deal architect

There is capital and then there is capital

In the 90s when George Shaheen was CEO at Accenture I was at a dinner speech where he said “Like Bechtel, I want my firm to go in to obscure parts of the world and raise cities where they were none. Digital cities in our case”. I could relate. 10 years prior as a young auditor I had spent time in the city of Jubail, Saudi Arabia where Bechtel had been the master program director. I was impressed with the thousands of blueprints and program plans which showed the complexity of coordinating massive shipments from Japanese, Korean and other suppliers. And labor from at least 20 countries that turned that piece of arid desert into a modern township.

Like Accenture, Bechtel is a darned good integrator. Like Accenture which is good at managing staff ebbs and flows, Bechtel is good at managing cashflow ebbs and flows.

But today, I see a Bechtel rep say about VC investment in Greentech “Capital needs will be far greater than what venture capitalists experienced with high tech.” Actually infotech has seen much bigger investments than the construction industry. It’s just that VCs were selective which segments of the industry they chose to invest in like chips and software. They kept away from those that required massive armies or oodles of long-term capital like systems integration, outsourcing and telecom services. 

I suspect something similar will happen in Greentech. VCs will leave those segments which need armies and long-term capital to the Bechtels, and increasingly the Accentures of the world (as smart infrastructure projects require blending knowledge of sensors, fuel cells and cements).  The VCs will happily be funding startups which make better sensors, better yielding cells and newer cements.

See what the Valley did to Billy Joel

He appeared Valley-struck when Larry Ellison introduced him at Oracle OpenWorld last Fall.

Sure enough he has gone and made 2.0, bubble version of  "We didn't start the fire"

Here's the 1989 original

(Credit should actually go to Matt Hempey and to Jennifer Sricharoenchaikit of Blanc and Otus for bringing it to my notice)

"Finding the natural size for your company"

At the end of the week, where I must have argued with everyone about allowing Yahoo! to stay independent if it so wanted, and the need to be way more customer versus investor centric I found this post at 37Signals refreshing.

Focus on your customers, focus on your developer ecosystem, earn a decent living. No rule book says that is illegal.

What's next?

About the time Jeff Nolan was publishing his post last week on "incrementalism", a client was asking me "so, what's new in technology?" and I led him from A for Apple iPhone to Z for Zoho.

Jeff wrote: "The Valley (where he lives) thrives on the new new thing (possibly one of the most poignantly titled books ever) and with every turn of a generation there is an awkward moment where we’re just figuring out where we’ve been but have yet to see where we are going… right now is that moment."

Away  from the Valley, I see 3 different views of "where we are going"

a) Enterprise adoption of all the recent innovation

For a while now I have been concerned about the innovation "glut" - too many technologies chasing for too few innovation dollars. While I think bigger vendors spend too much on sales and marketing, most younger companies just want to keep rolling out cool stuff, not pushing for their adoption in the enterprise. As Jeff himself is helping the company he is now with - Newsgator. Selling enterprises on the new world of RSS. What this also means is a more aggressive positioning against incumbent vendors. As I have said many times, there is no magic "innovation" IT budget. You have to show the CIO and business executives ways to chisel existing spend to justify budgets for your cool stuff.

b) "Multi-channel Mashups"

I find most technology companies very siloed.The really big ahas in recent times have come when two or three categories of technologies and trends have been mashed up to create a whole new value proposition. SaaS mashed software functionality and application hosting and maintenance services. Telepresence is taking advantage of advances in high-definition displays and high speed, highly reliable bandwidth across major global regions. Listen to Steve Jobs and he talks about his competitive advantage comes from owing both the software stack and the hardware. Go see the 40+ categories of technologies I track on the New Florence blog. The next big wave of innovations will come from mashing products from 2-3-4 of those hardware, software, telecom and service categories.

c) Innovation in other global nodes

As I wrote recently, the Valley is First among equals. If it slows down in innovation, there are plenty of other places around the world which will pick up slack. Valley entrepreneurs and VCs can and should contribute elsewhere. They have become more global since the last slowdown but I still see too much Californication.

So, I have a broader view of "where we are going" and am actually pretty excited about "what's next"

Entrepreneurial Myths

I have founded or co-founded 3 companies, and if the bullets in this post on entrepreneurs I saw via Guy Kawaski had been a quiz, I would have failed miserably. And no one will hire me either -)

"Don’t Finance Anyone Over 27"

NY Times follows Newsweek in suggesting VCs are not funding  companies with older entrepreneurs. It is the MTV model - have young managers who are much more in sync with your audience.  Of course, MSM primarily focuses on consumer technology.

But for enterprise technologies? With few exceptions, I dare you to find many 27 year olds or younger who understand enough of enterprise processes and technologies to deliver a whopping success. Of course there are exceptions (Michael Dell, for example or Ben Casnocha), but if I was funding enterprise technologies I would vote for someone globally traveled and with several years in an enterprise technology vendor or someone who has run a major project or a unit in a large corporation.

In tech world, we have a smug view that only we can do start ups right. Managers at big companies are constantly launching new products, opening new global operations - building billion dollar businesses from scratch. If VCs would loosen the low cash/high equity comp packages, you would see several 30, 40, 50, 60 year olds come out of the woodwork and make pretty damn good entrepreneurs.  And they would mirror the enterprise customer audience  - which is not likely to be in its teens or 20s.

Age has little to do it. Just ask serial entrepreneurs like Dave Duffield, Dan Bricklin, Jim Barksdale.

Capital flows downhill

The venture capital mating game today is chaotic. Business plans usually flow from entrepreneur to VC. But what if VCs, with their broad view of deal flow, could publish what investments they think are most attractive and have qualified entrepreneurs apply for those categories?

That is the concept behind an article in Business 2.0 where 20 top VCs from Draper to Khosla identify their ideal market niches and even name the amount of money they would be willing to fund.

I was thinking - wouldn't it be neat if we could get CIOs/CTOs to similarly start their own wish list of startup technologies they would endorse. As I wrote in the MAGIC framework, there is a significant chasm between what CIOs need for innovation in their businesses and what start-ups and VCs often dream up.

Rather than entrepreneurs pushing uphill, it would be nice to see likely customer demand and VC deal flow visibility provide much more intelligent and relevant cues to startups. Not to discourage wild new ideas from percolating, but the reality is if customers and VCs are not that excited about funding the idea over the next 2-3 years, the wild idea probably needs to be tamed a bit...

TiEcon 2006

A decade ago, TiEcon was a small event put together by Indian entrepreneurs in the Valley. This year's event this weekend drew 4,000 of all nationalities including prominent politicians. I have been to a couple of their events in the past, but honestly, the weekend format is great for folks in the Bay area, tough for folks with families elsewhere. Good to have folks like Zoli fight the crowds and blog about John Doerr's talk at the show.

Arnold Schwarzenegger, governor of California, joked it was great to be in a place where everybody had an accent. But Lou Dobbs was nowhere in sight. Somehow, even he realizes these accents have made a huge, positive impact on the US - and the world - economy.

The Right Stuff

Rich Karlgaard says we may have a genuine entrepreneur in the White House in 2008. George, I guess is not genuine enough.

How about a VC as CinC? WSJ reports they are getting plenty of hands-on operational experience these days. Most VCs hate to travel but the thought of having a bigger plane than Sergey/Larry's 767 may be tempting?

Going Private

One of my 2006 predictions was private equity firms would target a number of services firms like CSC.

But as this BusinessWeek cover story describes private equity is targeting a number of industries in a huge way around the world and attracting heavyweights like Jack Welch, ex GE and Lou Gerstner, ex IBM. In an interview, Lou explains two drivers for private equity- too much capacity in every industry and the need to restructure. And the fact that technology is fundamentally changing every industry. Which may explain why Lou and Vivek Paul, ex Wipro are being recruited by private equity firms.

In the US, Sarbanes Oxley is actually encouraging more companies to consider going private. Talk about unintended consequences.

Talking about private money - in technology, venture capitalists have traditionally played a role in early stages. Bill Burnham argues that hedge funds may be moving in to the VC space. One reason - fewer public companies to invest in! Another unintended consequence...

Update: Forbes weighs in with a cautionary article on private equity.