Venture Profile: Bill Tai, Charles River Ventures

By Angel Mehta, Managing Director, Sterling-Hoffman Executive Search

Angel Mehta: Given the choice between an investment philosophy that is about the 'big vision', and one that is more pragmatic, which do you favor?

Bill Tai: There is no easy way to answer that question. My thoughts on this subject reflect something important I learned from a mentor of mine named Dave Jackson. He was a great entrepreneur and the founder of a company called Altos Computer Systems back in the 1980s. Dave was a guy who had incredible common sense. He had the ability to boil everything down to the core issue and deal with it immediately. I think a lot of this business is really just about optimizing time and capital efficiency, and believe that the best outcomes are driven when you've optimized both of those. Time is money and if you are first to market in anything and have done it the right way, you have a better chance of succeeding.

To your question, Dave was an incredibly efficient thinker. He didn't waste his time chasing FALSE visions; he didn't spend his money on ephemeral things. People like Dave are very efficient thinkers and their resources are applied very efficiently to areas where they really can realize value. Dave lived his life that way. Every Board meeting I've been in with him was a lesson learned in efficiency.

Angel Mehta: Did you find that a technical degree gave you a significant advantage in venture investing?

Bill Tai: It's been proven that people can be successful in venture capital without a technical degree. However, technology changes so quickly that having a background that enables you to understand the fundamentals and therefore have a handle on what may be coming next is very helpful.

The more relevant experience for me was a technical marketing position I held at a company called LSI Logic. My job was to look at people's system designs and figure out how to shrink them down to an implementation on a piece of silicon. A technical marketing background can be very relevant to the role of a venture capitalist as you spend your time thinking about how products and technologies may lead a market going forward, what needs exist that are not being fulfilled, and, therefore, how to fulfill them. In a marketing role, unless you are a general manager or product manager with a budget, your role is to gather support and resources that you don't actually 'own' to go and fill that vision to bring something to market. So, in a way, a venture capital role is a step removed from that - we're basically supporting those kinds of efforts outside of a corporate framework.

Angel Mehta: I noticed that your track record for liquidity events is quite strong…out of maybe 32 deals you've got 16 IPOs and 7-8 acquisitions…is there a magic formula?

Bill Tai: I don't think any success happens without some luck. My entry into the venture business occurred in 1991, which was the bottom of the cycle. I will bet that anybody who entered the business in '91 and has left it to this point has seen success in at least half their companies.

Angel Mehta: By virtue of the market appreciating?

Bill Tai: Partially, yes. Timing matters. After LSI Logic, I joined Alex Brown & Sons to start their semiconductor practice and ultimately took a number of small companies public that later became very big companies. I left the job at Alex Brown and took a 70% pay cut to get into venture when no one else wanted to be in the business, primarily because I thought it would be more fun. It was right around the time that Saddam Hussein was invading Kuwait the first time. The economy here was in shambles. We were in the middle of a rolling recession. Venture capital as an asset class had underperformed treasuries for 10 years, and I thought it would be interesting precisely because it was at a low point. From there I was up and to the right for almost a decade from an environmental standpoint.

Angel Mehta: Does that mean you were motivated more by the market timing than the content of the job as a venture investor?

Bill Tai: I would say I was fundamentally interested in the content on a long term basis, but my gut told me that entering at a low was good timing…I learned in my first industry - semiconductors, that most businesses are cyclical - in a cyclical business, the notion of 'buying low, selling high' gets embedded into your nervous system.

Angel Mehta: What are some of the interesting business problems that you've funded startups to address of late?

Bill Tai: In OpenSource, one of the companies that I funded prior to my joining CRV is 'IPInfusion', which is essentially a Linux-based, modular and scalable functional equivalent of Cisco's IOS. It's a software fabric that allows anybody building any kind of connected device to pull down whatever piece of connectivity they need, including RIP, OSPF, IPv6 and its extensions, MPLS, etc. The company now has over 80 customers, including the likes of Ericsson, Nortel, Lucent, NEC, UT Starcom, and all the Chinese router companies. People in Taiwan like Accton make routers, layer 2 and layer 3 switches and home networking gear that is fully network compliant using IPInfusion without having to own big in-house development teams.

In the digital media area, I've got a software company, AVVENU, which provides remote access and management of your digital media. Any consumer with a cell phone can dial their PC and view their photos or any other media they have on their hard disc from their cell phone screen. They can also instruct their PC to send a link to any of their friends to view those photos on their hard drive. Motorola invested in the company recently and will be launching five cell phones this fall with AVVENU as a partner. It's the functional equivalent of 'dot net' for Motorola - a dot mot of sorts. So if you take pictures with a Motorola camera phone, the phone will automatically upload it to your PC and that media will be shareable from your PC to anyone that you instruct it to share with. While the first launch is around photos, it can work with other media types as well like music, videos, PowerPoint and Acrobat files.

Angel Mehta: What happens to the existing enterprise application or enterprise software market? Are there any major points of disruption you have forecast that will open up a window for ISVs to start growing again?

Bill Tai: The one area I'm very excited about is called 'GTM' or 'Global Trade Management' and I have funded the leading company in that space called TRADEBEAM. It involves the automation of everything there is to do with international trade - that includes the order process, financial settlement and shipping process. International trade is big, and complex, but it's not very automated. Today, it's instantiated in the form of huge body shops of people in freight-forwarding companies, sending faxes around or thousands of people in skyscrapers in Tokyo, working for Japanese trading companies that create giant boxes of paper and documentation every time they handle a shipment. These papers currently track items going through customs in any one of several hundred countries in dozens of currencies and with a lot of complexity. That whole industry needs to be automated and that is what TRADEBEAM is doing.

Angel Mehta: Going back to the issue of luck, does that mean that there is nothing in particular that you do differently that has allowed you to have a better track record? Haven't you developed any unique aspects of your approach to the diligence phase, for example?

Bill Tai: Not really. I think it has less to do with the diligence phase of a prospective company for me than it does the ability to build companies from an early stage platform on a go forward basis. I work with my teams to adapt to changes. My average starting team for many years has been three people. I would much prefer any three smart people and a couple of million bucks than an existing business that had so much momentum behind it that " if it's right you're right" but if you're wrong you can't change it. If you've got a very nimble starting team that you can help guide, it's easier to keep something alive through a lot of change until you find a point of traction.

Angel Mehta: So in how many cases does the plan you started with end up being the plan you follow through on?

Bill Tai: Almost never. Looking back at my portfolio I'd say that probably less than 10% of the companies that I worked with ended up doing EXACTLY what they started out to do. I'd say that a 100% of the companies that I worked with failed to do EXACTLY what they set out to do. They were just wrong from the get-go and they were inflexible when they needed to change. I think if I have any advice for entrepreneurs starting out, it is that you've got to learn to be flexible because times change, things change, and everything is always changing. The fact that things will change is the only constant that you know will not change.

Angel Mehta: Over the course of your career as an investor, what is the biggest mistake you've ever seen an entrepreneur make when trying to secure capital from a venture fund?

Bill Tai: Being arrogant. By that I mean being very overconfident, to the point of having an inability to listen. Again, in my opinion, starting a successful company is about finding a tiny crack to exploit that no one else is serving to get some traction. It requires people that are flexible, open-minded and nimble. If somebody is bullheaded, arrogant and doesn't listen, you can be pretty sure he's going to be hard to work with, and that he will make uninformed choices, and probably also stay with them.

Angel Mehta: I fully agree with what you're saying and have seen arrogance kill companies…yet so many of the venture partners I work with tell me they want entrepreneurs who are going to sit across from them and say with absolute conviction, 'I can get this done.' So how does a prospective entrepreneur know if he is being arrogant, or giving the investors what they want?

Bill Tai: Confidence and arrogance are two different things.

Angel Mehta: What would the litmus test be for judging the difference? If you had two entrepreneurs lined up, how would you differentiate between one who's arrogant and one who's confident? What are the things they would do in your mind?

Bill Tai: Hard to say. I'll ask myself, "Can I see myself working with this guy and having to talk to him at least once a day for the next seven years or more", and if I can't see it, or if it feels fundamentally uncomfortable I'm just not interested. It takes a long time to build a successful company - it takes a long time to start one, and if you're successful, it 's likely to be a very long relationship. You can't be in it for the short term unless you are presuming some sort of near term failure.

Angel Mehta: You said earlier that you took a 70% pay cut to have more fun. What makes it more fun for you?

Bill Tai: The start up phase is fantastically fun. In the beginning it's all upside and no burn: all dreams, and no cost structure. Again, you take any three guys with lots of vision and dreams that are in the process of building and as long as you're not out of control with respect to expenses, it's going to be a heck of a lot of fun for at least six or nine months. Then it starts to get harder and more difficult because after that point, it's nothing but problems. You start to realize that there are flaws in what you were doing for the first nine months and the weight of responsibility just grows and grows for years for good and for bad. I live for that first six or nine months in every deal. There's nothing more fun than working towards something when you think you're right about the future - even if you end up being wrong. [Laughing]

Angel Mehta: Tell me about some of the patterns or common things you have to do with a portfolio company, an entrepreneur or a group of entrepreneurs in the first nine months.

Bill Tai: Hire the right people. It's all about hiring the right people and pointing them in the right direction because once you establish momentum, if the people and the direction are wrong, you spend a lot of time, energy and money correcting the past. It's about mapping the spend to a real point of traction as opposed to a head fake. I think companies go wrong when they spend too much money on the head fake and can't recover from that loss of momentum when they figure it out. If you figure it out early it's correctible, if you figure it out late you're toast.

Angel Mehta: We did a survey in an edition of The Sterling Report a few months ago, asking people if they would prefer a board member who was an experienced entrepreneur, an operating executive, or a world class investor. 60% said they wanted an entrepreneur - an overwhelming majority. Do you agree with that view?

Bill Tai: I think it's dead-on. If you're talking about very early stage company at the founding stage, then having a seasoned entrepreneur in the mix is very helpful. If you're talking about a later stage project, then the needs, I think, will be different. At that point adding to the mix someone more seasoned that has scaled businesses at a similar stage of development may be an advantage. I don't disagree at all and I'm not surprised that the majority of people that responded were looking for a seasoned entrepreneur.

Bill Tai is a General Partner at Charles River Ventures and leads the West Coast practice. Bill joined CRV in 2002 from Institutional Venture Partners (IVP). His investment focus encompasses early stage companies in enabling technologies (chips and software) and wireless technologies. He has worked with over 30 companies at their early stages as private companies. For article feedback, contact Bill at: tplumer@crv.com

Angel Mehta is Managing Director of 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