Jeff Clavier's Software Only

Investment of the day: Mashery

Busy week: another of my recent investments was announced this morning. I have joined First Round Capital’s Josh Kopelman and my Search SIG co-chair Dave Mc Clure as founding investor of Mashery, Inc., a software infrastructure startup. We will actually not disclose much more than what Oren Michels, the CEO, has mentioned on his blog– but the company is essentially developing a much needed piece of functionality of the web services and mashups economy.

Our Mashery will be a resource for developers, API providers and mashup users. Over the next six months, we will release a range of services that will make it easier to develop, deploy and use mashups and other "user generated services"

I am excited to work with Oren again, who was the VP of Business Development of Feedster – of which Josh, Dave and I all were Angel investors.

Just to clarify by the way: it just so happens that four investments closed in the same week (last week, and yes there is one more to announce), but they have all been progressing at different pace and speeds over the past few weeks. The fact that they all closed within a few days of each others is pure coincidence. Don’t start assuming that I am doing 4 investments per week . And if you check out Josh’s post announcing his investment, you’ll see that he has been pretty darn busy as well.

Tags: mashery

 

Kleiner Perkins investment criterias for software startups: Consumer ? Enterprise ? Both!

A few days ago, Don Dodge reported on a panel he did at TiECon East with KP's Ajit Nazre, during which Ajit mentioned the 7 rules that  enterprise software startups must meet in order to be considered for an investment:

• Instant Value to customers - solve a problem or create value with the first use
• Viral adoption - Pull, not push. No direct sales force required
• Minimum IT footprint, preferably none. Hosted SaaS is best.
• Simple, intuitive user experience - no training required.
• Personalized user experience - customizable
• Easy configuration based on application or usage templates
• Context aware - adjust to location, groups, preferences, devices, etc.

Friend Jeff Nolan reminded me that these rules were actually introduced by Ray Lane, a Kleiner Perkins Partner, during his keynote of MR Rangaswami's conference, Software 2006. I actually recommend listening to the podcast and reading through the presentation.

What is interesting is that these rules seemed to be focusing on enterprise software companies, and upon reading them they were really fitting consumer-facing services. Yet another data point showing that Consumer and Enterprise 2.0 are getting closer and closer in the way they are built and marketed. Ben Barren from down under had a similar thought.

During my keynote to the Web 2.0 Irish Conference, I talked about similar things - in the form of the key questions that I ask myself when meeting a prospective investment:

• Value ?
• Adoption ?
• Differentiation ?
• Distribution ?
• Business Model ?
• Technology ?
• Team ?
• Plan ?

What is interesting is that fundamental aspects like the the Team and the Plan are not covered by the 7 rules, so I would posit that there were other aspects being discussed.

Tag: enterprise2.0

Two great blogs to track the enterprise software market

Even though I no longer focus on enterprise architecture and related software solutions, I try to keep an eye on developments in that market, especially as consumer applications and Web 2.0 concepts make their way into it (dubbed Enterprise 2.0 of course)

I have recently added to my “Favorites” folder the 451 CAOS Theory, a group blog written by analysts of the 451 Group, an analyst firm, and Confused of Calcutta, the blog of JP Rangaswami, the CIO of Dresdner Kleiner Wasserstein.

I have met JP a number of times, mainly during conferences in the US and in Europe, and have always enjoyed his progressist approach to the adoption of new tools and processes to Enterprise IT. His “About this Blog” section says it all:

I believe that it is only a matter of time before enterprise software consists of only four types of application: publishing, search, fulfilment and conversation. I believe that weaknesses and corruptions in our own thinking about digital rights and intellectual property rights will have the effect of slowing down or sometimes even blocking this from happening.

I believe we keep building layers of lock-in that prevent information from flowing freely, and that we have a lot to learn about the right thing to do in this respect. I believe identity and presence and authentication and permissioning are in some ways the new battlegrounds, where the freedom of information flow will be fought for, and bitterly at that.

I believe that we do live in an age of information overload, and that we have to find ways of simplifying our access to the information; of assessing the quality of the information; of having better tools to visualise the information, to enrich and improve it, of passing the information on.

I believe that Moore’s Law and Metcalfe’s Law and Gilder’s Law have created an environment where it is finally possible to demonstrate the value of information technology in simple terms rather than by complex inferences and abstract arguments.

I believe that simplicity and convenience are important, and that we have to learn to respect human time.

I believe we need to discuss these things and find ways of getting them right. And I have a fervent hope that through this blog, I can keep the conversations going and learn from them.

As to the 451 CAOS, which stands for Commercial Adoption of Open Source, I really appreciate some of the insights that the 451 analysts share in extenso on the blog, which has this description:

This blog covers open source in the enterprise. It is written by analysts from The 451 Group, an independent technology-industry analyst company focused on the business of enterprise IT innovation, which also produces the 451 CAOS Research Service.

Software 2006: Mark Bregman on the Dilemna of Innovation and Security 2.0

I am hanging out today at Software 2006, the reference event of the enterprise software market organized by MR Rangaswami  from the Sand Hill Group. It is interesting for me to listen to presentations from players from my previous ecosystem – enterprise systems – as they recognise the importance and the need to take into account the implications of Web 2.0 – a consumer phenomena.

Mark Bregman comes on stage to talk about Symantec plans, and the Dilemna of Innovation. Mark is the former CTO of Symantec, he used to hold the same responsibility at Veritas before its acquisition by the security giant.

The Dilemna of Innovation (that Clayton Christensen made famous under the Innovator’s Dilemna)  is the virtuous circle of startups/upstarts challenging established players in a given market:

> Become a leader through innovation and displace incumbents by acquiring their customers
    > Become the number one player in your space > Stop innovating
        > Watch upstarts displace you 
            > Repeat

Large industry players, particularly Symantec, have been using acquisitions as a way to bring innovation and talent in an ecosystem. This is easier said than done when one considers the challenges - both products and organizational - involved in integrating acquired companies. The side effect is that core groups, inside the corporation, tend to feel devalued because they never are the "latest, greatest, coolest" thing.

Symantec has introduced the notion of "Advanced Concepts" in their organization, creating a startup mentality from within, in order to develop innovative projects engaging with pilot customers that are willing to take the risk of deploying "startup quality" software. The first application of that notion is the "Symantec Database Security and Audit" that was implemented by a small team of 15 people, engaging with ten clients. The product groups would have taken 2/3 years to release the functionality. The Advanced Concepts team took a few month to implement it to a point clients could deploy it.

Mark predicts that large software players have to prepare for the next shift in computing, perhaps less technology led than business and social, due to these forces of change:

• Continued commoditization of hardware
• Broadband is now considered ubiquitous
• Power is shifting to users
• “The world is flat” yak yak yak (meaning Globalization is upon us).

Mark’s challenge: Figure out what Web 2.0 means to Symantec and the industry it is the leader of: Protection. Protection of machines, Protection of information (against malicious attacks, corruption, loss, etc.). The next level for Symantec is the Protection of interactions – including social ones – in what they refer to as Security 2.0.

Security 2.0: Delivering Trust Online

• Establish trust between parties – ensure that “you are you, and they are they”
• Expand beyond protecting the infrastructure and information, to protecting relationships
• Enabled via a combination of client-side technologies, on-line infrastructure and key partnerships

I would have loved for Mark to comment on the latter, especially what sort of relationships or partnerships he foresees happening with consumer Web 2.0 companies as they become widely used in the enterprise. The first batch of technology will be related to content management and self-publishing (blogs, wikis, etc.), as well as identity systems. This is a topic I covered a few weeks ago in a panel I moderated with a focus on Collaboration, and I will pick up again with a broader scope in this IBDNetwork event: What Web 2.0 Means for the Enterprise.

Tags: software2006, security, markbregman, symantec

Ed Sim on successful offshoring

Whereas it was a must until a year ago, offshoring developments to India has generated enough of its fair share of operational issues to make startup teams and VCs much more cautious. Beyond local issues – like the difficulty of hiring and keeping talent, and increasing wages – getting the coordination, leadership and motivation aspects are challenging.

Ed Sim’s post comes a propos as he relates to a successful offshoring operated by one of his companies. Some key points:

• Offshore interesting and motivating projects
• Develop local leadership talent
• Hire, train and manage local staff with a long term view in mind

At the same time, SAP is going to be looking to alternatives to India because of rising costs.

The enterprise software market is shrinking - and old stars ain't shining

I am off to CES in less than 3 hours, so I’ll make it quick: Bill Burnham has a series of great posts regarding the Internet and Enterprise software sectors of the public market, particularly:

• Software IPOs: 2005 Year In Review
• Top 10 Worst Performing Software Stocks of 2005
• Software Stock Update: 2005 Year In Review
• The Incredibly Shrinking Software Industry

In a nutshell, and I recommend taking a look at the compilation of data points and analysis work done by Bill: 4 software IPOs in 2005, a lot of Web 1.0 software darlings are in the list of worst performers for 2005, and the aggregate valuation of the Software sector has shrunk  by 10% in 2005 – to compare with a modest 1.4% growth of the Nasdaq and a nice uplift of 14.4% of the Internet sector.

Bill lists five reasons behind this systemic decrease of the sector, which does not look too good for 2006:

1. Software is moving from “growth” to “value”
2. Open Source and Software as a Service
3. No big platform transition.
4. Networking companies are encroaching on software company turf
5. Being public ain’t so great

I would also add that the consolidation of the Software sector around IBM, Oracle, SAP, Microsoft and a few others is leading to limited M&A premiums – both for public and private companies.

There are exceptions though such as the $375M acquisition of Wily Technologies by CA, a 6X multiple on revenues and a nice payoff for VC investors who put in $37M.

Don't be an Open Source Ostrich

Lots of companies are currently analyzing the impact of a decision to move from closed source to open source (like Intalio just did). And it is critical to consider the legal implications of these decisions, especially when it comes to the type of license to use, what software your company already leverages, etc. You want to avoid the “whoopsy” moments that happen when you discover that you have been shipping some modified GPL code without contributing back, etc.

I found this essay from lawyer Dennis Kennedy coming very handy in that context. Do take a look, it is clear and well written, and provides useful background. Here is a summary of his checklist:

1. Understand the Different Approaches That the Open Source Licenses Take.
2. Pay Special Attention to the General Public License.
3. Remember the Source Code.
4. Make Reasonable Comparison with Commercial Software.
5. Think in Terms of Choosing, Rather Than Negotiating, Open Source Licenses.
6. Do Not Confuse Open Source with Public Domain.
7. Inventory and Assess What You May Already Be Using.
8. Open Source Use Requires Open Source Training.
9. Reasonable Policies and Procedures Are Not Optional.
10. Treat Open Source Policy as a Team Game.

My favorite quote: “Don't be an Open Source ostrich”, which refers to the sort of default reaction of executives when you bring up the notion of open sourcing portions of the stack a company has spent years and hard cash to develop. As Dennis puts it in his conclusion:

Open Source software is not likely to go away nor are you likely to avoid it. As always, “be prepared” is the best motto. Addressing this area from a reasonable knowledge base, with your eyes wide open, only makes good sense in today's business environment. These ten tips will help you get your Open Source house in order and pave the way for effective and wise use of Open Source software with your legal risks kept within your level of comfort.

Thanks to Alex Muse for the pointer.

Blogging the BPM market

Before moving to the wonderful world of the consumer Internet, I have built, for about fifteen years, mission critical systems in the financial services market - in which you spend a ton of time (and money) integrating “stuff”: front-office to back-office, buy-side and sell-side, transaction processing to risk management, etc. Originally using FTP or manually-written socket-based message transfers, these integration projects gradually started using Enterprise Application Integration (EAI) frameworks such as Tibco's ActiveEnterprise. These frameworks generally started by offering a messaging layer (a Message Oriented Middleware), on top of which were built gobs of features such as message transformation, rules and workflow management, portals, distribution and supervision frameworks, etc. Back in 1999/2000, a new element was added to the stack: Business Process Management, that was supposed to bring together business analysts and process experts on one side, and developers on the other: analysts would draw process diagrams that would automagically be turned into executable processes that developers could deploy within the enterprise, and across enterprise boundaries.

The concept was interesting, and a number of startups got funded in the nascent market (Lombardi, Fuego, Intalio, Savvion,...) that proved to require more time (and more money) than expected to mature. I became friends with Ismael Ghalimi, the co-Founder of Intalio, and made a small personal investment in their Series B back in 2001. Whilst I am not too sure of the “marked to market” value of that investment, Ismael's insights on the BPM and software stacks at large have been most valuable to me over the years. It is therefore good news that he has decided to start a blog called IT|Redux that covers Business Process Management and a lot of surrounding technology. The latest post describes the “open sourcing” of the Intalio framework, an interesting read:

Intalio has now transformed itself into “The Open Source BPMS Company.” Step One was the acquisition of FiveSight Technologies, the company that brought to market the first open source implementation of the BPEL 2.0 specification. Embedded by major open source projects such as the ServiceMix Enterprise Service Bus (ESB) and leading development tools like Sun's Java Studio Enterprise, the FiveSight PXE BPEL 2.0 engine – rebranded Intalio|BPMS – is effectively the most widely deployed BPEL product today. Intalio is planning to continue the development of the BPEL engine under the open source Common Public License, and release its BPMN process modeler and BPEL4People workflow component under similar open source licenses later in 2006. The Intalio|BPMS Open Source Edition includes these three components plus open source ESB, integration adapters, and rule engine. Its customers will be mainly independent software vendors, who will embed the engine and tools into their own end user offerings.

If you have never heard of EAI, no worries: the more modern lingo is ESB (Enterprise Service Bus), SOA (Service Oriented Architecture), etc.

Tags: BPM

Syndicate Conference: StructuredBlogging.org is officially launched

Marc Canter is on stage to announce the launch of StructuredBlogging.org, a non-profit initiative supporting the development and deployment of micro-formats in blog posts. The idea is pretty simple (but the implementation across all industry players is far from easy): as opposed to publishing a review of say, a movie, in a text format, a micro-format defines a number of fields that can be entered related to the movie: title, producer, director, actors, etc. Having information available in XML will make it much easier to intelligently extract elements of data to search, aggregate and syndicate. Specific plugins have been developed for WordPress and MovableType to make it easy to publish these formats through a blog. There are a couple of examples on the StructuredBlogging blog.

Salim Ismail from PubSub is now providing the list of formats currently supported: Reviews, Events, Lists, Media (audio, video, images), and People and Group showcases. The corresponding micro-formats will also be mapped to existing file formats like FOAF, vCard, iCal,... About 40 companies are supporting this initiatives at launch, and a much larger number is expected to jump on the bandwagon.

Mike Arrington from TechCrunch fame, and also Edgeio - the stealth project he and Keith Teare have been working on - briefly mentioned that supporting a forthcoming Classifieds micro-format will be part of the roadmap of the company. I should use this occasion to disclose that I am also involved in Edgeio - more on all this later.

This is a positive development for the industry, eventually pushing blogging into richer types of applications - and enabling new types of aggregation. I just wish that we won't see competing initiatives developing just for the sake of building something proprietary. This is an open source initiative, and everyone is welcome to participate.

Update: PubSub's Bob Wyman posts some thoughts about Structured Blogging, and mentions the existence of a discussion group.

Tags: structuredblogging, syndicate

Open source CRM company SugarCRM raises $19M

The alarm:clock was first to report on the recent Series C funding of SugarCRM, that brought $18.77M to this open source CRM software maker. According to Thomson VentureXpert, NEA led the round with participation from Walden International and initial investor Draper Fisher Jurvetson. NEA’s Scott Sandell has joined the board of directors.

Why am I writing about this ? Because this is one of the few enterprise software companies I have been interested in tracking. The company had raised their $5.75M Series B and their $2M Series A respectively 10 and 15 months ago, and did not require a new cash infusion – based on its reported market success. By implementing a dual license strategy, and leveraging the community to develop portions of the product, and make available through 21 languages less than 18 months after launch (which is more than Salesforce.com after 8 years).

VC friends of mine looked at SugarCRM’s Series B, which was very competitive, and priced the company over $20M. Given this newly raised amount, one can expect that NEA must have offered a pretty hefty valuation to convince the company and its investors to take that additional investment.

DFJ has scored a double whammy with Baidu and Skype exits this year, and it feels like SugarCRM is a nice one in the making. Congratulations to Josh Stein who led the original investment – and recently made Partner.

More:

• BusinessWeek published last week this interesting piece on open source, mentionning SugarCRM.
• Matt Marshall over at SiliconBeat features SugarCRM and Scott Sandell