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Tweener Madness! Meet the Selection Committee: Mitch Mumma · NC Tweener Talks

• 00:00:04 - Announcer Welcome to Tweener Madness, the high stakes startup showdown where eight promising companies go head to head for a $25,000 investment prize from the Triangle Tweener Fund. But before the competition kicks off, let's meet the people making the tough calls. The judges. In this special meet the Judges episode, we're sitting down with the investors and industry leaders who will be asking the hard hitting questions, evaluating the startups and ultimately deciding who moves forward in this bracket sty competition. Each round, three judges will vote on which startups advance leading up to the finals in early April where one company will take home the top prize from the judges. You'll hear about their backgrounds, what they look for in a winning startup, and maybe even get a little inside scoop on their decision making process. So if you're a founder looking for investment, an entrepreneur curious about what investors really want, or just someone who loves a good business battle, you are in the right place. Let's meet the judges. Here's your host, Scott Wingo. 00:01:06 - Scot Wingo Hey Mitch, thanks for joining us today. 00:01:09 - Mitch Mumma Great to be here. 00:01:10 - Scot Wingo Yeah. We're excited to have you as part of Tweener Madness. And in this video, we're just going to give folks a little flavor for. Who is this Mitch Muma guy? You and I have known each other for I don't even know how long, so I kind of know the story, but I'm going to pretend not to know it. 00:01:26 - Mitch Mumma Okay. 00:01:27 - Scot Wingo Yeah. So maybe start with telling folks how you came to the Triangle. Like what's your. Are you from here? 00:01:36 - Mitch Mumma I'm like so many others, I'm a damn Yankee. So I came from Pennsylvania to go to Duke. I got my shirt on because I know this will be shown some other day other than the Carolina Duke game, but that's coming up here shortly. And so I came to Duke and I stayed. I graduated. This boy, this is really, I'm really old. I graduated in Coach K's first year and now he's retired. So I. 00:02:02 - Scot Wingo Coach K? 00:02:03 - Mitch Mumma Yeah, yeah, so. And I, I actually am a recovering cpa. So I started out in public accounting, got a degree in management science from Duke, which they no longer grant and decided that wasn't for me and, and became the CFO of a, of a fast growing computer value added reseller startup thing in the late 80s and I kind of fell in love with small businesses, which is what I did when I was in accounting. And I decided I didn't want that, to do that for a career. And Dennis Daugherty, my partner at Intersouth, had just started Intersouth And I went to him and I said, I'm not sure what venture capital is, but I don't want to be a CFO anymore. And so although at the time it was my only transferable skill. So he said, well, I'd love to have you, but I don't have any money to pay you. I said, well, that's a problem because I have a brand new child who now has two grandchildren or my two grandchildren now. And so we cut a deal, kind of an entrepreneurial deal. He said, look, since your transferable skill is that you could be a CFO, why don't you become CFO of 3 of our portfolio companies and the fund and we'll cobble together enough money so that you can pay your mortgage. And so I did. And turns out all three of those companies in the first fund that Intersouth raised ultimately replaced me and went public. And so I got kind of both sides of the table. I got to sit with Dennis in the board meetings, but I got to kind of be with the CEOs in venture backed companies. And so it was a really, really interesting experience for my first experience in venture capital. And Dennis actually had another kind of silent partner at the time in the late 80s who decided he did not want to be in venture capital. And so he and I embarked on the journey that became Intersouth Partners and raised over time. We set out to raise and you know, it's funny, I see co founders and other funds that are kind of exactly where we were back in. And I talked to Tim all the time and I think they're doing fantastic and I hope they break out, I would tell you that. So we raised our third fund in 1994. We set out to raise 50 and wound up raising 26. People said, get on with it and be successful. And we were some part luck. That was the fund actually that invested in Exipitor. So that was kind of the best deal in that fund. We were very fortunate in. And I don't know how long you want me to ramble on about this or if this is easy. 00:04:29 - Scot Wingo This is good. Yeah. 00:04:31 - Mitch Mumma One of the things I think is super important it was for us and I think will be for the emerging funds that we have in the region today is to get institutional investor backing. And so what happens? And the same thing happened with us. Our first fund was $6 million, all individuals. We were fortunate enough to have the Duke University endowment as an investor. But in the third fund we had a really fantastic meeting with what was then called the AT&T pension fund. And the guy who ran private equity for the AT&T pension fund was like the most well known limited partner in the world because he ran the biggest pension fund in the world. And whatever he said, everybody, it was kind of like the guy at Yale who was in a similar place. Anyway, we had this love fest and I was certain that they were going to invest and they didn't. And I was kind of broken hearted about it. We had a love fest with IBM and they were going to invest and they didn't. In any event, four years later we go back and it turns out, as you probably remember, your ancient business history, AT&T split into three companies, one of which was Lucent, one of which was at&t, which is even exist. And then they put the equipment company in yet a third company. Well, that whole group from AT&T's pension fund, they split the pension fund up, as you can imagine, went to JP Morgan and we called on them and they invested in our fourth fund. And Lucent also invested because that woman was also in that meeting. And we were able to raise about $65 million for that fund, which also turned out to be super successful. That was the one that had OpenSight in it and others. And from that point forward. So the first fund was 50 individual investors, kind of like co founders is today. When we raised $275 million in our seventh fund, we had 15 investors, all institutional investors. One of the math things that I learned along the way was we would meet with these big investors and they would say, well, look, we can't write a check smaller than $20 million and we don't want to be more than 10% of your fund. So I'm doing math. 00:06:31 - Scot Wingo CPA skills coming in. 00:06:32 - Mitch Mumma Yep, $200 million. And part of that is it's so hard. It's harder to raise 50 million than it is to raise 300 million. Because of that dynamic, you can't call on almost half the money. Maybe three quarters of the money is not available to you. Like our state pension fund, which has $140 billion. They can't support these funds in the region because it can't write that small check anyway. 00:06:59 - Scot Wingo That was back then. It's gotten bigger now. So all the money goes to these like 10, $20 billion funds. That kind of. 00:07:05 - Mitch Mumma It always amazes me when you look at a 16Z and these other folks that raise a billion dollars, how they do seed investing, because it becomes a human resource math problem too. And you know this from your own investing, right? I mean, you're not taking board seats at the tweener fund, but if you did take board seats. Yeah, it gets hard. 00:07:25 - Scot Wingo Yeah, yeah. We could not possibly do that. Awesome. So over the life of Inner south, what was like the assets under management, like you've, if you had all that. 00:07:34 - Mitch Mumma A little less than $800 million. Eight hundred, yeah. And we still today as the folks at Aurora and others who kind of of our vintage. Well, you know, I think entrepreneurs, you don't because you've experienced it. But I think entrepreneurs and venture capitalists underestimate the time it takes to get from start to finish, and particularly if you're going to be successful. It's a little easier if you fail early because they say that lemons ripen early. I'm not sure that's true. Some of them ripen late as well. But we still have about $75 million in net asset value in six different companies that we're marshaling home. 00:08:15 - Scot Wingo These funds always take longer, especially these days. Then you guys are not actively. You don't have an active fund, you're deploying, you're kind of on the tail end of the cycle. 00:08:27 - Mitch Mumma Yeah, that's right. So what I've been doing lately, I've written a few checks. Chris Evans, he keeps coming up, he's gotten me into a few things, so I've written a few small angel checks. But I think the more interesting thing for me, what I'm doing now is entrepreneurs approach me and say, hey, can you help me? And I say, well, I have three rules. One is the no asshole rule. I get to choose who I work with, which I think is important. Two, I'm not going to write you a check. And three, I won't serve on your board. That creates a totally different dynamic of more. It's just a different relationship than the financial investor that I've been for 35 years having a board seat worrying whether or not you and you've met, you know, you know those folks. It's just a different relationship, which I actually really enjoy. So I can, I can coach and mentor. I don't have to go to board meetings. I don't have to worry about them running out of money. I don't have to worry, you know, I can just be helpful. 00:09:30 - Scot Wingo Yeah. Awesome. 00:09:31 - Mitch Mumma Cool. 00:09:32 - Scot Wingo That's very helpful. So you heard it here, folks. Mitch is open to mentor you. Just kidding. I'm sure he's. He's super busy with just. 00:09:43 - Mitch Mumma I, I have two grandchildren now, so I'm working on that. 00:09:46 - Scot Wingo Awesome. And then at Inner South, I always thought of you as the tech guy, but you guys did some biotech things. Not, and I'll let you say it, but like where did you guys. What was the spectrum of things you would invest in? 00:09:59 - Mitch Mumma Yeah, so we said life science and technology. And pretty early on Dennis and I realized that doing both was important from a fund size perspective because we could raise a really substantially large fund if we had more deal flow. And we thought that there were really good life science opportunities in the Triangle region. And there were and there still are. And so we decided because just you think about the network of co investors, the number of the nature of the conferences that you go to, everything's just completely different. And so he kind of took over life science investing in the mid-90s and I took over the tech investing and we built our human resources teams around that. And so, you know, we had MD, PhDs and others on the life science team and we had tech people like you remember John Glushick and others on our, on our tech team. So the interesting thing for us though, and this was very old school, you know, early on, Kleiner Perkins, actually it's, this is an interesting story. I think Kleiner Perkins, as you know, is one of the most famous and oldest venture firms in the, in the world really. And when we got started, we went to Duke and said, we want to raise a venture fund because there's no venture capital in the Triangle. And they said, well, you don't know anything about venture capital, but we know somebody who's on the board of Visitors at the Fuqua School and his name's Gene Kleiner and if he agrees to mentor you guys, we'll invest. He did and then they did. And so we would meet with Gene almost quarterly, fly up to California and talk to him. And it was really, really interesting. They also did life science and technology and I think still today do that together. Today you see mostly specialized funds, but we were about 50, 50 from a dollar and an investment perspective in life science and technology. Life science is pharmaceutical drug discovery, biotechnology. We did a little ag tech. We had a great ag Tech win in 2010. And then technology morphed as you know, we did semiconductors and telecom when that was popular and now pretty much today it's all. And has been software as a service. 00:12:11 - Scot Wingo Yeah. A lot of people don't realize we used to make semiconductors in the Triangle. Isn't that crazy? Yeah, yeah. And this whole chips act. Yeah. I wish we could like get more active on getting some of that back here. I Know, like what, We've probably lost the whole thread on it, but I know at NC State they still have folks that work on that. 00:12:26 - Mitch Mumma Yep, yep. And we had, as you remember, the Microsoft Microelectronics center of North Carolina, that thing called MCNC that out of which NC idea was born was a shot at that. 00:12:39 - Scot Wingo Cool. So if you think about that arc of time on the technology side, what was your most successful investment? Maybe like give a couple. Just so that people kind of hear some of the names. 00:12:50 - Mitch Mumma And they were, you know, I mentioned Exipitor already, which was. Which was super interesting. We. We sold that company to a public company that. God, Chris is going to kill me. I can't remember the name of the company right now, but it was cmgi. Cmgi, that's right. 00:13:10 - Scot Wingo I just did an interview with Chris. So it's. 00:13:13 - Mitch Mumma And it was in our view, so we got stock that was back in the days when the big companies had overvalued stock and so they would give it instead of cash, they would give you. And then you'd have to make an evaluation. Of course you're locked up for some period of time. They gave us stock and locked us up for a year. I thought to myself, pigs and hogs and let's take the win and do what you can. It turns out I thought CMGI was so wildly overvalued. We did a fancy European collar with some investment banking group where we. We basically locked in our win. And except for the escrow, we couldn't lock in the escrow because we didn't actually have rights to it. As you know. In the end, the extra, the CMGI stock went up 10x in a year. And so if we hadn't collared it, I would have been retired a long time ago. 00:14:08 - Scot Wingo It could have gone to zero too. I tell you what, then you would have been a hero. 00:14:12 - Mitch Mumma I mean, we had a $26 million fund and we turned $1.5 million into $40 million. So it was a good deal. 00:14:20 - Scot Wingo Yeah. We call that a power law kind of a company in the biz. Yeah. So it returns something north of 10x of what you put in. And that one's like, I don't know at the end of the day what it was, but yeah, that's a huge one. 00:14:31 - Mitch Mumma Yeah. And OpenSight was the same. And I remember, and it'd be interesting to see what Michael's view of his memory of this, but it was March of 2000 and we had. I don't know if we. I think we had filed an S1 and we had Morgan Stanley or Goldman Sachs or somebody wanted to take the company public. And we're sitting in a boardroom and Siebel comes along and offers us $500 million of their wildly overpriced stock. And the investment bankers said, who are going to make money if we go public and not as much money if we sell it. And so the board was actually pretty evenly split on, you're leaving a whole lot of money on the table. This thing's worth a billion dollars. You need to go public. And I said, this is back to pigs and hogs. I said, and Mike Elliott from Nora Mosley was on the board and he and I prevailed. And of course, you know the story. I mean, 60 days later, the world ended. Nothing was worth anything and we'd have lost all our money if we went public. 00:15:32 - Scot Wingo So, yeah, Siebel was a good place for Siebel was more stable than Great. 00:15:38 - Mitch Mumma Company, great company, cool. 00:15:41 - Scot Wingo And then a lot of venture capitalists have what they call an anti portfolio. And those are the ones that kind of slipped through that you didn't see it when it kind of came through and ended up being way bigger than you thought. What were some of those for you all? 00:15:51 - Mitch Mumma Well, you started one of those. I tried to get in to one of your deals early on, I would say the big one, the really big one was Red Hat. And I remember talking to Jeff Barber from PricewaterhouseCoopers, who was their auditor. And I, I didn't realize you could make money giving software away and didn't really understand the open source model at the time. But I knew that the management team was interesting and the founder, Bob was interesting. But when they came here, they had their money put together. They really never went into the market. And so it's not one of those things that we really missed. It's just everybody says, well, why weren't you in Red Hat? Because that's the biggest company and you're not in it. Yeah, because the thing that we sold was most of the venture capital gets invested as, you know, 75% of it gets invested in three places in the United States, California, New York and Boston. And so if you look at our limited partner base, that's where all of their exposure is. And so our pitch was, look, let us give you exposure to this up and coming place called the Research Triangle park, because it's under, banked under, you know, there's more deals than money. And so it was. We did a loss deal analysis frequently because when we went back on the road to raise capital. They have the list of all the successful companies in the research triangle too. And we need to make sure that, that we were in most of them. 00:17:15 - Scot Wingo Yeah. Did the Epic. Did Tim Sweeney ever kind of do a fundraiser? 00:17:20 - Mitch Mumma No, no, I, I think they were pretty profitable from. 00:17:24 - Scot Wingo Yeah, they just completely moved here, like did their own thing. 00:17:27 - Mitch Mumma The Bronto guys, you know, they never raised any external capital either, so. A great story. And by the way, if you, if you don't need venture capital, don't raise it. I'm sure you would give that advice. 00:17:38 - Scot Wingo Customer revenue is the most non dilutive capital you'll ever get. Yeah. How about Todd at Pindo? Did you ever get a shot at that one? Or that was like. Right. 00:17:46 - Mitch Mumma Which one? 00:17:46 - Scot Wingo Timing Todd at Pindo. 00:17:49 - Mitch Mumma No, we were, we were actually done investing before raise capital. So no. 00:17:55 - Scot Wingo Awesome. I think this gives us a good thumbnail. So. So a lot of the folks in the contest are going to be a little bit earlier stage, so maybe they're kind of the people you mentor. So they're going to have, they're what we call pre tweeners. They're going to have some revenue in a product most times, but you know, certainly not Escape Velocity. What, what's your, you know, when a founder of that kind of part of the life cycle comes to you, what are some of the nuggets that you impart upon them? 00:18:19 - Mitch Mumma You know, I think that, and in fact I'm talking to a pair of entrepreneurs right now. They don't kind of understand the value equation and the dilution equation very well. And so, and they want to raise all the money that they need right now. And you know, say it's 2 or 3 or $5 million. It's probably not all they need, but it's all they can envision needing for the foreseeable future. And I said, I'd say two things. First of all, you can't raise $5 million now. It's just not possible. And two, you wouldn't want to because of the dilution you'd have to take. And so what would you do with $250,000? And they go, oh God, $250,000. And I said, well, let's think about that because the amount of money you should raise is the amount of money it takes to make a super value changing milestone. Let's think about what those might be and how much you need to, to become that company that could raise two or three or five million dollars. 00:19:16 - Scot Wingo That's good advice. How about on a lot of these people may Be pitching for, like, maybe one of their first 10 times. Any advice on pitching? How many pitches do you think you've seen? Like, let's kind of anchor this. 00:19:29 - Mitch Mumma How many board meetings I've been to? I counted them up. I think I've been to 3,000 board meetings. 00:19:34 - Scot Wingo Yeah, so you've probably seen. You probably had a similar, you know, maybe more. You probably see more pitches than that. 8,000 pitches, 10,000 pitches. 00:19:43 - Mitch Mumma Probably something like that. You got to focus this, too. One of the great things about venture capital is we have to go pitch, too. I have to put a book together and I have to sell me. And it's a little bit different because my pitch is, trust me, I have no idea what I'm going to invest in, but it looks like this. Whereas an entrepreneur can say, hey, here's what we're going to do, I think there's so much out there on how to put a pitch deck together. I would get a lot of reps because what you learn over time is you'll get the same set of questions, and if you keep getting the same set of questions and you don't address them up front in the presentation, then you're not doing a good job. And the other thing is, I can't tell you how many presentations I've seen where we're 20 minutes in and I have absolutely no idea what the company does. And I'm like, guys, come on, you gotta make it super simple and super right up front. In fact, Holden Thorpe, who was the chancellor, Clay's older brother, was the chancellor at unc, and he founded a couple of companies and he had a PhD in some life science thing. And as the tech guy sitting in one of those meetings, he would make the technology so explainable that I thought I could explain it to somebody else. And it was really super technical, but he could break it down in such a way that even I could understand it, and I admire the hell out of that. 00:21:15 - Scot Wingo Yeah. Awesome. Well, we're excited to have you as one of the folks in this contest and appreciate you coming in and helping the younger generation see, impart some of your wisdom upon us. So thanks. Thanks for doing this. We'll see you live at the pitch event, but thanks, and looking forward to seeing you in the real world. 00:21:32 - Mitch Mumma Well, thanks for having me, Scott. I appreciate it. 00:21:39 - Announcer That's a wrap on this meet the judges episode. Now, you know the minds behind the decisions, the investors and industry leaders who will be putting these startups to the test. As Tweener Madness kicks off, they'll be asking the tough questions, making the tough calls, and deciding who advances in the bracket, all leading up to the finals in early April. Make sure you're subscribed so you don't miss a single matchup. And if you want to follow along with all things Tweener Madness in the Triangle startup scene, head on over to tweenertimes.com also, if you're thinking about launching your own podcast or want to bring professional production to to your brand, check out earfluence. Com. The competition is about to begin and we'll see you soon in the next episode.