In this business climate, the road to striking a venture capital deal is difficult for both funder and fundee. Small startups with big ideas obviously have a harder time finding VC firms willing to take a chance on them, but those VC firms themselves are under added pressure to make the correct decisions regarding where to put their limited resources.
In the case of Sierra Ventures, one of its latest bets is on a firm called “webappVM.” WebappVM is attempting a next-generation approach toapplication management that leverages cloud architecture ratherthan adapting a previous architecture that hinders cloud benefits.
WebappVM’s new approach works as a virtual layer without agents. Otherapproaches use a series of agents and management servers to achieveapplication management functionality. The minds behind webappVM believe the latter approach can disrupt the benefits ofmoving to the cloud: on-demand scaling, portability, low cost,self-service, etc. Instead, webappVM goes in as a virtual layer.
The E-Commerce Times spoke with Tim Guleri, managing director at SierraVentures, about the state of the tech VC marketplace today and ways in which new companies can catch the attention of venturecapitalists.
Guleri has led the firm’s investments and serves on the boards ofApprova, CodeGreen Networks, DotNetNuke, Everest Software (acquired by Trilogy), Greenplum, MakeMyTrip.com (in India), Sourcefire and CarWale (in India), among others. A serial entrepreneur,Guleri built two software infrastructure companiesbefore joining Sierra in 2001.
E-Commerce Times: How much more difficult is it to obtain seed money andsupplemental rounds of investment support in today’s economic climate?
It’s a tough climate for companies to raise capital. Onereason is the macro financial markets have been very choppy. Andobviously the growth over the last couple of years fell off. The lasttime we saw this was after the 9/11 event. The second reason is thecapital which flows into venture capital funds was also at a lowpoint. So there is less capital coming in, and the market is in thedoldrums. This makes it a tough market. The balance is that greatentrepreneurs with well-thought-out business plans are still gettingfunded and are the kind of businesses that we scour the landscape for.
ECT: In light of what you’ve just said, how different is therole of providing funding in today’s market?
We haven’t seen the process change much. We do the sameamount of due diligence and still call customers and prospects and tryto get confidence in the financial model that’s been presented to us.
I think it’s fair to say there is a little more time that’s availablefor us to make these investments from the venture capitalist’sstandpoint, so both sides– the entrepreneur and the venturecapitalists — can do more thorough work. I think the process canstill be very efficient, but at the end of the day, it all comes downto the idea and the team.
ECT: Does that hold true whether the applicant is an opensource company or another type of company? Are there differentqualifications depending on the type of business the applicant comesfrom?
Yes, precisely. Venture capitalists like to invest wherethe market is. There’s going to be correcting in a few years, so wetend to invest ahead of the market, so if you can get to us beforethese ideas become mainstream. We are looking for emerging trends andcompanies that have a sense of how to capitalize on these moderntrends.
So from that standpoint, new things that are affectingexisting architectures — like cloud computing, like a whole newgeneration of storage, like a whole new generation of databasearchitectures, a whole new generation of how you manage applicationsin the cloud — those are the kind of forward-looking trends that welike to pick up on early and then get behind.
ECT: If I were an open source vendor, would I have a leg upin getting considered for a VC money award?
You would have a major step up over others if you were anopen source company. Open source used to be a bit of a misunderstoodbusiness model. Now it is something that has picked up good momentumand is something that VCs love to see.
ECT: Are you seeing more requests from open source startups,or is that still a sparse field?
It’s still a sparse field, and that’s a good thingbecause every discipline, be it software or hardware or data center, hasan open source project that knocks them to death. So consequently, whathappens is that the customers are not getting a value from a closedsource like a McAfee or Microsoft. They would rather look for an opensource company. And when that open source company gets to scale, thenthat open source company will come looking for money. So that fieldhasn’t become over-crowded. There are only a handful of companies thathave reached commercial status following open source
ECT: What advice would you give to a startup entrepreneur whois reaching out for VC support? Are there certain things that need tobe done, or are you just looking for something that is out of theordinary?
The first thing to do is get conviction around thecustomer ROI. The way to do that is to know the market and getconfidence in the market. So number one is product market. Number twois getting confidence in your financial model. This is where I tend todo a lot of work. I like to invest in companies that are efficient inservicing customers. I like a company to know how to develop thecompany and how to leverage that. So entrepreneurs need to be veryfocused on this early because the decision we make today about fundinga small company will be based on how do you go to market, how do youmarket and how much money do you need to raise.