Milestone Group Quarterly: July 2008
Articles
- Face to Face: Jimmy Wales, Founder, Wikipedia.org
- Investment Viewpoint: Evangelos Simoudis, Managing Director, Trident Capital
- By Invitation: The Web's Dark Energy, Community policing can help make the Web safe by Jonathan Zittrain
- Milestone POV: The Ecosystem Wars and the Zero-Sum Game by Mark Zawacki, Milestone Group Founder & Managing Partner
Investment Viewpoint:
Evangelos Simoudis, Managing Director, Trident Capital
Milestone: Tell us about Trident Capital.
Simoudis: Trident has been around since 1993, and today we manage $1.5 billion in funds. We've always been a multistage investor, everywhere from very early-stage companies to later-stage private companies, and even public companies. We are also a multi-geography investor; we have been investing in India since 1995 and in Europe since the late 1990s. In 2005, we started working with a fund called Mustang Ventures in China. Plus, we've been looking at other areas such as Latin America for investment opportunities.
We started as a pure IT investor, initially specializing in enterprise IT and technology-enabled services. In fact, we were one of the first investors looking into technology-enabled services investment opportunities. Towards the middle of last year, we started investing in CleanTech, which is our first departure from being a single-sector investor.
We are five investing partners and two administrative partners with headquarters in Palo Alto and an office in Westport, Connecticut
Milestone: What's the current investment focus and philosophy; and how does that show up for portfolio companies?
Simoudis: As I mentioned we invest in every area of IT and, more recently, CleanTech. As for philosophy, we back strong management teams and we tend to work repeatedly with successful executives and teams. Today, twenty of our portfolio companies have CEOs who have come from earlier Trident investments and our firm's network. We consider this desire by executives to continue working with us as a strong measure of our success.
We have an active and sizable Entrepreneur/Executive in Residence program, where we work with top executives to identify new businesses to start, or exciting companies for them to join either from our existing portfolio or new investments. Some of our best investments have come through this program.
Milestone: Is it your experience that once you find talent you never let them go?
Simoudis: I think that building a company is always hard. When you work with executives that share your company-building philosophy, particularly ones with whom you've been to battle before, you're more confident that they'll make prudent decisions. They know when to invest in growth and when to cut back, when to hire and whom to hire, how to present to new investors and what type of investor they need to take their companies to the next level. It's all part of the process of building a successful company.
That being said, we always look for opportunities to refresh our network. So, we do hire outside our network. We believe, however, that our network of executives is one of our competitive advantages.
Milestone: Let's talk about the volatile economy of today. Is it affecting investment strategies in the long and short term?
Simoudis: When it comes to IT, we are starting to see again longer sales cycles, especially as Global 2000 companies are becoming again more risk averse and hesitate to work with startups. I think mid-sized companies are still quite eager to get IT solutions that give them a competitive advantage so they are less concerned about working with smaller private companies.
Regarding the broader macroeconomic conditions, our position is to make sure that our portfolio companies are out of financing risk for at least the next eighteen months. That implies that we are suggesting to those of our portfolio companies that will need financing in the next six months, to accelerate their fundraising so that they will not experience any delays in executing on their plans.
Milestone: CleanTech -- how does that look to you in terms of the horizon and new opportunities?
Simoudis: We see a significant opportunity in CleanTech, not only because of currently high energy costs which we expect will continue for the foreseeable future, but because of irreversible environmental changes. We've formed a CleanTech investment team that includes two venture partners with strong background on the CleanTech side (both in materials and business models).
We have put together an advisory board of technologists and CleanTech academics, so we can be more forward thinking and find early warnings on certain trends and technologies. We have used repeatedly this model of forming advisory boards to help us formulate and execute on an investment strategy in other areas we invested; for example, security and digital media.
And now, we have added five portfolio companies in this area and doing business across the alternative energy value chain. We have seen tens of companies in the process. So it this is a very important sector for us, and we are putting a lot of energy (no pun intended) behind it.
Milestone: Some are arguing that many CleanTech technologies are principally software and IT applications performing energy and environmental functions?
Simoudis: There are some technologies that deal with the greening of IT, or with achieving higher energy efficiency. Data centers, for example, are voracious consumers of energy, and computers used in an office environment are in this area. But, as I have already mentioned, we are looking beyond green IT for our CleanTech investments. For example, we have invested in two companies that use different technologies to harness solar energy. These are much more similar to semiconductor companies than to software and services companies where we have traditionally invested.
Milestone: What is your outlook on India and China?
Simoudis: We have been aggressive investing in India for a long time, with repeated success. Particularly in the last couple of years our investing in these two countries has evolved. We used to fund Indian or Chinese companies that were taking advantage of the low labor costs in those countries to penetrate US and European markets.
More recently, we started Indian and Chinese funding companies that target their local markets. For example, one of our recent investments is a company called MingleBox. It is a social network that targets Indian university students.
We have also started looking at Latin America because if you look at countries like Brazil and Mexico you see many of the characteristics India and China had a few years ago.
Brazil, for example, has a diversified economy, a growing middle class which is starting to have disposable income, its inflation is under control and has achieved, at least for the time being, energy independence. Its stock market is becoming very active. I liken the situation to where India was seven or eight years ago.
I have been very impressed both with several mid-size family-owned businesses, as well with smaller startups working around the Internet and enterprise software.
Milestone: We are going to have a new administration in Washington in a few months, what do you think, as an investor and entrepreneur, should be a focus for them?
Simoudis: The first thing that worries me is that we are not graduating enough technologists and scientists from our universities. So, we need to entice more students to pursue science degrees. Moreover, we are no longer attracting the world's brightest because we make it difficult for foreigner students or foreign scientist to come and study or work at our academic institutions. So I hope that, the next administration would absolutely pay attention to these trends.
Second (while I am not the first one to say this), I think we need the equivalent of a Marshall Plan for energy. Or maybe another Apollo-type Program is needed. The Apollo Program gave rise to so many innovations that made this country the envy of the world while in the process achieving the lunar landing. And so I am hoping that the new administration will be able to start such an initiative not because gas is close to $5 per gallon but also because it is important for America's position in the world to lead in energy use innovation.
Milestone: What companies, categories, or industries do you think we will be reading about in the next few months?
Simoudis: I think CleanTech will dominate as you see a heavy amount of investment that's being made. I also think we'll continue to see investments around Internet monetization and digital media infrastructure.
In the area of corporate IT I think software as a service models will dominate. In a down economy and shrinking IT budgets, software as a service models will prove to be the right way to buy software solutions. Recently, we have seen the Global 2000 starting to aggressively adopt SaaS software; not only because they see the value of it, but because under these economic conditions they see the business model as better suiting their needs.
Finally, I think foreign markets will continue to attract a lot of investment attention.
Milestone: What advice would you give to an entrepreneur at this point in time, particularly on raising capital and working with a VC?
Simoudis: Well, make sure you work with good VCs. And what is a good VC? First and foremost, ours is a people's business. So you need to make sure that you can work with the partner who is going to be investing in your company. You have to be prepared to work with that person or firm for a long time, through good times and bad.
Putting together a good team, and having a well-thought out plan are also important. If you don't have the team or if your plan needs more refinement, be patient. It's better to wait until you put these ingredients in place rather than approaching VCs prematurely and be turned down. We always like aggressive, go-getter entrepreneurs. We often forget how important patience can be.
Milestone: Can you think of any deal you were involved in that you might have passed on and wished you had a "do over" on?
Simoudis: Actually, no. Like most VCs I invest in very few companies. Before investing, I spend quite a bit of time with them. I haven't changed my rather slow and deliberate approach to due diligence over the years. I pass on many companies, and I'm pretty clear as to why. I would say no regrets, so far.
Evangelos Simoudis is a Managing Partner at Trident Capital, a firm he joined in 2005. Evangelos focuses on investments in Internet, new media, and software businesses.
Prior to Trident, Evangelos spent 5 years as a partner at Apax Partners, a private equity and venture capital firm where he invested and served on the boards of early and mid-stage IT companies. At Apax he also chaired the firm's IT advisory board.
Prior to entering venture capital, Evangelos had more than 20 years experience in high-technology industries, in executive roles spanning operations, marketing, sales and engineering. His experience as a technology executive includes serving as President and CEO of Customer Analytics, a Trident-backed, eCRM company acquired by Xchange, Inc. (NASDAQ: EXAP), and as Vice President of Business Intelligence Solutions at IBM. Evangelos' current directorships include DesiHits, Doppelganger, Host Analytics, and Pivotlink Software. Prior directorships include Vidavee (acquired by Vignette (VIGN), Bristol Technology (acquired by Hewlett-Packard (HPQ)), Composite Software, Confluent Software (acquired by Oracle Corporation (ORCL)), and Princeton Softech (acquired by IBM (IBM)).
Evangelos earned a PhD in computer science from Brandeis University and a BS in electrical engineering from Caltech.
|
