An Entrepreneur's Inner Voice of Doubt - with Mike Smerklo, Next Coast Ventures and Mr. Monkey and Me author

**Ray Wright** (0:00)
Hello, I'm Ray Wright, founder and CEO of RevOp Squared, and host of the Metrics that Measure Up podcast. We talked to a wide variety of B2B SaaS industry thought leaders, executives, and people just like you to discuss what metrics, KPIs, and benchmarks they use to enable better data-driven metrics-informed decisions that accelerate revenue performance and increase enterprise value. Now, on to today's show. Welcome to today's episode of the Metrics that Measure Up podcast. Today, we are joined by Mike Smerklo, former ServiceSource CEO, co-founder of Next Coast Ventures in Austin, and author of the Amazon bestseller, Mr. Monkey and Me. Today, we will be covering three main areas. One, Mike's lessons learned from taking ServiceSource public. Two, the three most important attributes of deciding to make a venture investment. And three, the motivation behind writing Mr. Monkey and Me and the key takeaways. Mike, please take a moment to give a brief background overview of your journey to becoming a guest on the Metrics that Measure Up podcast.

**Mike Smerklo** (1:18)
Thanks, Ray. Well, it's great to be here. I really appreciate you all taking the time. My quick background is I graduated a long, long time ago. First person in my family ever go to college. Started up my career in financial services, jobs, public accounting, investment banking. I put in the book, I learned a ton but hated both of them. Along the way, I got my MBA at Northwestern.
Moved out to Silicon Valley in the late 90s, was part of the.com boom. My first operating job was with two legendary entrepreneurs, Mark Andreessen and Ben Horowitz, early employee at LoudCloud. Became Opsware, stayed on through IPO, and then raised a small pool of capital to buy a business. That business was ServiceSource. I bought it when it was a small company, a couple million in revenue and a handful of employees, and ran it as CEO for the next 12 years. By the time I retired, it had 3,000 employees, close to 300 million in revenue, and was and still is a publicly traded company.
Then I started a venture capital firm that you mentioned, Next Coast Ventures in Austin, Texas. We invest in early stage technology companies in what we call the Next Coast, which is basically anything outside of the valley or markets like it.

**Ray Wright** (2:18)
Next Coast Ventures, that must be the coast of the river that runs through Austin, right?

**Mike Smerklo** (2:22)
Yeah, that's right. There is water there. It's so funny. A handful of years ago, we had this idea that you could build great companies outside of the valley, and now everyone's moving to Austin. The real estate agents love it, but everyone else has got to say, okay, stop the presses.

**Ray Wright** (2:37)
Well, let's dig into many topics, but let's start with one I think are listeners who are primarily entrepreneurs and operating executives of B2B SaaS companies, and that is you used a very different method to launch your first company, and you used a search fund to purchase ServiceSource and all the way to taking it public and reaching the levels that you just mentioned. Tell us a little bit about your experience using a search fund. Is it still a good option for aspiring entrepreneurs today?

**Mike Smerklo** (3:04)
Yeah, Ray, I think it's a great option. I had the chance, as I mentioned, I'd worked with Ben and Mark and seen what great technology-centric entrepreneurship was all about, and I wanted to do it. The problem is I didn't have an idea of my own, at least a good one. I had lots of ideas, not too many good ones. So I came across a search fund, which is really an opportunity. It's also called Entrepreneurship Through Acquisition, and it does provide folks that don't have a specific idea they want to pursue, a way to go acquire an existing business. And what it means is while you're not starting from scratch, when you buy the business, you search broadly and you find something to buy, you then take it over and run it. And so you become the CEO through the acquisition. So you still get all the entrepreneurial activity, but you just don't start from scratch. And I think it's a great way for folks that don't have a burning idea or a mission in their mind from day one.

**Ray Wright** (3:52)
Well, for those aspiring entrepreneurs who don't have that great kind of differentiated idea today, do they have to raise money as part of the search fund or are there large institutional investors that will partner with you to help fund that acquisition?

**Mike Smerklo** (4:05)
Well, interesting enough, without sounding too commercial, Next Coast is actually has a fund that invests in search funds. So I just throw this out there. But there are a handful of institutional funds and high net worth individuals that invest in search funds. But it's typically a two step process. You raise a small pool of capital, call it a half a million dollars or so. And that provides you a couple of years of a modest salary and it covers all the expenses you need to go acquire the business. So it's a kind of a two year journey, typically takes about 18 to 24 months to find a business to buy. And you can do it on your own money, but most people do raise a small fund that then converts into the ownership of the company you acquire.