Venture Capital

Today I'm musing on venture capital, the lifeblood of businesses like mine. I used to be a venture capitalist (twice, actually). And I wonder a couple of things:

1. I wonder if venture capital returns will ever again reach the dizzying levels of the 90s. Part of me wants to believe that venture capital is largely about finding and nurturing innovation, and innnovation is never really a scarce resource. But while it is not scarce, it is certainly elusive... and yet these firms are still operating in the same ways that they have for years (at least most of them are).

Their response to immense change in the tech marketplace is nearly always the same: they switch sectors. "_______ is dead," they proclaim, then proceed down a path that is not nearly as bold as that prediction. "_______ is the new ______," is the clever response.

Here's what I think: finding innovation, in any time of capital glut, will require... ummm, innovation. I'm anxiously awaiting the firm that responds to this massively changed marketplace with a significantly changed model (Y Combinator, maybe?). As a CEO, I responded to changes in marketplace with real changes at my company. VCs should apply to themselves the same logic they encourage people like me to employ.

I still believe in venture capital (in fact, I cannot imagine trying to grow most companies without it); I just wonder if these folks are really going to thrive if they don't apply basic business logic to themselves.

2. I wonder if the advent of "rock star" VCs has created a monster. I wonder, frankly, if VCs haven't gotten too big for their britches. I'm old enough to remember when a venture capitalist invested in a company and then gave the team respect. I was with a company a long time ago, Central Point Software, that was a Hummer Winblad company. Ann Winblad and John Hummer gave the company advice and counsel and tried to impart what they knew, but they never assumed that they held all answers (and in fact assumed that the company knew a lot more about the marketplace in which it competed than they did). Now, too often at too many companies, the investors act like the management team is a bunch of dopes.

Look: I was a Senior VP at Oracle, and I've been a successful CEO before. My COO at Levanta was a VP at SGI when SGI was somebody, and has been at several very nice startups since. My VP of Engineering was successful at places like Apple and IBM. You might have heard of those companies. You can think we're right or you can think we're wrong, but we're not novices and we're not stupid. And our company was pretty remarkable, but not unprecedented. Lots and lots of CEOs and senior people at startups have very nice prior experience. They've done stuff with their lives that has mattered. Enough with the posturing, then. Give us the respect we have absolutely earned.

The Secret to Success...

..nets out to this: “Live to fight another day.”

I was, a few years ago, on the board of directors of a research laboratory in Cambridge, U.K. It was associated with Cambridge University, and I periodically was involved with classes at the university.

One day, I arrived early for a lecture I was giving. The class before me was in session. The professor, an absolute caricature of himself in a Harris tweed jacket with antelope suede elbow patches, was holding court.

“Today I’m going to teach you the only thing that I personally will teach you all semester. To the extent that you learn anything in this class from here forward, it will be from your reading of the texts and casework, or from the ruminations of your pointy-headed classmates. But what we will discuss today is too important to leave to amateurs.”

He turns to the board and writes, in all caps, “DROOC.”

Turns back around. “DROOC. A concept as critical to the local dry cleaner as it is to the multinational corporation. Equally important to BP and BT. So important is this concept that, if perhaps you entered this university through some unusual means -- perhaps an ancestor was a benefactor --, or if you wonder if you are perhaps less capable than your classmates, I recommend that you tattoo DROOC somewhere on the body where it can be reviewed daily. Perhaps on the back of a hand, or between the eyebrows.”

He goes on in this vein for some time, waxing eloquent on the incredible value of the DROOC concept about to be revealed. Finally, he grins slightly and says:

“DROOC. Don’t...Run...Out...Of...Cash.”

Truer words have rarely been spoken.

There is a lot to be said in business for just staying alive. It affords you the opportunity to learn from the marketplace, to make necessary changes.

The really big risk, the one that could completely crater the company, should be taken only with quite a lot of knowledge and forethought. Because, ultimately, the biggest difference between Oracle and most of its longtime competitors? Oracle is still alive and kicking.

Welcome

I do deals for a living. I think it's interesting, and I think it can be complicated. But I also think that it's not the black magic that we all make it out to be. I think it can be learned, or at least I think that there are fundamental principles that can be learned that can help a lot.

When I say that I "do deals," what I mean is: I help companies work through transactions like mergers, acquisitions, spin-offs, carve-outs, or joint ventures. I try to help people who have built a business put some money in their pockets for all that work.