Forget Facebook! Meet 12 investors on the hunt for the next Microsoft

Smart investors are betting big on business technology.

Sure, all the buzz goes to consumer-focused companies like Facebook and Zynga. But while those companies’ post-IPO performance has been tepid at best, enterprise startups have been quietly kicking ass.

In 2012 alone, acquisitions in the billion-dollar range include Meraki (acquired by Cisco), Yammer (acquired by Microsoft), and Quest (acquired by Dell). In addition, SAP closed its $3.4 billion acquisition of SuccessFactors, and human resources software maker Workday held a stellar IPO.

The investors behind these and other enterprise startups are a different breed: Not as flashy, and a bit more technically savvy than the average venture capitalist.

VentureBeat takes the enterprise seriously too. Our upcoming conference, CloudBeat 2012, will feature some of the biggest names in the enterprise cloud industry. Unlike other events, the customers themselves are front and center, to give you rare insights into what really works, who’s buying what, and where the industry is going. CloudBeat takes place Nov. 28-29 in Redwood City, Calif. Register today!

These investors are looking for small startups that are trying to sell innovative technology to the world’s largest organizations. The best of them have a real shot at knocking out giant incumbents like Microsoft, SAP, and Oracle, and winning billions of dollars in revenue.

As one of them, investor Ping Li, put it, startups are winning because they are creating “Apple-like experiences for business users.”

But how do you get the attention of enterprise investors? (And how do you compete with them?) You’ve got to start by knowing what makes each of them tick.

Jim Goetz: The enterprise advocate

Firm: Sequoia Capital
Nerd Cred: He studied as an engineer and gave up on a PhD to start his career as a rookie product manager at SynOptics.
Hottest Investments: Palo Alto Networks, Jive, AdMob (acquired by Google), Karma (acquired by Facebook), Nimble Storage, Barracuda Networks.

VentureBeat: With enterprise software in vogue, are you taking more meetings than in previous years? 
Goetz: Maybe a tad. We’ve been enterprise investors for 40 years … at times, it’s more attractive when no one is paying attention. The number of meetings has picked up a bit, but the quality has gone down.

VentureBeat: If the quality has gone down, what’s better now? Is it easier for startups to infiltrate the enterprise?
Goetz: We are using the business model as a weapon. Recurring revenue rather than a one-time license. [Editor’s note: companies like Salesforce.com have paved the way to recurring revenues with SaaS models that charge customers subscription fees instead of software license fees.] We’re experimenting with user acquisition models that embrace successful consumer techniques. These are things that are difficult for larger companies to embrace.

VentureBeat: Box’s CEO Aaron Levie recently said that Pinterest‘s design is 10 times better than most software that businesses currently use. Do you agree?
Goetz: I think that design is beginning to become a mantra in the enterprise. It’s both an interactive and UX design focus, and it has increased dramatically. I would argue that most successful enterprise companies have paid lip service. For the next generation, it has become critical. Product design is not just a differentiating factor.

VentureBeat: Do you have a couple of cool case-studies to share of sexy enterprise companies?
Goetz: MobileIron is allowing CIOs to track every mobile device in their environment whether it’s Android, iPhone, or RIM. Meraki can get you connected to a network no matter where you sit — all through a single cloud log-in. That hasn’t been possible before in the wireless networking space.

Ross Fubini: Mr. Nice Guy

Firm: Canaan Partners
Nerd cred: He was a senior director of engineering at Symantec, leading a team that protected hundreds of millions of email boxes a year from viruses and spam. He’s also a triathlete.
Hottest Investments: Piazza, CitrusLane, GingerIO, and KarmaLoop.

VentureBeat: For perspective, how many meetings do you take each year? How many startups do you fund?
Ross Fubini: It’s in the hundreds range, and I would typically consider funding 20. The problem, to be honest, is finding that combination of great team that has a market insight. If I could find 50 of those, I would fund all 50.

VentureBeat: What’s the biggest trend you’re keeping an eye on?
Fubini: iPad, iPad, iPad. People think the tablet revolution is a big deal. I think it’s a bigger deal. Doctors are one example, also people who run sales ops or architects reviewing blue prints. All these will have new mobile interfaces. Some of these new mobile applications we can’t even envision right now.

VentureBeat: You’ve invested in both consumer and enterprise startups. How is the experience different? 
Fubini: They are getting more and more the same. In both cases you’re fighting for people’s time. In the same way that the best games or social networking sites are addictive, enterprise companies are building products that help people do their job. Some of the best stuff will help you get home faster, or help you make one decision. The differences? I’d say that most consumer products are more about fun than they are about value.

VentureBeat: How do you cut through the jargon to really understand a company’s value?
Fubini: Be precise about the problem you’ve identified. You should be able to explain it without relying on terms like “big data.” You don’t have a “big data” experience at Whole Foods because they’ve recently begun stocking new cheese. But you are experiencing it as a result of buying analytics. The best innovations are indiscernible from magic. I want to see the rabbit; I don’t want to see the hat you’ve pulled it out of.

Zach Bogue and Matt Ocko: The power duo

Above: DCVC’s Matt Ocko

Firm: Data Collective, which just launched in August, 2012.
Nerd cred: According to the firm’s website, Ocko  has been granted over 20 patents in diverse technologies like hardware systems and social games. He still reads C++ code and admits to occasional struggles with Erlang. (Side note: Bogue is married to Yahoo CEO Marissa Mayer, who recently had a baby.)
Hottest investments: CitusData, Kaggle, and LendUp.

VentureBeat: Do you have a thesis that you’re working with? If so, can you divulge?
Matt Ocko: Big data is the next secular trend that disrupts the enterprise for 10 to 20 years, starting in the early 2010s, similar to how PCs and LANs did across nearly 20 years starting in the early 1980s.

VentureBeat: Can you call bullshit on a commonly-held myth around enterprise startups?
Zach Bogue: The myth is that the enterprise is unwilling, or willing but incapable, of recognizing innovation from small startups. Today, nothing could be further from the truth. Many of our startups have several Fortune 500 customers before the end of their seed financing periods.

Above: DCVC’s Zach Bogue

VentureBeat: How do you cut through the jargon to really understand a startup’s value?
Ocko: Three of our four founders still read code, understand chip architecture, and can light up their own clusters in AWS or a datacenter. We have 40 additional “equity partners” that look like us in terms of experience, technical chops, and customer connections. Our ability to both rapidly and deeply dive to the heart of a startup’s technical value, vet it with potential customers, and understand its long term value is unique.

VentureBeat: With the enterprise being so trendy these days, has this made your job easier?
Bogue: We don’t really pay attention to what is trendy and what isn’t. If anything, our experience is that trendiness just clouds markets and can obscure great companies behind merely trendy ones. We prefer that our world remain untrendy if possible.

VentureBeat? Can you provide 1 or 2 examples of really cool big data challenges that have been solved?
Bogue: The Chief Scientist and other leaders of the US Air Force successfully solved the tragic and very hard to understand problems with [its] multi-hundred-billion dollar F-22 fighter jet program. This was done by delivering real-time analysis of billions of events recorded across hundreds to thousands of sensors per plane, across hundreds of planes.

Ann Miura Ko: “The investing ninja assassin“

Firm: Floodgate Capital, launched in 2010.
Nerd cred: Miura-Ko has a PhD in Quantitative Modeling of Computer Security from Stanford University.
Hottest investments: ModCloth, Digg.com, and Twitter.

VentureBeat: What big trends are you keeping your eye on?
Ann Miura-Ko: Big data analytics, [meaning] new ways of interacting with data as it becomes increasingly high dimensioned, high volume, and high velocity. Also, mobile enterprise. I believe that this is going to have a huge impact on optimization of work flow, predictions of business processes and performance, and overall transparency of business metrics.

VentureBeat: Is the enterprise sexy again? Is this just a phase?
Miura-Ko: Enterprise is definitely bringing sexy back. Consumer seems to come in and out of favor, but enterprise customers are not as emotionally driven as consumers. As a result, if you’re providing a product that delivers great unit economics, you will find customers on the other side.

VentureBeat: Can a 20-something start a company? Do you need corporate experience to understand the pain points?
Miura-Ko: If you’re a scruffy 20-something with real technical insight, I would encourage you to start an enterprise company. You either need market insight, which requires some degree of industry experience, or you can rely on a core technical insight, which 20-somethings can have.

VentureBeat: How is enterprise investing fundamentally different from consumer?
Miura-Ko: I would say that enterprise is actually a bit more predictable. Enterprise customers are less emotionally driven, which means you can at least attempt to logically predict how the business will evolve.