By Angel Mehta, Managing Director, Sterling-Hoffman Executive Search
Angel Mehta: What did you want to be when you grew up?
Oliver Curme: I come from a long line of chemists. In fact, the name 'Curme' can be traced back about 500 years in England. The original name was 'Crum' which is an archaic Gaelic word for 'Brewer'. Five hundred years ago our families were brewers and 200 years ago when they came over the U.S. they were tanners and then my father and grandfather and great uncle were all chemists of various degrees. So I thought I was going to be a chemist until I got to college and realized that a lot of the interesting work in chemistry had really been done 100 years ago.
Angel Mehta: How did you decide to go to business school? Was it worth it?
Oliver Curme: Business School is like a 'get out of jail free' card. Something to use when you want to switch careers. I spent the last two years in college studying neurochemistry and how the brain works. When I got out, I took a job at an engineering firm in Minneapolis and even though it was a lot of fun, I couldn't go much further after a while. So I took my get out of jail free card and went to business school. Harvard was an interesting environment. Back then, they had big classes. It was like a class of 100 people who, like in kindergarten, sit in the same seat all day and the teachers rotate. They let you know the first day of school that about 10% to 15% of your classmates won't be there next year because they'll hit the screen. Grading is on a curve and the people at the bottom-end of the curve are bounced after the first year. So what I really learned is how to stab my classmates in the back and crawl up the ladder so I didn't hit the screen. [Laughing]
Angel Mehta: Ok, so take me from that point up to venture investing. How did you end up at Battery?
Oliver Curme: When I got out of school, I still didn't know what to do so I went into banking which is kind of a platform job - outwardly focused - where you get exposure to a lot of people and different companies. I spent three years at First National Bank of Boston in the high-tech lending group and that was fun. At that point, two guys, Rick Frisbie and Bob Barrett, formed Battery and they asked me to join them as the resident techie.
Angel Mehta: So it seems like you enjoy the venture game a lot more than engineering, given how long you've been in the industry… or was it just due to not having another 'Get out of Jail Free' card? [Laughing]
Oliver Curme: It's funny because the thing about venture capital is it's also a trap - similar to working in an engineering firm with a Biochemistry degree. There's really nowhere else to go. After you've been in venture capital for a couple of years, you're uniquely suited for no other job. I mean, venture capital is a generalist's job where you learn a lot about finance. You learn about a lot about various industry sectors. You learn a lot about strategy. You learn a lot about management. At the Board level, you learn a lot about recruiting, you learn a lot about PR and creating buzz through your companies. It's a Generalists job - it's one of the last bastions for a Renaissance Man.
The first 10 years in venture were really hard but unfortunately I had already spent my get out of jail free card in going to Harvard so I couldn't do that again. I was stuck in venture capital. There's no instant gratification the way you get in sales or even the way you get working for a company. It takes often a year of chasing a company down before you can make an investment and then on average five years between the investment and the return. It's a very long-term-oriented-type of business and you have to be extremely patient because there are very few investments that go straight to the moon. Most companies go up and go down and react to the changing conditions and it can be extremely frustrating but all you've got to do hang in there and try to keep an even keel.
Angel Mehta: What do you think those first 10 years did to your personality as a venture investor, as opposed to someone who got into the game in the nineties?
Oliver Curme: When you go through a period like the bubble where everyone is saying, "It's a new economy and the rules of business are permanently changed", you realize it's probably not as good as everybody else thinks. And when you go through a bad period and everyone is complaining that the world is coming to an end, you realize it's probably not as bad as everyone else thinks. On the whole, the first 10 years gave me perspective - that's the best way to put it.
Angel Mehta: How did the recession brought on by the dotcom crash compare with other market slowdowns that you've seen?
Oliver Curme: I think there is still a backlash from the bubble in large company IT departments. A lot of people in IT departments and a lot of CIO's got burned because they resisted a lot of the new initiatives from dotcoms until the Board forced it on them and then when they spent a lot of money, they got blamed for things that didn't work out. The natural reaction for the past few years has been for CIO's to avoid any hint of a start-up company because there have been so many start-up companies either with false promises or start-up companies that went out of business that they bet on. The pendulum was swung back to buying from IBM. Nobody ever got fired from buying from IBM and that's a big part of the mentality and large IT shops right now.
Angel Mehta: Even though the market seems to be recovering?
Oliver Curme: Yes. The backlash from some of the excesses of the bubble has really hurt young companies. In fact, what it's done is force a lot of young companies to abandon the traditional direct sales model and go with alternative distribution channels -either large partnerships with companies like IBM and/or distribution through systems integration firms and a network of smaller resellers.
Angel Mehta: This is an old question but every time I ask it I get great data, so… 'Why do software companies fail?'
Oliver Curme: [Laughing]. You know, even when you think you've made all the mistakes in the book there's still new ones that crop up. The most frustrating situations I have been in are companies that have a really good product and a wide open market space that get caught up in politics amongst different Board members or between the Board and the CEO or among different people on the management team. I've seen lots of companies where there's a great opportunity but people are pulling the company in two or three different directions and, as a result, the company failed on all counts. Probably the best example of this was a company called, "Infoseek" which was the original leading search engine company who was out there with a directory. Infoseek was the original and leading search engine for a couple of years and they were smart enough to invent the 'Ad Sales' model. They were the first one to put together ad sales and go out and sell advertising on their search engine then the company just got completely torn apart between the founder and the management team. They had on the drawing boards a lot of product ideas that later got incorporated into Google and some of these modern search engines but the company was a failure… or a very modest success, I should say.
Angel Mehta: Failure to what it could have been, you mean?
Oliver Curme: Exactly. Because of the political battles that were waged between the founder and the various people on the management teams. So that has taught me that generally smaller syndicates are often better. It's imperative in a smaller company that you pick a focus and go after it. You can't go after two or three different areas. If there are people with different agendas, the CEO has got to pick one and go because small companies generally can't afford to get pulled in three different directions.
Another key mistake software companies make is related to recruiting. We deal a lot with companies where the founder has taken the firm up to a certain level and the company is now beyond his capacity to manage. So he brings in venture capitalists to recruit a management team to take it to the next level.
Getting the right CEO and getting the right management team is just hard. I've been doing this in dozens of situations for 15 years but you can't just hire based on experience and track record. So many people have done it before and made a lot of money - they just don't have the fire in their belly to go out and do it again. It's a magical thing when you get the right people at the right time in their career where they're like an Israeli commando team. They're charged up, they're experienced and they're going to execute their mission together. Bad recruiting probably explains over half of the failures in our portfolio.
Angel Mehta: So those are both conditions that seem within a company's ability to control. What about external factors?
Oliver Curme: Sure. There are times when the industry conspires against you. We were in a company called, "Parallan"… This was the early '90's and they made one of the original application servers. The only problem with it is that they chose the OS2 operating system. It was in development for 18 months and just as they launched their OS2 server, Microsoft and IBM got a divorce and Microsoft started telling the world that OS2 operating system which they had built was a piece of garbage [Laughs].
So we had a great product but we got slammed by Microsoft. We tried to sell the company to IBM…spent six months negotiating with divisional IBM lawyers and reached an agreement. Suddenly, IBM's outside lawyers came in and renegotiate for another six months. Then IBM corporate lawyers renegotiate for yet another six months. Finally, they refused to buy the company and insist on OEMing the product. That was so successful that Parallan went public!
Angel Mehta: Luck just matters, doesn't it… What do you think is the biggest misunderstanding entrepreneurs have about venture investors?
Oliver Curme: I think that from an entrepreneur's perspective, they understand that you can't wait around for everything to become clear - you've just got to go.
Angel Mehta: Any decision is better than no decision…
Oliver Curme: Right. But as a result, entrepreneurs often get upset with venture capitalists because they'll talk to venture capitalists for a month, then two months, then three months… and the venture capitalists will never seem to make a decision. This annoys the hell out of entrepreneurs. I mean, either invest in the company or don't invest in the company. But you've got to look at it from the venture capitalist's perspective. If I'm the only venture capitalist talking to a company and I have the opportunity to invest at any time, why should I invest now if I can wait six months and see how the company does? If I still have the opportunity to invest six months later I'm going to wait.
So if you're talking to just one venture capitalist and you're expecting that venture capitalist to make an investment decision, you're out of your mind. In the absence of competition, the investor will never be forced to make a decision. The analogy I always use is 'successfully raising venture capital is like getting sheep to jump off a cliff'. You can lead the sheep up to the edge of the cliff and encourage that sheep to jump… but ultimately, the sheep will just kind of give you a dumb look and walk away. But if you can get a whole herd of sheep all galloping along, sort of following the leader, you can get the whole flack of sheep to jump off a cliff.
Angel Mehta: So that is your sense of venture investors in general…they're like Lemmings?
Oliver Curme: They're like sheep. They're bigger than Lemmings, but I don't know if they're any smarter. [Laughing] It's just not in a venture capitalists interest to invest in a company in the absence of competition. It will always be better to delay and see what happens.
Angel Mehta: So what advice would you give then to software entrepreneurs about raising capital?
Oliver Curme: The advice I give to software entrepreneurs or any entrepreneur is you've got to manage a process where you go out to a sufficient number of qualified venture capitalists that would have a predisposition to invest in your company. In fact, the best ones are ones who have made money in that particular niche before. Because they'll typically overlook all the problems and think this is another homerun and they'll invest again. The way to raise money is find half a dozen qualified venture guys, go to them and then nurture the process along so the herd is altogether. If one of them seems to be doing a lot of due diligence and the rest of the herd is behind you, slow him down until you bring the rest of the herd up. You want to get it to the point where all of them have done sufficient due diligence to be able to make a decision and then you have to catalyze the process by having one of them throw in a term sheet at which point everybody else throws in a term sheet and then they start bidding against each other.
One of my companies is a business intelligence company called, "Netezza". It's done this three times very successfully. I led the B-round and I really loved the opportunity, but I tried to preempt the process by putting in a term sheet early. They waited until they had five or six term sheets in and then I just kept outbidding everybody until I was the VC who had paid the highest. That's how I got the deal, and then they did it again with another round.
Angel Mehta: What should every entrepreneur know that they don't typically hear in the standard 'how-to' guides for raising venture financing?
Oliver Curme: Entrepreneurs always read up on materials that help them anticipate the questions a venture capitalist will ask. The one thing that always surprises me is how infrequently and entrepreneur will ask us questions. You've got to build a relationship, and it won't happen with me just asking lots of stupid questions and hearing canned responses.
Angel Mehta: There has to be a dialogue, in other words…
Oliver Curme: Right. So my biggest piece of advice to people is don't just get into a situation where the VC is peppering you questions, pepper the VC back. "Here's our distribution strategy what do you think of it?"… " Have you seen other companies in this market?"… You've got to get feedback during the process because usually people rely on the PowerPoints, answer a lot of questions, shake hands and go away. That's ridiculous! There has to be a dialogue established and the best way of doing that is to get feedback from a venture capitalists.
Angel Mehta: Do you think it's possible to create a methodology or set of processes that can lead to somewhat predictable results in venture capital? It seems like such a difficult business to gain visibility into… Is a formula something you can even articulate?
Oliver Curme: I would say there's one quality that I correlate with success among the various professionals at Battery - the degree of cell phone usage. The investors at Battery with the best track records are the ones that are always on the phone. They are constantly networking and they're constantly working and they're constantly out there finding deals and working with other people and establishing relationships. So I would say that you've got to be a little bit of an extravert in order to be successful at this game.
But ultimately, it's working within a group of really smart people and over a 5- to 10-year period seeing enough of other people's mistakes and your own mistakes and conversely seeking how other people have been successful. I think an individual within a large venture firm like ours, with 30 investment professionals, does get the benefit of learning from the entire group. It's a specialized industry you can't just focus on one area you've got to learn a lot of things in a lot of different areas. Our focus as managers at Battery has been to provide a supportive environment for our junior people to learn from the group and to be able to try things and learn to be successful in the business. So, again, there's not one or two or three things to learn, there's a lot of different things to learn. You've probably also got to be somewhat contrarian but after that there's room for a variety of different types of personalities who can be successful in this business.
Oliver Curme has focused on investments in software and computing since he started with Battery in 1985. Some of his best investments include Aurum Software, Chordiant Software (CHRD), HNC Software, Infoseek, and Pixelworks (PXLW). Prior to joining Battery, Ollie was a lending officer in the High Technology Division of First National Bank of Boston. He holds a BS from Brown University and an MBA from Harvard Business School. Feedback on the interview can be sent to: ollie@battery.com
Angel Mehta is Managing Director at Sterling-Hoffman, a retained executive search firm focused on VP Sales, VP Marketing, and CEO searches for enterprise software companies. He can be reached for feedback at: amehta@sterlinghoffman.net
