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| Home - Venture Profile - Dec 05 Issue |
Venture Profile: Bill Tai, Charles River Ventures
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Angel Mehta: What happens to the existing enterprise application or enterprise software market? Are there any major points of disruption you have forecast that will open up a window for ISVs to start growing again?
Bill Tai: The one area I'm very excited about is called 'GTM" or 'Global Trade Management" and I have funded the leading company in that space called TRADEBEAM. It involves the automation of everything there is to do with international trade - that includes the order process, financial settlement and shipping process. International trade is big, and complex, but it's not very automated. Today, it's instantiated in the form of huge body shops of people in freight-forwarding companies, sending faxes around or thousands of people in skyscrapers in Tokyo, working for Japanese trading companies that create giant boxes of paper and documentation every time they handle a shipment. These papers currently track items going through customs in any one of several hundred countries in dozens of currencies and with a lot of complexity. That whole industry needs to be automated and that is what TRADEBEAM is doing.
Angel Mehta: Going back to the issue of luck, does that mean that there is nothing in particular that you do differently that has allowed you to have a better track record? Haven't you developed any unique aspects of your approach to the diligence phase, for example?
Bill Tai: Not really. I think it has less to do with the diligence phase of a prospective company for me than it does the ability to build companies from an early stage platform on a go forward basis. I work with my teams to adapt to changes. My average starting team for many years has been three people. I would much prefer any three smart people and a couple of million bucks than an existing business that had so much momentum behind it that " if it's right you're right" but if you're wrong you can't change it. If you've got a very nimble starting team that you can help guide, it's easier to keep something alive through a lot of change until you find a point of traction.
Angel Mehta: So in how many cases does the plan you started with end up being the plan you follow through on?
Bill Tai: Almost never. Looking back at my portfolio I'd say that probably less than 10% of the companies that I worked with ended up doing EXACTLY what they started out to do. I'd say that a 100% of the companies that I worked with failed to do EXACTLY what they set out to do. They were just wrong from the get-go and they were inflexible when they needed to change. I think if I have any advice for entrepreneurs starting out, it is that you've got to learn to be flexible because times change, things change, and everything is always changing. The fact that things will change is the only constant that you know will not change.
Angel Mehta: Over the course of your career as an investor, what is the biggest mistake you've ever seen an entrepreneur make when trying to secure capital from a venture fund?
Bill Tai: Being arrogant. By that I mean being very overconfident, to the point of having an inability to listen. Again, in my opinion, starting a successful company is about finding a tiny crack to exploit that no one else is serving to get some traction. It requires people that are flexible, open-minded and nimble. If somebody is bullheaded, arrogant and doesn't listen, you can be pretty sure he's going to be hard to work with, and that he will make uninformed choices, and probably also stay with them.
Angel Mehta: I fully agree with what you're saying and have seen arrogance kill companies…yet so many of the venture partners I work with tell me they want entrepreneurs who are going to sit across from them and say with absolute conviction, 'I can get this done." So how does a prospective entrepreneur know if he is being arrogant, or giving the investors what they want?
Bill Tai: Confidence and arrogance are two different things.
Angel Mehta: What would the litmus test be for judging the difference? If you had two entrepreneurs lined up, how would you differentiate between one who's arrogant and one who's confident? What are the things they would do in your mind?
Bill Tai: Hard to say. I'll ask myself, "Can I see myself working with this guy and having to talk to him at least once a day for the next seven years or more", and if I can't see it, or if it feels fundamentally uncomfortable I'm just not interested. It takes a long time to build a successful company - it takes a long time to start one, and if you're successful, it 's likely to be a very long relationship. You can't be in it for the short term unless you are presuming some sort of near term failure.
Angel Mehta: You said earlier that you took a 70% pay cut to have more fun. What makes it more fun for you?
Bill Tai: The start up phase is fantastically fun. In the beginning it's all upside and no burn: all dreams, and no cost structure. Again, you take any three guys with lots of vision and dreams that are in the process of building and as long as you're not out of control with respect to expenses, it's going to be a heck of a lot of fun for at least six or nine months. Then it starts to get harder and more difficult because after that point, it's nothing but problems. You start to realize that there are flaws in what you were doing for the first nine months and the weight of responsibility just grows and grows for years for good and for bad. I live for that first six or nine months in every deal. There's nothing more fun than working towards something when you think you're right about the future - even if you end up being wrong. [Laughing]
Angel Mehta: Tell me about some of the patterns or common things you have to do with a portfolio company, an entrepreneur or a group of entrepreneurs in the first nine months.
Bill Tai: Hire the right people. It's all about hiring the right people and pointing them in the right direction because once you establish momentum, if the people and the direction are wrong, you spend a lot of time, energy and money correcting the past. It's about mapping the spend to a real point of traction as opposed to a head fake. I think companies go wrong when they spend too much money on the head fake and can't recover from that loss of momentum when they figure it out. If you figure it out early it's correctible, if you figure it out late you're toast.
Angel Mehta: We did a survey in an edition of The Sterling Report a few months ago, asking people if they would prefer a board member who was an experienced entrepreneur, an operating executive, or a world class investor. 60% said they wanted an entrepreneur - an overwhelming majority. Do you agree with that view?
Bill Tai: I think it's dead-on. If you're talking about very early stage company at the founding stage, then having a seasoned entrepreneur in the mix is very helpful. If you're talking about a later stage project, then the needs, I think, will be different. At that point adding to the mix someone more seasoned that has scaled businesses at a similar stage of development may be an advantage. I don't disagree at all and I'm not surprised that the majority of people that responded were looking for a seasoned entrepreneur.
Bill Tai is a General Partner at Charles River Ventures and leads the West Coast practice. Bill joined CRV in 2002 from Institutional Venture Partners (IVP). His investment focus encompasses early stage companies in enabling technologies (chips and software) and wireless technologies. He has worked with over 30 companies at their early stages as private companies. For article feedback, contact Bill at: tplumer@crv.com
Angel Mehta is Managing Director of 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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