received their first financings. “Over the last 10 years the entire venture capital industry taken as a whole has had negative returns. If VCs have lost money collectively, that means that entrepreneurs (of VC backed companies) have also not made any money since VCs have liquidation preferences and usually get paid first in the event of an exit.” To be fair, he also noted that the S&P 500 has had negative returns over the same period as well as all real estate purchased after 2003. This prediction of a bleak future for tech entrepreneurs reminded me of the famous Larry Ellison statement about the foolish notion among techies that somehow our industry will never mature and that we will continue to see the kind of successes from the dot-com and Web 2.0 eras.
As for predicting technology trends, Bryant believes cloud computing is a hot area with lots of opportunity. “To me, cloud computing represents an important paradigm shift in how computing takes place. When you look at the history of computing, it is defined by successive paradigm shifts. From mainframes to the mini, then from mini computers to desktops. From desktops to the client-server architectures and then to the Internet. I think cloud computing is such a shift and every enterprise technology needs to be thinking about the cloud aspect to whatever they are doing.”
Schutzler doesn’t think so. In fact, on one of his slides he had a large red X superimposed on top of the cloud computing icon. “Talking to investors about cloud computing is like saying, ‘I stink really badly. Run away from me.’” He instead feels that mobility is that paradigm shift, especially with the launch of the new Nexus One Google phone. “In the past if you wanted to port a popular game or application to the mobile platform, you needed to develop a SKU [stock-keeping unit] for each carrier, each handset, and each platform. In some cases you might end up with 18,000 SKUs. Not anymore, with the launch of the new Google phone and the open platform.”
Bryant, again, differed. “Mobile does not scale. I don’t know why people think mobile scales. There will never be anything that even approximates the Wintel [Windows operating systems and Intel architecture] write once-run everywhere platform.” Drawing on his background with Qpass, he noted that a mobile developer has to be concerned with supporting Symbian, Windows Mobile, J2ME, Linux, Android, BREW, iPhone, Palm, and other phone OS to reach scale.
While Bryant thinks cloud computing is a fertile area ripe with opportunity, he does not believe in “theme” investing where investors pursue a strategy in specific trendy sectors. “Thematic investing is like chasing last year’s hemline. One year it’s the mini skirt, the next the maxi. Likewise, incremental improvements and features are not interesting as investments.” He posits that investors are not well suited for predicting trends because they know just a little about a lot of things.
He prefers to fund entrepreneurs who have spent a lot of time in a given area, have deep domain expertise, and are intimately familiar with the challenges customers are facing. As an illustration, he told the story of Sujal Patel the founder of Isilon Systems. In the late 1990s while at RealNetworks, Patel had worked on rich media serving for Real’s largest media customers and came to the realization that they didn’t have a serving problem, but rather a storage problem that related to large files. The file systems of the day had been designed for much smaller files and were inherently inefficient for storing and making available large rich media files. A storage file system designed just for large files would solve most of the challenges. Sujal went on to found Isilon Systems which had a successful IPO in 2007, winning against EMC and Network Appliance, the two giant gorillas in the storage market. They excelled by focusing on only digital media storage and creating a product 10 times more compelling than the general purpose storage systems offered by their competitors. Bryant recounted, “I made one reference call about Sujal and his boss told me, ‘He represents about 15 percent of the intellectual property of the entire company [Real Networks], which had over 300 engineers at the time.’ That sealed the deal for me.” Incidentally, this story was also told to us by Matt McIlwain when we pitched our product Meosic to the partners at Madrona.
Bryant also noted that DFJ prefers “change the world” types of ideas. Examples of this