Venture capitalist Mark Tluszcz — a man who claims to be Skype’s first investor — has an interesting way of categorising the companies he’s backed.
Namely, he sees the companies in his investment portfolio as either newbies, dogs, rising stars, or gems.
“We have a very clear view of how we look at our portfolio,” said Tluszcz, who says his VC firm (Mangrove Capital Partners) made $200 million (£140 million) off a $2 million (£1.4 million) investment in Skype after it was acquired by eBay.
“We do this internal exercise,” said Tluszcz. “It’s a gut feeling of where they are. They’re ‘newbies’ when we first fund them. But if they stay ‘newbies’ for too long then they go into our ‘dog category.'”
Tluszcz — whose firm apparently looks at 2,000 startup deals a year but signs just six — said he moves startups into the dog category if they look like they’re starting to tread water. “If they ask us for more money [at that stage] then we’re going to say no. Usually, if you say no, they kind of struggle.”
Mangrove has made approximately 100 investments into early-stage technology companies in Europe and Israel (predominantly) since it was founded in 2000. The company has raised four funds and has $750 million (£526 million) in “assets under management” — the term VCs use to say how much they have raised altogether.
“Some ‘newbies’ move over to what we call our ‘rising stars,'” Tluszcz continued. “From our ‘rising stars’ they move over to our ‘gems.'”
Out of the 100 startups in the Mangrove portfolio, Tluszcz said there are currently seven or eight “gems” that are worth over £100 million. He called out sim-card provider Freedom Pop and men’s clothing service Outfittery as a couple of “gems” sitting in the Mangrove portfolio.
“You make all your money from 10% of the businesses,” said Tluszcz, adding that 40% of tech startups that get backed at the early-stage end up going bankrupt.
Beyond Skype, Tluszcz said Mangrove has had a “bunch” of other successful exits, including Israeli web development platform Wix, which IPO’d at $650 million (£465 million) and is now worth $1.1 billion (£770 million).
Backing Skype early paid off
On the Skype exit, Tluszcz said: “It was fantastic. You never knew it could be that big. It was just a piece of luck in our lives and it became a formative moment in our firm. We are Skype so to speak. Our DNA comes from recognising that you’ve got to believe in founders and more than anything, you have to believe that they’re going to make more money than you.”
Tluszcz said the Skype cofounders — Janus Friis and Niklas Zennström — were very complimentary of each other. He backed them six months before they’d even launched Skype publicly.
“When I met the [Skype] guys, the thing that hit me first of all was they had a big success called Kazaa. I was like ‘We have Europeans who are studs and they have taken on the record industry? Somehow I gotta be involved with these guys.’ Kazaa was a success but it was illegal. But the point is they showed they could build a great product that consumers wanted. That was the key there.
“We only sold it [Skype] for $3 billion (£2.1 billion),” said Tluszcz. “$3 billion (£2.1 billion) then feels like $30 billion (£21 billion) today.
“We sold in 2005. Six or seven years after that, every single day, in front of my mirror and in front of everybody else, the only question that ever came up was … can you do it again?”