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| Home - Venture Profile - Aug 04 Issue |
Venture Profile: Skip Glass, Canaan Partners
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Angel Mehta: Most venture firms will speak with customers as part of the due diligence process before investing in a startup, but how much contact do you have with customers after the deal is done?
Skip Glass: I’ve learned that it’s incredibly important to stay in touch with customers even after the deal is done. Customers will tell Venture guys something that they might not tell even the CEO. As an example, I know a company where one of their customers told me the other day, “They really need to spend more time out with us to pick up more of the domain expertise. They built the first generation and the second generation product which anticipated the needs, but as they’ve been growing fast their latest releases haven’t had as much leading edge function in them, and if they were to spend more time out directly with us we think that they would be able to get a better view into that.”
I don’t know why they didn’t tell the CEO that, or why they chose to tell me. But that’s very interesting input because that says maybe you need to put together a user group, maybe you need to have someone spend a day, either out of your Product Management or your Engineering Group, out with the customers every quarter. You don’t learn that unless you’re very hands on as a board member.
Angel Mehta: Many of the Venture guys, and this seems to be almost common wisdom, say we’ll only back deals that have billion dollar home run potential. Is that still realistic given the nature of the market? Are there billion dollar deals out there, and do you have the view that you only back deals that you think are going to be home runs. Do you have a view that each of the deals that the portfolio has done or the fund has done over the last few years could really be that big?
Skip Glass: Every deal looks like a winner when you do it, or you wouldn’t do it, right? Look, they aren’t predictable. Period. You have timing of macro economic issues which influence how a company does, you need a certain element of luck, you need an open IPO market because you aren’t typically going to get acquired for billions of dollars. Anyone who says they can predict a billion dollar company, I think, is fooling themselves. For example China, who would have predicted that 20 years ago? What about Russia? Is Russia the next China? Don’t know, but you know what, maybe you ought to have a little bit of an investment in both China and Russia because both countries look to be promising areas of opportunity, similar to where India was a decade ago.
Now, having said that, I think there’s a whole lot of really smart people in venture and they can see much better than the average business person, the macro technology trends and the potential for very big markets. That is why people are willing to invest in venture firms. They are paying for the expertise and the track record of the people running the venture firm. And sometimes you do get that billion dollar company. But you should be investing expecting a good return based on a number of smaller successful firms and then be very appreciative when you do get that billion dollar outcome. But the billion dollar company will be the exception rather than the rule.
Angel Mehta: That brings to mind an interesting question; I saw an article recently where a group of venture guys organized a trip to China to look at the opportunities there. What is so big about China besides the opportunity for labor arbitrage? What do they have that India or Western Europe aren’t providing?
Skip Glass: A billion people. There’s a huge market. India is close in size. But with China, you have a government favorable to as fast a transition to a vibrant economy as can be done within an environment where you have several hundred million people in the south and east with a lot of money, by China’s standards, and most everyone else in the west living a much lower standard of living. You have to manage the growth very carefully so you don’t have a revolt, and I think the Chinese officials are actually doing a pretty good job of that. By the way, almost all the top Chinese officials are trained in major universities in either Europe or the U.S. The people heading the country are not the old generals, although those folks certainly have a very visible position, but I think the people really pulling the trigger are very smart people and that they have immense issues to deal with in that you can’t immediately move to a capitalistic and democratic environment overnight. That’s going to take a generation or two.
Angel Mehta: So would the immediate opportunity be more in the consumer market?
Skip Glass: If you’re going to be in IT infrastructure, you’re going to have to set up operations over in China and/or invest in China-based companies that are primarily selling into the Chinese marketplace. Now, having said that, I think B2C will be a big area of opportunity, but I also think over time they will begin to develop their own enterprise IT companies and it won’t just be companies that have headquarters in the U.S. or Europe. I think the Chinese government wants to have, just as Japan did 50 years ago, a set of companies in their country that own a lot of the IP.
Skip Glass is a venture partner with Canaan Partners focusing on investments in the areas of software and services. Before joining Canaan Partners, Skip served as CEO and President of uRoam. Before that he served as a venture partner at Lightspeed Venture Partners. He has over 20 years of operating experience in technology companies, including four successful start-ups and the management of a $400 million business unit at IBM. Skip can be reached for feedback at: sglass@canaan.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
 
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