Ellman: Building a VC Empire in the Empire State –

NEW YORK – Stuart Ellman’s experience in the business world, coupled with his age, can leave you confused as to how he has accomplished so much in such a short period of time. The 33 year-old venture capitalist is a graduate of Harvard Business School, and a co-founder of a buyout firm and a venture capital firm.

After experiencing life as an associate at Morgan Stanley & Co., and as a financial analyst at Dillon, Read & Co., Ellman left business school in 1992 ready to try something new: starting a business of his own. He played the role of junior partner in creating Advisory Capital Partners, a buyout firm he co-founded with two senior-level investors, Scott Newquist and Bob Eccles. The firm still exists, managing private money.

Ellman, always drawn to technology, realized in business school that he had an interest in starting companies. He also knew he wanted to one day partner with James Robinson IV, a friend he met at Harvard who had moved onto technology venturing at Hambrecht & Quist.

After spending some late nights perusing business plans, the pair decided the time was right to join forces. In 1994, Ellman and Robinson, together with Robinson’s father, James Robinson III, former chief executive officer of American Express, came together to create RRE Ventures, a New York-based venture capital firm.

When asked how they perfectly timed their entrance to the VC market: “I’d have to say it was certainly a little bit of luck and hopefully a little bit of foresight,” Ellman said. “I would love to look back and say, yes, I was such a brilliant person, and we all were that we knew, but in reality we are all big believers that technology would reshape – particularly – how large businesses conduct their businesses.”

Insight Into Investments

Ellman believes it’s a mistake to try to predict hot markets. “You are always going to be too late on the curve and you are going to end up losing. If you focus on good companies, good markets and good people to execute upon those markets, and focus on something sort of special – an ability to really help those companies – you are going to make good investments,” he said.

Targeted at $150 million, the firm’s most recent fund, RRE Ventures II, was oversubscribed and closed at $225 million in December 1999. The firm backs seed and early-stage information technology, software and communications companies, typically investing between $5 million and $8 million in each, although investments can be as low as $4 million and as high as $12 million.

The firm’s limited partners include Travelers Insurance Co., Chase Manhattan Corp., The Fuji Xerox Co. Ltd., First Data Corp., INVESCO Funds Group Inc., Delta Air Lines, Emory University, The Prudential Insurance Co. of America and GTE Corp., as well as a number of high-net-worth individuals.

RRE Ventures sources deals through original research, venture brethren and through corporate relationships, Ellman said. RRE Ventures works most closely with Bessemer Venture Partners and also maintains close ties with firms such as Venrock Associates and The Mayfield Fund.

New Directions

RRE Ventures began by finding deals in Silicon Valley, but about two-and-a-half years ago, when the market grew increasingly competitive, he said, the firm started to look elsewhere and ended up with a number of portfolio companies in Seattle. The firm invested in six companies based there, five of which have held initial public offerings or have been acquired, he said.

As the market evolved further, RRE Ventures began subscribing to the hit’em where they ain’t’ theory: invest in places where there are talented people, but not huge volumes of VC dollars. So instead of flying 3,000 miles away to compete with a slew of VCs on the West Coast, the firm decided to focus on companies on its home turf. The firm, now East Coast-focused, mainly backs companies in New York, Atlanta and Northern Virginia.

To keep its hand in the pot, however, the firm just opened an office in Silicon Valley. The partners realized that to invest there, they had to establish a physical presence. In August, the firm hired Partner Ken Ross, who Ellman describes as a smart, aggressive, serial entrepreneur with operating experience and a wealth of established relationships and contacts in the Valley.

The firm’s three founding members and general partners work together with Ross, General Counsel, Chief Financial Officer and Administrative Partner Andrew Zalasin, Venture Partners Sreedhar Menon and M. Michael Orban, Associates Alicia Tranen and Will Porteous, and Controller Mike Minars.

Getting Personal

Ellman is on the road about two to three weeks each month, and on the phone most nights until midnight or 1 a.m. talking with his partners and business contacts who are often in other time zones. Venture capital “is a completely overwhelming job in terms of family life,” said Ellman, who has been married for seven years and just had his first child about three months ago. “I have a fabulously understanding wife who knows that I love the business and knows that I try and strike the best balance that I possibly can.”

Despite the challenging schedule, Ellman can confidently say: “I have the greatest job in the world. There is no question about that.”

Stuart Ellman

Born: November 3, 1966

Education: B.A., Economics, Wesleyan University, 1988; M.B.A with distinction, Harvard Business School, 1992

Career Path: Founder and General Partner at RRE Ventures, 1994 to present; Co-Founder and Vice President at Advisory Capital Partners, 1992-1994; Associate at Morgan Stanley & Co., 1991; Financial Analyst at Dillon, Read & Co., 1988-1990; Management Consultant at McKinsey & Co., 1987

Family: Wife, Susan; Child, Benjamin; Cats, Max and Chester

Investment Philosophy: Invest in strong product markets with excellent management teams in companies where you can be helpful. Stand by your companies in good and bad times.

Favorite Quote: “That which doesn’t kill me makes me stronger,” Friedrich Nietzche

Favorite Historical Figure: Theodore Roosevelt

Favorite Book: Kane & Able, by Jeffrey Archer

Currently Reading: Low Life: Lures and Snares of Old New York, by Luc Sante

Favorite Travel: Sidney, Australia

Favorite Movie: Chariots of Fire

Last Movies Seen: The Cell, Hollow Man

Favorite Food: Cheeseburger

Phobia: Gridlock