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Venture Profile: Tom Kippola, Voyager Capital
By Angel Mehta, Managing Director, Sterling-Hoffman Management Consultants
Angel Mehta: Whenever I meet 'thought leaders', I get interested in how the person's business philosophies evolved. Walk me through the early years...how did you meet Geoff Moore? Were you always focused on technology...or rather, did you always expect it to be the focus of your career?
Tom Kippola: In the very beginning?…Well…Back when I was even pre-teen, I loved technology and what technology could do for people. I was the kid on the street that would look at a new technology and go show all the other kids on the street what it could do for them. So it was the fascination with the benefits of technology - not with the technology itself…that’s sort of been a guiding principle throughout my entire life. It was the guiding principle in terms of the college I decided to go to, what I decided to study in college, what I decided to do after college. I started out in electrical engineering but did not finish that way. I finished with sort of a degree that I made up myself…which was an amalgamation of electrical engineering, business and psychology.
I spent a few years in the VAR channel, selling PC’s and PC networks and then in the early 90’s I ran marketing for a small expert system software company that was experiencing all the classic Chasm problems…so I was feeling them firsthand about the time the book “Crossing the Chasm” showed up on the market. That’s when I fell in love with the book because I felt that the book had a lot of the framework that my company needed to think through our challenges.
Just to fast forward, I left that company started my own tech strategy consulting business - focused on software companies. Geoff Moore and I met later that year…that was 1993. He was speaking at an event…and he and I and four or five other people had dinner afterwards and Geoff and I found that we were finishing each other sentences. He proposed rolling my consulting business into what eventually became the Chasm Group. So that’s the lineage.
Angel Mehta: Why did you not finish the Electrical Engineering degree? What was the interest in psychology?
Tom Kippola: What I found by my 3rd Year in Electrical Engineering is that every single class you take, whether it’s a Calculus class by name or it’s a circuits class…it’s really a Calculus class. Semi-conductor theory classes are Calculus classes. Every class is a calculus class. I was more interested in the application of technology then I was in the bits and bytes of technology. So I branched off.
Angel Mehta: How significant was money in the equation?
Tom Kippola: Money was part of the equation, no doubt, but I think for me I always felt that I wanted a career that allowed me to become self-actualized and make a lot of money at the same time. I didn’t want to settle for second best on either of those axes. I had friends in high school and college that became lawyers who felt they were going to make a lot of money, but weren’t sure if they were going to love what they did. I had other friends who went off into the arts and knew they were going to love what they did but not necessarily make a lot of money. I wasn’t going to sacrifice either. I wanted both.
Angel Mehta: At this point, you’re well positioned as a ‘thought leader’ in the industry….so who were your mentors? Early on, who or what influenced the way you think about technology, business strategy, etc.?
Tom Kippola: My mentors were largely through books. My favourite book early on was Bill Davidow’s “Marketing High Technology”, which he wrote probably in 1986. Bill Davidow was the Senior Vice-President of Marketing at Intel…he was the guy responsible for coming up with the whole ‘Crush’ campaign that allowed Intel to beat out Motorola and Zylog and become the de facto standard microprocessor in the PC. So he was a great influence…through that book, I mean.
Angel Mehta: Let’s talk about Voyager. You’re known as a ‘Venture Partner.’ A lot of people don’t know what a venture partner does because different firms come up with their own architecture. What exactly is your role?
Tom Kippola: You’re totally right…the term ‘venture partner’ is used differently at different firms and it’s even used differently within Voyager. At Voyager, we think of the venture capital process in two buckets. There are all the things that you do for the limited partners on one hand, and there’s all the things you do for the portfolio companies on the other. We split up the portfolio company processes into ‘finding, funding and feeding’. Finding new investment opportunities, determining whether to fund them and determining what terms to fund them on…and then there’s ‘feeding.’ Once you’ve funded the company, it’s rolling your sleeves up and sitting on the Board…helping the firm develop strategy, helping them recruit top executive talent, helping them get access to partners or customers.
I’ve been a venture partner at Voyager since Q2 2000, but when I started out I was spending all my time on the finding and feeding roles…but not in the funding piece. We have plenty of people in the firm that have come up through the finance ranks and are very good at that side. My expertise is more on the very front-end or the very back-end – not in the middle.
About 9-10 months ago, I went back to the partnership and said look, “We have a lot of people in the firm that can do ‘finding’ very well. My core expertise is helping build strategy for tech companies. This is a challenging time for tech start-ups. I think I ought to be out with the portfolio companies helping influence and advise them on strategy”. So now I spend probably 75% of my time just working with the CEO’s and VP’s of Marketing of the portfolio companies with their strategy. So at least at Voyager, that’s what a ‘Venture Partner’ does.
Angel Mehta: Have you ever had a case where there is a conflict between one of your clients at the Chasm Group, and a portfolio company of Voyager?
Tom Kippola: It’s never happened…We firewall things here. I’m not going to consult with Company A while working with the venture fund to build competitor B. I’m not going to do that.
Angel Mehta: Out of curiosity, is differentiation still an issue for Voyager? Clearly it was in the bubble because there was so much competition for hot deals but now that there seem to be so many more deals chasing money?
Tom Kippola: Sure. I think there are a few different ways we compete. One, is we’re a firm that is headquartered in Seattle with an office here in Silicon Valley. In Seattle, there are two or three firms that are headquartered on the ground and compete to be the Top Dog in town , so it’s a small pond. There are certainly firms here in Silicon Valley that are getting on planes and flying up to Seattle to compete for deals up there, but in the end, a good entrepreneurial team will want at least one VC that’s on the ground…
Angel Mehta: In their backyard.
Tom Kippola: In their backyard. So Voyager is positioned as certainly one of the premier if not the premier high-tech VC firm in Seattle.
Secondly, most of us come from operating backgrounds. Tony Audino came from Microsoft where he was Director of Marketing for DOS. Bill McAleer was the CFO with Aldus and Engineer of the Aldus and Adobe merger. So we’ve got guys that understand many of the ‘roll your sleeves up’ operational aspects of building companies.
Angel Mehta: I’m always interested in opinions as to what makes a better venture partner - coming up through a background in finance, technology or business strategy? Does it matter?
Tom Kippola: It depends on what the venture partner is ultimately going to do. There are some venture partners that have very narrow definitions and some may be so narrow that their role is a portion of the funding process. I haven’t met anybody with that description yet but I could see where somebody might be a venture partner that’s JUST focused on funding and financial issues. However, I think more often than not a venture partner is going to be focused more on the feeding activities and there are many; there’s strategy, there’s recruiting, there’s sort of CTO CIO-type stuff so I think coming up the operating background from one of those skillsets; strategy/marketing or recruiting or IT or sales is probably the best route to come through because you’ve been there and you’ve done it and you can take that skillset and that pattern recognition and spread it across the portfolio.
Angel Mehta: Would you rather back a company in Seattle then in the Valley?
Tom Kippola: I don’t know if you can really break it down that way.
Angel Mehta: The variables….
Tom Kippola: Exactly - there are so many of them.
Angel Mehta: Ok, so let me rephrase - is it an advantage…
Tom Kippola: To back a company in Seattle? I think there are advantages and disadvantages to both geographies. There was an article I read a year or two ago where it was alleged that Bill Gates contemplated whether he was going to headquarter Microsoft in Seattle or Silicon Valley and he chose Seattle because he felt that his workforce was going to be more loyal, whereas the workforce here in Silicon Valley is more likely to jump to the next new thing. So from that perspective, there is more of that transient workforce here and less of it up in Seattle.
Angel Mehta: Given what you see day in day out with Voyager’s portfolio or even with the work you do at Chasm Group, would you say that you see software companies facing the same hurdles and making the same mistakes over and over? Could you characterize some of the problems you are seeing consistently, and how you coach the portfolio companies to deal with those issues?
Tom Kippola: Absolutely. And you’re right, these problems are problems that I see across the board with small software companies. They’re not unique either to the Voyager portfolio or my Chasm Group clients. Easily #1 is ‘Lack of Focus’, from two perspectives. First, when technology companies build a new offering, they tend to be very enthusiastic about the technology and the fact that the technology might have lots of applications for lots of different groups of people. The thing is, any one particular prospect is not enamored with the fact that there are lots of applications for lots of other companies. All they care about is WIIFM.
Angel Mehta: ‘What’s in it for ME?’
Tom Kippola: Right. I think one of the biggest challenges that young software companies have is determining who their initial target customers are going to be and then being able to translate the benefits of the technology for that particular customer profile, and then finally, building the entire strategy behind to support that. They need to make sure that there is a whole product solution that can deliver on the value proposition…make sure that there are partners and allies that snap into that whole product…make sure that the distribution channel and the pricing strategy are optimized for that particular customer. THAT’S the #1 challenge that I work on for Voyager’s portfolio. Once you can figure out where to focus the company, a lot of the dominos fall with regards to the other components of strategy.
Another issue I see over and over again is that a lot of early stage technology companies assume that the optimum distribution and selling model is an indirect model. They may be right, but it might be five years away from where they are. They usually have to start out with a direct sales channel first, just to create enough momentum in the market and to control enough of the selling experience in order to get enough customers. You have to do that just to ATTRACT indirect distribution channels, not to mention making sure that there’s enough demand out there from the ultimate prospects so that when the indirect channels walk into those prospects, the prospects do not have to be completely evangelized by the indirect channel. I’ve seen venture capitalists wash down tens of millions of dollars over the last year and a half based on that problem alone. In other words, a company tries to go indirect really early, they sell zero customers and waste 18 months only to have to retrench and formulate a direct sales strategy and spend a lot more money funding the company again.
Angel Mehta: It’s odd because I have a really hard time absorbing that, only because it always seems to me that the concepts contained in the ‘Chasm’ and ‘Tornado’ books are common knowledge up and down the industry – particularly in the valley. But you seem to be saying that it’s anything but. So what are the implications, then, from your perspective, for the chief sales executive?
Tom Kippola: Here’s what I think happens, and this is something else that you and I have talked about before. When people come through a certain set of experiences – say, a VP of Sales who has been a VP of Sales for two companies in the past and was a Director of Sales in a third company before that. That person’s experience set is a 3-company experience set.