Welcome back to Elevator Pitch, the Q&A that grills top tech investors on what kinds of deals they’re looking for — and which common mistakes trip up entrepreneurs. This week, we bring you Tim Guleri of Sierra Ventures, who turned an electrical engineering degree from Punjab Engineering College into a career as a serial entrepreneur and tech investor.
Q: HOW’D YOU GET INTO THIS RACKET?
A: I crossed the DMZ to become a venture capitalist in 2001 after helping build two companies: Scopus Technology, which we took public in 1995, and Octane Software, which I sold to Epiphany for $3.2 billion in 2000. However, my first entrepreneurial experience, and a pretty tough one, was selling books door to door in Sacramento in 110 degrees to put myself through graduate school. I made $10,000; it’s where I fell in love with the customer-facing process and resolved that I’d do something entrepreneurial once I got my green card.
After selling Octane Software to my good friend Roger Siboni, I stayed with Epiphany for 18 months, helping integrate the companies. I wanted my daughters to see me engaged in the world, not just “retired.” At the time, Sierra had raised its eighth fund and was looking for a partner to bolster its software infrastructure practice. I joined as managing director in 2001.
Q: WHAT DO YOU LIKE ABOUT VC?
A: I’m a huge believer in the power of entrepreneurship. It is America’s “oil.” At a very visceral level, I feel fortunate and humbled to support the entrepreneurs I meet every day. That is indeed the best part of being a VC.
Beyond that, I love the transformative impact technology has on society, and meeting hyper-smart people that can see ‘around the corner.’ Entrepreneurs are wicked smart, and being able to help validate their vision is very exciting. Finally, it takes blood, sweat and tears to build a company. It is a journey I have personally been on twice before, so I relish being a resource for my CEOs — being the “doctor on call” when they go through the ups and downs.
Q: WHAT KINDS OF PITCHES ARE YOU LOOKING FOR NOW?
A: What I look for has been pretty consistent throughout the decade I’ve been a VC. I look for an “authentic”, product-centric entrepreneur: Someone that has a deep understanding of the domain, someone that’s building a company for the right reasons and whose candle is burning at both ends (like mine) to make the business succeed.
I look for ideas that are based on transformational technology and business innovations, where the market timing is right — i.e., put your board in the surf when the surf’s going up. Finally, I look for teams that can execute and are quick on their feet. This combination of Trailblazers, Tech, Timing, and Tactical Execution is what makes for venture success.
Q: WHAT’S THE BIGGEST MISTAKE ENTREPRENEURS MAKE?
A: Not getting customer feedback early enough. The product and the business model have to be taken through QA when a company is at its early stages. I find that entrepreneurs don’t aggressively seek out that fast “no” from customers. And if they do, they only go for the quick “no” on the product and not on the business model (pricing, marketing message).
At Sierra, we have an 80-person CIO Advisory Board that serves as an early sounding board for our companies, so they can get fast and accurate feedback on both these aspects. This ensures that our companies get the fast “no” so they don’t make as many wrong turns as they scale.
Q: WHAT’S THE NEXT BIG THING GOING TO BE?
A: Mobile. It’s a brand new platform and interaction layer and is going to transform the enterprise and consumer business application and service landscape. Not only is it creating a whole new set of services that are needed to support it (cloud computing, big data frameworks, etc.), but it is creating innovation and disruption in the way services and applications are conceived and delivered. You’ve just given the modern-day entrepreneurial ‘Picasso’ a blank canvas… watch out!
In the next decade, you’ll see excellent business applications emerge (like AppMesh for sales force automation) and brand new services (like Uber), all on the backs for the mobile revolution. I am a big believer and investor in this trend and have invested in Appcelerator, which is leading the mobile application development wave.
Q: WHAT’S THE ONE DEAL YOU MOST REGRET DECIDING NOT TO DO?
A: Salesforce.com. It was the one that got away. It was my second day on the job as a VC in 2001, and Marc Benioff and John Dillon came to pitch our partnership on investing in Salesforce.com’s venture round. The SaaS model was still emerging at the time, and their churn rate was 3 percent a month. We as a partnership could not get comfortable with the fact that they were losing a third of their customers every year, and we passed on the round.
The company, of course, went on the write the book on the SaaS model and by great execution has become a dominant force in the industry. I have a lot of respect for Marc Benioff, as he was considered a renegade at the time, but he stuck to his guns and proved that his vision was right.
Q: SIERRA SPECIALIZES IN ENTERPRISE SOFTWARE INVESTING. WITH ENTERPRISE SUCH A HOT SPACE RIGHT NOW, HOW DO YOU AVOID GETTING INTO BIDDING WARS?
A: Enterprises spend $245 billion on software/infrastructure annually, which is an enormous market. Because we’re deep in our domain and tend to keep in touch with the best teams that are coming up with disruptive ideas, we know about hot deals well before they are ‘hot’. This gives us an opportunity to spend time with the team, have them talk to our CIOs and build a relationship. This strategy avoids us getting into crazy bidding wars.
Don’t get me wrong, we are aggressive in winning the deals we go after, and we throw the power of the entire partnership at winning those investments. But typically, entrepreneurs go for what we stand for as partners, our focus on the enterprise and our supportive stance for growing companies and helping entrepreneurs.
It is very atypical for us to be the highest bidder in a financing round. Like I tell my entrepreneurs, “Short Indian guys play a very poor game of jump ball.”