deal architect

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.

Churchill Club Tech Trends debate

David Berlind summarizes and links to a podcast of a panel discussion hosted by the Churchill Club on tech trends between 5 of the most respected (and successful) VCs in the Valley

John Doerr of  Kleiner Perkins 
Steve Jurvetson of Draper Fisher Jurvetson
Roger McNamee of  Elevation Partners
Joe Schoendorf of Accel Partners
Ann Winblad of Hummer Winblad 

moderated by Tony Perkins:, who runs the AlwaysOn blog

Wide range of media, software, VoIP, "green" and China opportunities discussed.

Guy Kawasaki on VCs and Entrepreneurs

Guy Kawasaki who knows a thing or two about start ups has 2 posts on his new blog - one on 10 lies VCs tell, one similar on entrepreneurs.

While at it, his tagline also takes a shot at bloggers defining them as "someone with nothing to say writing for someone with nothing to do"

Entertaining - but as I have written before entrepreneurs should be spending more time with customers than raising money. VCs should also be spending more time with customers than with bankers, each other and their entrepreneurs. As I said there:  ""Customer revenue is mother's milk, VC money is sugared water"

It all begins and ends with the customer. The money raising game takes too many cycles away from the customer. That to me is more bothersome than the white lies VCs and entrepreneurs tell each other.

More economics in New Florence

More proof of the much cheaper cost of launching new companies (or technology projects) as I wrote last week here.

The WSJ (subscription required) runs an article on how newer entrepreneurs feel they do not need VCs. The article cites the Flickr example:

"Consider Flickr, the innovative online-photo service launched by a small Canadian company early last year. Like many Web start-ups today, it was built on a dime: Husband-and-wife founders Stewart Butterfield and Caterina Fake used cheap software to construct the Flickr site, eschewing pricey computers. Some gear, such as computer storage, was "about 100 times cheaper" than it would have been even five years ago, says Mr. Butterfield. It cost only about $200,000 to pay salaries and get the site up and running, he says"

Personally, I think this gets tech funding  back to a rational basis. Get initial funding from angels and early customers. But I would still go for  expansion capital and advice from VCs.  I should have followed that path in 1999.

But 2 takeaways from this. More CIOs should be funding their own "tiger teams". The larger vendors are definitely killing the golden goose given these new economics.