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A bi-weekly column with timely, relevant and possibly irreverent insight into the BC technology industry.

Something Ventured:
October 31st
, 2005


By Brent Holliday
Greenstone Venture Partners

 

Ambition Recognition

 

“Only shooting stars

Break the mold.” – Smashmouth, Allstar

 

Eighteen months ago I wrote about leaders and it was referenced as one of my better columns by some of you.  In fact, it will be referenced in a book soon:

Dear Mr. Holliday,

I am an American law professor writing a book on women in combat. I have been reading some of the leadership literature and came upon your column from last year entitled "Born Leaders."  I thought your column had more wisdom in it than 99% of the academic literature.  If you have no objection, I would like to quote the excerpt below in my book.

Best regards,
Kingsley Browne 

{I didn’t add the excerpt, but it was the part about employees being able to smell a bad leader.}

In a follow-up to that column, which was oriented very much as a lecture on leadership, I wanted to look at the same issue again solely from the eyes of investors.  I have been asking those in my industry and those that invest (angels) about the criteria that they want to see in a “backable” CEO and more specifically, what they have learned through good and bad experiences in trying to identify the right person.

The biggest issue we face is that we see great technology opportunities and large market opportunities, but experience (usually bad) has taught us that the number one factor is whether the management team, mostly the CEO, has the strategic and tactical capability to take the idea to the moon.  Can this person in front of you hit it out of the park when they have never done so before?  Forget the Paul Terry, Adam Lorant, John Seminerio threesome that has done it twice already.  That’s a no-brainer.  I’m talking about the bright-eyed entrepreneur with no start-up-to-the-moon track record.

First, some legendary anecdotes about backing a CEO with no previous proof of capability:

Arthur Rock invests $60,000 in Apple after meeting Steve Jobs and attending the Home Brew Computer Show in San Jose, seeing the wild-eyed enthusiasm of the computer crowd around Apple’s booth (1977).  Rock would say that he had his doubts in the first meeting with the un-shaven, sandal wearing guy whose diet at the time consisted entirely of fruit.  Jobs’ first business plan called for $500M in revenue in ten years.  He had never run a company before.  To be honest, Rock based his decision to invest on Mike Markkula, Apple’s first angel investor and former Intel executive who would help them with marketing.  But he did see the un-believable passion in Jobs and considered the support he had around him and bought in.  By the way, they reached $500M in sales in 5 years.

From John Battelle’s new book about Google, “The Search”: In August 1998, Larry Page and Sergei Brin sat on the porch of a Stanford professor’s house and showed Andy Bechtolsheim (founder of Sun, among others) their search engine.  Andy asked them a bunch of questions and then said “‘Well, I don’t want to waste time. I’m sure it’ll help you guys if I just write a check.’”  He headed to his car to get his checkbook and Brin and Page were left to figure out a) at what valuation and b) who to make the check out to because they didn’t have a company yet.  Andy was acting in the true angel investor spirit and, to be truthful, was focused on the technology opportunity rather than the team in front of him.  But his decision to back these guys sprung from the fact that others had backed him, Bill Joy and Vinod Khosla in the early 80’s to start Sun Microsystems after none of them had started a successful business to that point.  Good decision.  Based on the valuation discussed that day and subsequent dilution in the VC rounds, if Andy was still holding all of his stock, it would be worth about $10B today.

Of the conversations I have had around BC recently, the best term I heard about how to recognize whether a person could be a winner, even without proof at the start-up level, was “vaulting ambition”.  Passion is critical, but having that passion tied to huge ambition seemed to be the right formula for a venture type of bet. 

My favourite pop-culture reference to “vaulting ambition” would be Plankton from the Sponge Bob Squarepants cartoons.  For those of you without the 8-16 year demographic in your house, Plankton is, well, a plankton with a huge booming voice and massive ambition to be the leader of the underwater world, via his restaurant, the Chum Bucket.  In essence, he is the evil figure and nemesis of Sponge Bob.  He is convincing, despite his stature.  He persuades those around him and inspires their loyalty.  He has big dreams and even bigger drive to deliver the goods.  Alas, bumbling SpongeBob always de-rails him, but that part doesn’t fit my analogy…

Simply stating your ambition is not enough to qualify.  In the absence of proof of previous success, qualifying the ambition with solid analysis, strategic insight and a believable implementation/operational plan… that is what impresses.  You may say you will do $500M in ten years (everyone does), but the investor sees the ambition, hears the plan and believes.  Plankton, but with a plan.  Angels will write the check right then and there.

Institutional investors need to go back to their group and convince them that this is a person to back.  What you want them to say around the board room table back at their office is that the entrepreneur “gets it” and clearly has the ambition to drive it forward.  You want them to say, “I know they haven’t done it before, but this guy’s/gal’s a winner.  I can feel it.”  They will have to justify backing the entrepreneur without experience and you can help them do that by surrounding yourself with good advisors, board members and other team members that have been through start-ups before.

Far too often, we (the investors) make mistakes… but that is the game we play.  We bet on the wrong people or the wrong technology or the wrong market.  Our successes have to make up for those mistakes (and more).  In the downturn, we started to equate failure with inexperienced CEOs.  We have equated mediocrity with failure to execute by our management teams.  In some cases, this is true, in others, circumstances got in the way.  The unfortunate by-product of these painful lessons is that we don’t give the un-proven entrepreneur a chance. 

To help make the decisions, some institutions use HR professionals to quantify the characteristics of un-proven CEOs to see if they match up with successful entrepreneurs.  Some investors choose to stay with their “gut”.  Either way, it is incumbent upon all investors to recognize deficiencies that might come from inexperience and decide if the opportunity is worth the effort to manage them.  That’s the key folks… we can look at inexperienced entrepreneurs if the opportunity is exceptional.  Once again, an anecdote for this is Don Valentine’s initial investment in Cisco where the founders were a husband/wife team that everyone else had rejected (basically everyone thought they were nuts).  He was willing to work with and around them because of the opportunity he saw. 

Now there are plenty of good business opportunities to make some money that don’t require an entrepreneur with “vaulting ambition”.  Operational skills to execute a plan successfully can exist without Plankton-like ambition.  Frankly, only the big opportunities need that kind of energy and drive.  I heard plenty of examples where entrepreneurs may have lacked start-up experience, but turned their skills learned in other environments into decent companies.  But there was consistent theme among the big winners…

Perhaps I can give you, from my very un-scientific poll of investors in BC, my Plankton Hall Of Fame for those entrepreneurs among us who may not have been there before, but whose backers recognized the “vaulting ambition” to be enormous and they succeeded (feel free to send me others who you think may fit.  I surely will miss some as I did not survey everyone):

Amos Michaelson - Creo

Dick Hardt - ActiveState

Don Mattrick – Distinctive Software

John MacDonald – MDA

Norm Francis – Basic Software Group

Geoffrey Ballard – Ballard Power

David Sutcliffe – Sierra Wireless

Not every on of these was the founder, but without a huge success in their background for an investor to latch onto, they inspired investors to bet on their big idea and then succeeded.  For each Plankton listed above, there are ten who had the big idea and the ambition, but failed.  But it should not stop us from recognizing the “type” and backing them.  It would be a shame to miss one.

I look forward to your comments.

Letters From Last Time –

Wading into the debate about Web 2.0, as I did last time, and delivering an argument that it is not a revolution, but an evolution did cause me some grief among the “technorati” that have adopted Web 2.0 techniques.  First, there was the blogs (for instance) making fun of my Web 1.0 column and manipulating Google search results on my name.  Then, there was the VEF event on October 25th, where they mocked my response and my Google “identity” in front of a few hundred colleagues. (BTW, Nick and Dick should be commended for the best VEF event I have been to in 12 years of attending!!!)  All of this reminded me of the apprehension I had writing the column in the first place… that writing on the web somewhat negatively about people that seem to be permanently attached to the web and, therefore, are zealous about its apparent transformation… well, let’s just say it was like standing in front of a Klu Klux Klan rally and telling them that their pillow case hats look ridiculous.  Burning crosses on my lawn would be just the start of my problems…

Here is what others said in response to my column:

Once again you hit this one dead on Brent.

All these opportunists are looking to make a new play with other folk's money. ("It’s different this time!") If it was this easy to make a buck in investing then value investors would not have a play. I am willing to wait to see this play out.

Reg

Hi Brent,

Not sure if you remember me but I used to run Helix Internet, one of the first ISPs (since then I have been running various ISP/Hosting companies sales & marketing - the latest Superb Internet). - but finally got burnout out on the "much ado about nothing" aspect of the Internet and Web 2.0 is just another example so finally hung up my shingle.

Anyways well said and agreed "their time is up"!

Cheers,

Curtis

Brent:

…should be an interesting event on Tuesday – I’m already exhausted with this 2.0 crap. Yes, my newsletter has an RSS feed, I regularly read blogs (here’s a good posting), we’ve even sent out a few Podcasts. The technology is wonderful, but I’m not impressed by Flickr shots of what’s in someone’s briefcase. I’ll leverage some if it makes me more effective, but the earth is still gonna be tilted the same way. Shouting louder doesn’t make the message any clearer for those that are still waiting to hear the real point.

Had lunch yesterday with a few peers, and reveled in all the senses of rich intellectual interaction and good food (and not blowing my eyes out in front of 2 computer screens simultaneously).

…wonder how many “Web 2.0 Kool-aid” tickets could be sold at Tuesday night’s event? Could be a great fund-raiser for a local charity – I’d certainly be in for $5… ;-)

Nice article.

Regards,

Jim

Hi Brent

I wish you would add RSS and trackbacks to your column. Not sure why you and Mike have not shifted this to a blog format, it would help to build the local community if you did so. Anyway …

Regardless of the hype factor of Web 2.0 and its relevance in making investment decisions (something I will leave to you), the key patterns that O’Reilly identifies are useful and we certainly use them to shape strategy at Recombo.

  • Services, not packaged software, with cost-effective scalability
    • Key business principle of the Recombo Connector, which provides integration middleware as a service
  • Control over unique, hard-to-recreate data sources that get richer as more people use them
    • Every time a user adds a content type to the Connector this enriches our ability to handle new content types
    • Collections of competency models mapped against content catalogs are a growing part of our revenue stream and we are working to turn this into a Connector service, our IP is the mapping and not the competency model or the content
    • Every time we touch a web service we catalog and represent it for future integrations
  • Trusting users as co-developers
    • Our users tend to be other companies and we are deeply engaged in web services development – our goal next year is to open this up so that Recombo becomes an open repository for web services
  • Harnessing collective intelligence
    • This is what is happening with the content types, the competency to catalog mappings and from next year with the web services
  • Leveraging the long tail through customer self-service
    • Need to work on this
  • Software above the level of a single device
    • What middleware as a service enable
  • Lightweight user interfaces, development models, AND business models
    • See comments on REST vs. Web Services stack.

The REST vs. Web Service debate is also something we struggle with. Our current system is a mix, RESTful where possible and web services based where a tighter enterprise style integration is necessary. It is going to be a technical and strategic challenge to manage this properly.

Anyway, I hope you are stimulating thought and discussion in the local business and investment community. Any chance of getting other local VCs to publicly comment on Web 2.0 – guess I should go to the Financing Forum to hear about this.

Cheers,

Steven

What Do You Think? Talk Back To Brent Holliday

 



Something Ventured
is a bi-weekly column designed to supplement the T-Net British Columbia web site with some timely, relevant and possibly irreverent insight into the industry. I hope to share some of the perspective and trends that I see in my role as a VC. The column is always followed by feedback (if its positive or constructive. I'll keep the flames to myself, thanks).

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