WOODSIDE, Calif. – Barring those days when he has to meet with limited partners, John Mumford doesn’t wear a tie, and hasn’t in about seven years. He works above a saloon, likes to build hot rods and enjoys riding horses. And he easily defines his passion in life: creating companies.
“I have a genetic defect in that I’m a serial entrepreneur who just happens to be lucky enough to get people to give me money to invest in other entrepreneurs,” says Mumford.
The native Texan founded Crosspoint Venture Partners, a Woodside, Calif.-based venture firm, in 1970 while studying at Stanford Graduate School of Business. The firm backs seed-and early-stage communications and business-to-business e-commerce companies, focusing on vertical service providers and industry net market exchanges. On average, Crosspoint backs each portfolio company with about $30 million, over several rounds, although he says investments in an individual company can range anywhere from $5 million up to $70 million.
“People give Crosspoint credit for being a thought leader in the communications sector and in the B-to-B e-commerce space,” Mumford says. In 1993, the firm backed its first DSL networking company, PairGain Technologies Inc. a public entity that was acquired by ADC Telecommunications at the end of June. In 1996, the firm beat pack investors to B-to-B e-commerce, with the formation of Ariba Inc., a B-to-B e-commerce platform provider that went public in June 1999.
The firm is now investing Crosspoint Venture Partners 2000 LP, a $900 million fund that closed in December 1999. At press time, the fund had backed 22 companies, all of which are in the B-to-B e-commerce space. The fund will make another three to five investments before becoming fully committed, Mumford says.
The firm’s focus on the B-to-B e-commerce and communications sectors has evolved over time, says Mumford. The firm’s previous vehicle, the $200 million Crosspoint Venture Partners 1999 LP, which closed in April 1999, was split evenly between business e-commerce and communications investments. Before that, the $147 million Crosspoint Venture Partners 1997 LP backed 25 companies, 80% of which were in the communications space, while the remainder were B-to-B e-commerce companies.
Evaluating the Market
Since its founding in the early 1970’s, Crosspoint has always worked with companies in ways people today would characterize as incubation and management, Mumford says. Crosspoint started by developing businesses from scratch, building management teams and helping entrepreneurs to strategize.
In the early 1980’s, the firm decided to raise a venture capital fund from limited partners to make more traditional venture investments. In addition to backing early-stage companies, the firm continues to incubate about 25% of its portfolio, Mumford says.
When asked about the proliferation of the incubator model in today’s market, however, Mumford challenges the idea. “I don’t understand their [incubators’] business model[s],” he says. “You don’t make money running an incubator. You make money building great companies.” A practice at which Mumford has been successful: Hello Direct Inc., a B-to-B seller of telephones and related equipment, and Office Depot Inc. seller of office supplies, are examples of companies Mumford has founded that have gone public.
Public VC funds and incubators is another trend in the market Mumford challenges. “Public VC funds, public incubators, are just a formula for disaster for both entrepreneur companies and the public.” He adds, “VC funds shouldn’t be worked around stock prices; they should be worked around creating value.”
“There is no lack of sophisticated, patient capital in the market,” says Mumford. “There is more money from pension funds, endowments and corporations than ever before, so to go out and get unsophisticated money from investors in the public market is a recipe for disaster, leading VCs to make decisions that are not best for portfolio companies” he says.
Mumford works with Managing Partners Rich Shapero and Seth Neiman, General Partners Bob Hoff, Jim Dorrian and Bob Lisbonne, and Partners Steve Foster and Eric Harrison.
Mumford and his partners are “outside of the system and always have been,” he says. “We have always been known as the cowboys.”
Education: B.S. Arizona State University; M.B.A. Stanford Graduate School of Business
Career Path: System sales roles, IBM; Management Consultant, Peat Marwick Mitchell; Past Director National Venture Capital Association; Board Member, Silicon Valley Bank; Founder of Crosspoint Venture Partners and founder of more than 12 companies, four of which have held initial public offerings.
Family: Wife, Christine; Children, four between the ages of 12 and 29
Favorite Travel Spot: Lanai, Hawaii
Favorite Food: Tex-Mex
Favorite Web site: Ariba.com
Favorite Movie: Lonesome Dove
Last Book Read: Leadership by the Book, by Ken Blanchard, Bill Hybels and Phil Hodges
Investment Philosophy: To pick large emerging markets.