- Jeffrey Glass, Venture Partner, Bain Capital Ventures
What characteristics do you look for in a company as an investment target, especially as the industry moves toward Web 2.0 environments?
There are a number of fundamentals that need to be true, irrespective of what industry you are looking at. Number one starts with a strong team. In a dynamic environment so much changes and your initial business plan is very unlikely to be the business plan that works and scales. And you need a strong team that is able to think dynamically and think on their feet and be able to respond quickly.
You also need a large market potential, so the area that you are going after has to be worth going after. There are a lot of businesses out there that are niche businesses that make wonderful companies, but relatively small companies and not the types of companies that require venture capital investment.
There are also a number of things you look at as an investor, whether it’s a differentiated solution, valuable and embedded partnerships, or if it is in an un-established, competitive marketplace. Those things differ by situation.
A lot of companies seem to be reluctant to give up too much control in exchange for necessary funding from a venture source. Is this the norm for business today and if so is it a problem for the VC community?
I don’t think it’s the norm. I think it gets back to this marketplace where different people have different priorities and goals. I certainly don’t think there is anything wrong with someone who wants to fund a business themselves or bootstrap it in order to maintain control and as much ownerships as they can. I respect and admire that, although it typically takes a little while longer to get companies off the ground. That is the prerogative of founders and entrepreneurs, to determine the right course of action for their business and how they want to fund their business.
I don’t necessarily see a trend in either direction. I think there have always been founders who want to have close to 100% of the ownership and be able top control all the major decisions, and really are not looking for investment partners to in those decisions. Similarly, there are other founders and entrepreneurs who take the position there is a lot of value besides capital that a venture firm brings to the table and its worth giving up some of those control issues in order to tap into the benefits.
Are investors a lot smarter and perhaps more cautious in terms of where they are channeling their money – especially with the constant threat of yet another “correction” in the tech industry?
I don’t think we are heading toward a correction. YouTube, as an example, is a venture-backed company where clearly the investors and founders made an awful lot of money, and I suspect if you talked to the founders they would say they were glad they raised capital because it enabled the to grow as quickly as they did and enabled them to establish a leadership position. I think those examples are what motivates entrepreneurs and what motivates venture capitalists and investors to keep looking for the next big idea and next big opportunity.
I think the environment is good and I don’t think there is an unhealthy level of cautiousness by investors right now. There are lots of good and prudent investments being made and thee will bring lots of success for entrepreneurs and investors.
Where is Bain Capital presently looking for the next great investment? Will it come out of a garage somewhere, or are those days pretty much gone?
It likely is in some garage and it’s tiring opening up all those garage doors without having the remote. I don’t think there’s a magic formula. What we believe is that great entrepreneurs make great businesses, so we spend a lot of time in the venture group trying to cultivate relationships with smart, energetic and passionate entrepreneurs. Where do we go to find them? We go to industry events, spend time networking both locally and outside our geographic area, and we get lots of referrals from our portfolio companies - which is probably the best source of new deal flow.
A lot of investments also come from investing in people that we’ve had success with in previous businesses. We are very fortunate that we have referencability among our existing companies, CEOs and portfolios.
Will a lot of the new technologies and companies that we see over the next year or so have technologies and service that re more evolutionary than revolutionary?
No, I think we’ve always seen both. It’s hard to predict and invest in revolutionary ideas because you don’t know in advance whether they will work or not, but when they do they are big. So, I think you’ll see a strong appetite from early stage investors to make those investments and try to be part of that but they are a little bit unpredictable.
The evolutionary ideas are a little more predictable but tend to be less exciting and big outcomes. So, it’s a tradeoff between risk and return, both from an investor standpoint, as well as from an entrepreneur’s standpoint. But, I think there are lots of brave and exciting entrepreneurs out there who are trying to build revolutionary ideas, and I think there is sufficient capital to take a chance and bet on those ideas.
So, the capital is out there to fund these revolutionary ideas and skepticism and caution are not necessarily problems among investors?
I think there’s a lot of capital in the market. In the last year or two in particular venture firms have had good success in raising funds and having new capital to put to work. Corporate acquirers and strategic acquirers have also had good years and have a lot of cash on their balance sheet as they try to find intelligent ways to make strategic acquisitions.
I’m an optimist, and if you look over the next five to ten years you are going to see lots of ideas that will be funded that are revolutionary. We just don’t know what they are yet.
If there is no shortage of creativity, is there a general lack of channel and marketing sense among entrepreneurs?
I think that it would be unfair to generalize because there are lots of very talented and experienced and very wonderful entrepreneurs who understand channel marketing and understand go-to-market strategies and how to get deals done. And I do think that now is a particularly inviting environment for those folks to throw their hat in the ring and explore their ideas.
The key in an early stage company is to recognize the fact that you’re initial go-to-market strategy is very unlikely to be your final strategy. The people that I have seen be most successful are those who are very self-aware and responsive to what they are seeing and hearing in the marketplace and are able to adapt quickly in terms of that go-to-market strategy.
In terms of the mobile market, it seems that a lot of new and even revolutionary investment opportunities exist outside the U.S. Does this mean that investors should be looking outside for these opportunities?
I would not disagree there are opportunities internationally, particularly in mobile. There are more mobile phones out in the marketplace than any other consumer device in history and growing quite rapidly. So, I do believe there are a lot of opportunities international and I do believe those firms looking to male investments overseas be able to take advantage of those opportunities.
Having said that, I also believe the environment for mobile in North America, and particularly in the U.S., is quite vibrant, and that you are still in the early innings of carriers making investments in infrastructure and handset manufacturers developing technologies and capabilities that are far advanced and beyond what we could have imagined 10 or 15 years ago.
There are also consumers just starting to adopt these new services and capabilities, and understand that their phone is no longer just something that you talk into but something that can be an intricate part of your daily life on the data side and the applications that can be run on it.
Specifically, what you will find is that earlier stage venture companies like to invest, if not locally, then at least domestically because you try to be as helpful and valuable as you can to your portfolio companies – whether it’s in making introduction to customers or helping build recruiting pipelines, or just spending a lot of time with the management team to be a sounding board in building strategies. It’s hard to do that effectively across different country and time zones.
Are advances in mobile technology and the introduction of new mobile devices and technologies driving the industry right now, and this a dangerous situation in terms of actual acceptance and growth? Also, are we dealing with another ‘pet rock’ scenario with mobile, where the future industry is highly dependent on the latest fads and whims of the consumer?
I think it’s a chicken and egg situation. I think there is a tendency to see al little bit of a seesaw with the technology on one end and consumers on the other because it’s hard for consumers to drive where things eventually go. There is always a leap of faith when you try to determine what consumers will want and try to build anew marketplace. You’ve got to put that technology out there in order to have a shot at developing a market.
So, I think in an emerging market you have to take your best shot at understanding consumers, and you’ve got to stick your neck out a little bit and build some technology that you think people will find good uses for. That’s the front-end of the seesaw, but the second piece is that once that enabling infrastructure is out there you have to be much more marketing oriented and consumer oriented to figure out what applications work and how consumers use it.
So, it’s build it and they may come, but not without some common sense as a framework.
Right. It’s a hybrid of if you build it they will come, but only if you are smart about thinking how to build it.
