partners: Internet Legend
As a founder and an investor, Bob Davis has been there from the beginning of the internet. He was the Founder and CEO of Lycos, which at one point was the most visited website on the planet. He took Lycos public in record time and built a dominant company back in the web 1.0 era. For the past 15 years, he has been a VC at Highland Capital Partners. His track record as a Venture Capitalist speaks for itself, having led investments at several successful companies that resulted in exits like Bullhorn, Quattro, Turbine, and several others.
Tell me about your background.
I grew up in Dorchester. I was orphaned at a young age. One of my parents passed away when I was 13, the other when I was 20. I attended Northeastern because of its co-op program. In 1979, school loans and financial aid programs were very limited and with the co-op program, I was able to work two full-time jobs to get me through school. I ended up graduating sixth in my class of 900.
One of my school jobs was at IBM, where I worked in a sales office for six months as an intern. It was a unique opportunity, as it gave me a first-look experience in the tech industry, which just coming on the scene at that point in time. After college, IBM told me I had too much a “babyface” to work in sales and wanted me to become a systems engineer. I dug out the help wanted section in The Boston Globe and found a position as a salesman in the data communications division at GE selling printing and communications equipment to computer manufacturers.
Wang Laboratories recruited me in 1982, where I held a variety of sales and marketing management roles before landing at a small public company called Cambex in the storage sector.
Tell me the story behind Lycos.
Dan Nova, (my partner at Highland now and a 30-year friend) who was at CMGi as a general partner, and I would speak often to catch up on work and life. He shared the details of a new type of technology that was being developed at Carnegie Mellon named Lycos. A researcher had figured out a way to index the web. The researcher wasn’t interested in building a company, but he was interested in selling his software. So CMGi bought an exclusive license for the technology for $2M and 80 percent of the company, with Carnegie Mellon and the researcher owning the other 20 percent.
I wasn’t happy at Cambex, so when Dan mentioned the Lycos story of a potential company with no business model or employees but a big opportunity for someone who wanted to start a company, I quickly fell in love with the idea and joined as CEO. This was back in 1995, where the only way to access the internet was mostly through online service accounts such as AOL or Prodigy. I was the only employee in the company sitting in a cubicle at CMGi trying to figure out how to build a business. We explored different business models - such as licensing it out to large corporations - but we decided the business model would be best to focus on the consumer market and build out our own web destination or portal.
At that point in time, no one had internet experience, so I had to build the initial team with people from a variety of companies such as Walt Disney, NBC, AT&T, etc.
Ironically, even in 1995, we were a little late to the game. There were already four to five different search engines out there, including Yahoo, InfoSeek, and Architext/Excite. We had an off-site management team meeting one day and asked ourselves, “How do we win?” and we made the strategic decision to follow a media company model. We went all in with a traditional media approach and focused on building a family of brands under the Lycos umbrella to attract a wide variety of consumers to our site and content. By 1999, we were the most visited internet destination in the world.
Bob getting honored with the key to the city of Miami in 1999 with the Lycos mascot dog.
As Lycos was building out a media network, what were some of the companies that you acquired?
We went on to build a network effect by acquiring or investing in 25 to 30 companies over the span of the company, which included many different properties. Some of the brands included:
Tripod - a property where you could build your own website
MatchMaker - an online dating site, which today is a multi-billion dollar industry with match.com, OkCupid, and lots of others
Gamesville - an online gaming site and a pre-cursor to companies such as Zynga
Raging Bull/Quote.com - two different financial media businesses
Wired.com - the news property
HotBot - another search engine
Tell me about Lycos’ IPO and acquisition.
We became the most visited website in the world and the fastest company to ever go public on the NASDAQ, just nine months after we incorporated. When I left the company just after our sale, we had nearly $1B in revenue with over 4K employees.
Based on our growth, we had interest from potential acquirers. One of which was Barry Diller’s USA Networks. We announced a deal to merge the companies such that we would become USA Lycos and own businesses such as The Home Shopping Network and TicketMaster (where I later served on the board). But at that time the internet had a magic shimmer and the concept of combining online and offline assets was frightening to many. We were unable to get shareholder support for the deal and ultimately had to back out.
One year later, Terra Networks (owned by Telefonica SA, the largest telco company in Spain) was interested in building a footprint in the U.S. We ended up getting acquired for $5.5B in 2000. I became CEO of Terra Lycos, the combined entity. Four to five months into the merger, internet valuations came crashing down. We still had $3B in cash on our books and my plan was to acquire companies aggressively that were selling at a major discount and grow the business. Unfortunately, Telefonica disagreed with my strategy and decided to take a conservative approach to the business and ride out the dot-com bust. I resigned from my role as CEO due to this difference in opinion around our business strategy, but I retained a role as their non-executive vice chairman. It is a shame what happened to the company and what it could have been.
Do you have any interesting or fun stories to share from the web 1.0 bubble years?
I probably have many, but the one that comes to mind was during our IPO. We were scheduled to go public on April 1, 1996. We had incorporated in June 1995, so we were the fastest company to go public in the history of the NASDAQ. I made them delay the IPO by one day (April 2). I didn’t want to go out on April Fool’s Day and forever have that tag associated with our IPO and be the brunt of potential jokes.
How you did you get into venture capital?
As it became clear that I did not want to stay as CEO of Terra Lycos, it was Dan Nova who persuaded me to join Highland Capital Partners and start what is now a 15-year career in the venture capital industry.
How has venture capital changed or evolved over the years from your days raising capital to joining Highland to today?
There have been lots of changes.
The industry is a lot more mature. Back then, the larger funds were $100M to $150M. It was unheard of to have venture funds of $1B. The transactions used to be quiet and VCs were not public figures.
There wasn’t the same level of competition and the number of startups were far fewer, as it was uncommon for people to start companies back then. Now, startup founders are rock stars - which is a good thing.
Technology and business will constantly evolve and innovate. But back then, the internet was so new.
You’ve been an investor in the Boston tech scene since 2001. How has the ecosystem evolved since then?
It has been a roller coaster of a ride and Boston is on a great comeback. For a while, Boston lost its edge where not only were people moving to the west coast, but they started moving to NYC.
Over the past three to four years, Boston has built a tremendous community of startups and we are starting to have anchor companies such as TripAdvisor, Wayfair, HubSpot, and others - which are all critical to the success of our ecosystem. It is important because when people see success or experience it firsthand, they are more willing to take a risk. It boosts overall confidence in the local market. The recent announcement of GE moving its headquarters to Boston was a massive win for the city.
I also credit Governor Baker and Mayor Walsh for understanding what it takes to fuel a startup culture. These guys really get it and are working hard to build an environment rich in innovation.
What stage of investments do you primarily target?
Typically, we like to be involved with a company at their A round of investment and participate in follow on rounds from there. Periodically, we will do a seed deal or a B as our point of entry but it is not as common.
What are the top traits you look for in terms of investing into a company or founder?
A common mistake that most entrepreneurs make when they meet with me is that they are focused on discussing the product. Product is critical but it’s not the top consideration. For each investment, I look at three things in the following order:
1. People - What is the team and what have they done? How have their careers progressed to the point where they are now uniquely qualified to build this business together today? Ultimately, world class founders build world class businesses.
2. Market - I’m looking for entrepreneurs who are looking to build a business in a massive market. For example, a team that can acquire acquire a small share of a $100B market wins every time over a company that acquires a larger share of a smaller $100M market. Big and growing markets are exciting and create many companies of distinction.
3. Product - What is the product and what is your go to market strategy? If I’m sold on the team and market, then how is your mouse trap better?
What sectors of technology, industries, or trends are interesting to you?
I spend my time on consumer and SaaS businesses.
What is the current fund that you’re investing from?
Highland Capital Partners 9, a $400M fund.
You’ve been a very active investor in Boston companies. One of your active investments is SessionM. What excites you about the current market in Boston?
I am a big believer in the Boston ecosystem and I’m very loyal to the area, not only because I grew up here, but as I mentioned before, Boston has a lot of momentum with great entrepreneurs and ideas.
A lot of your previous investments have been successful leading to an exit, like Bullhorn, Turbine, Quattro Wireless, and others. Looking back, are there any common traits about these companies that led them to a successful acquisition?
Most entrepreneurs I meet are very smart, but there is one common trait that I see in every successful entrepreneur: perseverance.
Will you run through walls to build your business? The life of entrepreneurs has lots of setbacks and disappointments. How does the entrepreneur overcome these challenges? It takes real fortitude to get a company off the ground. Most people don’t have it. At the end of the day, being an entrepreneur is tough stuff. You have to give up a lot from a personal level to watch your business grow. The first year can actually be the easy year. Years two and three are when the business is starting to grow and demands more and more of your time. It gets really hard to balance the demands of your business versus your personal life. You think about all the missed birthdays, baseball games, anniversaries, and more because the demands of the business have called.
Back in 2001, you published the book “Speed is Life”. Would this book be any different if you wrote it today?
Half of the book talked about stories that are now ancient history, while the other half of the book talked about business lessons which are transferrable no matter what the time-frame. The book was very important to me because the proceeds went to a non-profit that focused on searching for missing children. Early into the life of Lycos, we had adopted the National Center for Missing and Exploited Children as something we wanted to support with the belief that if we can find websites, let’s really make a difference by helping to find kids in trouble.
Outside of your portfolio, what companies in Boston do you find interesting?
Who do you admire or who has been the greatest mentor for you?
I was lucky to have early mentors from my days as a co-op at IBM and another at GE. My mentor from my co-op ended up recruiting me to work at Wang. Today, my partners at Highland are my mentors.
Outside of being a VC, what are your personal interests or activities?
I spend most of my free time with my family. When I have a chance to sit down and read a book, I’ll usually pick something out about history or political intrigue. I’ve probably read every book by David McCullough and Vince Flynn.
I also like to be involved with charitable organizations. I’m chairman of the board at The Rivers School and I have been a strong supporter of Bridge Over Trouble Waters, an organization that fights youth homelessness.
Bob and his wife, Rita.