Milestone Group Quarterly: January 2005
Articles
Investment Viewpoint:
Robin Vasan, Managing Director, Mayfield
Milestone: Robin, first question, are you long or short on Oracle today and why?
Vasan: That’s a tough one. I think the challenge that Oracle is facing is that their core business is being eaten away by the open source technology, particularly MySQL. I think it was a move that they had to make and they were looking pretty enviously at the customer and the maintenance revenue streams associated with Peoplesoft. I think the combined company is clearly in a much stronger position to compete against SAP and the other applications vendors. The challenge is their cash cow business database technology is going to go away. Overall, I would still be long on Oracle.
Milestone: Until quite recently you were on the Board at WebMethods. Is the application integration space already crowded enough and boiling down to a few big players crushing the little guys or do you think there are new entrant opportunities and particularly where?
Vasan: So I think the market dynamics in the integration space have been hurt by the lack of standards based technology there. The work that BEA was able to accomplish, particularly WebLogic, around the J2EE standards really allowed them to make that market bigger. There has not been the same standards effort applied in application integration and, therefore, you have got a whole bunch of separate vendors each selling different proprietary solutions. The challenge in that particular market space is that IBM has enough of the key pieces of integration technology as well as having a complete stack and I think that the big guys get bigger there and so there is probably not as much of an opportunity for a new entrant.
Milestone: What is the future of the software industry as you see it? Does it become commoditized and where does value migrate to?
Vasan: I guess I would first divide up the software industry into a couple of different sub-segments. The area that I think is on the path towards commoditization is the middleware and the infrastructure technologies. These are the technologies that the open source community is just eating its way through. Little by little, from the database technology and application server technology, all of those components are more standardized and therefore the open source community can build a set of technologies to more easily replace the incumbent products. In the applications world, I think it is going to take a lot longer. Those require real deep domain, either vertical market expertise or domain specific expertise to understand the key business practices and business processes that they are trying to encode. I think that there is still quite a bit of room or opportunity in the applications arena. However, it is a still a case of the big getting bigger again. There are other layers in the software infrastructure or in the software stack down at the systems level but I think there are unique opportunities there.
Milestone: You have made recent investments in two early-stage security companies, Determina and Elemental. What is your thesis in the security space?
Vasan: Most of the security technology deployed today is network based. Primarily that has been because it provides, in many ways, more transparent ways of integrating the technology into the corporate infrastructure. The challenge is that there is only so many things that you can see and stop at the network layer. The premise that we had was that much more security needs to be applied closer to where the applications are residing and therefore both of those products are host-based products. The other trend that is occurring in networking and security is the battle between a whole variety of different players, the new entrant surprisingly being Cisco. I think Symantec acquiring Veritas is also a recognition that their core cash-cow business in antivirus is not going to continue.
Milestone: To follow on from that, Juniper acquired NetScreen, Cisco acquired Okena and additionally announces a broad based partnership with Microsoft, Nortel has aggressively now partnered with Symantec, what’s your take on the convergence at the network layer of security?
Vasan: The M&A activity at the network layer is a natural outgrowth of the fact that inside and outside of corporations are worried about access. Network access is a place that people see more of a convergence between network technologies and security technologies so it is very interesting to see some of these players from different markets. The other market that I also think is playing a role here is systems management. Desktop management and systems management are another set of companies that also have some overlap with the security market. So I think the writing’s on the wall. There are a number of RFP's that we have seen out on the market for end point security technology and surprisingly the leading vendors in that market, from the customer’s perspective, are McAfee and Cisco.
Milestone: How can a start-up find a space that is large enough to attract venture capital, but not too large to attract strong competition early from big players in the space?
Vasan: I think that’s the trick. So to start off, I think that the first step is understanding where the big players aren’t. More and more we are fortunate to have corporate relationships with folks at a number of these large players and we are able to better understand what their product road maps are. We also can get them to look at some of the companies that we are involved in, earlier in the life cycle, to see whether there are partnering opportunities or whether those players see those companies directly in their path. That’s a dance of course. You are dancing with elephants and clearly the broader market dynamics are favoring the largest players today. That said, there are certain platform technologies that are not necessarily as robust and scaleable as they should be. Microsoft Exchange and Active Directory are two examples of platform technologies that over the last five years I think have surprised most major companies in terms of how broadly they are utilized and deployed. However, those technologies are still fairly immature and there is a variety of things that are needed to augment those technologies to make them more enterprise class. So, there are a number of Mayfield investments that we have made to try to play off of those platform technologies.
Milestone: You have been a strong proponent of US start-ups having an Indian R&D capability and planning it from the beginning. Specifically, what parts of offshore development work best and in contrast where do you see the pitfalls?
Vasan: A lot of it comes down to the knowledge base of the individuals who are involved in managing these operations. I think it is dangerous for a start up company to have their core initial product development not local to them. The high level of iteration that is required with early adopter customers necessitates that technology development be local. However, there are certain pieces of technology development that can be moved to remote development sites. Certainly QA is one key aspect. There are a whole lot of others, too. There are specific projects that can be carved out and there is a lot of compatibility work that you can do. What we have tried to do is foster early on in a company’s product development process for them to start to put in place the plan how they will manage remote development, not necessarily right off the bat to do development in multiple locations. Within Mayfield we sponsored an event about two years ago now where we brought together all of our VP’s of Engineering and CTO’s and had a roundtable presentation around offshore development. Most of the energy tends to be focused around India but again I think that we have companies doing development in Canada, in Eastern Europe, in Latin America as well as in Asia.
Milestone: How does Mayfield facilitate Chinese deals for its portfolio and how important is it to do this?
Vasan: China is a huge market opportunity. We are fortunate that we have some relationships that we have developed through the history of Mayfield. We have a couple of entrepreneurs who have been involved in building some companies that had China operations and therefore they have strategic key relationships. China is probably a country in an economy that requires that level of deeper personal contact and relationships. So, that’s something we have begun to foster and facilitate for a number of our preferred companies.
Milestone: What two to three key pieces of advice would you give an entrepreneur starting a software company today?
Vasan: I think it would vary on the specific area that they were focused on. One tried and true piece of advice is focus. Make sure that you have picked an area that you can be particularly unique and differentiated with respect to the layer of technology that you are providing and then I think the second one is making sure that you understand the particular business problem that you are solving better than anybody else. So it’s the combination of the unique technical insight and technical capabilities married with unique business insight into what problem this is solving.
Milestone: Let’s pretend that you are an LP and had $10 million to invest in a competitor’s fund. Which competitor would you give $10 million to and why?
Vasan: Well, we are actually restricted (laughs). I think the better way to play it is actually to look at a fund-to-funds approach. I think that I would then be making a $1-2 million dollar investment across five funds. The challenge is that there are lots of great funds out there. I don’t know that I would want to put all of my eggs in any one basket.
Robin Vasan's clear understanding of software technology served him well in his early career as an entrepreneur. As a Managing Director at Mayfield, he is applying these insights primarily to infrastructure and applications investments in the enterprise software arena. Robin currently serves on the boards of Determina, Elemental Security, Global Logistics Technologies, Informance International, and webMethods (WEBM). Previously he served on the Board of Directors of Aether Systems (AETH) as a result of the acquisition of Riverbed Systems and also served on the Board of Directors of Trigo Technologies which was recently acquired by IBM.
Prior to joining Mayfield in 1998, Robin was a founder and/or key member of several successful software start-ups including CATS Software, Infinity Financial Technology, acquired by SunGard (SDS), and Risk Management Solutions. Robin earned an M.B.A. from Harvard Business School and a B.A.S. dual degree in Industrial Engineering and Economics from Stanford University.
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