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Venture Profile: Jim Gauer, Palomar Ventures

By Angel Mehta, Managing Director, Sterling-Hoffman Executive Search

Angel Mehta: First things first… how does a poet and a PhD candidate focused on literary theory and linguistics get into venture capital? That has to be one of the strangest training grounds for any technology investor I’ve ever spoken to…

Jim Gauer: I grew up in a family of software engineers and entrepreneurs. My mother was one of the founders of Scientific Data Systems. She was a compiler expert back in the days when compilers were a critical part of the technology in terms of fitting and mapping your proprietary architecture schemes to actually solving problems in software. So I lived in a house full of talk about technology.

When I was growing up, these people struck me as singularly blind to the real world and the concerns of human beings. I wanted anything but that, which is probably what led to the parallel career of writing poetry and doing things that seemed to have more of a human side. It’s somewhat odd to find the paths unite in venture capital work, which I find to be more of an artistic and spiritual enterprise than is often recognized. I use a more creative, artistic approach to the company building process.

Angel Mehta: Explain that to me.

Jim Gauer: You take a company… my specialty is the three guys and a dog-type company… they are among the best in the world at what they do. They have the ambition to play in a space that’s not defined yet. They’re not named and claimed and they have a “climb Everest without supplemental oxygen” attitude. If you look at the prospects of a company at that stage, it’s not even a company. Most of the time they don’t have a concrete business plan. They have an expertise in an area of technology they want to work in and a vague apprehension of a horizon against which their work is important. What’s needed is help in making those ambitions concrete, to make it something real.

There is a Mexican novelist, Carlos Fuentes, who talks about the poet’s incursions on reality. This is the stage at which I love to work, which is the incursion on reality… there’s nothing really there yet. One needs to create a vision and an ability to make it actually intrude on reality in a way that makes, first of all, customers want to buy things and eventually makes a company that has a real space that it occupies and so forth.

At its most basic, building a company is something of an artistic enterprise. It’s something that starts from unnamed spaces, strong ambitions and an intuitive sense that there is a problem to be addressed. I try to bring focus, of an artistic and spiritual vision, to something that will result in real incursion on reality. Now that may sound a little bit vague and a little bit out there but if you think about the prospects of a company that’s got three guys that are world-class at what they do and hopefully a good dog, it’s not always clear that there’s any reason that they should exist, that there should be a company built around them and so forth.

The energies that go into building that into something real and concrete involve a lot of the same kind of energies that go into artistic creation. So moving the analogy aside, if we take a company like Active Software, for example. This was about a couple of guys, Jim Green and Rafael Bracho, who had a lot of experience in object request broker technology and a belief that there had to be an easier way to do distributed computing… an easier way to link applications. At the beginning, there was only a vague apprehension that there had to be an easier way. That’s a pretty thin proposition to start something on and at the same time these were the kind of people that had the ambition to build something significant. Who knew it would morph into an actual market space? But that’s where EAI – enterprise application integration – came from.

The poet’s incursion on reality has happened there from multiple sides, and this was not just the case with Active but also with CrossWorlds and a number of others. If you started from Day 1 with a couple of guys in my office with the vague sense that there has to be an easier way than using orbs to do some of the things that enterprises need to do, you would think of it as a bit sketchy at best.

Angel Mehta: Do you ever find the side of you that views building companies as an artistic creation conflicts with the side that needs to be commercially-driven? How do you interact with other Board Members who take more of a mercenary approach to get these deals done?

Jim Gauer: My approach does create some apprehension because of a possible market space that the venture community is not yet ready for. In other words, the space has yet to be labeled a hot one and one that is going to attract immediate investor interest for follow-on financing.

I’ve been involved now in probably 50 companies, from the companies that I’ve helped build personally to the companies I’ve invested in and participated in as a Board Member. My language in Board sessions sounds just like everybody else’s. I mean I’m extremely pragmatic about what a company needs to do. You know: go find the first three customers, it doesn’t matter what they look like. Get your hands dirty, find out what the space looks like, what you think needs to be built within that space. Go find the next ten customers and out of that you’ll probably have six or seven of them that are throwaways - they’re probably not replicable, they’re not the basis upon which you’re going to build a business. Out of that ten go find the three or four that are replicable, that have a problem space that you think can be addressed for a broad number of enterprises or situations and use that as a basis to find the next 50 customers. The process of building companies a brick at a time in a very pragmatic fashion does not sound particularly poetic.

Angel Mehta: So where does the spiritual side come in?

Jim Gauer: The spiritual side of it comes in when selecting people who have a certain set of attitudes that seem to correlate highly with success. I don’t think you can underemphasize the value of the spiritual component, and I don’t want to make that sound too high-flown. But I’m talking about the attitude of climbing Everest without supplemental oxygen. That correlates very highly with success. You can make many mistakes in a market or with the technology but if you have that attitude it correlates very highly with success. You work through the mistakes and the misplaced faith in markets that don’t appear and you build something anyway. It’s the spirit side of things that tends to keep people motivated, focused, believing in themselves and continuing to build and create.

I asked my mom one time, “What was Art Rock’s value-add at Scientific Data Systems?” My mom said, “Well, we launched a Sigma 5, had lots of them but we were not getting any purchase orders. Art, however, kept saying, don’t worry, the orders will come.” So to a certain extent that is what you often have to supply on the venture side – blind optimism.


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