|
|
| Home - Venture Profile - Jun 04 Issue |
Venture Profile: Paul Maeder, Highland Capital Partners
continued... page 2 |
Angel Mehta: Like what? Can you point to some areas of opportunity that you think are big?
Paul Maeder: There are a few areas. One big area is using the Internet to empower democracy… empowering individuals in democracy. There was a great article about the Jersey Four - these four women, whose husbands all died in the World Trade Center bombing, almost single handedly drove through the idea of setting up a 9/11 inquiry panel and embarrassed President Bush into forcing Condoleezza Rice to testify under oath. Well, they say it isn’t exactly the Jersey Four - it’s the Jersey Five. The fifth member of its group is the Internet. Access to public information over the Internet completely changed the dynamics of who can exert influence over the government in Washington. So that’s an opportunity – using technology to bring about social change.
Transportation is a big one. I firmly believe that the experience of flying commercial planes since 9/11 is a lousy, lousy experience. You may as well take the bus. You have to show up two hours before flight time… you get moved around like cattle and you’re time is deliberately wasted, taking your shoes off, putting them back on. It’s pretty clear the airline industry is going to collapse under its own weight. The airlines don’t make any money, the passengers are all miserable. There was a guy at the Brookings Institute that did a study where he measured the average speed when you factor in leaving your office, driving to the airport, waiting in line, etc. He figured that for a 500 mile trip, the average speed by plane was 35 miles an hour. So he figured that for any trip under 350 miles, you’re just better off driving. That’s pathetic!
But there’s a new plane coming out – they’re called micro jets – small, million dollar aircraft, with very low operating costs that are going to come on the market in the next two or three years. To get the economics to work with these kinds of jets, you have to upgrade the air traffic control system to accommodate 10x as many flights in the air as we currently have. The FAA is way behind the eight-ball on that one. You also need to have a computer in every jet that tells it how much fuel you need, where you’re going, etc. So we’re probably 10 or 20 years away from living in a Jetsons world where you get into a plane, you punch in the destination, and the computer flies the plane. But that kind of stuff will revolutionize business transportation and ultimately personal transportation. So that’s an opportunity.
Angel Mehta: What about security?
Paul Maeder: Huge. In the corporate world, single-sign-on is still not practical. Also, the current security push in government is very political. The idea that a security guard at an airport can make us safe by going through my underwear every time I fly is not very re-assuring. Those searches aren’t the reason we haven’t had another incident. These people recently brought down the government in Spain. Affecting our election may be their next target. So security is huge.
Angel Mehta: But with all these opportunities you’ve still said that the market for software is pretty limited…
Paul Maeder: I’ve got a friend who wrote a book called “The Winning Performance” about the best mid-sized companies. He analyzed a bunch of companies and he found one of the most profitable was a company that repaired and replaced windows for railroad cabooses. Go figure! It was the mid-eighties…the dawn of the biotech era… PC revolution underway… and one of the best, most profitable companies was replacing windows in railroad trains. It’s a lesson that if you bring new approaches to old businesses, or new solutions to existing problems, you can always build very, very interesting businesses. I think the first company in US history to reach $10 billion in revenue in 10 years (or something like that) was Staples. Think about it: Staples was started only 15 years ago. There have been stationery companies around for 200 years.
Angel Mehta: A retail play… that is amazing.
Paul Maeder: Right! Retail, of all spaces. So, yes, we’ve lost white space – and there will be even less white space next year. But there are always opportunities for solving problems.
Angel Mehta: So the white space is not necessarily correlated to opportunity?
Paul Maeder: No. There’s nothing wrong with grey space as far as I’m concerned.
Angel Mehta: What are some of the common mistakes entrepreneurs or CEO’s make when answering questions in a presentation to you and your partners?
Paul Maeder: One of the things that stands out for me is not so much the answers they give, but how the team itself interacts. The one thing that we don’t want to have to deal with is team risk; meaning people not getting along after we’ve made the investment. If you’re a member of the management team and your CEO is presenting the pitch… even if it’s the 18th time you’ve heard the pitch, with the same jokes, you have to look at him and show you’re really interested. It communicates subliminally to the audience; in this case the audience being the venture capitalist. I can’t tell you how many times we’ve had teams come in here and the CEO is answering a question, and other members of the team are looking out the window or rolling their eyes. That immediately throws up a red flag. The second thing we look at is the pre-money valuation... Have they done everything possible without money before they came to us? The best entrepreneurs want to postpone fund-raising until they’ve created as much value as possible to maximize the pre-money valuation. They’ve built a customer pipeline, created a scientific advisory board, and assembled some leads on senior management team members. It’s always impressive when a team has done that stuff before coming to us.
Angel Mehta: One of the consistent themes I’ve heard from CEO’s or entrepreneurs of really large companies is that they had no idea that they were going to get that big. Do you find that’s consistent with your portfolio as well? Or do the eventual winners show signs right away?
Paul Maeder: Google was almost shut down at one point – now they’re the hottest company in the market. There’s only one business law as immutable as the laws of physics, and it’s that every start-up will hit a bump in the road between the time it gets started and the time it goes public. Eight out of every ten companies in our portfolio were probably in a position at one point where they would have taken thirty cents on the dollar. Some of these companies made us 80x our investment! In business there are factors beyond your control, factors beyond your knowledge, and luck can make all the difference. Nobody wants to write about that, though.
As co-founder of Highland, Paul focuses on technology investments, most notably software, as well as systems and security. Paul is a former director of Avid Technology (NASDAQ:AVID), CheckFree (NASDAQ:CKFR), Chipcom, HighGround Systems (acquired by Sun Microsystems), Mainspring (acquired by IBM), SCH (acquired by Legato Systems), SQA (acquired by Rational Corporation), Sybase (NASDAQ:SYBS) and WebLine Communications (acquired by Cisco Systems). Paul can be reached for interview feedback at: pmaeder@hcp.com.
Angel Mehta is Managing Director at Sterling-Hoffman, a retained executive search firm focused on VP Sales, VP Marketing, and CEO searches for enterprise software companies. He can be reached for feedback at: amehta@sterlinghoffman.net
 
|
|
|
