December 24, 2003 Now Is a Good Time to Start a Company Paul Holland [Foundation Capital ] Now is a good time to start a company. CIOs we talk to are increasingly turning to startups for help. Big companies have slashed R&D budgets. This creates near- to mid-term opportunities for startups. We have seen companies go unopposed into markets. At Foundation Capital we're in constant contact with leading CIOs to track their current and future needs. Here I will address some of the top areas. Chief technologists like Barry Shuler, SVP Information Technology Strategy and CTO for Marriott International, want startups to anticipate their needs two to five years from now and offer solutions that will successfully address looming pain points. CIOs are not, however, looking for startups to solve urgent problems. Shuler will not buy from startups unless his team cannot get the solution anywhere else. It is critical for companies to understand exactly what pain points they relieve and quantify results. That is not to say CIOs are uninterested. Louie Gasparini, Wells Fargo's SVP, Internet Transaction Systems, sees startups as an important source for new, innovative ideas and an outside, fresh perspective. "I value working with small companies as a great source for transfer of knowledge. Wells Fargo was an early adopter of using the Web, and we are always looking for ways to optimize our processes," Gasparini said. This illustrates how VCs add value: we identify upcoming technologies before they are mainstream, nurture and mentor these ideas, and help build the business model so that as demand eventually surfaces, the companies are in full swing. The following are four key technology categories where Foundation has made investments: 1. Leverage existing infrastructure investments: Peribit Networks leads the pack in bandwidth-creation products that boost WAN application performance. It is the only company making products that address all three factors that limit WAN application performance: capacity, contention, and latency. Based on patent-pending Molecular Sequence Reduction (MSR), its products deliver up to ten times the link and application performance over existing WAN infrastructure, enabling enterprises to deploy critical applications without performance penalties. Pacific Edge sells software and services that allow for dynamic management of business investments. The products enable organizations to consider business investment opportunities in terms of contribution to overall corporate objectives, weighing and balancing risks and rewards, and enabling the rapid adjustment of the portfolio based on performance and changing business needs, much like a fund manager does for financial investments. TuVox is another prime example. In the process of funding it, we have watched the company incubate. Now it has proof-point customers. TuVox leverages existing infrastructure in call centers and provides a sophisticated form of speech recognition termed CVR (conversation voice response). It enables toggling between live agents and an automated call center system. Customers, which include Activision, TiVo, and healthcare companies, save significantly by automating a larger percentage of incoming calls. This is especially important for callers requiring technical details about a product or service. Customers can talk to an agent for specific technical questions and then hop back into an automated environment for general questions. 2. Mission-critical business services, software model: Ketera Technologies is among the companies leading the charge of "on demand." Its solution enables companies to better control and manage spending. Companies using Ketera see a conservative estimate of savings equal to one to four percent of annual revenues on an ongoing basis. Companies using Ketera include Host Marriott Services, Delta Airlines, Universal Studios, CNF, Accenture, Amex, and Capital One. What really impresses me about Ketera is its model. It operates like a utility by charging based on usage and spreading the cost of the project over the lifetime of a contract. This enables customers to achieve a significant ROI and rapid time-to-value. TCO is five to ten times less than competitors. Talaris, employee business services on demand, provides an e-procurement application and platform that substantially reduce the costs of business, travel, entertainment, and other employee-centric services by enforcing corporate policies at the time of purchase and taking advantage of preferred vendors with prenegotiated discounts. 3. Changes in corporate environment (board reform, compliance): BoardVantage (secure, virtual board meetings) is the first company to introduce technology into board work. It offers a managed service that Web-enables board material securely, streamlines communication to the board, and improves interactions between executives and directors. 4. Core communications infrastructure: Arroyo is an early-stage company that we funded only weeks ago (first round). Arroyo will allow cable providers to create and offer personalized TV service options for customers. Its value-added services will make it less likely for customers to make the jump to competing services, such as DirectTV. Because these cable providers already have much of the infrastructure in place, these services create incremental revenue opportunities. Hammerhead Systems, which provides technologies for large voice-based systems, entered the frame relay market when everyone else was focused on IP. Foundation did the seed funding, built the syndicate, and brought in other tier-one VCs. Hammerhead provides data communications equipment to address the post-telecom bubble requirements of service providers worldwide. Its solutions enable service providers to efficiently execute a controlled migration of their existing network to a consolidated common backbone. It targets the $20 billion frame relay/ATM corporate data services market, which is one of the carriers' most profitable data services, and the primary workhorse protocols transporting mission-critical applications for the Fortune 1000. Paul Holland is a general partner with Foundation Capital. Article URL: http://www.alwayson-network.com/comments.php?id=2161_0_6_0_C