Month: February 2004

Venture Capital

Why I blog as a VC?

Posted on by Ed Sim

Recently, a number of people asked me why I blog as a VC. Isn’t privacy a good thing for VCs? Don’t you want to keep the good ideas to yourself? For the past couple of years, I had my own personal blog which I mainly used as a bookmarking tool so I could retrieve interesting news stories and my running commentary from any web browser. As I made the leap to the public blogging world, I really did not know what I would find until I threw myself out there.

So, after my first 6 months or so, here is what I like about blogging. Blogging provides me with an outlet for my views on technology, venture capital, and other current affairs. Yes, like most VCs I am opinionated, and what better way to express them than through a blog. Instead of beta testing a product, I get to beta or alpha test my opinions or thoughts and receive instant feedback no matter how far-fetched my ideas may be. I find this incredibly valuable as a number of people either email me directly or post comments and tell me I am off the mark, on the mark, or point me in new directions to further research my ideas. People send me information about new companies or even their resumes based on some of my current interests. As a VC, this is a great way to have an ongoing dialogue with an active and participatory audience. BTW, any product companies out there should think about using blogs and other technology like RSS to build long-term relationships with their customers and get instant feedback on product direction and features. Secondly, based on my posts, I have built some new relationships by engaging in conversation either directly or indirectly through my blog. Last week at DEMO, it was actually nice to have met some of the bloggers that I regularly read and with whom I share similar interests. Next, understanding the value of the blog, I actively read and subscribe to a number of other people’s feeds to learn about the hot topics of the day and to understand what the early adopters are currently thinking before a new technology or idea goes mainstream. I get to listen and participate in on the conversations about the next product or idea that will reach the tipping point as many of today’s innovative thoughts gather steam and build momentum through a word-of-mouth or word-of-network manner. Of course, the danger can be drinking your own kool-aid from the blogger community (think Howard Dean-he seemed really hot with the bloggers but did not fare so well in the primaries) so some balance is required here. Finally, it is alot of fun, and I hope you keep visiting and actively commenting either privately or publicly.

Venture Capital

Demo reflections

Posted on by Ed Sim

I try to limit the number of conferences that I attend every year to a handful. Besides Esther Dyson’s PC Forum, there are few others that I like to attend regularly. However, I have to say that Chris Shipley’s Demo was a great show. Read more about it on Ventureblog.

Being on the east coast, it was great to catch up with a number of west coast VCs that I have not seen in awhile. Sure there were lots of great companies at the conference, but getting together with the other VCs to trade notes about deals that were in our pipeline was extremely valuable. For any company raising capital these days, it was clear to me that we are all eager to put money to work. There were all flavors of investor interest, some were excited about mobile telephony and cell phone games, others continued to like security and data center-related deals, while some liked consumer deals. The common theme I heard echoed from all of us was that management was key. When someone brought up a deal, it was not long before management was mentioned and in the context of how successful they were in prior startups. Yes, this is nothing new, but I thought I would just reiterate how important it is to have the right team and prior experience really helps! It was also clear that many of us were interested in blogging and understood the groundswell building but were not quite sure how to capitalize on that from an investment perspective. So all in all, it was a great conference and one that I plan on attending next year.

Entrepreneurship

Demo Day 2-@Home/Collaboration

Posted on by Ed Sim

The morning is off to a great start with a few home networking/digital media boxes for consumers. The battle for the home is in full swing between MSFT’s vision of the PC as the gateway to the home and companies like Akimbo, BravoBrava!, and Molino Networks bringing full digital media management to the set top box. It is truly quite amazing how much functionality continues to be added to these consumer devices, and how easy they make it for the consumer to view, listen and share their CDs, DVDs, downloaded video, and pictures. See Jeff Nolan’s blog for more information. If I were Microsoft and Tivo I would be worried.

One of the problems with collaboration via Webx and Placeware is that it is still not easy to use, the pricing is not friendly, and it requires users to schedule meetings in advance. Today’s companies, Convoq, Sightspeed, and GoToMeeting (Expertcity-a portfolio company) are all designed to allow users to take advantage of the daily, ad-hoc and spontaneous meetings that are not currently captured by the incumbents. Not only do they bring disruptive technology to the market making it incredibly simple to organize meetings and web video conferences but also disruptive pricing to increase usage. So if I were Webx and Placeware, I would keep an eye out for these companies which will allow users to host unlimited meetings for fixed monthly costs.

Entrepreneurship

Demo Day 1 Recap

Posted on by Ed Sim

Day 1 is about over and after having sat through a number of interesting pitches, it is funny to hear the PR folks saying that many of the journalists are more interested in consumer/web-oriented companies than the enterprise-related businesses. Has the pendulum swung back to the consumer and web? It seems to me that home entertainment, wifi networks, and blogging are all the rage these days. And yes, they are hotbeds of innovation. Recently enough, the idea of VCs getting excited about the web/consumer area was contrarian, and now I am sensing it is not that way anymore. OK-I loved alot of the discussion in the morning and the agile enteprise afternoon session wasn’t as enlightening as I hoped, but there were definitely some interesting companies that presented. One is Metapa (full disclosure-a portfolio company) which is bringing the power of commodity computing (Lintel) to the data warehousing market allowing companies to realize 10-50x price performance over the standard Teradata, Oracle, IBM and Unix $1mm+ systems. Another interesting company was IMlogic which has a platform to allow you to integrate existing enterprise applications with IM.

Entrepreneurship

Demo 2004

Posted on by Ed Sim

I am at Demo 2004, and it is great to feel the positive buzz in the room. There are lots of VCs and press in attendance, and it is clear that entrepreneurship is alive and kicking. In fact, it never went away as a number of companies that presented in the morning have been around for a few years. Hopefully, I will get a chance to post on some interesting companies and technologies that I see but for now please stay on top of Demo through Jeff Nolan’s Day 1 posts.

VOIP

Want to be your own long distance player?

Posted on by Ed Sim

Ted Shelton has a great post about the economics of VOIP. According to Ted it does not take a lot of money to get your own long distance company up and running, say $8k of capital equipment costs not including the variable cost of running T1 lines, etc. If I can now take open source software (Asterisk), off the shelf Lintel boxes, and cheap cards to manage the T1 PR1s to interconnect with the public telephone network, and for $8k upfront be my own phone company, that is a scary proposition. Of course, this is oversimplifying the matter as it does not include the expense of sales, marketing, and customer support. However, this is yet another example of a broader trend, the commoditization of hardware and software. There are no sacred cows here. Even expensive telephone gear and equipment is at the mercy of the open source and Lintel movement.

EconomyEntrepreneurship

Tapping the Chinese marketplace

Posted on by Ed Sim

While tapping the growth of the Chinese market sounds like a good idea, a fellow VC who just got back from a trip to Beijing and Shanghai says he completely understands why his companies are not getting any real traction in that market. Besides the highly politicized nature of business, there is a pervasive “catch me if you can” philosophy inherent in the economy. Think about it-moving from a world where the state owned all enterprises to a hybrid form of capitalism is not easy. In the past, it was always the people versus the government, and therefore there was little respect for financial instruments like debt. It did not matter if you defaulted because you would be bailed out anyway. Extend this same thinking on debt into the private market, and you get a system that does not function well. Therefore alot of business is done cash on delivery as business credit does not exist. Throw in lax IP laws and the fact that China is thousands of miles away from the US and you get a difficult market to operate your business. So the next time someone tells you that they will get x% of the market in China, remember how difficult it really is to operate in a far away land with different rules of engagement in the business world. This will obviously get better with time.

Entrepreneurship

Building your business around customers

Posted on by Ed Sim

Fred Wilson has a great post about building a “customer-obsessed company” as opposed to a “technology-obsessed company.” This is good advice and reminds me of a number of companies built during the bubble period which were technology companies in search of a problem to solve. For early stage companies building their business, some of Fred’s advice includes investing “in the customer facing side of the business and in particular account management and customer service which are the “eyes and ears” of the organization and in product management (the “soul” of the organization) to synthesize this feedback into new and better products.” One important point when working with customers is to make sure that you do not support too many “one-off” requests. You must be extremely careful to make sure that the features and fuctionality that you build are “market-driven” meaning a number of customers or prospects support them versus one-off deliverables.

I was just at a board strategy session with one of our new investments where we are in the process of ramping up the business. As we reviewed the 2004 budget and dove into the technology department and product deliverables for the year, it was clear that the developers were getting pulled into many different directions. This is a common problem. Many companies that bootstrap their businesses tend to have developers acting as presales support, post sales support, and customer service. Every second a developer is out helping with a customer is a second not focused on advancing the product. Every second a developer is coding is time not spent answering customer support issues. As you ramp, this is not an ideal solution. So our recommendation was to make sure that the company created a separate presales group/sales engineering group to work with the sales team and to make the investment now to create a separate customer service organization to build for the future. As Fred mentions, too many companies overlook the customer support side of the business. Many times, putting the right customer support processes and organization in place early can mean the difference between success and failure.

And yes, product management is an incredibly important role to fill early on in a company’s life. This function should serve as the intermediary between market and customer requirements and engineering. If you have someone too close to sales performing this function, you may end up with a focus on short-term results where too many one-off requests are made to just close a deal. If your engineering handles this, you may end up with an over-engineered product that does not meet customer needs. Your product person should be in marketing with significant experience balancing the short-term and long-term needs of the various stakeholders. This includes gathering data from customers (direct meetings, customer support, sales team), prospects, analysts (yes it is a necessary evil), and your own team to prioritize the product “must-haves” for the next release.

EntrepreneurshipVenture Capital

The VC/entrepreneur relationship

Posted on by Ed Sim

Many of you have heard the analogy that the VC due diligence process is like dating and getting the investment is akin to being married. For all of you in relationships, you also understand that honest and open communication is one of the keys to success. Similarly, the VC and entrepreneur relationship should be built on the same foundation. Trust me, I know when one of my portfolio companies closes a new and important deal because good news always travels fast. However, bad news does not travel so fast. I urge the entrepreneur to share the bad news just as quickly as the good news. Why? If you tell the VC sooner rather than later, we can help. If you have an experienced VC as an investor, you can bet that he has seen the movie before and at the very least can offer advice and words of wisdom to help you in your decision making process. If you wait for the board meeting, it is too late for us to have any impact. Secondly, VCs don’t like surprises. Err on the side of too much communication initially than too little. Sure, we won’t be happy with bad news. We’re even unhappier about bad news when we are told at the 11th hour with no ability to influence the decision. You can tell alot about your VC by his demeanor when confronted with tough and unexpected negative situations. In fact, in your investment process, ask yourself this question, “When things are going bad, is he going to roll up his sleeves and help or simply yell and bark orders.” As Clint Eastwood said in the movie The Good, The Bad, and The Ugly, “There are two kinds of people in this world. Those with loaded guns and those who dig. You dig.” Hopefully, you won’t have the VC with the loaded gun, but rather the one who will pull out a shovel and help.