The Exchanges

Q What was the progression of Indeka from those early days to when you sold the business?

A First thing to note is the world was just starting to embrace the idea of software as a service. Salesforce.com was out there, but not for mission critical things. So we were kind of this in-betweener between perpetual software licensing and a SaaS business, but we progressed from a two million dollar, 2001, ten million dollars the next year, fifteen million the next year, and it was largely on the back of our e-commerce business. Even though there were no budgets for IT, as I mentioned before, year-over-year declines, we could show a typical e-commerce site increasing their revenue by 30%. A budget would be manufactured because we could increase their revenue so much. And it might seem obvious today, but you make it easier for people to find stuff on a site, they buy more. It's that simple. The mantra today would be site performance. You improve site performance a percent or two, you're going to sell 10% more, believe it or not. We had a very nice progression scaling that up. At the time, we were very concerned the e-commerce market wasn't large enough, which was a failure of our imagination, for sure, when you look at companies like Shopify today. But at the time, that's what it looked like. We had half of the top 100 e-commerce sites. These long tail, small e-commerce shops hadn't materialized yet. We tried to expand our market into what I would call agile analytics, which i…

AI assessment note: “we progressed from a two million dollar, 2001, ten million dollars the next year”

Q At what point in time in the trajectory of that story did the venture capitalists change their mind?

A In June of 2015 is when they finally started talking to outside investors. I had backed them up to that point. I won't name the firm, but there's a West Coast firm that likes to insist on being involved in the most important deals of every year. They had their call, pitched what they were doing, and the response was largely, ah, I don't feel like getting on a plane to Boston. Went through a lot of other venture firms that summer. People saying, I don't understand why you have this payments thing in here. Makes no sense. In fact, the only two firms that were competing to back it at a reasonable valuation were my two lead investors at Indeca that fall. So it was the relationship more than the business fundamentals as late as then. Maybe 12 months after that, 15 months after that, other firms started to take note. And then Generation and Lead Edge very aggressively led their next round of financing, and it was off to the races. One last thing. The deck we used in June of 2015, I shared that with the Bessemer partner the day of their IPO as a reminder of the deal that he got. And he said, yeah, if you were raising funding today with that deck, you would have gotten four times the valuation.

AI assessment note: “Maybe 12 months after that, 15 months after that, other firms started to take note.”

Q How did you come up with your theme development for those six ideas?

A I would be doing historical revisionism if I came up with some big theme. There were certainly undercurrents of themes. Energy efficiency was an important one. Great people. If you were to see how things have evolved today, I care less about the investment theme in terms of category, et cetera, than that there are amazing people that will figure out how to turn something into a success. That turns out to be far more important than the market itself at the stage of a whiteboard. In general, my themes were infrastructure. At that time of 2012, the venture community was fixated on consumer. If you remember at the app store and these overnight success companies, things where they could see the trends in credit card data and invest in them. That wasn't what I was going to do because I didn't understand that stuff. I focused on harder technical problems where if we just solve the technical problem, we have a base asset versus you have to get to a bunch of eyeballs before you have an asset.

AI assessment note: “I would be doing historical revisionism if I came up with some big theme.”

Q As one of your entrepreneurs, when you're backing someone, approaching the venture community, what tips do you give them in terms of how they should decide who their partners will be?

A The number one tip is it's always the individual, not the firm. It's that individual that you'll be dealing with. Make sure they also are well positioned to be there through the life cycle of your investment, that they matter. Ideally, find someone who's got some expertise in your area, especially if it's B to B, because you're going to waste a lot of time with folks who they'll only invest if they see someone with knowledge in that sector that's already involved. Perhaps early on getting a credible investor that knows the space, Will save you a lot of heartache and pain down the road. The other bit of advice I always give the entrepreneur is when people give you advice, remember you're the only one that can contextualize it to your business. When people give advice, they're typically contextualizing it to what made them successful, which may not be your particular context.

AI assessment note: “The number one tip is it's always the individual, not the firm.”

Q You mentioned some snippets of the frothy venture environment today. What's your perspective both as a participant and to some extent a competitor today into this ecosystem?

A These capital cycles, I would always prefer steady versus boom and bust. It collapses under its own weight as you go through the boom cycle. Everything gets more expensive and starts to get foolish. Capital efficiency goes way down. But that's just the risk on, risk off of large pools of capital moving earlier in the capital cycle. There are different schools of thought. There's a school of thought that those booms fund a lot of stuff that wouldn't have gotten funded Like the infrastructure we needed of fiber in the nineties, which led to the boom of the following 20 years. On the other hand, a more measured pace of investment would have accelerated more efficient ways to build out that infrastructure out of necessity. I would prefer a world where it was steady and we didn't go through those cycles, but that's not the world we've got. You adapt your strategy to be different. When things are booming, I'm all for getting back to the whiteboard and starting things from there and catching the next cycle.

AI assessment note: “These capital cycles, I would always prefer steady versus boom and bust.”

Q Yeah. It brings up an interesting question about Venture capital regional ecosystems. You mentioned West Coast firm not wanting to jump on the plane to Boston. What's your perspective of the Boston venture capital ecosystem strengths and weaknesses compared to the West Coast?

A Before I do that, let's go back to my point about people. One of the reasons you're always going to have some regional nature in the earlier stages of these is if you're backing great people, it tends to be someone you already know. You're going to have more confidence. You're going to stretch more. You're going to stick your neck out more. As companies scale and it becomes a spreadsheet exercise, that matters less. It's still important, but it's in a different way. There's a good reason you get some regional nature, to be clear. Historically, Boston was more conservative and they wouldn't swing for the fences. The Boston venture scene was very much, we're going to put in place a hired gun CEO. When that person's done vesting, they're going to want to flip the company and go to their next one. It was much more common in Boston to see that than we want to back founders and have them take it all the way. That's changing. Boston culture very much is changing, but historically Silicon Valley was much more back a founder, You're swinging for the fences versus hitting lots of doubles and triples. That's probably the best way to characterize it. That said, there are notable examples of companies failing to get funding on the West Coast and coming to Boston. My favorite example is Kiva Systems, the robot company that Amazon bought. No one would back hardware in Silicon Valley when they…

AI assessment note: “Historically, Boston was more conservative and they wouldn't swing for the fences.”

Q I want to turn to your next company. Take me through this lens of what was your experience with VCs in that business from start to finish?

A After selling the company to Oracle, I always viewed as the financial success that comes from that are just resources to build other things. So in a sense, I was sitting on a sizable venture capital fund. My view was it sitting in the bank wasn't going to do much. And within a year, I effectively got involved launching six companies from a whiteboard. And they tended to be the things that the venture capitalists wouldn't touch for whatever reason, because I wasn't going to compete with them chasing after whatever the hot topic of the day was. An example was silicon. No one wanted to touch silicon. And my view was that means they're going to be really valuable in a decade because there's going to be a scarcity of assets that are being created. And sure enough, I spun a silicon company out of a university in Europe in 2012. And they're on track to go public next year. They're now up over a million a week. I think it's going to be a hugely valuable asset because there was a dearth of innovation out there. So that was the general philosophy. I felt the same if I look at wireless. What happened in the data center in the nineties, I was convinced is going to happen to the wireless network. It's as important and it needs to happen. I wouldn't say I launched these things as much as I found entrepreneurs interested in these spaces, and I was willing to be a partner and do everything I c…

AI assessment note: “they tended to be the things that the venture capitalists wouldn't touch”

Q In your building out of the business, how did you think about talent development?

A One thing that was very fortunate is when I was in grad school, I spent the summer working at Venrock back when it was really an extension of the Rockefeller family in 30 Rock. So I had a chance to see behind the scenes at kind of the inventors of venture capital in the country. They had frameworks that they developed over 40 years that helped them make investment decisions. And that framework was largely market opportunity, what's different about this company pursuing it, team and finances. And it's all got to fit on one page. And the team you could largely frame as, why are these people the right ones to make this happen? The reason why that's interesting is it was in direct contrast to what everyone believed in 99. In 99, the temporal wisdom was back folks without experience because they'll see new ways of solving problems. So it became an asset to be inexperienced. Once we got through 2000, the pendulum swung all the way back hard. All investors wanted to see is that you have people who've already done this. Fortunately, I had been exposed to that and very methodically built a leadership team with folks who had done their roles before in interesting software companies, and that played a huge role in our ability to get backed in that very difficult environment. And then it's all the other largely true things, which is work very hard to get great talent on a team, and they wi…

AI assessment note: “built a leadership team with folks who had done their roles before”