As managing partner of TMCT Ventures, Tom Unterman is in charge of a $550 million fund financed for the most part by one of the most prominent families in Los Angeles
Although he has little experience as a venture capitalist, Tom Unterman presides over one of the biggest VC funds in Los Angeles. Most of the $550 million he oversees at TMCT Ventures comes from the Chandler family, which until recently owned a controlling interest in the Los Angeles Times and its former parent company, Times Mirror Co.
Unterman has long been associated with the Chandler family and its business. From 1992 through 1999, he was executive vice president and chief financial officer of Times Mirror, and before that a vice president and general counsel at the media giant.
The decision by the Chandlers this spring to sell Times Mirror to the Tribune Co. thrust Unterman from his customary anonymity when it was learned that he had served as the family’s point man on the deal, reportedly pocketing an investment advisory fee of $5 million in the process. As an advisor to the Chandlers, Unterman now sits on the reconstituted Tribune board.
Prior to joining Times Mirror, Unterman was a partner at the L.A. office of law firm Morrison & Foerster, where he specialized in corporate and securities law. He currently serves as a trustee on the boards of the KCRW Foundation, the Los Angeles Museum of Contemporary Art, Los Angeles Sports and Entertainment Commission and various other non-profit community organizations.
Question: What kind of companies are you investing in and how has that changed since the spring shakeout of e-commerce firms?
Answer: Companies that attract us demonstrate the creation of fundamental economic value. We tend to look at them and evaluate them without regard to quick exit, although exit and path to exit is important. I had an approach that I thought was unique, but I’ve heard others do it as well: Before deciding to look at a business plan twice, I look at the projections and I cut the first year of profitability in half. That eliminates a great many investments. We’re looking right now at a variety of things, ranging from telephony software and telephony service providers to optical network companies to other Web-based businesses. We basically make one commitment a month, something like that.
Q: You recently participated in third-round financing of eHobbies, which is the kind of business-to-consumer company currently out of favor. Why?
A: That was the first B-to-C investment we had made in a year and a half, and I’m crossing my fingers that it’ll turn out OK. We did it because it didn’t have any of the characteristics that you shy away from in B-to-C. It doesn’t require a heavy national media campaign to promote, they don’t offer commodity products that are subject to deep discounting, (and) it’s not a very competitive space. In fact, (eHobbies is) meeting and exceeding all of the initial objectives set for them in terms of revenues, traffic and things like that, which is atypical. But right now they are facing a very difficult market in terms of continuing to finance their growth. I think that’s one of the things that is unfortunate, that the swings in perception (about e-commerce firms) have been so violent on both sides. This time last year all you needed was a name and you could raise $60 million; now you can have a business that is growing and has a good, well-defined competitive advantage and you can’t get anyone to talk to you.
Q: What is your typical size of commitment?
A: We like to think that over the life of an investment we’ll put at least $10 million to work. So depending on the stage and how many rounds of financing we can see over the life of the company, it’ll cover a range. We tend not to make initial investments of less than $5 million. We have one $35 million position.
Q: In return for what percentage of the company?
A: I’m not as driven by that as others. I’m very return-driven but not by percentages. It varies. We invested $10 million in Amber Networks and got 2.5 percent of the company. The flip side is we invested $5 million in another situation where we got 30 percent. Different stages, different levels of capitalization.
Q: How many companies have you invested in, and where are they located?
A: About 25, with a heavy predominance in Southern California. Northern California has the next biggest concentration, and three or four in the Northeast. One reason we formed this fund is we thought Southern California was underserved by the venture capital community, and we wanted to fill that need. And that has proven to be the case, which is why we have a Southern California emphasis on our companies.
Q: Some of L.A.’s biggest venture capital recipients have run into hard times of late. Is there some inherent flaw in Los Angeles-area business models, which have tended to focus on content?
A: Any notion that there’s a flaw with L.A. in general and the L.A. style of business I don’t think is right. As you go in and look at new business plans and talk with entrepreneurs about their ideas, you sort of assume that 90 percent, 95 percent are not things you want to finance. They like to say this is a business where you kiss a lot of frogs. I think what was aberrational was the period when everybody could get financed. There was a period where everything we saw, in one way or another, got financed. And we sat back and said, “Well, wait a minute, what’s going on there, are we missing something?” And some we missed, and some we passed on in the past six or nine months that are good companies and will create value, no question. But we’re actively financing Southern California-based businesses. Last month we invested in three, including Creative Planet. So, no, I’m not thinking that there’s a problem with the way people in L.A. think about business.
Q: Most VC firms raise money through institutions. But your fund is strictly Chandler money, is that correct?
A: There was a fairly complex recapitalization of Times Mirror Co. that was accomplished in September of ’99. In connection with that, a portion of the assets that the Chandler family controlled, they chose to invest in venture capital and private equity, and they asked me to put together a group to manage it. That portion is TMCT Ventures. Times Mirror had a fairly active venture capital investment program of its own, and as we knew this (recapitalization) transaction was coming, some (VC deals) were sort of pursued with the idea they would go into this new fund. We bought some investments from Times Mirror that didn’t relate to their core businesses, and we had two or three people looking for investments during the summer of 1999. So we hit the ground running.
Q: So all $550 million is Chandler money?
A: The structure is quite complex. In essence, 80 percent of it is Chandler money and 20 percent of it is Tribune Co. as the successor to the Times Mirror Co. Once it gets to us, we operate just like any other venture capital fund.
Q: Did Tribune Co. have to approve its participation in TMCT?
A: No. It was something they inherited with the merger. The investment was made, the commitments were made. It was just one of the things they bought.
Q: How much of the TMCT Ventures fund has been invested?
A: A little bit more than a third, a little under $200 million. We’ve gone a bit faster than we thought.
Q: Have any of your companies gone public yet?
A: No. In February, we thought we had six that would go public in the next couple of months, and it seemed the world was too good to be true. And it was.
Q: Has the postponement of these IPOs caused concern among members of the Chandler family?
A: Well, I don’t want to get into the back and forth of what we tell them or not. We do talk to them very regularly, at least monthly, about our portfolio’s progress. Suffice it to say that when it was all lined up for a whole bunch of things we had invested in to go public, they understood that we felt like the world was too good to be true. We’re pretty comfortable that we’re still on track to make our hurdle objectives, which are about 40 percent annually, compounded. It would be nicer if we can do 200 percent a year, but I don’t know anybody who’s done that for a sustained period of time.
Q: Which member of the Chandler family is most interested in the investment portfolio?
A: I can’t get into that. They’re a pretty private group.
