Fast Internet Movers and the Long Term

Bill Burnham’s slant on “Deal flow is dead, long live thesis driven investment” makes a number of good points for rethinking investment for Internet companies. Ben Savage of Wasserstein & Co counters “So a firm that pursues thesis driven deals in ‘unpopular’ sectors I think is partially dooming itself to be a firm that hits for average and not for power. Unlike in public markets contrarian investing doesn’t seem to work so well in ventureland.” Perhaps even more to the point, it is a reminder that our industry isn’t “one size fits all”, and the key factors for enterprise versus Internet, for example, demand different evaluatory criteria.

The success of thesis investment depends on the time-to-market of the product vended. Having co-founded startups in bottom of the food chain semiconductors (InterProphet, w/Vint Cerf on the board, doing layer-4 semiconductors for datacenter / interconnects) and top of the food chain Internet services (ExecProducer, realtime video/audio production datacenter hosted services for Internet/DVD/3GPP) I’ve found the demands on IPR and product roadmap are completely different.

InterProphet was granted it’s first patent 3 years after founding and after an intense product development cycle that is still ongoing. ExecProducer in contrast was up and running with partners (we don’t sell direct) and referenceable accounts producing movies for customers instantly (in other words, no manual intervention = no expensive engineering / design staff required) within one year with none of the concerns that a fabless semiconductor networking company faced (equipment, expensive engineering personnel, high legal/patent expenses, due diligence with customers, and so on).

It took several years of time / expense to worry out the patents for a successful ringing strategy for InterProphet, and I’m still working on one of the landmark results papers. It took about a year of part-time work on a fun project with Berkeley to get a successful paper on pioneering massive video production accepted to ACM SIGCHI ACE2004, the conference that Disney and Warner and Pixar shop their papers.

I think Bill’s idea to get ahead of the game by calling up potential investments works well for top of the food chain companies like ExecProducer. However, given the capital and intellectual demands (plus the reputational and technical challenges) of areas such as enterprise software or telcom or networking, and the years of work to establish a presence, Ben’s view is probably quite correct for that space, and unlikely to change in the near future.

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