Peter Lee on joining Baroda Ventures

Marking his return to investing, GeoCities founder David Bohnett is expected to close a new investment this week, only the second he has made since 2005. To manage Baroda Ventures, his Beverly Hills, Calif., venture firm, he recently brought aboard Peter Lee as a partner. Lee is a former investor at Clearstone Ventures and Prism Ventures.

In The Deal's Q&A with Lee, below, he discusses the roles Bohnett and he are playing at Baroda as well as the kinds of deals they're interested in doing, and he answered some pointed questions about his compensation.

GeoCities, founded in 1994, was one of the first places on the Web where you could create your own home page. It quickly became a hit and rode the dot-com wave, going public in 1998 and then selling to Yahoo! Inc. (NASDAQ:YHOO) in 1999 for $3.6 billion.

Bohnett "made a bundle in the sale of GeoCities," according to venture capitalist Fred Wilson, whose first firm, Flatiron Partners, was an early investor in the company. Wilson didn't do too badly on the deal either, calling GeoCities "the first rocket ship ride I had in the venture business." (Recently, Yahoo! announced its intent to shutter GeoCities.)

Bohnett set up Baroda Ventures in 1999 and began backing early-stage consumer Internet companies. Many of them did very well, including LowerMyBills.com, acquired by Experian for $350 million; Stamps.com Inc. (NASDAQ:STMP) and NetZero Inc. (NASDAQ:UNTD), both of which went public; Xdrive, which sold to AOL; and MediaVast Inc. and WireImage Inc., both sold to Getty Images Inc.

By 2005, Bohnett had invested in 20-plus startups, but he decided to stop investing in new companies so he could focus on nonprofit work under the David Bohnett Foundation, which he founded in 1999. Since then, he has donated $35 million to various charities and currently is the chairman of the board of the Los Angeles Philharmonic Association, a board member of the California Community Foundation and a trustee of amfAR (The Foundation for AIDS Research) and the Los Angeles County Museum of Art.

Since 2005, he's made only one new investment. In 2007, he backed an online video search and directory service called OVGuide, which was founded by Dale Bock, a senior engineer at Xdrive.

Enter Peter Lee.

The Deal: How did you meet David Bohnett?

Peter Lee: I met him about a year and a half ago when I was working at Prism. They're based in Boston, and I helped set up their L.A. office. I was looking at OVGuide as a follow-on investment, and I met David to look at that company. We didn't do that investment; we were looking at a bunch of companies in the online video space. But David asked me to be an informal adviser to OVGuide, and since then we've been interacting a couple of times a month. We became friends to some extent, and we started talking more and more about his own personal interests in investing.

David loved early-stage startups and working with entrepreneurs who are passionate about consumer Internet, but he's too busy with his foundation and boards to devote the time needed to invest in them. And he's traveling a lot so he's not always available. So he asked me, "Why don't you come over and help run my fund?"

How involved will Bohnett be in the new investments Baroda Ventures will make?

David will stay involved as an adviser, but he doesn't have time to devote to things like doing dillgence so I'll run his fund, and we'll stay in contact with phone and e-mails while he's gone traveling for sometimes up to six weeks. I won't introduce David to a company until I'm ready to invest in them. He can veto anything he wants. It's his money.

How much control will you have over the investments?

I'm about to close my first investment, but he hasn't met the company. I met them and did the dilligence. Then I gave David a presentation about them that was about 30-45 minutes, and he said "Yes."

Can I write a check without any involvement from him? I don't think so. I wouldn't want to. He's an experienced guy, and I want his perspective.

What can you tell us about the first investment you're making?

It's in the social media advertising space, and it raised a big Series A a couple of years ago. The investor who led that round had some portfolio issues with the market collapse and can't continue to support the company, so we're participating in a Series A-1 recapitalization led by someone else.

They've spent more $10 million building the technology, and they have real assets and revenue and customers. The VC firm that came in really got crushed in the market. But for the valuation we're going in at and for the kind of asset traction the company has, there's a lot of value in it. They'll do a couple of million in revenue this year.

It's a really good time in the market. There are a lot of VCs out there who are abandoning companies with good assets. There's going to be a lot of that in the market downturn.

Do you expect to do more investments like that?

That won't be the norm for us. We want to do seed and small Series A investments. We want to be the first institutional money in a company. A typical investment would be a company that might have some small angels; they might have built a product, but maybe it's not fully launched -- but it won't just be an idea on a napkin. It will be building something and show some evidence of expertise with a management team and an idea.

In this market, there are enough companies with good valuations that have products built or partially built. And there are a lot of very scrappy entrepreneurs. They're smart, but they're not necessarily the guy who sold a company for $30 million. They're maybe first-time entrepreneurs, or more likely second- or third- but maybe not a founder but an early employee in a company that understands growth.

How much money will you invest, and whose money is it?

We'll invest $500,000 to $1 million and allocate $2 million to $3 million over the lifetime of an investment. We'll make about three to four investments per year in that range, and we'll likely take a board seat. We'll invest between $5 million and $8 million a year, so think of us as the equivalent to a $30 million-$35 million fund.

All of the money is David's.

Why not take limited partners?

David has never invested anyone else's money in the past, and he's never had anyone else invest his money in private companies. It's a big enough step for him to trust me and bring me in on his investments. We'll see how we do. In a couple of years, if we're a well-oiled machine, then maybe we'll expand it.

What's your compensation?

I'm a partner, and my role is to run the fund. He's an adviser, and it's his money. From a cash compensation perspective, I'm not getting paid like a partner at a big VC fund, but I'm getting paid OK.

My compensation is around the carry. I have a good piece of the carry, which aligns me in terms of making good investments. I can make a lot of money very quickly if I make good investments.

- Mary Kathleen Flynn