Nick Sturiale was a partner at one high-profile venture firm (Sevin Rosen) that stumbled after the dot-com bust, and he's now working to revive another (Ignition Partners, which was formed in Seattle by several Microsoft alumni, most of whom left early this year). But Sturiale's biggest claim to fame may be as the first investor in Splunk, whose IPO last year probably did more than any other company's to kick off the current renaissance in enterprise software investing.
In this week's Elevator Pitch, he calls buzzwords and bias some of the biggest threats to a startup's health.
Q How'd you get into this racket?
A In 1999 (remember that party?), I co-founded a manufacturing-analytics software company called Timbre, while at Haas Business School. Though not in the "petfood.com" genre, we won Berkeley's inaugural business plan competition. Sevin Rosen gave us Series A money, and I moonlighted as startup CEO while finishing my degree.
After 18 months, I recruited a real CEO and stayed on the board and when I graduated, Sevin Rosen hired me. In 2001, we sold Timbre to Tokyo Electron for $138 million.
Q What do you like about VC?
A I love the messy, creative work of venture. You help entrepreneurs create companies out of whole cloth -- a complex, noble and all-consuming way to spend your day.
In this business, it's an occupational hazard to become jaded, put a price tag on every encounter and obsess about money or your rank on the Midas List, but I think most entrepreneurs and startup employees seek more meaning than persisting in a transactional world. They want to create something the world values. They want to be on a winning team. I love being part of that development process.
Q What kinds of pitches are you looking for now?
A We don't evaluate pitches. We evaluate people. Silicon Valley produces a mountain of buzzword-compliant PowerPoint presentations, most of which are just trying to leverage the halo effect of hot new brands. Most business plans meet a shredder when confronted by market realities.
We look for disruptive narratives, but we look harder at storyteller than story. What did they produce previously that created value for all stakeholders? How tenacious and yet self-aware are they? What failures do they gloss over or accomplishments do they embellish? How would they course-correct if their fundamental insight proves false?
Q What's the biggest mistake entrepreneurs make?
A I've made more than my share of business-judgment mistakes. I do know, through hard lessons, that as a species, our brains are hard-wired with cognitive biases that undermine our decision making: Over-optimism, confirmation, loss aversion, self-attribution, social harmony, etc. These are vestiges of a time when we lived in caves (and I don't mean man-caves).
All startups perpetually run out of money. The game is to find a viable market before the hourglass runs out. Customers and prospects are always giving us feedback, often unspoken. Is the entrepreneur truly listening or stuck in a fixed mindset -- "Even though it's fourth and 10, I'm going to run it up the middle?"
Q What's the next big thing going to be?
A Prognosticating is a dubious art. If we knew the next big thing, returns for venture capital as an asset class would be materially different. That said, we are intrigued by sectors early in their life cycle: Machine learning, the Internet of Things, hybrid cloud, software-defined everything, mobile enterprise.
Q Sevin Rosen foundered in 2006, returning hundreds of millions of dollars to investors rather than trying to raise a new fund. Now you're largely trying to rebuild a new firm on the bones of an old one that had also struggled. What do these experiences tell you about the nature of the venture business post-dot-com crash?
A Fund size and partner age can dictate whether a firm thrives or falls victim to past successes. If you focus on early stage venture, allocate each partner $50 million per fund to invest; beyond that, your odds of "style drift" (taking too much fund risk) go up.
Separately, venture capital returns are propelled by category winners exploiting platform shifts, e.g. Internet, SaaS, mobile, social and cloud, which disrupt the old investing order. Rotating your sector bets from old platforms onto new ones often requires letting a new partner, one who is more generationally attuned to what "kids" use, do the new deals. They have no ego, social network or economic ties to the old platform.
Otherwise, you tend to keep funding aging sectors that have been good to you in the past, but no longer produce big, new hits. In many respects, Ignition is a vehicle to apply these lessons learned from past industry boom-and-bust cycles.
Q You were the first investor in Splunk; when did you know it was going to hit it big?
A To clarify, David Hornik of August Capital and I co-led the first round. Hindsight being 20/20, I'm tempted to create a story that exaggerates my visionary bona fides. The reality is I did not know Splunk would be big until we priced our IPO at $17 and trade No. 1 was in the mid-$30 range.
Splunk innovated in both product (making terabytes of raw machine data quickly and easily searchable) and business model (enterprise freemium), which created tremendous stakeholder value. More fundamentally, Splunk has a CEO and employees so remarkable that I feel lucky to be part of the team.
Contact Peter Delevett at 408-271-3638. Follow him at Twitter.com/mercwiretap.