• Kleiner Perkins’ Trae Vassallo Reboots

    Trae VassalloTrae Vassallo’s early investment in Nest Labs, maker of Internet-connected devices like thermostats and smoke alarms, has placed her in the ranks of today’s top venture capitalists. But Vassallo, along with a handful of other longtime Kleiner Perkins general partners, was recently cut from the firm’s investment committee in a sweeping reorganization first reported by Fortune.

    Perhaps it’s no surprise that sources say Vassallo is planning her next move – though she refuses to comment. She also seems ready to shed her reputation for green tech deal-making and to embrace her passion for Internet-connected devices for both consumers and enterprises.

    During a visit yesterday afternoon to Kleiner’s Sand Hill Road offices, I chatted with Vassallo about her career thus far, and her goals for the future.

    Hers is actually a very familiar story in Silicon Valley, land of the super achievers. After earning three degrees from Stanford – a bachelor’s and master’s degree in mechanical engineering and an M.B.A. – Vassallo headed to IDEO, where she designed products for Palm and Dell. She then cofounded the mobile device company Good Technology, which later sold to Motorola.

    By 2003, Vassallo had been invited to join Kleiner Perkins, just as the firm was beginning to bet heavily on green tech. Vassallo worked closely with a number of related management teams, including RecycleBank, a green rewards and loyalty network; Altarock Energy, a geothermal development company; and the electric luxury car company Fisker Automotive.

    But it was Vassallo’s innate knowledge of mechanical engineering that became her biggest triumph. While Kleiner Perkins’ partner Randy Komisar ultimately sat on the board of Nest, Vassallo was first to recognize the opportunity the startup presented to Kleiner, having investing so much of her time focused on smart grids and energy efficiency. In fact, Vassallo says, in the months before Nest founder Tony Fadell sat down with Kleiner, she was specifically studying thermostats as a way for consumers to more easily measure and control their energy usage.

    According to Fortune, Vassallo further negotiated the Series A round on behalf of Kleiner and continued to support the management team, including through introductions to utilities.

    The deal returned Kleiner a reported 20 times its investment when Nest sold to Google last month for $3.2 billion in cash.

    But Nest wasn’t Vassallo’s only connected-device deal. In 2011, she also led Kleiner into Enlighted, a lighting control tech company that can individually measure and manage lighting at each light fixture and reduce energy consumption by 50 to 75 percent. Designed for offices and commercial buildings, Vassallo likens it to a “Nest for the enterprise,” particularly given its ultimate goal of proving security and other features beyond lighting.

    As a next step, Vassallo says she’s looking for more related opportunities. For example, she sees a day when every home has numerous tablets that cost next to nothing and form a kind of in-home communications system.

    Vassallo is also interested in companies that apply social benchmarking to connected devices and put the numbers they generate into a more useful context. “I don’t necessarily want my friends to know how out of shape I am,” she jokes, “but I’d be interested in knowing how [my fitness level] compares to other working moms in the same age range.”

    I ask Vassallo if she’s also interested in working more closely with other women VCs, a growing number of whom have been striking out on their own. She is friendly with longtime DFJ investor Jennifer Fonstad, for instance, and says she’s thrilled that Fonstad and Theresia Gouw, a former managing director at Accel Partners, have joined forces to create a new, self-funded venture firm.

    “I think women should do business together,” she tells me, determined not to give away anything about her plans yet. “I think it’s important to have one another’s backs.”

    For now, though, Vassallo is focused on Silicon Valley’s next generation. This weekend, she’s judging an “entrepreneurship” contest at the middle school of one of her three children. She also created a robotics program at Castilleja School, a school for girls in Palo Alto.

    Sitting in her glass-lined office, Vassallo says, half-kiddingly, that she used to wonder why she nabbed a degree in mechanical instead of computer engineering. Today, that training is beginning to pay off in all kinds of ways.

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  • Ajay Chopra of Trinity Ventures: Mine Your Portfolios

    ajay_chopra_bw_4550Like a lot of venture capitalists, General Partner Ajay Chopra of Trinity Ventures has a number of ways to “turn down the noise” of a clamorous startup ecosystem without, hopefully, tuning out the next billion-dollar opportunity.

    Chopra — who joined Trinity in 2006 after selling the company he’d cofounded, Pinnacle Systems, to Avid Technology for roughly $460 million— talked with me yesterday about some of the tactics he uses.

    You recently wrote about why it’s important to turn down entrepreneurs the right way. Why spell it out?

    The point was that because we turn down 99 percent of the people we meet, it makes sense to be prompt about [a no] — which many VCs are guilty of not doing — give them feedback, and be helpful to them by just pointing them in a couple of right directions. It doesn’t take that long and it really does leave a lasting impression.

    How much effort can you put into the process, practically speaking?

    Well, first, I think the VC business is about how do you separate the signal from the noise. VCs do it in a variety of ways. For example, if I’m only investing in digital media, I’m not looking at clean tech or healthcare deals. If I’m only looking at Series A and B deals, I’m not looking at growth-stage companies. Even still, you could spend a lot of time focusing on the wrong things, so we focus a lot of building relationships, including mining our portfolio.

    Meaning what, exactly?

    We talk to employees at the VP level, the director level, even the product manager level while [they’re employed by a startup we’re backing]. We get to know the management teams and we ask, “Who are your best guys?” because we want them to have a relationship with us.

    That doesn’t threaten your CEOs?

    Not if you do it with the CEOs’ consent. I think most CEOs who are confident company builders don’t have any issues with it. Companies with hidden agendas from their board members might, but then they usually have other issues to worry about.

    I do think it’s good for product managers to be meeting with venture capitalists. And I think it’s a good retention tool for CEOs. In fact, I often get an invitation from a CEO, saying, “Hey, this person did a great job. Can you reach out to them or have coffee with them or send them an email?” Everyone knows there’s a board, and there’s a light level of touch whether you like it or not. The best CEOs use it to their advantage and to benefit their employees.

    Do you take product managers out for lunch? How does it work?

    We invite people in specific areas to events, like marketing people or product management people or infrastructure people or VPs of operations — people who are sometimes underserved and not recognized. We have a speaker usually, and we let the CEOs pick three top people to [send to one of these events to] award them. Recently, for example, we had [Zulily founder] Mark Vadon talk with a group about his background and career development and how to handle conflict. Hopefully, it left a subliminal impression about Trinity, so that three or five or six years from now, when these employees’ current ventures have proven successful and they’re ready to step out, they’ll think, “Let’s call Ajay; I feel comfortable with him.”

    Interesting that you think these employees might themselves become founders. So you don’t subscribe to the theory that entrepreneurs are born, not made?

    Not at all. Entrepreneurship isn’t about being able to hack or code or build the best [user interface] as a teenager. It’s about passion and the determination to fulfill a vision. The overwhelming indicator of the best entrepreneurs is that they’re passionate and driven by the idea that they’re chasing. I might hate the idea. I might think it’s crazy. I’ll tell someone that, too. But if they say they’re going to chase it anyway, that they aren’t going to give up, well, that’s a good entrepreneur.

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  • Lunch with Mr. Marketplace

    Josh BreinlingerJosh Breinlinger could have easily been a hardware investor. One of his first assignments out of M.I.T., where he graduated with a mechanical engineering degree, was working for a management consulting company, where he was tasked with dreaming up better fryolators for Burger King and helping design armor for army helicopter pilots.

    But a college friend convinced Breinlinger to become the fourth employee of the online staffing company oDesk in 2004 (which merged with archrival Elance last year), and he became completely hooked on marketplaces.

    In fact, since entering the world of venture capital a few years ago as a venture partner at Sigma West, Breinlinger has made it his mission to seek out the next big marketplace, leading investments in OfferUp, a Seattle-based mobile marketplace that’s trying to take on Craiglist; and Contently, a New York startup that’s helping companies produce articles that appear on their own websites, in native ad placements, and across social media. (OfferUp will be disclosing the details of a new funding round soon; Contently has raised $12 million, including a $9 million newly closed Series B led by Sigma West.)

    Last week, I asked Breinlinger to tell me more about his ideal deal over lunch near Sigma West’s San Francisco office, and he offered up both the obvious and unexpected. For example, like every other VC on the planet, Breinlinger looks for high recurring usage. (“It’s why Uber is so phenomenal,” said Breinlinger, tucking into his lemon grass beef dish. “I use it all the freaking time.”)

    Also appealing to him: any marketplace that sees irregular usage and that can lock users into a subscription as a result. “Most people want housecleaners to come on a very regular basis and they have a relationship with that provider,” he noted. “On the other hand, when it comes to babysitters, it’s probably more irregular and as a result, you’re never going to have someone on demand, whenever you want.”

    Breinlinger highlighted the success of Care.com, an online service for hiring nannies and other at-home caregivers that went public a couple of weeks ago. It shares were priced at $17 a piece; today they’re trading at $28.

    Breinlinger’s time at Odesk also helped form some other specific views on what makes marketplaces click. He might not have funded the freelance labor force TaskRabbit, for example, primarily because the “best marketplaces lower costs, and TaskRabbit doesn’t meet that criteria for me because I used to be able to pick up my groceries for free [and paying for someone to pick up those items for you] is an added cost.”

    Breinlinger cares about a startup’s Net Promoter Score, a customer satisfaction metric that centers on the question, “On a scale of 0 to 10, how likely would you be to refer X to a friend or colleague?”

    And he’s exceedingly interested in the value that marketplaces add to relationships after they’ve made a match between a buyer and a service provider or product. As he told me, “The test we always used at oDesk was, ‘Could we find a buyer and a freelancer who have an existing relationship and get them to move their work to the Odesk platform because it would be easier and better for both of them?’”

    Breinlinger also said he thinks more marketplaces need to focus on internal feedback systems and a lot less on the “normal” starred feedback systems that are commonplace but wildly imbalanced, in his experience. “There’s no incentive for someone to rate someone a one, unless they’re really mad for some reason,” he noted. Meanwhile “everyone else gets a five.”

    To learn who is actually good at their job and who isn’t, more startups should be building in a lot of internal reviews that include private, anonymous feedback.

    “That’s how you improve the product. And when you build the system correctly, you can grow as fast as you want.”

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  • A Silicon Valley Firm for Startups Eyeing Europe

    craig hansonMost Bay Area venture firms don’t pay much attention to Europe. That’s just fine with Next World Capital, a four-year-old, expansion-stage firm backed by the European clients of Next World Group, an affiliated investment advisory firm with offices in Paris and Brussels.

    Though Next World’s cofounder Craig Hanson tells me these ties are a small part of the firm’s value to entrepreneurs, he admits that it’s a point of intrigue for at least 80 percent of the startups he meets with – a much higher percentage than he’d anticipated when endeavoring to start the firm. We talked recently in the firm’s airy office building in San Francisco (atop which sits one exceedingly nice roof deck). Our conversation has been edited for length.

    You’ve kept your profile somewhat low until recently. Why?

    We’ve been building the organization; we wanted to establish a reputation with entrepreneurs first. Now, we’re hiring and staffing up, and we’re in a good place to tell the story of who we are for the first time.

    You’ve been investing a $200 million debut fund, writing initial checks of between $7 million and $12 million. How many companies have you funded so far, and have you had any early exits?

    We’ve funded 10 companies and had two fantastic exits so far. We invested in [the private cloud management software company] DynamicOps [which sold in 2012 to VMWare for an undisclosed amount, after raising $16.3 million]. A year later, NexGen Storage, a flash storage system company that we’d gotten involved with [leading its Series B round] was approached by Fusio.io. [It acquired NexGen, which had raised $10 million from investors, for roughly $120 million.]

    How did you break into deals as a new fund in the Valley?

    We did it by going directly to companies rather than rely on investor relationships. Once we had the meeting with the CEO…we were able to have in-depth conversations right off the bat. It wasn’t, “Give us your PowerPoint.” We’d say, “We’ve talked with 20 vendors, experts, and customers in the space and we’d love to trade notes.” At that first meeting, we were having second- or third-meeting [types] of conversations.

    How strongly do you pitch CEOs on your European ties, including a Paris-based partner? Is your ability to help abroad a big or small selling point?

    We thought it’d be useful in niche cases. We found instead that it’s a core, strategic priority for most companies, and that it’s happening much faster in their development than it used to. Particularly for cloud-based, SaaS companies, and mobile companies, they’re getting pulled to expand internationally much faster than companies used to.

    What are early considerations these CEOs need to make as they look to Europe?

    Well, among other things, you need to consider when to enter the European market, where specifically you go, and how you orient your positioning around the product, which, in a lot of cases, is slightly different than how you’d approach the U.S. market.

    If you had to generalize, what are some of the distinctions between regions that U.S. entrepreneurs should know?

    Germany is a very large and sophisticated market, for example, so you have to have credibility there, either by investing in employees and resources there, and/or having strong partnerships with credible local firms. If you’re trying to sell a sophisticated infrastructure software product or enterprise app into that market, trying to do that by just flying people out occasionally from a London hub isn’t going to be as effective. There’s a similar dynamic in France.

    The Benelux countries or Nordic countries are more open and used to vendors not having a specific office in their country; they’re used to looking at vendors and relationships and partners across Europe.

    It’s interesting. We tend to hear so much about the importance of expanding into Asia Pacific.

    There’s more cultural and business familiarity in working with European markets. They’re very large economies, and in term of enterprise IT spend, it’s the next largest market to go after [following the U.S.].

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  • Albert Wenger Takes the Long View

    Albert WengerEarlier this week, Albert Wenger, a managing partner at Union Square Ventures, departed from the standard VC script of promoting his own startups to discourse about the future of mankind. He shared his views on stage at the DLD (for Digital Life Design) conference in Munich. More specifically, he talked about where we are in the Information Age and what the past can tell us about the future.

    It’s a 15-minute long chat that you can watch for yourself, but here were some of Wenger’s most interesting observations:

    Innovations often come in disruptive, complementary pairs, though it isn’t always obvious at the time. As examples, Wenger pointed to agriculture and the domestication of animals, including horses. The two are seemingly nonlinear, but horses “become more valuable to you if you’ve got agriculture, and vice versa,” he noted. Wenger also pointed to power and manufacturing (steam and electric power enabled the latter); chemistry and deep mining (“We didn’t find out what the air was made of until the late 1700s; we didn’t figure out how to isolate a lot of elements until the early 1800s”); and computers and networks.

    Recent examples include machine learning and robotics, imaging and 3D printing, and big data and cell biology.

    These disruptions have had significant social implications. In the Stone Age, he noted, “there was no property or communal property.” Then, we “moved to the Agrarian Age, and people who had property had power, and those who didn’t, [didn’t].” It was only in the Industrial Age that people began to have “this really strong notion of personal, individual property that’s truly yours,” including intellectual property, he said.

    Indeed, “a lot of what we take for granted are relatively new” developments, and what may seem immutable today is, in fact, highly variable. Take government. “We’ve gone from tribes to fiefdoms to kingdoms to empires to nation states. What do we want the [next] unit of governance to be?” It’s “up for grabs,” said Wenger, and “we should be thinking about what it should be.”

    Privacy is “another very modern construct,” observed Wenger. “Foragers didn’t have privacy; they were living in caves. Early agrarian societies lived in very tiny villages. I think we need to question … exactly what we mean when we [say] we want to protect data.”

    How we make a living has also changed time and again. In the Stone Age, it was “a communal thing.” In the Agrarian Age, “people sold what they made.” It was “only in the Industrial Age where we switched to a model where we’re paid for our time — and that turned out not to be a very good model for a lot of people,” making “that, too, up for grabs again.”

    Ultimately, argued Wenger, “Because we’ve come from long periods where scarcity was the dominant paradigm, it’s led to a lot of things we may be able to replace.”

    The question, he concluded, is “what we want it to look like. And I don’t think we know yet,” he said.

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  • Polaris Co-Founder Terry McGuire on the Faddish Nature of Healthcare Investing

    terry_mcguireTerry McGuire, the cofounder of the venerable venture firm Polaris Partners, was recently in San Francisco from Boston. As we caught up over coffee at a bustling cafe, the longtime healthcare investor — whose firm divides its resources between healthcare and IT deals and writes checks from $50,000 to $60 million — shared where he’s finding the best deals right now and why he doubts VCs’ sudden interest in healthcare will last long. Our chat has been edited for length.

    Healthcare is hot again, with even consumer VCs like Bill Gurley taking an interest. How do you feel about that?

    It’s wonderful that healthcare is hot again, and as consumers of healthcare, we should be thrilled. Technology is going to allow us to live longer, happier lives. The opportunities are changing and at a speed that’s accelerating, which has an impact on drugs and devices; bringing them to market is improving.

    I sense a “but” coming.

    On the life sciences side, billion-dollar exits aren’t as common as on the tech side, where speed to market is fast, things are more capital efficient, and the virality of markets are much more interesting. So you go through these wonderful moments as now, when everyone is again a healthcare investor, but in three years, they won’t be.

    To me, the biggest question mark is how does pressure on health care spend impact healthcare investing. I think in some cases it’s going to be a liability and in some cases an opportunity. There’s only so much money to go around.

    So where do you see the best opportunities right now?

    I’m following the whole biologics space — antibodies, peptides, the genetics space more broadly. It’s become exciting. We just funded a company in the business of editing the genome, so finding ways to knock down something that the body is producing too much of, for example.

    We’re also interested in the delivery of biologics. Most drugs are taken orally, and if a pill is chemical-based, it can probably withstand your stomach acids. With biologics, our stomachs do a good job of chomping up everything that [passes through them]. If you can improve delivery – most [biologics today, like insulin] are delivered intravenously or through injections – that’s interesting.

    What about medical devices?

    They’re out of favor, so I personally think the next five or six years will be marked by interesting medical device plays. When a sector is out of favor, entrepreneurs tend to be incredibly disciplined and efficient and clever. They know capital isn’t free and that if they need to go out for capital, it’s going to be expensive because the prices are low.

    And medical devices will always be a part of our healthcare system, and they’re only going to become more intelligent and more functional. In five years, people will be saying, “I wish I had been in this and that device deal.”

    Four of Polaris’s life sciences companies were acquired last year and another four went public. But the market cooled toward biotechs toward year end. Do you have any concerns about 2014?

    I’m delighted that public buyers had a reawakening when it came to biotechnology. People clearly thought there was a lot of good stuff going on last year. I’d just want people to pace themselves. If things went wrong, it would be because expectations were high.

    Mood is a strange thing. People get negative, then something breaks open – a drug gets approved or earnings come out that are better than expected – and people say, “Why was I sitting on the sidelines?” and they race over. That kind of funny dynamic concerns me more than the companies themselves.

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  • As China’s Internet Giants Look to U.S, GGV Makes Introductions

    images (2)GGV Capital knows China. The 13-year-old, expansion-stage venture firm, with offices on Sand Hill Road and in Shanghai, prides itself on a U.S.-China strategy that sees its partners spending healthy amounts of time in both countries. With China now the world’s second largest economy and, as of last year, the world’s largest trading nation, that puts GGV in an enviable position.

    Already, 16 of GGV’s portfolio companies have gone public since 2010, several of them China-based, including the Chinese online travel booking service Qunar, which went out in November, and the entertainment site YY.com, which held its IPO in November 2012. Meanwhile, e-commerce powerhouse Alibaba — which GGV backed in both its A and B rounds, in 2003 and 2004, respectively — is expected to go public this year at a valuation of up to $150 billion. (Asked if it still holds its stake in the company, GGV says only that it “continues to work actively” with Alibaba.)

    Now, GGV is looking to invest alongside China’s Internet giants as they endeavor to expand their presence in the U.S. market. In October, for example, Alibaba led a $50 million financing round in Quixey, a Mountain View-based search engine for apps, and GGV participated in the round.

    Last week, I spoke with GGV managing partner Glenn Solomon about Chinese companies looking to invest here. Our conversation has been edited for length.

    What’s the biggest trend you’re seeing?

    We’re living in a truly cross-border world, so we’re seeing more China companies that want to access the U.S. capital markets and more U.S. entrepreneurs, particularly in mobile, recognizing that China is a really important part of market.

    Why are Alibaba and Tencent and others so keen on backing and acquiring U.S. companies?

    First, the big players are very cash rich. And while they’ve been peacefully coexisting in China for the last couple of years — Tencent [Holdings] is really a social and entertainment gaming company; Baidu is search; and Alibaba has largely been e-commerce — the intensity of the competition amongst them is increasing as the China market matures. Particularly around mobile, where they’ve all been pretty aggressive about finding ways to increase their business, they’re bumping into each other more and more.

    So they see the U.S. as the next frontier.

    It might be odd for someone in Silicon Valley to think of the U.S. as a second frontier. But the Chinese market, as it relates to mobile, is bigger than the U.S. And while there is still room for [these companies] to grow in China, they’re thinking about international expansion and the U.S. makes sense. They also want access to companies in the U.S. that they can learn from to re-import opportunities to China.

    How directly are they looking to copy U.S. companies?

    Many companies look something like U.S. companies, but they have a very unique flavor. Qunar, for example, has elements of its business that are extremely local, and the entrepreneur who started it is very Chinese. He’s very worldly, but he grew up in Beijing; he went to a Chinese university.

    Another example is the video chat service YY.com. It’s a social network, but its primary form of communication is voice, so it’s synchronous, rather than asynchronous, and it’s thriving. People are increasingly using it to play “World of Warcraft”; you have performers performing to large audiences on the platform; and the economic model is virtual items, which most people in the U.S. didn’t quite understand when the company went public. [YY.com debuted on Nasdaq at roughly $10 per share; it’s now trading at $71 per share.]

    Would you say Chinese Internet companies are ahead of the U.S. when it comes to revenue?

    In many ways, yes, entrepreneurs are importing techniques from China, including free-to-play, with calls to action within applications that produce virtual item revenue. That’s much more developed in China and that model came out of Asia, but you’re seeing more and more of it in the U.S. In fact, if you go to [Apple’s] App Store on your phone, you’ll see that the 20 top-grossing apps are free; it’s because they do a very good job of monetizing that small segment of the base who play the game or use the app, whatever it might be.

    Where is China on the enterprise side of things?

    It’s early days in enterprise. I’d say China is three to five years behind the U.S., but we expect it to emerge as a big opportunity, so we’ve been investing in some younger software-as-a-service companies and the like.

    Other trends to watch?

    The M&A market is more active than in the past. An example would be Baidu, which has a large strategic interest in Qunar; we expect we’ll see more M&A and strategic investing in China.

    There’s also a more active angel community, which is good for our business, as we primarily invest in B and C rounds. It’s not quite as fashionable as it is here [to be an angel investor], but things are changing.

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  • Mike Volpi: If You Don’t Own Bitcoin Yet, Buy It

    VolpiLast Thursday, I sat down with Mike Volpi, a general partner at Index Ventures in San Francisco, and later mentioned to you that I’d feature his thoughts on Bitcoin. Here, now, is that part of our conversation, lightly edited for length.

    If you were to start your own company in 2014, what would it be?

    If I were to do something [on my own], I’d definitely do something with Bitcoin.

    Has Index made any bets on the currency yet, directly or through a startup?

    I’ve heard a number of VC firms have bought Bitcoin as part of their portfolio. But we don’t have an investment in Bitcoin yet. We’re looking at a lot of different things and trying to break it down a little. It’s very early so it’s kind of hard to tell, but we do love the international component of it, so one of the angles we’re exploring is what does it mean from an international perspective, rather than merely a domestic speculation perspective.

    Do you think we talk too much about Bitcoin in the context of the U.S.?

    Much of the coverage here tries to think of it in the context of an American phenomenon, and where I think it [has received too little coverage] is its global importance. We all have bank accounts and credit cards and all that good stuff, but if you think of some person in South Africa or Ecuador or Argentina or Malaysia, it has a whole different meaning to that world, where currencies are volatile and you don’t have access to dollars and just 10 percent of people have credit.

    I often hear that, but how or when will it become useful to people in developing countries, given its volatility and soaring value?

    Currency is a multidimensional thing. First, it has stored value, like gold. You don’t really use it every day, but you have it there for safekeeping and it increases in value over time. Another aspect of currency is what we use for transactions: You buy a product from me and I give you money. The last aspect is the transactional plumbing – not that we exchanged value but that there’s a pipe underneath it all that allowed us to do that. Bitcoin is all of that smashed into one.

    Because it’s so volatile, people treat it like stored value. You’d be crazy to use it right now – or, at least, it would be very unusual –particularly if you can use other currencies to buy stuff. But you have to think past the point of all that volatility. No one knows what it’s worth, but at some point, people will figure it out, more or less.

    What then?

    Then, if you’re using your favorite Argentine currency and yesterday it was worth this and today it’s worth half that because your government had a coup d’état or something crazy like that, would you rather be transacting in a Bitcoin currency, which will eventually get more stable because of its global nature, or your currency, which is far less [stable]? Or, if you want to buy products and you don’t have access to dollars because your government decided that it needed to keep all the dollars — that’s where it starts mattering more.

    How long until we get there?

    I think it will take five years – maybe even 10 years — to stabilize.

    In the meantime, are you personally buying Bitcoin?

    I have a few personally. I think the best strategy is to own them right now, and if you don’t, I would recommend it!

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  • For Nest Investor Shasta Ventures, Persistence Pays

    coneybeerGoogle’s plans to acquire the smart home appliance maker Nest Labs for $3.2 billion in cash should translate into a tidy return for the half dozen firms that invested $80 million in the three-year-old company. Kleiner Perkins may have the most reason to kick up its heels, having led Nest’s Series A round in early 2011. (The deal, rumored to give Kleiner a 20x gross return, might well convince its limited partners that Kleiner has recovered its mojo.)

    But the deal is also a personal victory for venture capitalist Rob Coneybeer of 10-year-old Shasta Ventures, who was introduced to Nest founder Tony Fadell eight years ago by fellow VC Stewart Alsop. (“He thought we’d like each other,” explains Coneybeer, who is a mechanical engineer by training and shares Fadell’s love of gadgets.)

    Once acquainted with Fadell, Coneybeer spent as much time with him as he could in the hope that one day they could work together. Last night, I talked with a clearly elated Coneybeer about his relationship with Fadell and his subsequent investment in Nest; what follows is a lightly edited transcript.

    Where does your story with Fadell start?

    I’ve been interested in mobile and hardware and investing in the Internet of things for a while, and when Tony left Apple, I kept in touch with him as he was investigating different ideas, including devices that use batteries to get recharged and what happens to those devices if you connect them to the Internet. So he’d been thinking about things, and we’d get together every two to four weeks to talk.

    When did it turn into more than that?

    Tony had gotten to know myself and some of my partners, and he’d developed relationships with a couple of different firms … When Tony became difficult to reach, I realized he might be starting something, and I basically pursued him and said, “I’d love to find out what you’re up to,” and I offered to sign an NDA. And he said, “You’d do that?” And I said, “Yeah, I never sign NDAs, but to learn what you’re up to, I would, absolutely.” A week or two later, he walked me through what he was up to, and I met the core team he’d pulled together.

    He went with us and with Kleiner [for Nest’s A round]. He’d known [Kleiner partner] Randy [Komisar] for a long time, and Randy has great experience in bringing consumer electronics to market [including as a founding director at Tivo].

    What was Shasta’s value-add to the company?

    It was a good personal fit. And having built [Shasta] around consumer and expertise around hardware companies, we were able to make great introductions, including to Best Buy and Lowe’s and other channel partners. We also helped with recruiting, in closing key candidates. Beyond that, it’s hard to provide a laundry list; Nest has such an accomplished team.

    Kleiner led the Series A round, but you say Shasta was a “significant participant.” Can you talk about what kind of return you’ll see from Nest’s sale? TechCrunch sources say it will return “almost all” of your second, $250 million fund, closed in 2008.

    I can only tell you that [the return will be] very, very, significant. I’m sorry I can’t be more specific, but you can write “very” three times.

    Is Nest your biggest exit personally? I recall that before Shasta, as a partner at New Enterprise Associates, you led an investment in the fiber optic switching company Xros, acquired by Nortel.

    That was $3.25 billion, so this is my second three-billion-dollar outcome. It does feel really good to build something from scratch [Shasta] and work really hard for 10 years to build a brand and to [be a part of] a product and outcome that people are really excited about. It feels like things are finally coming together.

    Are you even a teeny bit disappointed? I know you thought Nest could become a formidable standalone hardware business.

    I’ll just say that Google is acquiring the best hardware team on the planet. In terms of designing high-quality, durable, consumer hardware, you can’t name a better team.

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    Connie

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  • Why It’s “Eyes on the Enterprise” at Index Ventures

    index-logo1In a sit-down with general partner Mike Volpi of Index Ventures late last week, Volpi shared how 18-year-old Index approaches venture marketing — and why it worries about competing with its founders for attention.

    Volpi – long a top Cisco executive before joining Index – also explained why he’s confident that investors, who largely shifted their focus to enterprise deals in 2013, will keep it there this year. Our conversation has been lightly edited for length.

    You’ve been investing more in enterprise deals as a percentage of your overall fund than you have historically. Why?

    In part because we opened this U.S. office, and there’s more [related dealflow] in the U.S, and I think that’s an effect of more entrepreneurs getting into the space.

    Getting into the space from where, the consumer side of things?

    At the margin, there is some switching going on, like David Sacks, who [created] an enterprise company like Yammer. Or you might look at Dropbox [Index led its $250 million Series B round], which really started as a consumer company but is seeing bigger portions of its business in the enterprise. So you see a crossover effect.

    You’re also seeing people who’ve been on the sidelines in recent years getting back in the game. We have an investment in Pure Storage, and if you look at that team, it’s a lot of the folks who were at [the data storage company] Veritas [acquired by security software giant Symantec for $13.5 billion in 2004]. There are people who’ve been going to work every day at these larger corporations, but now they’re coming out of them and restarting things.

    How steep is the learning curve for those crossing over from consumer startups?

    There is a learning curve. Like it or not, enterprises require sales, whereas with consumers, you can find a great service and, through virality, consumers discover it. So the business processes of selling — find the lead, nurture the lead, educate the customer on the value proposition of what you do, then close them – that along with the tools required and the people you hire are different. When Dropbox decided to launch its “Dropbox For Business” products, it had to learn about things like compliance and corporate directories, which aren’t natural vocabulary words for consumer entrepreneurs.

    You say three trends will make 2014 another big year for enterprise. What are they?

    First, enterprise budgets tend to be economic-cycle driven; when the economy is doing well [as now], they’re spending money.

    A much newer theme is that the pocket of money that startups went after is distributed now, which is a really good thing. Historically, the one customer in the enterprise was the CIO, and he or she was a technical user who decided, “I’m going to use Microsoft for this, and Oracle for that and Cisco for this.” Now, because you don’t need to buy the hardware anymore – you can go to Saleforce or Workday or Zuora – the decision-maker for that technology is no longer the CIO. It’s the VP of sales, it’s the CMO, it’s the CFO; it’s 10 different people at the company. Imagine that you’re the head of public relations at Twitter and want to do sentiment analysis. You don’t call the CIO. You look up “sentiment analysis technology” on Google. Something comes up and you call the sale rep of the company and they say, “Just send us your link and we’ll have some analyses for you.” Well, you just spent money on technology. You’re an enterprise customer.

    Last, enterprises have consumer envy. Consumers have cool devices. They have Evernote, with beautiful graphics. Meanwhile, [the enterprise folks] are sitting there looking at [Microsoft] SharePoint or Word. They want some of that cool stuff – including more storage and networking stuff and cooler middleware — so that’s where the money is being, and will continue to be, spent.

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