startupmania

Several days ago StartUpMania visited the offices of the venture capital fund Greylock Partners in Hertzelia. This is the Israeli branch of the worldwide Greylock, and it is being run by three partners – Moshe Mor, Yoram Snir and Erez Ofer.

I met with Ofer, who, before joining Greylock, was VP of Strategy at storage mogul EMC. I was interesting in how he viewed the start-up landscape and which technological solutions currently pique his interest. Additionally, I tried to sketch a profile that would catch the fund’s attention and could acquire an investment from them. Seeing how Ofer came from EMC, I focused especially on IT-oriented start-ups as well as new directions he thinks could be the next big thing.

StartUpMania: Hello Erez, You’ve been meeting investment-seekers with ideas for new IT products for quite some time now, can you point to any trends which catch your interest in 2009?

Erez Ofer: The main focus of our attention these days is virtualization, and all respective sub-categories branching out of virtualization: virtualization management and products that manage installation of virtualization solutions. We are very interested by the use of virtualization products in managing organization resources, and the option of managing a data center through raising and lowering resources as the need requires.

We are also interested in truly innovative products, we want complete game changers. We have such an investment in the field of desktop virtualization, Dr. Ilan Kessler and Dr. Israel Ben-Shaul’s Wanova. They began in our seed program and last november we invested a first round investment along with Carmel Ventures. Their doing something new and very disruptive.

The next tier of products we’re interested in are those that can take IT processes out of the organization’s systems and allow the transfer, as necessary, to external providers. These can be storage solutions or software ones, but any product allowing to exhume the IT process out of the organization’s network is very interesting to us.

Some use buzzwords such as “the cloud model”, and SaaS seems to be a very popular topic nowadays. We believe that more and more IT organizations will begin to utilize their activities as “services”. I estimate it will still take at least five to ten years before managers feel outside solutions are an inseparable part of the way they run their day-to-day life.

Of course, we also look at new solutions in established, more traditional fields such as storage, security, etc. These products, however, need to me something that fundamentally changes the way organized computing is run.

One thing’s for sure, a new company will have to address a problem that organizations which deal heavily with IT will be willing to invest a lot of money in solving. We need to be convinced that the new product is set to successfully solve a large and clear “pain point”, the one with enough money behind to justify starting a significant company.

SUM: Assuming and IT start-up catches your interest, what sets it apart from others which turn to you for a possible investment?

EO: Today’s IT landscape is very different from what it was 10 years ago. There’s a lot of consolidation between the providers of infrastructure and the software providers. The never-ending merger between the big-name companies creates a situation where the number of big IT providers who sell to customers around the world can be counted on two hands.

Computing managers also prefer to centralize their purchases to the big providers, and so, it is very difficult for new start-up companies to enter an organization with a new product. The IT manager knows the chances he’ll actually end up buying from a start-up are so slim, that he prefers to stay with the large providers and not waste time on a pilot of a new product.

It’s clear that start-ups today are facing an uphill battle, and we need entrepreneurs who are willing and able to face up to this task, not just from a technological stand-point, but from a marketing and sales one as well.

We need entrepreneurs or a layer of management that have a clear-cut understanding of the target market, and can present to us their way of getting to the right organizations and sell their product. A good technological back will only get you so far, we also need the “go to market”. The selling options are wide and varied – you can try and reach a few big-name clients and preform a mass installation, or reach many smaller clients, selling via web. Either way, potential investment-seekers need to come to us with a clear sales model that fits the product they’re trying to sell.

SUM: Despite the ongoing recession, do you still believe in an economic future in the IT market for venture capital funds?

EO: There is plenty of money in IT, but you need to come at it with something new that will distinctly change the landscape, something disruptive. Vmware did that for virtualization, for example. Another way to go about it is to look at all the expenses being made in IT by clients, and then find the IT companies who are a little more mature, who already take a slice of the pie. Companies that have already reached a sort of critical mass that will allow, in the future, to significantly raise the selling cycle.

We found such a company, back in march 2007, and extracted Precise out of Symantec, and turned it, once more, into a private company run under the start-up model. We brought in a new CEO and a new sales crew. Only the original development group remained. This a strategy we find very interesting, turning into a start-up a company that already exists, with a customer base in the hundreds and a product which is entrenched in the market. To differentiate from new IT products that reinvent the market, preexisting companies which compete in a preexisting market, such as Precise in the TPM market, don’t have much of a chance unless the have a few hundred big clients.

This pretty much summarizes our strategy. We look for new companies who are doing something completely new and are offering to solve a giant problem or established companies who already have many paying customers. The problematic area, for us, falls between these two tent-poles: young start-ups that have a solution for a preexisting field and don’t offer a solution that has a clear cut organizational advantage or a distinct change in the perception of the field.

SUM: Assuming you do mark a company as interesting, how long before a deal is closed?

EO: That depends on the size of the investment. The lease we’ve ever given was a few hundred thousand dollars as part of a seed program. It was a very quick process – ending within several weeks. An investment in the millions could take a little longer.

SUM: How many new companies did you look at in 2009?

EO: I estimate about 200 new ideas. Most were internet companies, which also interest us. Mostly companies working on net infrastructure. Israeli entrepreneurs seems to be very strong when it comes to infrastructural solutions that affect the entire world.

SUM: Will you be investing in any of the IT companies this year?

EO: We never stop investing, and IT is a field that is both important and interesting to us. Israel is the home for companies with great people behind them, and despite the world IT organizations slowing their purchases – none have altogether stopped.

Even the three of us (the three Greylock Israel managers – ed.) have our fingers dipped in the IT pool. When it comes down to it, we love and can relate to that world. I think it’s safe to say we will have new investments in 2009.

Translated by Itai Rosenbaum