Russ Siegelman, Partner, Kleiner, Perkins, Caufield & Byers

Russ led an open and informative discussion about the current state of the VC world. Much of what he discussed follows what I've been reading in various VC blogs, but it was good to hear it directly from a Partner at one of the premier VC firms.

Russ Siegelman's bio

Notes:

KPCB has 10 professional investors

Focuses on seed and A rounds

Looking for companies that want to do something big

Proactive in seeking out certain areas (have to be proactive with the increased competition)

We are having a second smaller bubble; a lot of enthusiasm; lot of activity in Web 2.0, mobile, and China/India

It is a good time to be a entrepreneur in the Valley and a good time to be an investor

However, there are some ominous signs because some VCs are raising huge funds ($2B)

Starting to see some really good teams

He's not particularly interested in traditional enterprise software requiring big purchases ($250K+). Sales cost is too high. Friction within companies to do these purchases is high

Not excited with companies selling big equipment to carriers

They are investing in some companies selling equipment to corporations for things like data center consolidation

What is he interested in?

Likes the whole consumer Web 2.0 space

It is confounding because they go from no users to a lot in a very short period of time

Cheap to start

A lot of questions on the business models

Not a lot of seasoned teams

Competitive risk with Google, MS, Yahoo

It is a little bit like rolling the dice

Really likes the ASP model (now dubbed software-as-a-service)

salesforce.com is just scratching the surface

ASP is attractive because you don't need a huge sales force

Downside is it requires a lot of upfront capital

A lot of other VCs are looking at this area too

Security writ large

Probably the 1 area companies are willing to write big checks

Great area

Dabbled in Energy

Better batteries

Distributed power generation

BioTech and Medical Devices is obviously a hot area

Dabbling in Open Software

The proprietary software models are breaking down

May not know for a few years how this will work out

Very bullish on the whole mobile area

Cell phone is a computing platform

Q/A

From Ken Morse: Is New England an afterthought to Valley VCs? Response: Honestly, you aren't at the top of mind. China however is top of mind.

What's different with the ASP model now than in 1999? Response: ASPs have to add value above just making the software available online. Some quasi successful ASP companies ran into the recession and ran out of cash. WebEx doesn't get a lot of press, but they had a great model and are doing very well now

Are hardware deals going away? Response: Hardware investments make up about 25-30% of the total. SW is so attractive because it is so cheap to start

Will you only do large deals? Response: Recently invested $200,000 in a $800,000 round for a Web 2.0 company

Does location play a role in your decision to invest? Response: It is a stretch to invest outside of CA, but will do it if the deal/team is good.

Outside US, it is a real stretch. Outside of China/India, extremely difficult

What does he like in a business plan? Response: Simple, concise, on point, what problem are you trying to solve, why is it economically interesting. Not as interested in distribution channels, etc.

After 15 minutes into many presos he listens to, he doesn't have an idea what problem they are trying to solve

Should your numbers be conservative or error on the high side? Response: Doesn't really matter as long as the rest of the business plan is consistent with those numbers

What does KPCB do after it invests in a company? Response: He views KPCB as a service company. When you get funded they become trusted advisor, make introductions, help with recruiting, will contact customers, get experts for product reviews, help picking lawyers, accounting firms, etc.

Tim Rowe, Founder and CEO, Cambridge Innovation Center

Tim started the Cambridge Innovation Center (CIC) in 1999, which is across the street from the MIT Sloan buildings. I've been over there a few times to meet with Dharmesh. It is a nice place. One of the biggest pains with starting a company is plunking down big bucks on an extended office lease. At CIC, you pay monthly and most of the services you'd expect are included.

Notes:

He ran a radio station when he was at Amherst College.

He graduated from MIT Sloan in '95

After that he "crafted" his first job (and recommends everyone do the same)

craft = figure out what you want to do and then convince someone to hire you to do it

Suggested working in management consulting for a few years to get experience in a lot of areas

Needed to find office space for his wife's startup. It was easily the largest expense for the company

In response to this issue, he created CIC

A VC asked if they could incubate small companies, so they spent $18M in VC money.

Then the bubble burst and they were in trouble.

CIC is somewhere between an executive suite and traditional office space. It is targeted at startup CEOs

Has been growing like crazy - 110 startups and there is a waitlist

They don't negotiate anything with the contract

Includes space, furniture, receptionist, IT people, food, drinks

Pay monthly, give 30 day notice

Prices start at $500 per person/month ($200 for space and $300 for services). The most expensive private offices go for around $2000/month.

He estimates 20,000 sq ft is space for ~100 people

Before he started, he flew around the world and spoke to everyone that was doing something similar. Suggests everyone should do the same before starting a company.

He takes security very seriously; uses cameras to resolve disputes every few months

He used $15M from VC to start CIC

He recommends using as little capital as possible to start a company

With office space, you have to start small

He views his business more like a hotel than traditional real estate

Hard to compete in the same locality

Most people in real estate don't like what he does because they want to lock tenants in on long leases

Most incubators subsidize the cost of space which encourages mediocre companies to hang around which is the wrong way to do it. Give the CEOs money, but force them to pay rent.

He's currently looking at expanding the CIC concept to 6 or 7 other locations

There is no better job than being the CEO of your own company

Revisiting The Road Not Taken

"Two roads diverged in a wood, and I — I took the one less traveled by"

This famous line from a Robert Frost poem has reached cliche-like status because it is so often quoted. I stumbled upon the full poem today and was energized by it. You don't get the true effect of the quote without reading the poem in its entirety. It has been a good three or four years since I last read the poem, but I'm going to add it to my periodic reading list. Mr. Frost had true command of the English language. His poem says so much more than just the sum of the words.

The Road Not Taken, Robert Frost

Two roads diverged in a yellow wood,
And sorry I could not travel both
And be one traveler, long I stood
And looked down one as far as I could
To where it bent in the undergrowth;

Then took the other, as just as fair,
And having perhaps the better claim,
Because it was grassy and wanted wear;
Though as for that the passing there
Had worn them really about the same,

And both that morning equally lay
In leaves no step had trodden black.
Oh, I kept the first for another day!
Yet knowing how way leads on to way,
I doubted if I should ever come back.

I shall be telling this with a sigh
Somewhere ages and ages hence:
Two roads diverged in a wood, and I—
I took the one less traveled by,
And that has made all the difference.

The two faces of Ambition

By most measures, I'm considered an ambitious person. My definition of ambition is: an innate and often unstoppable desire to achieve. The current edition of Times magazine has an article on ambition and how it often dictates a person's level of success. I agree that ambition has played a significant role in the things I've accomplished (however modest).

But there is another side of ambition that isn't often discussed.
After the dot-com collapse in 2001, the high-flying, take chances, innovate-innovate-innovate days most high tech companies were used to were over (at least for the next couple of years). Things changed at work for me. It wasn't so easy to achieve anymore (for a variety of reasons). If a highly ambitious person is not in a position to feed the ambition monster, the monster can bite back. This can make for some difficult times. Unfortunately, ambition doesn't give way to the current market happenings or fluctuations in society. At times I've thought of ambition as a disease that gone untreated can result in depression. Even so, if I could zap that characteristic from my make-up, I wouldn't do it. It is who I am. I'd be a completely different person without it.

Here is a quote included in the Times article that sums up ambition nicely:

"Ambition is so powerful a passion in the human breast that however high we reach, we are never satisfied." -Machiavelli

Jerrold Grochow, Vice President for Information Services and Technology, MIT

I had a great meeting with Jerrold Grochow, MIT's CIO. He's one of the first people I targeted for a career interview. I went in with a list of questions and he answered openly and honestly.

Here is a subset of my notes from the meeting:

Discussed his career path: changed jobs every 3-4 years to take on new challenges

It is important to understand the motives of the people you are working with

Being a CIO, you have to deal with a range of issues: people, technical, legal, etc.

It requires a combo of strategy and tactical focus

A big part of his job deals with making tradeoffs or helping people make tradeoffs

I asked his thoughts about Nicholas Carr: IT shops are not even close to having the same capabilities, so there is still a myriad of places for competitive advantage.

To be a CIO you need a broad background in tech and mgmt skills including financial and marketing

Spot sourcing works, but not full outsourcing of IT

News @ MIT Sloan

In the Nov 7th edition of News @ MIT Sloan, this blog along with fellow SDM bloggers Ilana and Yoav are mentioned in the front page story on "B-School Blogging".

The newsletter is also available in pdf.