'We took little pieces of deals and didn't find it satisfying'.

TOM UNTERMAN

Managing Partner

Rustic Canyon Partners

Age: 62

Residence: Pacific Palisades 

Education: B.A., public and international affairs, Princeton University; J.D., University of Chicago

Previous Jobs: Worked at Times Mirror Co. from 1992 to 1999 holding executive vice president and chief financial officer positions. Previously was partner in Los Angeles office of law firm Morrison & Foerster LLP, which he joined after serving as a partner at the San Francisco law firm of Orrick, Herrington & Sutcliffe LLP.

Venture Capital Start: During his last year at Times Mirror, he oversaw an active investment portfolio including Netscape and Sandpiper, and that sparked a passion for venture capital. When Times Mirror and Chandler Family offered Unterman the chance to start his own fund in the late 1990s, he jumped in. "It wasn't like we had a mandate to invest in digital media because of Times Mirror."

Target Markets: Technology-driven, private, growth-stage companies. Investment sectors include communications, software, IT infrastructure, digital media, business and information services, materials science, and energy.

Financing: Early and mid-stage investments. Typically comes in as Series A investor after seed financing is in place, and brings in secondary partner for next round, or takes Series B position as well. Rustic Canyon Partners has one of the largest venture funds in Southern California, valued last year at roughly $850 million. Pooled most funds through personal relationships. The firm is considering raising money through institutional investors.

Investment Philosophy: Rustic has been the lead or co-lead investor in every deal in the last three to four years. That's both a function of the venture fund climate--used deals are not syndicated as much as they to be--and the firm's hands-on style. "Your style evolves over time. In the beginning we took little pieces deals and didn't find it satisfying. We're relationship and data driven and we like to spend a lot of time with our companies." The firm has taken a seat on the board of every company in portfolio.

Recent Fundings: Glass Lewis & Co. LLC, a San Francisco-based services firm that advises institutional investors in the capital markets. Recently sold to an offshore firm, Xinhua Finance Ltd., for roughly five times investment. Another is Practice Technologies Inc., a Venice company that assists lawyers with data retrieval; Unterman made an early stage investment that was driven by "a sustainable competitive advantage and strong acquisition potential as an exit strategy."

Boards: Agribuys, Bassoe Offshore, The Deal, Glass Lewis, LoopNet, MediaSpan, Pemco Aviation, Practice Technologies, RiverOne

Gripe: Being tricked into talking to entrepreneurs through personal referrals. Hearing the same pitch that a company only needs to capture a tiny slice of a huge sector to become the next big thing. Lack of appreciation of the time it takes to get company off ground. "Everyone thinks they can go from a standing start to $100 million in two years, and that's just not reality."

Exit Strategies: Market conditions today require six to eight years to build a company with enough growth and value to go public. While Unterman says the best payoffs are still from an IPO, he says that trying to predict what the IPO market will be six years down the road is not possible. "We focus on building a strong company with value, and the exit options will follow from that."

L.A. Market Outlook: Says the entire venture capital industry lived through a "nuclear winter" after the dot-corn market collapsed seven years ago, which made the industry more fundamentally based, with a slower and more cautious investment culture. "On the other hand, green technology is very hot in LA. That's an area where we'll continue to invest."

Biggest Challenge: Aside from dealing with 2001 tech market collapse, pulling the plug on losing propositions. "People underestimate the relationship VCs have with their founder teams. The money manager in you has to say cut your losses. But you've spent a lot of time with someone who's trying to realize their life's dream and they don't want to let go. Not to mention their employees who will no longer have a paycheck."

Biggest Winner: Sandpiper, one of the fund's first investments in 1999 realized the biggest return over a percentage basis in roughly four months.

Biggest Bust: Element K, an e-learning company in the IT space, came within one week of going public and being a monster hit. When the markets crashed, Rustic Canyon, a secondary investor, had a hard time exiting.