Drivers for Software Innovation, Lecture by Ann Winblad / Hummer Winblad Ventures (2004)

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Displaying all 14 video lectures.
Lecture 1
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Introduction to Hummer Winblad and Mobius Venture Capital

Ann Winblad, co-founding Partner of Hummer Winblad Venture Partners, introduces herself and venture capitalist Heidi Roizen, who was not able to be there. She says that now is a very exciting time for entrepreneurship because there are lots of holes to fill in the software market and in the business landscape. She explains the founding and progress of Hummer Winblad Venture Partners and Mobius Venture Capital.
Lecture 2
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Drivers for Software Innovation

Ann Winblad of Hummer Winblad Ventures argues that there has been a steady dealflow in venture capital from 2002-2004. The software sector is still the big leader, though biotech is catching up. Though she doesn't discuss outsourcing, Winblad emphasizes that a company must consider where they can get the best intellectual capital. Today, company strategy starts globally. She also discusses trends in the software market, including open source material, Moore's Law (storage is free) and Metcalf's Law, and mergers and acquisitions.
Lecture 3
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How Consumer Markets and Enterprise Markets Drive the Software Industry

Winblad talks about how the market is driven by consumers who want connectivity across devices, customizable products, and fair prices. Communication and collaboration are key to delivering the product the consumers want, she notes. The pricing structure cannot just be made up -- a company must demonstrate they can deliver undeniable short-term return on investment to the customer in order to justify the price.
Lecture 4
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2004: Start of an Era of Optimism

Winblad talks about how in 2001, there was a challenge finding consumers for software products and costs had to be cut. Now, demand is improving and CIO's are looking for larger revenue opportunities, she says.
Lecture 5
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Trends in Seed and Series A Investing

Winblad explains that very few Series A investments were done in 2002. However, a lot more were done in 2003 and will be done in 2004, she says. The reasons for the decline since 2000 include: restart dollars were competing with the A round dollars; corporate investors disappeared (excpet Intel); and individual investing declined. Additionally, during this era, VCs were doing deals individually, creating twice as many A round deals and putting only one person on the board. Now, A round deals are syndicated to provide more coaching, she adds.
Lecture 6
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Hummer Winblad's and Softbank's Recent Investments

Hummer Winblad is focused on enterprise, says Winbland, and Softbank on the consumer segment. Hummer Winblad's investments include: Voltage, the BASES contest winner in 2002, in security and reliability; Cenzic, in applications security space; two blade server companies, Scalent and Jareva; Knowmadic, in application integration; and Bridgestream, in provision and identity management. Softbank's projects include: Planitax, MessageCast, Castbridge, AuctionDrop, Perpetual Entertainment, and Reactrix.
Lecture 7
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VC Words of Wisdom for Entrepreneurs

According to Winblad, the intellectual capital in your company and the coaching it gets is more important than money. There is a high bar for hiring employees. Most companies die of self-inflicted wounds rather than from competition or lack of opportunity, she says.




Transcript



So, before we get to Q and A, I'd like to give you a few words of closing advice. The window, the opportunity window is now open for software. It doesn't open very often. Opportunity windows are always there. You can find the opportunities if you hunt around. But it's a little like hunting for truffles. I'm happy to say that that's our job as venture capitalists. It's truffle hunting and I like to remind people, in Italy it's greyhounds that hunt for truffles. It's only pigs in France. But right now, it's a wide opportunity window and it will not be open for long. Second is, you need to meet engineers. One thing in common is, it is the era of engineer starting companies again. These are massive inventions. The guys at Voltage have eleven patents pending. It is a revolutionary mathematical breakthrough which eliminates certificates, which effectively obliterates the PKI security infrastructure. By eliminating certificates, the guys have a huge patent portfolio which would change disaster recovery. So it is a time for looking forward and finding out how you can actually engineer software better. And there are only a few times that this happened. It happened in the early 80's with the launch of the PC industry when there was stability in the operating systems. It happened again when people said "Oh gee, how about client-server computing". It happened in a huge burst, of course, with Netscape and the start of the Internet and Mosaic. It was too huge of a burst. And a lot of that stuff is not done. There are a lot big customers calling us every day asking us for pieces of software that do not exist. The intellectual capital in your company and the coaching your company gets is more important that money. There is plenty of money out there. Five billion a quarter. When I started myself a company there was zero billion a quarter for software companies. We had to fund our companies the hard way. Through sweat equity. But right now, it really is the quality of intellectual capital. Most companies are being very picky about who they hire. If any of you have gone through an interview process, I think you're probably pretty shocked. It's not like "Oh great, you're a warm body, come on in." which was a challenge in the boom era. There are multiple people interviewing you. You know you're going to have to work hard. But really, if you start a company today, set a high bar for the people that you hire. Set a high bar for yourself. Very few of the engineers coming to us are saying I want to be the CEO. They're saying "Look, I need to help you. I need you to help me find the best CEO possible, because I need to have someone I can learn from. Someone who can compete in a challenging market. Someone who could take this from concept to company. And someone who can build a very large - can actualize the opportunity out here." Last, but not least, I didn't mention focus. It's tough to be best at anything, let alone everything. So understanding what your core competencies are is key. Many companies that get to the fringe say "Well, why don't we just go here instead of there?" Even though they don't have any competencies in the Venn diagram piece to the right or to the left. If you fail in your core competency, you fail. You can't build a new one. But you should also understand where your core competency strength is. It's very very hard to wander around as a company and keep trying different things that don't tie to that core competency. Last but not least, and I put it in small letters, is most companies don't die because they were killed off by a competitor or because there wasn't a market opportunity. They die of self-inflicted wounds. And that's just poor execution. They don't look hard at "Am I getting a venture capitalist that fits my team?" You want people on your board that you can call up and say "You know what? We're a little confused here. We think we got this right, but can we do a little brainstorming here." Or "Hey, I need access to this customer now." Or "I need access to this partner." You need to choose very carefully, not just the people you work with, but your coaching bench. That means your lawyer as well. And your accountant. All the people that surround the company. Because you're likely to fail not because you picked a wrong opportunity, or not because a competitor crushed you, because you made mistakes. And that means it's easy to be successful. Because if you actually just surround yourself with excellence, really knit yourself into the market mat early, have a core competency and a real breakthrough idea. You should always look forward not backward. I had a young entrepreneur come up and talk about adoption and route to market saying "We're going to have to water down the integration of our product to make it more acceptable to our core market. Because they don't really want something so revolutionary." My answer to that was that's fine. As long as you know what assumptions you've made to start. That you've assumed that your customers will only accept this. And keep testing your core assumptions. Boil down your business plan. Tell everyone in your company what your five top assumptions are for success. Consider a 52 deck of cards. That what you hope is over time, you could keep turning over those assumption cards and turning them into facts. But when you start, they are nothing but assumptions. They are not facts. Many companies start without knowing "What are we assuming about our product, about our competition, about our pricing strategy and about our customer and our go-to-market strategy?" Nothing more than that. Understand those core assumptions. Determine if they're true or false. If they're false, change it. If they're true, keep on going.

Lecture 8
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Keep Testing Your Core Assumptions

Winblad advises entrepreneurs to boil down their business plan and tell everyone in the company the top five assumptions for success. As time goes on, turn the assumptions into facts, she says. Understand the core assumptions you are making and keep reevaluating them, she adds.
Lecture 9
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Outsourcing Software Development to Asia

Winblad talks about how whole projects are not outsourced. The core technology is separated and written, while incremental pieces that would be done linearly are outsourced abroad. There are a lot of talented architects and developers around the world, she notes, but they do not have the vision to be inventors.




Transcript



Ok, I'll answer that. The last question was, "What does outsourcing mean?" Realistically nobody is writing a spec and throwing it to a foreign country to write. In most cases, the VP of Engineering, and the Chief Architects, and the Chief Technology Officer that read core invention, core deep understanding of the technology are here. However, I'll give the example of Voltage. The VP of Engineering is Terence Spies. Terence spent nine years at Microsoft and was the Head of Cryptography there. Dan Boneh is the Chief Technical Officer and on the Board and he's a professor here at Stanford. Guido Appenzeller is also part of the Chief Technology Architecture Team. And when we got ready to launch our product we realized that there is a core platform that makes up the security platform. Then there are deployment pieces for email, Instant Messaging, Voice over IP and document. As you touch each of this deployment mechanisms, you touch different clients, different gateways, different Operating Systems. We used to have to do as a company, you would basically sit there and have a porting lab and grind these things out. Once the core architecture is done and the core function, we didn't give anybody the algorithm and say go code it. In fact, we have mathematicians on board to do this stuff. The things we could easily define in the spec. Well, those engineers were sleeping there four hours a night. There were people in India still writing code. And they were able to write to the different platforms, the different email clients, the different IM clients, the different IM platforms, the different operating platforms. So we could actually deploy simultaneously across multiple platforms. We used to have to do that linearly. So we really have separated the core technology team to stay here and the incremental pieces that you would do even linearly usually are outsourced to India. They were part of our engineering team. They're brilliant people in India. They have and we're coding 24 by 7 in these companies. Same thing is true in other companies. We may have intact task in engineering team in India. And it is a completely web services architected, hosted on Financial Management System. But it's got features out the wazoo. It has the dashboard for multi-currency written in India. No one wrote the Core Object Framework that drives the key ER pieces. And that's written here by our Chief Architects. But there are very talented architects and developers around the world. And maybe they are not the inventors. They don't hold the vision but they build as much passion and capability to extend your products as anyone that's here.



 

Lecture 10
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Customers are Key

Winblad talks about how VCs spend a lot of time with the leaders of major technology companies to find out what they are looking for. It is important to talk to consumers early rather than late, she notes. Today's leaders are technologically-savvy, know what they need, and are willing to tell you if you ask, she adds.
Lecture 11
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The Economic Context in 2004

According to Winblad, M&A is picking up because companies now feel they can take risks in working with younger companies. Major corporations also went through a period of downsizing, but are now adding, she notes.
Lecture 12
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The Java Standard (and Competing Technology Standards)

Winblad explains that companies use both a .net and a Java standard and neither has taken over. Most likely, neither will. Customers like to have a blend of technologies and programmers like to be looking at the new latest thing so there is currently no force to change to a single standard.
Lecture 13
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The Threat of Linux to Microsoft

Winblad believes IBM has done an extraordinary job at establishing itself as a leader in software. IBM is proactive with acquiring early stage companies and partners well. Microsoft is successful because they view everything as a threat and don't take anything for granted, she says. Linux is still a force and will not easily go away because it is really hard to kill large companies in the software industry.
Lecture 14
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Are Technologies Ahead of Their Time?

Winblad talks about how VCs are generally optimistic about market uptake, so in due diligence it is important to assess whether the customers are real or imaginary. The source of most bad investments is misjudging the market risk from competitors or timing, she says.