Bet on your Team
Date: Wednesday , August 01, 2012
Deven Parekh, Managing Director at Insight Venture Partners, joined the firm in 2000. Founded in 1995, New York based Insight Venture Partners is a global growth equity fund which has raised more than $5 billion and invested in more than 150 growth-stage software, eCommerce, internet, and data-services companies.
In the e-commerce sector, the market in the U.S. is more mature. You have a large competitor such as Amazon. Thus, we are looking more at the next generation e-commerce investment in the U.S. It is important for them to have some category differentiation or a new or innovative way to leverage market with new channels in order to compete successfully. Today, we find more interesting investments in e-commerce internationally than the U.S.
In SaaS model, we are seeing a lot of interesting companies. We see these companies boost when horizontal players define themselves, as the participating multiple verticals offer better horizontal functionality, for example, Buddy Media, a company that we recently sold to Salesforce.com. They provide social media management as a SaaS solution to large organizations across multiple verticals. In vertical application, the world is moving toward cloud-based delivery. Five or ten years ago, the large enterprises had a lot of hesitation about enterprise apps that were not sitting behind their own parallel. Now we see that hesitation is significantly lessened and people are more comfortable with cloud-based solutions even for mission critical applications.
In data space, data is moving towards cloud-based delivery with data solutions. There are lots of interesting examples; one of our largest investments till date is in a company called Drillinginfo, which provides data to oil and gas businesses to help make better decisions on where to spend their capital. This is a business that leverages lot of trends in the cloud-based delivery, big data and the ability to provide analytics on top of these data to make decisions.
Hottest technology for Investment
As we are later stage investors, we do not tend to move by the hottest technology that is being adopted, rather we think about what are the manifestations of technology that become application to drive value. We see mobile, which is not a technology but more of a platform, as a key area of investment. We are observing across every tech enterprise, whether be a consumer enterprise or a business enterprise, the move to mobile is gone very powerful. There is just an increased subscription on the time that people are spending on their mobile device vs. their PC or Laptop. Increasingly, enterprises are very focused on delivering a great mobile experience not only to consumers from mobile applications and websites but also mobilizing their core applications so that their employees can access and interact with them on the go.
It is hard to recognize the technology that is going to create a shift. We are more excited about platform shifts and mobile platform is the most significant shift that has happened in a long time. Areas Startups should bet on
There is a lot of market where innovation is going on, and some of the areas are mobile, and payments. A lot of investment is happening in later stage as well as early growth stage in payment and technologies. Third would be social commerce even though it is in the early stage, as to how to leverage the growth and the social networks and actually drive conversion for purchases.
Technology innovation or the Team? There is a saying by Warrant Buffet, 'If you take a great management team and you put them to a bad market, the reputation of the market will stay intact.' According to me, you need to have a good market and a good team. At the early or very early stage, you are generally betting on a team and on the fact that the team is going to make mid-core corrections and adjustments in the business over a period of time and will be flexible to do that. The market is important but the team is probably most important at this stage.
We have a small sub-set of our capital that would go into early stage company from an adoption stand point and revenue standpoint. For example, we were investors in Twitter before they generated meaningful revenue; we were investors in Tumbler and several other early stage companies. When we invested in early stage company, they have massive users, and in all those cases, there is a lot of adoption and a fantastic entrepreneur who has built the great product.
Once you have a lot of adoption of consumer product, there are different ways you can try to monetize. But if you try to monetize too early, you might explode out of adoption and the early stage for such companies are important to drive adoption.
Areas of focus within the Organization
The market that I have been active in is primarily three markets for a cause; e-commerce, data businesses and SaaS software. The firm has got a broader set and these are the places where I have been more active.
Within the firm, we have a large team of people who basically visit in-house business development group that spends their time identifying interesting markets. As a firm, we probably contact 23,000-30,000 companies and then make about 10 investments a year. One thing I am responsible for is running the recruitment team for all those people, as they are the first touch with most of the companies we work with and it is equally important to have the right people in those jobs.
The second thing and most important function is identifying new investments, structuring it and making those new investments, and serving on the board and providing support for the portfolio companies. I do manage a lot of the administrative functions as well and involved in fund raising.
Advice to Entrepreneurs
For startups, my first piece of advice would be to follow your passion. Money is an important bi-product, but startup is a very difficult thing to do. It is all consuming. You need to make a lot of sacrifice in your personal life. So it is very important that whatever you are doing is loved by you and you are very passionate about it.
The second is making sure you hire the best people. It is incredibly important to not just have a good idea but also a great team. And so make sure you stand yourself with people who are better than you. Third would be waiting as long as you can before you raise capital. Take your idea as far as you can. The most successful companies were built in the traditional method where capital was raised from the customers, and that used to be the first venture capital for them. Do not assume that you have to raise venture capital as soon as you have an idea.
For late stage entrepreneurs, by that point the company has some revenue and products that you found something you were passionate about. This is a point where it is important to constantly re-evaluate the team making sure you have a team to take the business to next level. The people in level one might not be the right people to take to level two, including you. Just make sure that the larger purpose is to drive long term objective of the company, and the only way is to set the best team. So constantly evaluate that you have the right people and even if you are eligible for the job.
The second is "Do not build a company to exit."Build a company like you are going to hold and run it forever. Make right long term decisions. It is very obvious to people when companies are built for exits and it is the way you drive for the best value.
(As told to Anamika Sahu)