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

Ping Li: The finance whiz

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Firm: Accel Partners
Nerd Cred: He is an avid programmer and picked up his first language, Basic, as a kid. Li was also one of the first investors to grab coffee with Jeff Hammerbacher, Facebook’s data scientist, to discuss the seeds of an idea to commercialize Hadoop.
Career-making investments: Cloudera, Fusion-io, Lookout, BitTorrent.

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VentureBeat: You’re managing Accel’s $100 million fund dedicated to enterprise software. What are you looking for?
Li: We don’t have one thesis. This is the first time that data has been democratized so large companies can access and get value out of it. Hadoop (the open source computing technology to store and process large quantities of data) is making that possible. I’m also excited about the mobile ecosystem in this post-PC era.

VentureBeat: Can you call out any pervasive myths?
Li: Everyone aspires to be like Dropbox — you can infiltrate without hiring salespeople. [Editor’s note: Read more about the “Dropbox effect.”] I think there are technologies that require salespeople. There has been too much hype around not needing them.

VentureBeat: Do founders need grey hair and corporate experience to understand the pain points?
Li: I think it’s totally believable and credible for a 20-something to start an enterprise company. Over time, they will have to add to the team to fill out the dimensions that won’t come naturally to them. I don’t actually think you have to have been at a large corporation for a long time to come up with a great idea. There are some great open-source companies with young founders. Look at Jeff Hammerbacher at Cloudera — he identified a pain point around big data and the potential of Hadoop.

VentureBeat: When it comes to enterprise software, we are so mired in jargon. How do you know when a startup is more than bluster?
Li: I look for authentic entrepreneurs who really understand the market. They don’t speak in jargon or buzzwords. Entrepreneurs: you should be able to explain your startup in a way that everyone can understand instead of using terms like “big data” that make it sound like anything else. It’s not easy to do … jargon is a crutch.

Asheem Chandna: The revenue generator

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Firm: Greylock Partners
Nerd Cred: He’s a computer engineer with a master’s from Case Western Reserve University and decades of experience with startups like Check Point Software and CoroNet Systems.
Hottest investments: Palo Alto Networks, Delphix, Zenprise.

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VentureBeat: Do you buy the notion that the enterprise is “sexy” again?
Asheem Chandna: The enterprise has always been sexy and profitable. It’s worth remembering that companies that appear sexy today were started five or 10 years ago, when enterprise was viewed as dead.

VentureBeat: Do you have a thesis that you’re working with? If so, tell me more.
Chandna: I believe it should start with a team that includes the very best technologists in a specific space. They need to deliver a minimally viable (and yet awesome) product in 9 or 15 months and a more complete and complex product in 18 to 24 months. And then iterate on the more advanced features with customer feedback based on real actual product use cases.

VentureBeat: Would you fund an inexperienced 20-something with an idea to start an enterprise company?
Chandna: Typically not, but there are always exceptions. Prior experience is usually a prerequisite for understanding the customer pain points. But come and prove me wrong — I love learning from entrepreneurs I meet.

VentureBeat: Do you typically call their customers in the due diligence process?
Chandna: Yes, with the company’s approval of course. We often go beyond that and introduce them to other potential customers and technologists to see their reactions. Gaining enterprise customers can be difficult. However the best customer organizations are always looking for new innovative solutions that can deliver superior business value.

Jason Pressman: The thought partner

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Firm: Shasta Ventures
Nerd Cred:  He collects novelty vehicles, and is a trivia whizz.
Hottest investments: Zuora, TypeSafe, NodeFly 

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VentureBeat: Has the renewed interest in enterprise software made your job any easier?
Jason Pressman: The only thing that seems a bit easier is recruiting engineers. We’ve started to see a lot of talented engineers leaving consumer and seeking enterprise businesses as some seem to believe there is more substance in the enterprise. Going forward, I think there is some risk that many investors who just recently said the enterprise is a dead-start [will] make it more challenging to compete.

VentureBeat: You’ve done a bit of both. How is investing in enterprise startups fundamentally different from consumer?
Pressman: It generally takes more capital to bring an initial product to market for enterprise companies. There are generally tried and true strategies for going to market, like freemium for simpler products with lower price points versus tight sales processes for more complex products with higher price points. Entrepreneurs are generally more experienced than in the consumer space.

VentureBeat: Do you call a company’s customers during the due diligence process?
Pressman: Yes, when we engage in diligence we always call customers and view this as a critical path to understand how a company meets its customers’ needs. Great companies in the consumer and enterprise space are maniacally focused on their customers!

VentureBeat: What’s the most pervasive myth that you can call bullshit on?
Pressman: I have never seen an investor pressure a company to pivot from consumer to enterprise and would strongly discourage companies from trying!

Bob Goodman: The true believer

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Firm: Bessemer Venture Partners
Nerd cred: He’s a keen contributor to the company’s cloud computing blog. He’s also run two successful telecommunications companies, Celcore and Boatphone. 
Hottest Investments: BroadSoft, Millenial Media, Flarion Technologies.

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VentureBeat: Do you have a thesis that you’re working with?
Goodman: We have really begun to focus on our thesis in the past few years: it’s the virtualization of everything. It’s the ability to manage applications across the cloud and the private data center, and move between them. We began investing in technology to keep enterprise functionality up and running in the cloud — these companies are smoking now.

VentureBeat: Can you call bullshit on a common myth about enterprise investing?
Goodman: I can debunk the myth that it’s become popular on the venture side. The public was excited about Zynga, Groupon, and Facebook and are beginning to shift their focus to more enterprise public companies. On the venture side, it hasn’t caught up yet. I can call bullshit on that.

VentureBeat: How about the “Dropbox effect,” the idea that companies can devote their energies to the product, employees will love it, and it will magically trickle into the enterprise?
Goodman: Dropbox is fundamentally a prosumer or consumer solution. I think the idea of people putting their files and content in the cloud for dissemination for sharing and storage is strong. But companies need enterprise-class solutions. You have to be careful about consumer companies that think they are going to win in the enterprise.

VentureBeat: What major shifts in the industry will impact the current generation of enterprise startups?
Goodman: There are new ways of selling. You can sell freemium solutions to the enterprise and it will occasionally work. Get low-level employees who can spend $5,000 on their credit card to buy the product. Later on, you can make the enterprise sale. It’s a little something like LinkedIn — they would go to the CIO or CFO and say, “Do you realize that 300 people have signed up for LinkedIn subscriptions?” That gets them inside the company and allows entrepreneurs to distribute their product without coming up against the firewall. People can try it in a division before you make a larger sale.

Kevin Spain: Mr. B2B

Firm: Emergence Capital Partners

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Nerd Cred: Spain’s first computer was a Commodore 64, which his parents gave him when he was 10 years old. He convinced them to give him a modem, and he began dialing into bulletin boards and trading software programs. In his own words: “I was a geeky bulletin board dial-up kid.”
Hottest investments: Doximity, VigLink, Veeva Systems.

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VentureBeat: As a long-time business to business (B2B) investor, what are your thoughts on the enterprise software renaissance?
Kevin Spain: We have been investing in SaaS and cloud before the terms even existed. The entire thesis of the firm is that the Internet would create a renaissance for business technology. I think this creates an opportunity for us because we were doing it before anyone else. One thing that has been made easier is this increased attention has brought more entrepreneurs to the table thinking of how to transform technology in the enterprise.

VentureBeat: Have you found that the competition is heating up? Are there new faces at the table that are angling to fund the hottest B2B companies?
Spain: No question. Most venture firms are not focused though — they have their fingers in a little of everything. Undeniably we are seeing more interest from many traditional VCs. In reality what a lot of these guys will find is that enterprise is different now than the last time they were enterprise investors. They were investing in enterprise when companies like SAP had the business model in proprietary software. There is a pretty steep learning curve when it comes to how B2B applications should be sold today.

VentureBeat: What qualities are you looking for in a founder? Would you fund an inexperienced team? 
Spain: I think it depends on the nature of the application. If you are building something for a vertical, it really helps to have domain expertise. You will need to have spent some time in the industry to understand the nuances. However, in many cases it’s beneficial not to have grey hair. Box is a great example of this — Aaron Levie (the company’s enigmatic 20-something CEO) runs product; Dave Levin, a long-time Salesforce guy, runs the go-to-market strategy. From a product perspective, being on the younger side brings a drive and fresh perspective.

VentureBeat: Do you advise your portfolio companies to market their software to CIOs or CMOs?
Spain: It’s a mix. There has been a lot made of the thesis that CMOs will be the primary consumer of IT (editors’ note: Gartner research predicted that CMOs will exert greater control over the “big data” budget by 2017). Certainly, CEOs are demanding that their top marketers take a more quantitative approach to what they do. It requires more technology to do that well. That’s where many of our portfolio companies come in.

Cindy Padnos: Queen B2B

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Firm: Illuminate Ventures
Nerd cred: After founding Illuminate, she spent six months combing through academic papers. She was able to prove that women entrepreneurs fail less frequently.
Hottest Investments: Hoopla, BrightEdge, Influitive, CalmSea. 

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VentureBeat: In your experience, how is enterprise investing fundamentally different from consumer?
Cindy Padnos: B2B is less of a hits game than consumer: It’s not all or nothing. Typically, multiple enterprise companies can succeed in a single category. The success metrics are entirely different — recurring revenue growth, customer retention, and unit economics are some of the factors that matter most. For investors, it’s a confidence boost that the core technology often has an intrinsic value that can generate returns even if a market or category is slow to take off. B2B has more realistic investment terms and fewer venture investors pursuing the same deals.

VentureBeat: Can you debunk a commonly-held myth about enterprise investing?
Padnos: One myth is that it requires a great deal of capital to launch an enterprise startup. That’s simply not true. We have seen many examples of companies that bootstrapped to their first product and went on to gain dozens of paid customers, having raised less than a million dollars to do so.

VentureBeat: Do you have a thesis that you’re working with?
Padnos: Our fundamental belief is that B2B cloud-based companies offer lower risk and higher return than virtually any other category of early-stage venture tech investing. They require less capital early on, fail less frequently, and can build sustainable differentiation through their intellectual property.

VentureBeat: Do you believe that the enterprise is sexy again?
Padnos: For some of us in the B2B world, it has always been sexy! My measure of sexy from an investment perspective is how well a sector performs. All the data we’ve seen shows that enterprise investments have been outperforming consumer both in terms of mergers and acquisitions and post-IPO performance for several years. We don’t see that changing anytime soon.

Pete Sonsini: The rising star

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Firm: New Enterprise Associates
Nerd Cred: Sonsini is the son of Larry Sonsini, chairman of the prestigious Silicon Valley law firm, Wilson Sonsini Goodrich & Rosati, and grew up being exposed to tech. He told the Wall Street Journal in a recent profile that early in his career he knew he’d make “a lot of money in virtualization” software — which he did, through a stint at VMWare, where he led strategic partnerships for four years.
Hottest Investments:  Embrane, Xensource (acquired by Citrix Systems), Teracent (acquired by Google).

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VentureBeat: Do you have a thesis that you’re working with?
Sonsini: My thesis can be summed up in two words: lazy developers. To be more specific, there is a great opportunity for new cloud services in that, currently, developers are assembling apps using piece parts in the cloud as opposed to coding everything from scratch.

VentureBeat: Can you dispel a commonly-held myth that you hear from entrepreneurs and other investors?
Sonsini: One myth is that “you don’t need to raise significant venture capital to scale a business that targets the enterprise.” It may be easy to launch a product; however, it takes a lot of capital, experience, and networking to build teams and be competitive with contenders. [Editor’s note: This is an opposing view to Illuminate Ventures’ Padnos, which demonstrates the range of opinions and investment styles in Silicon Valley.]

VentureBeat: Would you encourage anyone with a good idea to start an enterprise company?
Sonsini: I would encourage the 20-somethings to go ahead, but I would explain to them that they need people with experience and expertise to really succeed. VMware was started by inexperienced young entrepreneurs and academics, but they had Diane Greene to guide them. It’s vital to have some level of business know-how around the table in order to hone the market.

VentureBeat: Should enterprise startups market to business users or IT?
Sonsini: It’s important to have a story for both CIOs and business and marketing users. Right now there is collaboration between marketing and technology that’s closer than ever; both impact the buying decisions. Marketers have realized they need to understand data sources in order to efficiently make use of the outputs. It’s like flying a plane: To know how to do it without crashing and burning, you need to understand the physics of flight and how the plane works.

Top image courtesy of Jim Goetz: DJ EVENTS’/ FLICKR