I was flattered to be asked to present at Scott Kirsner’s Future Forward 2011 conference yesterday at Wellesley College. My talk was on the future of Cloud Computing and I presented a context and set of investment themes that my partner Chip Hazard and I have put together on what we’re calling “Dynamic Computing.” The entire slide deck can be found here on Slideshare, and the gist of my voice-over from the conference is as follows.
At Flybridge, the two dominant sectors we target are enterprise IT and consumer infrastructure. Over the years, venture capitalists have seen and invested in several inflection-point changes in these sectors – changes that have brought with them tremendous opportunities for new companies and innovation – such as the move from mainframes to minicomputers, minicomputers to PCs, then networked PCs, the client-server, ultimately leading to the web. We’re convinced we’re in the midst of another such inflection point moment right now; but it’s more profound than simply jumping on the cloud-computing or mobile app bandwagons. While these are important elements for certain, we see them as part of a larger shift we’re calling “Dynamic Computing”
Legacy Platforms are Monolithic
Looking at the evolution of computing, from the nexus with mainframes in the 1960s, through the Minicomputer, the PC revolution and into the advent of the commercial Internet in 1990’s, remarkably all these paradigms relied upon a relatively homogenous and monolithic architecture. This made sense at the start, because ubiquitous adoption of computing required establishment of a uniform standard platform that everyone could write to with confidence. And this uniformity, in part, it gave rise to the generation of tech behemoths that persist today, such as Microsoft, Intel, Oracle, SAP, et al. But the strengths of this ecosystem, namely uniformity and backward compatibility have become their Achilles heels in the expanding world of the Internet – as these architectures have become bloated, expensive and energy hogs. Combined with the intense industry consolidation that followed with the Internet bubble bursting at the turn of the 20th century, innovation and new startup activity in the sector languished.
Change is Here
But more recently, the confluence of several core technology developments have exploded the traditional monolithic platform creating a fundamental revolution in how computing solutions are created and delivered. This is what we call Dynamic Computing, and it comprises the following components:
Open Source – the movement that began with Linux in the 1990s was the initial catalyst, bringing low cost, high quality software – and most importantly – CHOICE. No longer are individuals or companies bound to the limited menu provided by the usual suspects. And the FUD spread in the early days of open source – that open source applications would be buggier, less secure, unsupported – long ago faded.
Cloud Computing – though the press has forgotten, what really began as ASPs, MSPs and SSPs, a decade ago, has lowered the cost of development and deployment infrastructure by orders of magnitude creating costs that scale with usage, which is critical to capital-constrained startups.
Dynamic Scripting Languages – such as python and Ruby – have made development faster, portable and scalable.
Virtualization – originally conceived to get performance boosts from underutilized Intel chips, set the foundation for scalability and migration well beyond a single rack within one data center.
And Finally, public APIs have permitted two fundamental and ground-breaking changes:
- They allow applications to be dynamically assembled from best of breed providers, irrespective of geographic proximity
- They provide the opportunity for unfettered access to previously unavailable data, the so-called “Big Data” firehoses.
Add global affordable broadband, and the result is a set Dynamic Computing solutions that can be seamlessly split over great distances with no visible performance degradation.
- Developer Driven Business Models– really a basis for adapting the low-cost distribution model similar to consumer Internet applications like Facebook and LinkedIn. These can provide a low-cost method for customer acquisition by getting developers to embed solutions within their own applications, then they talk about it with their cohort, and so-on and s0-on. News spreads quickly within these circles – which has both plusses and minuses. It can become a great wedge for upselling future features and solutions.
- Legacy Applications Don’t Translate Well – We will see situations where traditional issues persist, but the traditional solutions just don’t work given the disaggregation of the platform – meaning that new solutions will be needed. Such areas include storage, management and security. Consider security; in the past if you were the Chief Security Officer for a mid-sized corporation, you bought an array of gear to cover your hindside, including firewalls, intrusion detection devices, data-leakage protection, virus-scanners, and others. You installed these solutions in your data center and dealt with issues when they arose. But what happens to that CSO when his company has moved to a distributed cloud-environment, with various applications running at several different service providers. That CSO still has all the responsibility she had in the past, but none of the authority; she cannot put a fancy data-leakage prevention solution at Amazon EC2. Thus the opportunity for a new take on the old problems exists.
- Big Data Analytics – Pulling apart the architecture and publishing APIs creates a firehose of data flows that were not available in the past, and the analysis of these flows is creating entirely new product opportunities across all the sectors we cover. And creating new business models as companies can charge for access to their data – which they hadn’t contemplated in the past. A burgeoning set of problems are brewing around big data access, including cost, proprietary access and security of the flows.
- New Opportunities Emerge – the corollary to legacy applications no longer working, is that entirely unforeseen problems & opportunities will emerge because of the exploded platforms. My current favorite is to consider what happens when we get to real-time bidding for the different elements of a distributed stack – imagine an exchange where computes are “traded” based on cost, performance, availability, etc – like commodities.
- Purposeful Built Foundation Technologies – the innovators dilemma for incumbents is that as these new dynamic computing offerings are still nascent, their willingness to cannibalize themselves is nil, which opens the window wide for some massive market potential – but these tend to be more capital intensive as they are foundational. These opportunities should largely be seen in semiconductors and systems. This is a pattern that has repeated itself with every new platform shift – things tend to start with applications built on whatever is generically available, and as popularity increase, new more specific solutions tend to arise. The worry in this area is that if you invest too early – for example in a Hadoop hardware acceleration platform – and scalability never rises to need such performance, the company will starve.
Well, it’s been a while since I posted and I must apologize. Apple, at whose altar I normally pray, threw me for a loop with the release of iCloud. I have been using iWeb since I started blogging, but Apple announced the effective end of life of the application – withdrawing support. So went on a mission to find a new platform for blogging. The winner was WordPress, but to be honest, not one for following the herd, I tried hard to find a different alternative. I tested several applications, including Sandvox, Marsedit, Ecto, RapidWeaver, Weebly, Drupal Gardens, and others.
The reason I chose WordPress was near-ubiquity; there is a full featured web-app, iPad and iPhone apps – and the user support and documentation is terrific. They made it very simple for me to move geekvc.com to their platform. The downsides – (1) no automated method for ingesting my existing blog posts, so it will take a while for me to recover all I had done. (2) no thick Mac app, so no easy offline batch posting while I am traveling without connectivity. (3) not nearly as easy or cheap for customization as I have been used to having with iWeb.
I’ll live …
Delayed posting due to vacation and hurricane. Earlier this month we held our 8th installment of Catch the Wave, our summer party in Kennebunkport, ME, where friends from the startup world congregate for a weekend of family fun and embarrassment in the form of a costume party.
This year’s event was epic – the theme of the Saturday night costume party was Saturday Night Live, and our guests came out strong. A special shout out to John Belizaire of our portfolio company FirstBest Systems and his wife Nilda, who came as Buckwheat and Alfalfa. And my personal newbie award to Bill Simmons and his wife who dressed as Admiral Spaceship and Nitro of Laser Cats fame. Personally, I went for the ensemble approach with my colleagues Kate Castle, Matt Withelier and their significant others Amanda and Dan as the cast from “I’m on a Boat” – complete with a water entrance to the party as we motored along the bay toward the venue with the eponymous song blaring. Matt and Amanda dressed as mermaids and they were spectacular.
I look forward to this weekend each year because it’s a unique chance for our work friends to get together socially with their families; to kick back for a weekend away from the hard duty of building companies in the current environment and to get to play with their kids, while seeing old friends and making new ones.
I make a movie each year for the event and given SNL as a topic, I had a blast with my homage to the old and new. Click below to watch the whole video …
A quick post about my newest investment – JouleX – the emerging leader in Enterprise Energy Management solutions.
JouleX is off to a great start and I am very excited we have the opportunity to be part of the team. It’s a bit of back to the future for me, as the CEO of JouleX is Tom Noonan, founder/CEO of Internet Security Systems (ISS) and many of the team hales from ISS as well. I was fortunate to have been involved with ISS during my tenure at Greylock – spending a lot of time in Atlanta with Tom and it’s great to be together again. Additionally, Sigma was the co-lead investor in ISS and John Mandile of Sigma is our co-investor in JouleX. The founding investors in the company were Target Partners (Olaf Jacobi and Tony Leach) and TechOperators (Glenn McGonnigle) – all former ISSers – so it really feels like we’ve gotten the band back together!
The Enterprise Energy Management space is an important one, as among b
usinesses worldwide, the cost of consumption and amount of wasted energy are poorly understood, and even when recognized, very few tools exist to help manage the situation. JouleX has developed a very ingenious method for quickly and unobtrusively assessing the energy situation across the various operations of a business – and a suite of solutions to automatically monitor, analyze and control the energy consumed by all devices connected to the network–without agents, hardware meters or changes to network or security policies.
This market segment is growing rapidly worldwide, and has been put into sharper focus lately because of the cost and availability of fossil fuels, and the crucial need for greater conservation stirred in large part, by the Earthquake/Tsunami in Japan and its aftermath of lost and shuttered nuclear production.
We’ve had a strong focus on energy tech for a while now, particularly as it pertains to changing the status quo of technology infrastructure – so JouleX joins our other sector investments such as CHiL, Calxeda, Digital Lumens and Novophage.
I recently met with an entrepreneur who posed a seemingly innocent question to me: “Can you tell me how your firm is structured and how you make group decisions on new investments?” In response I described how we do things at Flybridge, and he commented that he had heard and observed different processes at other firms. This got me to thinking about the various types of decision-making schemas in practice at VC firms and I decided to write this blog to describe those I have seen. You’ll have to play the matching game yourself as with the exception of Flybridge, I am declining to assign names to the taxonomy.
Webster defines a partnership as “a relationship resembling a legal partnership and usually involving close cooperation between parties having specified and joint rights and responsibilities.” We tend to think of partnerships as collegial groups that make decisions based on equal voices, and unanimous votes. In my experience this is not generally the norm; in fact I think that Orwell’s definition from Animal Farmis more apropos:
“All animals are equal, but some animals are more equal than others.”
In this light, I’d like to share the five varieties I have identified and encourage others to chime with their own additions and comments. As with most situations, your experiences may vary. It is critical to understand WHAT format you are facing, to make sure you put your best foot forward, while at the same time, avoiding wasting your valuable time.
Please note that I do not mean to ascribe a negative connotation to ANY of the forms that follow; decision-making processes can be effective or ineffective in any format.
1 The Dictatorship
This is the second-most predominant form of partnership I have noticed, and likely the oldest. It usually happens this way: One individual starts a firm, raises the money and recruits the initial team. The firm may or may not have his name on the shingle, but it’s abundantly clear that no decision is made without his/her blessing.
It may be difficult to get things done, but at least the path is very clear.
2 The (Galactic) Empire
Closely related to the Dictatorship, borrowing from Star Wars, is this form of hierarchy where there is a king and the heir apparent – and should one veto, nothing is done. But even if Darth Vader says ok, the Emperor can always say no, and like the movie persona, whether in the room or not, his/her opinion is tantamount.
Identifying the Empire can be tricky, but look for titles like “founder” or “founding partner” on the masthead.
3 The Politburo
Perhaps the most popular of the breed, you usually find the Politburo in larger firms, where size and geographic dispersion of the partners, necessitates some sort of representative government structure. Unlike a democracy, those in the politburo are appointed, not elected, and the selection criteria is usually unclear. The challenge of working decisions through a politburo is that the identity of the committee members is generally not well-understood, and in fact, may be disguised by your advocate if they’re not in the club. Leading indicators include needing to hold several successive meetings with partners of the firm, and title distinction for a subset of their team as “managing partner.”
This type of arrangement can lead to factions within the firm, so be careful to make sure your support is broad – you don’t want to wind up on the wrong team.
4 The Collective
Partners in this type of structure operate under the same flag, but exert autonomy for decision-making for some or all investment decisions. While quite rare, recently we have seen the rise of this arrangement around seed investments within many firms – essentially giving a constrained checkbook to each partner to seed a number of very early-stage startups.
The benefits of this structure is obvious – it leads to a very straightforward and streamlined process. The drawback is that it usually brings limited exposure to the rest of the firm, and essentially postpones much of support-building – making follow on rounds harder. It can also result in the firm making multiple-overlapping investments, which is less likely in other formats.
5 The Democracy
In a true partnership; each of the partners of the firm have a vote in the decision to invest in or reject an investment opportunity. One “no” and the deal does not proceed.
The benefit for entrepreneurs of this structure is clear; the path is straightforward, and once committed, you can be certain of broad-based support. Generally, this means the firm will show great care in prohibiting conflicting investments. The drawback is that the process can take longer (especially in larger partnerships) and one poor reaction can sink you.
In the end, the decision-making structure of a firm is a combination of design and evolution. Despite the best intentions, some processes are slow and convoluted. And of course experiences vary by occasion.
In the shameless plug category, we operate as a true partnership and to counteract the “delay” potential mentioned above, we try to mobilize quickly and work with entrepreneurs to create an efficient process that we share with them. It helps that we are a small team (5 partners) and intend to stay around this size. We’ve also created an accelerated seed process that allows us to move fast on deals and react appropriately to entrepreneurs’ needs.
Note: This post is from my occasional contribution to the Global Semiconductor Association (GSA) quarterly newsletter, which can be found at http://bit.ly/iiKsuw
It is difficult to succinctly characterize Q1 of 2011 regarding the semiconductor sector; perhaps “a cold listless winter with signs of a vibrant spring” does the trick. The numbers of private financings was basically flat versus the previous quarter, with seed and first rounds coming in at just one reported by GSA (and maybe two to three others of which I am aware).
But with later stage rounds dominating the scene again, more than just a glimmer of good news can be found in the number of “offensive” financings (i.e., new investor-led, larger rounds — more than half by my analysis). And while IPO pricing activity was down (three in Q1 2011 versus eight in Q4 2010), perhaps the most encouraging sign of a potential thawing for private companies was the upswing in M&A activity. Of the 21 M&A transactions of private companies, by my count, at least three of them (CHiL, SiTel and Provigent as the biggest of the bunch) represented positive returns on substantial multi-round fundraising.
I remain encouraged by the potential for outsized VC-type returns on early-stage semiconductor investments. But two obstacles remain in center focus: the ability for start-ups to raise subsequent rounds of financing at increased valuations and positive liquidity (M&As and IPOs). The former, interim private follow-on investments, remains elusive, especially for Series B companies — still early in their evolution with development and market risk squarely on the table with less quantifiable evidence. This is why the initial financing strategy for semiconductor start-ups is so crucial and why we encourage our companies to syndicate broadly to build strong inside investor bases to carry them through their early “death valley” traverses. The importance of the latter issue, positive liquidity, is self-evident. And with attractive exits will come the flywheel effect of easier and more plentiful interim round financings.
Eyes are trained on the IPO pipeline, which remains robust, and the post-IPO performance, which remains volatile. In the meantime, VC investors are starting to take greater chances with potentially industry-changing challengers to the status quo. Sectors worth watching include the next-generation field-programmable gate array (FPGA) space — with companies like Tabula and Achronix (stunning large later stage financings); the scale-up data center compute space — with companies like Calxeda (I am an investor) and Tilera; and the consumer sensor space — with PrimeSense as the prime example.
With spring in the air and my beloved Red Sox starting to win games (at last), perhaps a baseball analogy is fitting. In the VC-backed semiconductor sector the at-bats may be fewer, but for those of us continuing to invest in the sector, we’re swinging for home runs and our batting average has signs that point to it getting better.
I just joined a great startup community – vYou. It allow you to ask me (or any other member) a question and get a video response. I instantly fell for this service; easy to use, very intimate communications that allows for virtual 1:1 conversations. Go ahead … ask me something by hyper-linking over here … http://vyou.com/dba