BUSINESSWEEK ONLINE:   Business Week ebiz
Q&A with Timothy Haley October 26, 1999 It's Not "First to Market -- It's First to Critical Mass" Venture capitalist Timothy Haley is hunting for Net companies that will use Christmas to build a lasting competitive edge Timothy M. Haley is a partner at Silicon Valley venture fund Redpoint Ventures, which was formed by the merger of Institutional Venture Partners and Brentwood Venture Capital. He spoke with Business Week's Heather Green about this e-Christmas and how his venture team views smart investments. BW: This year we have companies that have gone through earlier Christmases and some that are going into their first Christmas. How important is this holiday season? Haley: Last year's Christmas was a big deal because it proved the point that people do buy online. It was the inauguration of eChristmas. There is a tremendous amount of buzz around the Christmas season, and a lot of companies want to leverage that buzz to generate traffic awareness. Some companies that aren't seasonal are backing off because they don't think they will get above the noise. There will be a class of companies that will need to fully leverage Christmas. I happen to believe the pet space will be seasonal. Pet owners actually buy gifts. From our point of view, if we were entering a category where it was clearly a seasonal business and we missed Christmas by a month, it would be a major event. It's all about creating the No. 1 position and leveraging the Christmas season for certain categories. BW: The question is: What happens if you're not No. 1, No. 2, or No. 3? Haley: No. 1 is great, No. 2 is pretty good, and No. 3 is why bother, from our point of view. Why would I want to invest in a category where I could be No. 3. That doesn't fit our model, given the size fund that we run and the kind of returns that we want and the kind of deal flow we have. We do see great deals, and as long as we can invest in companies like Reflect.com [a beauty products site] that have the ability to find and dominate a category, why look elsewhere? BW: What about the time element? If you're No. 3, will you be able to do something if No. 1 or No. 2 stumble? Haley: I don't think it's first to market -- it's first to critical mass. First to market is great. At least you seem to have some perceived advantage. But it's not just getting the lead. It's maintaining the lead and creating distance between you and the competitor. It's really about about getting ahead and closing the door behind you. BW: So does the funding money go away in these consumer e-commerce categories, and does it make sense to invest in companies that aren't category leaders? Haley: There is no sign that the money is going away in any category. Does it make sense for us to invest in a No. 3 or No. 4 position? No. No. 2 position, maybe. Will the money be there? Yes. Whether it makes sense is questionable. I would question the rationale to knowingly invest in the No. 3 or No. 4 position in a consumer e-commerce category. There could be categories where you have a twist and you offer something unique as a subset of a major category. Then the question is: Is that big enough? For us, we're interested in industry-leading dominant plays. However, there is a lot of money out there that will invest in these categories. Some of these companies will be acquired, and some of them will maybe have IPOs that will be less than spectacular from our point of view. As long as there is a tremendous amount of dollars in the system and a pent-up desire for investors to play in these categories, you will see multiple bets and you will see people racing to be No. 1 in a category. _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP					RELATED ITEMS IVP Redpoint Ventures BW e.biz Nov. 1, 1999: "The Great Yuletide Shakeout" Jeffrey Wilke: Guiding Amazon's Foray into Bricks and Mortar Gomez Advisors: Scorecards on Internet Storefronts