Nationally, the Partovi twins don’t have the same name recognition as another pair of high-powered twins who will soon be appearing in StrictlyVC. But in the Bay Area, the 41-year-olds’ involvement in a startup – as both operators and investors – is a powerful signal that a company is probably on to something big.
Ali Partovi was on the founding team of the Internet ad company LinkExchange, acquired by Microsoft in 1998 for $265 million; Hadi Partovi was on the founding team of the speech recognition company TellMe Networks, also acquired by Microsoft, for $800 million in 2007. The brothers have also been early investors in Zappos, Facebook, Airbnb and Dropbox, among others, and they’ve cofounded two organizations together: iLike, a social music service that sold to MySpace for a reported $20 million in 2009, and Code.org, a two-year-old nonprofit that’s making computer science available in more schools. (This reporters’ sons have participated in its one-hour introduction to computer science, along with more than 75 million other people.)
StrictlyVC recently talked with the twins to learn more about their relationship, what’s most interesting to them right now from an investing standpoint, and what they make of the broader market. Our chat has been edited for length.
Hadi, you live in Seattle, while Ali lives in the Bay Area. How long have you lived in different cities, and how often do you see one another?
HP: I’ve been up in Seattle since 2002, but we see each other every few months.
You’ve been investing together for many years. How full-time is that pursuit? How involved are you in Code.org?
HP: Code.org now has 40 employees; it’s pretty all-consuming. We’re still investing as angels, though as a side job, which is when we’ve been best at investing. Because we don’t have enough time, we reject almost everything. But being picky makes us more selective. Of the 30 to 40 investments we’ve made, only two or three have been failures, and we’ve had 13 or 14 exits.
How many companies did you back in 2014?
AP: We made only four new investments. Over the past five years, we’ve averaged only four new investments per year. If anything, I’d be happy with even fewer. Our annualized IRR as investors has been 44 percent, not including Dropbox, Airbnb, Indiegogo, and others [that haven’t exited yet].
How does a startup win you over?
HP: We like companies that are making a social impact – not a charity but companies that have a vision that the world should be different and better. Snapchat, for example, is a really high-value business, but it’s unclear that its mission is making the world a better place. We also like tech that’s disrupting the physical world.
But the quality of the people involved is what’s most important. We’re probably the only investors out there who will run a tech team through a tech interview as if they wanted to get a job at Google or Facebook. After all, why would an investor give tons of money to someone who couldn’t possibly get a job at [one of those two companies?]
Have you missed out on deals because of that hurdle?
HP: Some, though if we miss them, it’s not a big deal. We can afford to be choosy. Also, I think entrepreneurs recognize that our investment means a lot and that they can tell other people, including other VCs, who know about our interview process.
What size checks do you write and what do you expect for your money?
HP: Check sizes range from $100,000 to $250,000 typically, and the size of the stake completely depends on whether something is earlier or late. I think the biggest check we’ve written was $2 million for [the still-private, cloud-based electronic medical records company] Practice Fusion, which we think is incredibly promising.
Would you make an investment without your brother’s blessing?
HP: Yes, though we’ve made better investments when it’s unanimous. Ali has a passion for food-related investments, but almost all the rest have been joint investments.
You were both investors in the food tech company Hampton Creek, correct? Did you participate in its $90 million Series C round, announced last month? Ali, you even joined, then quickly left, the company as its chief strategy officer. Are you and Hadi still investors in the company or have you sold your stake to other investors?
HP: We did not participate in Hampton Creek’s newest round.
AP: We are still holding our shares in Hampton Creek. Hadi and I’ve actually co-invested equally on most of my food and agriculture investments, including the biggest ones: Hampton Creek, BrightFarms, and Farmland. This is an area I’m very passionate about. I see enormous opportunity to make agriculture not only better for the world but also more efficient. [But] it’s important to temper passion with skepticism, and this is why Hadi and I make a good team. One of us always plays devil’s advocate. I rarely invest in anything if I can’t convince my identical twin brother to do so, too, and vice versa.
Have either of you ever failed miserably at something?
HP: I’d consider our last startup [iLike] a flop. Getting acquired isn’t bad, but getting acquired by MySpace, which was clearly on its way out of the history books, is. iLike had a meteoric rise but also a meteoric fall. We made a bet on the earlier version of Facebook’s platform, which enabled us to quickly grow to 16 million users. Then Facebook changed the rules of platform. iLike was one of many companies that built a user base on Facebook, then realized that user base wasn’t going to last.
AP: I agree. I [also] think there’s still a big opportunity in music discovery. While iTunes and Spotify have replaced the retail music store, nothing has emerged that truly replaces radio and MTV as a medium for discovering new music, learning about new releases and upcoming concerts, and creating a sense of community around shared music tastes.
Where else do you see opportunity, heading into 2015?
HP: We’re almost entirely consumer facing with a few exceptions. The one deep technology thing we’ve backed is Nervana [a San Diego-based company designing chips, hardware and software to speed a computer’s ability to learn over time]. There’s a whole lot that people don’t imagine that computers are capable of but that you’ll see in the next five years. It’s still in the R&D stage, but we think it’ll be a breakthrough architecture.
There are also a lot of untapped ideas and spaces if you think about changing the physical world and the many things that could be done better with computing and technology. For example, we think 3D printing will come online in a real way in the next few years, moving more from printing collectibles into furniture and artificial limbs that are the exact size needed.
People also talk a lot about self-driving cars, but we think you’ll see self-driving ships even sooner. A lot of time and money is spent putting big boxes on ships, including the people [required to staff them]. But unlike self-driving cars, which can seem scary – there are a lot of people on roads – the most dangerous thing about a ship is the people on board, who could drown. As long as you don’t puncture a ship, the worst thing that could happen is that it will stop.
Photo by Susan Tripp Pollard/Bay Area News Group