Rustic Canyon Speaks out on GaiKai Exit, Changing Nature of VC, LA Tech & More

Posted on Aug 29, 2012 | 3 comments


Nate Redmond is the managing partner of Rustic Canyon Partners – he’s probably one of the youngest managing partners of a major fund you’ll meet. And no wonder, lately he and his partners are on a tear, investing out of their $200+ million VC fund.

 They recently exited their investment in Gaikai for $380 million while their rival OnLive (who had raised > $200 million) just went through bankruptcy. Not bad, hey?

And they had another recent $100+ million exit of Savings.com. Both companies were in Los Angeles. He penned a great piece on the LA tech community here in Forbes.

We sat down for an hour to talk about why what GaiKai built was able to overcome its much better funded rival and to dispel the myth that great engineering teams don’t exist in Southern California. GaiKai had 50 such engineers, which was a large part of its success. I’d hate to frame Nate’s answer into a key phrase so it’s better to watch that section of the video.

But my take: Gaikai had superior technology & a superior business strategy.  They were mostly a B2B platform enabling game publishers to deliver via Internet streaming their traditional games built for game consoles. That let people play popular titles, for example, directly in Facebook. By not forcing the publisher to go through a Gaikai portal where they tried to control customers, they engendered trust from the publishers.

OnLive’s tried to build a direct-to-consumer model led by an allegedly maniacal CEO who in the end fired all of his employees with no severance and then tried to relaunch the business with a subset. This is a riveting read and tale of ego, bad business practice and shady ethical behavior – if the article is even 50% true. I don’t know the company or the details first hand. But apparently the B2C model meant that many publishers didn’t want OnLive to carry their full inventory. And so they never got consumer adoption. Reportedly they only ever had 1,600 concurrent users despite burning through a ton of cash.

We spent a bunch of time in the video talking about “disruption” as described by Clay Christensen in his seminal book, “The Innovator’s Dilemman” which I profiled here.  I was influenced by Clay’s work and Fred Wilson has also said that he, too, was influenced by him. But Nate actually worked directly for Clay for a year-and-a-half! He talked in the video about how he finds it helpful in companies to think about practical theory and frameworks for thinking about company strategy. I agree with him.

We also spent a fair bit of time talking about the changing nature of venture capital and in particular the hand-on practitioner role of early-stage VC led by accelerators such as YC, 500Startups, Betaworks and the like.

Nate followed through on his views by investing in LA incubator Science, run by the venerable Mike Jones, who is a former founder (UserPlane, sold to AOL), tech exec (at AOL and later at MySpace) and one of LA’s most prolific (and well liked) angels.

We both agree that VCs are better off not doing “seed investing as an option” type activities.  I’ve laid out my policy on seed investing pretty clearly and publicly.

Anyway, I think you’ll enjoy hearing Nate’s views on the industry and how he went from associate (03) to partner (06) to managing partner (10) in such a short period of time.

And if you want to also hear Nate’s partner Dave Travers we had him on TWiVC some time ago.

Hope you’re enjoying the show. You can watch on YouTube or download the podcast (for the gym!) or video podcast. Or of course you could watch it live – we take questions for the audience.

Leave a note in the comments section with some other people you’d like to see on the show.

A summary of the show with direct links to a spot you might like to watch is below:

1:00 Welcome everyone to episode 69, season 3 of This Week in Venture Capital. My guest today is Nate Redmond. Nate, tell us a bit about Rustic Canyon Venture Partners.
4:30 What changes going on right now do you perceive in our industry?
8:00 Is your model still a hands on approach?
10:15 Do you the LPs are more open-minded to single VC funds today?
12:00 It seems like there’s a shift in the VC world to more ex-entrepreneurs. Is that a real trend?
15:00 Question from the chat: Are VCs moving to be consulting companies in some parts?
16:15 Thank you to Detroit Venture Partners for their support of the show.
22:00 Mark’s book recommendation: American Pastoral by Philip Roth
23:00 Question from the audience: Do VCs have a preference for startups that choose to work with incubators?
28:00 Nate discusses his partnership with the company Science, run by Mike Jones.
30:30 Mike Jones is one of the five most prolific angel investors in southern California. And I suspect that, at Myspace, he got a lot of experience on how to run a product at scale.
33:15 Have you noticed a change from 2003 to now in the “serendipity factor” of Santa Monica?
36:00 Nate: The culture in LA is by far the most entrepreneurial culture in the country. I saw a study out of the Kauffman foundation that said the rate of startups in LA is higher than anywhere else in the country.
39:00 Tell me a little bit about Gaikai and how you got involved.
41:45 As a publisher, did I have to do a lot more engineering work to make it available for Gaikai?
44:00 Thank you to Scott Walker of Walker Corporate Law for supporting the program. Everyone follow him @scottedwalker.
47:30 Savings.com, which was one of your investments, was recently acquired, right?
48:30 Nate’s bio, in brief.
49:30 What was it like to work with Clayton Christensen?
57:45 Nate: The differences between Gaikai and OnLive’s development.
59:00 So you were only an associate at Rustic Canyon for a few years before you became a partner. Tell me a little bit about that journey.
1:07:00 Thank you to our sponsors, Detroit Venture Partners and Walker Corporate Law, and also thank you to Nate Redmond of Rustic Canyon Venture Partners. We’ll see you next time.

  • http://www.bluecoastrecords.com/ Cookie Marenco

    Very informative! The last twenty minutes on Gaikai was exceptional. “Innovator’s Dilemma” is on my buy list. Thanks, Mark

  • http://dissertationmonster.co.uk/ dissertations

    “Innovator’s Dilemma” is on my buy list too!

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