Interview with Ann Winblad
Ann Winblad gives us the Silicon Valley skinny on investing, growing a business, inspiration, and how venture capital is the backbone for the U.S. economy.
An Interview with Ann Winblad Co-founder and Managing Director, Hummer Winblad Venture Partners
Date: April 8, 2009
Ann Windblad: Hummer Winblad Venture Partners
Lucy Sanders: Hi this is Lucy Sanders. I'm the CEO for the National Center for Women & Information Technology or NCWIT and this is the next in a series of interviews we're doing called "The Entrepreneurial Toolbox." This is a great series of interviews. Essentially, the must knows for entrepreneurs. Topics ranging from networking and business planning competitions from learning from failures. Today, I'm very excited to talk to Ann Winblad about navigating Silicon Valley. Welcome, Ann.
Ann Winblad: Thanks.
Lucy: Ann really doesn't need an introduction. But, that's not going to stop me from doing one anyway.
Larry: All right. You give it, yes. Lucy: Ann has over 30 years in the software industry and from systems programmer, to software entrepreneur, to venture capitalist, to board director and programming book author.
Lucy: Object oriented programming, something that I love. She's had a great career in Silicon Valley and there's really no better person to tell us all about how to get around Silicon Valley and to be an entrepreneur. So Ann, tell us a little bit what's happening at Hummer Winblad Venture Partners, your company, today.
Ann: Sure. We are about to celebrate our 20th year as a venture fund and we actually started our fund in 1989 right after the '87 downturn. We've gone through several economic cycles in the last 20 years. We raised our sixth funds in 2007. So, we are actively investing still and we are focused, like we were at the beginning exclusively on software investments and we fund companies at the beginning of the A round early stage.
Larry: That's exciting.
Lucy: Are you seeing lots of great ideas continuing to come out of the Silicon Valley area?
Ann: Silicon Valley is still like Mesopotamia for companies. People think that innovation is happening everywhere, which it is. But, let's look at a couple of the numbers. Last year in 2008, there were about 1,400 deals done outside the U.S.; Europe, Israel, China, India which is about $13.4 billion dollars. To compare that to the U.S., the U.S. had about 2,600 deals and about $29 billion invested. But, relative to Silicon Valley, over 30 percent of that $28 billion was invested in companies in the Bay area. So still, if you take 35 percent of the $28 almost $29 billion that venture capitalists invested in 2008, the amount invested in the Bay area was almost equal to all of the rest of the investment in the rest of the world out the U.S. So, it's still a very thriving area for innovation and entrepreneurs.
Lucy: Well, I was on a national academies commission that looked at the health of the IT RND ecosystem, and we looked at Silicon Valley and we looked at Boston. So, it's really clear that Silicon Valley is home to technology innovation. Why do you think that is? People often talk about the universities; Stanford and Berkeley. What other kinds of things do you think make Silicon Valley an innovation cauldron?
Ann: Well, when I first got involved in the software industry, I was based in Minneapolis and it's a very entrepreneurial state. But, there's not density in one entrepreneurial area. It has a little bit of software, a little bit of media, a little bit of medical devices, a little bit of this. I think specifically when the contemporary software industry started, which we can really trace back to the late 70's. I started my software company in Minneapolis in 1976, the same year that Microsoft started. Shortly after that, within the next year, Apple started within two years. Oracle started. So, perhaps, it's just by chance that there was enough of an infrastructure out here from the birth of the venture capital industry which with earlier venture capital investments and then we started to get some real anchored tenants; Oracle, Apple. So, we had density of very, very young companies and some of those were software companies. Clearly, the same thing could have happened in Seattle. But, there was just really Microsoft there and then this other big thing called Boeing. Minneapolis, we had early hardware companies that control data and others. But, the density of where the early venture capital firms were, which was started in about 1973, that would be areas like Sequoia. Our good fortune in having some companies that were early successes that became anchored tenants here and especially right to be edge innovators like Oracle, and Apple and Intel, for example, really started building a critical mass of the ecosystem that was willing to support entrepreneurs; the investors, the lawyers, the accountants and also demonstrated if you take a risk, there might be a big gain.
Larry: That's really fascinating on w3w3.com, we interview a number of people from angel investors to VCs and the like, and there's always a lot of talk about Silicon Valley. That's one of the reasons that we're so excited about this. If you could go over with us maybe a little bit of a time line of some of the changes, let's say, from when you started to 2007 and maybe what's going on today. But, what are some of the changes you've seen?
Lucy: Oh, and gaze into the crystal ball.
Larry: That's it, that's it.
Ann: Well, you have to remember that the role of venture capitalists is to be great opportunists. So, the visionaries are the entrepreneurs. I gave up my visionary hat when I moved to California and became a venture capitalist in the late 80s. So, I missed most of the 80s here because I was in Minneapolis because I was a practitioner running a software company. When I came out here in the late 80s, it was an interesting time. My company had been acquired and a bunch of cash in my pocket. I thought, "Wow. I'm just going to go to this amazing place and companies will be starting all over the place." Well, it turns out that was exactly the time that the disk drive industry crashed, the semi-conductor industry crashed in that late 80s time frame starting basically at about 83, 84. So, there are flat times here in the Valley and I came out here. I didn't race back to Minneapolis. These little things I found was, "Hey, we all have to have our downs." But, overlaying that was a sense of optimism about being in charge of our own destiny and having the capability to create the future. People don't take that lightly. The only time the lightness happened was, of course, in the crazy 1999 time period where people viewed that you could just manufacture businesses versus work hard to create them. But, I think it was really another uphill period from the late 80s into the mid 90s and that period, I think, is really like it is now. Venture capitalists are very selective in what they invested in. There were fewer funds around. The venture capitalists syndicated almost all their deals so that they have more elbow grease and paper pockets around the companies. Then, we had this crazy period called the 1999s and 2000; very short span of the Internet being a new ingredient in the innovation stew out here. But really, it was way too early for most of those businesses. But, tremendously exciting because the change was so dramatic and it appeared to be a change that was going very, very fast. Lots of people moving online, lots of people changing their habits from how they consume media, to how they shop, to how they build even enterprise exchanges, et cetera. But, we weren't quite there for a number of reasons. One is all the tooling wasn't there. Two is we've more a phenomena than really a sturdy environment accruing to build sizable companies on. Yet, at the same time out of that period, we had some companies arise. Some people, then, when back to 2001. The music stops again; an abrupt stop. There, it wasn't a global recession. So, it gave everybody a time to lick their chops, look at what we had for a technology pallets, set the bar a little higher for companies and the entrepreneurs and start investing again. In that period of time, we invested in a new company called Omniture, which is a public company today and one of the fastest growing software companies in the U.S. We've been on a steady investing pace since then. There was a little bit of a downturn of investing at the end of the fourth quarter of last year, but basically if you look at that $28 billion that was invested in the U.S., it's been in the 20s since about 2003. The established Venture Capitals have never really wavered from their commitment to entrepreneurs, their commitment to building companies. They're addressing what can work and what works. You know, we'll probably see a bit of slowdown here, at least in the first half of 2009 because we've never worked in a global recession before. We don't know how episodic it can become in kind of a bumpier economy. And people will be more cautious on the velocity of investment, although it's not that high of a velocity in the beginning if you look at 2,500 deals across the U.S. So sometimes because Venture Capitals... when I was just starting out in 1989, I had to explain to almost everybody what a Venture Capitalist was. Now it's kind of part of the national vocabulary. But I think if we really look at the role of a Venture Capitals, it's a very small number of people putting their dollars and their capabilities behind a relatively small set of companies that are carefully selected, or out of that set, a subset of them do become very, very successful companies and really contribute to the backbone of our U.S. economy.
Lucy: Well, that's a great overview of investing and Silicon Valley. In fact, related to the downturn, we interviewed, just recently, a young entrepreneur who just started her comapny in the last downturn because she'd been laid off from her job and really had nothing else to do. So I guess sometimes downturns can also create entrepreneurs. So I want to turn my attention to entrepreneurs then, if I may, and really ask you what individual entrepreneurs can do to improve their chances of funding success in Silicon Valley.
Ann: Well it's...You make it sound a little bit like a trip to Las Vegas. It's not.
Lucy: Well if only it were true.
Ann: Yeah, well the odds are always working against you in Vegas so it's actually better with Venture Capitalists.
Lucy: Oh that's good to know!
Ann: I actually spoke at a breakfast this morning with another Venture Capitalist and there were about 200 people there. That was a question asked from the audience. The answer was the same both given by me and given by the other Venture Capitalist. First, as Warren Buffett says, "The market bats last." We don't fund inventions. We like inventions. Here, where we only fund software companies and most of us were programmers at one point in our life, we get quite fascinated by what you can do with code and the products you can build. But we don't fund products, we fund companies. So when we go back to Warren's quote of, "The market bats last, " it means, "Have you figured out, are there customers out there?" It doesn't mean you've sold your product to them but that you've actually gone to the marketplace and said, "I'm going to build this. If I build it, is it a major need for your company? How would you express the value of this for your company? Where would you put it on your budget list? Have you seen competitors for this? And if I pitch this ball at you, are you going to bat at it?" So that's the first thing we do if we really see something where it looks intriguing, is we go out and we try to get the harsh or exciting realities of the marketplace. Is this something that fills a large, unmet market need? And you'd be surprised how many entrepreneurs come to us, and, in their 30 minute pitch, they've got 25 slides describing their product. You know, we're not funding that product. We're funding a company that that might be the first product for or the product. What really is the unmet market need that you're solving? This doesn't mean that even if you're an engineer that you have to have been a sales person before, but you're going to have to find a dialogue with that customer before you get to us. Because that's the first thing that we're going to check anyway, is that we're going to start calling out, "Who would be the typical customer or consumer of this product?" and see: Hey, are the dogs going to eat the dog food, and is it a dog food where they pay some money for? So that is really the biggest thing. Second, is, you know, the quality of your team. You don't need a full team, and most of the companies we fund, we fund less than five people. A good example is Hyperion, which is a company recently acquired by Oracle for over three billion dollars. It became a public company. We funded two founders, Jim and Bob. Neither one had run a company before. In fact, Bob, the technical corresponder, had never written commercial software. He was a rocket scientist at NASA. But, we knew immediately with ten minutes with Jim and Bob that they really understood their marketplace. They had the ability to attract other people to come and work at that company. They had the ability to, at least in the beginning, lead the company from Monday through Friday. And ultimately, Jim stayed the CEO, took the company public, and only stepped down as CEO when he decided himself to later become a Venture Capitalist. So the intellectual capital is far more valuable than any financial capital we can add. Those two combination... "Is this a large market opportunity, and can you communicate that part to us as well as your product, and do we have confidence that the starting team can get this puppy off the ground?"
Lucy: Well, I'm assuming that, you know, the biggest mistake then that entrepreneurs make is not doing those two things. Anything else you can think off that you'd put on the list in terms of the biggest mistake?
Ann: There are several other big mistakes. When people hear that it is quality, they tend to go and recruit a whole management team, you know, without funding. So suddenly there's the butcher, the baker, and the candlestick maker. They really just filled in the line-up versus got first-round draft picks. So that's a non-starter for us too because we don't want to disassemble a whole big team to get the first round of funding done. So, a team can be two people. We rarely, rarely fund one, although we've done it before with success, but it's an anomaly. Second is, not giving your pitch to someone before you give it to a Venture Capitalist. Some practice, not over-practice.
Lucy: That's a good point.
Ann: But there's no, especially if you are here in Silicon Valley, you have no excuse. If you're in Minneapolis, you have no excuse, either. There's plenty of people who have been funded before. You know, call up a friend of yours who's been funded and say, "Look. I want to ask you a favor. I'm going to go pitch to a Venture Capitalist. I've never given a pitch to a Venture Capitalist. Can I give that pitch to you?" Because believe me, if that colleague or friend has been funded before, they will remember that pitch time. It's a frightening thing to be in a big conference room and everybody's sitting there. It's like a bad episode of American Idol if you've never done it before. You don't know what's going to happen next. But if you really have someone else's feedback, ask you typical questions, you know, you'll know that we're friendly, we're trying to engage in what we're... We also are good listeners. So we're not going to start engaging on every slide. So just sort of getting the feel for what is it like to pitch to Venture Capitalists and trying to pitch that once. I am pretty much shocked here because we probably have 25 companies a week come in that how untried some of that... You know, you get an hour. We tell you not to have your pitch be longer than 30 minutes so that there's some time for dialogue... That no one's ever looked at these pitches before or, in some cases, I think even spoken them out loud. So you want to try to get some feedback from someone who's already pitched to a Venture Capitalist, you know. Or, just have a first meeting where you say, "Hey, look. I don't have a full pitch. I'm just going to tell you about my product." Ask me for some feedback if this is the right time to go out for Venture Capital. But you don't want to get, you know, sit in your room all day, do a 30-minute slide presentation, not show it to anyone, and then kind of blow your meetings. Because there's a lot of people standing in line to pitch to us.
Larry: Boy, that is some fabulous, fabulous advice. Now, I've got a little True or False question here. I've heard from many non-Valley entrepreneurs saying that getting funding in Silicon Valley, if they're not there, is almost next to impossible. What would you say about that?
Ann: I would say false for us and true for others. In this morning's breakfast, I talked about the other procedures Venture Capitalists firm who does early-stage said, "Most early-stage Venture firms fund locally." Now we have 35 active companies right now, which is about the number we have active at any given time. As early companies, three are in Salt Lake City, one's in Philadelphia, one's in Austin, Texas. One's in Boston. So, for a good company, we'll go anywhere. If your investor is not local, one of two things happens, or both. One is, we seek a syndicate partner to co-invest with us who's nearer to the company. So, when you're trying to recruit your VP of Engineering, or your VP of Marketing, and you want our help, there's someone there to help, because we can't schedule that stuff in advance. Second is, I will say that, if your lead investor, if we're doing an investment outside of our driving area, we set a higher bar. Maybe the team has to be just a little bit better. But realistically, we don't believe the Silicon Valley has a monopoly on all innovation. We're not flying around the country meeting with these companies in their locations. We typically meet them at business conferences when they're here, or we already have an investment in the area, and we're at local events there. But for us, it is false that we only invest in Silicon Valley, and for others, it is true that they will only invest local for early-stage deals.
Lucy: So, in thinking about Silicon Valley, clearly access to capital is one thing that people think about. What other kinds of things are there in Silicon Valley that entrepreneurs can benefit from?
Ann: Well, we have lots of different organizations, and we're participants with some of them. I'm the co-chair of an organization called SDForum, sdforum.org. And this is an organization we've been involved in for almost 15 years to help build, so that there is a organization for people who aren't as connected to who's who in Silicon Valley, might need a little bit more coaching, mentoring, might want to find birds-of-a-feather group to meet with physically. And that creates innovation events where earlier stage companies...and we've actually funded two companies through that organization, one called, "StarMine," where we had a walk-in day. And a very bright young guy name Joe Gatto, I mentioned that we rarely fund one guy, but we funded Joe Gatto. The company StarMine helped him recruit his team, and StarMine was acquired last year for a very, very handsome sum of money by Thomson Reuters.
Ann: Another company we funded out of there was a company called, "Liquid Audio," which became a very successful public company, and Jerry Kirby, the CEO there, there were only 25 slots for that walk-in day, so he hung around in the lobby in case someone didn't show, and walked in. We were really impressed with his deep understanding of the marketplace he was in and spent quite a bit of time vetting his opportunity and became his lead investor. That's just one example. There's another organization called, "Astia," my partner Prashant Shah works with, very similar thing, helping companies team with each other, fostering the interaction of less-experienced teams. In the case of SD Forum, on that board of directors we have our representatives from IBM, Hewlett-Packard, Sun Microsystems, Microsoft, Nokia, among others, so we also help connect the innovators to even the larger company partnerships. There also is the commitment of the Valley, not just our commitment as an early stage venture capital firm, but clearly, for executives from these big companies to sit on a non-profit board, means that they're extending a hand much further to innovators than you would find elsewhere.
Lucy: Well, and we have... the sponsors of these interviews is the NCWIT Entrepreneurial Alliance, and Sharon Vosmek from Astia, is one of the co-chairs.
Ann: That's great.
Ann: So you know what a high-quality organization Astia is, and what an important role all these organizations play in making this such a thriving geography and place for innovation.
Lucy: And there's a huge support coming out of the universities. I've been to several events, both on the Berkeley campus and the Stanford campus, where there's just a lot of networking and buzz.
Larry: Yes, and even more than buzz.
Lucy: Even more than buzz. Some good ideas for some sustainable companies.
Ann: You mentioned earlier, certainly we're very fortunate to have some amazing universities here, not just Berkeley and Stanford, but Santa Clara....
Ann: The University of San Francisco... I mean, the list goes on and on. And all of these companies, Berkeley and Stanford, in particular, have very mature business plan contests that extent campus-wide, where there are sizable cash prizes at the end that have helped launch companies. In 2002, we funded two undergrads that were the winners of the BASES Contest at Stanford to launch a company called Voltage Security, which now has almost 700 customers in large enterprises, although it sometimes bothers me when the combined ages of the founders are less than my age, in this case it was 38 was my age. It really gives us a chance to meet innovators right at the starting line.
Ann: So, we're very appreciate of the efforts of the universities, and how much a part of the venture capital palette they all are.
Lucy: 700 enterprise customers is a lot of enterprise companies.
Larry: Is that a fact.
Ann: They are a very successful company.
Lucy: Very, very much so.
Larry: You know, Ann, this is a wealth of information. Lucy and I are very excited about everything you have done and what you are doing. But is there a question or so that we didn't ask that we should have?
Ann: Yes, I think I'm one of the rare breeds. I'm a woman in venture capital.
Ann: We had a dinner the other night for all of our VPs of Engineering who were in the area, and we had 37 CEOs and VPs of Engineering for this dinner. And I looked around the room, and I was the only woman in the room.
Ann: I do think that there are many, many successful woman upcoming in this industry and some that are really well-established. Certainly Carol Bartz, who's just taken over the leadership of Yahoo, her third big company, from Sun to Autodesk to here. But I think it's also important... I always make the comment that there's a lot more room for women in the conference rooms, at the dinner tables,in the deals, and we encourage young women to step forward, especially during this time. I see a lot of young women when we were at the universities and in the entrepreneurship classes, and in the business plan classes, and then I see fewer as we see them walk through the door. So, I would encourage people to think this is not one, even though you read a lot about successful males in this industry, there are successful women as well.
Lucy: Well, and I feel the urge to plug our new NCWIT award, the NCWIT Simmons Innovator Award, who we will be handing out annually now to women who start IT companies.
Lucy: And our first recipient is Anousheh Ansari, and we're very excited. We're giving it out on May 11 of 2009.
Ann: Great. Well, you know, I think that's really a great thing to do. I feel very fortunate that I made my west and moved to Silicon Valley. And for me, I think I've got the best job in the world. It's a joyous job to work with young entrepreneurs, and to watch companies to be built from scratch. It always seems like spinning straw into gold that you start with a discovery of a market opportunity, and especially in software, with lines of code, you build these great products, and you deliver enormous value to companies, large and small. So, we're always really, really proud as we see our companies grow, and we help build the next Citerion, or Omniture, or many, many others. I pinch myself that I was fortunate to find this career path, and I think it's one that's open to many others.
Lucy: We think that we're very fortunate to have you involved with entrepreneurship, and we thank you very much for your support of entrepreneurs everywhere.
Larry: Yes, this has been just super.
Ann: Thanks so very much, and thanks for all the great work you do with your company. I know how hard we all work to claim our share of the market map.
Larry: You know, Ann, one of the things that I've been so excited about being involved with Lucy here and NCWIT, is that we're directly a lot of this attention and energy to help young women make those decisions, get involved, and this is the type of interview that will be very inspirational.
Ann: Thanks so very much.
Lucy: Thank you, and I want to remind listeners where they can find this interview. It will be at the NCWIT site at www.ncwit.org, and also at w3w3.org.
Larry: You betcha.
Lucy: And don't forget this interview along to other listeners. Thank you very much. Transcription by CastingWords