As a young venture capitalist (33), I still remember some of the lessons I was taught in VC 101 when I entered the profession as a pup 9 years ago. Part of the venture business is pattern recognition regarding making new investments (don't invest in knowledge management software, etc.). Part of the business involves applying past lessons from your partnership's investing or operating experience to help guide portfolio companies.
For example, venture backed entrepreneurs are much more likely to overspend on sales & marketing, or international expansion, too soon rather than too late in a market's development. The entrepreneur, passionate by nature, believes in the real estate value of a land grab before the land has emerged from the sea, and flushes his B round, his founder's equity and his company down the toilet hiring too many sales reps chasing early adopters in the nascent stage of a market's development. So, the young VC is cautioned by his mentors to tell all his companies to run an experiment. First, hire 1 sales rep in NYC, then see if he sells. If he does, hire two more in 6 months, maybe one in Boston and one in Chicago or DC. Then, 6 months later, if 2-3 of the 3 are performing, hire another 4-6 sales reps in SF, LA, Texas, Seattle, Philly, etc. 9 times out of 10, maybe 49 times out of 50, I believe this is the right answer.
But, what about the other one time? What about the entrepreneur whose passion and confidence in the market's rapid development is an accurate read on the market's readiness for a new hot product... the new Google, the new iPhone, the new core router, the new iSCSI SAN box. In these rare cases, which, by the way, are where the bulk of venture returns are made anyway... it is an advantage to build out a formidable sales force EARLY in the market's development. Clay Christensen says that the first entrant in a new market with a high quality national sales force often has a large barrier and reaps much of the rewards (that was from memory... may have some of my spin on it).
I have a friend named Marcus Ranum who is a world class e-security pioneer. As a techie, he built the world's first commercial firewall Gauntlet for a company called TIS which had a successful outcome. As an entrepreneur, he built the world's first world class IDS platform (intrusion detection) for a company called NFR. It was loved by the security IT thought leaders at Fortune 50 companies, and deemed much superior in performance to the rival product by ISS. But, ISS, like EMC in storage, built a world class national sales force (ultimately led by a friend of mine, Tom McNeight). And ISS whupped poor Marcus and NFR and because a successful company worth billions (now part of IBM) wheras NFR became worth a few million I believe in its modest exit.
As an active investor in the storage appliance world (LeftHand Networks, SEPATON, for example). I am seeing hyper growth by my companies and my companies' rivals in some emerging storage categories, such as iSCSI SANs, WAFS, disk-based backup, and dedupe. These markets are so hot that many companies are "winning." But who will win biggest? Will it be the companies first to build an EMC-class or ISS-class national or global sales force?
Would Juniper (a proud win by my former employer which taught me VC 101, NEA) be Juniper today if it had not hired a large sales force to compete with Cisco in the 1990s?
Thank you for the advice, i really apreciate it.
__________________
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