The Midas of Mayfield

Date:   Friday , May 01, 2009

Navin Chaddha is Managing Director at Mayfield Fund, a 40 year old venture capital firm with $2.8B under management in the U.S. and $111M under management in India. This man with the Midas touch has invested in over 25 companies in the past of which 9 have had IPOs and 6 have been acquired. Some of these companies have become industry leaders in their categories, viz. Akamai in content delivery networks, Suzlon in wind energy, Tejas Networks in optical networking, Mimosa Systems in e-mail archiving, Makemytrip in Indian internet travel, Persistent Systems in offshore product development services, Gigya in portable and social web infrastructure, and Bharat Matrimony in Indian internet matrimonial listings.

For all of his investments, he has looked for one chief characteristic: the team. “It’s the team first and foremost for me,” says the venture capitalist, who invests in both early and growth stage opportunities in a variety of sectors including: energytech, internet, enterprise, technology enabled services and telecom in both U.S. and India.

He has an uncanny eye for understanding the pulse of an entrepreneur and his idea. No wonder, Chaddha, has a rather unique take on start-ups. The venture capitalist says that “start-ups don’t die of starvation, they die of indigestion.” As you speak to him, you realize that the man has a special love for analogies.

Chaddha looks for nimbleness and agility in entrepreneurs. “Dinosaurs never survive,” he says. “Entrepreneurs must continuously adapt and learn, rather than being inflexible about their ideas.” He also checks whether the entrepreneur has the ability to run a marathon, or is a sprinter. This is important, he says, for building a company that one starts as it might take two to three times longer than what is planned. Will the entrepreneur be able to hold his nerve and be at it till then? “I have a very simple calculation: whatever an entrepreneur quotes as the estimated time for building a product, I multiply it by two,” he says jokingly.

He also, incidentally, possesses deep knowledge about entrepreneurship (three time entrepreneur) and technology (has published over 30 technical papers and has over 35 issues patents), graduated at the top of his class from IIT Delhi, and received a fellowship from Stanford University to pursue graduate studies in electrical engineering.

Track Record

Chaddha has been consistently ranking among the top 15 dealmakers over the past few years, on the Forbes Magazine Midas List of the top 100 tech dealmakers. Some of his notable investments that had an IPO include Akamai, Northpoint Communications, Qwest Communications and Rhythms NetConnections in the U.S. and IL&FS Investsmart, Provogue and Suzlon Energy in India. Other successful ones that were acquired include: (acquired by News Corp), LVL7 Systems (acquired by Broadcom), and NeoPath Networks (acquired by Cisco Systems).

In addition, he was also a serial entrepreneur before becoming a VC—his first company, VXtreme, was acquired by Microsoft in 1997 and become Windows Media, the second, iBeam Broadcasting went public on NASDAQ in 2000, and the third, CPA2Biz is still private.

As a venture capitalist, he describes himself as the entrepreneur’s partner. “I am like the 12th man in a cricket team,” he says. Entrepreneurs, whose companies he has funded, describe him as someone who does not interfere in the day-to-day working of the company, but is always there to roll up his sleeves and get his hands dirty as when the need arises. “Navin is a real roll-up-your-sleeves kind of board member,” says Rehan Jalil, founder and CEO of Wichorus. He has effectively used his network to introduce us to wireless carriers and equipment vendors who are becoming our partners and customers.”

He does not believe in telling entrepreneurs in his fold what to do and wants them to ask him when they need help. “If I have to tell them what to do, then there is something wrong with the entrepreneur I funded or in my thinking that I know more than them,” he says. Sure, young first-time entrepreneurs do need a lot of guidance and mentoring. “And for that, I am always there,” he says. He surrounds his protégés, if we may call them that, with experts in the form of independent board members and advisors. “We chose to work with Navin over other venture capitalists because we could see he is an entrepreneur’s partner,” said Rooly Eleizerov, founder of Gigya. “A great example was how Navin counseled us to preemptively raise financing in summer 2008 before we needed it, and with the market meltdown that followed, left us in a strong cash position to fund our growth.” However he wants them to use capital efficiently, like he did back in his entrepreneurial days.

First hand entrepreneurial

Chaddha was pursuing his PhD at Stanford University during 1992-1995. The topic of his thesis was streaming video over the internet. The year was 1995, when the internet was taking its baby steps into our lives. The germ for the thesis, and, as it would turn out, his first company, had come from what he was witnessing around him. Stanford University’s distance education program was immensely popular, and classes were broadcast live over a cable network to students working in corporations. “What if this can be done over the internet,” he thought; people would be able to take their classes at a time and place of their choice. It would make things so much easier.

He was approached by some VCs, who were keen that he starts a company, based on his thesis. Start a company he did as CTO, called VXtreme, in December of 1995; however, it was without VC money initially. “We raised $500,000 from angel investors as didn’t want to raise too much money and launched the product with that financing. We raised the first VC round of funding in late 1996,” he recalls. A lesson in capital efficiency was the crucial point there; it helps reap rich rewards later, he says.
He says the choice of investors who came in during the first round of VC funding was crucial. “It is important to choose the right investors as against looking simply for the highest valuation.” The investors in VXtreme (SoftBank, Cisco and Informix) would not only provide money, but also open doors to new markets. “We felt SoftBank would help us reach customers in Asia, Cisco would take us to enterprise customers and Informix to telecom customers,” he recalls. VXtreme was acquired by Microsoft in July 1997, for approximately $100 million in Microsoft stock. It was rebranded as Windows Media and put on Microsoft’s Windows for desktops as well as server offerings. “I was excited about the impact our technology would have by being available on 95% percent of the world PCs,” he recalls. He became one of the youngest executives at Microsoft post the acquisition of VXtreme.

Based on his VXtreme experience, he advises entrepreneurs to check out the investment portfolio of prospective VCs; figure out if they can be a value-add investor and take them to the early customers and partners as it makes a big difference. Today as an investor he makes sure he practices this philosophy and networks relentlessly with potential customers and business partners for his companies. Like T.M. Ravi, founder and CEO of Mimosa Systems said, “Navin has introduced to us several strategic partners with whom we are building alliances to take our company to the next level.”

VXtreme served as a good learning ground for Chaddha on market timing. It was focused on video streaming in 1996. They decidedly avoided audio only streaming as thought it was a commodity, and focused on video given that broadband was projected to rule the roost in a matter of a year. But broadband penetration took much longer, Chaddha realized audio only streaming was an opportunity lost and felt they should have done both at VXtreme.

Once VXtreme product shipped as Windows Media in early 1998, Chaddha began thinking: “if cable companies deliver video, telecom carriers deliver voice, why can’t you stream software over the internet? Isn’t it time for voice, video and data convergence,” he said to himself back then.

He broached the idea of “applications on demand” to the senior management of Microsoft, and shortly was given the responsibility of putting together the strategy and offerings for telecom and wireless carriers, ISPs, network equipment providers and hosting companies. It gave way to a new channel for the company, and in a few months time, Chaddha and his team started forming strategic alliance with Qwest Communications and over 25 hosting providers to offer Microsoft applications on demand. He then was involved in putting together Microsoft’s broadband strategy leading to partnerships and investments in Rhythms Netconnections, Northpoint Communications and Akamai. He also tried creating a joint venture between North American telecom carriers and Microsoft to deliver broadband internet over DSL.

Chaddha also co-founded iBeam Broadcasting that created a video content delivery network by putting caching servers at the edge of the internet to reduce cost and improve quality of experience for streaming media. iBeam grew quickly into an industry leader and went public on NASDAQ in 2000 and was acquired by Williams Communications in 2001.

In 1999 he founded Rivio; a small business focused software as a services company and served as its CEO. Rivio merged with CPA2Biz in late 2001 and he ran the combined companies until joining Mobius Venture Capital in 2003 as an entrepreneur in residence. CPA2Biz has grown to be the largest portal and e-commerce site for CPAs and through them reaches small businesses and offers various products and services to them.

At Mobius he developed a passion for India and spent all his time understanding the market opportunities there which he leverages as a VC to do this day. He clocked a lot of miles in 18 months during 2003-2004 by living on planes between U.S. and India!

Chaddha’s entrepreneurial experience helps him a lot in winning deals. “He has been a successful serial entrepreneur himself and understands very well what it takes to build startups, which attracts entrepreneurs like me to work with him,” said Rajeev Chawla, founder of NeoPath Networks (acquired by Cisco).

Chaddha’s rules of investing

Chaddha puts startups through a few key filters: potential for market disruption, innovation, pain-killer/vitamin test, and capital efficiency.

1. Market disruption: He identifies whether the idea will result in a company that will either:

a. Create potentially a big new market: Like one of his portfolio companies Wichorus is creating a market for core networking infrastructure products for 4G wireless (WiMAX and LTE), or

b. Disrupt an existing market: Like one of his portfolio companies Tejas Networks is disrupting an existing $10B market for optical networking equipment, and Akamai, which disrupted a $10B market for web hosting.

2. Innovation: He looks for innovation at any of these levels:
a. Technology: Deep technical advantage that would take incumbents several years to build. For example Neopath Networks provided network level NAS virtualization and was acquired by Cisco.
b.Business Model: Business model change that would require the incumbents to cannibalize their existing model. One of his portfolio companies CPower has a unique business model where it pays the enterprise customers instead of charging them for providing energy management services. It monetizes its service by getting paid by the utlitity companies for reducing energy demand at peak loads.

c. Customer Acquisition: An example of this from his portfolio would be Gigya, which, like open source software companies, offers its distribution and analytics technologies for free and monetizes by building an advertising network.

3. Pain Killer/ Vitamin: “Pain killers sell, vitamins don’t,” he says, adding that the first one is a necessity and the second one a luxury. He advises entrepreneurs to spend a lot of time with many potential customers rather than a few to ensure their solution is a pain killer across a broad set of customers in the case of companies selling to businesses. In case of consumer focused companies he wants them to get to market quickly, learn and adapt continuously and feels the best ones do this on a daily basis.

Rummaging his portfolio of investments, Chaddha says Wide Orbit qualifies as a classic pain killer. It provides software for TV and radio stations to run their media business and they can’t operate without something like Wide Orbit. While scouting for examples of vitamins, he pauses, and then mentions Rivio which was set up in 1999 with the aim of providing web-based back office applications to small businesses with less than 100 employees, which could not afford solutions from Oracle, SAP, and PeopleSoft et al. nor had the expertise to implement them. He painfully learnt that small companies were laggards on adoption of new technologies. “In this case, the pain was there; customers wanted to get rid of manual back office work, but our software as a service offering, was not the right solution. It was only a vitamin as they preferred outsourcing the function to someone like an ADP,” he says.

4. Capital Efficiency: He says startups need to be extremely capital efficient in today’s environment as it takes longer and more capital to build them compared to mid 90s and the exit values have gone down significantly.

Global Mindset and India Focus

Chaddha firmly believes there are tremendous opportunities in serving customers in emerging markets like India and China. As a result he spearheaded the formation of a dedicated $111M fund for investing in India and hired two Managing Directors who are based in India. Mayfield also has a partner fund, GSR Ventures for investing in China. For his global expertise and vision the World Economic Forum named him as a Young Global Leader in 2009.
Being a pragmatist and not getting carried away by just early stage technology opportunities in India he has the Mayfield India team focused on investing in mid-market companies ($10-$50M in revenues) around 3 key themes (a) Consumer – companies benefiting from the exponential growth in domestic demand, (b) Infrastructure ancillaries – companies that benefit from the large infrastructure spend, and (c) globally competitive businesses - including technology and IT enabled companies.

Examples from his portfolio that serve the Indian market include: Bharat Matrimony, IL&FS Investsmart, MakeMyTrip, Persistent Systems, Suzlon, and Tejas Networks.

Energytech and not just Cleantech

The man doesn’t stop going after mega opportunities and coming up with new ideas for investments. He is now spending half of his time on the Energy Industry. He says, “The energy industry has revenues of $6 trillion worldwide with over 4 billion users and presents one of the biggest opportunities for entrepreneurs.”

According to him, the explosive growth of non-OECD economies has resulted in a significant rise in global energy demand, which is forecasted to increase by as much as 45% by 2030. Meeting this new demand will command an estimated $26 trillion in supply-infrastructure upgrades; meeting this demand without increasing our current CO2 emissions rates creates an additional $9.3 trillion opportunity. Despite the torrid pace of demand growth, the composition of the global fuel mix has, and will, remain relatively unchanged, with fossil fuels accounting for over 80% global energy supply, and less than 2 percent of energy needs being met by next generation renewable (solar, wind and biofuels) over the next 10 years.

Chaddha says further, “The venture capital industry has certainly been cognizant of these issues, and has taken a leading role in the development of clean supply-side solutions, dominated by solar generation and biofuels. However he believes an end-to-end approach is required to develop solutions that range the entire energy cycle: supply, distribution, and demand.” As a result he is looking at opportunities in the smart grid, energy storage, green building materials, lighting, and demand response segments.

He is encouraging entrepreneurs with software, networking, semiconductors, materials, and systems backgrounds to look at these opportunities. In short he wants to bring IT expertise to the Energy industry.

Long term Perspective

Meanwhile, deal-making has touched record lows in the last two quarters, following the global economic downturn and the volume of IPOs and M&A is the lowest in the last decade.

But, if Chaddha is to be believed, this is the time to invest. He says, “Economic downturns are a great time to create build-to-last companies. One has to take a long term perspective and learn from history. In downturns established companies stop investing in new opportunities and VC funding slows down creating less competition for new startups.”

He elucidate his views by providing examples of great companies that were built in economic downturns, “GE was built during the great depression, HP was started during the Second World War period, Amgen was started in the recession of 1980, Cisco got its first funding in black October of 1987, and Google was built post the Internet bubble burst of 2000.”

We asked him finally what drives him. His answer, “I want to change the way people work, live and play. The path I have chosen for that is to partner with visionary entrepreneurs and help create the next generation of industry leading companies.”


Mayfield Fund is a venture capital firm with a 40 year track record of venture investing. The firm has $2.8 billion under management and is currently investing Mayfield XIII, a $395 million fund for the U.S., and Mayfield India 1, a $111 million fund for India. The firm also works with GSR Ventures, its China partner, whose current fund GSR III is capitalized at $383 million. To date, Mayfield has invested in more than 500 companies, of which over 105 have gone public and another 100 have been acquired.

Mayfield XIII invests in companies across all stages in the U.S. - seed, early and growth. The U.S. fund is directed toward the Energy Tech, Enterprise Applications and Services, Infrastructure Software and Systems, Internet and Digital Media, Telecom, Mobile and Semiconductor segments.

Mayfield India fund invests in mid-market companies ($10-$50M in revenues) in the following segments: Consumer services, Infrastructure equipment and services, Internet, Service Provider, Energy Tech, Manufacturing and Technology enabled services.
Mayfield's notable investments include: 3COM, Amgen, Genentech, Tandem, LSI Logic, Quantum, Applied Biosystems, Compaq Computer, Cypress Semiconductor, Silicon Graphics, Cadence, MIPS, Arbor Software, Citrix Systems, Echelon, Legato Systems, Pure Software, S3, Sandisk, Broadvision, Nuance, Concur, Intuitive Surgical Devices, Redback Networks, 3PAR Data, Avanex, Qtera, TIBCO, webMethods, Snapfish, Peribit, Mobile365 and Jotspot.