Keys To A Successful Exit with Mark Mullen

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Episode Summary

Today’s guest on The Successful Pitch is Mark Mullen, the founder and the largest investor in Double M Partners, based here in Los Angeles, which is an investor in both early stage and series A. They have about 60 investors in total. He’s also the founder and largest investor in Mull Capital. They focus on investing in internet, media and communications infrastructure, with a big focus on business to business solutions, software and technology. Mark said he sees about 500 deals in a year and out of those 500, he will meet with about a 100 people and fund one or two of them.

When you get in the room with Mark, he doesn’t want to have you go through the pitch deck, because he’s already done that. He wants to hear about you and your family. What are your parents like? How many siblings do you have? Where did you go to university? How did you pick that university over another? You need to be able to sell yourself and your passion, because that’s really what your company is, is you and your passion. Be prepared to sell yourself with storytelling. He also talks about some successful exits he’s invested in, including one that Google bought. Find out more in this episode, enjoy.

 

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Keys To A Successful Exit with Mark Mullen

Hello and welcome to The Successful Pitch podcast. I’m excited today to have Mark Mullen from Double M Capital, who’s based here in Los Angeles like I am and I actually read about Mark being named one of the top investors in Los Angeles so, of course, I am just ecstatic that he has agreed to be a guest on the podcast. Mark has been a managing partner at Double M for, gosh, many, many years now, since 2012. They are one of the largest investors with $7.1 million. They also invest in seed and early VC funds focused on the internet, media and communications. Primarily target people who are here, in Southern California. Before that he was the managing member of Mull Capital for 18 years and had quite a successful run there. We’re gonna ask him to talk about what that experience was like, and what made him decide to go out on his own. Mark, welcome to the show.

Thanks John. Nice to hear from you.

I’m always fascinated… you have so many successes under your belt. Can you take us back to the days of vintage 2012, with the investments and the exits and all that? People love to hear about successful exits and all that great stuff.

Yeah, for sure. Fast forward into today, we have about $40 million under management for investments. I was an investment banker actually in M&A and private equity. I worked for a incredible, formerly very well known entrepreneur in the Telecom and Cable TV space, named Bill Daniels. He’s actually known as the “Father of Cable TV” in the United States. I had a chance, he hired me in 1992 to help him build the international M&A and private equity investment platform for what they had already established in the United States, which was an operating company. They had over probably 20 companies. We owned over a million cable television subscribers. We also had an investment bank that had 60 employees that focused on all the activity in-between all these businesses as they were growing up. I worked at Daniels for 19 years and I did deals in 30 different countries. I lived in France, I lived in Paris, I lived in London. I lived in New York city, San Francisco and then eventually Los Angeles. I’ve been around both in living places and on an airplane as you can imagine. But in all those cases, I had the incredible luck to actually work with and for so many different entrepreneurs. Obviously men and women from all these different countries and all these different businesses. There were young, there were old, there were different temperaments, talents and convictions. In addition to working for an incredible entrepreneur, my father is an entrepreneur and then I spent almost 20 years working with all these different types of entrepreneurs and watching them build businesses.

Wow. It’s literally in your blood, isn’t it, and globally.

Yeah. Maybe I’m getting too old, because I can say that I’ve been around, but the reality is, that’s the reality. In 1998 was really the very first time that I made a direct investment into a company. It was a, I believe it was an ISP and they were gonna build websites for people. That was the early days and I actually loaned them money to buy a server and it was $10,000 at that time. I loaned them 10 grand at 15% interest and I also got warrants to invest in the company and who would know that company ended up going public and I converted those warrants. That was really the start of investing directly and also where I got the bug.

Because of the firm I was with, we also had opportunities to invest in other private equity funds, venture capital funds and companies directly. Over the last 20 years, I’ve invested not only directly into companies, but also VCs and private equity funds. I’ve had all that direct experience and getting ready, let’s say, to launch my own fund in 2012. When we sold the firm, we sold Daniels to RBC capital markets in 2007. I’d like to say that I retired for about a weekend in 2010. I left banking on a Friday and on Monday I was the Chief Operating Officer of the city of LA. Had agreed to go down there and work with some other individuals, who were trying to work with the city to help change the culture, work more closely with businesses. Essentially to create jobs. If you recall, 2010, the country and California was not doing well.

That was really a great opportunity for me to break out of banking. Where I had been for, really, 24 years since I got out of college. When I came out of that opportunity, I decided to raise my first fund, which was the $7.1 million fund you indicated. In order to really launch that, I went back and looked at all the investments that I had made since 1998, which now has, and these are all individual investments in our company called Mull Capital, which eventually we’ve made 19 investments in there. Which sold eight companies and we still have the 11. That was really the early track record of what we used to raise fund one. Double M partners fund one.

Clearly Double M comes from your initials from your name, I’m guessing, right? I just always want to double check on that.

Sometimes it does take people, they do hit a light bulb sometimes, like, “Oh, I get that.” Yeah, exactly. Then the objective, I had a kind of a catbird seat by being not only in the government, but having made all these investments and being around Southern California. Also having traveled so much of my life up to that point, I had no interest in traveling. I now have two small children and all of those things, so I really wanted to focus on Southern California. As you know, there’s an incredible wealth of talent here for creativity, entertainment, mobile applications for our consumers, etc. I specifically don’t do those things. I feel like there’s an opportunity to really focus much more on technology, software, things that are being utilized in the cloud, security, etc. I’m much more focused on more technology platforms than I am on consumer experiences.

Well, I always love to hear stories. You have so many stories to pull from. Let’s talk about your choice. One or both, either Lettuce that was sold to Intuit or is it Orbitera that was sold to Google? I think those would be really interesting, because those are the kinds of technology software companies you’re talking about, that you’d like to invest in, is that right?

Yes. Lettuce was started by a very exciting, young entrepreneur named Raad Mobrem who is still a very good friend and has become an investor in my funds. Many of my, I now have 16 CEOs or founders that I have invested into in the past, who are now investing in me, so it’s nice. We have this ecosystem.

Oh my god, I’ve never heard that before, that’s come about full circle huh? Making them successful and then they take some of their success and give you money to fund the next startup, right? Oh, how great.

Yeah. I did that deal with CrossCut Venture. It’s a very good VC here in LA that I’m actually an investor in as well. We both saw the same things that made us excited about Raad. He was building an inventory SAS platform to allow retailers, who were traveling all over the country to actually take orders from buyers and it automatically synced into the inventory system, wherever the company was and the accounting system. That sounds pretty pedantic right now, but it’s very, it’s actually not been fixed. There’s so many disparate systems and Excel and faxes and things like that. It’s not a very good system.

So Raad and his team, obviously very determined and excited, were able to build a platform that was technologically advanced enough and potentially very interesting, obviously, to Intuit. So Intuit acquired that company back in 2014. Real quickly, Orbitera’s different only from the perspective of, I actually met them four years ago from one of my LP’s actually and they were not ready to raise, it was more of a concept idea. I said, “I really like this, this is interesting. You’re not ready to raise capital. I’d be happy to be helpful to you as you prepare to raise. Anything you want to hear from me, I’ll do whatever I can. Let’s stay in touch.” That was a very organic, nice way, every three to six months was kind of a update.

“Here’s what we’re doing.” They both had jobs at other companies, the founders. “Here’s what we’re doing.” Okay, good. “Okay, we’re proceeding, we actually got a product, we’re building the technology and we’re gonna raise money.” In that situation, there are only two investors, which, or two venture capital funds which included Mike Rushlin from Boston, who’s a very technology savvy investor and a great guy and I, were the only two investors in that company. Which is interesting, because there’s very few investors in LA, I think, that would have looked at it or would have known what they were looking at.

I actually had one of the top VCs in LA tell me, after that deal closed, he says, “I don’t even know if there’s anybody in our firm that understands what they do.” I said, “That’s great, that’s why I do those things and you do the things you do really well, so we’re all in a nice ecosystem here in Los Angeles.”

Orbitera had such a fantastic, again, technology platform, that Google and several other people actually bid on that company and we had a very nice auction and a very nice exit there. Actually, it’s nice for LA, because Google buys a technology company in LA, that’s different than Time Warner or YouTube buying a entertainment company here.

Is there something that you can explain, for people who aren’t really tech experts, that explains what about it made it so attractive to Google? What problem were they solving with their technology?

What Orbitera created was an agnostic marketplace platform for other SAS software companies to sell their software into Azure, Amazon, Google, all the different platforms to sell their software services into those platforms to distribute. Orbitera created this agnostic platform with incredible technology that allowed you to do that. It’s harder than it sounds. I’m trying to paraphrase.

Oh, I know, I get it. It’s all about inventory and cash flow that makes or breaks any company. If you can help make that flow better, just like Lettuce, that’s really a big solution.

Yes.

There’s another company in your portfolio that I’m fascinated with, ChowNow. Which, I’m sure there’s a lot of technology behind it, but it’s a little easier to understand that an online food system for restaurants is also solving a similar problem of supply and demand, right?

Yes. The difference we have, they really got in early and when the wave of, you know, it doesn’t seem like anybody eats at home anymore. If they do, it was delivered by one of many different companies or it was picked up and brought home. That has really blown up here with GrubHub and Postmates and all the different entities that are involved. Home cooking kits. What they created was software, really a interface, which is on iPad, but software that allows all the ordering or takeout to be done on this one screen. It managed all the sales, ties into the restaurant itself, it helps the restaurant market, etc. Rather than calling, when you try to call and get a pizza and you call your pizza place and you’re waiting on hold or they get on the phone, “Yeah, hold on one second.” You know how it works. Then you can hear the chefs in the background and the waiters and it’s just not a great customer experience. That was the premise.

The way they’ve done it is, it’s a SAS model, which is, they give the equipment to the restaurant. They charge the restaurant a fixed fee every month. We do not charge for how much revenue you generate as a restaurant. So the restaurant is very happy with us compared to other platforms, who charge a commission on whatever the restaurant sales is. That company, ChowNow has, I mean, triple revenue this year and it’s very interesting in terms of how it’s, even though it’s four years old, the momentum for that company has been great.

Fascinating. Mark, can you talk about what you look for when you hear somebody pitch. Whether they’re pre-revenue or they have some revenue. How do you decide whether you’re gonna fund that?

Okay, so it’s very easy, it’s easier of course to say, “Yeah, I’d be interested in meeting with you, considering you built a company that’s already making money.” Right, that doesn’t happen very often. Of course, and I don’t like to invest in ideas. I’m really trying to, I invest into seed stage through A, meaning I’ll invest in B or C rounds, but I intend to invest in the A round where you can further follow up once the company is doing well. But I won’t come in, with say, just be part of an A round, because I think the pricing is wrong for what I try to focus on.

I won’t come in at a later round. I try to be the C through A person. In that context they might have different stages in development, right? They may have $10,000 revenue, a $100,000 revenue, $250,000 of revenue. Different stages. I’m much more focused on what they’re building, what they want to build, what they have built today and who the people are.

Right, so you say you don’t invest in ideas, so you’re really investing in the people. Plus they have to have some kind of minimal viable product to show that there’s something that would actually work and that people would want to buy it, right?

Yeah. If you go back to what I was saying earlier, that the experience I’ve had with the deals in all those countries and investments. I feel comfortable with my own intuition, whether it’s right or wrong on people. Every investor has to have conviction and maybe some investors feel super great about their understanding of a technology stack or some engineering algorithm.

Right.

You gotta find what you think you’re good at and stick with it. I feel comfortable in the early stage, which is necessary in terms of value and the people.

You like to have the founders located here in Southern California, is that correct?

We have three companies in San Francisco, one in Washington, DC, two in Canada, one in Phoenix, the rest are in Southern Cal.

Got it.

I don’t have a, I’m not against it, but there has to be some sort of unique reason why I’m doing an investment outside of LA. All of these have been. Whether it’s, I already knew the founder, or the company had a co-founder in LA or something like that.

Can you explain to the listeners and to me, what is the difference between what you’re doing early seed versus an angel group?

Angels tend to be more like the $25,000 to a $100,000 checks. That’s really the round that it can be, anywhere between $25,000 and even a million dollars. Call it the typical friends and family round. That is more of the round where there may be a relationship in the past, that’s kind of a, “trust me” round. I’ve known this kid who’s starting this company, for 10 years because I knew his or her parents. Or I’m actually known as an angel, I have a day job, where I make a lot of money, so I’m gonna do some side investments.

That’s really the money that goes in to help the founder get to some sort of minimal MBP or some sort of product that they can use to display. The counter to that is the reason I try not to do, be in friends and family rounds, is only because naturally that entity still has to go out raise capital. Angels typically are not big check writers. I like to have investors next to me who can write bigger checks overtime.

How many pitches do you think you hear in a year and then how many do you fund? Typically we hear it’s only like one percent. Is it a little more higher for you because it’s so niche?

It’s a difference between how many deals I see versus how many I then start. There’s how many deals that I receive or go out and get. That means pitches, et cetera, decks, et cetera. Then there’s how many of those that I will actually meet with or have a conference call with. Then there’s how many I will actually do due diligence on and then there’s how many I will actually invest in.

Right, yeah, I’d love to see that funnel if you don’t mind, giving us a ballpark, yeah.

It depends on timing a little bit. But I end up probably meeting or talking with about 20% of the deal flow that I receive. We invest in, so far it’s been about 1.2%.

Got it. Well that’s the numbers I keep hearing. How many do you see to get it down to the 20%? Are you seeing about 2,000 deals a year and you see 20% of that or is it fewer or more?

No, it’s probably more in … I mean, I know exactly the numbers, but it’s in the 500 range.

Okay. You see about 500 deals and out of that 500 you meet with 20% and then out of that, it’s one percent. Is there any tips you have for someone who is fortunate enough to get in front of you and actually have a meeting to get in that 20%, where they’re pitching you. Do you have the, “Man, if you say this, then I’m really interested in another meeting.” Or, “If you say this, it’s deal over.” Anything like that would be really helpful.

Yeah, I kind of wince at our industry and it’s uncommon in other places, but unfortunately the numbers make it so hard to really meet with as many people or be as accessible as I’d like to be. It’s not because I’m, you made the comment, sorry, you said, “If somebody is lucky enough to meet with you.” I mean, I don’t want people to feel like you have to be lucky to meet with the VC. That’s hard, but if you think about me seeing 500 plus deals a year, it’s just impossible. I have to have some sort of filter and get down to a small group.

But I’d like to meet with more people. If we do get a chance to meet, I do not go through the deck. If somebody comes to my office, someone here yesterday was great. Great founder, great meeting. He brought in his computer, plugged it in, set it up. I was getting him water and I said, “You don’t need that.” I was just like, there was a hesitation and he got it right away, like, “okay, I don’t need this.” If you can’t tell me what you’re doing in a short period of time without a pitch deck, then there’s no chance.

Got it.

The second thing is, we spend a lot of time, or I do, I don’t think this is necessarily that unique, but I spend a lot of, we don’t talk about the company for at least the first half hour.

Oh, interesting. Okay, this is great. Tell me more.

Well, I start with, well if I got introduced to that person by somebody, I want to know why and how they know each other, how deeply they knew each other. Then I’m like literally, “Where are you from?” Then that starts. “What are your parents like? Where do they live? Do you have brothers and sisters? Why did you go to school there, what other places did you have an opportunity to go to? Are you happy with that decision? Then what did you do?”

I’m looking for lots of things. One is I’m trying to find the chip on their shoulder. I’m looking for what are the unique drivers that make this individual want to be crazy enough to start a company, right?

Source: Pexels

Yes.

What’s gonna take them through that. It also, I hope that there’s some sort of long-term relationship with this person. That’s going to be initially established by some sort of, by my investing in that company. If the person can’t really communicate about themselves, I think it’s gonna be pretty hard to communicate about the passion they have for their company, because their identity is going to be that company.

Oh, that’s great, we’re gonna Tweet a version of that out. You guys communicate about who you are and your passion, because your company becomes your passion and it all is tied together.

It’s your identity, yeah.

You need to sell yourself basically, through storytelling and being comfortable talking about yourself, right?

Yeah. The other thing I try to determine is really where it came from that you wanted to start this company. Some people have had companies in other businesses, like, “I saw this was a problem, I want to fix it.” There are others that have found that entrepreneurialism or starting a company is actually a career path. I think some people think you can go to college and take entrepreneurship classes and then you get a job as an entrepreneur. That is not how it works, right? I’m really looking for a lot of those factors that have created the drive and passion to go through what they’re going to go through, which is not easy.

Right. Just to back up a little bit. You have 500 deals presented to you, you meet 20% of them, which would be about a 100 people. In that 500 people, are you looking at pitch decks at that point to decide, is that part of your filter, who I want to meet with?

Yeah. That means I’ve looked at something around the deal. Whether it was introduction or verbal conversation, a deck, et cetera.

Okay, right. There’s a need to get on the radar to get in that room with a good pitch deck. Then once you’re in the room, you just need to be able to talk without having the crutch of using slides and talking from some script.

Then how long does due diligence typically take? I know there’s a wide range, but let’s, now we’ve got a 100 people and one percent of that, so that’s like one or two people in a year, that you’re gonna be funding. I imagine, from the 100 people down to that one or two that you’re gonna actually fund, that can take a while, yes?

Source: Pexels

Yeah. I mean, it depends a little bit on how old the company is, right? If a company is six months old, you have a due diligence, it’s really gonna be much more market analysis and references. There’s just not a lot to look at the company. If it’s a technology platform, there’s gonna be some technology due diligence to make sure it’s actually real, etc. You’re absolutely right that it takes a while. I mean, it takes, to complete a wide range, I can be honest and say that I have probably invested in, I committed to people, I would say five times in the first meeting.

Wow, that’s great.

Matter of fact, those companies are all doing really well. There have been situations where I spent a lot of time on due diligence and this and that, wrote a report to myself and went through all, as many references and all these things that I could think of and spent three months doing due diligence and that company is out of business.

Interesting. Yeah. It goes back to your intuitive gut again, doesn’t it? Do you have an average, I know, depending whether it’s seed or series A, obviously on CrunchBase it says very specifically, you were three million at series A. But on the seed round, do you have a range of what the typical check is?

Well, it depends. I’m now raising the third fund, where I’m almost closed with that. Those checks can be twice, three times bigger than the last fund, which was bigger than the first fund. Each check’s size goes up. This next fund, it’s gonna be, in the seed round it’s gonna be anywhere between 400 and 750, it’s the first check. In the prior funds, it was 200 in the first fund and 375 in the second.

Right. If somebody wants to raise a million and you’re giving them $500,000, you’re totally okay with syndicating with another investor or another angel group, yes?

Yes. I mean, I’ve got a bunch of great relationships around the country and here in LA and I’ve done numerous deals with a lot of people.

Got it. One of the questions that I hear from a lot of investors. I’m fortunate enough to interview, is a key question to them is, “What’s your barrier to entry from a competitor? Why can’t somebody else bigger than you, who gets funded faster than you or has the resources already, just take this idea?” Is that something that’s a concern to you?

It is, but it’s so hard to answer. If that’s the way everybody lived their lives for the last 100 years, nothing would have been made.

Right, exactly.

You have to have a little bit, I would say, you do as much as you can and you’re still gonna have to take a leap of faith. What we’re trying to do is reduce that leap. That’s all that I’m trying to do. Minimize that leap.

Source: Pexels

Right. That’s a great Tweet. Reduce the, you know, “you take a leap of faith and we’re gonna try to reduce how big of a leap that is,” that’s great.

Yeah.

Is there any parting advice that you want to leave investors? Any book you want to recommend that they read, either about business or life in general?

That’s a good question. There’s so many answers, but I recently reread the book “Undaunted Courage.” If you remember that Lewis and Clark story.

Of course. I love it, that’s great metaphor.

Yeah. If you’re an entrepreneur and you’re crazy enough to go out and start this company, you should read or try to read the dummy version of the book, because it is so inspiring, it’s crazy. This was not just starting a company that’s many, many, many, many companies have been founded, many, many VCs out there, many, many stories, blogs, etc. You can read all you want about this stuff. These guys had nothing but horses and guns and themselves. If you want to be inspired, I felt like that was an inspiring book to reread recently.

I’m just so happy you said that Mark, because now instead of horses and guns we have laptops and the internet connection, right?

Yes.

Fantastic. Mark, how can people follow you on social media and stay on top of what you’re doing. What’s your Twitter handle, all that good stuff?

@DoubleMCapital. This is Twitter.

Nice, fantastic. Mark, I thank you so much for your valuable time. This has been extremely insightful and I know a lot of people are gonna get a lot of value out of hearing what makes you successful and what you’re looking for when someone pitches you. Thanks again, Mark.

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